**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

----

**FORM 10-K**

**ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**Forthe fiscal year ended December 28, 2006**

**Commissionfile number: 001-31315**

----

**Regal Entertainment Group**

(Exact name of Registrantas Specified in its Charter)

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

 

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

----

Securities registeredpursuant to Section 12(b) of the Act: 

| **Title of each class**                     |   | **Name of  each exchange on which registered** |
|---------------------------------------------|--------|------------------------------------------------|
| Class A  Common Stock, $.001 par value |   | New York Stock  Exchange                       |

 

Securities registeredpursuant to Section 12(g) of the Act: **None**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.   Yes x    No o

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.   Yes o    No x

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 mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment ofthis Form 10-K:  o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and larger accelerated filer” in Rule 12b-2 of the ExchangeAct). (Check one): 

| Large accelerated filer x |   | Accelerated  filer o |   | Non-accelerated  filer o |
|--------------------------------|--------|---------------------------|--------|-------------------------------|

 

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

The aggregate market valueof the voting and non-voting common equity held by non-affiliates of theregistrant on June 29, 2006, computed by reference to the closing pricefor the registrant’s Class A common stock on the New York Stock Exchangeon such date was $1,368,988,512 (66,455,753  shares at a closing price per share of$20.60).

Shares of Class Acommon stock outstanding—126,999,053 shares at February 21, 2007

Shares of Class Bcommon stock outstanding—23,908,639 shares at February 21, 2007

**DOCUMENTSINCORPORATED BY REFERENCE**

Certain portions of theregistrant’s definitive proxy statement to be used in connection with its 2007Annual Meeting of Stockholders and to be filed within 120 days of December 28,2006 are incorporated by reference into Part III, Items 10-14,of this report on Form 10-K.

 

----

**TABLE OF CONTENTS**

|               | ** ** | **PART I**                                                                                                        |   |   |
|---------------|------------|------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1.  |       | BUSINESS                                                                                                               |   | 4      |
|          |       | THE COMPANY                                                                                                            |   | 4      |
|          |       | DESCRIPTION OF BUSINESS                                                                                                |   | 4      |
|          |       | INDUSTRY  OVERVIEW AND TRENDS                                                                                          |   | 7      |
|          |       | THEATRE OPERATIONS                                                                                                     |   | 8      |
|          |       | NATIONAL CINEMEDIA JOINT VENTURE                                                                                       |   | 10     |
|          |       | FILM DISTRIBUTION                                                                                                      |   | 11     |
|          |       | FILM EXHIBITION                                                                                                        |   | 12     |
|          |       | CONCESSIONS                                                                                                            |   | 12     |
|          |       | COMPETITION                                                                                                            |   | 13     |
|          |       | MARKETING  AND ADVERTISING                                                                                             |   | 13     |
|          |       | MANAGEMENT INFORMATION SYSTEMS                                                                                         |   | 14     |
|          |       | SEASONALITY                                                                                                            |   | 14     |
|          |       | EMPLOYEES                                                                                                              |   | 14     |
|          |       | REGULATION                                                                                                             |   | 14     |
|          |       | FORWARD-LOOKING  STATEMENTS                                                                                            |   | 15     |
| Item 1A. |       | RISK FACTORS                                                                                                           |   | 15     |
| Item 1B. |       | UNRESOLVED STAFF COMMENTS                                                                                              |   | 21     |
| Item 2.  |       | PROPERTIES                                                                                                             |   | 21     |
| Item 3.  |       | LEGAL PROCEEDINGS                                                                                                      |   | 21     |
| Item 4.  |       | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                    |   | 21     |
|          |       | EXECUTIVE OFFICERS OF THE REGISTRANT                                                                                   |   | 22     |
|          | ** ** | **PART II**                                                                                                       |   |   |
| Item 5.  |       | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |   | 23     |
| Item 6.  |       | SELECTED  FINANCIAL DATA                                                                                               |   | 24     |
|          |       | SELECTED HISTORICAL FINANCIAL DATA FOR REGAL  ENTERTAINMENT GROUP                                                      |   |   |
|          |       | SELECTED HISTORICAL FINANCIAL AND OTHER DATA FOR  UNITED ARTISTS                                                       |   |   |
| Item 7.  |       | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS                            |   | 25     |
|          |       | Overview And Basis Of Presentation                                                                                     |   | 26     |
|          |       | Results Of Operations                                                                                                  |   | 27     |
|          |       | Liquidity And Capital Resources                                                                                        |   | 39     |
|          |       | Contractual Cash Obligations and Commitments                                                                           |   | 43     |
|          |       | Critical  Accounting Estimates                                                                                         |   | 46     |
|          |       | Quarterly Results                                                                                                      |   | 48     |
|          |       | Inflation                                                                                                              |   | 49     |
|          |       | Seasonality                                                                                                            |   | 49     |
|          |       | Recent Accounting Pronouncements                                                                                       |   | 49     |
|          |       | Off-Balance  Sheet Arrangements                                                                                        |   | 49     |
| Item 7A. |       | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK                                                            |   | 49     |

2

----

 

| Item 8.  |       | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                     |   | 50     |
|---------------|------------|-------------------------------------------------------------------------------------------------|--------|--------|
| Item 9.  |       | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE           |   | 93     |
| Item 9A. |       | CONTROLS AND PROCEDURES                                                                         |   | 93     |
| Item 9B. |       | OTHER  INFORMATION                                                                              |   | 93     |
|          | ** ** | **PART III**                                                                               |   |   |
| Item 10. |       | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                          |   | 94     |
| Item 11. |       | EXECUTIVE COMPENSATION                                                                          |   | 94     |
| Item 12. |       | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS |   | 94     |
| Item 13. |       | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND  DIRECTOR INDEPENDENCE                      |   | 94     |
| Item 14. |       | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                          |   | 94     |
|          | ** ** | **PART IV**                                                                                |   |   |
| Item 15. |       | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                         |   | 95     |
| SIGNATURES    |       | 101                                                                                             |

 

3

----

**REGAL ENTERTAINMENTGROUP**

**PART I**

*Theinformation in this Form 10-K contains certain forward-lookingstatements, including statements related to trends in the Company’s business.The Company’s actual results may differ materially from the results discussed inthe forward-looking statements. Factors that might cause such a differenceinclude those discussed in “Business”, “Risk Factors”, and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” aswell as those discussed elsewhere in this Form 10-K.*

**Item 1.**                        BUSINESS

**THE COMPANY**

Regal Entertainment Group, a Delaware corporationorganized on March 6, 2002 (“we,” “us,” “our,” the “Company” or “Regal”),is the parent company of Regal Entertainment Holdings, Inc. (“REH”), whichis the parent company of Regal Cinemas Corporation (“Regal Cinemas”) and itssubsidiaries. Regal Cinemas’ subsidiaries include Regal Cinemas, Inc. andits subsidiaries, which include Edwards Theatres, Inc. (“Edwards”), RegalCineMedia Corporation (“Regal CineMedia” or “RCM”), Hoyts Cinemas Corporation (“Hoyts”)and United Artists Theatre Company (“United Artists”). The terms Regal or theCompany, REH, Regal Cinemas, United Artists, Edwards, Regal CineMedia and Hoytsshall be deemed to include the respective subsidiaries of such entities whenused in discussions included herein regarding the current operations or assetsof such entities.

We acquired Regal Cinemas, United Artists, Edwards andRegal CineMedia through a series of transactions on April 12, 2002. For adiscussion of the transactions resulting in our acquisition of thesesubsidiaries, see Note 1 to the consolidated financial statements includedin Part II, Item 8 of this Form 10-K. Each of the theatrecircuits operated by Regal Cinemas, United Artists and Edwards emerged frombankruptcy reorganization under Chapter 11 of Title 11 of the United StatesCode prior to our acquisition of such entities. For a discussion of thesebankruptcy proceedings, see Note 1 to the consolidated financial statementsincluded in Part II, Item 8 of this Form 10-K.

Our Internet address iswww.regalentertainmentgroup.com. Our annual reports on Form 10-K,quarterly reports on Form 10-Q and current reports on Form 8-K,and any amendments to these reports, are available free of charge on ourInternet website under the heading “Investor Relations” as soon as reasonablypracticable after we electronically file such material with, or furnish it to,the Securities and Exchange Commission.

The Company manages itsbusiness under one reportable segment: theatre exhibition operations.

**DESCRIPTION OFBUSINESS**

**Overview**

We operate the largestand most geographically diverse theatre circuit in the United States,consisting of 6,403 screens in 539 theatres in 39 states and the District ofColumbia as of December 28, 2006, with over 247 million annualattendees for the fiscal year ended December 28, 2006. Our geographicallydiverse circuit includes theatres in all of the top 25 and 43 of the top 50U.S. designated market areas. We primarily operate multi-screen theatres andhave an average of 11.9 screens per location, which is well above the NorthAmerican motion picture exhibition industry 2005 average of 6.2 screens perlocation. We develop, acquire and operate multi-screen theatres primarily inmid-sized metropolitan markets and suburban growth areas of larger metropolitanmarkets throughout the U.S.

**On March 29,2005, Regal and AMC Entertainment Inc. (“AMC”) announced the combinationof RCM and AMC’s subsidiary, National Cinema Network, Inc., into a jointventure company known as**

4

----

**National CineMedia, LLC (“National CineMedia”). On July 15,2005, Cinemark, Inc. (“Cinemark”), through a wholly owned subsidiary,joined the National CineMedia joint venture. Since its inception, NationalCineMedia has primarily concentrated its efforts on in-theatre advertising,business meetings and non-feature film content distribution. See “NationalCineMedia Joint Venture” under Part I, Item I of this Form 10-Kfor further discussion of National CineMedia. On February 13, 2007, NCMInc., a newly formed entity that serves as the sole manager of NationalCineMedia, completed the initial public offering, or IPO, of its common stock.NCM Inc. sold 38 million shares of its common stock for $21 per share in theIPO, less underwriting discounts and expenses. Because NCM Inc.’s Certificateof Incorporation requires that NCM Inc. at all times maintain a one-to-oneratio between the number of common units of National CineMedia owned by NCM Inc.and the number of outstanding shares of common stock of NCM Inc., NCM Inc. useda portion of the net proceeds from the IPO to acquire newly issued common unitsfrom National CineMedia. In addition, National CineMedia paid the net proceedsto each of Regal, AMC and Cinemark in exchange for modifying paymentobligations for access to their respective theatres, for which Regal received apayment of $281 million. Upon the closing of the IPO, National CineMediaentered into a $725 million term loan facility, the net proceeds of which wereused to redeem preferred units issued to each of Regal, AMC and Cinemark on apro rata basis pursuant to a recapitalization of National CineMedia prior tocompletion of the IPO. As discussed in Note 14 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K, wereceived $315.1 million as a result of the preferred unit redemption. At theclosing of the IPO, the underwriters exercised their over-allotment option topurchase an additional 4 million shares of common stock of NCM Inc. at theinitial offering price of $21 per share, less underwriting discounts andcommissions. In connection with this over-allotment option exercise, Regal, AMCand Cinemark each sold to NCM Inc. common units of National CineMedia on a prorata basis at the initial offering price of $21 per share, less underwritingdiscounts and expenses. Regal sold 1,637,826 common units to NCM Inc. forproceeds of $32.2 million, and upon completion of this sale of common units,Regal held 21,230,712 common units of National CineMedia, or a 22.6% interest.After the payment of current taxes, we estimate net proceeds from thesetransactions to total approximately $445 million. We are currently exploringalternatives for using these proceeds, and may use some or all of the proceedsfor strategic acquisitions or to return value to stockholders through anextraordinary dividend, stock repurchases or other corporate uses.**

For the fiscal year ended December 28,2006, we reported total revenues, income from operations and net income of$2,598.1 million, $308.5 million and $86.3 million,respectively. In addition, we generated $304.4 million of cash flows fromoperations during the fiscal year ended December 28, 2006. EBITDA(earnings before interest, taxes, depreciation and amortization) wasapproximately $466.3 million, or 17.9% of total revenues, for the yearended December 28, 2006. As a result of our focus on enhancing revenues,operating efficiently, strictly controlling theatre-level costs and successfullyintegrating accretive acquisitions we achieved what management believes areamong the highest EBITDA margins in the domestic motion picture exhibitionindustry. We believe EBITDA provides a useful measure of liquidity andfinancial performance for our investors because EBITDA is an industrycomparative measure of liquidity and financial performance prior to the paymentof interest and taxes and because it is a primary financial measure used bymanagement to assess our performance and liquidity. EBITDA is not a measurementof financial performance or liquidity under accounting principles generallyaccepted in the United States of America and should not be considered inisolation or construed as a substitute for net income or other operations dataor cash flow data prepared in accordance with accounting principles generallyaccepted in the United States of America for purposes of analyzing ourprofitability or liquidity. In addition, not all funds depicted by EBITDA areavailable for management’s discretionary use. For example, a substantialportion of such funds are subject to contractual restrictions and functionalrequirements to pay debt service, fund necessary capital expenditures and meetother commitments from time to time as described in more detail below. EBITDA,as calculated, may not be comparable to similarly titled measures reported byother companies. See Part II, Item 7, of this Form 10-K, underthe caption 

5

----

“Resultsof Operations—EBITDA” for a tabular reconciliation of net income to EBITDA andnet cash provided by operating activities.

**Business Strategy**

Our business strategy is to continue to enhance ourposition in the motion picture exhibition industry by capitalizing on prudentindustry consolidation opportunities, realizing selective growth opportunitiesthrough new theatre construction and expanding and upgrading of our existingasset base. This strategy should enable us to continue to produce the free cashflow and financial flexibility necessary to provide meaningful value to our stockholders.Key elements of our strategy include:

***MaximizingStockholder Value.******  ***We believe that our cashdividends are an efficient means of distributing value to our stockholders.Since our initial public offering in May 2002 through December 28,2006, we have returned over $2.0 billion to our stockholders in the formof cash dividends.

***Pursuing StrategicAcquisitions.******  ***We believe that our acquisitionexperience and capital structure position us well to take advantage of futureacquisition opportunities. We intend to selectively pursue accretive theatreacquisitions that enhance our asset base and improve our consolidated operatingresults.

***Pursuing Selective Growth Opportunities.******  ***We intend toselectively pursue expansion opportunities through new theatre constructionthat meets our strategic and financial return criteria. We also intend toenhance our theatre operations by selectively expanding and upgrading existingproperties in prime locations.

**CompetitiveStrengths**

We believe that the following competitive strengthsposition us to capitalize on future opportunities:

***Industry Leader.******  ***We are thelargest domestic motion picture exhibitor operating 6,403 screens in 539theatres in 39 states and the District of Columbia. We believe that the qualityand size of our theatre circuit is a significant competitive advantage fornegotiating attractive national contracts and generating economies of scale. Webelieve that our market leadership positions us to capitalize on favorableattendance trends and attractive consolidation opportunities.

***Superior ManagementDrives Strong Operating Margins.******  ***We havedeveloped a proven operating philosophy focused on efficient operations andstrict cost controls at both the corporate and theatre levels. At the corporatelevel, we are able to capitalize on our size and operational expertise toachieve economies of scale in purchasing and marketing functions. We havedeveloped an efficient purchasing and distribution supply chain that generatesfavorable concession margins. At the theatre level, management devotessignificant attention to cost controls through the use of detailed managementreports and performance-based compensation programs to encourage theatremanagers to control costs effectively and increase concession sales.

***Proven Acquisitionand Integration Expertise.******  ***We havesignificant experience identifying, completing and integrating acquisitions oftheatre circuits. We have demonstrated our ability to enhance revenues andrealize operating efficiencies through the successful acquisition andintegration of 17 theatre circuits since 1995. We have generally achievedimmediate cost savings at acquired theatres and improved their profitabilitythrough the application of our consolidated operating functions and keysupplier contracts.

***Quality TheatrePortfolio.******  ***We believe that we operate one of themost modern theatre circuits among major motion picture exhibitors. As of December 28,2006, approximately 73% of our screens were located in theatres featuringstadium seating. As of December 28, 2006, approximately 83% of our screenswere located in theatres with 10 or more screens. Our theatres have an averageof 11.9 screens per location, which is well above the North American motionpicture exhibition industry 2005 average of 6.2 screens per 

6

----

location. We believe thatour modern theatre portfolio coupled with our operating margins should allow usto generate significant cash flows from operations.

***Investment in National CineMedia.******  ***National CineMedia operatesthe largest digital in-theatre network in North America representingapproximately 13,000 U.S. and Canadian theatres screens (of which 11,000 aredigitally equipped) and reaching over 500 million movie guests annually.National CineMedia utilizes its in-theatre network to distribute advertising,facilitate meetings and corporate events and distribute live and pre-recordedconcerts, sporting events and other entertainment programming content. Webelieve our investment in National CineMedia will generate incremental valuefor our stockholders.

**Dividend Policy**

We believe that payingdividends on our shares of common stock is important to our stockholders. Tothat end, during fiscal 2006, we paid to our stockholders four quarterly cashdividends of $0.30 per share, on each outstanding share of our Class A andClass B common stock, or approximately $179.6 million in theaggregate. On February 8, 2007, we declared a cash dividend of $0.30 pershare on each outstanding share of Class A and Class B common stock.The dividend is payable on March 19, 2007 to our stockholders of record onMarch 9, 2007. We, at the discretion of the board of directors and subjectto applicable 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. Dividends are considered quarterly and may be paid only whenapproved by our board of directors.

**INDUSTRY OVERVIEWAND TRENDS**

The domestic motion picture exhibition industry is amature business which has historically maintained steady long-term growth inrevenues and attendance. Since 1965, total box office revenues have grown at acompound annual growth rate of approximately 6% with annual attendance ofapproximately 1.4 billion attendees in 2005. Against this background ofsteady long-term growth in revenues and attendance, the exhibition industry hasexperienced periodic short-term increases and decreases in attendance and,consequently, box office revenues. We expect the cyclical nature of thedomestic motion picture exhibition industry to continue for the foreseeablefuture.

Over the past decade, the domestic motion pictureexhibition industry experienced a period of extraordinary new theatreconstruction. From 1996 to 1999, the number of screens increased at a compoundannual growth rate of approximately 8%, which was more than double the industry’sscreen growth rate of approximately 3.5% from 1965 to 1995. This industryexpansion was primarily driven by major exhibitors upgrading their asset basesto an attractive megaplex format, which typically includes 10 or more screensper theatre and features such as stadium seating, improved projection qualityand superior sound systems. Generally, a modern megaplex is preferred by patronsover a sloped-floor multiplex theatre, the predominant theatre-type built priorto 1996. We believe theatres larger than the current 10 to 18 screen megaplexare not able to generate attractive returns in most locations because of thesubstantial market suitability requirements to generate a level ofprofitability similar to the current megaplex format. We also believe thatanother evolution of theatre formats beyond the current megaplex is unlikely tooccur in the foreseeable future.

More recently, the domestic motion picture exhibitionindustry has experienced increased competition from other methods of deliveringfilms to consumers, including cable television, in-home video and DVD,satellite and pay-per-view services and downloads via the Internet.Traditionally, when motion picture distributors licensed their films to thedomestic exhibition industry, they refrained from licensing their 

7

----

products to other deliverychannels for a period of time, commonly called the theatrical release window.Over the past several years, the average period between a film’s theatricalrelease and its in-home video or DVD release has shortened. We believe that thecontraction in the average theatrical release window reflects the shorterperiod of time in which the average motion picture is able to generatemeaningful revenue in its theatrical exhibition license period. As aconsequence, we believe that the shrinking of the theatrical release windowover the past five to six years has not represented a material change in thestudio/exhibition distribution model. Fundamentally, we believe thatmovie-going is a convenient, affordable and attractively priced form ofout-of-home entertainment, which, on an average price per patron basis,continues to compare favorably to other out-of-home entertainment alternatives,such as concerts and sporting events.

We believe that a material contraction of thetheatrical release window could significantly dilute the consumer appeal of theout-of-home motion picture offering. As a result, we continue to monitor thestatus of the theatrical release window during our film exhibition decisions.Our discussions with several film studios lead us to believe that these studioscontinue to realize the value of maintaining meaningful theatrical releasewindows for both distribution and exhibition companies. Consequently, webelieve a further material contraction in the theatrical release window isunlikely, but should such a contraction occur we believe that it couldsignificantly impact our business, financial condition and results ofoperations.

The domestic motion picture industry is in the early stages ofconversion from film-based media to electronic based media, including thedistribution of feature films in a digital format rather than a 35 mm format.There are a variety of constituencies associated with this anticipated change,which may significantly impact industry participants, including contentproviders, distributors, equipment providers and exhibitors. To that end, we,along with AMC and Cinemark, have entered into a joint venture company known asDigital Cinema Implementation Partners LLC, a Delaware limited liabilitycompany (“DCIP”), to explore the possibility of implementing digital cinema inour theatres and to create a financing model and establish agreements withmajor motion picture studios for the implementation of digital cinema. Travis Reid,former president and chief executive officer of Loews Theatres, is the chiefexecutive officer of DCIP and DCIP has engaged J.P. Morgan Securities Inc. toassist with the review of a business plan for digital cinema and withidentifying and evaluating potential financing and capital structurealternatives. In addition, DCIP has entered into a digital cinemaservices agreement with National CineMedia for purposes of assisting DCIP inthe development of digital cinema systems. Future digital cinema developmentswill be managed by DCIP, subject to the approval of us, AMC and Cinemark.

**THEATRE OPERATIONS**

We operate the largest theatre circuit in the UnitedStates with 6,403 screens in 539 theatres in 39 states and the District ofColumbia as of December 28, 2006. We operate theatres in all of the top 25and 43 of the top 50 U.S. designated market areas, which include locations insuburban growth areas. We target prime locations with excellent access tolarge, high patron-traffic areas. We operate our theatre circuit using ourRegal Cinemas, United Artists and Edwards brands through our wholly ownedsubsidiaries.

We primarily operate multi-screen theatres. Ourmulti-screen theatre complexes typically contain 10 to 18 screens, each withauditoriums ranging from 100 to 500 seats. As a result, our theatres appeal toa diverse group of patrons because we offer a wide selection of films andconvenient show times. In addition, many of our theatres feature modernamenities such as wall-to-wall screens, digital stereo surround-sound,multi-station concessions stands, computerized ticketing systems, plush stadiumseating with cup holders and retractable armrests, neon-enhanced interiors andexteriors and video game areas adjacent to the theatre lobby.

8

----

Our modern, multi-screen theatres are designed toincrease profitability by optimizing revenues per square foot and reducing thecost per square foot of operation. We vary auditorium seating capacities withinthe same theatre, allowing us to exhibit films on a more cost effective basisfor a longer period of time by shifting films to smaller auditoriums to meetchanging attendance levels. In addition, we realize significant operatingefficiencies by having common box office, concessions, projection, lobby andrestroom facilities, which enables us to spread some of our costs, such aspayroll, advertising and rent, over a higher revenue base. We stagger movieshow times to reduce staffing requirements and lobby congestion and to providemore desirable parking and traffic flow patterns. We also actively monitorticket sales in order to quickly recognize demand surges, which enables us toadd seating capacity quickly and efficiently. In addition, we believe thatoperating a theatre circuit consisting primarily of modern theatres enhancesour ability to attract patrons.

Thefollowing table details the number of locations and theatre screens in ourtheatre circuit ranked by the number of screens in each state and the Districtof Columbia as of December 28, 2006: 

| **State**      | ** ** | ** ** | ** ** | **Locations** | ** ** | **Number   of Screens** | ** ** |
|----------------|------------|------------|------------|---------------|------------|------------------------------|------------|
| California     |       |       | 99         |          |       |                         | 1,154      |   |   |
| Florida        |       |       | 51         |          |       |                         | 712        |   |   |
| New York       |       |       | 49         |          |       |                         | 525        |   |   |
| Washington     |       |       | 32         |          |       |                         | 325        |   |   |
| Virginia       |       |       | 26         |          |       |                         | 292        |   |   |
| Pennsylvania   |       |       | 23         |          |       |                         | 287        |   |   |
| Ohio           |       |       | 22         |          |       |                         | 281        |   |   |
| Oregon         |       |       | 22         |          |       |                         | 217        |   |   |
| Texas          |       |       | 21         |          |       |                         | 287        |   |   |
| Georgia        |       |       | 15         |          |       |                         | 221        |   |   |
| North Carolina |       |       | 15         |          |       |                         | 165        |   |   |
| Massachusetts  |       |       | 12         |          |       |                         | 129        |   |   |
| Tennessee      |       |       | 12         |          |       |                         | 156        |   |   |
| New Jersey     |       |       | 12         |          |       |                         | 155        |   |   |
| Maryland       |       |       | 13         |          |       |                         | 166        |   |   |
| South Carolina |       |       | 12         |          |       |                         | 151        |   |   |
| Colorado       |       |       | 12         |          |       |                         | 124        |   |   |
| Nevada         |       |       | 9          |          |       |                         | 118        |   |   |
| New Mexico     |       |       | 7          |          |       |                         | 58         |   |   |
| Mississippi    |       |       | 7          |          |       |                         | 56         |   |   |
| Indiana        |       |       | 6          |          |       |                         | 82         |   |   |
| Louisiana      |       |       | 6          |          |       |                         | 60         |   |   |
| New Hampshire  |       |       | 6          |          |       |                         | 51         |   |   |
| Idaho          |       |       | 5          |          |       |                         | 72         |   |   |
| Alabama        |       |       | 5          |          |       |                         | 64         |   |   |
| Connecticut    |       |       | 5          |          |       |                         | 57         |   |   |
| Alaska         |       |       | 5          |          |       |                         | 43         |   |   |
| Illinois       |       |       | 4          |          |       |                         | 67         |   |   |
| Hawaii         |       |       | 4          |          |       |                         | 47         |   |   |
| Maine          |       |       | 4          |          |       |                         | 38         |   |   |
| Minnesota      |       |       | 3          |          |       |                         | 43         |   |   |
| Missouri       |       |       | 2          |          |       |                         | 36         |   |   |
| Delaware       |       |       | 2          |          |       |                         | 33         |   |   |
| Michigan       |       |       | 2          |          |       |                         | 22         |   |   |

9

----

 

| West Virginia        |   |       | 2       |   |       |       | 22        |   |   |
|----------------------|--------|------------|---------|--------|------------|------------|-----------|--------|--------|
| Arizona              |   |       | 2       |   |       |       | 21        |   |   |
| Arkansas             |   |       | 2       |   |       |       | 20        |   |   |
| Kentucky             |   |       | 1       |   |       |       | 16        |   |   |
| Wisconsin            |   |       | 1       |   |       |       | 16        |   |   |
| District of Columbia |   |       | 1       |   |       |       | 14        |   |   |
| Total                |   | ** ** | **539** |   | ** ** | ** ** | **6,403** |   |   |

 

We have implemented best management practices acrossall of our theatres, including daily, weekly and monthly management reportsgenerated for each individual theatre, as well as maintaining activecommunication between the theatres, divisional management and corporatemanagement. We use these management reports and communications to closelymonitor admissions and concessions revenues as well as accounting, payroll andworkforce information necessary to manage our theatre operations effectivelyand efficiently.

We seek experienced theatre managers and require newtheatre managers to complete a comprehensive training program within thetheatres and at the “Regal Entertainment University,” which is held at ourcorporate office. The program is designed to encompass all phases of theatreoperations, including our operating philosophy, policies, procedures andstandards. In addition, we have an incentive compensation program fortheatre-level management that rewards theatre managers for controllingoperating expenses while complying with our operating standards.

In addition, we haveimplemented quality assurance programs in all of our theatres to maintainclean, comfortable and modern facilities. To maintain quality and consistencywithin our theatre circuit, district and regional managers regularly inspecteach theatre. We also operate a “mystery shopper” program, which involvesunannounced visits by unidentified customers who report on the quality ofservice, film presentation and cleanliness at individual theatres.

**NATIONAL CINEMEDIAJOINT VENTURE**

On March 29, 2005,Regal and AMC announced the combination of the operations of RCM and AMC’ssubsidiary, NCN, into a joint venture company known as National CineMedia. On July 15,2005, Cinemark, through a wholly owned subsidiary, joined the NationalCineMedia joint venture. Since its inception, National CineMedia has primarilyconcentrated its efforts on in-theatre advertising, business meetings andnon-feature film content distribution.

As discussed inNote 4 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, AMC and Regal, through their subsidiaries,retained all advertising contracts signed on or before the close of business onMarch 31, 2005, and Cinemark retained all advertising contracts signed onor before the close of business on July 15, 2005, subject to anadministrative fee (32% during fiscal 2006 and 35% during fiscal 2005) payableto National CineMedia to service such contracts. Revenues and expensesattributable to these advertising contracts are recorded as a component ofother operating revenues and other operating expenses in the Company’sfinancial statements. For contracts signed by National CineMedia after theclose of business on March 31, 2005, AMC and Regal, and with respect toadvertising contracts signed after the close of business on July 15, 2005,Cinemark, through their respective theatre exhibition subsidiaries, receiverevenue from National CineMedia with respect to advertising and event servicesat their respective theatres through an agreed upon formula as well as equityin income/loss of National CineMedia. Such formula is based on the weightedaverage number of screens owned by, and the number of theatre patrons of, theapplicable exhibitor’s theatres for any measurement period.

10

----

On February 13, 2007, NCM Inc., a newly formedentity that serves as the sole manager of National CineMedia, completed theinitial public offering, or IPO, of its common stock. NCM Inc. sold 38 millionshares of its common stock for $21 per share in the IPO, less underwritingdiscounts and expenses. Because NCM Inc.’s Certificate of Incorporationrequires that NCM Inc. at all times maintain a one-to-one ratio between thenumber of common units of National CineMedia owned by NCM Inc. and the numberof outstanding shares of common stock of NCM Inc., NCM Inc. used a portion ofthe net proceeds from the IPO to acquire newly issued common units fromNational CineMedia. In addition, National CineMedia paid the net proceeds toeach of Regal, AMC and Cinemark in exchange for modifying payment obligationsfor access to their respective theatres, for which Regal received a payment of$281 million. Upon the closing of the IPO, National CineMedia entered into a$725 million term loan facility, the net proceeds of which were used to redeempreferred units issued to each of Regal, AMC and Cinemark on a pro rata basispursuant to a recapitalization of National CineMedia prior to completion of theIPO. As discussed in Note 14 to the consolidated financial statements includedin Part II, Item 8 of this Form 10-K, we received $315.1million as a result of the preferred unit redemption. At the closing of theIPO, the underwriters exercised their over-allotment option to purchase anadditional 4 million shares of common stock of NCM Inc. at the initial offeringprice of $21 per share, less underwriting discounts and commissions. Inconnection with this over-allotment option exercise, Regal, AMC and Cinemarkeach sold to NCM Inc. common units of National CineMedia on a pro rata basis atthe initial offering price of $21 per share, less underwriting discounts andexpenses. Regal sold 1,637,826 common units to NCM Inc. for proceeds of $32.2 million,and upon completion of this sale of common units, Regal held 21,230,712 commonunits of National CineMedia, or a 22.6% interest. After the payment of currenttaxes, we estimate net proceeds from these transactions to total approximately$445 million. We are currently exploring alternatives for using these proceeds,and may use some or all of the proceeds for strategic acquisitions or to returnvalue to stockholders through an extraordinary dividend, stock repurchases orother corporate uses.

In connection with thecompletion of the IPO, Regal amended and restated its existing servicesagreement with National CineMedia, whereby in exchange for its pro rata shareof the IPO proceeds, Regal agreed to a modification of National CineMedia’spayment obligation under the existing services agreement. The modificationextends the term of the services agreement to 30 years, provides NationalCineMedia with a five year right of first refusal beginning one year prior tothe end of the term and changes the basis upon which Regal is paid by NationalCineMedia from a percentage of revenues associated with advertising contractsentered into by National CineMedia to a monthly theatre access fee. The theatreaccess fee is composed of a fixed payment per patron and a fixed payment perdigital screen, which will increase by 8% every five years starting at the endof fiscal 2011 for payments per patron and by 5% annually starting at the endof fiscal 2007 for payments per digital screen. Also, with respect to anyon-screen advertising time provided to our beverage concessionaire, Regal isrequired to purchase such time from National CineMedia at a negotiated rate. Inaddition, after completion of the IPO, Regal expects to receive mandatoryquarterly distributions of excess cash from National CineMedia.

**FILM DISTRIBUTION**

Domestic movietheatres are the primary initial distribution channel for domestic filmreleases. The theatrical success of a film is often the most important factorin establishing its value in other film distribution channels. Motion picturesare generally made available through several alternative distribution methodsafter the theatrical release date, including home video and DVD, cabletelevision, broadcast television and satellite and pay-per-view services. Astrong opening run at the theatre can help establish a film’s success andsubstantiate the film’s revenue potential. For example, the value of homevideo, DVD and pay cable distribution agreements frequently depends on thesuccess of a film’s theatrical release. As the primary distribution mechanismfor the public’s evaluation of films, we believe that domestic theatricaldistribution remains the cornerstone of a film’s overall financial success.

11

----

The development ofadditional distribution channels has given motion picture producers the abilityto generate a greater portion of a film’s revenues through channels other thanits theatrical release. Historically, this potential for increased revenueafter a film’s initial theatrical release has enabled major studios and someindependent producers to increase the budgets for film production andadvertising.

**FILM EXHIBITION**

***Evaluation of Film.******  ***We licensefilms on a film-by-film and theatre-by-theatre basis by negotiating directlywith film distributors. Prior to negotiating for a film license, we evaluatethe prospects for upcoming films. Criteria we consider for each film mayinclude cast, producer, director, genre, budget, comparative film performancesand various other market conditions. Successful licensing depends greatly uponthe exhibitor’s knowledge of trends and historical film preferences of theresidents in markets served by each theatre, as well as the availability ofcommercially successful motion pictures.

***Access to Film Product.******  ***Films arelicensed from film distributors owned by major film production companies andfrom independent film distributors that distribute films for smaller productioncompanies. Film distributors typically establish geographic film licensingzones and allocate each available film to one theatre within that zone.

In film licensing zoneswhere we are the sole exhibitor, we obtain film licenses by selecting a filmfrom among those films being offered and negotiating directly with thedistributor. In zones where there is competition, a distributor will allocatefilms among the exhibitors in the zone. When films are licensed under theallocation process, a distributor will select an exhibitor who then negotiatesfilm rental terms directly with the distributor.

***Film Rental Fees.******  ***Film licensestypically specify rental fees or formulas by which rental fees may becalculated. The primary formulas used are the “firm term” formula, a “review orsettlement” formula and a “sliding scale” formula. Under the firm term formula,the exhibitor and distributor agree prior to the exhibition of the film on aspecified percentage of the box office receipts to be remitted to thedistributor. Under the review or settlement formula, the exhibitor anddistributor negotiate a percentage of the box office receipts to be remitted tothe distributor upon completion of the theatrical engagement. Thesenegotiations typically involve the use of historical settlements or pastprecedent. Lastly, under a sliding scale formula, the distributor receives apercentage of the box office receipts using a pre-determined and mutuallyagreed upon film rental template. This formula establishes film rentalpredicated on box office performance.

***Duration of Film Licenses.******  ***The durationof our film licenses are negotiated with our distributors on a case-by-casebasis. The terms of our license agreements depend on performance of each film.Marketable movies that are expected to have high box office admission revenueswill generally have longer license terms than movies with more uncertainperformance and popularity.

***Relationship with Distributors.******  ***Manydistributors provide quality first-run movies to the motion picture exhibitionindustry. During fiscal 2006, ten major film distributors accounted for****92**%** of theCompany’s admissions revenues. Four of the ten major film distributors eachaccounted for more than 10% of fiscal 2006 admission revenues. No single film distributoraccounted for more than 20**%** of fiscal2006 admissions revenues. We license films from each of the major distributorsand believe that our relationships with these distributors are excellent. Fromyear to year, the revenues attributable to individual distributors will varywidely depending upon the number and popularity of films that each onedistributes.

**CONCESSIONS**

In addition to box officeadmissions revenues, we generated approximately 26.8% of our total revenuesfrom concessions sales during fiscal 2006. We emphasize prominent and appealingconcession 

12

----

stationsdesigned for rapid and efficient service. We continually seek to increaseconcessions sales by optimizing product mix, introducing special promotionsfrom time to time and offering employee training and incentive programs toup-sell and cross-sell products. We have favorable concession supply contractsand have developed an efficient concession purchasing and distribution supplychain. Our management negotiates directly with manufacturers for many of ourconcession items to obtain competitive prices and to ensure adequate supplies.

**COMPETITION**

The motion pictureindustry is highly competitive. Motion picture exhibitors generally compete onthe basis of the following competitive factors:

·       abilityto secure films with favorable licensing terms;

·       seatingcapacity, availability of stadium seating, location and reputation of theirtheatres;

·       qualityof projection and sound systems at their theatres; and

·       abilityand willingness to promote the films they are showing.

We have several hundred competitors nationwide, whichvary substantially in size, from small independent exhibitors to large nationalchains such as AMC and Cinemark. As a result, our theatres are subject tovarying degrees of competition in the regions in which they operate. Ourcompetitors, including newly established motion picture exhibitors, may buildnew theatres or screens in areas in which we operate, which may result inincreased competition and excess capacity in those areas. If this occurs, itmay have an adverse effect on our business and results of operations. As thelargest motion picture exhibitor, however, we believe that we will be able togenerate economies of scale and operating efficiencies that will give us acompetitive advantage over many of our competitors.

We also compete with othermotion picture distribution channels, including home video and DVD, cabletelevision, broadcast television and satellite and pay-per-view services. Othertechnologies such as video on demand could also have an adverse effect on ourbusiness and results of operations. Traditionally, when motion picturedistributors licensed their products to the domestic exhibition industry, theyrefrained from licensing their motion pictures to these other distributionchannels for a period of time, commonly called the theatrical release window.We believe that the shortening of the theatrical release window over the pastfive to six years does not represent a material change in the studio/exhibitiondistribution model. However, we believe that a material contraction of thetheatrical release window could significantly dilute the consumer appeal of theout-of-home motion picture offering. As a result, we continue to monitor thestatus of the theatrical release window during our film exhibition decisions.In addition, we compete for the public’s leisure time and disposable incomewith other forms of entertainment, including sporting events, concerts, livetheatre and restaurants.

**MARKETING ANDADVERTISING**

Currently, film distributors organize and financemultimedia advertising campaigns for major film releases. To market ourtheatres, we utilize advertisements, including radio advertising, and movieschedules published in newspapers and over the Internet informing our patronsof film selections and show times. Newspaper advertisements are typicallydisplayed in a single grouping for all of our theatres located in a newspaper’scirculation area. In some of our markets we employ special marketing programsfor specific films and concessions items.

13

----

We have a frequentmoviegoer loyalty program, named the Regal Crown Club, in all of our markets.Regal Crown Club members are eligible for specified awards, such as concessionitems, based on purchases made at our participating theatres. In addition, we seekto develop patron loyalty through a number of other marketing programs such asfree summer children’s film series and cross-promotional ticket redemptions andpromotions within local communities. We currently offer these programs only inselected markets. We plan to use these programs in markets where we believepatron loyalty can be further enhanced, and we will continue to evaluate ourmarkets on a case-by-case basis to determine the suitability of these programsin individual regions.

**MANAGEMENT INFORMATIONSYSTEMS**

We make extensive use of information technology (IT)for the management of our business, our theatres, and other revenue generatingoperations. The revenue streams generated by attendance and concession salesare fully supported by information systems to monitor cash flow and to detectfraud and inventory shrinkage. We have recently implemented new software andhardware solutions, which provide for enhanced capabilities and efficiencywithin our theatre operations. These solutions have enabled us to sell giftcards at most major retailers, grocery stores and mass discounters and toredeem those gift cards at our theatre box offices and concession stands. Wecontinue to expand our ability to sell tickets remotely by using our Internetticketing partner, fandango.com, and by deploying self-service customeractivated terminals (CATs) in appropriate theatres. The CATs can sell ticketsfor current and future shows and provide the capability to retrieve ticketspurchased through our Internet partners. We continue to investigate and investin IT technologies to improve services to our patrons and provide informationto our management, allowing them to operate the theatres efficiently.

Our scheduling systemssupport the coordination needed to properly allocate our auditoriums betweenfilm showings and meetings and events of National CineMedia, while alsoensuring that movie audiences view the intended advertising and that revenue isallocated to the appropriate business function. The scheduling systems alsoprovide information electronically and automatically to the newspapers, whichallows them to publish correct show starting times with approved advertisinggraphics. The sales and attendance information developed by the theatre systemsis used directly for film booking and settlement as well as being the primarysource of data for our financial systems.

**SEASONALITY**

Our revenues are usuallyseasonal, coinciding with the timing of releases of motion pictures by themajor distributors. Generally, studios release the most marketable motionpictures during the summer and the holiday season. The unexpected emergence ofa hit film during other periods can alter the traditional trend. The timing ofmovie releases can have a significant effect on our results of operations, andthe results of one quarter are not necessarily indicative of results for thenext quarter or any other quarter. The seasonality of motion pictureexhibition, however, has become less pronounced as studios are releasing motionpictures somewhat more evenly throughout the year.

**EMPLOYEES**

As of February 19,2007, we employed approximately 24,049 persons. Some of our facilities employunion projectionists. The Company’s expansion into new markets may increase thenumber of employees represented by unions. The Company considers its employeerelations to be good.

**REGULATION**

The distribution of motion pictures is in large partregulated by federal and state antitrust laws and has been the subject ofnumerous antitrust cases. Consent decrees effectively require major film 

14

----

distributors to offer andlicense films to exhibitors, including us, on a film-by-film andtheatre-by-theatre basis. Consequently, exhibitors cannot assure themselves ofa supply of films by entering into long-term arrangements with majordistributors, but must negotiate for licenses on a film-by-film basis.

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, an award ofdamages to private litigants and additional capital expenditures to remedy suchnon-compliance.

We believe that we are insubstantial compliance with all current applicable regulations relating toaccommodations for the disabled. We intend to comply with future regulations inthis regard and except as set forth in Note 8 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K,we do not currently anticipate that compliance will require us to expendsubstantial funds. Our theatre operations are also subject to federal, stateand local laws governing such matters as wages, working conditions, citizenshipand health and sanitation requirements. We believe that we are in substantialcompliance with all of such laws.

**FORWARD-LOOKINGSTATEMENTS**

Some of the information inthis Form 10-K includes “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. All statements other thanstatements of historical facts included in this Form 10-K,including, without limitation, certain statements under “Business” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” mayconstitute forward-looking statements. In some cases you can identify these “forward-lookingstatements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,”“believes,” “estimates,” “predicts,” “potential” or “continue” or the negativeof those words and other comparable words. These forward-looking statements involverisks and uncertainties. Our actual results could differ materially from thoseindicated in these statements as a result of certain risk factors as more fullydiscussed under “Risk Factors” below.

**Item 1A.**                RISKFACTORS

*Investingin our securities involves a significant degree of risk. In addition to theother information contained in this annual report, you should consider thefollowing factors before investing in our securities.*

***Our substantial lease and debt obligations couldimpair our financial condition.***

We have substantial lease and debt obligations. Forfiscal 2006, our total rent expense and net interest expense were approximately$323.2 million and $125.2 million, respectively. As of December 28,2006, we had total debt obligations of $1,987.9 million. As of December 28,2006, we had total contractual cash obligations of approximately$6,469.9 million. For a detailed discussion of our contractual cashobligations and other commercial commitments over the next several years, referto “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Contractual Cash Obligations and Commitments” provided in Part II,Item 7 of this Form 10-K below.

If we are unable to meetour lease and debt service obligations, we could be forced to restructure orrefinance our obligations and seek additional equity financing or sell assets.We may be unable to restructure or refinance our obligations and obtainadditional equity financing or sell assets on satisfactory terms or at all. Asa result, inability to meet our lease and debt service obligations could causeus to default 

15

----

on thoseobligations. Many of our lease agreements and the agreements governing theterms of our debt obligations contain restrictive covenants that limit ourability to take specific actions or require us not to allow specific events tooccur and prescribe minimum financial maintenance requirements that we mustmeet. If we violate those restrictive covenants or fail to meet the minimumfinancial requirements contained in a lease or debt instrument, we would be indefault under that instrument, which could, in turn, result in defaults underother leases and debt instruments. Any such defaults could materially impairour financial condition and liquidity.

***Our theatres operate in a competitive environment.***

The motion picture exhibition industry is fragmentedand highly competitive with no significant barriers to entry. Theatres operatedby national and regional circuits and by small independent exhibitors competewith our theatres, particularly with respect to film licensing, attractingpatrons and developing new theatre sites. Moviegoers are generally not brandconscious and usually choose a theatre based on its location, the films showingthere and its amenities.

Over the past decade,motion picture exhibitors have been upgrading their asset bases to anattractive megaplex format which features stadium seating, improved projectionquality and superior sound systems. Generally, stadium seating found in modernmegaplex theatres is preferred by patrons over slope-floored multiplextheatres, which were the predominant theatre-type built prior to 1996.Although, as of December 28, 2006, approximately 73% of our screens werelocated in theatres featuring stadium seating, we still serve many markets withsloped-floored multiplex theatres. These theatres may be more vulnerable tocompetition than our modern megaplex theatres, and should other theatreoperators choose to build and operate modern megaplex theatres in thesemarkets, the performance of our theatres in these markets may be significantlyand negatively impacted. In addition, should other theatre operators return tothe aggressive building strategies undertaken in the late 1990’s, ourattendance, revenue and income from operations per screen could declinesubstantially.

***An increase in the use of alternative film deliverymethods may drive down movie theatre attendance and limit ticket prices.***

We also compete with othermovie delivery vehicles, including cable television, downloads via theInternet, in-home video and DVD, satellite and pay-per-view services.Traditionally, when motion picture distributors licensed their products to thedomestic exhibition industry, they refrained from licensing their motionpictures to these other delivery vehicles for a period of time, commonly calledthe theatrical release window. We believe that a material contraction of thecurrent theatrical release window could significantly dilute the consumersappeal of the in-theatre motion picture offering, which could have a materialadverse effect on our business and results of operations. We also compete forthe public’s leisure time and disposable income with other forms ofentertainment, including sporting events, concerts, live theatre and restaurants.

***We depend on motion picture production andperformance.***

Our ability to operatesuccessfully depends upon the availability, diversity and appeal of motionpictures, our ability to license motion pictures and the performance of suchmotion pictures in our markets. We mostly license first-run motion pictures,the success of which have increasingly depended on the marketing efforts of themajor studios. Poor performance of, or any disruption in the production of(including by reason of a strike) these motion pictures, or a reduction in themarketing efforts of the major studios, could hurt our business and results ofoperations. In addition, a change in the type and breadth of movies offered bystudios may adversely affect the demographic base of moviegoers.

16

----

***We depend on our relationships with film distributors.***

The film distributionbusiness is highly concentrated, with ten major film distributors accountingfor 92% of our admissions revenues during fiscal 2006. Our business depends on maintaininggood relations with these distributors. In addition, we are dependent on ourability to negotiate commercially favorable licensing terms for first-runfilms. A deterioration in our relationship with any of the ten major filmdistributors could affect our ability to negotiate film licenses on favorableterms or our ability to obtain commercially successful films and, therefore,could hurt our business and results of operations.

***No assurance of a supply of motion pictures.***

The distribution of motionpictures is in large part regulated by federal and state antitrust laws and hasbeen the subject of numerous antitrust cases. Consent decrees resulting fromthose cases effectively require major motion picture distributors to offer andlicense films to exhibitors, including us, on a film-by-film andtheatre-by-theatre basis. Consequently, we cannot assure ourselves of a supplyof motion pictures by entering into long-term arrangements with majordistributors, but must compete for our licenses on a film-by-film andtheatre-by-theatre basis.

***We may not benefit from our acquisition strategy.***

We may have difficulty identifying suitableacquisition candidates. Even if we do identify such candidates, we anticipatesignificant competition from other motion picture exhibitors and financialbuyers when trying to acquire these candidates, and there can be no assurancesthat we will be able to acquire such candidates at reasonable prices or onfavorable terms. Moreover, some of these possible buyers may be stronger financiallythan we are. As a result of this competition for limited assets, we may notsucceed in acquiring suitable candidates or may have to pay more than we wouldprefer to make an acquisition. If we cannot identify or successfully acquiresuitable acquisition candidates, we may not be able to successfully expand ouroperations and the market price of our securities could be adversely affected.

In any acquisition,we expect to benefit from cost savings through, for example, the reduction ofoverhead and theatre level costs, and from revenue enhancements resulting fromthe acquisition. There can be no assurance, however, that we will be able togenerate sufficient cash flow from these acquisitions to service anyindebtedness incurred to finance such acquisitions or realize any otheranticipated benefits. Nor can there be any assurance that our profitabilitywill be improved by any one or more acquisitions. If we cannot generatesufficient cash flow to service debt incurred to finance an acquisition, our resultsof operations and profitability would be adversely affected. Any acquisitionmay involve operating risks, such as:

·       thedifficulty of assimilating the acquired operations and personnel andintegrating them into our current business;

·       thepotential disruption of our ongoing business;

·       thediversion of management’s attention and other resources;

·       thepossible inability of management to maintain uniform standards, controls,procedures and policies;

·       therisks of entering markets in which we have little or no experience;

·       thepotential impairment of relationships with employees;

·       thepossibility that any liabilities we may incur or assume may prove to be moreburdensome than anticipated; and

·       the possibility that anyacquired theatres or theatre circuit operators do not perform as expected.

17

----

***Development of digital technology may increase ourcapital expenses.***

The industry is in theearly stages of conversion from film-based media to electronic based media.There are a variety of constituencies associated with this anticipated change,which may significantly impact industry participants, including contentproviders, distributors, equipment providers and exhibitors. Should theconversion process rapidly accelerate and the major studios not finance the conversionas expected, we may have to raise additional capital to finance the conversioncosts associated with this potential change. The additional capital necessarymay not, however, be available to us on attractive terms, if at all.Furthermore, it is impossible to accurately predict how the roles andallocation of costs (including operating costs) between various industryparticipants will change if the industry changes from physical media toelectronic media.

***We depend on our senior management.***

Our success depends uponthe retention of our senior management, including Michael Campbell, ourChairman and Chief Executive Officer. We cannot assure you that we would beable to find qualified replacements for the individuals who make up our seniormanagement if their services were no longer available. The loss of services ofone or more members of our senior management team could have a material adverseeffect on our business, financial condition and results of operations. We donot currently maintain key-man life insurance for any of our employees. Theloss of any member of senior management could adversely affect our ability toeffectively pursue our business strategy.

***The interests of our controlling stockholder mayconflict with your interests.***

Anschutz Company ownssubstantially all of our outstanding Class B common stock. Our Class Acommon stock has one vote per share while our Class B common stock has tenvotes per share on all matters to be voted on by stockholders. As a result, asof December 28, 2006, Anschutz Company controlled approximately 79% of thevoting power of all of our outstanding common stock. For as long as AnschutzCompany continues to own shares of common stock representing more than 50% ofthe voting power of our common stock, it will be able to elect all of themembers of our board of directors and determine the outcome of all matterssubmitted to a vote of our stockholders, including matters involving mergers orother business combinations, the acquisition or disposition of assets, the incurrenceof indebtedness, the issuance of any additional shares of common stock or otherequity securities and the payment of dividends on common stock. AnschutzCompany will also have the power to prevent or cause a change in control, andcould take other actions that might be desirable to Anschutz Company but not toother stockholders. In addition, Anschutz Company and its affiliates havecontrolling interests in companies in related and unrelated industries,including interests in the sports, motion picture production and musicentertainment industries. In the future, it may combine our company with one ormore of its other holdings.

***A prolonged economic downturn could materially affectour business by reducing consumer spending on movie attendance.***

We depend on consumers voluntarily spendingdiscretionary funds on leisure activities. Motion picture theatre attendancemay be affected by prolonged negative trends in the general economy thatadversely affect consumer spending, including such trends resulting fromterrorist attacks on, or wars or threatened wars involving, the United States.Any reduction in consumer confidence or disposable income in general may affectthe demand for motion pictures or severely impact the motion picture productionindustry, which, in turn, could adversely affect our operations.

18

----

***Substantial sales of our Class A common stockcould cause the market price for our Class A common stock to decline.***

We cannot predict the effect, if any, that marketsales of shares of our Class A common stock or the availability of sharesof our Class A common stock for sale will have on the market price of our Class Acommon stock prevailing from time to time. Sales of substantial amounts ofshares of our Class A common stock in the public market, or the perceptionthat those sales will occur, could cause the market price of our Class Acommon stock to decline.

As of February 21, 2007, we had outstanding 23,908,639  shares of Class B common stock that mayconvert into Class A common stock on a one-for-one basis, all of whichshares of common stock constitute “restricted securities” under the SecuritiesAct. Provided the holders comply with the applicable volume limits and otherconditions prescribed in Rule 144 under the Securities Act, all of theserestricted securities are currently freely tradable.

Additionally, as of February 21, 2007,approximately 2,706,834 shares of our Class A common stock are issuableupon exercise of stock options that vest and are exercisable at various datesthrough June 23, 2014, with exercise prices ranging from $2.6901 to$17.83. Of such options, as of February 21, 2007, 2,414,595 wereexercisable.  Finally, as of February 21,2007 our officers, directors and key employees hold, or in the case ofperformance shares are eligible to receive, approximately 1,056,598 restrictedshares of our Class A common stock, for which the restrictions lapse orthe performance criteria and vesting may be satisfied, at various dates throughJanuary 10, 2011. All shares underlying outstanding options and all sharesof restricted stock are registered and will be freely tradable when the optionis exercised, in the case of restricted stock when the restrictions lapse, or,in the case of performance shares when the performance criteria and vesting aresatisfied, unless such shares are acquired by an affiliate of Regal, in whichcase the affiliate may only sell the shares subject to the volume limitationsimposed by Rule 144 of the Securities Act. 

Anschutz Company is ableto sell their shares pursuant to the registration rights that we have granted.We cannot predict whether substantial amounts of our Class A common stockwill be sold in the open market in anticipation of, or following, anydivestiture by Anschutz Company or our directors or executive officers of theirshares of our common stock.

***Our amended and restated certificate of incorporationand our amended and restated bylaws, as amended, contain anti-takeoverprotections, which may discourage or prevent a takeover of our company, even ifan acquisition would be beneficial to our stockholders.***

Provisions contained inour amended and restated certificate of incorporation and amended and restatedbylaws, as amended, as well as provisions of the Delaware General CorporationLaw, could delay or make it more difficult to remove incumbent directors or fora third party to acquire us, even if a takeover would benefit our stockholders.

***Our issuance of shares of preferred stock could delayor prevent a change of control of our company.***

Our board of directors hasthe authority to cause us to issue, without any further vote or action by thestockholders, up to 50,000,000 shares of preferred stock, par value $0.001 pershare, in one or more series, to designate the number of shares constitutingany series, and to fix the rights, preferences, privileges and restrictionsthereof, including dividend rights, voting rights, rights and terms ofredemption, redemption price or prices and liquidation preferences of suchseries. The issuance of shares of preferred stock may have the effect ofdelaying, deferring or preventing a change in control of our company withoutfurther action by the stockholders, even where stockholders are offered apremium for their shares.

19

----

***Our issuance of preferred stock could dilute thevoting power of the common stockholders.***

The issuance of shares ofpreferred stock with voting rights may adversely affect the voting power of theholders of our other classes of voting stock either by diluting the votingpower of our other classes of voting stock if they vote together as a singleclass, or by giving the holders of any such preferred stock the right to blockan action on which they have a separate class vote even if the action wereapproved by the holders of our other classes of voting stock.

***Our issuance of preferred stock could adversely affectthe market value of our common stock.***

The issuance of shares ofpreferred stock with dividend or conversion rights, liquidation preferences orother economic terms favorable to the holders of preferred stock couldadversely affect the market price for our common stock by making an investmentin the common stock less attractive. For example, investors in the common stockmay not wish to purchase common stock at a price above the conversion price ofa series of convertible preferred stock because the holders of the preferredstock would effectively be entitled to purchase common stock at the lowerconversion price causing economic dilution to the holders of common stock.

***Our investment in and revenues from National CineMediamay be negatively impacted by the competitive environment in which NationalCineMedia operates.***

We own approximately 23%of National CineMedia. In addition, we receive theatre access fees andmandatory distributions of excess cash from National CineMedia. NationalCineMedia’s in-theatre advertising operations compete with other cinemaadvertising companies and other advertising mediums including, most notably,television, newspaper, radio and the Internet. There can be no guarantee thatin-theatre advertising will continue to attract major advertisers or thatNational CineMedia’s in-theatre advertising format will be able to generateexpected sales of advertising. Should National CineMedia fail to maintain thelevel of profitability it hopes to achieve, its results of operations may beadversely affected and our investment in and revenues from National CineMediamay be adversely impacted.

***We are a holding company dependent on our subsidiariesfor our ability to service our debt and pay our dividends.***

We are a holding companywith no operations of our own. Consequently, our ability to service our and oursubsidiaries’ debt and pay dividends on our common stock is dependent upon theearnings from the businesses conducted by our subsidiaries. Our subsidiariesare separate and distinct legal entities and have no obligation to provide uswith funds for our payment obligations, whether by dividends, distributions,loans or other payments. Any distribution of earnings to us from oursubsidiaries, or advances or other distributions of funds by these subsidiariesto us, all of which are subject to statutory or contractual restrictions, arecontingent upon the subsidiaries’ earnings and are subject to various businessconsiderations. Our right to receive any assets of any of our subsidiaries upontheir liquidation or reorganization, and therefore the right of the holders ofthe 33¤4%Convertible Senior Notes due May 15, 2008 (the “Convertible Senior Notes”)and our common stock to participate in those assets, will be structurallysubordinated to the claims of that subsidiary’s creditors. In addition, even ifwe were a creditor of any of our subsidiaries, our rights as a creditor wouldbe subordinate to any security interest in the assets of our subsidiaries andany indebtedness of our subsidiaries senior to that held by us.

***Hedging transactions and other transactions.***

We have entered intoconvertible note hedge and warrant transactions with respect to our commonstock, the exposure for which was held by Credit Suisse First BostonInternational LLC at the time the Convertible Senior Notes were issued. Theconvertible note hedge and warrant transactions are expected 

20

----

toreduce the potential dilution from conversion of the Convertible Senior Notes.In connection with these hedging arrangements, Credit Suisse First BostonInternational LLC has taken positions in our Class A common stock insecondary market transactions and/or entered into various derivativetransactions after the pricing of the Convertible Senior Notes. Such hedgingarrangements could increase the price of our Class A common stock. CreditSuisse First Boston International LLC is likely to modify its hedge positionsfrom time to time prior to conversion, redemption or maturity of theConvertible Senior Notes by purchasing and selling shares of our Class Acommon stock, other securities of Regal or other instruments we may wish to usein connection with such hedging. We cannot assure you that such activity willnot affect the market price of our Class A common stock. For furtherdescription of the convertible note hedge and warrant transactions, seeNote 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

**Item 1B.**               UNRESOLVEDSTAFF COMMENTS

As of December 28,2006, there are no unresolved comments from the Securities and ExchangeCommission staff regarding any of our periodic or current reports filed underthe Exchange Act.

**Item 2.**                        PROPERTIES

As of December 28, 2006, we operated 466 of ourtheatres pursuant to lease agreements and owned the land and buildings for 73theatres. For a December 28, 2006 list of the states in which we operatedtheatres and the number of theatres and screens operated in each such state,please see the chart under Part I, Item 1 of this Form 10-Kunder the caption “Business—Theatre Operations”, which is incorporated hereinby reference.

The majority of our leasedtheatres are subject to lease agreements with original terms of 20 yearsor more and, in most cases, renewal options for up to an additional 10 years.These leases provide for minimum annual rentals and the renewal optionsgenerally provide for rent increases. Some leases require, under specifiedconditions, further rental payments based on a percentage of revenues abovespecified amounts. A significant majority of the leases are net leases, whichrequire us to pay the cost of insurance, taxes and a portion of the lessor’soperating costs. Our corporate office is located in Knoxville, Tennessee. Webelieve that these facilities are adequate for our operations. 

**Item 3.**                        LEGALPROCEEDINGS

Pursuant to GeneralInstruction G(2) to Form 10-K and Rule 12b-23 underthe Securities Exchange Act of 1934, as amended, the information required to befurnished by us under this Part I, Item 3 (Legal Proceedings) isincorporated by reference to the information contained in Note 8 to theconsolidated financial statements included in Part II, Item 8 of thisForm 10-K.

**Item 4.**                        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submittedto a vote of security holders during the fourth quarter ended December 28,2006.

21

----

**EXECUTIVE OFFICERSOF THE REGISTRANT**

Shownbelow are the names, ages as of December 28, 2006, and current positionsof our executive officers. There are no family relationships between any of thepersons listed below, or between any of such persons and any of the directorsof the Company or any persons nominated or chosen by the Company to become adirector or executive officer of the Company. 

| **Name**             | ** ** | ** ** | ** ** | **Age**                                                          | ** ** | **Position** |
|----------------------|------------|------------|------------|------------------------------------------------------------------|------------|--------------|
| Michael L.  Campbell |       | 53         |       | Chairman of the Board of  Directors and Chief Executive Officer  |
| Gregory W. Dunn      |       | 47         |       | President and  Chief Operating Officer                           |
| Amy E. Miles         |       | 40         |       | Executive Vice  President, Chief Financial Officer and Treasurer |
| Peter B. Brandow     |       | 46         |       | Executive Vice  President, General Counsel and Secretary         |

 

Michael L. Campbell is our Chairman and ChiefExecutive Officer. Mr. Campbell has served as a director since March 2002and is a member of our Executive Committee. Mr. Campbell served as ourCo-Chairman of the Board and Co-Chief Executive Officer since March 2002. Mr. Campbellbecame our Chief Executive Officer and Chairman of the Board in May 2005. Mr. Campbellfounded Regal Cinemas, Inc. in November 1989, and has served as ChiefExecutive Officer of Regal Cinemas, Inc. since its inception. Priorthereto, Mr. Campbell was the Chief Executive Officer of Premiere CinemasCorporation, which he co-founded in 1982, and served in such capacity untilPremiere was sold in October 1989. Mr. Campbell is a director of NCM Inc.,National CineMedia, Fandango, Inc. and the National Association of TheatreOwners (“NATO”) and serves on its executive committee of the board ofdirectors.

Gregory W. Dunn is our President and Chief OperatingOfficer. Mr. Dunn has served as an Executive Vice President and ChiefOperating Officer of Regal since March 2002 and became President of Regalin May 2005. Mr. Dunn served as Executive Vice President and ChiefOperating Officer of Regal Cinemas, Inc. from 1995 to March 2002.Prior thereto, Mr. Dunn served as Vice President of Marketing andConcessions of Regal Cinemas, Inc. from 1991 to 1995.

Amy E. Miles is our Executive Vice President, ChiefFinancial Officer and Treasurer and has served as such since March 2002. Ms. Mileshas served as the Executive Vice President, Chief Financial Officer andTreasurer of Regal Cinemas, Inc. since January 2000. Prior thereto, Ms. Milesserved as Senior Vice President of Finance from April 1999, when shejoined Regal Cinemas, Inc. Ms. Miles was a Senior Manager withDeloitte & Touche from 1998 to 1999. From 1989 to 1998, she was withPricewaterhouseCoopers, LLC.

Peter B. Brandow is our Executive Vice President,General Counsel and Secretary and has served as such since March 2002. Mr. Brandowhas served as the Executive Vice President, General Counsel and Secretary ofRegal Cinemas, Inc. since July 2001, and prior to that time he servedas Senior Vice President, General Counsel and Secretary of Regal Cinemas, Inc.since February 2000. Prior thereto, Mr. Brandow served as VicePresident, General Counsel and Secretary from February 1999 when he joinedRegal Cinemas, Inc. From September 1989 to January 1999, Mr. Brandowwas an associate with the law firm Simpson Thatcher & Bartlett.

22

----

**PART II**

**Item 5.**                        MARKETFOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

**Our common equity consists of Class Aand Class B common stock. Our Class A common stock has traded on theNew York Stock Exchange since May 9, 2002 under the symbol “RGC.” There isno established public trading market for our Class B common stock.**

Thefollowing table sets forth the historical high and low sales prices per shareof our Class A common stock as reported by the New York Stock Exchange forthe fiscal periods indicated. 

| ** **                                                            | ** ** | **Fiscal 2006** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                            | ** ** | **High**             | ** ** | **Low** | ** ** |
| First Quarter  (December 30, 2005—March 30, 2006)      |       | $                    | 19.45      |   | $ | 17.90 |   |
| Second Quarter  (March 31, 2006—June 29, 2006)         |       | 21.29                |       | 18.50 |   |
| Third Quarter  (June 30, 2006—September 28, 2006)      |       | 20.97                |       | 18.63 |   |
| Fourth Quarter  (September 29, 2006—December 28, 2006) |       | 21.85                |       | 19.39 |   |
|                                                                       |            |                      |            |  |  |  |  |

 

| ** **                                                            | ** ** | **Fiscal 2005** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                            | ** ** | **High**             | ** ** | **Low** | ** ** |
| First Quarter  (December 31, 2004—March 31, 2005)      |       | $                    | 21.03      |   | $ | 18.96 |   |
| Second Quarter  (April 1, 2005—June 30, 2005)          |       | 21.50                |       | 18.24 |   |
| Third Quarter  (July 1, 2005—September 29, 2005)       |       | 20.39                |       | 17.95 |   |
| Fourth Quarter  (September 30, 2005—December 29, 2005) |       | 20.43                |       | 18.11 |   |
|                                                                       |            |                      |            |  |  |  |  |

 

On February 21, 2007,there were 269 stockholders of record of our Class A common stock and twostockholders of record of our Class B common stock.

***Dividend Policy***

During fiscal 2006, wepaid to our stockholders four quarterly cash dividends of $0.30 per share, oneach outstanding share of our Class A and Class B common stock, orapproximately $179.6 million in the aggregate. During fiscal 2005, we paidto our stockholders four quarterly cash dividends of $0.30 per share, on eachoutstanding share of our Class A and Class B common stock, orapproximately $175.9 million in the aggregate. On February 8, 2007,we declared a cash dividend of $0.30 per share on each outstanding share of Class Aand Class B common stock. The dividend is payable on March 19, 2007to our stockholders of record on March 9, 2007. We, at the discretion ofthe board of directors and subject to applicable law, anticipate paying regularquarterly dividends on our Class A and Class B common stock for theforeseeable future. The amount, if any, of the dividends to be paid in thefuture will depend upon our then available cash, anticipated cash needs,overall financial condition, loan agreement restrictions, future prospects forearnings and cash flows, as well as other relevant factors. For a descriptionof the loan agreement restrictions on the payment of dividends, see “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidityand Capital Resources” included in Part II, Item 7 of this Form 10-Kand Note 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

***Unregistered Sales of Equity Securities and Use ofProceeds***

None.

23

----

***Issuer Purchases of Equity Securities***

During fiscal 2004, theCompany’s board of directors authorized a share repurchase program, whichprovided for the authorization to repurchase up to $50.0 million of the Company’soutstanding Class A common stock within a twelve month period. During thesecond fiscal quarter of 2005, the Company repurchased 520,386 shares of itsoutstanding Class A common stock at an aggregate cost of approximately$10.0 million. The Company’s board of directors extended the sharerepurchase program during fiscal 2005 and fiscal 2006 for additional twelvemonth periods. Accordingly, the Company can repurchase up to an additional$40.0 million under the share repurchase program through September 2007.The Company made no repurchases of its outstanding Class A common stockduring fiscal 2004 or fiscal 2006. Repurchases can be made from time to time asmarket conditions warrant, through open market purchases, negotiatedtransactions, or in such a manner deemed appropriate by the Company. Treasuryshares are retired upon repurchase.

**Item 6.**                        SELECTEDFINANCIAL DATA

Regal was created through a series of transactionsduring 2001 and 2002. The Anschutz Corporation and its subsidiaries (“Anschutz”)acquired controlling equity interests in United Artists, Edwards and RegalCinemas, Inc. upon United Artists’ emergence from bankruptcyreorganization on March 2, 2001, Edwards’ emergence from bankruptcyreorganization on September 29, 2001 and Regal Cinemas, Inc.’semergence from bankruptcy reorganization on January 29, 2002. Regal’sconsolidated financial statements reflect the results of operations from thedates Anschutz acquired its controlling equity interests in United Artists,Edwards and Regal Cinemas, Inc. These controlling equity interests havebeen recorded in Regal’s consolidated financial statements at Anschutz’scombined historical cost basis.

We present below selectedhistorical consolidated financial data for Regal based on historical data, (i) forthe fiscal year ended December 26, 2002, considering the results ofoperations of United Artists (from January 4, 2002), Edwards (from December 28,2001), and Regal Cinemas (from January 24, 2002, the date upon whichAnschutz is deemed to have acquired its controlling equity interest in RegalCinemas, Inc.), (ii) for the fiscal year ended January 1, 2004,considering the results of operations of United Artists, Regal Cinemas, andEdwards from December 27, 2002 and Hoyts from March 28, 2003, (iii) forthe fiscal year ended December 30, 2004, considering the results ofoperations of United Artists, Regal Cinemas, Edwards and Hoyts from January 2,2004, the results of operations of seven theatres acquired during the quarterended July 1, 2004 and the 28 theatres acquired from Signature Theatres onSeptember 30, 2004 (the “fiscal 2004 acquisitions”) for periods subsequentto the respective acquisition dates, (iv) for the fiscal year ended December 29,2005, considering the results of operations of United Artists, Regal Cinemas,Edwards, Hoyts and the fiscal 2004 acquisitions from December 31, 2004,the results of operations of seven theatres acquired from R/C Theatres on April 28,2005 and 21 theatres acquired from Eastern Federal Corporation on July 21,2005 (the “fiscal 2005 acquisitions”) for periods subsequent to the respectiveacquisition dates, and (v) the fiscal year ended December 28, 2006,considering the results of United Artists, Regal Cinemas, Edwards, Hoyts, thefiscal 2004 acquisitions and the fiscal 2005 acquisitions from December 30,2005 and the results of operations of four theatres acquired from AMC on September 15,2006 for the period subsequent to the acquisition date. The fiscal year ended January 1,2004 consisted of 53 weeks of operations. The selected historical consolidatedfinancial data as of and for the fiscal years ended December 28, 2006, December 29,2005, December 30, 2004, January 1, 2004 and December 26, 2002were derived from the audited consolidated financial statements of Regal andthe notes thereto. The selected historical financial data do not necessarilyindicate the operating results or financial position that would have resultedfrom our operation on a combined basis during the periods presented, nor is thehistorical data necessarily indicative of any future operating results orfinancial position of Regal. In addition to the below selected financial data,you should also refer to the more complete financial information includedelsewhere in this Form 10-K. 

24

----

 

| ** **                        | ** ** | **Fiscal year  Ended  December 28,  2006**              | ** ** | **Fiscal year  Ended  December 29,  2005** | ** ** | **Fiscal year  Ended  December 30,  2004** | ** ** | **Fiscal year  Ended  January 1,  2004(1)** | ** ** | **Fiscal Year  Ended  December 26,  2002** | ** ** |
|-----------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                        | ** ** | **(in millions, except per share data)** | ** ** |
| **Statement of Operations Data:** |       |                                                              |       |                                                 |       |                                                 |       |                                                  |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Total revenues                    |       |                                                              | $          | 2,598.1                                              |       |                                                 |       | $                                                     | 2,516.7    |                                                 |       |   | $ | 2,468.0 |   |   |   | $ | 2,489.9 |   |   |   | $ | 2,140.2 |   |   |
| Income from  operations           |       |                                                              | 308.5      |                                                 |       |                                                 | 269.6      |                                                  |       |                                                 | 321.1      |   |   |   | 379.1 |   |   |   | 283.6 |   |   |
| Net income                        |       |                                                              | 86.3       |                                                 |       |                                                 | 91.8       |                                                  |       |                                                 | 82.5       |   |   |   | 185.4 |   |   |   | 117.2 |   |   |
| Earnings per  diluted share       |       |                                                              | 0.56       |                                                 |       |                                                 | 0.59       |                                                  |       |                                                 | 0.55       |   |   |   | 1.30 |   |   |   | 0.79 |   |   |
| Dividends per common  share       |       |                                                              | $          | 1.20                                                 |       |                                                 |       | $                                                     | 1.20       |                                                 |       |   | $ | 5.86 | (2) |   |   | $ | 5.65 | (3) |   |   | $ | 0.15 |   |   |

 

| ** **                                    | ** ** | **As of or for the  fiscal year ended  December 28  2006 ** | ** ** | **As of or for the  fiscal year ended  December 29,  2005 ** | ** ** | **As of or for the  fiscal year ended  December 30,  2004 ** | ** ** | **As of or for the  fiscal year ended  January 1,  2004(1) ** | ** ** | **As of or for the  fiscal year ended  December 26,  2002** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **(in millions, except operating data)**                                        | ** ** |
| **Other financial data:**                     |       |                                                                                                |       |                                                                                                 |       |                                                                                                 |       |                                                                                                  |       |                                                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Net cash provided  by operating activities    |       |                                                                                                | $          | 304.4                                                                                                |       |                                                                                                 |       | $                                                                                                     | 386.4      |                                                                                           |       |   | $ | 387.4 |   |   |   | $ | 476.1 |   |   |   | $ | 373.2 |   |   |
| Net cash used in  investing activities        |       |                                                                                                | (151.7     | )                                                                                                    |       |                                                                                                 | (243.0     | )                                                                                                     |       |                                                                                           | (306.2     | ) |   |   | (181.9 | ) |   |   | (115.0 | ) |   |
| Net cash used in  financing activities(2),(3) |       |                                                                                                | (186.8     | )                                                                                                    |       |                                                                                                 | (191.0     | )                                                                                                     |       |                                                                                           | (126.1     | ) |   |   | (281.4 | ) |   |   | (50.2 | ) |   |
| **Balance  sheet data at period end:**        |       |                                                                                                |       |                                                                                                 |       |                                                                                                 |       |                                                                                                  |       |                                                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                    |       |                                                                                                | $          | 162.2                                                                                                |       |                                                                                                 |       | $                                                                                                     | 196.3      |                                                                                           |       |   | $ | 243.9 |   |   |   | $ | 288.8 |   |   |   | $ | 276.0 |   |   |
| Total assets                                  |       |                                                                                                | 2,468.8    |                                                                                                 |       |                                                                                                 | 2,532.8    |                                                                                                  |       |                                                                                           | 2,542.4    |   |   |   | 2,449.8 |   |   |   | 2,310.2 |   |   |
| Total debt  obligations                       |       |                                                                                                | 1,987.9    |                                                                                                 |       |                                                                                                 | 1,984.5    |                                                                                                  |       |                                                                                           | 2,005.8    |   |   |   | 1,227.2 |   |   |   | 678.4 |   |   |
| Stockholders’  equity (deficit)          |       |                                                                                                | (22.2      | )                                                                                                    |       |                                                                                                 | 29.9       |                                                                                                  |       |                                                                                           | 69.0       |   |   |   | 794.9 |   |   |   | 1,270.8 |   |   |
| **Operating  data:**                          |       |                                                                                                |       |                                                                                                 |       |                                                                                                 |       |                                                                                                  |       |                                                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Theatre locations                             |       |                                                                                                | 539        |                                                                                                 |       |                                                                                                 | 555        |                                                                                                  |       |                                                                                           | 558        |   |   |   | 550 |   |   |   | 524 |   |   |
| Screens                                       |       |                                                                                                | 6,403      |                                                                                                 |       |                                                                                                 | 6,463      |                                                                                                  |       |                                                                                           | 6,273      |   |   |   | 6,045 |   |   |   | 5,663 |   |   |
| Average screens  per location                 |       |                                                                                                | 11.9       |                                                                                                 |       |                                                                                                 | 11.6       |                                                                                                  |       |                                                                                           | 11.2       |   |   |   | 11.0 |   |   |   | 10.8 |   |   |
| Attendance (in  millions)                     |       |                                                                                                | 247.4      |                                                                                                 |       |                                                                                                 | 244.3      |                                                                                                  |       |                                                                                           | 253.8      |   |   |   | 265.6 |   |   |   | 241.4 |   |   |
| Average ticket  price                         |       |                                                                                                | $          | 6.98                                                                                                 |       |                                                                                                 |       | $                                                                                                     | 6.80       |                                                                                           |       |   | $ | 6.53 |   |   |   | $ | 6.36 |   |   |   | $ | 6.02 |   |   |
| Average concessions per  patron               |       |                                                                                                | $          | 2.82                                                                                                 |       |                                                                                                 |       | $                                                                                                     | 2.70       |                                                                                           |       |   | $ | 2.51 |   |   |   | $ | 2.43 |   |   |   | $ | 2.44 |   |   |

----

(1)          Fiscal year ended January 1,2004 was comprised of 53 weeks.

(2)          Includes the July 1,2003 payment of the $5.05 extraordinary cash dividend paid on each share of Class Aand Class B common stock.

(3)          Includesthe June 2, 2004 payment of the $5.00 extraordinary cash dividend paid oneach share of Class A and Class B common stock.

**Item 7.**                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*Thisdiscussion summarizes the significant factors affecting the consolidatedoperating results, financial condition, liquidity and cash flows of RegalEntertainment Group for the fiscal years ended December 28, 2006, December 29,2005 and December 30, 2004. The following discussion and analysis shouldbe read in*

25

----

*conjunctionwith the consolidated financial statements of Regal and the notes theretoincluded elsewhere in this Form 10-K.*

**Overview and Basisof Presentation**

We conduct our operations primarily through our whollyowned subsidiaries. We operate the largest and most geographically diversetheatre circuit in the United States, consisting of 6,403 screens in 539theatres in 39 states and the District of Columbia as of December 28,2006. We believe the size, reach and quality of our theatre circuit provide anexceptional platform to realize economies of scale from our theatre operations.The Company manages its business under one reportable segment: theatreexhibition operations.

We also maintain an investment in National CineMedia,which has primarily concentrated its efforts on in-theatre advertising,business meetings and non-feature film content distribution.

We generate revenues primarily from admissions andconcession sales. Additional revenues are generated by our vendor marketingprograms and electronic video games located adjacent to the lobbies of certainof our theatres. In addition, National CineMedia provides us with revenues fromits sale of on-screen advertising, rental of theatres for business meetings andconcerts and other events. Film rental costs depend on a variety of factorsincluding the prospects of a film and the popularity of a film and such filmrental costs generally increase as the admissions revenues generated by a filmincrease. Because we purchase certain concession items, such as fountain drinksand popcorn, in bulk and not pre-packaged for individual servings, we are ableto improve our margins by negotiating volume discounts. Other operatingexpenses consist primarily of theatre labor and occupancy costs.

Regal was created through a series of transactions during2001 and 2002. Anschutz acquired controlling equity interests in United Artists(our predecessor for accounting purposes) upon the emergence from bankruptcyreorganization on March 2, 2001 of the United Artists Bankrupt Entities(as defined in Note 1 to the consolidated financial statements included inPart II, Item 8 of this Form 10-K). In the same manner, onSeptember 29, 2001, Anschutz acquired controlling equity interests in theEdwards Bankrupt Entities (as defined in Note 1 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K).On January 29, 2002, Anschutz acquired a controlling equity interest inRegal Cinemas, Inc. (“RCI”) when the Regal Cinemas, Inc. BankruptEntities (as defined in Note 1 to the consolidated financial statementsincluded in Part II, Item 8 of this Form 10-K) emergedfrom bankruptcy reorganization. Anschutz exchanged its controlling equityinterest in RCI for a controlling equity interest in Regal Cinemas immediatelythereafter. Regal acquired the controlling equity interests of United Artists,Edwards, Regal Cinemas and Regal CineMedia through a series of transactionsdescribed in further detail in Note 1 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K.

The Company’s consolidated financial statementsreflect the results of operations from the dates Anschutz acquired itscontrolling equity interests in United Artists, Edwards and Regal Cinemas andincludes subsequent acquisitions (see Note 3 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K)which have been included in the Company’s consolidated financial statements forperiods subsequent to the respective acquisition dates.

On March 29, 2005, Regal and AMC announced the combinationof the operations of RCM and AMC’s subsidiary, NCN, into a new joint venturecompany, National CineMedia. On July 15, 2005, Cinemark, through awholly owned subsidiary, acquired a 20.7% interest in National CineMedia. As aresult, as of December 28, 2006, Regal CineMedia Holdings, LLC (“RCH”), awholly owned subsidiary of RCM, owned 45.4% of the Class A Units ofNational CineMedia, AMC, as successor in interest to NCN, owned 26.3% of the Class AUnits of National CineMedia and Cinemark owned 28.3% of the Class A Unitsof National CineMedia. Pursuant to the joint venture transaction, AMC andRegal, through their subsidiaries, retained all advertising contracts signed onor before the close of business on March 31, 2005, 

26

----

and Cinemark retained alladvertising contracts signed on or before the close of business on July 15,2005, subject to an administrative fee payable to National CineMedia to servicesuch contracts. For contracts signed by National CineMedia after the close ofbusiness on March 31, 2005, AMC and Regal, and with respect to advertisingcontracts signed after the close of business on July 15, 2005, Cinemark,through their respective theatre exhibition subsidiaries, receive revenue fromNational CineMedia with respect to advertising and event services at thetheatres of National CineMedia partners and other third party exhibitioncompanies, through an agreed upon formula based generally on screen count andattendance.

On February 13,2007, NCM Inc., a newly formed entity that serves as the sole manager ofNational CineMedia, completed the initial public offering, or IPO, of itscommon stock. NCM Inc. sold 38 million shares of its common stock for $21 pershare in the IPO, less underwriting discounts and expenses. Because NCM Inc.’sCertificate of Incorporation requires that NCM Inc. at all times maintain aone-to-one ratio between the number of common units of National CineMedia ownedby NCM Inc. and the number of outstanding shares of common stock of NCM Inc.,NCM Inc. used a portion of the net proceeds from the IPO to acquire newlyissued common units from National CineMedia. In addition, National CineMediapaid the net proceeds to each of Regal, AMC and Cinemark in exchange formodifying payment obligations for access to their respective theatres, forwhich Regal received a payment of $281 million. Upon the closing of the IPO,National CineMedia entered into a $725 million term loan facility, the netproceeds of which were used to redeem preferred units issued to each of Regal,AMC and Cinemark on a pro rata basis pursuant to a recapitalization of NationalCineMedia prior to completion of the IPO. As discussed in Note 14 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K,we received $315.1 million as a result of the preferred unit redemption. At theclosing of the IPO, the underwriters exercised their over-allotment option topurchase an additional 4 million shares of common stock of NCM Inc. at theinitial offering price of $21 per share, less underwriting discounts andcommissions. In connection with this over-allotment option exercise, Regal, AMCand Cinemark each sold to NCM Inc. common units of National CineMedia on a prorata basis at the initial offering price of $21 per share, less underwritingdiscounts and expenses. Regal sold 1,637,826 common units to NCM Inc. forproceeds of $32.2 million, and upon completion of this sale of common units,Regal held 21,230,712 common units of National CineMedia, or a 22.6% interest.After the payment of current taxes, we estimate net proceeds from thesetransactions to total approximately $445 million. We are currently exploringalternatives for using these proceeds, and may use some or all of the proceedsfor strategic acquisitions or to return value to stockholders through anextraordinary dividend, stock repurchases or other corporate uses. SeeNote 4 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K for further discussion of this jointventure arrangement.

For a summary of otherindustry trends as well as other risks and uncertainties relevant to theCompany, see “Business—Industry Overview and Trends” and “Risk Factors.”

**Results ofOperations**

The 2006 fiscal year was a solid year for the industryand the Company. Based on our review of industry sources, national box officerevenues were estimated to have increased by approximately 4.0% during fiscalyear 2006 in comparison to fiscal year 2005. The industry achieved theseresults with strong attendance from the breadth of the fiscal 2006 film slate,coupled with ticket price increases.

Our total revenue for the year ended December 28,2006 (“Fiscal 2006 Period”) was $2,598.1 million, consisting of $1,727.1million of admissions revenues, $696.7 million from concessions revenues and$174.3 million of other operating revenues, and represented a 3.2% increaseover total revenues of $2,516.7 million for the year ended December 29,2005 (“Fiscal 2005 Period”).

27

----

Our Fiscal 2006 Period admissions revenues werefavorably impacted by a 1.3% increase in attendance, coupled with a 2.6%increase in average ticket prices. The increase in the Fiscal 2006 Periodattendance was primarily attributable to a strong box office led by the overallbreadth of the Fiscal 2006 Period film slate. Our Fiscal 2006 Period attendancealso benefited by approximately 109 new screens added since the end of theFiscal 2005 Period and the 58 screens acquired from AMC during the Fiscal 2006Period, partially offset by the closure of approximately 227 underperformingscreens subsequent to the end of the Fiscal 2005 period. In addition, theFiscal 2006 Period attendance was favorably impacted by a full twelve months ofresults of operations from the 306 screens acquired from R/C Theatres andEastern Federal Corporation during the Fiscal 2005 Period. The increase in theFiscal 2006 Period average ticket price was primarily attributable to periodicpricing reviews conducted by the Company, which includes analysis of variousfactors, including general inflationary trends and local market conditions.Based on our review of certain industry sources, the increase in our admissionsrevenues was in line with the industry’s results for the Fiscal 2006 Period ascompared to the Fiscal 2005 Period.

In addition, during the Fiscal 2006 Period, weexperienced growth in average concession revenues per patron and a slightdecline in other operating revenues. The growth in average concession revenuesper patron was primarily attributable to the success of certain family-orientedand concession-friendly films such as *Pirates**of the Caribbean: Dead Man’s Chest, X-Men 3and Cars* exhibited during the Fiscal 2006 Period and periodicpricing reviews. The decrease in other operating revenues in the Fiscal 2006Period was primarily attributable to the revenues generated from NationalCineMedia being less than generated in the Fiscal 2005 Period due to thepayment arrangement described in further detail under Note 4 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K.Such decreases were partially offset by increased revenues related to ourvendor marketing programs and incremental other theatre revenues.

Income from operations increased 14.4% to$308.5 million for the Fiscal 2006 Period compared to $269.6 millionin the Fiscal 2005 Period. The net increase in income from operations duringthe Fiscal 2006 Period was primarily attributable to incremental admissions andconcessions revenues described above, partially offset by lower other operatingrevenues and increases in certain operating expense items described in furtherdetail below. Net income decreased to $86.3 million in the Fiscal 2006Period compared to net income of $91.8 million in the Fiscal 2005 Period.Earnings per diluted share also decreased to $0.56 for the Fiscal 2006 Periodcompared to $0.59 during the Fiscal 2005 Period. EBITDA (earnings beforeinterest, taxes, depreciation and amortization) was $466.3 million for theFiscal 2006 Period, a decrease of 0.6% from $469.1 million in the Fiscal2005 Period and represented an EBITDA margin of 17.9%. The decrease in netincome, earnings per diluted share and EBITDA are primarily due to the loss ondebt extinguishment recorded in the Fiscal 2006 Period in connection withconversions of a portion of the Company’s Convertible Senior Notes (seeNote 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K for further discussion) coupled withdecreases in other operating revenues and increases in certain expense itemsdescribed in further detail below, partially offset by incremental admissionsand concessions revenues due to the growth in attendance and increases inaverage ticket prices and average concessions per patron.

A tabular reconciliation of net income to EBITDA andnet cash provided by operating activities is provided below under “Results ofOperations—EBITDA.”

During the Fiscal2006 Period, we continued to make progress with respect to the following strategicinitiatives:

·       We demonstrated ourcommitment to providing incremental value to our stockholders. Total cashdividends distributed to our stockholders during the Fiscal 2006 Period totaledapproximately $179.6 million.

28

----

·       During September 2006,the Company acquired four theatres with a total of 58 screens from AMC. Regalpurchased two of these AMC theatres representing 26 screens for approximately$34.1 million in cash, subject to post closing adjustments, and acquired theother two AMC theatres representing 32 screens in exchange for two Regaltheatres consisting of 32 screens.

·       In addition to the theatresacquired from AMC, we opened 8 new theatres with 109 screens and closed 28theatres with 227 screens (including the two theatres exchanged with AMC),ending the Fiscal 2006 Period with 539 theaters and 6,403 screens.

·       On February 13, 2007, NCM Inc., a newly formed entity that servesas the sole manager of National CineMedia, completed the initial publicoffering, or IPO, of its common stock. NCM Inc. sold 38 million shares of itscommon stock for $21 per share in the IPO, less underwriting discounts andexpenses. Because NCM Inc.’s Certificate of Incorporation requires that NCMInc. at all times maintain a one-to-one ratio between the number of commonunits of National CineMedia owned by NCM Inc. and the number of outstandingshares of common stock of NCM Inc., NCM Inc. used a portion of the net proceedsfrom the IPO to acquire newly issued common units from National CineMedia. Inaddition, National CineMedia paid the net proceeds to each of Regal, AMC andCinemark in exchange for modifying payment obligations for access to theirrespective theatres, for which Regal received a payment of $281 million. Uponthe closing of the IPO, National CineMedia entered into a $725 million termloan facility, the net proceeds of which were used to redeem preferred unitsissued to each of Regal, AMC and Cinemark on a pro rata basis pursuant to arecapitalization of National CineMedia prior to completion of the IPO. Asdiscussed in Note 14 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, we received $315.1 million as a result ofthe preferred unit redemption. At the closing of the IPO, the underwritersexercised their over-allotment option to purchase an additional 4 millionshares of common stock of NCM Inc. at the initial offering price of $21 pershare, less underwriting discounts and commissions. In connection with thisover-allotment option exercise, Regal, AMC and Cinemark each sold to NCM Inc.common units of National CineMedia on a pro rata basis at the initial offeringprice of $21 per share, less underwriting discounts and expenses. Regal sold1,637,826 common units to NCM Inc. for proceeds of $32.2 million, and upon completionof this sale of common units, Regal held 21,230,712 common units of NationalCineMedia, or a 22.6% interest. After the payment of current taxes, we estimatenet proceeds from these transactions to total approximately $445 million. Weare currently exploring alternatives for using these proceeds, and may use someor all of the proceeds for strategic acquisitions or to return value tostockholders through an extraordinary dividend, stock repurchases or othercorporate uses. See Note 4 to the consolidated financial statementsincluded in Part II, Item 8 of this Form 10-K for furtherdiscussion of this joint venture arrangement.

We are optimistic regarding the 2007 film slate andshare the view of a number of film studio executives and analysts who believethe industry is poised to benefit from a year of solid box office performance.Evidenced by the film studios’ continued efforts to promote and market upcomingfilm releases, 2007 appears to be another year of high-profile releases such as*Spider-Man 3, Shrek the Third, Pirates ofthe Caribbean: At World’s End, Ocean’s Thirteen, Ratatouille, Harry Potter and theOrder of the Phoenix, The Bourne Ultimatum and Rush Hour 3.*

We intend to grow our theatre circuit throughselective expansion and through accretive acquisitions. With respect to capitalexpenditures, due in part to the timing of certain construction projects, weexpect capital expenditures to be in the range of $120 million to$140 million for fiscal 2007, consisting of new theatre development,expansion of existing theatre facilities, upgrades and replacements.

Overall for the fiscal 2007 year, we areforecasting a modest increase in attendance as a result of the upcominghigh-profile film releases described above and modest increases in ticketprices and average 

29

----

concessions per patron. Inaddition, we expect fiscal 2007 admission and concessions revenues to besupported by our continued focus on efficient theatre operations. We willcontinue to maintain a business strategy focused on the evaluation of accretiveacquisition opportunities, selective upgrades and providing incremental returnsto our stockholders. For an understanding of the significant factors thatinfluenced our performance during the past three fiscal years, the precedingand following discussion should be read in conjunction with the consolidatedfinancial statements and the notes thereto presented in this Form 10-K.

Thefollowing table sets forth the percentage of total revenues represented bycertain items included in our consolidated statements of income for the Fiscal2006 Period, the Fiscal 2005 Period and the year ended December 30, 2004 (“Fiscal2004 Period”) (dollars and attendance in millions, except average ticket pricesand average concession per patron): 

| ** **                                                                                                                                                                                                                | ** ** | **Fiscal 2006 Period** | ** ** | **Fiscal 2005 Period** | ** ** | **Fiscal 2004 Period** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                                                                                | ** ** | **$ **                      | ** ** | **% of  Revenue**           | ** ** | **$ **                      | ** ** | **% of  Revenue** | ** ** | **$ ** | ** ** | **% of  Revenue** | ** ** |
| Revenues:                                                                                                                                                                                                                 |       |                             |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Admissions                                                                                                                                                                                                                |       | $                                | 1,727.1    |                             |       | 66.5                             | %          |   | $ | 1,662.2 |   |   | 66.0 | % |   | $ | 1,657.9 |   |   | 67.2 | % |   |
| Concessions                                                                                                                                                                                                               |       | 696.7                            |       |                             | 26.8       |                             |       | 659.8 |   |   | 26.2 |   |   | 636.4 |   |   | 25.8 |   |   |
| Other operating revenue                                                                                                                                                                                                   |       | 174.3                            |       |                             | 6.7        |                             |       | 194.7 |   |   | 7.8 |   |   | 173.7 |   |   | 7.0 |   |   |
| Total revenue                                                                                                                                                                                                             |       | 2.598.1                          |       |                             | 100.0      |                             |       | 2,516.7 |   |   | 100.0 |   |   | 2,468.0 |   |   | 100.0 |   |   |
| Operating expenses:                                                                                                                                                                                                       |       |                             |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Film rental and advertising costs(1)                                                                                                                                                                                      |       | 906.6                            |       |                             | 52.5       |                             |       | 886.7 |   |   | 53.3 |   |   | 878.5 |   |   | 53.0 |   |   |
| Cost of concessions(2)                                                                                                                                                                                                    |       | 104.8                            |       |                             | 15.0       |                             |       | 96.4 |   |   | 14.6 |   |   | 94.9 |   |   | 14.9 |   |   |
| Rent expense(3)                                                                                                                                                                                                           |       | 323.2                            |       |                             | 12.4       |                             |       | 310.5 |   |   | 12.3 |   |   | 287.0 |   |   | 11.6 |   |   |
| Other operating expenses (3)                                                                                                                                                                                              |       | 669.5                            |       |                             | 25.8       |                             |       | 668.8 |   |   | 26.6 |   |   | 638.1 |   |   | 25.9 |   |   |
| General and administrative expenses(including  share-based compensation of $8.6 million, $5.7 million and $5.6 million for  the Fiscal 2006 Period, the Fiscal 2005 Period and the Fiscal 2004 Period,  respectively) (3) |       | 65.9                             |       |                             | 2.5        |                             |       | 67.9 |   |   | 2.7 |   |   | 69.9 |   |   | 2.8 |   |   |
| Depreciation and amortization(3)                                                                                                                                                                                          |       | 197.1                            |       |                             | 7.6        |                             |       | 199.3 |   |   | 7.9 |   |   | 174.6 |   |   | 7.1 |   |   |
| Net loss (gain) on disposal and impairment of  operating assets(3)                                                                                                                                                        |       | 15.1                             |       |                             | 0.6        |                             |       | 11.6 |   |   | 0.5 |   |   | (1.4 | ) |   | (0.1 | ) |   |
| Equity in earnings of joint venture including former  employee compensation(3)                                                                                                                                            |       | 7.4                              |       |                             | 0.3        |                             |       | 5.9 |   |   | 0.2 |   |   | — |   |   | — |   |   |
| Net loss on lawsuit settlements(3)                                                                                                                                                                                        |       | —                           |       |                             | —     |                             |       | — |   |   | — |   |   | 5.3 |   |   | 0.2 |   |   |
| Total operating expenses(3)                                                                                                                                                                                               |       | 2,289.6                          |       |                             | 88.1       |                             |       | 2,247.1 |   |   | 89.3 |   |   | 2,146.9 |   |   | 87.0 |   |   |
| Income from operations(3)                                                                                                                                                                                                 |       | 308.5                            |       |                             | 11.9       |                             |       | 269.6 |   |   | 10.7 |   |   | 321.1 |   |   | 13.0 |   |   |
| Interest expense, net(3)                                                                                                                                                                                                  |       | 125.2                            |       |                             | 4.8        |                             |       | 117.3 |   |   | 4.7 |   |   | 95.6 |   |   | 3.9 |   |   |
| Provision for income taxes(3)                                                                                                                                                                                             |       | 57.7                             |       |                             | 2.2        |                             |       | 60.7 |   |   | 2.4 |   |   | 59.5 |   |   | 2.4 |   |   |
| Net income(3)                                                                                                                                                                                                             |       | 86.3                             |       |                             | 3.3        |                             |       | 91.8 |   |   | 3.6 |   |   | 82.5 |   |   | 3.3 |   |   |
| EBITDA(3),(4)                                                                                                                                                                                                             |       | $                                | 466.3      |                             |       | 17.9                             |       |   | $ | 469.1 |   |   | 18.6 |   |   | $ | 412.2 |   |   | 16.7 |   |   |
| Attendance                                                                                                                                                                                                                |       | 247.4                            |       |                             | *          |                             |       | 244.3 |   |   | * |   |   | 253.8 |   |   | * |   |   |
| Average ticket price(5)                                                                                                                                                                                                   |       | $                                | 6.98       |                             |       | *                                |       |   | $ | 6.80 |   |   | * |   |   | $ | 6.53 |   |   | * |   |   |
| Average  concession per patron(6)                                                                                                                                                                                         |       | $                                | 2.82       |                             |       | *                                |       |   | $ | 2.70 |   |   | * |   |   | $ | 2.51 |   |   | * |   |   |

----

*                    Not meaningful

(1)          Percentage of revenuescalculated as a percentage of admissions revenues.

30

----

(2)          Percentage of revenuescalculated as a percentage of concessions revenues.

(3)          Percentage of revenuescalculated as a percentage of total revenues.

(4)          EBITDA representsearnings before interest, taxes, depreciation and amortization. See “—Resultsof Operations—EBITDA” below for atabular reconciliation of net income to EBITDA and net cash provided byoperating activities.

(5)          Calculated as admissionsrevenue/attendance.

(6)          Calculatedas concessions revenue/attendance.

***Fiscal 2006 Period Compared to Fiscal 2005 Period***

***Admissions***

During the Fiscal 2006Period, total admissions revenues increased $64.9 million, or 3.9%, to$1,727.1 million, from $1,662.2 million for the Fiscal 2005 Period.Our Fiscal 2006 Period box office results were favorably impacted by a 1.3%increase in attendance, coupled with a 2.6% increase in average ticket prices.The increase in the Fiscal 2006 Period attendance was primarily attributable toa strong box office led by the overall breadth of the Fiscal 2006 Period filmslate. Our Fiscal 2006 Period attendance also benefited by the addition ofapproximately 109 new screens since the end of the Fiscal 2005 Period and the58 screens acquired from AMC during the Fiscal 2006 Period, partially offset bythe closure of approximately 227 underperforming screens subsequent to the endof the Fiscal 2005 period. In addition, the Fiscal 2006 Period attendance wasfavorably impacted by the 306 screens acquired from R/C Theatres and EasternFederal Corporation during the Fiscal 2005 Period. Since the R/C Theatres andEastern Federal Corporation acquisitions occurred during the Fiscal 2005Period, the results of operations of such theatres were only partially includedin the Fiscal 2005 Period results. See Note 3 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-Kfor additional information regarding these acquisitions.  The increase in the Fiscal 2006 Period averageticket price was primarily attributable to periodic pricing reviews conductedby the Company, which includes analysis of various factors, including generalinflationary trends and local market conditions. Based on our review of certainindustry sources, the increase in our admissions revenues was in line with theindustry’s results for the Fiscal 2006 Period as compared to the Fiscal 2005Period.

***Concessions***

Total concessions revenuesincreased $36.9 million, or 5.6%, to $696.7 million for the Fiscal2006 Period, from $659.8 million for the Fiscal 2005 Period. The increasein concessions revenues in the Fiscal 2006 Period compared to the Fiscal 2005Period was due to a 4.4% increase in average concessions per patron, coupledwith the aforementioned Fiscal 2006 Period increase in attendance. The increasein the Fiscal 2006 Period concessions revenue and average concessions perpatron was primarily attributable to changes in our concessions product mix(including certain size changes) and increases in concession prices. Inaddition, the success of certain family-oriented and concession-friendly filmssuch as *Pirates**of the Caribbean: Dead Man’s Chest, X-Men 3 and Cars*benefited concessions revenues for the Fiscal 2006 period.

***Other Operating Revenues***

Total other operatingrevenues decreased $20.4 million, or 10.5%, to $174.3 million for theFiscal 2006 Period, from $194.7 million for the Fiscal 2005 Period. Includedin other operating revenues are on-screen advertising revenues, the activitiesof the National CineMedia joint venture subsequent to its formation on March 29,2005, marketing revenues from our vendor marketing programs and other theatre revenues.The decrease in other operating revenues in the Fiscal 2006 Period wasprimarily attributable to the revenues generated from National CineMedia beingless than generated in the Fiscal 2005 Period due 

31

----

to thepayment arrangement described in further detail under Note 4 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K.Such decreases were partially offset by increased revenues related to ourvendor marketing programs and incremental other theatre revenues.

***Film Rental and Advertising Costs***

During the Fiscal 2006Period, film rental and advertising costs as a percentage of admissionsrevenues decreased to 52.5% as compared to 53.3% in the Fiscal 2005 Period. Thedecreases in film rental and advertising costs as a percentage of box officerevenues during the Fiscal 2006 Period was primarily the result of a higherpercentage of box office revenues generated from lower grossing films, coupledwith higher film rental costs associated with certain Fiscal 2005 Period filmssuch as *Star Wars: Episode III—Revenge ofthe Sith*.

***Cost of Concessions***

Cost of concessions as apercentage of concessions revenues increased to 15.0% in the Fiscal 2006 Periodas compared to 14.6% in the Fiscal 2005 Period. The increase in the cost ofconcessions as a percentage of concession revenues was primarily related to agreater percentage of lower margin concession items in the overall mix ofconcession product sold during the Fiscal 2006 Period as compared to the Fiscal2005 Period.

***Rent Expense***

During the Fiscal 2006Period, rent expense increased $12.7 million or 4.1% to$323.2 million in the Fiscal 2006 Period, from $310.5 million in theFiscal 2005 Period. The increase in rent expense in the Fiscal 2006 Period wasprimarily attributable to general inflationary increases along with incrementalrent from the inclusion of 109 new screens added since the end of the Fiscal2005 Period coupled with incremental rent from the inclusion of a full twelvemonths of rent expense for the theatres purchased from R/C Theatres and EasternFederal Corporation during the Fiscal 2005 Period, partially offset by theclosure of approximately 227 screens subsequent to the end of the Fiscal 2005period.

***Other Operating Expenses***

Other operating expensesas a percentage of total revenues decreased to 25.8% in the Fiscal 2006 Period,from 26.6% in the Fiscal 2005 Period. The decrease in total other operatingexpenses as a percentage of total revenues in the Fiscal 2006 Period wasprimarily attributable to the decrease in expenses of National CineMedia, dueto the arrangements described in further detail under Note 4 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K,partially offset by an increase in certain non-rent occupancy costs and certainother variable operating costs related to the increase in attendance.

***General and Administrative Expenses***

General and administrativeexpenses decreased $2.0 million, or 2.9%, to $65.9 million during theFiscal 2006 Period, from $67.9 million in the Fiscal 2005 Period. As apercentage of total revenues, general and administrative expenses decreased to2.5% in the Fiscal 2006 Period, from 2.7% in the Fiscal 2005 Period. Thedecrease in general and administrative expenses during the Fiscal 2006 Periodas compared to the Fiscal 2005 Period was primarily attributable to thecontinued reduction of Regal CineMedia general and administrative expensesresulting from the National CineMedia joint venture, partially offset by anincrease in share-based compensation expense primarily resulting from theCompany’s adoption of Statement of Financial Accounting Standards No. 123(revised), “Share-Based Payment,” effective December 30, 2005 (seeNote 9 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K for further discussion).

32

----

***Depreciation and Amortization***

For the Fiscal 2006Period, depreciation and amortization decreased $2.2 million, or 1.1%, to $197.1 million, from $199.3 million in the Fiscal 2005 Period. Thedecrease in depreciation and amortization expense during the Fiscal 2006 Periodwas primarily due to the closure of 227 screens subsequent to the end of theFiscal 2005 Period, for which the depreciation and amortization exceeded theincremental depreciation and amortization costs associated with the inclusionof a full twelve months of results of operations for the theatres purchasedfrom R/C Theatres and Eastern Federal Corporation during the Fiscal 2005 Periodand the 109 new screens added after the end of the Fiscal 2005 Period.

***Income from Operations***

Income from operationstotaled approximately $308.5 million for the Fiscal 2006 Period, whichrepresents an increase of $38.9 million or 14.4%, from $269.6 millionin the Fiscal 2005 Period. The net increase in income from operations duringthe Fiscal 2006 Period was primarily attributable to incremental admissions andconcessions revenues described above, partially offset by decreases in otheroperating revenues and increases in certain operating expense items such asfilm and advertising, costs of concessions, rent, and impairment of operatingassets.

***Interest Expense***

Net interest expenseincreased $7.9 million, or 6.7%, to $125.2 million in the Fiscal 2006Period, from $117.3 million in the Fiscal 2005 Period. The increase in netinterest expense during the Fiscal 2006 Period as compared to the Fiscal 2005Period was principally due to incremental borrowings under our term facilitycoupled with a higher effective interest rate on the term facility during theFiscal 2006 Period, partially offset by lower outstanding borrowings on ourConvertible Senior Notes during the Fiscal 2006 Period due to conversions of aportion of such Convertible Senior Notes (see Note 5 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-Kfor further discussion).

***Income Taxes***

The provision for incometaxes of $57.7 million and $60.7 million****for the Fiscal 2006 Period and the Fiscal 2005 Period,respectively, reflect effective tax rates of approximately 40.1% and 39.8%,respectively. The effective tax rates for Fiscal 2005 Period to the Fiscal 2006Period reflect the impact of certain non-deductible expenses.

***Net Income***

During the Fiscal 2006Period, net income totaled $86.3 million, which represents a decrease of$5.5 million, from $91.8 million in the Fiscal 2005 Period. Thedecrease in net income for the Fiscal 2006 Period was primarily attributable tothe approximate $37.0 million****losson debt extinguishment (including a related $1.2 million write-off ofunamortized debt issue costs) recorded in the Fiscal 2006 Period in connectionwith conversions of a portion of the Company’s Convertible Senior Notes (seeNote 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K for further discussion), decreases in otheroperating revenues and increases in certain expense items described in furtherdetail above, partially offset by incremental admissions and concessionsrevenues due to the growth in attendance and increases in average ticket pricesand average concessions per patron.

33

----

***Fiscal 2005 Period Compared to Fiscal 2004 Period***

***Admissions***

Total admissions revenuesincreased $4.3 million, or 0.3%, to $1,662.2 million for the Fiscal2005 Period, from $1,657.9 million for the Fiscal 2004 Period. Our Fiscal2005 Period box office results were favorably impacted by a 4.1% increase inaverage ticket prices, largely offset by a 3.7% decline in attendance. Thedecline in the Fiscal 2005 Period attendance was partially mitigated by theinclusion of the results of operations of the 30 Signature Theatres locationsacquired on September 30, 2004, the seven theatres acquired from R/CTheatres on April 28, 2005 and the 21 theatres acquired from EasternFederal Corporation on July 21, 2005. Since the R/C and Eastern Federalacquisitions occurred subsequent to the Fiscal 2004 Period, the results ofoperations of such theatres were not included in the Fiscal 2004 Periodresults. In addition, the Fiscal 2005 Period results include the results ofoperations of the acquired Signature Theatres for a full twelve months, whereasthe results of operations of Signature Theatres were excluded from the firstnine months of the Fiscal 2004 Period because the acquisition did not occuruntil September 30, 2004. Excluding the impact of the incrementalattendance from these theatres, the Company’s Fiscal 2005 Period totalattendance declined by approximately 9.2%. See Note 3 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-Kfor additional information regarding these acquisitions. The increase in theFiscal 2005 Period average ticket price was primarily attributable to periodicpricing reviews conducted by the Company, which includes analysis of variousfactors, including general inflationary trends and local market conditions. Theincrease in the average ticket prices per patron for the Fiscal 2005 Period wasnot enough to offset the Company’s Fiscal 2005 Period attendance per averagescreen decline of 6.9%, resulting in a decline in per average screen box officerevenues of 3.0%. Based on certain industry sources, on a same screen basis,the percentage by which the Fiscal 2005 Period calendar box office revenuesdeclined from the prior year comparative period approximated the percentage bywhich industry box office revenue declined for the same time period.

***Concessions***

Total concessions revenuesincreased $23.4 million, or 3.7%, to $659.8 million for the Fiscal2005 Period, from $636.4 million for the Fiscal 2004 Period. The increasein concessions revenues in the Fiscal 2005 Period compared to the Fiscal 2004Period was due to a 7.6% increase in average concessions per patron, partiallyoffset by a 3.7% decrease in attendance. The net increase in the Fiscal 2005Period concessions revenue and average concessions per patron was primarily attributableto changes in our concessions product mix (including certain pricing and sizechanges) and the increased breadth of family-oriented and concession-friendlyfilm product exhibited during the Fiscal 2005 Period.

***Other Operating Revenues***

Total other operatingrevenues increased $21.0 million, or 12.1%, to $194.7 million for theFiscal 2005 Period, from $173.7 million for the Fiscal 2004 Period.Included in other operating revenues are on-screen advertising revenues,business meetings and concert event revenues generated by Regal CineMedia priorto the formation of the National CineMedia, the activities of the NationalCineMedia joint venture subsequent to its formation, marketing revenues fromour vendor marketing programs and other theatre revenues. The increase in otheroperating revenues was primarily attributable to increased revenues related toour vendor marketing programs and incremental revenues from the inclusion ofthe theatres purchased from Signature Theatres, R/C Theatres and Eastern FederalCorporation.

***Film Rental and Advertising Costs***

During the Fiscal 2005Period, film rental and advertising costs as a percentage of admissionsrevenues increased to 53.3% as compared to 53.0% in the Fiscal 2004 Period. Theincreases in film rental 

34

----

andadvertising costs during the Fiscal 2005 Period as a percentage of box officerevenues was a result of film product mix and higher film rental costassociated with certain Fiscal 2005 films such as *Star Wars: Episode III—Revenge of the Sith*.

***Cost of Concessions***

Cost of concessions as apercentage of concessions revenues decreased to 14.6% in the Fiscal 2005 Periodas compared to 14.9% in the Fiscal 2004 Period. The decrease in the cost ofconcessions as a percentage of concession revenues during the Fiscal 2005Period was primarily attributable to the mix of concession product.

***Rent Expense***

Rent expense increased$23.5 million or 8.2% to $310.5 million in the Fiscal 2005 Period,from $287.0 million in Fiscal 2004 Period. Rent expense as a percentage oftotal revenues increased to 12.3% in the Fiscal 2005 Period, from 11.6% in theFiscal 2004 Period. The increase in rent expense in the Fiscal 2005 Period wasprimarily attributable to incremental rent from the inclusion of the theatrespurchased in the Signature, R/C and Eastern Federal acquisitions.

***Other Operating Expenses***

For the Fiscal 2005Period, other operating expenses increased $30.7 million, or 4.8%, to$668.8 million, from $638.1 million in the Fiscal 2004 Period. Otheroperating expenses as a percentage of total revenues increased to 26.6% in theFiscal 2005 Period, from 25.9% in the Fiscal 2004 Period. The increase in totalother operating expenses in the Fiscal 2005 Period was primarily attributableto added costs associated with the inclusion of the theatres purchased fromSignature Theatres, R/C Theatres and Eastern Federal Corporation.

***General and Administrative Expenses***

General and administrativeexpenses decreased $2.0 million, or 2.9%, to $67.9 million during theFiscal 2005 Period, from $69.9 million in the Fiscal 2004 Period. As apercentage of total revenues, general and administrative expenses decreased to2.7% during the Fiscal 2005 Period, from 2.8% in the Fiscal 2004 Period. Thedecrease in general and administrative expenses during the Fiscal 2005 Periodwas primarily attributable to a reduction of Regal CineMedia general andadministrative expenses resulting from the formation of National CineMedia,partially offset by increases in legal and professional fees, of whichapproximately $1.0 million related to expenses in connection with theNational CineMedia transaction.

***Depreciation and Amortization***

Depreciation andamortization increased $24.7 million, or 14.1%, to $199.3 million inthe Fiscal 2005 Period, from $174.6 million in the Fiscal 2004 Period. Theincrease in depreciation and amortization during the Fiscal 2005 Period wasprimarily due to incremental depreciation and amortization from the inclusionof the theatres purchased from Signature Theatres, R/C Theatres and Eastern FederalCorporation.

***Income from Operations***

Income from operationstotaled approximately $269.6 million for the Fiscal 2005 Period, whichrepresents a decrease of $51.5 million or 16.0%, from $321.1 millionin the Fiscal 2004 Period. The decrease in income from operations during theFiscal 2005 Period was primarily attributable to increases in certain operatingexpense items such as rent, depreciation and amortization associated with theinclusion of the theatres purchased from Signature Theatres, R/C Theatres andEastern Federal Corporation, 

35

----

incrementalcosts (including severance expense of $7.4 million) associated with theformation of the National CineMedia joint venture arrangement, a net loss onthe disposal and impairment of operating assets, partially offset byincremental admissions, concessions and other operating revenues and theinclusion of the results of operations of the theatres purchased from SignatureTheatres, R/C Theatres and Eastern Federal Corporation, including certainrealized benefits associated with the integration of such acquisitions.

***Interest Expense***

Net interest expenseincreased $21.7 million, or 22.7%, to $117.3 million in the Fiscal2005 Period, from $95.6 million in the Fiscal 2004 Period. The increase ininterest expense in the Fiscal 2005 Period was principally due to higheroutstanding indebtedness as a result of the financing arrangements entered intofor the payment of our June 2004 extraordinary dividend consummated in theFiscal 2004 Period described further in Notes 1 and 5 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K.

***Income Taxes***

The provision for income taxes of $60.7 millionand $59.5 million for the Fiscal 2005 Period and the Fiscal 2004 Periodreflect effective tax rates of approximately 39.8% and 41.9%, respectively. Theeffective tax rate for each period reflects the impact of certainnon-deductible expenses. The reduction in the effective tax rate from theFiscal 2004 Period to the Fiscal 2005 Period was primarily attributable tomanagement’s determination during 2004 that it was more likely than not thatcertain state tax attributes would not be realized.

As discussed inNote 7 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K during 2005, the Internal RevenueService (“IRS”) examined the Company’s 2002 and 2003 federal income taxreturns. In October 2005, the examination of the Company’s federal taxreturns for such years was completed, and the Company and the IRS agreed tocertain adjustments to the years under audit. Such adjustments did not have amaterial impact on the Company’s provision for income taxes.

***Net Income***

Net income totaled$91.8 million for the Fiscal 2005 Period, which represents an increase of$9.3 million, from $82.5 million in the Fiscal 2004 Period. Theincrease in net income for the Fiscal 2005 Period was primarily attributable toa $76.1 million reduction in a loss on extinguishment of debt related tothe Fiscal 2004 Period refinancing transactions described in Notes 1 and 5 tothe consolidated financial statements included in Part II, Item 8 ofthis Form 10-K, partially offset by the decline in operating incomeand incremental interest expense described above.

***EBITDA***

EBITDAwas approximately $466.3 million, or 17.9% of total revenues for theFiscal 2006 Period, $469.1 million, or 18.6% of total revenues, for theFiscal 2005 Period and $412.2 million, or 16.7% of total revenues, for theFiscal 2004 Period. The decrease in EBITDA for the Fiscal 2006 Period wasprimarily attributable to the approximate $37.0 million****loss on debt extinguishment (including arelated $1.2 million write-off of unamortized debt issue costs) recorded in theFiscal 2006 Period in connection with conversions of a portion of the Company’sConvertible Senior Notes (see Note 5 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K forfurther discussion), partially offset by an increase in operating incomedescribed above. We believe EBITDA provides a useful measure of liquidity andfinancial performance for our investors because EBITDA is an industrycomparative measure of liquidity and financial performance prior to the paymentof interest and taxes and because it is a primary 

36

----

financial measure used by management to assess ourperformance and liquidity. EBITDA is not a measurement of liquidity orfinancial performance under accounting principles generally accepted in theUnited States of America and should not be considered in isolation or construedas a substitute for net income or other operations data or cash flow dataprepared in accordance with accounting principles generally accepted in theUnited States of America for purposes of analyzing our profitability orliquidity. In addition, not all funds depicted by EBITDA are available formanagement’s discretionary use. For example, a substantial portion of suchfunds are subject to contractual restrictions and functional requirements fordebt service, fund necessary capital expenditures and to meet other commitmentsfrom time to time as described in more detail in this Form 10-K.EBITDA, as calculated, may not be comparable to similarly titled measuresreported by other companies. A reconciliation of net income to EBITDA and netcash provided by operating activities is calculated as follows (in millions): 

| ** **                                   | ** ** | **Fiscal 2006 Period** | ** ** | **Fiscal 2005 Period** | ** ** | **Fiscal 2004 Period** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Net income                                   |       |                             | $          | 86.3                             |       |                             |       | $ | 91.8 |   |   |   | $ | 82.5 |   |   |
| Interest expense,  net                       |       |                             | 125.2      |                             |       |                             | 117.3      |   |   |   | 95.6 |   |   |
| Provision for  income taxes                  |       |                             | 57.7       |                             |       |                             | 60.7       |   |   |   | 59.5 |   |   |
| Depreciation and  amortization               |       |                             | 197.1      |                             |       |                             | 199.3      |   |   |   | 174.6 |   |   |
| EBITDA                                       |       |                             | 466.3      |                             |       |                             | 469.1      |   |   |   | 412.2 |   |   |
| Interest expense,  net                       |       |                             | (125.2     | )                                |       |                             | (117.3     | ) |   |   | (95.6 | ) |   |
| Provision for  income taxes                  |       |                             | (57.7      | )                                |       |                             | (60.7      | ) |   |   | (59.5 | ) |   |
| Deferred income  taxes                       |       |                             | (19.8      | )                                |       |                             | (15.5      | ) |   |   | 2.2 |   |   |
| Changes in  operating assets and liabilities |       |                             | (29.6      | )                                |       |                             | 87.8       |   |   |   | 50.1 |   |   |
| Loss on debt  extinguishment                 |       |                             | 39.2       |                             |       |                             | —     |   |   |   | 76.1 |   |   |
| Other items, net                             |       |                             | 31.2       |                             |       |                             | 23.0       |   |   |   | 1.9 |   |   |
| Net cash provided by  operating activities   |       |                             | $          | 304.4                            |       |                             |       | $ | 386.4 |   |   |   | $ | 387.4 |   |   |

 

***Cash Flows***

Thefollowing table summarizes certain cash flow data for the Fiscal 2006 Period,Fiscal 2005 and Fiscal 2004 Period: 

| ** **                                 | ** ** | **Fiscal 2006 Period** | ** ** | **Fiscal 2005 Period** | ** ** | **Fiscal 2004 Period** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **(in millions)**           | ** ** |
| Net cash provided  by operating activities |       |                             | $          | 304.4                            |       |                             |       | $ | 386.4 |   |   |   | $ | 387.4 |   |   |
| Net cash used in  investing activities     |       |                             | (151.7     | )                                |       |                             | (243.0     | ) |   |   | (306.2 | ) |   |
| Net cash used in  financing activities     |       |                             | (186.8     | )                                |       |                             | (191.0     | ) |   |   | (126.1 | ) |   |
| Net decrease in cash and  cash equivalents |       |                             | $          | (34.1                            | )          |                             |       | $ | (47.6 | ) |   |   | $ | (44.9 | ) |   |

 

*Fiscal 2006 PeriodCompared to Fiscal 2005 Period*

Net cash flows generated from operating activitieswere approximately $304.4 million for the Fiscal 2006 Period, whichrepresents a decrease of $82.0 million compared to $386.4 million in theFiscal 2005 Period. Fiscal 2006 Period net cash flows generated from operatingactivities were impacted by several factors including an increase in totalrevenues due primarily to increases in attendance coupled with increases inaverage ticket prices and average concessions per patron, offset by increasesin certain expense items. An approximate $40.9 million increase inadjustments (primarily losses on extinguishment of debt, equity in earnings ofjoint venture including former employee compensation, share-based compensationand a greater loss on disposal and impairment of operating assets) to reconcilenet income to cash provided by operating activities, offset by a $5.5 milliondecrease in net income and a $117.4 million reduction of changes in operatingassets and liabilities, contributed to the net decrease in net cash provided byoperating activities. The net decrease in the changes in operating assets andliabilities and other working 

37

----

capital items wasprimarily related to the timing of income tax payments and to a lesser extent,the timing of certain vendor payments and a reclassification of excess taxbenefits from share based payment arrangements to cash flows used in financingactivities discussed further in Note 9 to the accompanying consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K).

Net cash flows used in investing activities totaledapproximately $151.7 million for the Fiscal 2006 Period compared to cashflows used in investing activities of approximately $243.0 million for theFiscal 2005 Period. Contributing to the decrease in cash flows used ininvesting activities was the purchase of Eastern Federal Corporation Theatresand R/C Theatres during the Fiscal 2005 Period, a $19.8 million decreasein capital expenditures during the Fiscal 2006 Period, which was primarilyattributable to the timing of capital projects during the Fiscal 2006 Period,partially offset by the acquisition of the AMC theatres described more fully inNote 3 to the accompanying consolidated financial statements included in Part II,Item 8 of this Form 10-K and by lower proceeds from the dispositionof assets effected during the Fiscal 2006 Period as compared the Fiscal 2005Period.

Net cash flows used infinancing activities were approximately $186.8 million for the Fiscal 2006Period compared to cash flows used in financing activities of approximately$191.0 million for the Fiscal 2005 Period. The net decrease in cash flowsused in financing activities during the Fiscal 2006 Period was primarily attributableto incremental borrowings under the Senior Credit Facility and thereclassification of excess tax benefits from share based payment arrangementsfrom cash flows from operating activities discussed further in Note 9 tothe accompanying consolidated financial statements included in Part II,Item 8 of this Form 10-K, partially offset by net cash used tosettle conversions of approximately $116.3 million in principal amount of the Company’s Convertible Senior Notes and the payment of debtacquisition costs.

*Fiscal 2005 PeriodCompared to Fiscal 2004 Period*

Cash flows generated from operating activities wereapproximately $386.4 million for the Fiscal 2005 Period, which remainedrelatively consistent compared to $387.4 million in the Fiscal 2004Period. Fiscal 2005 Period cash flows generated from operating activities wereimpacted by several factors including a decrease in income from operationsduring the Fiscal 2005 Period related to increases in certain operating expenseitems, partially offset by incremental admission, concession and otheroperating revenues and the inclusion of the results of operations of theatrespurchased from Signature Theatres, R/C Theatres and Eastern FederalCorporation. An approximate $48.0 million reduction in adjustments (primarilyloss on extinguishment of debt, partially offset by incremental depreciationand amortization expense and a loss on disposal and impairment of operatingassets) to reconcile net income to cash provided by operating activities,partially offset by a $9.3 million increase in net income and a$37.7 million increase in the changes in operating assets and liabilitiesfurther contributed to the $1.0 million net decrease in net cash providedby operating activities. The net increase in the changes in operating assetsand liabilities, and other working capital items was primarily related to thetiming of certain vendor payments and income tax payments, increases indeferred revenues and trade and other receivables, partially offset by adecrease in prepaid expenses and other current assets.

Cash flows used in investing activities totaledapproximately $243.0 million for the Fiscal 2005 Period compared to cashflows used in investing activities of approximately $306.2 million for theFiscal 2004 Period. Contributing to the decrease in cash flows used ininvesting activities was a decline in cash used for acquisitions, partiallyoffset by a $20.2 million increase in capital expenditures during theFiscal 2005 Period, which was primarily attributable to the timing of certaincapital projects during the Fiscal 2005 Period. In addition, we had greaterproceeds from the disposition of assets during the Fiscal 2005 Period ascompared the Fiscal 2004 Period.

38

----

Cash flows used in financing activities wereapproximately $191.0 million for the Fiscal 2005 Period compared to cashflows used in financing activities of approximately $126.1 million for theFiscal 2004 Period. The net increase in cash flows used in financing activitiesduring the Fiscal 2005 Period was primarily attributable to increases in theFiscal 2005 Period quarterly dividend payments compared to the per share Fiscal2004 Period dividend payments and the Fiscal 2005 Period $10.0 millionaggregate purchase of treasury shares.

**Liquidity andCapital Resources**

On a consolidated basis, we expect our primary uses ofcash to be for operating expenses, capital expenditures, general corporatepurposes related to corporate operations, debt service, share repurchases andthe Company’s quarterly dividend payments. The principal sources of liquidityare cash generated from operations, cash on hand and borrowings under oursenior credit facility described below. Under the terms of the senior creditfacility, Regal Cinemas is restricted as to how much it can advance ordistribute to Regal, its indirect parent. Since Regal is a holding company withno significant assets other than its subsidiaries, this restriction couldimpact Regal’s ability to effect future debt or dividend payments, paycorporate expenses or redeem or convert for cash its Convertible Senior Notes.

Our revenues are generally collected in cash throughadmissions and concessions revenues. Our operating expenses are primarilyrelated to film and advertising costs, rent and occupancy, and payroll. Filmcosts are ordinarily paid to distributors within 30 days following receiptof admissions revenues and the cost of the Company’s concessions are generallypaid to vendors approximately 30 days from purchase. Our currentliabilities generally include items that will become due within twelve monthsand, as a result, at any given time, our balance sheet is likely to reflect aworking capital deficit.

We fund the cost of capital expenditures throughinternally generated cash flows, cash on hand, proceeds from disposition ofassets and financing activities. Our capital requirements have historicallyarisen principally in connection with acquisitions of theatres, new theatreconstruction, adding new screens to existing theatres, upgrading the Company’stheatre facilities and replacing equipment. We intend to continue to grow ourtheatre circuit through selective expansion and acquisition opportunities. TheCompany has a formal and intensive review procedure for the authorization ofcapital projects, with the most important financial measure of acceptabilityfor a discretionary non-maintenance capital project being whether its projecteddiscounted cash flow return on investment meets or exceeds the Company’sinternal rate of return targets. We currently expect capital expenditures fortheatre development, replacement, expansion, upgrading and replacements to bein the range of approximately $120.0 million to $140.0 million infiscal year 2007, exclusive of acquisitions. Such capital expenditures areexpected to be partially funded through asset dispositions conducted during thenormal course of our business. During the Fiscal 2006 Period, we investedapproximately $124.7 million in capital expenditures.

On September 15, 2006, the Company acquired fourtheatres with a total of 58 screens from AMC.  Regal purchased two of these AMC theatresrepresenting 26 screens for approximately $34.1 million in cash, subject topost-closing adjustments, and acquired the other two AMC theatres representing32 screens in exchange for two Regal theatres consisting of 32 screens. As ofthe acquisition date, the surrendered Regal theatres had a net book value ofapproximately $5.4 million. The Company accounted for the exchanged theatre assetsas a non-monetary transaction and as such, allocated the net book value of theRegal theatres to the exchanged AMC theatres. Total cash paid of approximately$34.1 million was directly allocated to the two AMC theatres using the purchasemethod of accounting. The results of operations of the four theatres have beenincluded in the Company’s consolidated financial statements for periodssubsequent to the acquisition date. See Note 3 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-Kfor further discussion of this transaction.

As described in Note 4 to the accompanyingfinancial statements included in this Part II, Item 8 of this Form 10-K,in connection with the formation of National CineMedia, on May 11, 2005,RCI adopted and 

39

----

approved a severance plan(the “Severance Plan”) for RCM employees who held an unvested option topurchase shares of Regal’s Class A common stock or shares of Regal’srestricted Class A common stock pursuant to the terms of the Regal 2002Stock Incentive Plan immediately prior to such employee’s termination ofemployment with RCM and commencement of employment with National CineMedia.During the Fiscal 2006 Period, the Company recorded total severance expense ofapproximately $3.9 million, including less than $0.1 million ofpayments in lieu of dividends, related to the Severance Plan.

On February 13,2007, NCM Inc., a newly formed entity that serves as the sole manager ofNational CineMedia, completed the initial public offering, or IPO, of its commonstock. NCM Inc. sold 38 million shares of its common stock for $21 per share inthe IPO, less underwriting discounts and expenses. Because NCM Inc.’sCertificate of Incorporation requires that NCM Inc. at all times maintain aone-to-one ratio between the number of common units of National CineMedia ownedby NCM Inc. and the number of outstanding shares of common stock of NCM Inc.,NCM Inc. used a portion of the net proceeds from the IPO to acquire newlyissued common units from National CineMedia. In addition, National CineMediapaid the net proceeds to each of Regal, AMC and Cinemark in exchange formodifying payment obligations for access to their respective theatres, forwhich Regal received a payment of $281 million. Upon the closing of the IPO, NationalCineMedia entered into a $725 million term loan facility, the net proceeds ofwhich were used to redeem preferred units issued to each of Regal, AMC andCinemark on a pro rata basis pursuant to a recapitalization of NationalCineMedia prior to completion of the IPO. As discussed in Note 14 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K,we received $315.1 million as a result of the preferred unit redemption. At theclosing of the IPO, the underwriters exercised their over-allotment option topurchase an additional 4 million shares of common stock of NCM Inc. at theinitial offering price of $21 per share, less underwriting discounts andcommissions. In connection with this over-allotment option exercise, Regal, AMCand Cinemark each sold to NCM Inc. common units of National CineMedia on a prorata basis at the initial offering price of $21 per share, less underwritingdiscounts and expenses. Regal sold 1,637,826 common units to NCM Inc. forproceeds of $32.2 million, and upon completion of this sale of common units,Regal held 21,230,712 common units of National CineMedia, or a 22.6% interest.After the payment of current taxes, we estimate net proceeds from thesetransactions to total approximately $445 million. We are currently exploringalternatives for using these proceeds, and may use some or all of the proceedsfor strategic acquisitions or to return value to stockholders through anextraordinary dividend, stock repurchases or other corporate uses.

In connection with the completion of the IPO, Regalamended and restated its existing services agreement with National CineMedia,whereby in exchange for its pro rata share of the IPO proceeds, Regal agreed toa modification of National CineMedia’s payment obligation under the existingservices agreement. The modification extends the term of the services agreementto 30 years, provides National CineMedia with a five year right of firstrefusal beginning one year prior to the end of the term and changes the basisupon which Regal is paid by National CineMedia from a percentage of revenuesassociated with advertising contracts entered into by National CineMedia to amonthly theatre access fee. The theatre access fee is composed of a fixedpayment per patron and a fixed payment per digital screen, which will increaseby 8% every five years starting at the end of fiscal 2011 for payments perpatron and by 5% annually starting at the end of fiscal 2007 for payments perdigital screen. Also, with respect to any on-screen advertising time providedto our beverage concessionaire, Regal is required to purchase such time fromNational CineMedia at a negotiated rate. In addition, after completion of theIPO, Regal expects to receive mandatory quarterly distributions of excess cashfrom National CineMedia.

Regal paid four quarterly cash dividends of $0.30 pershare on each outstanding share of the Company’s Class A and Class Bcommon stock, including outstanding restricted stock (see Note 9 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K),or approximately $179.6 million in the aggregate, during the year ended December 28,2006. On February 8, 2007, the 

40

----

Company declared a cashdividend of $0.30 per share on each share of the Company’s Class A and Class Bcommon stock (including outstanding restricted stock), payable on March 19,2007, to stockholders of record on March 9, 2007. We, at the discretion ofthe board of directors and subject to applicable law, anticipate paying regularquarterly dividends on our Class A and Class B common stock for theforeseeable future. The amount, if any, of the dividends to be paid in thefuture will depend upon our then available cash, anticipated cash needs,overall financial condition, loan agreement restrictions, future prospects forearnings and cash flows, as well as other relevant factors.

**As of December 28, 2006, theholders of our 33⁄4% Convertible Senior Notes due May 15, 2008 (the “ConvertibleSenior Notes”) had the right, at their option, to convert their ConvertibleSenior Notes, in whole or in part, into shares of our Class A commonstock, subject to certain limitations, at the then existing conversion priceper share. The Convertible Senior Notes allow us to settle any conversion, andwe have the ability and intent to settle any conversion, by remitting to thenote holder the accreted value of the note in cash plus the conversion spread(the excess conversion value over the accreted value) in either cash, shares ofour Class A common stock or a combination of stock and cash.**

During the year ended December 28, 2006, holdersof $116.3 million in principal amount of Convertible Senior Notesexercised their conversion rights. The Company elected to settle theseconversions entirely in cash for approximately $152.1 million. As a result ofthese conversions, the Company recorded a $37.0 million****loss on debt extinguishment (including arelated $1.2 million write-off of unamortized debt issue costs) during the yearended December 28, 2006. In connection with the above conversions, theCompany received net proceeds of approximately $17.9 million from Credit SuisseFirst Boston (“CSFB”) attributable to the convertible note hedge arrangemententered into with CSFB and the warrant sold to CSFB in connection with theissuance of the Convertible Senior Notes. Such proceeds were recorded as anincrease to additional paid-in capital. Based upon our ability to generate cashflow from operations, our financial capacity and ability to borrow or raisecapital and available cash on hand, we believe that we have the ability togenerate the liquidity necessary to settle in cash the remaining principalamount of the outstanding Convertible Senior Notes upon their conversion.

On June 14, 2006, Regal Cinemas borrowed $100million under the prior senior credit facility, the net proceeds of which wereapplied to reimburse Regal Cinemas for amounts previously distributed to theCompany to fund the Company’s settlement of the conversion of approximately$100.0 million aggregate principal amount of Convertible Senior Notes forapproximately $114.9 million in cash (net of approximately$15.4 million funded by CSFB).

On October 27, 2006, Regal Cinemas entered into afifth amended and restated credit agreement (the “Amended Senior CreditFacility”) with Credit Suisse, Cayman Islands Branch (as successor to CreditSuisse First Boston), as Administrative Agent and the other lenders partythereto, which consists of a term loan facility (the “Term Facility”) in anaggregate original principal amount of $1.7 billion and a revolving creditfacility (the “Revolving Facility”) in an aggregate principal amount of up to$100.0 million. The Revolving Facility has a separate sublimit of $10.0 millionfor short-term loans and a sublimit of $30.0 million for letters of credit. TheTerm Facility will mature on October 27, 2013 and the Revolving Facilitywill mature on October 27, 2011. Interest is payable (a) in the caseof base rate loans, quarterly in arrears, and (b) in the case ofEurodollar rate loans, at the end of each interest period, but in no event lessoften than every 3 months. The Term Facility amortizes in equal quarterlyinstallments in an aggregate annual amount equal to 1.0% of the originalprincipal amount of the Term Facility during the first six years thereof, withthe balance payable in two equal installments, the first on June 30, 2013and the second on October 27, 2013. The principal balance of the TermFacility in the Amended Senior Credit Facility was higher than the term loanbalance in the prior credit facility, and such higher principal balanceresulted in net proceeds of $21.2 million from the Amended Senior CreditFacility, which were set aside for general corporate purposes. Upon theexecution of the Amended Senior Credit Facility, Regal recognized a loss ondebt extinguishment of approximately $2.3 million, including $0.8 million ofthird party costs. The 

41

----

Amended Senior CreditAgreement is secured by substantially all assets of Regal Cinemas and certainof its subsidiaries.

The Amended Senior Credit Facility contains customaryaffirmative covenants including, among other things, maintenance of corporateexistence and rights; performance of obligations; delivery of financialstatements and other financial information; delivery of notices of default,litigation, ERISA events and material adverse change; maintenance ofproperties; maintenance of insurance; maintenance of a rating of Regal Cinemasand of the Amended Senior Credit Facility by each of Standard & Poor’sRatings Services and Moody’s Investors Service, Inc; compliance with laws;inspection of books and properties; further assurances; and payment of taxes.

The Amended SeniorCredit Facility includes several financial covenants including:

·       maximumratios of (i) the sum of funded debt (net of unencumbered cash) plus theproduct of eight (8) times lease expense to (ii) consolidated EBITDAR(as defined in the Senior Credit Facility) (initially set at 6.00:1.00 anddeclining in subsequent periods);

·       maximumratios of funded debt (net of unencumbered cash) to consolidated EBITDA,(initially equal to 4.00:1.00 and declining in subsequent periods);

·       minimumratio of (i) consolidated EBITDAR to (ii) the sum of interest expenseplus lease expense of 1.50 to 1.0 throughout the term of the Senior CreditFacility; and

·       maximumcapital expenditures not to exceed 35% of consolidated EBITDA for the priorfiscal year plus a one-year carryforward for unused amounts from the priorfiscal year.

The Amended Senior Credit Facility also containscustomary negative covenants (subject to exceptions, limitations and baskets)which limit the ability of Regal Cinemas and its subsidiaries to, among otherthings, incur indebtedness, grant liens, make investments or acquisitions,engage in affiliate transactions, or pay dividends. These limitations willrestrict the ability of Regal Cinemas to fund the operations of the Company orany subsidiary of the Company that is not designated as a restricted subsidiaryof Regal Cinemas under the Amended Senior Credit Facility.

The Amended Senior Credit Facility specifies customaryevents of default including, among other things, nonpayment of principal,interest or other amounts; breach of certain covenants; breach ofrepresentations and warranties in any material respect; cross default and crossacceleration with respect to indebtedness in an aggregate principal amount of$25.0 million or more; bankruptcy; judgments involving liability of $25.0million or more; ERISA events; actual or asserted invalidity of guarantees orsecurity documents; and change of control.  Upon the occurrence of an event of default,all obligations under the Amended Senior Credit Facility may be accelerated.

The terms of the Amended Senior Credit Facilityinclude an option for Regal Cinemas to request the establishment of anadditional term loan (an “Uncommitted Incremental Term Loan”) in a principalamount of up to $200 million.  TheUncommitted Incremental Term Loan is only available if Regal is able to obtainthe commitments of new or existing lenders that are willing to provide fundingfor such Uncommitted Incremental Term Loan and Regal Cinemas is able to satisfycertain conditions set forth in the Amended Senior Credit Facility. Any suchcommitments that are obtained and the loans thereunder would be treated as asecured term loan under the Amended Senior Credit Facility without the need toobtain consent from any lender or any party to the Amended Senior CreditFacility. At Regal Cinemas’ option, borrowings under the UncommittedIncremental Term Loan bear interest at an Adjusted Eurodollar Rate or a baserate plus, in either case, an applicable margin that is established at the timecommitments for the Uncommitted Incremental Term Loan are obtained.  Proceeds of Regal Cinemas’ borrowings underthe Uncommitted Incremental Term Loan are to be used solely to fund, orreimburse Regal Cinemas for funding, distributions to the Company for thepurpose of redeeming, repurchasing, acquiring or otherwise settling theconversion of all or a portion of the Convertible Senior Notes. For a 

42

----

detailed summary of othermaterial terms of the Amended Senior Credit Facility, please refer to theinformation provided under Note 5 to the accompanying consolidated financialstatements included in Part II, Item 8 of this Form 10-K.

As of December 28,2006, we had approximately $1,700.0 million aggregate principal amountoutstanding under the Term Facility, $123.7 million aggregate principal amountoutstanding under Convertible Senior Notes and $51.5 million aggregateprincipal amount outstanding under the Regal Cinemas 93¤8% Senior Subordinated Notes. Asof December 28, 2006, we had approximately $0.8 million outstandingin letters of credit, leaving approximately $99.2 million available for drawingunder the Revolving Facility.

**Contractual CashObligations and Commitments**

TheCompany has assumed long-term contractual obligations and commitments in thenormal course of business, primarily debt obligations and non-cancelableoperating leases. Other than operating leases which are detailed below, theCompany does not utilize variable interest entities or any other form ofoff-balance sheet financing. As of December 28, 2006, the Company’sestimated contractual cash obligations and commercial commitments over the nextseveral periods are as follows (in millions): 

| ** **                                           | ** ** | **Payments Due By Period** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **Total**                                 | ** ** | **Current** | ** ** | **13-36 months** | ** ** | **37-60 months** | ** ** | **After 60 months** | ** ** |
| Contractual Cash  Obligations:                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt  obligations(1)                                 |       | $                                         | 1,876.1    |   |   | $ | 140.8 |   |   |   | $ | 34.3 |   |   |   | $ | 34.4 |   |   |   | $ | 1,666.6 |   |   |
| Future interest  on debt obligations(2)              |       | 699.4                                     |       |   | 116.1 |   |   |   | 264.1 |   |   |   | 213.2 |   |   |   | 106.0 |   |   |
| Capital lease  obligations, including interest(3)    |       | 34.4                                      |       |   | 3.5 |   |   |   | 6.9 |   |   |   | 6.9 |   |   |   | 17.1 |   |   |
| Lease financing  arrangements, including interest(3) |       | 167.5                                     |       |   | 13.5 |   |   |   | 27.1 |   |   |   | 27.6 |   |   |   | 99.3 |   |   |
| Bankruptcy claims  and liabilities(4)                |       | 1.1                                       |       |   | 1.1 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Operating  leases(5)                                 |       | 3,684.8                                   |       |   | 303.2 |   |   |   | 603.5 |   |   |   | 588.2 |   |   |   | 2,189.9 |   |   |
| Other long term  liabilities                         |       | 6.6                                       |       |   | 2.8 |   |   |   | 2.5 |   |   |   | 0.6 |   |   |   | 0.7 |   |   |
| Total                                                |       | $                                         | 6,469.9    |   |   | $ | 581.0 |   |   |   | $ | 938.4 |   |   |   | $ | 870.9 |   |   |   | $ | 4,079.6 |   |   |

 

| ** **                       | ** ** | **Amount of Commitment Expiration per Period** | ** ** |
|----------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Total  Amounts  Available**                                           | ** ** | **Current** | ** ** | **13-36 months** | ** ** | **37-60 months** | ** ** | **After 60 months** | ** ** |
| Other Commercial  Commitments(6) |       |                                                                    | $          | 300.0 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 100.0 |   |   |   | $ | 200.0 |   |   |
|                                  |            |                                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)          These amounts are includedon our consolidated balance sheet as of December 28, 2006. Our AmendedSenior Credit Facility provides for mandatory prepayments under certainscenarios. See Note 5 to the consolidated financial statements included inPart II, Item 8 of this Form 10-K for additionalinformation about our long-term debt obligations and related matters. OurConvertible Senior Notes are reflected on our consolidated balance sheet at December 28,2006 and in the above table as a current liability due to the conversion rightsof the note holders, as more fully discussed in Note 5 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K,even though the notes mature in 2008.

(2)          Future interest paymentson the Company’s unhedged debt obligations (consisting of approximately$600.0 million of variable interest rate borrowings under the TermFacility, $123.7 million outstanding under the Convertible Senior Notes,approximately $51.5 million due under the Senior Subordinated Notes andapproximately $0.9 million of other debt obligations) are based on thestated fixed rate or in the case of the $600.0 million of variableinterest rate borrowings under the Term Facility, the 

43

----

current interest rate asof December 28, 2006 (7.12%). Future interest payments on the Company’shedged indebtedness as of December 28, 2006 (the remaining$1,100.0 million of borrowings under the Term Facility) are based on (1) theapplicable margin (as defined in Note 5 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K)as December 28, 2006 (1.75%) and (2) the expected fixed interestpayments under the Company’s interest rate swap agreements, which are describedin further detail under Note 5 to the consolidated financial statementsincluded in Part II, Item 8 of this Form 10-K.

(3)          The present value ofthese obligations, excluding interest, is included on our consolidated balancesheet as of December 28, 2006. Future interest payments are calculatedbased on interest rates implicit in the underlying leases, which have aweighted average interest rate of 11.15%, maturing in various installmentsthrough 2021. Refer to Note 5 to the consolidated financial statementsincluded in Part II, Item 8 of this Form 10-K foradditional information about our capital lease obligations and lease financingarrangements.

(4)          These amounts areincluded on our consolidated balance sheet as of December 28, 2006. Referto Note 8 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K for additional information about ourbankruptcy related matters.

(5)          We enter into operatingleases in the normal course of business. Such lease agreements provide us withthe option to renew the leases at defined or then fair value rental rates forvarious periods. Our future operating lease obligations would change if weexercised these renewal options or if we enter into additional operating leaseagreements. Our operating lease obligations are further described inNote 6 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

(6)          Under the terms ofUncommitted Incremental Term Loan, Regal Cinemas may request the establishmentof an additional term loan in a principal amount of up to $200 million.  The Uncommitted Incremental Term Loan is onlyavailable if Regal is able to obtain the commitments of new or existing lendersthat are willing to provide funding for such Uncommitted Incremental Term Loanand the satisfaction of certain conditions set forth in the Amended SeniorCredit Facility. In addition, as of December 28, 2006, Regal Cinemas hadapproximately $99.2 million available for drawing under the $100.0 millionRevolving Facility. Regal Cinemas also maintains a sublimit within theRevolving Facility of $10.0 million for short-term loans and $30.0 million forletters of credit.

We believe that the amountof cash and cash equivalents on hand, cash flow expected from operations andavailability under our Revolving Facility will be adequate for the Company toexecute its business strategy and meet anticipated requirements for leaseobligations, capital expenditures, working capital and debt service for thenext 12 months.

***Ratings***

TheCompany is rated by nationally recognized rating agencies. The significance ofindividual ratings varies from agency to agency. However, companies assignedratings at the top end of the range have, in the opinion of certain ratingagencies, the strongest capacity for repayment of debt or payment of claims,while companies at the bottom end of the range have the weakest capability.Ratings are always subject to change and there can be no assurance that theCompany’s current ratings will continue for any given period of time. Adowngrade of the Company’s debt ratings, depending on the extent, couldincrease the cost to borrow funds. Below are our latest ratings per category,which were current as of December 28, 2006. 

| **Category**                               | ** ** | ** ** | ** ** | **Moody’s** | ** ** | **Standard and Poor’s** | ** ** |
|--------------------------------------------|------------|------------|------------|------------------|------------|----------------------------------------|------------|
| Regal 33¤4%  Convertible Senior Notes |       |       | B2         |             |       |                                   | B          |   |   |
| Regal Cinemas Senior  Credit Facility      |       |       | Ba2        |             |       |                                   | BB-        |   |   |

 

44

----

***Debt Obligations***

On October 27, 2006, Regal Cinemas entered intoits Amended Senior Credit Facility which consists of the Term Facility in anaggregate principal amount of $1,700.0 million, a Revolving Facility in anaggregate principal amount of up to $100.0 million and an UncommittedIncremental Term Loan whereby Regal Cinemas may request additional commitmentsfrom the lenders to allow the Company to borrow up to $200.0 million inadditional funds for certain limited purposes. For a detailed summary of thematerial terms of our Amended****Senior CreditFacility, please refer to the information provided under Note 5 to theconsolidated financial statements included in Part II, Item 8 of thisForm 10-K.

For information regardingour other material debt instruments, including our Convertible Senior Notes andRegal Cinemas’ Senior Subordinated Notes, please see the information underNote 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

***Interest Rate Swaps***

On July 13, 2004, Regal Cinemas entered into fourhedging relationships via four distinct interest rate swap agreements withfinal maturity terms ranging from three to five years each. On September 8,2005, Regal Cinemas entered into an additional hedging relationship via adistinct interest rate swap agreement with a maturity term of four years. Theseinterest rate swaps were designated to hedge approximately$1,100.0 million of its variable rate debt obligations. Under the terms ofthe interest rate swap agreements, Regal Cinemas pays interest at various fixedrates ranging from 3.49% to 4.337% and will receive interest at a variable ratebased on the 3-month LIBOR. The 3-month LIBOR rate on each resetdate determines the variable portion of the interest rate-swaps for thefollowing three-month period. The interest rate swaps settle any accruedinterest for cash on the last day of each calendar quarter, until expiration.At such dates, the differences to be paid or received on the interest rateswaps will be included in interest expense. No premium or discount was incurredupon the Company entering into the interest rate swaps, because the pay andreceive rates on the interest rate swaps represented prevailing rates for eachcounterparty at the time the interest rate swaps were entered into. Theinterest rate swaps qualify for cash flow hedge accounting treatment inaccordance with SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities,” and as such, the Company has effectively hedged itsexposure to variability in the future cash flows attributable to the 3-monthLIBOR on approximately $1,100.0 million of debt. The change in the fairvalues of the interest rate swaps is recorded on the Company’s consolidatedbalance sheet as an asset or liability with the effective portion of theinterest rate swaps’ gains or losses reported as a component of othercomprehensive income (loss) and the ineffective portion reported in earnings.As interest expense is accrued on the debt obligation, amounts in accumulatedother comprehensive income/loss related to the designated hedging instruments(the five interest rate swaps) will be reclassified into earnings to obtain anet cost on the debt obligation equal to the effective yield of the fixed rateof each swap. The fair value of the Company’s interest rate swaps is based ondealer quotes, and represents an estimate of the amounts Regal Cinemas wouldreceive or pay to terminate the agreements taking into consideration variousfactors, including current interest rates.

As of December 28,2006, the aggregate fair value of the interest rate swaps was determined to beapproximately $22.4 million, which has been recorded as a component of “OtherNon-Current Assets” with a corresponding amount of $13.6 million, net oftax, recorded to “Accumulated Other Comprehensive Income.” The interest rateswaps exhibited no ineffectiveness for the years ended December 28, 2006, December 29,2005 and December 30, 2004.

***Sale-Leaseback Transactions***

For information regardingour various sale and leaseback transactions, refer to Note 6 to theconsolidated financial statements included in Part II, Item 8 of thisForm 10-K.

45

----

**Critical AccountingEstimates**

Our consolidated financial statements are prepared inconformity with accounting principles generally accepted in the United Statesof America, which require management to make estimates and assumptions thataffect the reported amounts of the assets and liabilities and disclosures ofcontingent assets and liabilities as of the date of the balance sheet as wellas the reported amounts of revenues and expenses during the reporting period.We routinely make estimates and judgments about the carrying value of ourassets and liabilities that are not readily apparent from other sources. Weevaluate and modify on an ongoing basis such estimates and assumptions, whichinclude those related to film costs, property and equipment, goodwill, incometaxes and purchase accounting as well as others discussed in Note 2 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K.Estimates and assumptions are based on historical and other factors believed tobe reasonable under the circumstances. The results of these estimates may formthe basis of the carrying value of certain assets and liabilities. Actualresults, under conditions and circumstances different from those assumed, maydiffer materially from estimates. The impact and any associated risks relatedto estimates, assumptions, and accounting policies are discussed within “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”, aswell as in the notes to the consolidated financial statements, if applicable,where such estimates, assumptions, and accounting policies affect our reportedand expected results. Management has discussed the development and selection ofits critical accounting estimates with the audit committee of our Board ofDirectors and the audit committee has reviewed our related disclosures herein.

We believe thefollowing accounting policies are critical to our business operations and theunderstanding of our results of operations and affect the more significantjudgments and estimates used in the preparation of our consolidated financialstatements:

·       Weapplied the principles of purchase accounting when recording theatreacquisitions. These accounting principles require that we estimate the fairvalue of the individual assets and liabilities, including the related deferredtax assets and liabilities related to such amounts. The estimation of the fairvalue of the assets and liabilities involves a number of judgments andestimates that could differ materially from the actual amounts.

·       SFAS 142,“Goodwill and Other Intangible Assets” specifies that goodwill andindefinite-lived intangible assets will be subject to an annual impairmentassessment. Based on our annual impairment assessment conducted during fiscal2006, fiscal 2005 and fiscal 2004, we were not required to record a charge forgoodwill impairment. In assessing the recoverability of the goodwill, we mustmake various assumptions regarding estimated future cash flows and otherfactors in determining the fair values of the respective assets. If theseestimates or their related assumptions change in the future, we may be requiredto record impairment charges for these assets in future periods.

·       Weestimate our film cost expense and related film cost payable based onmanagement’s best estimate of the ultimate settlement of the film costs withthe distributors. Generally, less than one-third of our quarterly film expenseis estimated at period-end. The length of time until these costs are known withcertainty depends on the ultimate duration of the film play, but is typically “settled”within two to three months of a particular film’s opening release. Uponsettlement with our film distributors, film cost expense and the related filmcost payable are adjusted to the final film settlement. Such adjustments havebeen historically insignificant. Actual film costs and film costs payable coulddiffer materially from those estimates. For the fiscal years ended December 28,2006, December 29, 2005 and December 30, 2004, there were nosignificant changes in our film cost estimation and settlement procedures.

·       Wedepreciate and amortize the components of our property and equipment relatingto both owned and leased theatres on a straight-line basis over the shorter ofthe lease term or the estimated useful 

46

----

lives of the assets. Eachowned theatre consists of a building structure, structural improvements, seatingand concession and film display equipment. While we have assigned an estimateduseful life of less than 30 years to certain acquired facilities, weestimate that our newly constructed buildings generally have an averageeconomic useful life to us of 30 years. Certain of our buildings have beenin existence for more than forty years. With respect to equipment (e.g.,concession stand, point-of-sale equipment, etc.), a substantial portion isdepreciated over seven years or less, which has been our historical replacementperiod. Seats and projection equipment generally have a longer useful economiclife, and their depreciable lives (12-15 years) are based on ourexperience and replacement practices. The estimates of the assets’ useful livesrequire our judgment and our knowledge of the assets being depreciated andamortized. Further, we review the economic useful lives of such assets annuallyand make adjustments thereto as necessary. Actual economic lives may differmaterially from these estimates.

The majority of ourproperties were appraised as part of the bankruptcy process described inNote 1 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K. Such appraisals supported theestimated lives being used for depreciation and amortization purposes.Furthermore, our analysis of our historical capital replacement program isconsistent with our depreciation policies. Finally, we review long-lived assetsfor impairment whenever events or changes in circumstances indicate that thecarrying amounts of the assets may not be fully recoverable. Such analysisgenerally evaluates assets for impairment on an individual theatre basis. Whenthe estimated future undiscounted cash flows of the operations to which theassets relate do not exceed the carrying value of the assets, such assets arewritten down to fair value. Our experience indicates that theatre propertiesbecome impaired primarily due to market or competitive factors rather thanphysical (wear and tear) or functional (inadequacy or obsolescence) factors. Inthis regard, we do not believe the frequency or volume of facilities impaireddue to these market factors are significant enough to impact the useful livesused for depreciation periods.

Forthe fiscal years ended December 28, 2006, December 29, 2005 and December 30,2004, no significant changes have been made to the depreciation andamortization rates applied to operating assets, the underlying assumptionsrelated to estimates of depreciation and amortization, or the methodologyapplied. For the fiscal year ended December 28, 2006, consolidateddepreciation and amortization expense was $197.1 million, representing7.6% of consolidated total revenues. If the estimated lives of all assets beingdepreciated were increased by one year, the consolidated depreciation andamortization expense would have decreased by approximately $14.4 millionor 7.3%. If the estimated lives of all assets being depreciated were decreasedby one year, the consolidated depreciation and amortization expense would haveincreased by approximately $16.9 million or 8.6%.

·       Incometaxes are accounted for under the asset and liability method. Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases as well asoperating loss and tax credit carryforwards based on their probable taxtreatment. Deferred tax assets and liabilities are measured using enacted taxrates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date. We record a valuation allowance if itis deemed more likely than not that our deferred income tax assets will not berealized. We reassess the need for such valuation allowance on an ongoingbasis. An increase in the valuation allowance generally results in an increasein the provision for income taxes recorded in such period. With the exceptionof valuation allowances recorded relative to pre-acquisition periods, decreasesin the valuation allowance generally result in a decrease in the provision forincome taxes. Should we ultimately 

47

----

realize a benefit from taxassets in excess of the amount recorded that relates to pre-acquisitionperiods, goodwill would be reduced to the extent of such excess or recordedgoodwill, as appropriate.

Additionally, income tax rules and regulationsare subject to interpretation and require judgment by us and may be challengedby the tax authorities. Accordingly, although we believe that our tax returnpositions are fully supportable, we establish accruals relative to taxuncertainties that we deem to be probable of loss and that can be reasonablyestimated. Such accruals are evaluated on an ongoing basis as part of ourprocess for determining our provision for income taxes. Among other items deemedrelevant by us, the evaluations are based on new legislation, other newtechnical guidance, judicial proceedings, and our specific circumstances,including the progress of tax audits. With the exception of certain changes inpre-acquisition tax uncertainties, any change in the balance of an accrualestablished relative to a tax uncertainty impacts the provision for incometaxes in the period that the adjustment is made to the accrual.

For the fiscal year ended December 28, 2006, ourprovision for income taxes was $57.7 million. Changes in management’sestimates and assumptions regarding the probability that certain tax returnpositions will be sustained, the enacted tax rate applied to deferred taxassets and liabilities, the ability to realize the value of deferred taxassets, or the timing of the reversal of tax basis differences could impact theprovision for income taxes and change the effective tax rate. A one percentagepoint change in the effective tax rate from 40.1% to 41.1% would have increasedthe current year income tax provision by approximately $1.4 million.

**Quarterly Results**

The Company’s consolidated financial statements forthe year ended December 29, 2005 include the results of operations ofUnited Artists, Regal Cinemas, Edwards, Hoyts and the fiscal 2004 acquisitionsfrom December 31, 2004 and the fiscal 2005 acquisitions for periodssubsequent to the respective acquisition dates. The Company’s consolidatedfinancial statements for the year ended December 28, 2006 include theresults of operations of United Artists, Regal Cinemas, Edwards, Hoyts, thefiscal 2004 acquisitions and the fiscal 2005 acquisitions from December 30,2005 and the results of operations of four theatres acquired on September 15,2006 from AMC for the period subsequent to the date of acquisition. The fiscal2004 acquisitions and the fiscal 2005 acquisitions and the acquisition of thefour theatres from AMC are described in Note 3 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K. Thecomparability of our results between quarters is impacted by the inclusion fromsuch dates of the results of operations of each of such entities and to alesser extent, seasonality.

Thefollowing tables set forth selected unaudited quarterly results for the eightquarters ended December 28, 2006. The quarterly financial data as of eachperiod presented below have been derived from Regal’s unaudited consolidatedfinancial statements for those periods. Results for these periods are notnecessarily indicative of results for the full year. The quarterly financialdata should be read in conjunction with the consolidated financial statementsof Regal and notes thereto included elsewhere in this Form 10-K. 

| ** **                  | ** ** | **Dec. 28,  2006**                                          | ** ** | **Sept. 28,  2006** | ** ** | **June 29,  2006** | ** ** | **March 30,  2006** | ** ** | **Dec. 29,  2005** | ** ** | **Sept. 29,  2005** | ** ** | **June 30,  2005** | ** ** | **March 31,  2005** | ** ** |
|-----------------------------|------------|------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|--------------------------|------------|-------------------------|------------|--------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                  | ** ** | **In millions (except per share data)** | ** ** |
| Total revenues              |       | $                                                                | 652.7      |                     |       | $                       | 675.7      |                     |       |                    | $          | 684.6                    |       |                    |       | $                        | 585.1      |   |   | $ | 668.2 |   |   | $ | 628.4 |   |   |   | $ | 643.1 |   |   |   | $ | 577.0 |   |   |
| Income from  operations     |       | 85.3                                                             |       |                     | 83.5       |                    |       |                     | 89.0       |                    |       |                     | 50.7       |                    |       | 90.1                     |       |   | 58.3 |   |   |   | 71.7 |   |   |   | 49.5 |   |   |
| Net income                  |       | 29.2                                                             |       |                     | 29.3       |                    |       |                     | 16.6       |                    |       |                     | 11.2       |                    |       | 35.1                     |       |   | 17.2 |   |   |   | 26.4 |   |   |   | 13.1 |   |   |
| Diluted earnings  per share |       | 0.19                                                             |       |                     | 0.19       |                    |       |                     | 0.11       |                    |       |                     | 0.07       |                    |       | 0.23                     |       |   | 0.11 |   |   |   | 0.17 |   |   |   | 0.09 |   |   |
| Dividends per common  share |       | $                                                                | 0.30       |                     |       | $                       | 0.30       |                     |       |                    | $          | 0.30                     |       |                    |       | $                        | 0.30       |   |   | $ | 0.30 |   |   | $ | 0.30 |   |   |   | $ | 0.30 |   |   |   | $ | 0.30 |   |   |

 

48

----

**Inflation**

The Company does notbelieve that inflation has had a material impact on its financial position orresults of operations.

**Seasonality**

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

**Recent AccountingPronouncements**

For a discussion of therecent accounting pronouncements relevant to our operations, please refer tothe information provided under Note 2 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K,which information is incorporated herein by reference.

**Off-Balance SheetArrangements**

**Otherthan the operating leases detailed above under “Contractual Cash Obligationsand Commitments,” the Company has no other off-balance sheet arrangements.**

**Item 7A.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risk is confined to interest rateexposure of its and its wholly owned subsidiaries’ debt obligations that bearinterest based on floating rates. The Senior Credit Facility provided for andthe Amended Senior Credit Facility provides variable rate interest that couldbe adversely affected by an increase in interest rates. Borrowings under theprior term facility bore and the Term Facility bear interest, at Regal Cinemas’option, at either an adjusted Eurodollar rate (as defined in the Amended SeniorCredit Facility) or the base rate plus, in each case, an applicable margin.

During the years ended December 29, 2005 and December 30,2004 Regal Cinemas entered into five distinct hedging relationships via fiveseparate interest rate swap agreements with final maturity terms ranging fromthree to five years for the purpose of hedging an aggregate of approximately$1.1 billion of its variable rate debt obligations. Under the terms of theinterest rate swap agreements, Regal Cinemas pays interest at various fixedrates ranging from 3.49%—4.337% and receives interest at a variable rate basedon the 3-month LIBOR. For a further description of the swap agreements,see Note 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, which is incorporated herein byreference.

As of December 28,2006 and December 29, 2005 borrowings of $1,700.0 million, and$1,575.9 million, respectively were outstanding under the Term Facilityand the prior term facility, respectively, at effective interest rates of 6.23%(as of December 28, 2006) and 6.0% (as of December 29, 2005), afterthe impact of the interest rate swaps is taken into account. A hypotheticalchange of 10% in the Company’s effective interest rate under the Term Facilityas of December 28, 2006, would increase or decrease interest expense byapproximately $10.6 million for the year ended December 28, 2006.

49

----

**Item 8.**                        FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

**MANAGEMENT’S REPORTON INTERNAL CONTROL OVER FINANCIAL REPORTING**

The Board of DirectorsRegal Entertainment Group:

Management is responsible for establishing andmaintaining adequate internal control over financial reporting as such term isdefined in Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of 1934, as amended.

Management, including our principal executive officerand principal financial officer, conducted an evaluation of the effectivenessof such controls as of December 28, 2006. This assessment was based oncriteria for effective internal control over financial reporting described in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on this assessment, our management believes that the Company’s internalcontrol over financial reporting is effective as of December 28, 2006.

KPMGLLP, independent registered public accounting firm of the Company’sconsolidated financial statements, has issued an audit report on management’sassertion with respect to the effectiveness of the Company’s internal controlover financial reporting as of December 28, 2006, as stated in theirreport which is included herein. 

| /s/  MICHAEL  L. CAMPBELL                      |   | /s/  AMY  E. MILES                                                          |
|----------------------------------------------------------|--------|---------------------------------------------------------------------------------------|
| Michael L. Campbell                                      |   | Amy E. Miles                                                                          |
| *Chief Executive Officer  (Principal Executive Officer)* |   | *Executive Vice President and Chief Financial  Officer (Principal Financial Officer)* |

 

50

----

**Report ofIndependent Registered Public Accounting Firm**

The Board of Directors and StockholdersRegal Entertainment Group:

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control over FinancialReporting, that Regal Entertainment Group maintained effective internal controlover financial reporting as of December 28, 2006, based on criteria established in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO)*.*RegalEntertainment Group’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the Company’s internal control over financial reporting basedon our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that RegalEntertainment Group maintained effective internal control over financialreporting as of December 28, 2006, is fairly stated, in all materialrespects, based on criteriaestablished in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO).**Also,in our opinion, Regal Entertainment Group maintained, in all material respects,effective internal control over financial reporting as of December 28,2006, based on criteriaestablished in *Internal Control—IntegratedFramework*issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO).

51

----

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidatedbalance sheets of Regal Entertainment Group and subsidiaries as of December 28,2006 and December 29, 2005, and the related consolidated statements of income, stockholders’ equity(deficit) and comprehensive income, and cash flows for each of the years in thethree-year period ended December 28, 2006, and our report dated February 26, 2007 expressed an unqualified opinion on those consolidatedfinancial statements.

/s/ KPMG LLP

Nashville, TennesseeFebruary 26, 2007

**Report ofIndependent Registered Public Accounting Firm**

The Board of Directors and StockholdersRegal Entertainment Group:

We have audited the accompanying consolidated balance sheets of RegalEntertainment Group and subsidiariesas of December 28, 2006 and December 29, 2005, and the related consolidated statements of income,stockholders’ equity (deficit) and comprehensive income, and cash flows foreach of the years in the three-year period ended December 28, 2006. These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidatedfinancial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Regal EntertainmentGroup and subsidiaries as of December 28,2006 and December 29, 2005, and the results of their operations and theircash flows for each of the years in the three-year period ended December 28,2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 2 and 9 to the consolidatedfinancial statements, effective December 30, 2005, the Company adopted thefair value method of accounting for stock-based compensation as required byStatement of Financial Accounting Standards No. 123(revised),*Share-Based Payment*.

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theeffectiveness of Regal Entertainment Group’s internal control over financialreporting as of December 28, 2006, based on criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO), and our report dated February 26, 2007 expressed an unqualified opinion on management’sassessment of, and the effective operation of, internal control over financialreporting*.*

/s/ KPMG LLP

Nashville, TennesseeFebruary 26, 2007

52

----

**REGAL ENTERTAINMENT GROUP CONSOLIDATED BALANCE SHEETS (in millions, except share data)**

| ** **                                                                                                                                                                                                | ** ** | **December 28, 2006** | ** ** | **December 29, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                |       |                            |       |                            |       |   |   |   |   |
| CURRENT ASSETS:                                                                                                                                                                                           |       |                            |       |                            |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                 |       |                            | $          | 162.2                           |       |   |   | $ | 196.3 |   |   |
| Trade and other receivables, net                                                                                                                                                                          |       |                            | 59.8       |                            |       |   | 55.6 |   |   |
| Inventories                                                                                                                                                                                               |       |                            | 8.0        |                            |       |   | 7.8 |   |   |
| Prepaid expenses and other current assets                                                                                                                                                                 |       |                            | 1.8        |                            |       |   | 1.3 |   |   |
| Assets held for sale                                                                                                                                                                                      |       |                            | 8.6        |                            |       |   | 0.4 |   |   |
| Deferred income tax asset                                                                                                                                                                                 |       |                            | 0.6        |                            |       |   | 1.2 |   |   |
| TOTAL CURRENT ASSETS                                                                                                                                                                                      |       |                            | 241.0      |                            |       |   | 262.6 |   |   |
| PROPERTY AND EQUIPMENT:                                                                                                                                                                                   |       |                            |       |                            |       |   |   |   |   |
| Land                                                                                                                                                                                                      |       |                            | 133.2      |                            |       |   | 136.8 |   |   |
| Buildings and leasehold improvements                                                                                                                                                                      |       |                            | 1,667.3    |                            |       |   | 1,599.2 |   |   |
| Equipment                                                                                                                                                                                                 |       |                            | 852.6      |                            |       |   | 830.2 |   |   |
| Construction in progress                                                                                                                                                                                  |       |                            | 31.7       |                            |       |   | 21.8 |   |   |
| Total property and equipment                                                                                                                                                                              |       |                            | 2,684.8    |                            |       |   | 2,588.0 |   |   |
| Accumulated depreciation and amortization                                                                                                                                                                 |       |                            | (763.0     | )                               |       |   | (600.3 | ) |   |
| TOTAL PROPERTY AND EQUIPMENT, NET                                                                                                                                                                         |       |                            | 1,921.8    |                            |       |   | 1,987.7 |   |   |
| GOODWILL                                                                                                                                                                                                  |       |                            | 214.9      |                            |       |   | 223.8 |   |   |
| DEFERRED INCOME TAX ASSET                                                                                                                                                                                 |       |                            | 21.4       |                            |       |   | — |   |   |
| OTHER NON-CURRENT ASSETS                                                                                                                                                                                  |       |                            | 69.7       |                            |       |   | 58.7 |   |   |
| TOTAL ASSETS                                                                                                                                                                                              |       |                            | $          | 2,468.8                         |       |   |   | $ | 2,532.8 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                  |       |                            |       |                            |       |   |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                                                      |       |                            |       |                            |       |   |   |   |   |
| Current portion of debt obligations                                                                                                                                                                       |       |                            | $          | 146.2                           |       |   |   | $ | 260.4 |   |   |
| Accounts payable                                                                                                                                                                                          |       |                            | 168.1      |                            |       |   | 181.3 |   |   |
| Accrued expenses                                                                                                                                                                                          |       |                            | 61.1       |                            |       |   | 62.2 |   |   |
| Income taxes payable                                                                                                                                                                                      |       |                            | 52.3       |                            |       |   | 68.2 |   |   |
| Deferred revenue                                                                                                                                                                                          |       |                            | 99.4       |                            |       |   | 94.3 |   |   |
| Interest payable                                                                                                                                                                                          |       |                            | 29.2       |                            |       |   | 27.2 |   |   |
| TOTAL CURRENT LIABILITIES                                                                                                                                                                                 |       |                            | 556.3      |                            |       |   | 693.6 |   |   |
| LONG-TERM DEBT                                                                                                                                                                                            |       |                            | 1,735.3    |                            |       |   | 1,612.3 |   |   |
| LEASE FINANCING ARRANGEMENTS                                                                                                                                                                              |       |                            | 85.8       |                            |       |   | 89.4 |   |   |
| CAPITAL LEASE OBLIGATIONS                                                                                                                                                                                 |       |                            | 20.6       |                            |       |   | 22.4 |   |   |
| DEFERRED INCOME TAX LIABILITY                                                                                                                                                                             |       |                            | —     |                            |       |   | 2.1 |   |   |
| OTHER NON-CURRENT LIABILITIES                                                                                                                                                                             |       |                            | 91.1       |                            |       |   | 81.3 |   |   |
| TOTAL LIABILITIES                                                                                                                                                                                         |       |                            | 2,489.1    |                            |       |   | 2,501.1 |   |   |
| MINORITY INTEREST                                                                                                                                                                                         |       |                            | 1.9        |                            |       |   | 1.8 |   |   |
| STOCKHOLDERS’ EQUITY (DEFICIT):                                                                                                                                                                      |       |                            |       |                            |       |   |   |   |   |
| Class A common stock, $0.001 par value; 500,000,000  shares authorized, 126,448,479 and 63,426,325 shares issued and outstanding  at December 28, 2006 and December 29, 2005, respectively |       |                            | 0.1        |                            |       |   | — |   |   |
| Class B common stock, $0.001 par value;  200,000,000 shares authorized, 23,908,639 and 83,936,967 shares issued and  outstanding at December 28, 2006 and December 29, 2005,  respectively |       |                            | —     |                            |       |   | 0.1 |   |   |
| Preferred stock, $0.001 par value; 50,000,000 shares  authorized; none issued and outstanding                                                                                                             |       |                            | —     |                            |       |   | — |   |   |
| Additional paid-in capital (deficit)                                                                                                                                                                      |       |                            | (66.1      | )                               |       |   | (22.5 | ) |   |
| Retained earnings                                                                                                                                                                                         |       |                            | 30.2       |                            |       |   | 44.6 |   |   |
| Unamortized deferred stock compensation                                                                                                                                                                   |       |                            | —     |                            |       |   | (4.4 | ) |   |
| Accumulated other comprehensive income, net                                                                                                                                                               |       |                            | 13.6       |                            |       |   | 12.1 |   |   |
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                                                 |       |                            | (22.2      | )                               |       |   | 29.9 |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                                 |       |                            | $          | 2,468.8                         |       |   |   | $ | 2,532.8 |   |   |

 

See accompanying notes to consolidated financial statements.

53

----

**REGAL ENTERTAINMENTGROUP CONSOLIDATED STATEMENTS OF INCOME (in millions, except share and per share data)**

| ** **                                                                                                                                                                                                     | ** ** | **Year Ended  December 28, 2006** | ** ** | **Year Ended  December 29, 2005** | ** ** | **Year Ended  December 30, 2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| REVENUES:                                                                                                                                                                                                      |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Admissions                                                                                                                                                                                                     |       |                                             | $          | 1,727.1                                          |       |                                             |       | $ | 1,662.2 |   |   |   | $ | 1,657.9 |   |   |
| Concessions                                                                                                                                                                                                    |       |                                             | 696.7      |                                             |       |                                             | 659.8      |   |   |   | 636.4 |   |   |
| Other operating revenue                                                                                                                                                                                        |       |                                             | 174.3      |                                             |       |                                             | 194.7      |   |   |   | 173.7 |   |   |
| TOTAL REVENUE                                                                                                                                                                                                  |       |                                             | 2,598.1    |                                             |       |                                             | 2,516.7    |   |   |   | 2,468.0 |   |   |
| OPERATING EXPENSES:                                                                                                                                                                                            |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Film rental and advertising costs                                                                                                                                                                              |       |                                             | 906.6      |                                             |       |                                             | 886.7      |   |   |   | 878.5 |   |   |
| Cost of concessions                                                                                                                                                                                            |       |                                             | 104.8      |                                             |       |                                             | 96.4       |   |   |   | 94.9 |   |   |
| Rent expense                                                                                                                                                                                                   |       |                                             | 323.2      |                                             |       |                                             | 310.5      |   |   |   | 287.0 |   |   |
| Other operating expenses                                                                                                                                                                                       |       |                                             | 669.5      |                                             |       |                                             | 668.8      |   |   |   | 638.1 |   |   |
| General and administrative expenses (including  share-based compensation of $8.6, $5.7 and $5.6 for the years ended  December 28, 2006, December 29, 2005 and December 30, 2004,  respectively) |       |                                             | 65.9       |                                             |       |                                             | 67.9       |   |   |   | 69.9 |   |   |
| Depreciation and amortization                                                                                                                                                                                  |       |                                             | 197.1      |                                             |       |                                             | 199.3      |   |   |   | 174.6 |   |   |
| Net loss (gain) on disposal and impairment of  operating assets                                                                                                                                                |       |                                             | 15.1       |                                             |       |                                             | 11.6       |   |   |   | (1.4 | ) |   |
| Equity in earnings of joint venture including former  employee compensation                                                                                                                                    |       |                                             | 7.4        |                                             |       |                                             | 5.9        |   |   |   | — |   |   |
| Net loss on lawsuit settlements                                                                                                                                                                                |       |                                             | —     |                                             |       |                                             | —     |   |   |   | 5.3 |   |   |
| TOTAL OPERATING  EXPENSES                                                                                                                                                                                      |       |                                             | 2,289.6    |                                             |       |                                             | 2,247.1    |   |   |   | 2,146.9 |   |   |
| INCOME FROM  OPERATIONS                                                                                                                                                                                        |       |                                             | 308.5      |                                             |       |                                             | 269.6      |   |   |   | 321.1 |   |   |
| OTHER EXPENSE (INCOME):                                                                                                                                                                                        |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Interest expense, net                                                                                                                                                                                          |       |                                             | 125.2      |                                             |       |                                             | 117.3      |   |   |   | 95.6 |   |   |
| Loss on extinguishment of debt                                                                                                                                                                                 |       |                                             | 39.2       |                                             |       |                                             | —     |   |   |   | 76.1 |   |   |
| Minority interest in earnings of consolidated  subsidiaries                                                                                                                                                    |       |                                             | 0.1        |                                             |       |                                             | (0.2       | ) |   |   | 0.9 |   |   |
| Other, net                                                                                                                                                                                                     |       |                                             | —     |                                             |       |                                             | —     |   |   |   | 6.5 |   |   |
| TOTAL OTHER  EXPENSE, NET                                                                                                                                                                                      |       |                                             | 164.5      |                                             |       |                                             | 117.1      |   |   |   | 179.1 |   |   |
| INCOME BEFORE  INCOME TAXES                                                                                                                                                                                    |       |                                             | 144.0      |                                             |       |                                             | 152.5      |   |   |   | 142.0 |   |   |
| PROVISION FOR  INCOME TAXES                                                                                                                                                                                    |       |                                             | 57.7       |                                             |       |                                             | 60.7       |   |   |   | 59.5 |   |   |
| NET INCOME                                                                                                                                                                                                     |       |                                             | $          | 86.3                                             |       |                                             |       | $ | 91.8 |   |   |   | $ | 82.5 |   |   |
| EARNINGS PER SHARE:                                                                                                                                                                                            |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                          |       |                                             | $          | 0.58                                             |       |                                             |       | $ | 0.63 |   |   |   | $ | 0.57 |   |   |
| Diluted                                                                                                                                                                                                        |       |                                             | $          | 0.56                                             |       |                                             |       | $ | 0.59 |   |   |   | $ | 0.55 |   |   |
| AVERAGE SHARES  OUTSTANDING (in thousands)                                                                                                                                                                     |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                          |       |                                             | 149,019    |                                             |       |                                             | 146,275    |   |   |   | 143,581 |   |   |
| Diluted                                                                                                                                                                                                        |       |                                             | 155,124    |                                             |       |                                             | 154,330    |   |   |   | 149,220 |   |   |

 

See accompanying notes to consolidated financial statements.

54

----

**REGAL ENTERTAINMENT GROUPCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) ANDCOMPREHENSIVE INCOME(in millions, except per share data)**

| ** **                                                           | ** ** | **Class A   Common Stock** | ** ** | **Class B   Common Stock** | ** ** | **Additional   Paid-In   Capital** | ** ** | **Retained** | ** ** | **Deferred   Stock** | ** ** | **Accumulated   Other   Comprehensive** | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|--------------|------------|----------------------|------------|-----------------------------------------|------------|------------------|------------|
| ** **                                                           | ** ** | **Shares**                           | ** ** | **Amount**                           | ** ** | **Shares**                         | ** ** | **Amount**   | ** ** | **(Deficit)**        | ** ** | **Earnings**                            | ** ** | **Compensation** | ** ** | **Income (Loss)** | ** ** | **Total** | ** ** |
| Balances,  January 1, 2004                                      |       |                                 | 52.8       |                                 |       |                               | $          | —       |       |                 |       | 89.2                                    |       |             |       | $ | 0.1 |   |   |   | $ | 744.5 |   |   |   | $ | 64.4 |   |   |   | $ | (14.1 | ) |   |   | $ | — |   |   | $ | 794.9 |   |
| Comprehensive Income:                                                |       |                                 |       |                                 |       |                               |       |         |       |                 |       |                                    |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in fair  value of interest rate swap transactions, net of tax |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (5.0 | ) |   | (5.0 | ) |
| Net income                                                           |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | 82.5 |   |   |   | — |   |   |   | — |   |   | 82.5 |   |
| Total  comprehensive income                                          |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 77.5 |   |
| Conversion of  Class B shares into Class A shares          |       |                                 | 1.6        |                                 |       |                               | —     |         |       |                 | (1.6       | )                                       |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Extraordinary cash  dividend declared, $5.00 per share               |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (718.3 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   | (718.3 | ) |
| Share-based  compensation expense                                    |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | 5.6 |   |   |   | — |   |   | 5.6 |   |
| Exercise of stock  options                                           |       |                                 | 2.8        |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 19.8 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 19.8 |   |
| Tax benefit from  exercise of stock options                          |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 13.2 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 13.2 |   |
| Forfeiture of  stock options                                         |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (0.1 | ) |   |   | — |   |   |   | 0.1 |   |   |   | — |   |   | — |   |
| Cash dividends  declared, $0.18-0.30 per share                       |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | (123.7 | ) |   |   | — |   |   |   | — |   |   | (123.7 | ) |
| Balances,  December 30,   2004                                  |       |                                 | 57.2       |                                 |       |                               | —     |         |       |                 | 87.6       |                                    |       |             | 0.1        |   |   |   | 59.1 |   |   |   | 23.2 |   |   |   | (8.4 | ) |   |   | (5.0 | ) |   | 69.0 |   |
| Comprehensive Income:                                                |       |                                 |       |                                 |       |                               |       |         |       |                 |       |                                    |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in fair  value of interest rate swap transactions, net of tax |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 17.1 |   |   | 17.1 |   |
| Net income                                                           |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | 91.8 |   |   |   | — |   |   |   | — |   |   | 91.8 |   |
| Total  comprehensive  income                                         |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 108.9 |   |
| Conversion of  Class B shares into Class A shares          |       |                                 | 3.6        |                                 |       |                               | —     |         |       |                 | (3.6       | )                                       |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Share-based  compensation expense                                    |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | 5.7 |   |   |   | — |   |   | 5.7 |   |
| Exercise of stock  options                                           |       |                                 | 2.9        |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 18.4 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 18.4 |   |
| Tax benefit from  exercise of stock options and other                |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 13.8 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 13.8 |   |
| Forfeiture of  stock options                                         |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (1.3 | ) |   |   | — |   |   |   | 1.3 |   |   |   | — |   |   | — |   |
| Issuance of  restricted stock                                        |       |                                 | 0.2        |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 4.6 |   |   |   | — |   |   |   | (4.6 | ) |   |   | — |   |   | — |   |
| Forfeiture of  restricted   stock                                    |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (1.6 | ) |   |   | — |   |   |   | 1.6 |   |   |   | — |   |   | — |   |
| Purchase of  treasury shares                                         |       |                                 | (0.5       | )                                    |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (10.0 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   | (10.0 | ) |
| Cash dividends  declared, $0.30 per share                            |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (105.5 | ) |   |   | (70.4 | ) |   |   | — |   |   |   | — |   |   | (175.9 | ) |
| Balances,  December 29,   2005                                  |       |                                 | 63.4       |                                 |       |                               | —     |         |       |                 | 84.0       |                                    |       |             | 0.1        |   |   |   | (22.5 | ) |   |   | 44.6 |   |   |   | (4.4 | ) |   |   | 12.1 |   |   | 29.9 |   |
|                                                                      |            |                                      |            |                                      |            |                                    |            |              |            |                      |            |                                         |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated financial statements.

55

----

**REGAL ENTERTAINMENT GROUPCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) ANDCOMPREHENSIVE INCOME (Continued)(in millions, except per share data)**

| ** **                                                           | ** ** | **Class A   Common Stock** | ** ** | **Class B   Common Stock** | ** ** | **Additional   Paid-In   Capital** | ** ** | **Retained** | ** ** | **Deferred   Stock** | ** ** | **Accumulated   Other   Comprehensive** | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|--------------|------------|----------------------|------------|-----------------------------------------|------------|------------------|------------|
| ** **                                                           | ** ** | **Shares**                           | ** ** | **Amount**                           | ** ** | **Shares**                         | ** ** | **Amount**   | ** ** | **(Deficit)**        | ** ** | **Earnings**                            | ** ** | **Compensation** | ** ** | **Income (Loss)** | ** ** | **Total** | ** ** |
| Comprehensive Income:                                                |       |                                 |       |                                 |       |                               |       |         |       |                 |       |                                    |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in fair  value of interest rate swap transactions, net of tax |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 1.5 |   |   | 1.5 |   |
| Net income                                                           |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | 86.3 |   |   |   | — |   |   |   | — |   |   | 86.3 |   |
| Total  comprehensive   income                                        |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 87.8 |   |
| Conversion of  Class B shares into Class A shares          |       |                                 | 60.0       |                                 |       |                               | 0.1        |         |       |                 | (60.0      | )                                       |       |             | (0.1       | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Adoption of SFAS   No. 123-R                                    |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (4.4 | ) |   |   | — |   |   |   | 4.4 |   |   |   | — |   |   | — |   |
| Share-based  compensation expense                                    |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 8.6 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 8.6 |   |
| Exercise of stock  options                                           |       |                                 | 2.8        |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 16.1 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 16.1 |   |
| Tax benefit from  exercise of stock options and other                |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 14.1 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 14.1 |   |
| Issuance of  restricted stock                                        |       |                                 | 0.2        |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Impact  attributable to convertible note hedge and warrant           |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | 0.9 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 0.9 |   |
| Cash dividends  declared, $0.30 per share                            |       |                                 | —     |                                 |       |                               | —     |         |       |                 | —     |                                    |       |             | —     |   |   |   | (78.9 | ) |   |   | (100.7 | ) |   |   | — |   |   |   | — |   |   | (179.6 | ) |

| Balances,  December 28,   2006 |   |   | 126.4 |   |   |   | $ | 0.1 |   |   |   | 24.0 |   |   |   | $ | — |   |   |   | $ | (66.1 | ) |   |   | $ | 30.2 |   |   |   | $ | — |   |   |   | $ | 13.6 |   |   | $ | (22.2 | ) |
|-------------------------------------|--------|--------|-------|--------|--------|--------|---|-----|--------|--------|--------|------|--------|--------|--------|---|--------|--------|--------|--------|---|-------|---|--------|--------|---|------|--------|--------|--------|---|--------|--------|--------|--------|---|------|--------|--------|---|-------|---|

 

See accompanying notes to consolidated financial statements.

56

----

**REGAL ENTERTAINMENT GROUP CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)**

| ** **                                                                       | ** ** | **Year Ended  December 28, 2006** | ** ** | **Year Ended  December 29, 2005** | ** ** | **Year Ended  December 30, 2004** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                           |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Net income                                                                       |       |                                             | $          | 86.3                                             |       |                                             |       | $ | 91.8 |   |   |   | $ | 82.5 |   |   |
| Adjustments to  reconcile net income to cash provided by operating activities:   |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Depreciation and amortization                                                    |       |                                             | 197.1      |                                             |       |                                             | 199.3      |   |   |   | 174.6 |   |   |
| Share-based compensation expense                                                 |       |                                             | 8.6        |                                             |       |                                             | 5.7        |   |   |   | 5.6 |   |   |
| Minority interest in earnings of consolidated  subsidiaries                      |       |                                             | 0.1        |                                             |       |                                             | (0.2       | ) |   |   | 0.9 |   |   |
| Deferred income tax expense (benefit)                                            |       |                                             | (19.8      | )                                                |       |                                             | (15.5      | ) |   |   | 2.2 |   |   |
| Net (gain) loss on disposal and impairment of  operating assets                  |       |                                             | 15.1       |                                             |       |                                             | 11.6       |   |   |   | (4.6 | ) |   |
| Equity in earnings of joint venture including former  employee compensation      |       |                                             | 7.4        |                                             |       |                                             | 5.9        |   |   |   | — |   |   |
| Loss on extinguishment of debt                                                   |       |                                             | 39.2       |                                             |       |                                             | —     |   |   |   | 76.1 |   |   |
| Changes in  operating assets and liabilities (excluding effects of acquisition): |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Trade and other receivables                                                      |       |                                             | (3.5       | )                                                |       |                                             | (3.2       | ) |   |   | (14.3 | ) |   |
| Inventories                                                                      |       |                                             | (0.2       | )                                                |       |                                             | (0.1       | ) |   |   | (1.0 | ) |   |
| Prepaid expenses and other current assets                                        |       |                                             | 5.6        |                                             |       |                                             | 10.7       |   |   |   | 10.1 |   |   |
| Accounts payable                                                                 |       |                                             | (13.2      | )                                                |       |                                             | (1.3       | ) |   |   | (8.6 | ) |   |
| Income taxes payable                                                             |       |                                             | (26.5      | )                                                |       |                                             | 48.9       |   |   |   | 28.2 |   |   |
| Accrued expenses and other liabilities                                           |       |                                             | 8.2        |                                             |       |                                             | 32.8       |   |   |   | 35.7 |   |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                        |       |                                             | 304.4      |                                             |       |                                             | 386.4      |   |   |   | 387.4 |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                           |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Capital expenditures                                                             |       |                                             | (124.7     | )                                                |       |                                             | (144.5     | ) |   |   | (124.3 | ) |   |
| Proceeds from disposition of assets                                              |       |                                             | 7.1        |                                             |       |                                             | 57.7       |   |   |   | 39.8 |   |   |
| Cash used for acquisitions, net of cash acquired                                 |       |                                             | (34.1      | )                                                |       |                                             | (156.8     | ) |   |   | (223.6 | ) |   |
| Proceeds from sale-leaseback transaction                                         |       |                                             | —     |                                             |       |                                             | —     |   |   |   | 11.5 |   |   |
| Decrease in other assets and assets held for sale                                |       |                                             | —     |                                             |       |                                             | —     |   |   |   | (2.5 | ) |   |
| Cash used to purchase partnership interest                                       |       |                                             | —     |                                             |       |                                             | —     |   |   |   | (9.9 | ) |   |
| Proceeds from disposition of partnership interest                                |       |                                             | —     |                                             |       |                                             | —     |   |   |   | 2.8 |   |   |
| Decrease in restricted cash                                                      |       |                                             | —     |                                             |       |                                             | 0.6        |   |   |   | — |   |   |
| NET CASH USED IN INVESTING ACTIVITIES                                            |       |                                             | (151.7     | )                                                |       |                                             | (243.0     | ) |   |   | (306.2 | ) |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                           |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Cash used to pay dividends                                                       |       |                                             | (179.6     | )                                                |       |                                             | (175.9     | ) |   |   | (842.2 | ) |   |
| Proceeds from stock option exercises                                             |       |                                             | 16.1       |                                             |       |                                             | 18.4       |   |   |   | 19.8 |   |   |
| Proceeds from Regal Cinemas Senior Credit Facility                               |       |                                             | 140.4      |                                             |       |                                             | —     |   |   |   | 1,650.0 |   |   |
| Net payments on long term obligations                                            |       |                                             | (20.6      | )                                                |       |                                             | (22.8      | ) |   |   | (572.9 | ) |   |
| Cash used to settle conversions of convertible notes                             |       |                                             | (152.1     | )                                                |       |                                             | —     |   |   |   | — |   |   |
| Net proceeds attributable to convertible note hedge  and warrant                 |       |                                             | 17.9       |                                             |       |                                             | —     |   |   |   | — |   |   |
| Excess tax benefits from share-based payment arrangements                        |       |                                             | 13.0       |                                             |       |                                             | —     |   |   |   | — |   |   |
| Payment of debt acquisition costs and other                                      |       |                                             | (21.9      | )                                                |       |                                             | (0.6       | ) |   |   | (23.6 | ) |   |
| Cash used to purchase treasury shares                                            |       |                                             | —     |                                             |       |                                             | (10.0      | ) |   |   | — |   |   |
| Payment of bankruptcy claims and liabilities                                     |       |                                             | —     |                                             |       |                                             | (0.1       | ) |   |   | (2.4 | ) |   |
| Cash used to redeem senior subordinated notes                                    |       |                                             | —     |                                             |       |                                             | —     |   |   |   | (354.8 | ) |   |
| NET CASH USED IN FINANCING ACTIVITIES                                            |       |                                             | (186.8     | )                                                |       |                                             | (191.0     | ) |   |   | (126.1 | ) |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                        |       |                                             | (34.1      | )                                                |       |                                             | (47.6      | ) |   |   | (44.9 | ) |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                 |       |                                             | 196.3      |                                             |       |                                             | 243.9      |   |   |   | 288.8 |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       |       |                                             | $          | 162.2                                            |       |                                             |       | $ | 196.3 |   |   |   | $ | 243.9 |   |   |
| SUPPLEMENTAL CASH FLOW  INFORMATION:                                             |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Cash paid for income taxes, net of refunds received                              |       |                                             | $          | 94.0                                             |       |                                             |       | $ | 28.6 |   |   |   | $ | 29.8 |   |   |
| Cash paid for  interest                                                          |       |                                             | $          | 123.1                                            |       |                                             |       | $ | 112.7 |   |   |   | $ | 85.9 |   |   |

 

See accompanying notes to consolidated financial statements.

57

----

**REGAL ENTERTAINMENTGROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 28, 2006**

**1.**                 THECOMPANY

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

Regal operates the largest theatre circuit in theUnited States, consisting of 6,403 screens in 539 theatres in 39 states and theDistrict of Columbia as of December 28, 2006. The Company formallyoperates on a 52-week fiscal year with each quarter generally consistingof 13 weeks, unless otherwise noted. The Company’s fiscal year ends on thefirst Thursday after December 25, which in certain years results in a 53-weekfiscal year.

During 2000 and 2001, United Artists and a majority ofits subsidiaries at that time (the “United Artists Bankrupt Entities”), EdwardsTheatre Circuit Affiliated Group and its subsidiaries at that time (the “EdwardsBankrupt Entities”), and Regal Cinemas, Inc. and its subsidiaries at thattime (the “Regal Cinemas, Inc. Bankrupt Entities”) filed voluntarypetitions for relief under Chapter 11 of Title 11 of the United States Code inthe United States Bankruptcy Courts identified below, as well as joint plans ofreorganization. The joint plans of reorganization, as amended, for the UnitedArtists Bankrupt Entities and the Edwards Bankrupt Entities were approved bythe United States Bankruptcy Courts for the District of Delaware and theCentral District of California, respectively. Such joint plans ofreorganization became effective on March 2, 2001 (“UA Effective Date”) forthe United Artists Bankrupt Entities and September 29, 2001 (“EdwardsEffective Date”) for the Edwards Bankrupt Entities. Edwards was formed inconnection with the reorganization of the Edwards Bankrupt Entities to, amongother things, effect the substantive consolidation of the Edwards BankruptEntities through their merger into Edwards. As a result of the mergertransaction, Edwards succeeded to all of the assets and liabilities of theEdwards Bankrupt Entities. The United States Bankruptcy Court for the MiddleDistrict of Tennessee approved the Regal Cinemas, Inc. Bankrupt Entities’joint plan of reorganization on December 7, 2001, and it became effectiveon January 29, 2002. Anschutz acquired controlling equity interests inUnited Artists, Edwards and Regal Cinemas, Inc. upon each of the entities’emergence from bankruptcy reorganization. Also on that date, The AnschutzCorporation and its subsidiaries (“Anschutz”) and the other stockholders ofRegal Cinemas, Inc. exchanged their equity interests in Regal Cinemas, Inc.for equity interests in Regal Cinemas and as a result, Regal Cinemas, Inc.became a wholly owned subsidiary of Regal Cinemas. Regal Cinemas was formed forthe primary purpose of acquiring and holding the shares of common stock ofRegal Cinemas, Inc. In May 2002, the Company sold 18.0 millionshares of its Class A common stock in an initial public offering at aprice of $19.00 per share, receiving aggregate net offering proceeds, net ofunderwriting discounts, commissions and other offering expenses, of$314.8 million.

On May 12, 2004, Regal, along with a newlycreated subsidiary of Regal Cinemas, Regal Cinemas Bonds Corporation (“RCBC”),completed a cash tender offer and consent solicitation for the$350.0 million aggregate principal amount of the Regal Cinemas 93¤8%Senior Subordinated Notes due 2012 (the “Senior Subordinated Notes”).Approximately $298.1 million aggregate principal amount of the 

58

----

Senior Subordinated Noteswere purchased, with total additional consideration for the tender offer andconsent solicitation of approximately $56.3 million being paid to thetendering holders. Regal and RCBC financed the tender offer and consentsolicitation with a portion of the proceeds from a refinancing of Regal Cinemas’then existing indebtedness. Upon consummation of the refinancing, Regalrecognized a loss on debt extinguishment of approximately $76.1 million.See Note 5—“Debt Obligations” for further discussion of thesetransactions.

On May 13, 2004, Regal declared an extraordinarycash dividend of $5.00 per share on each outstanding share of its Class Aand Class B common stock. Stockholders of record at the close of businesson May 21, 2004 were paid this dividend on June 2, 2004. The dividendwas recorded as a reduction of additional paid-in capital upon declaration.

On March 29, 2005,Regal and AMC Entertainment Inc. (“AMC”) announced the combination of theoperations of RCM and AMC’s subsidiary, National Cinema Network, Inc. (“NCN”),into a new joint venture company known as National CineMedia, LLC (“NationalCineMedia”). On July 15, 2005, Cinemark, Inc. (“Cinemark”), through awholly owned subsidiary, acquired a 20.7% interest in National CineMedia. As ofDecember 28, 2006, RCH’s investment in National CineMedia totaledapproximately ($1.5 million). See Note 4—“Formation of NationalCineMedia, LLC” for further discussion of this joint venture arrangement.

**2.**                 SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

***Principles of Consolidation***

The consolidated financialstatements include the accounts of Regal and its subsidiaries. All significantintercompany accounts and transactions have been eliminated in consolidation.The portion of United Artists equity relating to shares not owned by theCompany and the related earnings or losses were included in minority interest.

***Revenue Recognition***

Revenues are generatedprincipally through admissions and concessions sales with proceeds received incash at the point of sale. Other operating revenues consist primarily ofproduct advertising (including vendor marketing programs) and other ancillaryrevenues which are recognized as income in the period earned. The Companyrecognizes payments received attributable to the marketing and advertisingservices provided by the Company under certain vendor programs as revenue inthe period in which the related impressions are delivered. Such impressions aremeasured by the concession product sales volume, which is a mutually agreedupon proxy of attendance and reflects the Company’s marketing and advertisingservices delivered to its vendors. Proceeds received from advance ticket salesand gift certificates are recorded as deferred revenue. The Company recognizesrevenue associated with gift certificates and advanced ticket sales at suchtime as the items are redeemed, they expire or redemption becomes unlikely. Thedetermination of the likelihood of redemption is based on an analysis of theCompany’s historical redemption trends.

***Cash Equivalents***

The Company considers allunrestricted highly liquid debt instruments and investments purchased with anoriginal maturity of three months or less to be cash equivalents. At December 28,2006, the Company held substantially all of its cash in temporary cashinvestments in the form of certificates of deposit and variable rate investmentaccounts with major financial institutions.

59

----

***Inventories***

***Inventories consist of concession products and theatresupplies. The Company states inventories on the basis of first-in, first-out(FIFO) cost, which is not in excess of net realizable value.***

***Property and Equipment***

TheCompany states property and equipment at cost. Major renewals and improvementsare capitalized, while maintenance and repairs which do not improve or extendthe lives of the respective assets, are expensed currently. Gains and lossesfrom disposition of property and equipment are included in income and expensewhen realized. The Company records depreciation and amortization using thestraight-line method over the following estimated useful lives: 

| Buildings               |   | 20-30 years                           |
|-------------------------|--------|---------------------------------------|
| Equipment               |   | 3-20 years                            |
| Leasehold  improvements |   | Lesser of term of lease or asset life |

 

As of December 28,2006 and December 29, 2005, included in property and equipment is$105.2 million and $111.2 million, respectively, of assets accountedfor under capital leases and lease financing arrangements, net of accumulateddepreciation of $32.0 million and $28.8 million, respectively. TheCompany records amortization using the straight-line method over the shorter ofthe lease terms or the estimated useful lives noted above.

***Impairment of Long-Lived Assets***

The Company reviewslong-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying amounts of the assets may not be fully recoverable.The Company generally evaluates assets for impairment on an individual theatrebasis, which management believes is the lowest level for which there areidentifiable cash flows. If the sum of the expected future cash flows,undiscounted and without interest charges, is less than the carrying amount ofthe assets, the Company recognizes an impairment charge in the amount by whichthe carrying value of the assets exceeds their fair market value. The fairvalue of assets is determined using the present value of the estimated futurecash flows or the expected selling price less selling costs for assets of whichthe Company expects to dispose. This analysis resulted in the recording ofimpairment charges of $13.6 million, $13.7 million and$3.5 million for the years ended December 28, 2006, December 29,2005 and December 30, 2004.

***Leases***

The majority of the Company’s operations are conductedin premises occupied under non-cancelable lease agreements with initial baseterms ranging generally from 15 to 20 years. The Company, at its option,can renew a substantial portion of the leases at defined or then fair rentalrates for various periods. Certain leases for Company theatres provide forcontingent rentals based on the revenue results of the underlying theatre andrequire the payment of taxes, insurance, and other costs applicable to theproperty.  Also, certain leases containescalating minimum rental provisions.

The Company accounts for leased properties under theprovisions of Statement of Financial Accounting Standards No. 13, *Accounting for Leases* (“SFAS No. 13”)and other authoritative accounting literature. SFAS No. 13 requires thatthe Company evaluate each lease for classification as either a capital lease oran operating lease. The Company performs this evaluation at the inception ofthe lease and when a modification is made to a lease. As to those arrangementsthat are classified as capital leases, the Company records property undercapital leases and a capital lease obligation in an amount equal to the lesserof the present value of the minimum lease payments to be made over the life ofthe lease at the 

60

----

beginning of the lease term,or the fair value of the leased property. The property under capital lease isamortized on a straight-line basis as a charge to expense over the lease term,as defined, or the economic life of the leased property, whichever is less.During the lease term, as defined, each minimum lease payment is allocatedbetween a reduction of the lease obligation and interest expense so as toproduce a constant periodic rate of interest on the remaining balance of thelease obligation. The Company does not believe that exercise of the renewaloptions in its leases are reasonably assured at the inception of the leaseagreements and therefore, considers the initial base term as the lease termunder SFAS No. 13.

The Company records rent expense for its operatingleases with contractual rent increases in accordance with Financial AccountingStandards Board (“FASB”) Technical Bulletin 85-3, “Accounting for Operating Leases withScheduled Rent Increases,” on a straight-line basis from the “leasecommencement date” as specified in the lease agreement until the end of thebase lease term.

For leases in which theCompany is involved with construction of the theatre, the Company accounts forthe lease during the construction period under the provisions of EmergingIssues Task Force (“EITF”) 97-10, “TheEffect of Lessee Involvement in Asset Construction.”  The landlord is typically responsible forconstructing a theatre using guidelines and specifications agreed to by theCompany and assumes substantially all of the risk of construction. Inaccordance with EITF 97-10, if the Company concludes that it hassubstantially all of the construction period risks, it records a constructionasset and related liability for the amount of total project costs incurredduring the construction period. Once construction is completed, the Companyconsiders the requirements under SFAS No. 98, “Accounting for Leases: Sale-Leaseback Transactions Involving RealEstate: Sales-Type Leases of Real Estate; Definition of the Lease Term; andInitial Direct Costs of Direct Financing Leases” (“SFAS No. 98”),for sale-leaseback treatment, and if the arrangement does not meet suchrequirements, it records the project’s construction costs funded by thelandlord as a financing obligation. The obligation is amortized over thefinancing term based on the payments designated in the contract.

***Goodwill***

Thechanges in the carrying amount of goodwill for the years ended December 28,2006 and December 29, 2005 are as follows (in millions): 

| ** **                                                          | ** ** | **Year ended  December 28, 2006** | ** ** | **Year ended  December 29, 2005** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Balance at  beginning of year                                       |       |                                             | $          | 223.8                                            |       |   |   | $ | 213.6 |   |   |
| Acquisitions                                                        |       |                                             | —     |                                             |       |   | 2.9 |   |   |
| Adjustments  related to certain pre-acquisition deferred tax assets |       |                                             | (9.2       | )                                                |       |   | 5.6 |   |   |
| Other                                                               |       |                                             | 0.3        |                                             |       |   | 1.7 |   |   |
| Balance at end of year                                              |       |                                             | $          | 214.9                                            |       |   |   | $ | 223.8 |   |   |

 

Under SFAS No. 142, “Goodwilland Other Intangible Assets,” the Company has identified its reporting units tobe the designated market areas in which the Company conducts its theatreoperations. The fair value of the Company’s identified reporting units wereestimated using the expected present value of associated future cash flows andmarket values of the underlying theatres within each reporting unit. TheCompany’s annual goodwill impairment assessments for the years ended December 28,2006 and December 29, 2005 indicated that the fair value of its reportingunits exceeded their carrying value and therefore, goodwill was not deemed tobe impaired.

***Debt Acquisition Costs***

Other non-current assetsinclude debt acquisition costs, which are deferred and amortized over the termsof the related agreements using a method that approximates the effectiveinterest method. Debt 

61

----

acquisitioncosts as of December 28, 2006 and December 29, 2005 were$49.7 million and $32.3 million, respectively, net of accumulatedamortization of $13.1 million and $9.8 million, respectively.

***Income Taxes***

Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases and operating loss and tax credit carryforwards. Inaddition, income tax rules and regulations are subject to interpretationand require judgment by the Company and may be challenged by the taxationauthorities. The Company establishes accruals relative to tax uncertaintiesthat we deem to be probable of loss and that can be reasonably estimated.Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date. The Company records a valuationallowance if it is deemed more likely than not that its deferred income taxassets will not be realized.

The Company expects thatcertain deferred income tax assets are not more likely than not to be recoveredand therefore, has established a valuation allowance. The Company reassessesits need for the valuation allowance for its deferred income taxes on anongoing basis. Should the Company realize certain tax assets with a valuationallowance that relate to pre-acquisition periods, goodwill would be reduced.

***Interest Rate Swaps***

Regal Cinemas has enteredinto hedging relationships via interest rate swap agreements to hedge againstinterest rate exposure of its variable rate debt obligations. 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. The interestrate swaps qualify for cash flow hedge accounting treatment in accordance withSFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities,” and as such, the change in the fair values of the interest rateswaps is recorded on the Company’s consolidated balance sheet as an asset orliability with the effective portion of the interest rate swaps’ gains orlosses reported as a component of other comprehensive income (loss) and theineffective portion reported in earnings. As interest expense is accrued on thedebt obligation, amounts in accumulated other comprehensive income/loss relatedto the interest rate swaps will be reclassified into earnings to obtain a netcost on the debt obligation equal to the effective yield of the fixed rate ofeach swap. The fair value of the Company’s interest rate swaps is based ondealer quotes, and represents an estimate of the amounts Regal Cinemas wouldreceive or pay to terminate the agreements taking into consideration variousfactors, including current interest rates.

***Deferred Revenue***

Deferred revenue relatesprimarily to vendor programs, gift certificates and advance ticket sales, andis recognized as revenue as described above in this Note 2 under “RevenueRecognition.”

***Deferred Rent***

The Company recognizesrent on a straight-line basis after considering the effect of rent escalationprovisions resulting in a level monthly rent expense for each lease over itsterm. The deferred rent liability is included in other non-current liabilities.

62

----

***Film Costs***

The Company estimates itsfilm cost expense and related film cost payable based on management’s bestestimate of the ultimate settlement of the film costs with the distributors.Generally, less than one-third of our quarterly film expense is estimated atperiod-end. The length of time until these costs are known with certaintydepends on the ultimate duration of the film play, but is typically “settled”within two to three months of a particular film’s opening release. Uponsettlement with our film distributors, film cost expense and the related filmcost payable are adjusted to the final film settlement.

***Advertising and Start-Up Costs***

The Company expensesadvertising costs as incurred. Start-up costs associated with a new theatre arealso expensed as incurred.

***Stock-Based Compensation***

As described in Note 9—“Capital Stock And Share-BasedCompensation,” effective December 30, 2005, we adopted Statement ofFinancial Accounting Standards No. 123 (revised), “Share-Based Payment” (“SFAS123R”) utilizing the modified prospective approach. Under SFAS 123R,share-based compensation cost is measured at the grant date, based on theestimated fair value of the award, and is recognized as expense over theemployee’s requisite service period. Prior to the adoption of SFAS 123R, weaccounted for stock option grants in accordance with Accounting PrinciplesBoard (APB) Opinion No. 25 “Accounting for Stock Issued to Employees”(APB 25) (the intrinsic value method), and accordingly, recognized nocompensation expense for stock option grants when the exercise price equaledthe fair value of common stock on the date of grant.

In connection with theadoption of SFAS 123R, the Company also elected to adopt the alternativetransition method provided in SFASB Staff Position No. SFAS 123(R)-3,“Transition Election Related to Accounting for Tax Effects of Share-BasedPayment Awards” for calculating the tax effects of share-based compensationpursuant to SFAS 123R. The alternative transition method includes a simplifiedmethod to establish the beginning balance of the additional paid-in capitalpool (APIC pool) related to the tax effects of employee share-basedcompensation, which is available to absorb tax deficiencies which could berecognized subsequent to the adoption of SFAS 123R.

***Estimates***

**Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Significant estimates include, but are not limited to,those related to film costs, property and equipment, goodwill, income taxes andpurchase accounting. Actual results could differ from those estimates.**

***Segments***

***As of December 30, 2004, we managed our business undertwo reportable segments—theatre exhibition operations and Regal CineMedia. As aresult of the formation of National CineMedia described in Note 4—“Formationof National CineMedia, LLC,” the Company determined that Regal CineMedia nolonger qualifies as a reportable segment under SFAS No. 131, “Disclosuresabout Segments of Enterprise and Related Information,” the establishedstandards for reporting information about operating segments in financialstatements. Accordingly, as of December 28, 2006 and December 29,2005, the Company managed its business under one reportable segment: theatreexhibition operations.***

63

----

***Comprehensive Income***

Total comprehensive incomefor the years ended December 28, 2006, December 29, 2005 and December 30,2004 was $87.8 million, $108.9 million and $77.5 million,respectively. Total comprehensive income consists of net income and othercomprehensive income (loss), net of tax, related to the change in the aggregateunrealized gain (loss) on the Company’s interest rate swap arrangements duringeach of the years ended December 28, 2006, December 29, 2005 and December 30,2004. The Company’s interest rate swap arrangements are further described inNote 5—“Debt Obligations.”

***Reclassifications***

Certain reclassificationshave been made to the 2004 and 2005 consolidated financial statements to conformto the 2006 presentation.

***Recent Accounting Pronouncements***

During June 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109.”  This Interpretationclarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109,“Accounting for Income Taxes” and prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. ThisInterpretation also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition.

The evaluation of a tax position in accordance withthis Interpretation is a two-step process. The first step is recognition: Theenterprise determines whether it is more likely than not that a tax positionwill be sustained upon examination, including resolution of any related appealsor litigation processes, based on the technical merits of the position. Inevaluating whether a tax position has met the more-likely-than-not recognitionthreshold, the enterprise should presume that the position will be examined bythe appropriate taxing authority that would have full knowledge of all relevantinformation. The second step is measurement: A tax position that meets themore-likely-than-not recognition threshold is measured to determine the amountof benefit to recognize in the financial statements. The tax position ismeasured at the largest amount of benefit that is greater than 50 percentlikely of being realized upon ultimate settlement. Differences between taxpositions taken in a tax return and amounts recognized in the financialstatements will generally result in (1) an increase in a liability forincome taxes payable or (2) a reduction of an income tax refund receivableor a reduction in a deferred tax asset or an increase in a deferred taxliability or both (1) and (2). This Interpretation is effective for fiscalyears beginning after December 15, 2006. The Company is currentlyevaluating the impact the Interpretation may have on its consolidated financialposition, cash flows and results of operations.

In September 2006, the FASB issued Statement ofFinancial Accounting Standards No. 157 (“SFAS No 157”), “Fair ValueMeasurements.” Among other requirements, SFAS 157 defines fair value andestablishes a framework for measuring fair value and also expands disclosureabout the use of fair value to measure assets and liabilities. SFAS No. 157is effective beginning the first fiscal year that begins after November 15,2007. The Company continues to evaluate the adoption of SFAS 157 and its impacton the Company’s consolidated financial position, cash flows and results ofoperations.

In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements” (“SAB No. 108”). Thisbulletin expresses the Securities and Exchange Commission’s views regarding theprocess of quantifying financial statement misstatements. The interpretationsin this bulletin were issued to address diversity in practice in quantifyingfinancial statement misstatements and the potential under current practice forthe build up of improper amounts on the 

64

----

balancesheet. The Company adopted the provisions of SAB No. 108 for the yearended December 28, 2006. Such adoption had no impact the Company’sconsolidated financial position, cash flows and results of operations.

**3.**                 ACQUISITIONS

***Acquisition of four AMC Entertainment Inc. Theatres***

On September 15, 2006, the Company acquired fourtheatres with a total of 58 screens from AMC. The Company purchased two ofthese AMC theatres representing 26 screens for approximately $34.1 million incash, subject to post-closing adjustments, and acquired the other two AMCtheatres representing 32 screens in exchange for two Regal theatres consistingof 32 screens. As of the acquisition date, the exchanged Regal theatres had anet book value of approximately $5.4 million. The Company accounted for theexchanged theatre assets as a non-monetary transaction in accordance with FAS153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29”and as such, allocated the net book value of the Regal theatres to theexchanged AMC theatres. Total cash paid of approximately $34.1 million wasdirectly allocated to the other two AMC theatres using the purchase method ofaccounting. Accordingly, the total cash purchase price was allocated to theassets acquired and liabilities assumed for both of the respective theatrelocations based on management’s judgment of the estimated fair values at thedate of acquisition. The results of operations of the four acquired theatreshave been included in the Company’s consolidated financial statements forperiods subsequent to the acquisition date.

Thefollowing is a summary of the preliminary allocation of the aggregate cashpurchase price to the estimated fair values of the assets acquired andliabilities assumed at the respective dates of acquisition (in millions):

| Property and  equipment, net |   | $    | 36.4 |   |
|------------------------------|--------|------|------|--------|
| Current  liabilities         |   | (2.3 | )    |
| Total purchase price         |   | $    | 34.1 |   |

 

***Acquisition of R/C Theatres and Eastern FederalCorporation Theatres***

On April 28, 2005, the Company acquired seventheatres comprising 76 screens in Maryland, Florida, Pennsylvania and Virginiafrom R/C Theatres. On July 21, 2005, the Company acquired 21 theatres and230 screens in Florida, North Carolina and South Carolina from Eastern FederalCorporation. The total aggregate cash purchase price for the combinedacquisitions was approximately $156.7 million, including $125.2 millionfor the Eastern Federal Corporation acquisition. The transactions have 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 dates of acquisition, with the remaining balance allocatedto goodwill. The allocation of the purchase price is based on management’sjudgment after evaluating several factors, including an independent third partyappraisal of certain Eastern Federal Corporation fee properties. The results ofoperations of the acquired theatre operations have been included in the Company’sconsolidated financial statements for periods subsequent to the respectiveacquisition dates.

65

----

Thefollowing is a summary of the final allocation of the aggregate cash purchaseprice to the estimated fair values of the assets acquired and liabilitiesassumed at the respective dates of acquisition (in millions):

| Current assets               |   | $     | 0.2    |   |
|------------------------------|--------|-------|--------|--------|
| Property and  equipment, net |   | 157.8 |   |
| Goodwill                     |   | 2.9   |   |
| Current  liabilities         |   | (4.2  | )      |
| Total purchase price         |   | $     | 156.7  |   |

 

***Acquisition of Signature Theatres and Other Fiscal2004 Acquisitions***

On April 29, 2004, Regal acquired five theatresrepresenting 49 screens in the Northeastern United States. On May 5, 2004,Regal acquired two additional theatres with 26 screens in the NortheasternUnited States. On September 30, 2004, Regal acquired 30 theatrescomprising 309 screens (including two theatres with 30 screens underconstruction) in California and Hawaii from Signature Theatres. The totalaggregate cash purchase price for the combined acquisitions totaledapproximately $223.6 million, including approximately $196.7 millionfor the Signature Theatres acquisition. The transactions have been accountedfor using the purchase method of accounting and, accordingly, the purchaseprice has been allocated to the assets acquired and liabilities assumed foreach of the respective theatre locations based on their estimated fair valuesat the date of acquisition, with the remaining balance allocated to goodwill.The results of operations of the acquired theatre operations have been includedin the Company’s consolidated financial statements for periods subsequent tothe respective acquisition dates.

Thefollowing is a summary of the allocation of the aggregate cash purchase priceto the estimated fair values of the assets acquired and liabilities assumed atthe respective dates of acquisition (in millions): 

| Current assets                                        |   | $     | 0.1    |   |
|-------------------------------------------------------|--------|-------|--------|--------|
| Land                                                  |   | 1.0   |   |
| Buildings,  leasehold improvements and equipment, net |   | 212.5 |   |
| Goodwill                                              |   | 2.1   |   |
| Other non-current  assets                             |   | 15.7  |   |
| Current  liabilities                                  |   | (5.1  | )      |
| Other non-current  liabilities                        |   | (2.7  | )      |
| Total purchase price                                  |   | $     | 223.6  |   |

 

**4.**                 FORMATIONOF NATIONAL CINEMEDIA, LLC

On March 29, 2005, Regal and AMC announced thecombination of the operations of RCM and AMC’s subsidiary, National CinemaNetwork, Inc. (“NCN”), into a new joint venture company known as NationalCineMedia. On July 15, 2005, Cinemark, Inc. (“Cinemark”), through awholly owned subsidiary, acquired a 20.7% interest in National CineMedia. As ofDecember 28, 2006, RCM’s wholly owned subsidiary, Regal CineMediaHoldings, LLC (“RCH”), owned 45.4% of the Class A Units of NationalCineMedia, AMC, as successor in interest to NCN, owned 26.3% of the Class AUnits of National CineMedia and Cinemark owned 28.3% of the Class A Unitsof National CineMedia. National CineMedia focuses on the expansion of ancillarybusinesses, such as in-theatre advertising and the creation of complementarybusiness lines that leverage the existing operating personnel, asset andcustomer bases of its theatrical exhibition partners, which includes us, AMCand Cinemark. National CineMedia is, subject to limited exceptions, theexclusive provider of advertising and event services to Regal, AMC andCinemark.

66

----

As part of the joint venture transaction, onMarch 29, 2005, RCM and NCN entered into a Contribution and Unit HoldersAgreement with National CineMedia pursuant to which, among other things, RCMand NCN agreed to contribute assets to National CineMedia and NationalCineMedia agreed to assume specified liabilities of RCM and NCN inconsideration for the issuance of equity units by National CineMedia to RCH andNCN, respectively. The assets contributed to National CineMedia by RCM includedfixed assets and agreements as well as approximately $1.3 million in cash.The Company accounts for its investment in National CineMedia using the equitymethod of accounting and did not recognize any gain or loss resulting from theinitial formation of National CineMedia due to the Company’s continuedinvolvement in the operations of National CineMedia. As of December 28,2006 and December 29, 2005, RCH’s investment in National CineMedia totaledapproximately ($1.5 million) and $3.2 million, respectively.

Pursuant to the other documents entered into inconnection with the joint venture transaction, AMC and Regal, through theirsubsidiaries, retained all advertising contracts signed on or before the closeof business on March 31, 2005, and Cinemark retained all advertising contractssigned on or before the close of business on July 15, 2005, subject to anadministrative fee (32% during fiscal 2006 and 35% during fiscal 2005) payableto National CineMedia to service such contracts. For the fiscal year endedDecember 28, 2006, administrative fees paid to National CineMedia totaled$4.8 million (on $15.0 million of revenue). For the fiscal yearended December 29, 2005, administrative fees paid to National CineMediatotaled $22.5 million (on $64.1 million of revenue). Revenues and expensesattributable to these advertising contracts are recorded as a component ofother operating revenues and other operating expenses in the Company’sfinancial statements. For contracts signed by National CineMedia after theclose of business on March 31, 2005, AMC and Regal, and with respect toadvertising contracts signed after the close of business on July 15, 2005,Cinemark, through their respective theatre exhibition subsidiaries, receiverevenue from National CineMedia with respect to advertising and event servicesat their respective theatres through an agreed upon formula as well as equityin income/loss of National CineMedia. Such formula is based on the weightedaverage number of screens owned by and the number of theatre patrons of theapplicable exhibitor’s theatres for any measurement period. During the fiscalyear ended December 28, 2006, the Company recorded $58.5 million ofadvertising revenues and $3.1 million****of otherrevenues derived from these contracts, which are presented as a component ofother operating revenues in the Company’s financial statements. During thefiscal year ended December 29, 2005, the Company recorded$16.3 million of advertising revenues and $4.0 million of otherrevenues derived from these contracts. For the fiscal years endedDecember 28, 2006 and December 29, 2005, the Company recorded a(loss) gain of ($3.5 million) and $1.5 million, respectively, representingits share of the net income of National CineMedia. As of December 28,2006, approximately $25.4 million and $0.7 million due from/to NationalCineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively. In addition, as of December 29, 2005,approximately $14.9 million and $2.8 million due from/to NationalCineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively.

On December 5, 2005, National CineMedia enteredinto a sublease agreement with RCM pursuant to which National CineMediasubleases its regional office in Chicago, Illinois. Both the sublease and thelease expire on July 31, 2009. Pursuant to the sublease, NationalCineMedia pays rent in an amount equal to that which would have been paid byRCM under the terms of its lease. The amounts paid by National CineMedia to thelandlord for the fiscal year ended December 28, 2006 were less than $0.1million. In addition, on January 27, 2006, National CineMedia entered intoa sublease agreement with RCM pursuant to which National CineMedia subleasesits regional office in New York, New York. Both the sublease and the leaseexpire on April 30, 2010. Pursuant to the sublease, National CineMediapays rent to RCM in an amount equal to that which would have been paid by RCMunder the terms of its lease. The amounts paid to RCM for the fiscal year endedDecember 28, 2006 were approximately $0.4 million. Lastly, onMarch 22, 2005, RCM assigned its interests in a sublease from Regal toNational CineMedia for its 

67

----

regional office inWoodland Hills, California. The lease and sublease expired on July 31,2006. Pursuant to the sublease, National CineMedia paid rent to Regal in anamount equal to that which would have been paid by Regal under the terms of itslease. The amounts paid to Regal for the fiscal year ended December 28,2006 were, in aggregate, less than approximately $0.1 million. Related partyamounts for each of the above arrangements for the fiscal year endedDecember 29, 2005 were comparable to the 2006 amounts.

In connection with the formation of NationalCineMedia, on May 11, 2005, RCI adopted and approved the RCI SeverancePlan For Equity Compensation (the “Severance Plan”). Participation in theSeverance Plan is limited to employees of RCM who held an unvested option topurchase shares of Regal’s Class A common stock or unvested shares ofRegal’s restricted Class A common stock pursuant to the terms of theCompany’s 2002 Incentive Plan (the “Incentive Plan”) immediately prior to suchemployee’s termination of employment with RCM and commencement of employmentwith National CineMedia. Each employee’s termination of employment with RCM waseffective as of the close of business on May 24, 2005 and commencement ofemployment with National CineMedia was effective as of May 25, 2005. Underthe terms of and subject to the conditions of the Severance Plan, each eligibleemployee who participates in the Severance Plan (a “Participant”) is, at thetimes set forth in the Severance Plan, entitled to a cash payment equal to(1) with respect to each unvested stock option held on May 24, 2005,the difference between the exercise price of such unvested option and $20.19(the fair market value of a share of Regal’s Class A common stock onMay 24, 2005 as calculated pursuant to the terms of the Severance Plan)and (2) with respect to each unvested share of restricted stock, $20.19.In addition, the Severance Plan provides that each Participant who heldunvested shares of restricted stock on May 24, 2005 will be entitled toreceive payments in lieu of dividend distributions in an amount equal to the pershare value of dividends paid on Regal’s Class A common stock times thenumber of shares of such restricted stock. Each such Participant will receivethese payments in lieu of dividend distributions until the date that each suchParticipant’s restricted stock would have vested in accordance with theIncentive Plan. Solely for purposes of the calculation of such payments withrespect to restricted stock, in the event of any stock dividend, stock split orother change in the corporate structure affecting Regal’s Class A commonstock, there shall be an equitable proportionate adjustment to the number ofshares of restricted stock held by each Participant immediately prior to his orher termination of employment with RCM.

Each Participant’s cash payment will vest according tothe year and date on which such unvested options and restricted stock held bysuch Participant would have vested pursuant to the terms of the Incentive Planand the related award agreement had employment with RCM not ceased. As a resultof the formation of National CineMedia, approximately 1.5 million unvestedoptions and 77,020 shares of unvested restricted stock were forfeited. Thetotal cost of the Severance Plan, including payments in lieu of dividenddistributions on restricted stock, is estimated to be in the range ofapproximately $15.0 million to $16.0 million. Pursuant to the termsof the National CineMedia arrangements, approximately $4.0 million of suchcosts associated with the Severance Plan were funded by National CineMedia. Asthe Severance Plan provides for payments over future periods that arecontingent upon continued employment with National CineMedia, the cost of theSeverance Plan will be recorded as an expense over the remaining requiredservice periods. During the years ended December 28, 2006 andDecember 29, 2005, the Company recorded total severance expense ofapproximately $3.9 million and $7.4 million, respectively, including lessthan $0.1 million of payments in lieu of dividends, related to the SeverancePlan.

As part of the jointventure transaction, RCH, NCN and Cinemark, or their respective affiliates,entered into a number of ancillary agreements, including a Limited LiabilityCompany Operating Agreement, as amended (the “Operating Agreement”), in orderto set forth their respective rights and obligations as members in connectionwith their interests in National CineMedia. As discussed further in Note 14—“SubsequentEvents,” onFebruary 13, 2007, NCM Inc., a newly formed entity that serves as the solemanager of National CineMedia, completed an initial public offering, or IPO, ofits common stock. In 

68

----

connection with the IPO of NCM Inc., RCH, AMCand Cinemark amended and restated the Operating Agreement and the otherancillary agreements.

**5.**                 DEBTOBLIGATIONS

**Debtobligations at December 28, 2006 and December 29, 2005 consist of thefollowing (in millions):**

| ** **                                                                                                                           | ** ** | **December 28 2006** | ** ** | **December 29, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                           | ** ** | **(In millions)**         | ** ** |
| Regal 33¤4%  Convertible Senior Notes                                                                                           |       |                           | $          | 123.7                           |       |   |   | $ | 240.0 |   |   |
| Regal Cinemas  Senior Credit Facility                                                                                                |       |                           | 1,700.0    |                            |       |   | 1,575.9 |   |   |
| Regal Cinemas 93¤8%  Senior Subordinated Notes                                                                                  |       |                           | 51.5       |                            |       |   | 51.5 |   |   |
| Lease financing  arrangements, weighted average interest rate of 11.15%, maturing in various  installments through January 2021 |       |                           | 89.4       |                            |       |   | 92.6 |   |   |
| Capital lease obligations,  8.5% to 10.3%, maturing in various installments through December 2017                               |       |                           | 22.4       |                            |       |   | 23.5 |   |   |
| Other                                                                                                                                |       |                           | 0.9        |                            |       |   | 1.0 |   |   |
| Total debt  obligations                                                                                                              |       |                           | 1,987.9    |                            |       |   | 1,984.5 |   |   |
| Less current  portion                                                                                                                | ** ** |                           | (146.2     | )                               |       |   | (260.4 | ) |   |
| Total debt obligations,  net of current maturities                                                                                   |       |                           | $          | 1,841.7                         |       |   |   | $ | 1,724.1 |   |   |

*** ***

***Regal 3******3******¤******4% Convertible Senior Notes******—On***May 28, 2003, Regal issued$240.0 million aggregate principal amount of 33¤4%Convertible Senior Notes due May 15, 2008 (the “Convertible Senior Notes”).Interest on the Convertible Senior Notes is payable semi-annually in arrears onMay 15 and November 15 of each year, beginning November 15,2003. The Convertible Senior Notes are senior unsecured obligations of Regaland rank on parity with all of our existing and future senior unsecuredindebtedness and prior to all of our subordinated indebtedness. The ConvertibleSenior Notes are effectively subordinated to all of our future securedindebtedness to the extent of the assets securing that indebtedness and to anyindebtedness and other liabilities of our subsidiaries. None of oursubsidiaries have guaranteed any of our obligations with respect to theConvertible Senior Notes. On or after May 15, 2007, our note holders willhave the option to convert their Convertible Senior Notes, in whole or in part,into shares of our Class A common stock at any time prior to maturity,subject to certain limitations, unless previously purchased by us at the noteholder’s option upon a change in control, at the then existing conversion priceper share. Prior to May 15, 2007, our note holders have the right, attheir option, to convert their Convertible Senior Notes, in whole or in part,into shares of our Class A common stock, subject to certain limitations,unless previously purchased by us at the note holder’s option upon a change incontrol, at the then existing conversion price per share, subject to furtheradjustments described below, if:

·       theclosing sale price of our Class A common stock on the previous trading daywas 110% or more of the then current conversion price;

·       wedistribute to all or substantially all holders of our common stock certainrights entitling them to purchase common stock at less than the closing saleprice of our Class A common stock on the day preceding the declaration ofsuch distribution;

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

69

----

·       webecome a party to a consolidation, merger or sale of all or substantially allof our assets or a change in control occurs, in each case, pursuant to whichour common stock would be converted into cash, stock or other property unless,in the case of a consolidation or merger, all of the consideration, excluding cashpayments for fractional shares and cash payments made pursuant to dissenters’appraisal rights, in such merger or consolidation consists of shares of commonstock, American Depositary Shares or other certificates representing commonequity interests traded on a United States national securities exchange orquoted on The NASDAQ Stock Market, or will be so traded or quoted when issuedor exchanged in connection with such merger or consolidation, and as a resultof such merger or consolidation the Convertible Senior Notes become convertiblesolely into such common stock or other certificates representing common equityinterests; or

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

On December 28, 2006, at the then currentconversion price of $14.5483 per share (which conversion price has been and maybe further adjusted pursuant to the antidilution provisions of the ConvertibleSenior Notes in connection with the payment by Regal of dividends on its commonstock), each $1,000 of aggregate principal amount of Convertible Senior Notesis convertible into approximately 68.7366 shares of our Class A commonstock. Upon conversion, we may elect to deliver cash in lieu of shares of Class Acommon stock or a combination of cash and shares of Class A common stock.As explained below, with respect to the par amount of the conversionobligation, we intend to deliver cash to note holders upon conversion. Theconversion price and the number of shares delivered on conversion are subjectto adjustment upon certain events.

In connection with the issuance of the ConvertibleSenior Notes, we used approximately $18.8 million of the net proceeds ofthe offering to enter into convertible note hedge and warrant transactions withrespect to our Class A common stock to reduce the potential dilution fromconversion of the Convertible Senior Notes. Under the terms of the convertiblenote hedge arrangement (the “Convertible Note Hedge”) with Credit Suisse FirstBoston (“CSFB”), we paid $36.2 million for a forward purchase optioncontract under which we are entitled to purchase from CSFB a fixed number ofshares of our Class A common stock (at December 28, 2006 at a priceper share of $14.5483). In the event of the conversion of the ConvertibleSenior Notes, this forward purchase option contract allows us to purchase, at afixed price equal to the implicit conversion price of shares issued under theConvertible Senior Notes, a number of shares equal to the shares that we issueto a note holder upon conversion. Settlement terms of this forward purchaseoption allow the Company to elect cash or share settlement based on thesettlement option it chooses in settling the conversion feature of theConvertible Senior Notes. We accounted for the Convertible Note Hedge pursuantto the guidance in EITF 00-19, “Accounting for Derivative FinancialInstruments Indexed to, and Potentially Settled in a Company’s Own Stock.”Accordingly, the $36.2 million purchase price of the forward stockpurchase option contract was recorded as a reduction of consolidatedstockholders’ equity (deficit).

We also sold to CSFB a warrant (the “Warrant”) topurchase shares of our Class A common stock. The Warrant is currentlyexercisable for 8,505,255 shares of our Class A common stock at a December 28,2006 exercise price of $16.7865 per share (which exercise price has been andmay be further adjusted pursuant to the antidilution provisions of the Warrantin connection with the payment by Regal of dividends on its common stock). Wereceived $17.4 million cash from CSFB in return for the sale of thisforward share purchase option contract. CSFB cannot exercise the Warrant unlessand until a conversion event occurs. We have the option of settling the Warrantin cash or shares of our Class A common stock. We accounted for the saleof the Warrant as the sale of a permanent equity instrument pursuant to theguidance in EITF 00-19. Accordingly, the $17.4 million sales priceof the forward stock purchase option contract was recorded as a credit toconsolidated stockholders’ equity (deficit).

70

----

The Convertible Note Hedge and the Warrant allow us toacquire sufficient Class A common shares from CSFB to meet our obligationto deliver Class A common shares upon conversion by the note holder,unless the Class A common share price exceeds $16.7865 (as of December 28,2006). When the fair value of our Class A common shares exceeds suchprice, the equity contracts no longer have an offsetting economic impact, andaccordingly will no longer be effective as a hedge of the dilutive impact ofpossible conversion.

The Convertible Senior Notes allow us to settle anyconversion, and we intend to settle any conversion, by remitting to the noteholder the accreted value of the note in cash plus the conversion spread (theexcess conversion value over the accreted value) in either cash, shares of 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 by theEITF with respect to the accounting for Instrument C as set forth in EITF 90-19,“Convertible Bonds with Issuer Option to Settle for Cash Upon Conversion.” Itis our intent to settle the Convertible Senior Notes’ conversion obligationsconsistent with Instrument C. Because the accreted value of the ConvertibleSenior Notes will be settled in cash upon the conversion, only the conversionspread (the excess conversion value over the accreted value), which may besettled in stock, will result in potential dilution in our earnings-per-sharecomputations.

On December 28, 2006, the closing sale price ofour Class A common stock was $21.55, which exceeded 110% of the thencurrent conversion price of $14.5483. Accordingly, as of December 28,2006, our note holders had the right, at their option, to convert theirConvertible Senior Notes, in whole or in part, into shares of our Class Acommon stock, subject to certain limitations, at the current conversion priceof $14.5483. This conversion option, coupled with the Company’s stated policyto settle any conversion by remitting to the note holder the accreted value ofthe note in cash, resulted in the classification of the $123.7 millionprincipal amount of the Convertible Senior Notes as a current liability on theaccompanying consolidated balance sheet as of December 28, 2006. Thefuture balance sheet classification of this liability (i.e., current versusnon-current presentation) will be monitored at each quarterly reporting date,and will be determined based on an analysis of the various conversion rightsdescribed above.

During the year ended December 28, 2006, holdersof $116.3 million in principal amount of Convertible Senior Notesexercised their conversion rights. The Company elected to settle theseconversions entirely in cash for approximately $152.1 million. As a result ofthese conversions, the Company recorded a $37.0 million****loss on debt extinguishment (including arelated $1.2 million write-off of unamortized debt issue costs) during the yearended December 28, 2006.

In connection with the above conversions, the Companyreceived net proceeds of approximately $17.9 million from CSFB attributable tothe Convertible Note Hedge and the Warrant. Such proceeds were recorded as anincrease to additional paid-in capital.

***Regal Cinemas 9******3******¤******8% Senior Subordinated Notes******—On***January 29,2002, Regal Cinemas issued $200.0 million aggregate principal amount of 93¤8%Senior Subordinated Notes due 2012 (the “Senior Subordinated Notes”). Intereston the Senior Subordinated Notes is payable semi-annually on February 1and August 1 of each year, and the Senior Subordinated Notes mature on February 1,2012. The Senior Subordinated Notes are guaranteed by most of Regal Cinemas’existing subsidiaries and are unsecured, ranking behind Regal Cinemas’obligations under its Senior Credit Facility and any future senior indebtedness.

On April 17, 2002, Regal Cinemas sold anadditional $150.0 million principal amount of the Senior SubordinatedNotes, which were issued under the indenture pursuant to which Regal Cinemassold its Senior Subordinated Notes in January 2002.

71

----

Regal Cinemas has the option to redeem the SeniorSubordinated Notes, in whole or in part, at any time on or after February 1,2007 at redemption prices declining from 104.688% of their principal amount on February 1,2007 to 100% of their principal amount on or after February 1, 2010, plusaccrued interest.

On April 15, 2004, Regal and its subsidiary,RCBC, commenced a cash tender offer and consent solicitation for the$350.0 million aggregate principal amount of the Regal Cinemas 93¤8%Senior Subordinated Notes due 2012. On April 27, 2004, the Companycompleted its consent solicitation with respect to the Senior SubordinatedNotes amending the indenture governing the Senior Subordinated Notes toeliminate substantially all of the restrictive covenants and certain defaultprovisions. Consideration for each $1,000 principal amount of SeniorSubordinated Notes tendered was $1,169.05, plus a consent payment of $20.00 per$1,000 principal amount of Senior Subordinated Notes for those holders whoproperly tendered their Senior Subordinated Notes with a consent on or before April 27,2004. Such consideration was determined as of April 28, 2004 by referenceto a fixed spread above the yield to maturity of the 2.25% U.S. Treasury Notedue February 15, 2007. The tender offer was completed on May 12, 2004and approximately $298.1 million aggregate principal amount of the SeniorSubordinated Notes were purchased. Total additional consideration paid for thetender offer and consent solicitation was approximately $56.3 million. Thetender offer and consent solicitation were financed with a portion of theproceeds from the Senior Credit Facility described below. Approximately$918.3 million of the proceeds from the Senior Credit Facility, togetherwith a portion of Regal Cinemas’ available cash, was distributed by RegalCinemas to Regal, which used approximately $718.3 million of the proceedsto pay an extraordinary dividend of $5.00 per share to its holders of Class Aand Class B common stock on June 2, 2004. The remaining balance wasretained for the fiscal 2004 acquisitions disclosed in Note 3—“Acquisitions”and for general corporate purposes. Upon consummation of the refinancing ofRegal Cinemas’ senior indebtedness, Regal recognized a loss on debtextinguishment of approximately $76.1 million. On July 15, 2004, theCompany purchased an additional $361,000 principal amount of the SeniorSubordinated Notes from a third party.

***Regal Cinemas Fifth Amended and Restated CreditAgreement***—OnOctober 27, 2006, Regal Cinemas entered into a fifth amended and restatedcredit agreement (the “Amended Senior Credit Facility”) with Credit Suisse,Cayman Islands Branch (as successor to Credit Suisse First Boston), asAdministrative Agent and the other lenders party thereto, which consists of a termloan facility (the “Term Facility”) in an aggregate original principal amountof $1.7 billion and a revolving credit facility (the Revolving Facility in anaggregate principal amount of up to $100.0 million. The Revolving Facility hasa separate sublimit of $10.0 million for short-term loans and a sublimit of$30.0 million for letters of credit. The principal balance of the Term Facilityin the Amended Senior Credit Facility was higher than the term loan balance inthe prior credit facility, and such higher principal balance resulted in netproceeds of $21.2 million from the Amended Senior Credit Facility which wereset aside for general corporate purposes. Upon the execution of the AmendedSenior Credit Facility, Regal recognized a loss on debt extinguishment ofapproximately $2.3 million, including $0.8 million of third party costs. Inaddition, approximately $19.2 million of new debt acquisition costs wererecorded in connection with consummation of the Amended Senior Credit Facility.

The Term Facility will mature on October 27, 2013and the Revolving Facility will mature on October 27, 2011. Interest ispayable (a) in the case of base rate loans, quarterly in arrears, and (b) inthe case of Eurodollar rate loans, at the end of each interest period, but inno event less often than every 3 months. The Term Facility amortizes inequal quarterly installments in an aggregate annual amount equal to 1.0% of theoriginal principal amount of the Term Facility during the first six yearsthereof, with the balance payable in two equal installments, the first on June 30,2013 and the second on October 27, 2013.

The obligations of Regal Cinemas are secured by, amongother things, a lien on substantially all of its tangible and intangiblepersonal property (including but not limited to accounts receivable, inventory,

72

----

equipment, generalintangibles, investment property, deposit and securities accounts, andintellectual property) and certain real property. The obligations under theAmended Senior Credit Facility are also guarantied by certain subsidiaries ofRegal Cinemas and secured by a lien on all or substantially all of suchsubsidiaries’ personal property and certain real property. The obligations arefurther guarantied by Regal Entertainment Holdings, Inc., on a limitedrecourse basis, with such guaranty being secured by a lien on the capital stockof Regal Cinemas.

Borrowings under the Amended Senior Credit Facilitybear interest, at Regal Cinemas’ option, at either a base rate or an AdjustedEurodollar Rate (as defined in the Amended Senior Credit Facility) plus, ineach case, an applicable margin. The base rate is the higher of Prime Rate, asdetermined by Credit Suisse, and the Federal Funds Effective Rate plus 0.5%. RegalCinemas may elect interest periods of 1, 2, 3, 6 or (if available to alllenders) 12 months for the Adjusted Eurodollar Rate. The applicable marginis determined according to the consolidated leverage ratio of Regal Cinemas andits subsidiaries. Calculation of interest is on the basis of the actual dayselapsed in a year of 360 days (or 365 or 366 days, as the case maybe, in the case of base rate loans based on the Prime Rate) and interest ispayable at the end of each interest period (or quarterly in the case of baserate loans based on the Prime Rate) and, in any event, at least every3 months. As of December 28, 2006 and December 29, 2005,borrowings of $1,700.0 million and $1,575.9 million, respectively,were outstanding under the Term Facility at effective interest rates of 6.23%(as of December 28, 2006) and 6.0% (as of December 29, 2005), afterthe impact of the interest rate swaps is taken into account.

Regal Cinemas mayprepay borrowings under the Amended Senior Credit Facility, in whole or inpart, in minimum amounts and subject to other conditions set forth in theAmended Senior Credit Facility. Regal Cinemas is required to make mandatoryprepayments with:

·       50% of excess cash flow inany fiscal year (as reduced by voluntary repayments of the Term Facility), withelimination based upon achievement and maintenance of a leverage ratio of lessthan 3.75:1.00;

·       100% of the net cashproceeds of all asset sales or other dispositions of property by Regal Cinemasand its subsidiaries, subject to certain exceptions (including reinvestmentrights);

·       100% of the net cashproceeds of issuances of funded debt of Regal Cinemas and its subsidiaries,subject to exceptions; and

·       50% of the net cashproceeds of issuances of equity securities by Regal Cinemas, including the netcash proceeds of capital contributions to Regal Cinemas, with elimination basedupon achievement and maintenance of a leverage ratio of less than 3.50:1.00.

The above-described mandatory prepayments are requiredto be applied pro rata to the remaining amortization payments under the TermFacility. When there are no longer outstanding loans under the Term Facility,mandatory prepayments are to be applied to prepay outstanding loans under theRevolving Facility with no corresponding permanent reduction of commitmentsunder the Revolving Facility.

The Amended SeniorCredit Facility includes several financial covenants including:

·       maximum ratios of(i) the sum of funded debt (net of unencumbered cash) plus the product ofeight (8) times lease expense to (ii) consolidated EBITDAR (as definedin the Amended Senior Credit Facility) (initially set at 6.00:1.00 anddeclining in subsequent periods);

·       maximum ratios of fundeddebt (net of unencumbered cash) to consolidated EBITDA, (initially equal to4.00:1.00 and declining in subsequent periods);

·       minimum ratio of(i) consolidated EBITDAR to (ii) the sum of interest expense pluslease expense of 1.50 to 1.0 throughout the term of the Amended Senior CreditFacility; and

73

----

·       maximum capitalexpenditures not to exceed 35% of consolidated EBITDA for the prior fiscal yearplus a one-year carryforward for unused amounts from the prior fiscal year.

The Amended Senior Credit Facility contains customaryaffirmative covenants including, among other things, maintenance of corporateexistence and rights; performance of obligations; delivery of financialstatements and other financial information; delivery of notices of default,litigation, ERISA events and material adverse change; maintenance ofproperties; maintenance of insurance; maintenance of a rating of Regal Cinemasand of the Amended Senior Credit Facility by each of Standard & Poor’sRatings Services and Moody’s Investors Service, Inc; compliance with laws;inspection of books and properties; further assurances; and payment of taxes.

The Amended Senior Credit Facility also containscustomary negative covenants (subject to exceptions, limitations and baskets)which limit the ability of Regal Cinemas and its subsidiaries to, among otherthings, incur indebtedness, grant liens, make investments or acquisitions,engage in affiliate transactions, or pay dividends. These limitations mayrestrict the ability of Regal Cinemas to fund the operations the Company or anysubsidiary of the Company that is not designated as a restricted subsidiary ofRegal Cinemas under the Amended Senior Credit Facility.

The Amended Senior Credit Facility specifies customaryevents of default including, among other things, nonpayment of principal,interest or other amounts; breach of certain covenants; breach ofrepresentations and warranties in any material respect; cross default and crossacceleration with respect to indebtedness in an aggregate principal amount of$25.0 million or more; bankruptcy; judgments involving liability of$25.0 million or more; ERISA events; actual or asserted invalidity ofguarantees or security documents; and change of control.  Upon the occurrence of an event of default,all obligations under the Amended Senior Credit Facility may be accelerated.

Under the Amended Senior Credit Facility, RegalCinemas also established a New Incremental Term Facility, which amends andrestates the Incremental Term Facility. Under the terms of the New IncrementalTerm Facility, Regal Cinemas may borrow up to $200 million in additional fundsthat would be treated as a term loan under the Amended Senior Credit Facilitywithout the need to obtain consent from any lender or any party to the AmendedSenior Credit Facility. Borrowing under the New Incremental Term Facility issubject to the satisfaction of certain conditions set forth in the facility,including, but not limited to, obtaining commitments from one or more lendersto fund such additional amounts. At Regal Cinemas’ option, borrowings under theNew Incremental Term Facility bear interest at an Adjusted Eurodollar Rate or abase rate plus, in either case, an applicable margin that is established at thetime commitments for the New Incremental Term Facility are obtained. Proceedsof Regal Cinemas’ borrowings under the New Incremental Term Facility are to beused solely to fund, or reimburse Regal Cinemas for funding, distributions tothe Company for the purpose of redeeming, repurchasing, acquiring or otherwisesettling the conversion of all or a portion of the Convertible Senior Notes.

***Interest Rate Swaps***—OnJuly 13, 2004, Regal Cinemas entered into four hedging relationships viafour distinct interest rate swap agreements with final maturity terms rangingfrom three to five years each. On September 8, 2005, Regal Cinemas enteredinto an additional hedging relationship via a distinct interest rate swapagreement with a maturity term of four years. These interest rate swaps weredesignated to hedge approximately $1,100.0 million of its variable rate debtobligations. Under the terms of the interest rate swap agreements, RegalCinemas pays interest at various fixed rates ranging from 3.49% to 4.337% andwill receive interest at a variable rate based on the 3-month LIBOR. The 3-monthLIBOR rate on each reset date determines the variable portion of the interestrate-swaps for the following three-month period. The interest rate swaps settleany accrued interest for cash on the last day of each calendar quarter, untilexpiration. At such dates, the differences to be paid or received on theinterest rate swaps will be included in interest expense. No premium ordiscount was incurred upon the Company entering into the interest rate swaps,because the pay and receive rates on the interest rate swaps represented prevailing

74

----

rates for eachcounterparty at the time the interest rate swaps were entered into. Theinterest rate swaps qualify for cash flow hedge accounting treatment inaccordance with SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities,” and as such, the Company has effectively hedged itsexposure to variability in the future cash flows attributable to the 3-monthLIBOR on approximately $1,100.0 million of debt. The change in the fairvalues of the interest rate swaps is recorded on the Company’s consolidatedbalance sheet as an asset or liability with the effective portion of theinterest rate swaps’ gains or losses reported as a component of othercomprehensive income (loss) and the ineffective portion reported in earnings.As interest expense is accrued on the debt obligation, amounts in accumulatedother comprehensive income/loss related to the designated hedging instruments(the five interest rate swaps) will be reclassified into earnings to obtain anet cost on the debt obligation equal to the effective yield of the fixed rateof each swap. The fair value of the Company’s interest rate swaps is based ondealer quotes, and represents an estimate of the amounts Regal Cinemas wouldreceive or pay to terminate the agreements taking into consideration variousfactors, including current interest rates.

As of December 28, 2006, the aggregate fair valueof the interest rate swaps was determined to be approximately$22.4 million, which has been recorded as a component of “OtherNon-Current Assets” with a corresponding amount of $13.6 million, net oftax, recorded to “Accumulated Other Comprehensive Income.” The interest rateswaps exhibited no ineffectiveness for the years ended December 28, 2006, December 29,2005 and December 30, 2004.

***Lease Financing Arrangements***—These obligations primarilyrepresent capitalized lease obligations resulting from the requirements ofEITF 97-10 and SFAS No. 98.

***Maturitiesof Debt Obligations***—The Company’s long-term debt and future minimum leasepayments for its capital lease obligations and lease financing arrangements arescheduled to mature as follows: 

| ** **                                                         | ** ** | **Long-Term Debt  and Other** | ** ** | **Capital Leases** | ** ** | **Lease Financing  Arrangements** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------|------------|----------------------------------------|------------|-----------|------------|
| ** **                                                         | ** ** | **(in millions)**                  | ** ** |
| 2007                                                               |       |                                    | $          | 140.8                   |       |                                   |       | $         | 3.5        |   |   |   | $ | 13.5 |   |   | $ | 157.8 |   |
| 2008                                                               |       |                                    | 17.1       |                    |       |                                   | 3.4        |      |       |   | 13.5 |   |   | 34.0 |   |
| 2009                                                               |       |                                    | 17.2       |                    |       |                                   | 3.5        |      |       |   | 13.6 |   |   | 34.3 |   |
| 2010                                                               |       |                                    | 17.2       |                    |       |                                   | 3.4        |      |       |   | 13.8 |   |   | 34.4 |   |
| 2011                                                               |       |                                    | 17.2       |                    |       |                                   | 3.5        |      |       |   | 13.8 |   |   | 34.5 |   |
| Thereafter                                                         |       |                                    | 1,666.6    |                    |       |                                   | 17.1       |      |       |   | 99.3 |   |   | 1,783.0 |   |
|                                                               |       |                                    | 1,876.1    |                    |       |                                   | 34.4       |      |       |   | 167.5 |   |   | 2,078.0 |   |
| Less: interest on  capital leases and lease financing arrangements |       |                                    |       |                    |       |                                   | (12.0      | )         |       |   | (78.1 | ) |   | (90.1 | ) |
| Totals                                                             |       |                                    | $          | 1,876.1                 |       |                                   |       | $         | 22.4       |   |   |   | $ | 89.4 |   |   | $ | 1,987.9 |   |

 

**6.**   LEASES

TheCompany accounts for a majority of its leases as operating leases. Minimumrentals payable under all non-cancelable operating leases with terms in excessof one year as of December 28, 2006, are summarized for the followingfiscal years (in millions): 

| 2007       |   | $       | 303.2  |   |
|------------|--------|---------|--------|--------|
| 2008       |   | 303.0   |   |
| 2009       |   | 300.5   |   |
| 2010       |   | 297.1   |   |
| 2011       |   | 291.1   |   |
| Thereafter |   | 2,189.9 |   |

 

75

----

Rent expense under suchoperating leases amounted to $323.2 million, $310.5 million and$287.0 million for the years ended December 28, 2006, December 29,2005 and December 30, 2004, respectively. Contingent rent expense was$18.4 million, $15.6 million and $16.0 million for the yearsended December 28, 2006, December 29, 2005 and December 30,2004, respectively.

***Sale-Leaseback Transactions***

The Company has historically entered into sale andleaseback transactions whereby owned properties were sold and leased back underoperating leases. The minimum rentals for these operating leases are includedin the table above.

In December 1995,UATC entered into a sale and leaseback transaction whereby 31 owned propertieswere sold to and leased back from an unaffiliated third party. In conjunctionwith the transaction, the buyer of the properties issued publicly tradedpass-through certificates. In connection with this sale and leasebacktransaction, UATC entered into a Participation Agreement that requires UATC tocomply with various covenants, including limitations on indebtedness,restricted payments, transactions with affiliates, guarantees, issuance ofpreferred stock of subsidiaries and subsidiary distributions, transfer ofassets and payment of dividends. As of December 28, 2006, 14 theaters weresubject to the sale leaseback transaction and approximately $53.8 million inprincipal amount of pass-through certificates were outstanding.

**7.  INCOME TAXES**

Thecomponents of the provision for income taxes for income from operations are asfollows (in millions): 

| ** **                  | ** ** | **Year ended  December 28, 2006** | ** ** | **Year ended  December 29, 2005** | ** ** | **Year ended  December 30, 2004** | ** ** |
|-----------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Federal:                    |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Current                     |       |                                             | $          | 63.9                                             |       |                                             |       | $ | 62.3 |   |   |   | $ | 42.2 |   |   |
| Deferred                    |       |                                             | (15.6      | )                                                |       |                                             | (11.9      | ) |   |   | 5.3 |   |   |
| Total Federal               |       |                                             | 48.3       |                                             |       |                                             | 50.4       |   |   |   | 47.5 |   |   |
| State:                      |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Current                     |       |                                             | 13.6       |                                             |       |                                             | 13.9       |   |   |   | 15.2 |   |   |
| Deferred                    |       |                                             | (4.2       | )                                                |       |                                             | (3.6       | ) |   |   | (3.2 | ) |   |
| Total State                 |       |                                             | 9.4        |                                             |       |                                             | 10.3       |   |   |   | 12.0 |   |   |
| Total income tax  provision |       |                                             | $          | 57.7                                             |       |                                             |       | $ | 60.7 |   |   |   | $ | 59.5 |   |   |

 

During the years ended December 28, 2006, December 29,2005 and December 30, 2004, a current tax benefit of $14.1 million,$13.8 million and $13.2 million, respectively, was allocated directlyto stockholders’ equity for the exercise of stock options and dividends paid onrestricted stock.

Areconciliation of the provision for income taxes as reported and the amountcomputed by multiplying the income before taxes and extraordinary item by theU.S. federal statutory rate of 35% was as follows (in millions): 

| ** **                                                 | ** ** | **Year ended  December 28, 2006** | ** ** | **Year ended  December 29, 2005** | ** ** | **Year ended  December 30, 2004** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Provision  calculated at federal statutory income tax rate |       |                                             | $          | 50.4                                             |       |                                             |       | $ | 53.4 |   |   |   | $ | 49.7 |   |   |
| State and local  income taxes, net of federal  benefit     |       |                                             | 6.1        |                                             |       |                                             | 6.7        |   |   |   | 7.8 |   |   |
| Other                                                      |       |                                             | 1.2        |                                             |       |                                             | 0.6        |   |   |   | 2.0 |   |   |
| Total income tax  provision                                |       |                                             | $          | 57.7                                             |       |                                             |       | $ | 60.7 |   |   |   | $ | 59.5 |   |   |

 

76

----

 

Significantcomponents of the Company’s net deferred tax asset consisted of the followingat: 

| ** **                                                | ** ** | **December 28, 2006** | ** ** | **December 29, 2005** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **(in millions)**          | ** ** |
| Deferred tax assets:                                      |       |                            |       |                            |       |   |   |   |   |
| Net operating loss carryforward                           |       |                            | $          | 63.4                            |       |   |   | $ | 70.6 |   |   |
| Excess of tax basis over book basis of intangible  assets |       |                            | 22.4       |                            |       |   | 30.6 |   |   |
| Deferred rent                                             |       |                            | 33.7       |                            |       |   | 29.6 |   |   |
| Severance expense                                         |       |                            | 2.0        |                            |       |   | 4.0 |   |   |
| Other                                                     |       |                            | 3.0        |                            |       |   | 3.9 |   |   |
| Accrued expenses                                          |       |                            | 0.8        |                            |       |   | 0.9 |   |   |
| Excess of tax basis over book basis of convertible  bonds |       |                            | 2.5        |                            |       |   | 8.0 |   |   |
| Total deferred tax assets                                 |       |                            | 127.8      |                            |       |   | 147.6 |   |   |
| Valuation allowance                                       |       |                            | (36.6      | )                               |       |   | (37.4 | ) |   |
| Total deferred tax assets, net of valuation  allowance    |       |                            | 91.2       |                            |       |   | 110.2 |   |   |
| Deferred tax  liabilities:                                |       |                            |       |                            |       |   |   |   |   |
| Excess of book basis over tax basis of fixed assets       |       |                            | (67.9      | )                               |       |   | (102.5 | ) |   |
| Interest rate swaps                                       |       |                            | (0.9       | )                               |       |   | (7.8 | ) |   |
| Other                                                     |       |                            | (0.4       | )                               |       |   | (0.8 | ) |   |
| Total deferred liabilities                                |       |                            | (69.2      | )                               |       |   | (111.1 | ) |   |
| Net deferred tax  asset (liability)                       |       |                            | $          | 22.0                            |       |   |   | $ | (0.9 | ) |   |

 

At December 28, 2006, the Company has netoperating loss carryforwards for federal income tax purposes of approximately$153.3 million with expiration commencing in 2007. The Company’s net operatingloss carryforwards were generated by the entities of United Artists, Edwardsand Hoyts. The Tax Reform Act of 1986 imposed substantial restrictions on theutilization of net operating losses in the event of an “ownership change” of acorporation. Accordingly, the Company’s ability to utilize the net operatinglosses acquired from United Artists, Edwards and Hoyts may be impaired as aresult of the “ownership change” limitations.

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 December 28, 2006 and December 29, 2005 totaling $36.6million****and $37.4 million, respectively,as management believes it is more likely than not that certain deferred taxassets will not be realized in future tax periods. As of December 28, 2006and December 29, 2005, $33.7 million of the valuation allowancerelates to pre-acquisition deferred tax assets of Edwards and United Artists.Accordingly, future reductions in the valuation allowance associated with a changein management’s determination of the Company’s ability to realize thesedeferred tax assets will reduce recorded goodwill related to such acquisitions.During fiscal 2006 the valuation allowance was reduced by $1.2 million asa result of a reduction in the deferred tax asset against which such valuationallowance was recorded. Additionally, during fiscal 2006 the valuationallowance was increased by $0.4 million related to management’sdetermination that it was more likely than not that certain state net operatinglosses generated in 2006 would not be realized.

During October 2005,the IRS completed its examination of the Company’s 2002 and 2003 federal taxreturns for such years and the Company and the IRS agreed to certainadjustments to the Company’s 2002 and 2003 federal tax returns. Suchadjustments did not have a material impact on the Company’s provision forincome taxes.

77

----

**8.  LITIGATION AND CONTINGENCIES**

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

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

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

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, 

78

----

working conditions,citizenship and health and sanitation requirements. We believe that we are insubstantial compliance with all of such laws.

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

On April 5, 2005, the Company filed a complaintin the Delaware Court of Chancery against Amaranth LLC, Amaranth Advisors,L.L.C. and Nicholas M. Maounis (collectively, “Amaranth”), individually, and asrepresentatives of a class of all holders of the Convertible Senior Notesissued pursuant to the Indenture. On March 21, 2005, Amaranth filed aSchedule 13G with the Securities and Exchange Commission questioning theterminology used in the Indenture for calculating the conversion priceadjustment to the Convertible Senior Notes required to be made by the Companyin relation to quarterly dividends paid by the Company. In addition, on March 28,2005, Amaranth exercised its conversion rights with respect to $1,000 principalamount of its notes, which the Company settled in cash. In its complaint, theCompany sought a declaratory judgment to resolve the question that had arisenregarding the proper calculation of the conversion price adjustments inrelation to certain of the Company’s quarterly dividends. In order to remedyany confusion, the Company approved and the Company and the Trustee executed aFirst Supplemental Indenture, dated April 5, 2005, to amend theterminology in the conversion price adjustment formula. On May 17, 2005,Amaranth filed its answer and counterclaim against the Company. On June 20,2005, the Company filed an answer to Amaranth’s counterclaim. On April 12,2006, after full briefing, the Delaware Court of Chancery issued an opiniongranting the Company’s motion to certify a defendant class of all holders ofthe Convertible Senior Notes, and to certify Amaranth as an adequate classrepresentative.

On August 17, 2006, the Company entered into astipulation of dismissal with Amaranth LLC, Amaranth Advisors, L.L.C. andNicholas M. Maounis individually, and as representatives of a class of allholders of our Convertible Senior Notes, providing for the following: (1) thedismissal of its claims without prejudice to the defendant class and withprejudice to Amaranth, the named defendant, only; and (2) the dismissal ofAmaranth’s counterclaims, which purported to assert individual claims againstthe Company on behalf of Amaranth only, with prejudice. In addition, in thestipulation of dismissal, the parties certify that no compensation in any formhas passed directly or indirectly from the Company to Amaranth or Amaranth’sattorneys and that no promise to give any such compensation has been made. On August 17,2006, the parties submitted to the Delaware Court of Chancery and the Courtapproved the stipulation of dismissal thereby dismissing the case.

Regal Cinemas, Inc. is adefendant in a few remaining claims arising from its decision to file voluntarypetitions for bankruptcy relief. We and our various subsidiary corporations arealso presently involved in various legal proceedings arising in the ordinarycourse of our business operations, including personal injury claims, employmentand contractual matters and other disputes. We believe we have adequatelyprovided for the settlement of such matters. Management believes any additionalliability with respect to these claims and disputes will not be material in theaggregate to our consolidated financial position, results of operations or cashflows.

79

----

**9.  CAPITAL STOCK AND SHARED-BASED COMPENSATION**

As of December 28,2006, the Company’s authorized capital stock consisted of: 

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

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

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

Of the authorized sharesof Class A common stock, 18,000,000 shares were sold in connection withthe Company’s initial public offering in May 2002. The Company’s Class Acommon stock is listed on the New York Stock Exchange (“NYSE”) under thetrading symbol “RGC.” As of December 28, 2006, 126,448,479 shares of Class Acommon stock were outstanding. Of the authorized shares of Class B commonstock, 23,908,639 shares were outstanding as of December 28, 2006, all ofwhich are held by Anschutz Company (“Anschutz”) and OCM Principal OpportunitiesFund II, L.P. (“OCM”) and its subsidiaries. Each share of Class B commonstock converts into one share of Class A common stock at the option of theholder or upon certain transfers of a holder’s Class B common stock. Eachholder of Class B common stock is entitled to ten votes for eachoutstanding share of 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 December 28, 2006. 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 for their vote. The material termsand provisions of the Company’s certificate of incorporation affecting therelative rights of the Class A common stock and the Class B commonstock are described below. 

***Common Stock***

The Class A commonstock and the Class B common stock are identical in all respects, exceptwith respect to voting and except that each share of Class B common stockwill convert into one share of Class A common stock at the option of theholder or upon a transfer of the holder’s Class B common stock, other thanto certain transferees. Each holder of Class A common stock will beentitled to one vote for each outstanding share of Class A common stockowned by that stockholder on every matter properly submitted to the stockholdersfor their vote. Each holder of Class B common stock will be entitled toten votes for each outstanding share of Class B common stock owned by thatstockholder on every matter properly submitted to the stockholders for theirvote. Except as required by law, the Class A common stock and the Class Bcommon stock will vote together on all matters. Subject to the dividend rightsof holders of any outstanding preferred stock, holders of common stock areentitled to any dividend declared by the board of directors out of fundslegally available for this purpose, and, subject to the liquidation preferencesof any outstanding preferred stock, holders of common stock are entitled toreceive, on a pro rata basis, all the Company’s remaining assets available fordistribution to the stockholders in the event of the Company’s liquidation,dissolution or winding up. No dividend can be declared on the Class A or Class Bcommon stock unless at the same time an equal dividend is paid on each share ofClass B or Class A common stock, as the case may be. Dividends paidin shares of common stock must be paid, with respect to a particular class ofcommon stock, in shares of that class. Holders of common stock do not have anypreemptive right to become subscribers or purchasers of additional shares ofany class of the Company’s capital stock. The outstanding shares of commonstock are, when issued and paid for, fully paid and nonassessable. The rights,preferences and privileges of holders of common stock may be adversely affectedby the rights of the holders of shares of any series of preferred stock thatthe Company may designate and issue in the future. 

80

----

***Preferred Stock***

The Company’s certificateof incorporation allows the Company to issue, without stockholder approval,preferred stock having rights senior to those of the common stock. The Company’sboard of directors is authorized, without further stockholder approval, toissue up to 50,000,000 shares of preferred stock in one or more series and tofix the rights, preferences, privileges and restrictions of any series ofpreferred stock, including dividend rights, conversion rights, voting rights,terms of redemption and liquidation preferences, and to fix the number ofshares constituting any series and the designations of these series. Theissuance of preferred stock could decrease the amount of earnings and assetsavailable for distribution to the holders of common stock or could adverselyaffect the rights and powers, including voting rights, of the holders of commonstock. The issuance of preferred stock could also have the effect of decreasingthe market price of the Class A common stock. As of December 28,2006, no shares of preferred stock are outstanding. 

***Share Repurchase Program***

During the year ended December 30,2004, the Company’s board of directors authorized a share repurchase program,which provided for the authorization to repurchase up to $50.0 million ofthe Company’s outstanding Class A common stock within a twelve monthperiod. During the quarter ended June 30, 2005, the Company repurchased520,386 shares of its outstanding Class A common stock at an aggregatecost of approximately $10.0 million. The Company’s board of directorsextended the share repurchase program during the years ended December 28, 2006and December 29, 2005 for additional twelve month periods. Accordingly,the Company can repurchase up to an additional $40.0 million under theshare repurchase program through September 2007. The Company made norepurchases of its outstanding Class A common stock during the year ended December 28,2006 or during the year ended December 30, 2004.Repurchases can be madefrom time to time as market conditions warrant, through open market purchases,negotiated transactions, or in such a manner deemed appropriate by the Company.Treasury shares are retired upon repurchase. At retirement, the Company recordstreasury stock purchases at cost with any excess of cost over par valuerecorded as a reduction of additional paid-in capital. 

***Warrants***

Other than disclosed inNote 5—“Debt Obligations” and Note 12—“Earnings per Share,” nowarrants to acquire the Company’s common stock were outstanding as of December 28,2006. 

***Dividends***

Regal paid four quarterlycash dividends of $0.30 per share on each outstanding share of the Company’s Class Aand Class B common stock, including outstanding restricted, orapproximately $179.6 million in the aggregate, during the year ended December 28,2006. In addition, Regal paid four quarterly cash dividends of $0.30 per share,on each outstanding share of its Class A and Class B common stock, orapproximately $175.9 million in the aggregate during the year ended December 29,2005. During the year ended December 30, 2004, Regal paid two quarterlycash dividends of $0.18 per share, one quarterly cash dividend of $0.20 pershare and one quarterly cash dividend of $0.30 per share on each share of its Class Aand Class B common stock, or approximately $123.7 million in theaggregate. Finally, on June 2, 2004, Regal paid to its stockholders anextraordinary cash dividend of $5.00 per share on each outstanding share of Class Aand Class B common stock totaling approximately $718.3 million in theaggregate.

81

----

***Other Stock Based Compensation***

In 2002, the Company established the 2002 Stock IncentivePlan (the “Incentive Plan”) for a total of 11,194,354 authorized shares, whichprovides for the granting of incentive stock options and non-qualified stockoptions to officers, employees and consultants of the Company. As describedbelow under “Restricted Stock” and “Performance Share Units” the Plan alsoprovides for grants of restricted stock and performance shares that are subjectto restrictions and risks of forfeiture. 

In conjunction with the exchange transaction on April 12,2002, the holders of outstanding options of United Artists and Regal Cinemasreceived under the Plan replacement options to purchase 8,832,147 shares ofRegal Class A common stock at prices ranging from $4.44 to $12.87 pershare. As a result, stock option information presented herein prior to theexchange of options has been retroactively restated to reflect the effects ofthe exchange transaction. 

In connection with the July 1, 2003 and June 2,2004 extraordinary cash dividends and pursuant 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 $2.6901 to $15.5302 per share, an increase inthe aggregate number of shares issuable upon exercise of such options by4,915,887, and an increase in the total number of authorized shares under thePlan to 16,110,241. As of December 28, 2006 and after giving effect to theantidilution adjustments, the Company had outstanding options to purchase atotal of 3,095,601 shares of Class A common stock under the IncentivePlan, and 3,411,335 shares remaining available for future issuance under theIncentive Plan. Stock option information presented herein has been adjusted togive effect to the extraordinary dividends. There were no accountingconsequences for changes made to reduce the exercise prices and increase thenumber of shares underlying options as a result of the extraordinary cashdividends because (1) the aggregate intrinsic value of the awardsimmediately after the extraordinary dividends was not greater than theaggregate intrinsic value of the awards immediately before the extraordinarydividends and (2) the ratio of the exercise price per share to the marketvalue per share was not reduced. 

On May 11, 2005, the stockholders of the Companyapproved an amendment to the Incentive Plan increasing the total number ofshares of Class A common stock authorized for issuance under the IncentivePlan from 16,110,241 to a total of 18,000,000 shares. 

Stock options granted in connection with the exchangetransaction are generally exercisable in installments of 20% per year from theoriginal grant date of the exchanged options and expire no later than10 years from the date of grant. Stock option grants issued subsequent tothe exchange transaction have been established at prices not less than the fairmarket value as of the date of grant and are exercisable in installments of 20%per year and expire no later than 10 years from the date of grant. 

Effective December 30, 2005, the Company adoptedStatement of Financial Accounting Standards No. 123 (revised), “Share-BasedPayment” (SFAS 123R) utilizing the modified prospective approach. Prior to theadoption of SFAS 123R, we accounted for stock option grants in accordance withAccounting Principles Board (APB) Opinion No. 25, “Accounting for StockIssued to Employees” (the intrinsic value method), and accordingly, recognizedno compensation expense for those stock options having an exercise price equalto the market value of the Company’s Class A common stock on the date ofthe grant.

Under the modified prospective approach, SFAS 123Rapplies to awards that were outstanding on December 30, 2005 and to newawards and the modification, repurchase or cancellation of awards after December 30,2005. Under the modified prospective approach, compensation cost recognized inthe first quarter of fiscal 2006 includes share-based compensation cost for allshare-based payments granted prior to, but not yet vested as of December 30,2005, based on the grant-date fair value estimated in accordance with theoriginal provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation” (SFAS 123) 

82

----

and recognized as expenseover the remaining requisite service period. Share-based compensation cost forall share-based payments granted subsequent to December 30, 2005 are basedon the grant-date fair value estimated in accordance with the provisions ofSFAS 123R and recognized as expense over the employee’s requisite serviceperiod. Prior periods were not restated to reflect the impact of adopting thenew standard.

On November 10, 2005, the FASB issued FASB StaffPosition No. FAS 123(R)-3, “Transition Election Related to Accounting forTax Effects of Share-Based Payment Awards.” The Company has elected to adoptthe alternative transition method provided in this FASB Staff Position forcalculating the tax effects of share-based compensation pursuant to SFAS 123R.The alternative transition method includes a simplified method to establish thebeginning balance of the additional paid-in capital pool (APIC pool) related tothe tax effects of employee share-based compensation, which is available toabsorb tax deficiencies recognized subsequent to the adoption of SFAS 123R.

**As aresult of adopting SFAS 123R on December 30, 2005, our income beforeincome taxes, net income, basic earnings per share and diluted earnings pershare were $3.3 million, $2.0 million,**$0.01and $0.02 less, respectively, than if we had continued to account forshare-based compensation under APB Opinion No. 25 (“APB 25”) for our stockoption grants. 

*Stock Options*

We usethe Black-Scholes option pricing model to estimate the fair value of our stockoption awards based on factors at the date of grant. Stock compensation expensefor each of the years ended December 28, 2006, December 29, 2005 and December 30,2004 was based on the following assumptions at the dates the stock options weregranted:

| Expected  volatility                 |   | 38.0-39.0 | %      |
|--------------------------------------|--------|-----------|--------|
| Expected life of  options (in years) |   | 7.5       |   |
| Risk-free interest  rate             |   | 3.0-4.9   | %      |
| Dividend yield                       |   | 3.0-4.5   | %      |

 

Expected volatility is based on historical volatilityof the Company’s common stock price. The expected term of options granted isderived using the midpoint of the average vesting period and contractual lifeof the stock options. The risk-free interest rate assumption is based uponobserved interest rates appropriate for the terms of the Company’s employeestock options. The Company does not target a specific dividend yield for itsdividend payments but is required to assume a dividend yield as an input to theBlack-Scholes model. The dividend yield assumption is based on the Company’shistory and expectation of future dividend payouts and may be subject tosubstantial change in the future. There were no stock options granted duringthe years ended December 28, 2006 and December 29, 2005.

As share-based compensation expense recognized in theconsolidated statement of income for the year ended December 28, 2006 isbased on awards ultimately expected to vest, it should be reduced for estimatedforfeitures. SFAS 123R requires forfeitures to be estimated at the time ofgrant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates. In the Company’s pro forma information requiredunder SFAS 123 for the periods prior to fiscal 2006, the Company accounted forforfeitures as they occurred.

During the years ended December 28, 2006,December 29, 2005 and December 30, 2004, the Company recognizedapproximately $6.5 million, $5.0 million and $5.6 million of share-basedcompensation expense related to stock options. Such expense is presented as acomponent of general and administrative expenses for the year endedDecember 28, 2006. At December 28, 2006, there was $1.8 millionof unrecognized compensation cost related to share-based payments which isexpected to be recognized over a weighted-average period of 0.26 years.

83

----

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 the options.Prior to adoption of SFAS 123R, we reported all tax benefits resulting from theexercise of stock options as operating cash flows in our consolidatedstatements of cash flows. In accordance with SFAS 123R, we are required toreport excess tax benefits from the award of equity instruments as financingcash flows. Excess tax benefits are recorded when a deduction reported for taxreturn purposes for an award of equity instruments exceeds the cumulativecompensation cost for the instruments recognized for financial reportingpurposes. For the year ended December 28, 2006, our consolidated statementof cash flows reflects $13.0 million of excess tax benefits as financingcash flows. Net cash proceeds from the exercise of stock options were$16.1 million for the year ended December 28, 2006. The actual incometax benefit realized from stock option exercises is $14.1 million for the sameperiod.

Thefollowing table represents stock option activity for the year ended December 28,2006:

| ** **                                  | ** ** | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-  Average  Contract Life** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|
| Outstanding  options at beginning of period |       | 5,943,986                  |       |                                        | $          | 6.43                                       |       |   |   |   |   |   |
| Granted                                     |       | —                     |       |                                        | —     |                                       |       |   |   |   |   |
| Exercised                                   |       | (2,822,894                 | )          |                                        | 5.72       |                                       |       |   |   |   |   |
| Forfeited                                   |       | (25,491                    | )          |                                        | 13.18      |                                       |       |   |   |   |   |
| Outstanding  options at end of period       |       | 3,095,601                  |       |                                        | $          | 7.03                                       |       |   |   | 5.48 Yrs |   |   |
| Outstanding exercisable  at end of period   |       | 713,049                    |       |                                        | $          | 8.69                                       |       |   |   | 5.53 Yrs |   |   |

 

Shares available for future stock option grants toemployees and directors under the Incentive Plan were approximately 3.4 millionat December 28, 2006. The aggregate intrinsic value of options outstandingat December 28, 2006 was $44.9 million, and the aggregate intrinsicvalue of options exercisable was $9.2 million. Total intrinsic value ofoptions exercised was $40.2 million, $39.5 million and $38.3 million,****for the years ended December 28, 2006, December 29,2005 and December 30, 2004.

Thefollowing table summarizes our nonvested stock option activity for the yearended December 28, 2006:

| ** **                                      | ** ** | **Number of Shares** | ** ** | **Weighted-Average  Grant-Date  Fair Value** | ** ** |
|-------------------------------------------------|------------|--------------------------------|------------|---------------------------------------------------|------------|
| Nonvested stock  options at beginning of period |       |                           | 5,017,954  |                                              |       |   | $ | 2.98 |   |   |
| Vested                                          |       |                           | (2,621,134 | )                                                 |       |   | 2.99 |   |   |
| Forfeited                                       |       |                           | (14,268    | )                                                 |       |   | 4.48 |   |   |
| Nonvested stock options  at end of period       |       |                           | 2,382,552  |                                              |       |   | $ | 2.96 |   |   |

 

84

----

Priorto adopting the provisions of SFAS 123R, the Company recorded estimated compensationexpense for employee stock options based upon their intrinsic value on the dateof grant pursuant to Accounting Principles Board Opinion 25 (APB 25), “Accountingfor Stock Issued to Employees” and provided the required pro forma disclosuresof SFAS 123. For purposes of pro forma disclosures under SFAS 123 for the yearsended December 29, 2005 and December 30, 2004, the estimated fairvalue of the share-based awards was assumed to be amortized to expense overtheir vesting periods. The pro forma effects of recognizing estimatedcompensation expense under the fair value method on net income and earnings percommon share were as follows (in millions, except per share data):

| ** **                                                                                          | ** ** | **Year Ended  December 29, 2005** | ** ** | **Year Ended  December 30, 2004** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Net income:                                                                                         |       |                                             |       |                                             |       |   |   |   |   |
| As reported                                                                                         |       |                                             | $          | 91.8                                             |       |   |   | $ | 82.5 |   |   |
| Add: Share-based employee compensation reported in  net income, net of taxes                        |       |                                             | 3.1        |                                             |       |   | 3.3 |   |   |
| Deduct: Share-based employee compensation under the  fair value method for all awards, net of taxes |       |                                             | (3.7       | )                                                |       |   | (6.2 | ) |   |
| Pro forma                                                                                           |       |                                             | $          | 91.2                                             |       |   |   | $ | 79.6 |   |   |
| Basic earnings  per share:                                                                          |       |                                             |       |                                             |       |   |   |   |   |
| As reported                                                                                         |       |                                             | $          | 0.63                                             |       |   |   | $ | 0.57 |   |   |
| Add: Share-based employee compensation reported in  net income, net of taxes                        |       |                                             | 0.02       |                                             |       |   | 0.02 |   |   |
| Deduct: Share-based employee compensation under the  fair value method for all awards, net of taxes |       |                                             | (0.03      | )                                                |       |   | (0.04 | ) |   |
| Pro forma                                                                                           |       |                                             | $          | 0.62                                             |       |   |   | $ | 0.55 |   |   |
| Diluted earnings  per share:                                                                        |       |                                             |       |                                             |       |   |   |   |   |
| As reported                                                                                         |       |                                             | $          | 0.59                                             |       |   |   | $ | 0.55 |   |   |
| Add: Share-based employee compensation reported in  net income, net of taxes                        |       |                                             | 0.02       |                                             |       |   | 0.02 |   |   |
| Deduct: Share-based employee compensation under the  fair value method for all awards, net of taxes |       |                                             | (0.02      | )                                                |       |   | (0.04 | ) |   |
| Pro forma                                                                                           |       |                                             | $          | 0.59                                             |       |   |   | $ | 0.53 |   |   |

 

*Restricted Stock*

During the fiscal year ended December 29, 2005,the Company implemented a restricted stock program to provide for restrictedstock awards to officers, directors and key employees. Under the restrictedstock program, common stock of the Company may be granted at nominal cost toofficers, directors and key employees, subject to a continued employmentrestriction. The restriction is fulfilled upon continued employment for aspecified number of years (typically one to four years after the award date)and as such restrictions lapse, the award immediately vests. In addition, wewill receive a tax deduction when restricted stock vests. The plan participantsare entitled to cash dividends and to vote their respective shares, althoughthe sale and transfer of such shares is prohibited during the restrictedperiod. The shares are also subject to the terms and conditions of theIncentive Plan. On February 11, 2005, 229,990 shares were granted underthe restricted stock program at nominal cost to officers and key employees. Theclosing price of our Class A common stock on the date of grant was $19.90per share. On March 7, 2006, 169,689 shares were granted under therestricted stock program at nominal cost to officers, directors and keyemployees. The closing price of our Class A common stock on the date ofgrant was $18.67 per share. On April 25, 2006, June 6, 2006 and September 18,2006, a total of 15,973 shares were 

85

----

granted in the aggregateunder the restricted stock program at nominal cost to a key employee andcertain newly-elected directors. The closing price of our Class A commonstock was $20.51 per share on April 25, 2006, $19.28 per share on June 6,2006 and $19.52 per share on September 18, 2006.

During the fiscal years ended December 28, 2006and December 29, 2005, the Company recognized approximately $1.6 millionand $0.7 million of share-based compensation expense related to theserestricted share grants. Such expense is presented as a component of generaland administrative expenses for the fiscal year ended December 28, 2006. Thecompensation expense for these awards was determined based on the market priceof our stock at the date of grant applied to the total numbers of shares thatwere anticipated to fully vest. As of December 28, 2006, we haveunrecognized compensation expense of $4.2 million associated with theseawards. Upon adoption of SFAS 123R, the cumulative effect of a change inaccounting principle as a result of our change in policy from recognizingforfeitures as they occur to one where we recognize expense based on ourexpectation of the amount of awards that will vest over the requisite serviceperiod for our restricted stock awards was not material. During the year ended December 28,2006, the Company paid four cash dividends of $0.30 on each share ofoutstanding restricted stock totaling approximately $0.4 million.

Thefollowing table represents the shares of restricted stock that were granted andoutstanding as of December 28, 2006 and December 29, 2005:

| ** **                       | ** ** | **Year ended  December 28, 2006** | ** ** | **Year Ended  December 29, 2005** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Restricted stock:                |       |                                             |       |                                             |       |   |   |   |   |
| Granted during  the period ended |       |                                             | 185,662    |                                             |       |   | 229,990 |   |   |
| Outstanding, as of               |       |                                             | 322,692    |                                             |       |   | 151,760 |   |   |

 

*Performance ShareUnits*

The Incentive Plan also provides for grants in theform of performance share units to officers, directors and key employees.Performance share agreements will be entered into between the Company and eachgrantee of performance share units. Pursuant to the terms and conditions of thePerformance Agreement, grantees will be issued shares of restricted commonstock of the Company in an amount determined by the attainment of Companyperformance criteria set forth in the Performance Agreement. The performancecriteria are tied to the average annual total shareholder returns (stock priceappreciation plus dividend yield) attained (“TSRA”) by the Company for eachfull twelve month period ending on the yearly anniversary of the grant datethrough the applicable calculation date (subject to the provisions contained inthe Performance Agreement relating to the grantee’s death, disability,retirement, termination with or without cause or the occurrence of a change ofcontrol). The shares of restricted common stock received upon attainment of theperformance criteria will be subject to further vesting over a period of time,provided the grantee remains a service provider to the Company during suchperiod. Pursuant to the Performance Agreement, on the calculation date, thegrantee will be entitled to receive a payment in an amount equal to thedividends paid by the Company with respect to a share of its Class Acommon stock from the grant date through the calculation date, multiplied bythe number of shares of restricted common stock, if any, the grantee receivespursuant to the Performance Agreement.

On June 1,2006, 402,150 performance shares were granted under our restricted stockprogram at nominal cost to officers and key employees. The closing price of ourClass A common stock on the date of grant was $19.40 per share. Eachperformance share represents the right to receive from 0% to 175% of the targetnumbers of shares of restricted common stock. The number of shares ofrestricted common stock earned will be determined by comparing the actual TSRAon Regal’s Class A common stock on June 1, 2009 (the thirdanniversary of the grant date) to the target TSRA set forth in the PerformanceAgreement. A target number of shares of restricted common stock to be earned byeach eligible grantee 

86

----

has been established with respect to the 2006performance share grants and is primarily based on the grantee’s employeeclassification and base compensation, referred to as “target long-termincentive” (“Target LTI”) below. In addition, these awards are subject to anadditional one-year vesting requirement. The Company has developed aperformance range around the target TSRA and the number of shares of restrictedstock that will be issued will be based on actual TSRA, according to thefollowing schedule:

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

 

Sincethe performance shares contain a market condition which should be reflected inthe grant date fair value of an award in accordance with the provisions of FAS123R, the performance shares were measured on the date of grant using a MonteCarlo simulation model. The Monte Carlo simulation model utilizes multipleinput variables that determine the probability of satisfying the marketcondition stipulated in the award grant and calculates the fair market valuefor the performance shares granted. On June 1, 2006, the aggregate fairvalue of the performance share awards was determined to be $3.4 million,which includes related dividends on shares ultimately earned and paid on June 1,2009. The fair value of the performance share awards will be amortized ascompensation expense over the expected terms of the awards, which range from 3to 4 years. During the year ended December 28, 2006, the Companyrecognized approximately $0.5 million of share-based compensation expenserelated to these performance shares. Such expense is presented as a componentof general and administrative expenses for the year ended December 28,2006. As of December 28, 2006, there was $2.8 million of unrecognizedcompensation cost related to the performance shares. The key assumptions usedfor valuing performance shares follow:

| ** **                            | ** ** | **Year Ended  December 28, 2006** | ** ** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|------------|
| Measurement date                      |       |                                             | 6/1/2006   |       |   |   |
| Measurement date  closing stock price |       |                                             | $          | 19.40      |   |   |   |
| Expected  volatility                  |       |                                             | 18.8       | %          |   |   |
| Risk-free  interest rate              |       |                                             | 5.02       | %          |   |   |
| Expected dividend yield               |       |                                             | 6.2        | %          |   |   |
|                                       |            |                                                  |            |            |  |  |  |

 

Expected volatility is based on historical volatilityof the Company’s common stock price measured daily over a three year periodending on June 1, 2006, adjusted for dividends. The risk-free interestrate is set equal to the yield on three-year (constant maturity) U.S.Government bonds as of June 1, 2006. The expected dividend yieldassumption is based on the Company’s history and expectation of future dividendpayouts and may be subject to substantial change in the future. The dividendyield is included in the calculation of returns for measurement against theperformance goals defined above.

87

----

Thefollowing tables summarize information about the performance shares activity:

| ** **                                | ** ** | **Year Ended  December 28, 2006** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| Number of performance  shares:            |       |                                             |       |   |   |
| Outstanding at  beginning of year         |       |                                             | —     |   |   |
| Granted (based on  target TSRA)           |       |                                             | 402,150    |   |   |
| Forfeited                                 |       |                                             | (18,840    | ) |   |
| Outstanding as of  December 28, 2006 |       |                                             | 383,310    |   |   |

 

The above table does notinclude the maximum or minimum number of shares of restricted stockcontingently issuable. An additional 287,483 shares of restricted stock couldbe issued providing the maximum TSRA is met.

**10.**          RELATEDPARTY TRANSACTIONS 

During the fiscal year ended December 30, 2004,Regal Cinemas incurred approximately $3.0 million of expenses payable to anAnschutz affiliate, Qwest Communications and its subsidiaries, fortelecommunication services. In addition, Regal Cinemas incurred approximately$0.1 million of expenses payable to an Anschutz affiliate for reimbursement oftravel related expenses, primarily the use of an airplane. Lastly, RegalCinemas incurred approximately $0.7 million of expenses payable to Anschutzaffiliates for certain marketing and business services. 

During the fiscal year ended December 30, 2004,an Anschutz affiliate paid Regal Cinemas approximately $0.2 million for rentand other expenses related to a theatre facility. Regal Cinemas recordedrevenue of approximately $0.1 million from certain affiliates of Anschutzrelated to the marketing and business meeting services provided by RegalCineMedia to these affiliates. 

During the fiscal year ended December 29, 2005,Regal Cinemas, incurred approximately $3.8 million of expenses payable to anAnschutz affiliate, Qwest Communications and its subsidiaries, fortelecommunication services. In addition, during the fiscal year ended December 29,2005 Regal Cinemas incurred approximately $0.1 million of expenses payable toan Anschutz affiliate for the reimbursement of travel expenses, primarily theuse of an airplane. Lastly, Regal Cinemas incurred approximately $0.1 millionof expenses payable to Anschutz affiliates for certain advertising, marketingand business services during the fiscal year ended December 29, 2005. 

During the fiscal year ended December 29, 2005,an Anschutz affiliate paid Regal Cinemas approximately $0.1 million for thereimbursement of purchased equipment at cost. As of December 29, 2005,Regal Cinemas was due less than $0.1 million from an Anschutz affiliate forrent and other expenses related to a theatre facility. In addition, as of December 29,2005, Regal is due less than $0.1 million for travel costs incurred on behalfof an Anschutz affiliate. 

During the fiscal year ended December 28, 2006,in connection with an agreement with an Anschutz affiliate, Regal receivedvarious forms of advertising in exchange for on-screen advertising provided incertain of its theatres. The value of such advertising was less than $0.2million.      

As of December 28, 2006, Regal has entered into aletter of intent with an Anschutz affiliate regarding a potential new theatredevelopment located in Los Angeles, California. Regal contemplates funding aportion of the construction costs and entering into a long term lease agreementfor the use of the theatre site. The ultimate financial terms of the potentialnew theatre development will be approved by those directors without an interestin the transaction. 

During the fiscal year ended December 28, 2006,Regal Cinemas, incurred approximately $3.9 million of expenses payable toan Anschutz affiliate, Qwest Communications and its subsidiaries, for 

88

----

telecommunication services.In addition, Regal Cinemas incurred approximately $0.2 million of expensespayable to Anschutz affiliates for certain advertising services during thefiscal year ended December 28, 2006. During the fiscal year ended December 28,2006, Regal Cinemas received from an Anschutz affiliate approximately$0.1 million for rent and other expenses related to a theatre facility andreimbursement of travel costs incurred on behalf of an Anschutz affiliate. 

See Note 4—“Formationof National CineMedia, LLC,” for discussion of related party transactionsbetween National CineMedia and the Company during the years ended December 28,2006 and December 29, 2005.

**11.**          EMPLOYEEBENEFIT PLAN 

The Company sponsors anemployee benefit plan, the Regal Entertainment Group 401(k) Profit SharingPlan (the “Plan”) under section 401(k) of the Internal Revenue Codeof 1986, as amended, for the benefit of substantially all full-time employees.The Plan provides that participants may contribute up to 20% of theircompensation, subject to Internal Revenue Service limitations. The Plancurrently matches an amount equal to 40% of the participant’s contributions upto 6% of the participant’s compensation. Employee contributions are invested invarious investment funds based upon elections made by the employee. The Companymade discretionary contributions of approximately $1.3 million,$1.3 million and $1.2 million to the Plan in fiscal 2006, 2005 and2004, respectively. 

**12.**          EARNINGSPER SHARE 

Basicearnings per share is computed on the basis of the weighted average number ofthe common shares outstanding. Diluted earnings per share is computed on thebasis of the weighted average number of common shares outstanding plus theeffect of potentially dilutive common stock options, the Convertible Note Hedgeand Warrant and restricted stock using the treasury stock method. Thecomponents of basic and diluted earnings per share are as follows (in millions,except share data): 

| ** **                                           | ** ** | **Year ended  December 28, 2006** | ** ** | **Year ended  December 29, 2005** | ** ** | **Year ended  December 30, 2004** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Net income                                           |       |                                             | $          | 86.3                                             |       |                                             |       | $ | 91.8 |   |   |   | $ | 82.5 |   |   |
| Weighted average shares  outstanding (in thousands): |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Basic:                                               |       |                                             | 149,019    |                                             |       |                                             | 146,275    |   |   |   | 143,581 |   |   |
| Add common stock  equivalents                        |       |                                             | 6,105      |                                             |       |                                             | 8,055      |   |   |   | 5,639 |   |   |
| Diluted:                                             |       |                                             | 155,124    |                                             |       |                                             | 154,330    |   |   |   | 149,220 |   |   |
| Earnings per share                                   |       |                                             |       |                                             |       |                                             |       |   |   |   |   |   |   |
| Basic:                                               |       |                                             | $          | 0.58                                             |       |                                             |       | $ | 0.63 |   |   |   | $ | 0.57 |   |   |
| Diluted:                                             |       |                                             | $          | 0.56                                             |       |                                             |       | $ | 0.59 |   |   |   | $ | 0.55 |   |   |

 

Common stock equivalents consist principally of stockoptions, warrants and restricted stock. There were no antidilutive stockoptions, warrants or restricted stock outstanding as of December 28, 2006,December 29, 2005 and December 30, 2004. 

The Convertible Senior Notes discussed in Note 5—“DebtObligations” allow us to settle any conversion, and we intend to settle anyconversion, by remitting to the note holder the accreted value of the note incash, while settling the conversion spread 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 by theEITF with respect to the accounting for Instrument C as set forth in EITF90-19, “Convertible Bonds with Issuer Option to Settle for Cash UponConversion.” It is our intent to settle the Convertible Senior Notes’conversion obligations consistent with Instrument C. Because 

89

----

the accreted value of theConvertible Senior Notes will be settled in cash upon the conversion, only theconversion spread, which may be settled in stock, will result in potentialdilution in our earnings-per-share computations under current accountingstandards. On December 28, 2006, the closing sale price of our Class Acommon stock was $21.55, which exceeded 110% of the then current conversionprice of $14.5483 on the Convertible Senior Notes. Accordingly, as of December 28,2006, our note holders had the right, at their option, to convert theirConvertible Senior Notes, in whole or in part, into shares of our Class Acommon stock, subject to certain limitations, at the then conversion price of$14.5483. Utilizing the treasury stock method, the conversion spread resultedin dilution of approximately 2.8 million shares,****3.4million shares, and 1.4 million shares in our diluted earnings per sharecomputations for the years ended December 28, 2006, December 29, 2005and December 30, 2004, respectively.

In addition, as describedin Note 5—“Debt Obligations,” we entered into the Convertible Note Hedgeand sold the Warrant which, in combination, have the effect of reducing the dilutiveimpact of the Convertible Senior Notes by increasing the effective conversionprice for these notes from our economic perspective to $16.7865 at December 28,2006. SFAS No. 128, “Earnings Per Share,” however, requires us to analyzethe impact of the Convertible Note Hedge and Warrant on diluted earnings pershare separately. As a result, the purchase of the Convertible Note Hedge isexcluded because its impact will always be antidilutive. SFAS No. 128further requires that the impact of the sale of the Warrant be computed usingthe treasury stock method. The Warrant resulted in dilution of approximately1.4 million shares, 1.5 million shares, and 0.4 million shares in ourdiluted earnings per share computations for the years ended December 28,2006, December 29, 2005 and December 30, 2004, respectively. As of December 28,2006, the maximum number of shares that could potentially be included under theWarrant is 8.5 million.        

**13.**          FAIRVALUE OF FINANCIAL INSTRUMENTS 

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

*Cash and cashequivalents, accounts receivable, inventory, accounts payable and accruedliabilities:*

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

*Long termobligations, excluding capital lease obligations and lease financingarrangements:*

Thefair value of the Regal Cinemas Senior Credit Facility described in Note 5—“DebtObligations,” which consists of the Term Loan and the Revolving Facility, isestimated based on quoted market prices as of December 28, 2006 and December 29,2005. The associated interest rates are based on floating rates identified byreference to market rates and are assumed to approximate fair value. The fairvalues of the Convertible Senior Notes and Senior Subordinated Notes areestimated based on quoted market prices for these issuances as of December 28,2006 and December 29, 2005. 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 aggregate carryingamounts and fair values of long-term debt at December 28, 2006 and December 29,2005 consist of the following: 

| ** **      | ** ** | **December 28, 2006** | ** ** | **December 29, 2005** | ** ** |
|-----------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **      | ** ** | **(In millions)**          | ** ** |
| Carrying amount |       |                            | $          | 1,876.1                         |       |   |   | $ | 1,868.4 |   |   |
| Fair value      |       |                            | $          | 1,938.4                         |       |   |   | $ | 1,939.2 |   |   |

 

90

----

**14.**          SUBSEQUENTEVENTS

***Restricted Stock Performance Share Units Grants***

On January 10, 2007, 164,647 restricted shareswere granted under the restricted stock program at nominal cost to officers,directors and key employees. Under the restricted stock program, common stockof the Company may be granted at nominal cost to officers, directors and keyemployees, subject to a continued employment restriction. The restriction isfulfilled upon continued employment for a specified number of years (typicallyone to four years after the award date) and as such restrictions lapse, theaward immediately vests. The plan participants are entitled to cash dividendsand to vote their respective shares, although the sale and transfer of suchshares is prohibited during the restricted period. The shares are subject tothe terms and conditions of the Incentive Plan. The closing price of our Class Acommon stock on the date of this grant was $22.25 per share.

Also on January 10,2007, 188,789 performance shares were granted under our restricted stockprogram at nominal cost to officers and key employees. Each performance sharerepresents the right to receive from 0% to 175% of the target numbers of sharesof restricted common stock. The number of shares of restricted common stockearned will be determined by comparing the actual TSRA on Regal’s Class Acommon stock on January 10, 2010 (the third anniversary of the grant date)to the target TSRA set forth in the Performance Agreement. The shares aresubject to the terms and conditions of the Incentive Plan. The closing price ofour Class A common stock on the date of this grant was $22.25 per share.

***National CineMedia Developments***

On February 12, 2007, we, along with AMC and Cinemark enteredinto a joint venture company known as Digital Cinema Implementation PartnersLLC, a Delaware limited liability company (“DCIP”), to explore the possibilityof implementing digital cinema in our theatres and to create a financing modeland establish agreements with major motion picture studios for theimplementation of digital cinema. Travis Reid, former president and chiefexecutive officer of Loews Theatres, is the chief executive officer of DCIP andDCIP has engaged J.P. Morgan Securities Inc. to assist with the review of abusiness plan for digital cinema and with identifying and evaluating potentialfinancing and capital structure alternatives. In addition, DCIP has enteredinto a digital cinema services agreement with National CineMedia for purposesof assisting DCIP in the development of digital cinema systems. Future digitalcinema developments will be managed by DCIP, subject to the approval of us, AMCand Cinemark.

**On February 13,2007, NCM Inc., a newly formed entity that serves as the sole manager ofNational CineMedia, completed the initial public offering, or IPO, of itscommon stock. NCM Inc. sold 38 million shares of its common stock for $21 pershare in the IPO, less underwriting discounts and expenses. Because NCM Inc.’sCertificate of Incorporation requires that NCM Inc. at all times maintain aone-to-one ratio between the number of common units of National CineMedia ownedby NCM Inc. and the number of outstanding shares of common stock of NCM Inc.,NCM Inc. used a portion of the net proceeds from the IPO to acquire newlyissued common units from National CineMedia. In addition, National CineMediapaid the net proceeds to each of Regal, AMC and Cinemark in exchange formodifying payment obligations for access to their respective theatres, forwhich Regal received a payment of $281 million. Upon the closing of the IPO,National CineMedia entered into a $725 million term loan facility, the netproceeds of which were used to redeem preferred units issued to each of Regal,AMC and Cinemark on a pro rata basis pursuant to a recapitalization of NationalCineMedia prior to completion of the IPO. We received $315.1 million as aresult of the preferred unit redemption. At the closing of the IPO, theunderwriters exercised their over-allotment option to purchase an additional 4million shares of common stock of NCM Inc. at the initial offering price of $21per share, less underwriting discounts and commissions. In connection with thisover-allotment option exercise, Regal, AMC and Cinemark each sold to NCM Inc.common units of National CineMedia on a pro rata basis at the initial offeringprice of $21**

91

----

**per share, less underwriting discounts and expenses.Regal sold 1,637,826 common units to NCM Inc. for proceeds of $32.2 million,and upon completion of this sale of common units, Regal held 21,230,712 commonunits of National CineMedia, or a 22.6% interest. After the payment of currenttaxes, we estimate net proceeds from these transactions to total approximately$445 million. We are currently exploring alternatives for using these proceeds,and may use some or all of the proceeds for strategic acquisitions or to returnvalue to stockholders through an extraordinary dividend, stock repurchases orother corporate uses.**

In connection with thecompletion of the IPO, Regal amended and restated its existing services agreementwith National CineMedia, whereby in exchange for its pro rata share of the IPOproceeds, Regal agreed to a modification of National CineMedia’s paymentobligation under the existing services agreement. The modification extends theterm of the services agreement to 30 years, provides National CineMedia with afive year right of first refusal beginning one year prior to the end of theterm and changes the basis upon which Regal is paid by National CineMedia froma percentage of revenues associated with advertising contracts entered into byNational CineMedia to a monthly theatre access fee. The theatre access fee iscomposed of a fixed payment per patron and a fixed payment per digital screen,which will increase by 8% every five years starting at the end of fiscal 2011for payments per patron and by 5% annually starting at the end of fiscal 2007for payments per digital screen. Also, with respect to any on-screenadvertising time provided to our beverage concessionaire, Regal is required topurchase such time from National CineMedia at a negotiated rate. In addition,after completion of the IPO, Regal expects to receive mandatory quarterlydistributions of excess cash from National CineMedia.

***Other***

On February 8, 2007, the Company declared a cashdividend of $0.30 per share on each share of the Company’s Class A and Class Bcommon stock. The dividend is payable on March 19, 2007 to stockholders ofrecord on March 9, 2007.

92

----

**Item 9.**                        CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**Item 9A.**                CONTROLSAND PROCEDURES

***Evaluation of Disclosure Controls and Procedures***

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed by us in the reports that we file or submit to the Securitiesand Exchange Commission under the Securities Exchange Act of 1934, as amended,is recorded, processed, summarized and reported within the time periods specifiedby the Commission’s rules and forms, and that information is accumulatedand communicated to our management, including our principal executive andprincipal financial officers (whom we refer to in this periodic report as ourCertifying Officers), as appropriate to allow timely decisions regardingrequired disclosure. Our management evaluated, with the participation of ourCertifying Officers, the effectiveness of our disclosure controls andprocedures as of December 28, 2006, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of December 28, 2006, our disclosure controls and procedures wereeffective.

***Management’s Report on Internal Control Over FinancialReporting and Attestation of Registered Public Accounting Firm***

Our management’s report oninternal control over financial reporting and our registered public accountingfirm’s audit report on management’s assessment of our internal control overfinancial reporting are included in Part II, Item 8, on pages 50 and51-52, respectively, of this Form 10-K, which are incorporatedherein by reference.

***Changes in Internal Control Over Financial Reporting***

There were no changes inour internal control over financial reporting that occurred during our fiscalquarter ended December 28, 2006 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

***Limitations on the Effectiveness of Controls***

Management is responsiblefor the preparation and fair presentation of the consolidated financialstatements included in this annual report. The consolidated financialstatements have been prepared in conformity with accounting principlesgenerally accepted in the United States of America and reflect management’sjudgments and estimates concerning effects of events and transactions that areaccounted for or disclosed. The Company’s internal control over financialreporting includes those policies and procedures that pertain to the Company’sability to record, process, summarize and report reliable financial data.Management recognizes that there are inherent limitations in the effectivenessof any internal control over financial reporting, including the possibility ofhuman error and the circumvention or overriding of internal control.Accordingly, even effective internal control over financial reporting canprovide only reasonable assurance with respect to financial statementpreparation. Further, because of changes in conditions, the effectiveness ofinternal control over financial reporting may vary over time.

**Item 9B.**               OTHERINFORMATION

None.

93

----

**PART III**

**Item 10.**                 DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Biographical and otherinformation regarding our executive officers is provided in Part I of thisForm 10-K under the heading “Executive Officers of the Registrant”as permitted by General Instruction G to Form 10-K. The otherinformation required by this item is incorporated by reference to the Company’sProxy Statement for its Annual Stockholders Meeting (under the headings “Proposal1. Election of Class I Directors,” “Board and Committee Information” and “Section 16(a) BeneficialOwnership Reporting Compliance”) to be held on May 9, 2007 and to be filedwith the Securities and Exchange Commission within 120 days after December 28,2006.

**Item 11.**                 EXECUTIVECOMPENSATION

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting (under theheading “Executive Compensation”) to be held on May 9, 2007 and to befiled with the Securities and Exchange Commission within 120 days after December 28,2006.

**Item 12.**                 SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting (under theheadings “Beneficial Ownership of Voting Securities” and “ExecutiveCompensation—Equity Compensation Plan Information”) to be held on May 9,2007 and to be filed with the Securities and Exchange Commission within120 days after December 28, 2006.

**Item 13.**                 CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting (under theheading “Certain Relationships and Related Transactions”) to be held on May 9,2007 and to be filed with the Securities and Exchange Commission within120 days after December 28, 2006.

**Item 14.**                 PRINCIPALACCOUNTING FEES AND SERVICES

Incorporated by reference to the Company’s ProxyStatement for its Annual Stockholders Meeting (under the heading “IndependentDirectors”) to be held on May 9, 2007 and to be filed with the Securitiesand Exchange Commission within 120 days after December 28, 2006.

94

----

**PART IV**

**Item 15.**                 EXHIBITS,FINANCIAL STATEMENT SCHEDULES

(a)           The following documentsare filed as a part of this report on Form 10-K: 

(1)         **Consolidatedfinancial statements of Regal Entertainment Group:**

Management’s Report on Internal Control over FinancialReporting

Report of Independent Registered Public AccountingFirm (Internal Control over Financial Reporting)

Report of Independent Registered Public AccountingFirm (Consolidated Financial Statements)

Regal’s Consolidated Balance Sheets as of December 28,2006 and December 29, 2005

Regal’s Consolidated Statements of Income for thefiscal years ended December 28, 2006, December 29, 2005 and December 30,2004

Regal’s Consolidated Statements of Stockholders’Equity (Deficit) and Comprehensive Income for the fiscal years ended December 28,2006, December 29, 2005 and December 30, 2004

Regal’s Consolidated Statements of Cash Flows for thefiscal years ended December 28, 2006, December 29, 2005 and December 30,2004

Notes to Regal’s Consolidated Financial Statements

(2)         Financial StatementSchedules have been omitted because of the absence of conditions under whichthey are required, or because the information is shown elsewhere in this Form 10-K.

(3)         Exhibits:The following exhibits are filed as part of the annual report on Form 10-K.

| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                  |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1              |       | Underwriting Agreement, dated October 31, 2006,  among Registrant, OCM Principal Opportunities Fund II, L.P. and Credit Suisse  Securities (USA) LLC (filed as exhibit 1.1 to Registrant’s Current  Report on Form 8-K (Commission File No. 001-31315) on  November 1, 2006, and incorporated herein by reference) |
| 2.1              |       | Regal Cinemas, Inc.  Amended Joint Plan of Reorganization dated December 5, 2001 (filed as  exhibit 2.1 to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on March 11, 2002, and  incorporated herein by reference)                                                         |
|  2.2        |       | Regal Cinemas, Inc.  Disclosure Statement dated September 6, 2001 (filed as exhibit 2.3  to Regal Cinemas, Inc.’s Form 10-Q for the fiscal quarter  ended September 27, 2001 (Commission File No. 333-52943), and  incorporated herein by reference)                                                     |
|  2.3        |       | United Artists Theatre  Company Second Amended Joint Plan of Reorganization (filed as exhibit 2  to United Artists Theatre Circuit, Inc.’s Current Report on Form 8-K  (Commission File No. 033-49598) on February 9, 2001, and  incorporated herein by reference)                                                 |
|  2.4        |       | United Artists Theatre  Company Second Amended Disclosure Statement for Second Amended Joint Plan of  Reorganization (filed as exhibit 2.4 to Registrant’s Form 10-K  for the fiscal year ended December 26, 2002 (Commission File  No. 001-31315), and incorporated herein by reference)                               |

95

----

 

|  2.5   |   | Edwards Theatres  Circuit, Inc. Second Amended Plan of Reorganization dated July 23,  2001 (filed as exhibit 2.5 to the Registration Statement of Registrant  on Form S-1 (Commission File No. 333-84096) on  March 11, 2002, and incorporated herein by reference)                                                                                                                                                                                                                 |
|-------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  2.6   |   | Edwards Theatres  Circuit, Inc. Disclosure Statement to Accompany Debtor’s Second Amended  Plan of Reorganization (filed as exhibit 2.6 to the Registration  Statement of Registrant on Form S-1 (Commission File No. 333-84096)  on March 11, 2002, and incorporated herein by reference)                                                                                                                                                                                          |
|  2.7   |   | Exchange Agreement,  dated as of March 8, 2002, by and among Regal Entertainment Group and  certain stockholders of Regal Cinemas Corporation, United Artists Theatre  Company, Edwards Theatres, Inc. and Regal CineMedia Corporation (filed  as exhibit 2.7 to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on March 11, 2002, and  incorporated herein by reference)                                                                    |
|  3.1   |   | Amended and Restated  Certificate of Incorporation of Registrant (filed as exhibit 3.1 to  Registrant’s Form 10-Q for the fiscal quarter ended March 28,  2002 (Commission File No. 001-31315), and incorporated herein by  reference)                                                                                                                                                                                                                                                   |
|  3.2   |   | Amended and Restated  Bylaws of Registrant (filed as exhibit 3.1 to Registrant’s Form 10-Q  for the fiscal quarter ended June 26, 2003 (Commission  File No. 001-31315), and incorporated herein by reference)                                                                                                                                                                                                                                                                      |
|  4.1   |   | Specimen Class A  Common Stock Certificate (filed as exhibit 4.1 to Amendment No. 2  to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on May 6, 2002, and  incorporated herein by reference)                                                                                                                                                                                                                                                |
|  4.2   |   | Specimen Class B  Common Stock Certificate (filed as exhibit 4.2 to Amendment No. 2  to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on May 6, 2002, and  incorporated herein by reference)                                                                                                                                                                                                                                                |
|  4.3   |   | Amended and Restated  Guarantee and Collateral Agreement, dated as of May 10, 2004, among  Regal Cinemas Corporation, each of the Guarantors party thereto and Credit  Suisse First Boston, acting through its Cayman Islands Branch, as Sole Lead  Arranger and Administrative Agent, (filed as exhibit 4.3 to Registrant’s  Form 10-Q filed for the fiscal quarter ended July 1, 2004  (Commission File No. 001-31315), and incorporated herein by  reference)                    |
|  4.3.1 |   | Fifth Amended and  Restated Credit Agreement, dated as of October 27 2006, among Regal Cinemas  Corporation, the several lenders from time to time parties thereto, Credit  Suisse, Cayman Islands Branch, as Administrative Agent, Credit Suisse  Securities (USA) LLC, as Sole Lead Arranger and Sole Book Runner, (filed as  exhibit 4.1 to Registrant’s Current Report on Form 8-K  (Commission File No. 001-31315) on October 30, 2006, and  incorporated herein by reference) |
|  4.4   |   | Indenture, dated as of  January 29, 2002, by and among Regal Cinemas Corporation, as Issuer, the  Guarantors party thereto and U.S. Trust National Association, as Trustee  (filed as exhibit 4.6 to the Registration Statement of Registrant on  Form S-1 (Commission File No. 333-84096) on  March 11, 2002, and incorporated herein by reference)                                                                                                                                |

96

----

 

|  4.4.1 |   | First Supplemental  Indenture, dated as of April 17, 2002, by and among Regal Cinemas  Corporation, as Issuer, the Guarantors party thereto and U.S. Trust  National Association, as Trustee (filed as exhibit 4.7 to Amendment  No. 1 to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on April 19, 2002, and  incorporated herein by reference)                                                                                                                                                                                                                                                         |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  4.4.2 |   | Second Supplemental  Indenture, dated as of April 17, 2002, among Regal Cinemas Corporation,  as Issuer, Edwards Theatres, Inc., Florence Theatre Corporation, Morgan  Edwards Theatre Corporation, United Cinema Corporation, as Guaranteeing  Subsidiaries and U.S. Bank National Association, as Trustee (filed as  exhibit 4.8 to Amendment No. 1 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on April 19, 2002, and incorporated herein by reference)                                                                                                                                     |
|  4.4.3 |   | Third Supplemental  Indenture, dated as of November 28, 2002 by and among Regal Cinemas  Corporation, as Issuer, Regal CineMedia Corporation, as Guaranteeing  Subsidiary and U.S. Bank National Association, as Trustee (filed as  exhibit 4.7 to Registrant’s Form 10-K for the fiscal year  ended December 26, 2002 (Commission File No. 001-31315), and  incorporated herein by reference)                                                                                                                                                                                                                                                    |
|  4.4.4 |   | Fourth Supplemental  Indenture, dated as of March 27, 2003, among Regal Cinemas Corporation,  as Issuer, Hoyts Cinemas Corporation, Interstate Theatres Corporation,  Frederick Plaza Cinema, Inc., as Guaranteeing Subsidiaries and  U.S. Bank National Association, as Trustee (filed as exhibit 4.1 to  Registrant’s Form 10-Q filed for the fiscal quarter ended  March 27, 2003 (Commission File No. 001-31315), and  incorporated herein by reference)                                                                                                                                                                                 |
|  4.4.5 |   | Fifth Supplemental  Indenture, dated as of June 6, 2003, among Regal Cinemas Corporation, as  Issuer, CineMedia Software, Inc. and United Artists Theatre Group, as  Guaranteeing Subsidiaries and U.S. Bank National Association, as Trustee  (filed as exhibit 4.3 to Registrant’s Form 10-Q filed for the  fiscal quarter ended June 26, 2003 (Commission File No. 001-31315),  and incorporated herein by reference)                                                                                                                                                                                                                     |
|  4.4.6 |   | Sixth Supplemental  Indenture, dated as of April 27, 2004, by and among Regal Cinemas  Corporation, each of the Guarantors party thereto, and U.S. Bank  National Association, as Trustee (filed as exhibit 4.2 to Registrant’s  Form 10-Q filed for the fiscal quarter ended July 1, 2004  (Commission File No. 001-31315), and incorporated herein by  reference)                                                                                                                                                                                                                                                                               |
|  4.5   |   | Form of Regal  Cinemas Corporation 93¤8%  Senior Subordinated Notes due 2012 (filed as Exhibit A to  exhibit 4.6 to Registrant’s Registration Statement on Form S-1  (Commission File No. 333-84096) filed March 11, 2002, and  incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                       |
|  4.6   |   | Amendment to Leveraged  Lease Facility and Second Supplemental Indenture, dated as of March 7,  2001, among United Artists Theatre Circuit, Inc., Wilmington Trust  Company, William J. Wade, Theatre Investors, Inc., Northway Associates  Limited Partnership, State Street Bank and Trust Company, Susan Keller,  certain beneficial certificateholder affiliates of American Express Financial  Corporation and MacKay Shields LLC (filed as exhibit 10.2 to United  Artists Theatre Circuit, Inc.’s Form 10-Q for the fiscal  quarter ended March 29, 2001 (Commission File No. 033-49598),  and incorporated herein by reference) |
|  4.7   |   | Trust Indenture and Security  Agreement, dated as of December 13, 1995, between Wilmington Trust  Company, William J. Wade and Fleet National Bank of Connecticut and  Alan B. Coffey (filed as exhibit 4.2 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024)  on February 5, 1996, and incorporated herein by reference)                                                                                                                                                                                                                                                                              |

97

----

 

|  4.8     |   | Pass Through  Certificates, Series 1995-A Registration Rights Agreement, dated  as of December 13, 1995, among United Artists Theatre  Circuit, Inc., Morgan Stanley & Co. Incorporated and Merrill  Lynch, Pierce, Fenner & Smith Incorporated (filed as  exhibit 4.3 to United Artists Theatre Circuit, Inc.’s Form S-2  (Commission File No. 333-1024) on February 5, 1996, and  incorporated herein by reference)                                                     |
|---------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  4.9     |   | Participation Agreement,  dated as of December 13, 1995, among United Artists Theatre  Circuit, Inc., Wilmington Trust Company, William J. Wade, Theatre  Investors, Inc., Northway Mall Associates, LLC, Wilmington Trust  Company, William J. Wade, Fleet National Bank of Connecticut and  Alan B. Coffey (filed as exhibit 4.4 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024)  on February 5, 1996, and incorporated herein by reference) |
|  4.10    |   | Pass Through Trust  Agreement, dated as of December 13, 1995, between United Artists Theatre  Circuit, Inc. and Fleet National Bank of Connecticut (filed as  exhibit 4.5 to United Artists Theatre Circuit, Inc.’s Form S-2  (Commission File No. 333-1024) on February 5, 1996, and  incorporated herein by reference)                                                                                                                                                                              |
|  4.11    |   | Lease Agreement, dated  as of December 13, 1995, between Wilmington Trust Company and  William J. Wade and United Artists Theatre Circuit, Inc. (filed as  exhibit 4.6 to United Artists Theatre Circuit, Inc.’s Form S-2  (Commission File No. 333-1024) on February 5, 1996, and incorporated  herein by reference)                                                                                                                                                                            |
|  4.12    |   | Indenture, dated as of  May 28, 2003, among Registrant, as Issuer, and U.S. Bank National  Association, as Trustee (filed as exhibit 4.5 to Registrant’s  Form 10-Q for fiscal quarter ended June 26, 2003 (Commission  File No. 001-31315), and incorporated herein by reference)                                                                                                                                                                                                                         |
|  4.13    |   | Form of  Registrant’s 33¤4%  Convertible Senior Notes due 2008 (filed as exhibit A in  exhibit 4.5 to Registrant’s Form 10-Q for fiscal quarter  ended June 26, 2003 (Commission File No. 001-31315), and  incorporated herein by reference)                                                                                                                                                                                                                                                |
|  10.1    |   | Regal Entertainment  Group Amended and Restated Stockholders’ Agreement (filed as  exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended  September 26, 2002 (Commission File No. 001-31315), and  incorporated herein by reference)                                                                                                                                                                                                                                                                     |
|  10.2*   |   | 2002 Regal Entertainment  Group Stock Incentive Plan (filed as exhibit 10.2 to Amendment  No. 2 to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on May 6, 2002, and  incorporated herein by reference), as amended by Amendment to 2002 Stock  Incentive Plan (filed as Appendix A to Registrant’s Proxy Statement on  Schedule 14A (Commission File No. 001-31315) on  April 15, 2005, and incorporated herein by reference)                      |
|  10.2.1* |   | Form of Stock  Option Agreement for use under the Regal Entertainment Group 2002 Stock  Incentive Plan (filed as exhibit 10.2.1 to Amendment No. 2 to the  Registration Statement of Registrant on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                                                                                                                                                                             |
|  10.2.2* |   | Form of Restricted  Stock Agreement for use under the Regal Entertainment Group 2002 Stock  Incentive Plan (filed as exhibit 10.1 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on  March 2, 2006, and incorporated herein by reference)                                                                                                                                                                                                                                          |

98

----

 

|  10.2.3* |   | Form of Performance  Share Agreement for use under the Regal Entertainment Group 2002 Stock  Incentive Plan (filed as exhibit 10.1 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on May 5,  2006, and incorporated herein by reference)                                                                             |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  10.3*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Michael L. Campbell  (filed as exhibit 10.4 to Amendment No. 2 to the Registration  Statement of Registrant on Form S-1 (Commission  File No. 333-84096) on May 6, 2002, and incorporated  herein by reference)                                                        |
|  10.4*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Kurt C. Hall (filed as  exhibit 10.5 to Amendment No. 2 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on May 6, 2002, and incorporated herein by reference)                                                                     |
|  10.5*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Amy E. Miles (filed as  exhibit 10.6 to Amendment No. 2 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on May 6, 2002, and incorporated herein by reference)                                                                     |
|  10.6*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Gregory W. Dunn (filed as  exhibit 10.7 to Amendment No. 2 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on May 6, 2002, and incorporated herein by reference)                                                                  |
|  10.7    |   | Lease Agreement, dated  as of October 1, 1988, between United Artists Properties I Corp. and  United Artists Theatre Circuit, Inc. (filed as exhibit 10.1 to  United Artists Theatre Circuit, Inc.’s Form S-1 (Commission  File No. 33-49598) on October 5, 1992, and incorporated  herein by reference)                                |
|  10.8*   |   | Summary of Director  Compensation Arrangements (filed as exhibit 10.2 to Registrant’s Current  Report on Form 8-K (Commission File No. 001-31315) on  March 2, 2006, and incorporated herein by reference)                                                                                                                                             |
|  10.9*   |   | Summary of Annual  Executive Incentive Program (filed as exhibit 10.15 to Registrant’s  Form 10-K for the fiscal year ended December 30, 2004  (Commission File No. 001-31315), and incorporated herein by  reference)                                                                                                                                 |
|  10.10   |   | Contribution and Unit  Holders Agreement, dated as of March 29, 2005, among Regal CineMedia  Corporation, National Cinema Network, Inc. and National CineMedia, LLC  (filed as exhibit 10.1 to AMC Entertainment Inc.’s Current Report on  Form 8-K (Commission File No. 001-08747) on  April 4, 2005, and incorporated herein by reference) |
|  10.11*  |   | Regal Cinemas, Inc.  Severance Plan for Equity Compensation (filed as exhibit 10.1 to  Registrant’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 17, 2005, and incorporated herein by  reference)                                                                                                                           |
|  10.12*  |   | Form of Director  Indemnification Agreement (filed as exhibit 10.1 to Registrant’s Current  Report on Form 8-K (Commission File No. 001-31315) on  March 9, 2006, and incorporated herein by reference)                                                                                                                                           |
|  10.13*  |   | Indemnity Agreement,  dated as of July 9, 2004, by and between Registrant and Lewis W.  Coleman (filed as exhibit 10.1 to Registrant’s Form 10-Q  filed for the fiscal quarter ended September 30, 2004 (Commission File  No. 001-31315), and incorporated herein by reference)                                                              |
|  10.14*  |   | Indemnity Agreement,  dated as of July 12, 2004, by and between Registrant and Michael J.  Dolan (filed as exhibit 10.2 to Registrant’s Form 10-Q filed  for the fiscal quarter ended September 30, 2004 (Commission File  No. 001-31315), and incorporated herein by reference)                                                             |

99

----

 

|  12.1 |   | Ratio of Earnings to  Fixed Charges                                         |
|------------|--------|-----------------------------------------------------------------------------|
|  21.1 |   | Subsidiaries of the  Registrant                                             |
|  23.1 |   | Consent of KPMG LLP,  Independent Accountants                               |
|  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                                           |

----

*                    Identifieseach management contract or compensatory plan or arrangement

(b)          The exhibits required tobe filed herewith are listed above.

(c)           Not applicable.

100

----

**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. 

|                        | REGAL ENTERTAINMENT GROUP |
|------------------------|---------------------------|
| February 26, 2007 | By:                       | /s/  MICHAEL L. CAMPBELL |
|                   |                      | Michael L. Campbell |
|                   |                      | *Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated. 

| Signature                          | ** ** | **Title**                                   | ** ** | **Date**               |
|------------------------------------|------------|---------------------------------------------|------------|------------------------|
| /s/  MICHAEL L. CAMPBELL |       | Director, Chairman and  Chief Executive     |       | February 26, 2007 |
| Michael L. Campbell                |       | Officer (Principal Executive Officer)       |       |                   |
| /s/  AMY E. MILES        |       | Chief Financial Officer                     |       | February 26, 2007 |
| Amy E. Miles                       |       | (Principal Financial Officer)               |       |                   |
| /s/  DAVID H. OWNBY      |       | Senior Vice President  and Chief Accounting |       | February 26, 2007 |
| David H. Ownby                     |       | Officer (Principal Accounting Officer)      |       |                   |
| /s/  THOMAS D. BELL, JR. |       | Director                                    |       | February 26, 2007 |
| Thomas D. Bell, Jr.           |       |                                        |       |                   |
| /s/  STEPHEN A. KAPLAN   |       | Director                                    |       | February 26, 2007 |
| Stephen A. Kaplan                  |       |                                        |       |                   |
| /s/  DAVID KEYTE         |       | Director                                    |       | February 26, 2007 |
| David Keyte                        |       |                                        |       |                   |
| /s/  LEE M. THOMAS       |       | Director                                    |       | February 26, 2007 |
| Lee M. Thomas                      |       |                                        |       |                   |
| /s/  JACK TYRRELL        |       | Director                                    |       | February 26, 2007 |
| Jack Tyrrell                       |       |                                        |       |                   |
| /s/  NESTOR R. WEIGAND, JR.   |       | Director                                    |       | February 26, 2007 |
| Nestor R. Weigand, Jr.        |       |                                        |       |                   |
| /s/  ALEX YEMENIDJIAN    |       | Director                                    |       | February 26, 2007 |
| Alex Yemenidjian                   |       |                                        |       |                   |

 

101

----

**EXHIBITINDEX**

| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  1.1        |       | Underwriting Agreement,  dated October 31, 2006, among Registrant, OCM Principal Opportunities  Fund II, L.P. and Credit Suisse Securities (USA) LLC (filed as  exhibit 1.1 to Registrant’s Current Report on Form 8-K  (Commission File No. 001-31315) on November 1, 2006, and  incorporated herein by reference)                                                                                              |
| 2.1              |       | Regal Cinemas, Inc.  Amended Joint Plan of Reorganization dated December 5, 2001 (filed as  exhibit 2.1 to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on March 11, 2002, and  incorporated herein by reference)                                                                                                                                                       |
|  2.2        |       | Regal Cinemas, Inc.  Disclosure Statement dated September 6, 2001 (filed as exhibit 2.3  to Regal Cinemas, Inc.’s Form 10-Q for the fiscal quarter  ended September 27, 2001 (Commission File No. 333-52943), and  incorporated herein by reference)                                                                                                                                                   |
|  2.3        |       | United Artists Theatre  Company Second Amended Joint Plan of Reorganization (filed as exhibit 2  to United Artists Theatre Circuit, Inc.’s Current Report on Form 8-K  (Commission File No. 033-49598) on February 9, 2001, and  incorporated herein by reference)                                                                                                                                               |
|  2.4        |       | United Artists Theatre  Company Second Amended Disclosure Statement for Second Amended Joint Plan of  Reorganization (filed as exhibit 2.4 to Registrant’s Form 10-K  for the fiscal year ended December 26, 2002 (Commission File  No. 001-31315), and incorporated herein by reference)                                                                                                                             |
|  2.5        |       | Edwards Theatres  Circuit, Inc. Second Amended Plan of Reorganization dated July 23,  2001 (filed as exhibit 2.5 to the Registration Statement of Registrant  on Form S-1 (Commission File No. 333-84096) on  March 11, 2002, and incorporated herein by reference)                                                                                                                                              |
|  2.6        |       | Edwards Theatres  Circuit, Inc. Disclosure Statement to Accompany Debtor’s Second Amended  Plan of Reorganization (filed as exhibit 2.6 to the Registration  Statement of Registrant on Form S-1 (Commission File No. 333-84096)  on March 11, 2002, and incorporated herein by reference)                                                                                                                       |
|  2.7        |       | Exchange Agreement,  dated as of March 8, 2002, by and among Regal Entertainment Group and  certain stockholders of Regal Cinemas Corporation, United Artists Theatre  Company, Edwards Theatres, Inc. and Regal CineMedia Corporation (filed  as exhibit 2.7 to the Registration Statement of Registrant on  Form S-1 (Commission File No. 333-84096) on  March 11, 2002, and incorporated herein by reference) |
|  3.1        |       | Amended and Restated  Certificate of Incorporation of Registrant (filed as exhibit 3.1 to  Registrant’s Form 10-Q for the fiscal quarter ended March 28,  2002 (Commission File No. 001-31315), and incorporated herein by  reference)                                                                                                                                                                                |
|  3.2        |       | Amended and Restated  Bylaws of Registrant (filed as exhibit 3.1 to Registrant’s Form 10-Q  for the fiscal quarter ended June 26, 2003 (Commission  File No. 001-31315), and incorporated herein by reference)                                                                                                                                                                                                   |
|  4.1        |       | Specimen Class A  Common Stock Certificate (filed as exhibit 4.1 to Amendment No. 2  to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on May 6, 2002, and  incorporated herein by reference)                                                                                                                                                                             |
|  4.2        |       | Specimen Class B  Common Stock Certificate (filed as exhibit 4.2 to Amendment No. 2  to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on May 6, 2002, and  incorporated herein by reference)                                                                                                                                                                             |

----

 

|  4.3   |   | Amended and Restated  Guarantee and Collateral Agreement, dated as of May 10, 2004, among  Regal Cinemas Corporation, each of the Guarantors party thereto and Credit  Suisse First Boston, acting through its Cayman Islands Branch, as Sole Lead  Arranger and Administrative Agent, (filed as exhibit 4.3 to Registrant’s  Form 10-Q filed for the fiscal quarter ended July 1, 2004  (Commission File No. 001-31315), and incorporated herein by  reference)                                                   |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  4.3.1 |   | Fifth Amended and  Restated Credit Agreement, dated as of October 27 2006, among Regal  Cinemas Corporation, the several lenders from time to time parties thereto,  Credit Suisse, Cayman Islands Branch, as Administrative Agent, Credit Suisse  Securities (USA) LLC, as Sole Lead Arranger and Sole Book Runner, (filed as  exhibit 4.1 to Registrant’s Current Report on Form 8-K  (Commission File No. 001-31315) on October 30, 2006, and  incorporated herein by reference)                                |
|  4.4   |   | Indenture, dated as of  January 29, 2002, by and among Regal Cinemas Corporation, as Issuer, the  Guarantors party thereto and U.S. Trust National Association, as Trustee  (filed as exhibit 4.6 to the Registration Statement of Registrant on  Form S-1 (Commission File No. 333-84096) on  March 11, 2002, and incorporated herein by reference)                                                                                                                                                               |
|  4.4.1 |   | First Supplemental  Indenture, dated as of April 17, 2002, by and among Regal Cinemas  Corporation, as Issuer, the Guarantors party thereto and U.S. Trust  National Association, as Trustee (filed as exhibit 4.7 to Amendment  No. 1 to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on April 19, 2002, and  incorporated herein by reference)                                                                                                                     |
|  4.4.2 |   | Second Supplemental  Indenture, dated as of April 17, 2002, among Regal Cinemas Corporation,  as Issuer, Edwards Theatres, Inc., Florence Theatre Corporation, Morgan  Edwards Theatre Corporation, United Cinema Corporation, as Guaranteeing  Subsidiaries and U.S. Bank National Association, as Trustee (filed as  exhibit 4.8 to Amendment No. 1 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on April 19, 2002, and incorporated herein by reference) |
|  4.4.3 |   | Third Supplemental  Indenture, dated as of November 28, 2002 by and among Regal Cinemas  Corporation, as Issuer, Regal CineMedia Corporation, as Guaranteeing  Subsidiary and U.S. Bank National Association, as Trustee (filed as  exhibit 4.7 to Registrant’s Form 10-K for the fiscal year  ended December 26, 2002 (Commission File No. 001-31315), and  incorporated herein by reference)                                                                                                                |
|  4.4.4 |   | Fourth Supplemental  Indenture, dated as of March 27, 2003, among Regal Cinemas Corporation,  as Issuer, Hoyts Cinemas Corporation, Interstate Theatres Corporation,  Frederick Plaza Cinema, Inc., as Guaranteeing Subsidiaries and  U.S. Bank National Association, as Trustee (filed as exhibit 4.1 to  Registrant’s Form 10-Q filed for the fiscal quarter ended  March 27, 2003 (Commission File No. 001-31315), and  incorporated herein by reference)                                             |
|  4.4.5 |   | Fifth Supplemental  Indenture, dated as of June 6, 2003, among Regal Cinemas Corporation, as  Issuer, CineMedia Software, Inc. and United Artists Theatre Group, as  Guaranteeing Subsidiaries and U.S. Bank National Association, as Trustee  (filed as exhibit 4.3 to Registrant’s Form 10-Q filed for the  fiscal quarter ended June 26, 2003 (Commission File No. 001-31315),  and incorporated herein by reference)                                                                                 |
|  4.4.6 |   | Sixth Supplemental  Indenture, dated as of April 27, 2004, by and among Regal Cinemas  Corporation, each of the Guarantors party thereto, and U.S. Bank  National Association, as Trustee (filed as exhibit 4.2 to Registrant’s  Form 10-Q filed for the fiscal quarter ended July 1, 2004  (Commission File No. 001-31315), and incorporated herein by  reference)                                                                                                                                           |

----

 

|  4.5  |   | Form of Regal  Cinemas Corporation 93¤8%  Senior Subordinated Notes due 2012 (filed as Exhibit A to  exhibit 4.6 to Registrant’s Registration Statement on Form S-1  (Commission File No. 333-84096) filed March 11, 2002, and  incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                       |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  4.6  |   | Amendment to Leveraged  Lease Facility and Second Supplemental Indenture, dated as of March 7,  2001, among United Artists Theatre Circuit, Inc., Wilmington Trust  Company, William J. Wade, Theatre Investors, Inc., Northway Associates  Limited Partnership, State Street Bank and Trust Company, Susan Keller,  certain beneficial certificateholder affiliates of American Express Financial  Corporation and MacKay Shields LLC (filed as exhibit 10.2 to United  Artists Theatre Circuit, Inc.’s Form 10-Q for the fiscal  quarter ended March 29, 2001 (Commission File No. 033-49598),  and incorporated herein by reference) |
|  4.7  |   | Trust Indenture and  Security Agreement, dated as of December 13, 1995, between Wilmington  Trust Company, William J. Wade and Fleet National Bank of Connecticut  and Alan B. Coffey (filed as exhibit 4.2 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024)  on February 5, 1996, and incorporated herein by reference)                                                                                                                                                                                                                                                                              |
|  4.8  |   | Pass Through  Certificates, Series 1995-A Registration Rights Agreement, dated  as of December 13, 1995, among United Artists Theatre  Circuit, Inc., Morgan Stanley & Co. Incorporated and Merrill Lynch,  Pierce, Fenner & Smith Incorporated (filed as exhibit 4.3 to  United Artists Theatre Circuit, Inc.’s Form S-2 (Commission  File No. 333-1024) on February 5, 1996, and incorporated  herein by reference)                                                                                                                                                                                            |
|  4.9  |   | Participation Agreement,  dated as of December 13, 1995, among United Artists Theatre  Circuit, Inc., Wilmington Trust Company, William J. Wade, Theatre  Investors, Inc., Northway Mall Associates, LLC, Wilmington Trust  Company, William J. Wade, Fleet National Bank of Connecticut and  Alan B. Coffey (filed as exhibit 4.4 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024)  on February 5, 1996, and incorporated herein by reference)                                                                                                                                        |
|  4.10 |   | Pass Through Trust  Agreement, dated as of December 13, 1995, between United Artists Theatre  Circuit, Inc. and Fleet National Bank of Connecticut (filed as  exhibit 4.5 to United Artists Theatre Circuit, Inc.’s Form S-2  (Commission File No. 333-1024) on February 5, 1996, and  incorporated herein by reference)                                                                                                                                                                                                                                                                                                                     |
|  4.11 |   | Lease Agreement, dated  as of December 13, 1995, between Wilmington Trust Company and  William J. Wade and United Artists Theatre Circuit, Inc. (filed as  exhibit 4.6 to United Artists Theatre Circuit, Inc.’s Form S-2  (Commission File No. 333-1024) on February 5, 1996, and  incorporated herein by reference)                                                                                                                                                                                                                                                                                                                   |
|  4.12 |   | Indenture, dated as of  May 28, 2003, among Registrant, as Issuer, and U.S. Bank National  Association, as Trustee (filed as exhibit 4.5 to Registrant’s  Form 10-Q for fiscal quarter ended June 26, 2003 (Commission  File No. 001-31315), and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                |
|  4.13 |   | Form of  Registrant’s 33¤4%  Convertible Senior Notes due 2008 (filed as exhibit A in  exhibit 4.5 to Registrant’s Form 10-Q for fiscal quarter  ended June 26, 2003 (Commission File No. 001-31315), and  incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                       |
|  10.1 |   | Regal Entertainment  Group Amended and Restated Stockholders’ Agreement (filed as  exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended  September 26, 2002 (Commission File No. 001-31315), and  incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                            |

----

 

|  10.2*   |   | 2002 Regal Entertainment  Group Stock Incentive Plan (filed as exhibit 10.2 to Amendment  No. 2 to the Registration Statement of Registrant on Form S-1  (Commission File No. 333-84096) on May 6, 2002, and  incorporated herein by reference), as amended by Amendment to 2002 Stock  Incentive Plan (filed as Appendix A to Registrant’s Proxy Statement on  Schedule 14A (Commission File No. 001-31315) on  April 15, 2005, and incorporated herein by reference) |
|---------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  10.2.1* |   | Form of Stock  Option Agreement for use under the Regal Entertainment Group 2002 Stock  Incentive Plan (filed as exhibit 10.2.1 to Amendment No. 2 to the  Registration Statement of Registrant on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                                                                                                                                                        |
|  10.2.2* |   | Form of Restricted  Stock Agreement for use under the Regal Entertainment Group 2002 Stock  Incentive Plan (filed as exhibit 10.1 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on  March 2, 2006, and incorporated herein by reference)                                                                                                                                                                                                                     |
|  10.2.3* |   | Form of Performance  Share Agreement for use under the Regal Entertainment Group 2002 Stock  Incentive Plan (filed as exhibit 10.1 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on May 5,  2006, and incorporated herein by reference)                                                                                                                                                                                                                      |
|  10.3*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Michael L. Campbell  (filed as exhibit 10.4 to Amendment No. 2 to the Registration  Statement of Registrant on Form S-1 (Commission  File No. 333-84096) on May 6, 2002, and incorporated  herein by reference)                                                                                                                                                                                                 |
|  10.4*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Kurt C. Hall (filed as  exhibit 10.5 to Amendment No. 2 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on May 6, 2002, and incorporated herein by reference)                                                                                                                                                                                                              |
|  10.5*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Amy E. Miles (filed as  exhibit 10.6 to Amendment No. 2 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on May 6, 2002, and incorporated herein by reference)                                                                                                                                                                                                              |
|  10.6*   |   | Employment Agreement,  dated May 3, 2002, between Registrant and Gregory W. Dunn (filed as  exhibit 10.7 to Amendment No. 2 to the Registration Statement of  Registrant on Form S-1 (Commission File No. 333-84096)  on May 6, 2002, and incorporated herein by reference)                                                                                                                                                                                                           |
|  10.7    |   | Lease Agreement, dated  as of October 1, 1988, between United Artists Properties I Corp. and  United Artists Theatre Circuit, Inc. (filed as exhibit 10.1 to United  Artists Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 33-49598) on October 5, 1992, and incorporated herein by  reference)                                                                                                                                                                         |
|  10.8*   |   | Summary of Director  Compensation Arrangements (filed as exhibit 10.2 to Registrant’s Current  Report on Form 8-K (Commission File No. 001-31315) on  March 2, 2006, and incorporated herein by reference)                                                                                                                                                                                                                                                                                      |
|  10.9*   |   | Summary of Annual  Executive Incentive Program (filed as exhibit 10.15 to Registrant’s  Form 10-K for the fiscal year ended December 30, 2004  (Commission File No. 001-31315), and incorporated herein by  reference)                                                                                                                                                                                                                                                                          |
|  10.10   |   | Contribution and Unit  Holders Agreement, dated as of March 29, 2005, among Regal CineMedia  Corporation, National Cinema Network, Inc. and National CineMedia, LLC  (filed as exhibit 10.1 to AMC Entertainment Inc.’s Current Report on  Form 8-K (Commission File No. 001-08747) on  April 4, 2005, and incorporated herein by reference)                                                                                                                                          |

----

 

|  10.11* |   | Regal Cinemas, Inc.  Severance Plan for Equity Compensation (filed as exhibit 10.1 to  Registrant’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 17, 2005, and incorporated herein by  reference)                                                               |
|--------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  10.12* |   | Form of Director  Indemnification Agreement (filed as exhibit 10.1 to Registrant’s Current  Report on Form 8-K (Commission File No. 001-31315) on  March 9, 2006, and incorporated herein by reference)                                                                               |
|  10.13* |   | Indemnity Agreement,  dated as of July 9, 2004, by and between Registrant and Lewis W.  Coleman (filed as exhibit 10.1 to Registrant’s Form 10-Q  filed for the fiscal quarter ended September 30, 2004 (Commission File  No. 001-31315), and incorporated herein by reference)  |
|  10.14* |   | Indemnity Agreement,  dated as of July 12, 2004, by and between Registrant and Michael J.  Dolan (filed as exhibit 10.2 to Registrant’s Form 10-Q filed  for the fiscal quarter ended September 30, 2004 (Commission File  No. 001-31315), and incorporated herein by reference) |
|  12.1   |   | Ratio of Earnings to  Fixed Charges                                                                                                                                                                                                                                                                                 |
|  21.1   |   | Subsidiaries of the  Registrant                                                                                                                                                                                                                                                                                     |
|  23.1   |   | Consent of KPMG LLP,  Independent Accountants                                                                                                                                                                                                                                                                       |
|  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                                                                                                                                                                                                                                                                                   |

----

*                    Identifieseach management contract or compensatory plan or arrangement

(b)          The exhibits required tobe filed herewith are listed above.

(c)           Not applicable.

----