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EX-32 - EX-32 - REGAL ENTERTAINMENT GROUPa09-30957_1ex32.htm
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Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 1, 2009

 

Commission file number: 001-31315

 


 

Regal Entertainment Group

(Exact name of Registrant as Specified in its Charter)

 

Delaware

 

02-0556934

(State or Other Jurisdiction of

 

(Internal Revenue Service

Incorporation or Organization)

 

Employer Identification Number)

 

 

 

7132 Regal Lane

 

 

Knoxville, TN

 

37918

(Address of Principal Executive Offices)

 

(Zip Code)

 

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

 

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

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

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

 

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

 

 

 




Table of Contents

 

PART I—FINANCIAL INFORMATION

 

Item 1.    FINANCIAL STATEMENTS

 

REGAL ENTERTAINMENT GROUP

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

 

 

 

October 1, 2009

 

January 1, 2009

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

192.3

 

$

170.2

 

Trade and other receivables

 

32.6

 

73.2

 

Inventories

 

10.6

 

8.3

 

Prepaid expenses and other current assets

 

16.5

 

6.1

 

Assets held for sale

 

0.6

 

0.9

 

Deferred income tax asset

 

11.1

 

14.8

 

TOTAL CURRENT ASSETS

 

263.7

 

273.5

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

Land

 

118.6

 

118.6

 

Buildings and leasehold improvements

 

1,922.3

 

1,911.5

 

Equipment

 

1,019.1

 

974.5

 

Construction in progress

 

9.1

 

14.1

 

Total property and equipment

 

3,069.1

 

3,018.7

 

Accumulated depreciation and amortization

 

(1,211.6

)

(1,082.2

)

TOTAL PROPERTY AND EQUIPMENT, NET

 

1,857.5

 

1,936.5

 

GOODWILL

 

178.8

 

178.8

 

INTANGIBLE ASSETS, NET

 

12.6

 

15.5

 

DEFERRED INCOME TAX ASSET

 

77.9

 

78.2

 

OTHER NON-CURRENT ASSETS

 

122.0

 

113.3

 

TOTAL ASSETS

 

$

2,512.5

 

$

2,595.8

 

LIABILITIES AND DEFICIT

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current portion of debt obligations

 

$

20.2

 

$

23.4

 

Accounts payable

 

116.3

 

162.0

 

Accrued expenses

 

58.5

 

77.8

 

Deferred revenue

 

72.8

 

95.6

 

Interest payable

 

9.5

 

7.4

 

TOTAL CURRENT LIABILITIES

 

277.3

 

366.2

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

1,891.3

 

1,887.0

 

LEASE FINANCING ARRANGEMENTS, LESS CURRENT PORTION

 

73.4

 

77.2

 

CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION

 

15.7

 

17.3

 

NON-CURRENT DEFERRED REVENUE

 

342.7

 

339.9

 

OTHER NON-CURRENT LIABILITIES

 

170.6

 

144.1

 

TOTAL LIABILITIES

 

2,771.0

 

2,831.7

 

DEFICIT:

 

 

 

 

 

Class A common stock, $0.001 par value; 500,000,000 shares authorized, 130,291,408 and 129,801,284 shares issued and outstanding at October 1, 2009 and January 1, 2009, respectively

 

0.1

 

0.1

 

Class B common stock, $0.001 par value; 200,000,000 shares authorized, 23,708,639 shares issued and outstanding at October 1, 2009 and January 1, 2009

 

 

 

Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued and outstanding

 

 

 

Additional paid-in capital (deficit)

 

(263.4

)

(265.8

)

Retained earnings

 

17.9

 

40.1

 

Accumulated other comprehensive loss, net

 

(12.5

)

(9.9

)

TOTAL STOCKHOLDERS’ DEFICIT OF REGAL ENTERTAINMENT GROUP

 

(257.9

)

(235.5

)

Noncontrolling interest

 

(0.6

)

(0.4

)

TOTAL DEFICIT

 

(258.5

)

(235.9

)

TOTAL LIABILITIES AND DEFICIT

 

$

2,512.5

 

$

2,595.8

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3



Table of Contents

 

REGAL ENTERTAINMENT GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in millions, except share and per share data)

 

 

 

Quarter Ended
October 1, 2009

 

Quarter Ended
September 25, 2008

 

Three Quarters
Ended
October 1, 2009

 

Three Quarters
Ended
September 25, 2008

 

REVENUES:

 

 

 

 

 

 

 

 

 

Admissions

 

$

463.4

 

$

516.8

 

$

1,464.6

 

$

1,404.5

 

Concessions

 

182.6

 

209.6

 

576.9

 

564.6

 

Other operating revenues

 

27.5

 

31.2

 

86.8

 

91.1

 

TOTAL REVENUES

 

673.5

 

757.6

 

2,128.3

 

2,060.2

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Film rental and advertising costs

 

244.6

 

282.0

 

767.7

 

744.9

 

Cost of concessions

 

27.1

 

30.4

 

82.8

 

78.6

 

Rent expense

 

93.7

 

94.1

 

282.2

 

267.4

 

Other operating expenses

 

194.2

 

197.2

 

575.9

 

546.3

 

General and administrative expenses (including share-based compensation of $1.7 and $1.4 for the quarters ended October 1, 2009 and September 25, 2008, respectively, and $4.3 for the three quarters ended October 1, 2009 and September 25, 2008)

 

17.1

 

15.5

 

47.8

 

46.3

 

Depreciation and amortization

 

51.2

 

51.1

 

151.6

 

147.3

 

Net loss on disposal and impairment of operating assets

 

7.2

 

11.5

 

23.1

 

16.0

 

Joint venture employee compensation

 

 

0.1

 

 

0.4

 

TOTAL OPERATING EXPENSES

 

635.1

 

681.9

 

1,931.1

 

1,847.2

 

INCOME FROM OPERATIONS

 

38.4

 

75.7

 

197.2

 

213.0

 

OTHER EXPENSE (INCOME):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

40.3

 

29.9

 

114.5

 

91.7

 

Loss on extinguishment of debt

 

7.4

 

 

7.4

 

3.0

 

Earnings recognized from NCM

 

(7.4

)

(7.1

)

(26.8

)

(21.4

)

Other, net

 

1.0

 

0.6

 

2.0

 

1.9

 

TOTAL OTHER EXPENSE, NET

 

41.3

 

23.4

 

97.1

 

75.2

 

INCOME (LOSS) BEFORE INCOME TAXES

 

(2.9

)

52.3

 

100.1

 

137.8

 

PROVISION FOR (BENEFIT FROM) INCOME TAXES

 

(1.0

)

21.3

 

40.3

 

55.1

 

NET INCOME (LOSS)

 

(1.9

)

31.0

 

59.8

 

82.7

 

NONCONTROLLING INTEREST, NET OF TAX

 

0.1

 

 

0.2

 

0.1

 

NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST

 

$

(1.8

)

$

31.0

 

$

60.0

 

$

82.8

 

EARNINGS (LOSS) PER SHARE OF CLASS A AND CLASS B COMMON STOCK:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01

)

$

0.20

 

$

0.39

 

$

0.54

 

Diluted

 

$

(0.01

)

$

0.20

 

$

0.39

 

$

0.53

 

AVERAGE SHARES OUTSTANDING (in thousands):

 

 

 

 

 

 

 

 

 

Basic

 

153,053

 

152,864

 

153,050

 

152,841

 

Diluted

 

153,053

 

153,839

 

154,061

 

155,709

 

Dividends declared per common share

 

$

0.18

 

$

0.30

 

$

0.54

 

$

0.90

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4



Table of Contents

 

REGAL ENTERTAINMENT GROUP

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

 

 

Three Quarters
Ended
October 1, 2009

 

Three Quarters
Ended
September 25, 2008

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

59.8

 

$

82.7

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

151.6

 

147.3

 

Amortization of debt discount

 

3.3

 

3.2

 

Amortization of debt acquisition costs

 

6.8

 

5.2

 

Change in fair value of interest rate swap

 

 

(0.5

)

Share-based compensation expense

 

4.3

 

4.3

 

Deferred income tax benefit

 

(1.7

)

(29.3

)

Net loss on disposal and impairment of operating assets

 

23.1

 

16.0

 

Equity in earnings of non-consolidated entities and other

 

1.0

 

0.7

 

Excess cash distribution on additional shares in NCM

 

4.6

 

1.0

 

Loss on extinguishment of debt

 

7.4

 

3.0

 

Non-cash rent expense

 

4.8

 

6.1

 

Changes in operating assets and liabilities (excluding effects of acquisitions):

 

 

 

 

 

Trade and other receivables

 

40.6

 

10.4

 

Inventories

 

(2.3

)

0.9

 

Prepaid expenses and other assets

 

(8.4

)

(5.6

)

Accounts payable

 

(45.7

)

(82.0

)

Income taxes payable

 

6.6

 

20.3

 

Deferred revenue

 

(27.1

)

(37.7

)

Accrued expenses and other liabilities

 

(8.7

)

(18.9

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

220.0

 

127.1

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(86.3

)

(99.1

)

Proceeds from disposition of assets

 

0.4

 

3.6

 

Purchase of Consolidated Theatres, L.L.C., net of cash acquired

 

 

(209.3

)

Distributions to partnership

 

 

(0.4

)

Investment in DCIP

 

(2.5

)

(2.5

)

NET CASH USED IN INVESTING ACTIVITIES

 

(88.4

)

(307.7

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Cash used to pay dividends

 

(83.1

)

(138.1

)

Net proceeds from issuance of Regal Cinemas 85/8% Senior Notes

 

390.2

 

 

Net payments on long-term obligations

 

(397.9

)

(17.2

)

Cash used to purchase treasury shares and other

 

(0.4

)

 

Proceeds from stock option exercises

 

0.1

 

0.5

 

Payment of debt acquisition costs and other

 

(18.4

)

(5.1

)

Excess tax benefits from share-based payment arrangements

 

 

0.2

 

Net proceeds from 3¾% Convertible Senior Notes hedge and warrant

 

 

18.9

 

Proceeds from issuance of 6¼% Convertible Senior Notes

 

 

200.0

 

Net cash paid for 6¼% Convertible Senior Notes convertible note hedge and warrant

 

 

(6.6

)

Cash used to redeem 3¾% Convertible Senior Notes

 

 

(194.1

)

NET CASH USED IN FINANCING ACTIVITIES

 

(109.5

)

(141.5

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

22.1

 

(322.1

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

170.2

 

435.2

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

192.3

 

$

113.1

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for income taxes, net of refunds received

 

$

39.0

 

$

90.1

 

Cash paid for interest

 

$

103.5

 

$

96.6

 

SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:

 

 

 

 

 

Additional investment in NCM

 

$

7.0

 

$

73.4

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5



Table of Contents

 

REGAL ENTERTAINMENT GROUP

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

OCTOBER 1, 2009 AND SEPTEMBER 25, 2008

 

1. THE COMPANY AND BASIS OF PRESENTATION

 

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”) and its subsidiaries. Regal Cinemas’ subsidiaries include Regal Cinemas, Inc. (“RCI”) and its subsidiaries, which include Edwards Theatres, Inc. (“Edwards”), Hoyts Cinemas Corporation (“Hoyts”) and United Artists Theatre Company (“United Artists”). The terms Regal or the Company, REH, Regal Cinemas, RCI, Edwards, Hoyts and United Artists shall be deemed to include the respective subsidiaries of such entities when used in discussions included herein regarding the current operations or assets of such entities.

 

Regal operates the largest theatre circuit in the United States, consisting of 6,775 screens in 548 theatres in 39 states and the District of Columbia as of October 1, 2009.  The Company formally operates on a 52-week fiscal year with each quarter generally consisting of 13 weeks, unless otherwise noted. The Company’s fiscal year ends on the first Thursday after December 25, which in certain years (such as fiscal 2008) results in a 53-week fiscal year.  As of October 1, 2009, the Company managed its business under one reportable segment: theatre exhibition operations.

 

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

 

On March 10, 2008, Regal issued $200.0 million aggregate principal amount of 6¼% Convertible Senior Notes due March 15, 2011 (the “6¼% Convertible Senior Notes”). Concurrent with the issuance of the 6¼% Convertible Senior Notes, we entered into simultaneous convertible note hedge and warrant transactions with respect to our Class A common stock in order to reduce the potential dilution from conversion of the 6¼% Convertible Senior Notes into shares of our Class A common stock. The net cost of the convertible note hedge and warrant transactions was approximately $6.6 million and is included as a component of equity in the accompanying unaudited condensed consolidated balance sheets. See Note 4—“Debt Obligations” for further description of the 6¼% Convertible Senior Notes and the related convertible note hedge and warrant transactions. The Company used cash on hand and a portion of the net proceeds from the issuance of the 6¼% Convertible Senior Notes to redeem approximately $90.0 million principal amount of Regal’s 3¾% Convertible Senior Notes due May 15, 2008 (the “3¾% Convertible Senior Notes”), in a series of privately negotiated transactions.  As a result of the early redemption, the Company recorded a $3.0 million loss on debt extinguishment (as retrospectively adjusted for the adoption of certain provisions of FASB Accounting Standards Codification (“ASC”) Subtopic 470-20, Debt—Debt with Conversion and other Options related to the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlements), described below and in Note 4—“Debt Obligations”) during the quarter ended March 27, 2008.  In connection with the early redemption, the Company received net

 

6



Table of Contents

 

proceeds of approximately $13.7 million from Credit Suisse International (“Credit Suisse”) attributable to the convertible note hedge and warrant transactions associated with the 3¾% Convertible Senior Notes described further in Note 4—“Debt Obligations.” Such proceeds were recorded as an increase to additional paid-in capital. In connection with the final maturity of the 3¾% Convertible Senior Notes on May 15, 2008, holders of the remaining $33.7 million in principal amount exercised their conversion rights. The Company elected to settle these conversions entirely in cash for approximately $51.4 million using the remaining proceeds from the issuance of the 6¼% Convertible Senior Notes.  In connection with these conversions, the Company received net proceeds of approximately $5.2 million from Credit Suisse attributable to the convertible note hedge and warrant transactions associated with the 3¾% Convertible Senior Notes. Such proceeds were also recorded as an increase to additional paid-in capital. See Note 4—“Debt Obligations” for further discussion of this transaction.

 

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

 

For a discussion of other significant transactions which have occurred through January 1, 2009, please refer to Note 1 to the consolidated financial statements included in Part II, Item 8 of our annual report on Form 10-K filed on March 2, 2009 with the Securities and Exchange Commission (the “Commission”) (File No. 001-31315) for the fiscal year ended January 1, 2009, as amended and restated within Exhibit 99.4 to our current report on Form 8-K filed with the Commission on October 13, 2009 (the “2008 Audited Financial Statements”).

 

As described more fully in Note 4—“Debt Obligations,” effective January 2, 2009, the Company retrospectively adopted certain provisions of ASC Subtopic 470-20.  Our 6¼% Convertible Senior Notes and the 3¾% Convertible Senior Notes described in Note 4 are within the scope of ASC Subtopic 470-20; therefore, we retrospectively recorded the debt portions of the 6¼% Convertible Senior Notes and the 3¾% Convertible Senior Notes at their fair values as of the respective dates of issuance and amortize the related debt discount into interest expense over the life of each debt instrument during the periods in which the debt instruments are outstanding.  A cumulative effect of a change in accounting principle in the amount of $(9.1) million was recorded as of the beginning of fiscal 2006 (December 30, 2005) with a corresponding reduction to retained earnings.  The accompanying unaudited condensed consolidated balance sheet as of January 1, 2009 and the unaudited condensed consolidated statements of income for the quarter and three quarters ended September 25, 2008 presented herein have been retrospectively adjusted to give effect to the application of ASC Subtopic 470-20.  Please refer to Note 4—“Debt Obligations” for further discussion of the application of ASC Subtopic 470-20.

 

As discussed further in Note 3—“Investment in National CineMedia, LLC,” as a result of the annual adjustment provisions of the Common Unit Adjustment Agreement with National CineMedia, LLC (“National CineMedia”), on March 17, 2009, we received from National CineMedia approximately 0.5 million newly issued common units of National CineMedia.  This adjustment increased the number of National CineMedia common units held by us to approximately 25.4 million and as a result, on a fully diluted basis, we own a 25.0% interest in National CineMedia, Inc. (“NCM, Inc.”) as of October 1, 2009.

 

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

 

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Table of Contents

 

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

 

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

 

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

 

The Company has prepared the unaudited condensed consolidated balance sheet as of October 1, 2009 and the unaudited condensed consolidated statements of income (loss) and cash flows for the quarters and three quarters ended October 1, 2009 and September 25, 2008 in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Commission. Accordingly, certain information and footnote disclosures typically included in an annual report have been condensed or omitted for this quarterly report. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly in all material respects the financial position, results of operations and cash flows for all periods presented have been made. The January 1, 2009 unaudited condensed consolidated balance sheet information is derived from the 2008 Audited Financial Statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto. The results of operations for the quarter and three quarters ended October 1, 2009 are not necessarily indicative of the operating results that may be achieved for the full 2009 fiscal year.

 

2. ACQUISITION

 

Acquisition of Consolidated Theatres

 

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

 

The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed for each of the respective theatre locations based on their estimated fair values at the date of acquisition. The allocation of the purchase price is based on management’s judgment after evaluating several factors, including an independent third party valuation. The results of operations of the acquired theatres have been included in the Company’s consolidated financial statements for periods subsequent to the acquisition date.

 

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The following is a summary of the final allocation of the cash purchase price to the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):

 

 

Current assets

 

$

1.4

 

Property and equipment, net

 

209.9

 

Intangible assets

 

18.1

 

Current liabilities

 

(11.2

)

Long-term liabilities

 

(8.9

)

Total purchase price

 

$

209.3

 

 

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

 

3. INVESTMENT IN NATIONAL CINEMEDIA, LLC

 

 

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

 

As part of the March 2005 joint venture transaction, RCM and NCN entered into a Contribution and Unit Holders Agreement with National CineMedia pursuant to which, among other things, RCM and NCN contributed assets to National CineMedia and National CineMedia assumed specified liabilities of RCM and NCN in consideration for the issuance of equity units by National CineMedia to RCM’s wholly owned subsidiary, Regal CineMedia Holdings, LLC (“RCH”) and NCN, respectively. The assets contributed to National CineMedia by RCM included fixed assets and agreements as well as approximately $1.3 million in cash. The Company accounts for its investment in National CineMedia using the equity method of accounting and did not recognize any gain or loss resulting from the initial formation of National CineMedia due to the Company’s continued involvement in the operations of National CineMedia.

 

On February 13, 2007, NCM, Inc., a newly formed entity that serves as the sole manager of National CineMedia, completed an initial public offering, or IPO, of its common stock. In connection with the IPO of NCM, Inc., RCM, through its wholly owned subsidiary RCH, AMC and Cinemark amended and restated the operating agreement of National CineMedia and other ancillary agreements. In connection with the series of transactions completed in connection with the IPO, Regal received gross cash proceeds totaling approximately $628.3 million and retained a 22.6% interest in NCM, Inc. After the payment of current taxes, net cash proceeds from these transactions totaled approximately $447.4 million. The Company used a portion of the net cash proceeds to fund an extraordinary cash dividend of $2.00 per share on each outstanding share of its Class A and Class B common stock, including outstanding restricted stock, or approximately $302.0 million in the aggregate. Stockholders of record at the close of business on March 28, 2007 were paid this $302.0 million dividend on April 13, 2007.  As a result of the transactions completed in connection with the IPO, the Company recognized a gain of approximately $350.7 million during fiscal 2007.  The formation of National CineMedia and related IPO of NCM, Inc. are further described in Note 4 to the 2008 Audited Financial Statements.

 

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

 

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Unit Adjustment Agreement was created to account for changes in the number of theatre screens operated by each of the joint venture partners. Pursuant to our Common Unit Adjustment Agreement, from time to time, common units of National CineMedia held by the joint venture partners will be adjusted up or down through a formula (“common unit adjustment”) primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each joint venture partner. The common unit adjustment is computed annually, except that an earlier common unit adjustment will occur for a joint venture partner if its acquisition or disposition of theatres, in a single transaction or cumulatively since the most recent common unit adjustment, will cause a change of two percent or more in the total annual attendance of all of the joint venture partners.

 

As a result of the annual adjustment provisions of the Common Unit Adjustment Agreement, on April 9, 2008, we received from National CineMedia approximately 0.8 million newly issued common units of National CineMedia.  On May 29, 2008, we received from National CineMedia approximately 2.9 million newly issued common units of National CineMedia in accordance with the adjustment provisions of the Common Unit Adjustment Agreement in connection with our acquisition of Consolidated Theatres. Finally, on March 17, 2009, we received from National CineMedia approximately 0.5 million newly issued common units of National CineMedia in accordance with the annual adjustment provisions of the Common Unit Adjustment Agreement.  These adjustments increased the number of National CineMedia common units held by us to approximately 25.4 million and as a result, on a fully diluted basis, we own a 25.0% interest in NCM, Inc. as of October 1, 2009.  The Company recorded the additional units at fair value using the available closing stock prices of NCM, Inc. as of the dates on which the units were received. Since the additional common units received do not represent the funding of prior losses of National CineMedia, the fair value of such units were recorded as separate investment tranches in National CineMedia. As a result, the Company recorded a $7.0 million increase in its investment in National CineMedia and a corresponding increase to deferred revenue during the three quarters ended October 1, 2009.  This amount is being amortized to advertising revenue over the remaining term of the exhibitor services agreements (“ESA”) following the units of revenue method.

 

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

 

The Company will not recognize its share of any undistributed equity in the earnings of National CineMedia from the Company’s initial investment in National CineMedia until National CineMedia’s future net earnings equal or exceed the amount of the above excess distribution. Until such time, equity earnings related to the Company’s initial investment in National CineMedia will be recognized only to the extent that the Company receives cash distributions from National CineMedia. During the three quarters ended October 1, 2009 and September 25, 2008, the Company received $29.9 million and $20.6 million, respectively, in cash distributions from National CineMedia. Approximately $4.6 million and $1.0 million, respectively, of these cash distributions received during the three quarters ended October 1, 2009 and September 25, 2008, were recognized as a reduction in our investment in National CineMedia. The remaining amounts were recognized in equity earnings during each of these periods and have been included as component of “Earnings recognized from NCM” in the accompanying unaudited condensed consolidated financial statements.  As of October 1, 2009 and January 1, 2009, our investment in National CineMedia totaled approximately $77.0 million and $73.1 million, respectively.

 

As a result of the amendment to the ESA and related modification payment, the Company recognizes various types of other revenue from National CineMedia, including per patron and per digital screen theatre access fees, net of payments for on-screen advertising time provided to our beverage concessionaire, other NCM revenue and amortization of upfront ESA modification fees utilizing the units of revenue amortization method. These revenues are presented as a component of other operating revenues in the Company’s unaudited condensed consolidated financial statements and consist of the following amounts (in millions):

 

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Quarter Ended
October 1, 2009

 

Quarter Ended
September 25,
2008

 

Three Quarters
Ended
October 1, 2009

 

Three Quarters
Ended
September 25,
2008

 

Theatre access fees per patron

 

$

3.7

 

$

4.3

 

$

11.8

 

$

12.3

 

Theatre access fees per digital screen

 

1.3

 

1.2

 

3.9

 

3.7

 

Other NCM revenue

 

0.6

 

0.8

 

1.9

 

2.5

 

Amortization of ESA modification fees

 

1.0

 

0.9

 

3.0

 

2.3

 

Payments for beverage concessionaire advertising

 

(3.4

)

(3.7

)

(10.8

)

(10.2

)

Total

 

$

3.2

 

$

3.5

 

$

9.8

 

$

10.6

 

 

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

 

Summarized unaudited condensed consolidated statement of income information for National CineMedia for the quarter and two quarters ended July 2, 2009 is as follows (in millions):

 

 

 

Quarter Ended
July 2, 2009

 

Two Quarters Ended
July 2, 2009

 

Revenues

 

$

92.9

 

$

166.4

 

Income from operations

 

40.0

 

62.1

 

Net income

 

32.5

 

44.4

 

 

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

 

4. DEBT OBLIGATIONS

 

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

 

 

 

October 1, 2009

 

January 1, 2009

 

Regal Cinemas 85/8% Senior Notes, net of debt discount

 

$

390.5

 

$

 

Regal 6¼% Convertible Senior Notes, net of debt discount

 

193.5

 

190.5

 

Regal Cinemas Amended Senior Credit Facility

 

1,268.7

 

1,661.8

 

Regal Cinemas 93/8% Senior Subordinated Notes

 

51.5

 

51.5

 

Lease financing arrangements, weighted average interest rate of 11.21%, maturing in various installments through January 2021

 

78.5

 

81.8

 

Capital lease obligations, 8.5% to 10.3%, maturing in various installments through December 2017

 

17.6

 

19.0

 

Other

 

0.3

 

0.3

 

Total debt obligations

 

2,000.6

 

2,004.9

 

Less current portion

 

20.2

 

23.4

 

Total debt obligations, net of current portion

 

$

1,980.4

 

$

1,981.5

 

 

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

 

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

 

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The 85/8% Senior Notes are Regal Cinemas’ general senior unsecured obligations and rank equally in right of payment with all of its existing and future senior unsecured indebtedness; and senior in right of payment to all of Regal Cinemas’ existing and future subordinated indebtedness, including its existing 93/8% Senior Subordinated Notes. The 85/8% Senior Notes are effectively subordinated to all of Regal Cinemas’ existing and future secured indebtedness, including all borrowings under the Amended Senior Credit Facility, to the extent of the value of the collateral securing such indebtedness, and are structurally subordinated to all existing and future indebtedness and other liabilities of any of Regal Cinemas’ subsidiaries that are not guarantors of the 85/8% Senior Notes.

 

The 85/8% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Regal and all of Regal Cinemas’ existing and future domestic restricted subsidiaries that guarantee its other indebtedness (collectively, with Regal, the “Guarantors”). The guarantees of the 85/8% Senior Notes are the Guarantors’ general senior unsecured obligations and rank equally in right of payment with all of the Guarantors’ existing and future senior unsecured indebtedness, including Regal’s 6¼% Convertible Senior Notes, and rank senior in right of payment to all of the Guarantors’ existing and future subordinated indebtedness, including the guarantees of Regal Cinemas’ existing 93/8% Senior Subordinated Notes.   The 85/8% Senior Notes are effectively subordinated to all of the Guarantors’ existing and future secured indebtedness, including the guarantees under the Amended Senior Credit Facility, to the extent of the value of the collateral securing such indebtedness, and are structurally subordinated to all existing and future indebtedness and other liabilities of any of the Guarantors’ subsidiaries that is not a guarantor of the 85/8% Senior Notes.

 

Regal 6¼% Convertible Senior Notes— On March 10, 2008, Regal issued $200.0 million aggregate principal amount of the 6¼% Convertible Senior Notes. Interest on the 6¼% Convertible Senior Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning September 15, 2008. The 6¼% Convertible Senior Notes are senior unsecured obligations of Regal and rank on parity with all of our existing and future senior unsecured indebtedness and prior to all of our subordinated indebtedness. The 6¼% Convertible Senior Notes are effectively subordinated to all of our future secured indebtedness to the extent of the assets securing that indebtedness and to any indebtedness and other liabilities of our subsidiaries. None of our subsidiaries have guaranteed any of our obligations with respect to the 6¼% Convertible Senior Notes. On or after December 15, 2010, note holders will have the option to convert their 6¼% 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 note holder’s option upon a fundamental change (as defined in the indenture to the 6¼% Convertible Senior Notes dated March 10, 2008), at the then-existing conversion price per share. Prior to December 15, 2010, note holders have the right, at their option, to convert their 6¼% 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 fundamental change, at the then existing conversion price per share, subject to further adjustments described below, if:

 

·                  during any calendar quarter commencing after June 30, 2008, and only during such calendar quarter, if the last reported sale price per share of Class A common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price per share of Class A common stock for the 6¼% Convertible Senior Notes on the last trading day of such immediately preceding calendar quarter;

 

·                  during the five consecutive business days immediately after any ten consecutive trading day period (such 10 consecutive trading day period, the “Note Measurement Period”) in which the trading price (calculated using the trading price for each of the trading days in the Note Measurement Period) per $1,000 principal amount of the 6¼% Convertible Senior Notes was less than 95% of the product of the last reported sale price per share of Class A common stock and the conversion rate for each day of the Note Measurement Period as determined following a request by a holder of the notes in accordance with the procedures described more fully in the 6¼% Convertible Senior Notes indenture;

 

·              during certain periods if specified corporate transactions occur or specified distributions to holders of common stock are made, each as set forth in the 6¼% Convertible Senior Notes indenture (excluding certain distributions and excluding quarterly dividends not in excess of the base dividend amount (as

 

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defined in the 6¼% Convertible Senior Notes indenture)), in which case, the conversion price per share will be adjusted as set forth in the 6¼% Convertible Senior Notes indenture; or

 

·                  a fundamental change (as defined in the 6¼% Convertible Senior Notes indenture) occurs, a note holder may elect to convert all or a portion of its notes at any time commencing on the effective date of such transaction or 15 days prior to the anticipated effective date (in certain circumstances) until the latter of: (i) the day before the fundamental change repurchase date and (ii) 30 days following the effective date of such transaction (but in any event prior to the close of business on the business day prior to the maturity date), in which case we will increase the conversion rate for the notes surrendered for conversion by a number of additional shares of Class A common stock, as set forth in the table in the 6¼% Convertible Senior Notes indenture.

 

On October 1, 2009, at the then-current conversion price of $23.0336 per share (which conversion price may be adjusted pursuant to the certain events described further in the 6¼% Convertible Senior Notes indenture), each $1,000 of aggregate principal amount of 6¼% Convertible Senior Notes is convertible into approximately 43.4148 shares of our Class A common stock. Upon conversion, we may elect to deliver cash in lieu of shares of Class A common stock or a combination of cash and shares of Class A common stock. The conversion price and the number of shares delivered on conversion are subject to adjustment upon certain events.

 

In connection with the issuance of the 6¼% Convertible Senior Notes, we used approximately $6.6 million of the net proceeds of the offering to enter into convertible note hedge and warrant transactions with respect to our Class A common stock to reduce the potential dilution from conversion of the 6¼% Convertible Senior Notes. Under the terms of the convertible note hedge arrangement (the “2008 Convertible Note Hedge”) with Credit Suisse, we paid $12.6 million for a forward purchase option contract under which we are entitled to purchase from Credit Suisse a fixed number of shares of our Class A common stock (at October 1, 2009, at a price per share of $23.0336). In the event of the conversion of the 6¼% Convertible Senior Notes, this forward purchase option contract allows us to purchase, at a fixed price equal to the implicit conversion price of shares issued under the 6¼% Convertible Senior Notes, a number of shares of Class A common stock equal to the shares that we issue to a note holder upon conversion. Settlement terms of this forward purchase option allow the Company to elect cash or share settlement based on the settlement option it chooses in settling the conversion feature of the 6¼% Convertible Senior Notes. We accounted for the 2008 Convertible Note Hedge pursuant to the guidance enumerated in ASC Subtopic 815-40, Derivatives and Hedging—Contracts in Equity’s Own Equity.  Accordingly, the $12.6 million purchase price of the forward stock purchase option contract was recorded as an increase to consolidated deficit.

 

We also sold to Credit Suisse a warrant (the “2008 Warrant”) to purchase shares of our Class A common stock. The 2008 Warrant is currently exercisable for approximately 8.7 million shares of our Class A common stock at the October 1, 2009 exercise price of $25.376 per share (which exercise price may be adjusted pursuant to the provisions of the 2008 Warrant). We received $6.0 million in cash from Credit Suisse in return for the sale of this forward share purchase option contract. Credit Suisse cannot exercise the 2008 Warrant unless and until a conversion event occurs. We have the option of settling the 2008 Warrant in cash or shares of our Class A common stock. We accounted for the sale of the 2008 Warrant as the sale of a permanent equity instrument pursuant to the guidance in ASC Subtopic 815-40. Accordingly, the $6.0 million sales price of the forward stock purchase option contract was recorded as a decrease to consolidated deficit.

 

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

 

The 6¼% Convertible Senior Notes allow us to settle any conversion by remitting to the note 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 of our Class A common stock or a combination of stock and cash. The accounting for convertible debt with such settlement features is addressed in the consensus reached with respect to the accounting for Instrument B as set forth in ASC Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives.   Because the

 

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accreted value of the 6¼% Convertible Senior Notes may be settled in cash, shares of our Class A common stock or a combination of stock and cash, the accreted value of the 6¼% Convertible Senior Notes is assumed to be settled in shares and will result in dilution in our earnings per share computations using the if-converted method, if the effect is dilutive.

 

Regal 3¾% Convertible Senior Notes—As further described in Note 5 to the 2008 Audited Financial Statements, on May 28, 2003, Regal issued $240.0 million aggregate principal amount of the 3¾% Convertible Senior Notes due May 15, 2008.

 

In connection with the issuance of the 6¼% Convertible Senior Notes described above, on March 5, 2008 and March 10, 2008, we redeemed a total of approximately $90.0 million principal amount of the 3¾% Convertible Senior Notes, in a series of privately negotiated transactions.  As a result of the early redemption, the Company recorded a $3.0 million loss on debt extinguishment (as retrospectively adjusted for the adoption of certain provision of ASC Subtopic 470-20 described below) during the quarter ended March 27, 2008.  In connection with the early redemption, the Company received net proceeds of approximately $13.7 million from Credit Suisse attributable to the convertible note hedge (the “2003 Convertible Note Hedge”) and the warrant (the “2003 Warrant”) associated with the 3¾% Convertible Senior Notes.  Such proceeds were recorded as an increase to additional paid-in capital. In connection with the final maturity of the 3¾% Convertible Senior Notes on May 15, 2008, holders of the remaining $33.7 million in principal amount exercised their conversion rights. The Company elected to settle these conversions entirely in cash for approximately $51.4 million using the remaining proceeds from the issuance of the 6¼% Convertible Senior Notes.  In connection with these conversions, the Company received net proceeds of approximately $5.2 million from Credit Suisse attributable to the convertible note hedge and warrant transactions associated with the 3¾% Convertible Senior Notes. Such proceeds were also recorded as an increase to additional paid-in capital.

 

Application of ASC Subtopic 470-20

 

Effective January 2, 2009, the Company retrospectively adopted certain provisions of ASC Subtopic 470-20, related to the requirement that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity (conversion feature) components of such instruments. As a result, interest expense should be imputed and recognized based upon the entity’s nonconvertible debt borrowing rate, which will result in incremental non-cash interest expense. Prior to the guidance in ASC Subtopic 470-20, U.S. generally accepted accounting principles provided that no portion of the proceeds from the issuance of the instrument should be attributable to the conversion feature.  Our 6¼% Convertible Senior Notes and our 3¾% Convertible Senior Notes are subject to ASC Subtopic 470-20.

 

We have determined that if the liability and equity components of the 6¼% Convertible Senior Notes and the 3¾% Convertible Senior Notes had been separately valued at the time of their issuances on March 10, 2008 and May 28, 2003, respectively, the amounts allocated to long-term debt would have been $187.4 million (6¼% Convertible Senior Notes) and $203.8 million (3¾% Convertible Senior Notes), and the amounts allocated to equity would have been $12.6 million and $36.2 million, respectively. The effective interest rates on the 6¼% Convertible Senior Notes and the 3¾% Convertible Senior Notes (based upon the Company’s estimated nonconvertible debt borrowing rate at the time of each respective issuance) would have been approximately 8.7% and 6.8%, respectively.  Effective with the January 2, 2009 adoption of ASC Subtopic 470-20, interest expense (amortization of debt discount) for fiscal 2003, 2004, 2005, 2006, 2007 and 2008 were increased by non-cash amounts of approximately $3.3 million, $6.0 million, $6.7 million, $5.7 million, $4.6 million and $4.2 million, respectively.  In addition, the Company retrospectively reduced the previously recorded loss on debt extinguishment resulting from the early extinguishments of the 3¾% Convertible Senior Notes that occurred during fiscal 2006 and fiscal 2008 by approximately $35.1 million and $67.5 million, respectively.  After giving effect to these adjustments and the application of the appropriate income tax benefits through the fiscal year ended December 29, 2005, a cumulative effect adjustment of $(9.1) million was recorded as of the beginning of fiscal 2006 (December 30, 2005) with a corresponding reduction to the opening balance of retained earnings.

 

During the quarter ended October 1, 2009, the Company recorded approximately $1.0 million of non-cash interest expense on the 6¼% Convertible Senior Notes. The amount of contractual coupon interest recognized on the

 

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6¼% Convertible Senior Notes during the same period was approximately $3.1 million.  During the quarter ended September 25, 2008, the Company retrospectively recorded approximately $0.9 million of non-cash interest expense for the 6¼% Convertible Senior Notes. The amount of contractual coupon interest recognized on the 6¼% Convertible Senior Notes during the same period was approximately $3.1 million.  After the related tax effects, the resulting decrease in net income attributable to controlling interest from the adoption of ASC Subtopic 470-20 was approximately $0.6 million for the quarter ended September 25, 2008. During the three quarters ended October 1, 2009 and September 25, 2008, the Company retrospectively recorded approximately $3.0 million and $3.1 million, respectively, of non-cash interest expense for the 6¼% Convertible Senior Notes and the 3¾% Convertible Senior Notes. The amount of contractual coupon interest recognized on the 6¼% Convertible Senior Notes and the 3¾% Convertible Senior Notes during the same periods were approximately $9.4 million and $8.0 million, respectively.  In addition, for the three quarters ended September 25, 2008, amounts previously recorded for loss on debt extinguishment and provision for income taxes were retrospectively (reduced) increased by $(67.5) million and $24.0 million, respectively.  The resulting increase in net income attributable to controlling interest from the adoption of ASC Subtopic 470-20 was approximately $40.4 million for the three quarters ended September 25, 2008. The accompanying unaudited condensed consolidated statements of income (loss) for the quarters and three quarters ended September 25, 2008, presented herein has been retrospectively adjusted to give effect to these adjustments resulting from the adoption of ASC Subtopic 470-20.  In addition, the accompanying unaudited condensed consolidated balance sheet as of January 1, 2009 presented herein has been retrospectively adjusted to give effect to the adoption of ASC Subtopic 470-20 as follows (in millions):`

 

 

 

As of
January 1, 2009
(Previously Reported)

 

Impact of
ASC Subtopic 470-20

 

As of
January 1, 2009
(As Revised for

ASC Subtopic 470-20)

 

Other assets

 

$

113.5

 

$

(0.2

)

$

113.3

 

Non-current deferred income tax asset

 

81.7

 

(3.5

)

78.2

 

Long-term debt, less current portion

 

1,896.5

 

(9.5

)

1,887.0

 

Additional paid-in capital (deficit)

 

(256.1

)

(9.7

)

(265.8

)

Retained earnings

 

24.6

 

15.5

 

40.1

 

 

As of October 1, 2009 and January 1, 2009, the carrying amounts of the $200.0 million 6¼% Convertible Senior Notes were approximately $193.5 million and $190.5 million, respectively, and the carrying amount of the related equity component (conversion feature) was $12.6 million.  We anticipate recording additional non-cash interest expense on the 6¼% Convertible Senior Notes in the amount of $6.5 million (the unamortized discount as of October 1, 2009) through the March 2011 maturity date of the 6¼% Convertible Senior Notes, thereby increasing the carrying value to $200.0 million.  As of October 1, 2009, the if-converted value of the 6¼% Convertible Senior Notes was approximately $200.0 million.

 

Regal Cinemas Fifth Amended and Restated Credit Agreement— On October 27, 2006, Regal Cinemas entered into a fifth amended and restated credit agreement (the “Amended Senior Credit Facility”) with Credit Suisse, Cayman Islands Branch (as successor to Credit Suisse First Boston), as Administrative Agent and the other lenders party thereto, which consists of a term loan facility (the “Term Facility”) in an aggregate original principal amount of $1,700.0 million and a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of up to $100.0 million.  Due to the September 2008 bankruptcy filings by Lehman Brothers Holdings Inc. (“Lehman”) and certain of its affiliates and the sudden deterioration in the credit standing of the Lehman affiliate party to our Revolving Facility, the aggregate principal amount available for drawing under the Revolving Facility was reduced by $5.0 million to $95.0 million during the fiscal year ended January 1, 2009.  The Revolving Facility has a separate sublimit of $10.0 million for short-term loans and a sublimit of $30.0 million for letters of credit.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Borrowings under the Amended Senior Credit Facility bear interest, at Regal Cinemas’ option, at either a base rate or an Adjusted Eurodollar Rate (as defined in the Amended Senior Credit Facility) plus, in each case, an applicable margin.  As of October 1, 2009 and January 1, 2009, borrowings of $1,268.7 million and $1,661.8  million, respectively, were outstanding under the Term Facility at an effective interest rate of 5.64% (as of October 1, 2009) and 4.42% (as of January 1, 2009), after the impact of the interest rate swaps described below is taken into account.

 

Interest Rate Swaps— As described in Note 5 to the 2008 Audited Financial Statements, Regal Cinemas had three interest rate swap agreements effective as of January 1, 2009, which hedged an aggregate of approximately $700.0 million of variable rate debt obligations.  During the quarter ended April 2, 2009, Regal Cinemas entered into four additional hedging relationships via four distinct interest rate swap agreements with maturity terms of two to three years each from the respective effective dates of the swaps, which require Regal Cinemas to pay interest at fixed rates ranging from 2.15% to 2.53% and receive interest at a variable rate. These interest rate swaps were designated to hedge approximately $1,000.0 million of variable rate debt obligations and became effective during the three quarters ended October 1, 2009.  During the three quarters ended October 1, 2009, the three interest rate swaps effective as of January 1, 2009 matured. As a result, the Company’s four interest rate swap agreements effective as of October 1, 2009 hedge an aggregate of approximately $1,000.0 million of variable rate debt obligations at an effective rate of approximately 6.07%.

 

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

 

Under the terms of the Company’s effective interest rate swap agreements as of October 1, 2009, Regal Cinemas pays interest at various fixed rates ranging from 2.15% to 2.53% and receives interest at a variable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each reset date determines the variable portion of the interest rate-swaps for the following three-month period. The interest rate swaps settle any accrued interest 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 rate swaps will be included in interest expense. No premium or discount was incurred upon the Company entering into the interest rate swaps, because the pay and receive rates on the interest rate swaps represented prevailing rates for each counterparty at the time the interest rate swaps were entered into. The interest rate swaps qualify for cash flow hedge accounting treatment and as such, the Company has effectively hedged its exposure to variability in the future cash flows attributable to the 3-month LIBOR on approximately $1,000.0 million of variable rate obligations. The change in the fair values of the interest rate swaps is recorded on the Company’s consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a component of other comprehensive income (loss) and the ineffective portion reported in earnings (interest expense). As interest expense is accrued on the debt obligation, amounts in accumulated other comprehensive income (loss) related to the designated hedging instruments (the three interest rate swaps) will be reclassified into earnings to obtain a net cost on the debt obligation equal to the effective yield of the fixed rate of each swap.

 

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

 

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

 

5. INCOME TAXES

 

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

 

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

 

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

 

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

 

6. CAPITAL STOCK AND SHARE-BASED COMPENSATION

 

Capital Stock

 

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

 

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

 

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

 

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

 

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

 

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Class B common stock owned by that stockholder on every matter properly submitted to the stockholders for their vote. Of the authorized shares of the preferred stock, no shares were issued and outstanding as of October 1, 2009. The Class A common stock is entitled to one vote for each outstanding share of Class A common stock on every matter properly submitted to the stockholders for a vote. Except as required by law, the Class A and Class B common stock vote together as a single class on all matters submitted to the stockholders. The material terms and provisions of the Company’s certificate of incorporation affecting the relative rights of the Class A common stock and the Class B common stock are described in Note 10 to the 2008 Audited Financial Statements.

 

Share Repurchase Program

 

During 2004, the Company’s board of directors authorized a share repurchase program, which provided for the authorization to repurchase up to $50.0 million of the Company’s outstanding Class A common stock within a twelve month period. During 2005, the Company repurchased 520,386 shares of its outstanding Class A common stock at an aggregate cost of approximately $10.0 million. The Company’s board of directors extended the share repurchase program during the fiscal year ended January 1, 2009 for an additional twelve month period. Accordingly, the Company can repurchase up to an additional $40.0 million under the share repurchase program through November 2009.  The Company made no repurchases of its outstanding Class A common stock under the program during the quarters and three quarters ended October 1, 2009 and September 25, 2008.  Repurchases can be made from 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 records treasury stock purchases at cost with any excess of cost over par value recorded as a reduction of additional paid-in capital.

 

Warrants

 

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

 

Share-Based Compensation

 

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

 

Stock Options

 

In connection with the July 1, 2003, June 2, 2004 and April 13, 2007 extraordinary cash dividends and pursuant to the antidilution adjustment terms of the Incentive Plan, the exercise price and the number of shares of Class A common stock subject to options held by the Company’s option holders were adjusted to prevent dilution and restore their economic position to that existing immediately before the extraordinary dividends. The antidilution adjustments made with respect to such options resulted in a decrease in the range of exercise prices, from $2.4407 to $16.1768 per share, an increase in the aggregate number of shares issuable upon exercise of such options by 5,185,100, and an increase in the total number of authorized shares under the Incentive Plan to 18,269,213 (after giving effect to the May 11, 2005 amendment to the Incentive Plan, which increased the total number of shares of Class A common stock authorized for issuance under the Incentive Plan by 1,889,759 shares). As of October 1, 2009 and after giving effect to the antidilution adjustments and the May 11, 2005 amendment to the Incentive Plan, options to purchase a total of 574,193 shares of Class A common stock were outstanding under the Incentive Plan, and 2,080,243 shares remain available for future issuance under the Incentive Plan. Stock option information presented herein has been adjusted to give effect to the extraordinary dividends. There were no accounting consequences for changes made to reduce the exercise prices and increase the number of shares underlying options as a result of the extraordinary cash dividends because (1) the aggregate intrinsic value of the awards immediately after the extraordinary dividends was not greater than the aggregate intrinsic value of the awards immediately before

 

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

 

There were no stock options granted during the quarters and three quarters ended October 1, 2009 and September 25, 2008.  During the quarter ended September 25, 2008, the Company recognized approximately $0.1 million of share-based compensation expense related to stock options.  During the three quarters ended October 1, 2009 and September 25, 2008, the Company recognized approximately $0.1 million and $0.2 million, respectively, of share-based compensation expense related to stock options.  Such expense is presented as a component of general and administrative expenses for the quarters and three quarters ended October 1, 2009 and September 25, 2008.

 

We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the stock is sold over the exercise price of the options.  We are required to report excess tax benefits from the award of equity instruments as financing cash flows.  Excess tax benefits are recorded when a deduction reported for tax return purposes for an award of equity instruments exceeds the cumulative compensation cost for the instruments recognized for financial reporting purposes. For the three quarters ended October 1, 2009, our unaudited condensed consolidated statement of cash flows reflects less than $0.1 million of excess tax benefits as financing cash flows. Net cash proceeds from the exercise of stock options were $0.1 million for the three quarters ended October 1, 2009. The actual income tax benefit realized from stock option exercises was less than $0.1 million for the same period.  For the three quarters ended September 25, 2008, our unaudited condensed consolidated statement of cash flows reflects $0.2 million of excess tax benefits as financing cash flows. Net cash proceeds from the exercise of stock options were $0.5 million for the three quarters ended September 25, 2008. The actual income tax benefit realized from stock option exercises was $0.2 million for the same period.

 

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

 

 

 

Number of
Shares

 

Weighted Average
Exercise Price

 

Weighted Average
Contract Life (Yrs.)

 

Outstanding options at beginning of period

 

584,482

 

$

9.37

 

3.78

 

Granted

 

 

 

 

 

Exercised

 

10,289

 

7.34

 

 

 

Forfeited

 

 

 

 

 

Outstanding options at end of period

 

574,193

 

9.40

 

3.03

 

Exercisable options at end of period

 

574,193

 

9.40

 

3.03

 

 

Restricted Stock

 

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

 

During the quarter ended April 2, 2009, the Company withheld approximately 37,576 shares of restricted stock at an aggregate cost of approximately $0.4 million, as permitted by the applicable equity award agreements, to satisfy employee tax withholding requirements related to the vesting of restricted stock awards.

 

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

 

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presented as a component of general and administrative expenses. The compensation expense for these awards was determined based on the market price of our stock at the date of grant applied to the total numbers of shares that were anticipated to fully vest.  As of October 1, 2009, we have unrecognized compensation expense of $8.3 million associated with restricted stock awards.

 

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

 

 

 

Three Quarters Ended
October 1, 2009

 

Unvested at beginning of period

 

637,615

 

Granted during the period

 

521,618

 

Vested during the period

 

(172,872

)

Forfeited during the period

 

(4,207

)

Unvested at end of period

 

982,154

 

 

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

 

Performance Share Units

 

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

 

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

 

Pursuant to the terms and conditions of the 2006 and 2009 Performance Agreements, grantees will be issued shares of restricted common stock of the Company in an amount determined by the attainment of Company performance criteria set forth in such Performance Agreement. The shares of restricted common stock received upon attainment of the performance criteria will be subject to further vesting over a period of time, provided the grantee remains a service provider to the Company during such period.

 

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

 

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

 

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Three Quarters Ended
October 1, 2009

 

Unvested at beginning of period

 

793,005

 

Granted (based on target)

 

401,907

 

Cancelled/forfeited

 

(184,332

)

Unvested at end of period

 

1,010,580

 

 

The above table does not reflect the maximum or minimum number of shares of restricted stock contingently issuable. An additional 0.7 million shares of restricted stock could be issued providing the performance criteria maximums are met.

 

7. COMMITMENTS AND CONTINGENCIES

 

Acquisition of Consolidated Theatres

 

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

 

Other

 

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

 

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

 

In addition, we, from time to time, receive letters from the attorneys general of states in which we operate theatres regarding investigation into the accessibility of our theatres to persons with visual or hearing impairments. We believe we provide the members of the visually and hearing impaired communities with reasonable access to the movie-going experience.

 

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

 

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

 

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

 

We and our various subsidiary corporations are also presently involved in various legal proceedings arising in the ordinary course of our business operations, including personal injury claims, employment and contractual matters and other disputes. We believe we have adequately provided for the settlement of such matters. Management believes any additional liability with respect to these claims and disputes will not be material in the aggregate to our consolidated financial position, results of operations or cash flows.

 

8. RELATED PARTY TRANSACTIONS

 

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

 

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

 

Regal entered into a management agreement with an Anschutz affiliate to manage a Los Angeles, California theatre site on their behalf. The ultimate financial terms of the management agreement were approved by the Company’s board of directors, and the management fee payable to Regal will be based on a percentage of revenues generated by the theatre, subject to a minimum annual fee payable to Regal regardless of revenues generated. The theatre opened in October 2009.

 

9. EARNINGS (LOSS) PER SHARE

 

We compute earnings (loss) per share of Class A and Class B common stock using the two-class method. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted average number of common shares and, if dilutive, common stock equivalents outstanding during the period. Potential common stock equivalents consist of the incremental common shares issuable upon the exercise of common stock options, restricted stock and performance shares, the conversion spread on the 3¾% Convertible Senior Notes, the 2003 Warrant, the assumed conversion of the 6¼% Convertible Senior Notes and the 2008 Warrant issued in connection with the 6¼% Convertible Senior Notes. The dilutive effect of outstanding stock options, restricted shares and performance shares, the conversion spread on the 3¾% Convertible Senior Notes, the 2003 Warrant and the 2008 Warrant issued in connection with the 6¼% Convertible Senior Notes is reflected in diluted earnings (loss) per share by application of the treasury-stock method. The dilutive effect of assumed conversion of the 6¼% Convertible Senior Notes is reflected in diluted earnings per share by application of the if-converted method. In addition, the computation of the diluted earnings (loss) per share of Class A common stock assumes the conversion of Class B common stock, while

 

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

 

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

 

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

 

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Quarter ended
October 1, 2009

 

Quarter ended
September 25, 2008

 

Three Quarters ended
October 1, 2009

 

Three Quarters ended
September 25, 2008

 

 

 

Class A

 

Class B

 

Class A

 

Class B

 

Class A

 

Class B

 

Class A

 

Class B

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed earnings (loss)

 

$

(1.5

)

$

(0.3

)

$

26.2

 

$

4.8

 

$

50.7

 

$

9.3

 

$

70.0

 

$

12.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (in thousands)

 

129,344

 

23,709

 

129,155

 

23,709

 

129,341

 

23,709

 

129,132

 

23,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(0.01

)

$

(0.01

)

$

0.20

 

$

0.20

 

$

0.39

 

$

0.39

 

$

0.54

 

$

0.54

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed earnings (loss) for basic computation

 

$

(1.5

)

$

(0.3

)

$

26.2

 

$

4.8

 

$

50.7

 

$

9.3

 

$

70.0

 

$

12.8

 

Reallocation of undistributed earnings (loss) as a result of conversion of Class B to Class A shares

 

(0.3

)

 

4.8

 

 

9.3

 

 

12.8

 

 

Reallocation of undistributed earnings (loss) to Class B shares for effect of other dilutive securities

 

 

 

 

 

 

 

 

(0.2

)

Interest expense on 6¼% Convertible Senior Notes

 

(1)

 

(1)

 

(1)

 

(1)

 

Allocation of undistributed earnings

 

$

(1.8

)

$

(0.3

)

$

31.0

 

$

4.8

 

$

60.0

 

$

9.3

 

$

82.8

 

$

12.6

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in basic computation (in thousands)

 

129,344

 

23,709

 

129,155

 

23,709

 

129,341

 

23,709

 

129,132

 

23,709

 

Weighted average effect of dilutive securities (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Class B to Class A common shares outstanding

 

23,709

 

 

23,709

 

 

23,709

 

 

23,709

 

 

Stock options

 

(1)

 

185

 

 

140

 

 

208

 

 

Restricted stock and performance shares

 

(1)

 

790

 

 

871

 

 

842

 

 

Conversion spread on 3¾% Convertible Senior Notes and the 2003 Warrant

 

 

 

 

 

 

 

1,818

 

 

Conversion of 6¼% Convertible Senior Notes

 

(1)

 

(1)

 

(1)

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in per share computations (in thousands)

 

153,053

 

23,709

 

153,839

 

23,709

 

154,061

 

23,709

 

155,709

 

23,709

 

Diluted earnings (loss) per share

 

$

(0.01

)

$

(0.01

)

$

0.20

 

$

0.20

 

$

0.39

 

$

0.39

 

$

0.53

 

$

0.53

 

 

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

 

10. RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) requires all business combinations completed after the effective date to be accounted for by applying the acquisition method (previously referred to as the purchase method). SFAS No. 141(R) expands the definition of transactions and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred. Future reductions in the valuation allowance recorded relative to pre-acquisition periods will result in a decrease in the provision for income taxes. In addition, with respect to uncertain tax positions, changes in the amount of tax benefit recognized relative to pre-acquisition periods will result in an increase/decrease in the provision for income taxes (see Note 5—“Income Taxes” for further discussion).  The adoption of SFAS No. 141(R) did not have a material impact on the Company’s consolidated financial position, cash flows or results of operations.

 

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

 

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities which amends SFAS No. 133, and requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. The Statement expands the current disclosure framework in SFAS No. 133.  The Company adopted SFAS No. 161 during the quarter ended April 2, 2009.  The adoption of SFAS No. 161 had no impact on the Company’s consolidated financial position, cash flows or results of operations.

 

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

 

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

 

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

 

a.               The power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance; and

 

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

 

Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. SFAS No. 167 amends FIN 46(R) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 167 amends FIN 46(R) to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance.  SFAS No. 167 amends FIN 46(R) to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The enhanced disclosures are required for any enterprise that holds a variable interest in a variable interest entity.  The Company is evaluating the adoption of SFAS No. 167 and its impact on the Company’s consolidated financial position, cash flows and results of operations.

 

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.  SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force, and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Commission guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. The Company adopted the provisions of this guidance as of October 1, 2009.  The adoption did not have an impact on the Company’s consolidated financial position, cash flows or results of operations.

 

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The methods and assumptions used to estimate the fair value of each class of financial instrument are as follows:

 

Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities:

 

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

 

Long term obligations, excluding capital lease obligations and lease financing arrangements:

 

The fair value of the Amended Senior Credit Facility described in Note 4—“Debt Obligations,” which consists of the Term Facility and the Revolving Facility, is estimated based on quoted market prices as of October 1, 2009 and January 1, 2009. The associated interest rates are based on floating rates identified by reference to market rates and are assumed to approximate fair value. The fair values of the 6¼% Convertible Senior Notes, the 3¾% Convertible Senior Notes and Senior Subordinated Notes are estimated based on quoted market prices for these issuances as of October 1, 2009 and January 1, 2009. The fair value of the Company’s other debt obligations were based on recent financing transactions for similar debt issuances and carrying value approximates fair value. The

 

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aggregate carrying amounts and fair values of long-term debt at October 1, 2009 and January 1, 2009 consist of the following:

 

 

 

October 1, 2009

 

January 1, 2009

 

 

 

(In millions)

 

Carrying amount

 

$

1,904.5

 

$

1,904.1

 

Fair value

 

$

1,909.9

 

$

1,497.3

 

 

12. SUBSEQUENT EVENTS

 

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

 

Other

 

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

 

13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

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

 

The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated by the Commission, presents the condensed consolidating financial information separately for:

 

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

 

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

 

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

 

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

 

(v)                   Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Regal, Regal Cinemas, the Subsidiary Guarantors and the non-guarantor subsidiaries, (b) eliminate the investments in our subsidiaries and (c) record consolidating entries; and

 

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

 

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Table of Contents

 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

OCTOBER 1, 2009

(in millions)

 

 

 

Regal

 

Regal
Cinemas

 

Subsidiary
Guarantors

 

Non-
Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

 —

 

$

 141.9

 

$

 50.4

 

$

 —

 

$

 192.3

 

Trade and other receivables, net

 

 

 

32.0

 

0.6

 

 

32.6

 

Other current assets

 

0.4

 

8.2

 

21.8

 

5.3

 

3.1

 

38.8

 

TOTAL CURRENT ASSETS

 

0.4

 

8.2

 

195.7

 

56.3

 

3.1

 

263.7

 

Property and equipment, net

 

 

 

1,815.4

 

54.4

 

(12.3

)

1,857.5

 

Goodwill

 

 

 

171.7

 

7.1

 

 

178.8

 

Intangible assets, net

 

 

 

12.6

 

 

 

12.6

 

Deferred income tax asset

 

1.2

 

 

100.0

 

 

(23.3

)

77.9

 

Other non-current assets

 

2.3

 

1,632.3

 

228.6

 

60.0

 

(1,801.2

)

122.0

 

TOTAL ASSETS

 

$

 3.9

 

$

 1,640.5

 

$

 2,524.0

 

$

 177.8

 

$

 (1,833.7

)

$

 2,512.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of debt obligations

 

$

 —

 

$

 13.1

 

$

 1.8

 

$

 12.0

 

$

 (6.7

)

$

 20.2

 

Accounts payable

 

0.3

 

 

107.3

 

8.7

 

 

116.3

 

Accrued expenses and other liabilities

 

68.0

 

8.7

 

126.1

 

5.3

 

(67.3

)

140.8

 

TOTAL CURRENT LIABILITIES

 

68.3

 

21.8

 

235.2

 

26.0

 

(74.0

)

277.3

 

Long-term debt, less current portion

 

193.5

 

1,697.6

 

0.2

 

 

 

1,891.3

 

Lease financing arrangements, less current portion

 

 

 

73.4

 

 

 

73.4

 

Capital lease obligations, less current portion

 

 

 

14.2

 

1.5

 

 

15.7

 

Deferred income tax liability

 

 

 

 

20.2

 

(20.2

)

 

Other non-current liabilities

 

 

20.7

 

463.3

 

29.3

 

 

513.3

 

TOTAL LIABILITIES

 

261.8

 

1,740.1

 

786.3

 

77.0

 

(94.2

)

2,771.0

 

EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit) of Regal Entertainment Group

 

(257.9

)

(99.6

)

1,738.6

 

100.5

 

(1,739.5

)

(257.9

)

Noncontrolling interest

 

 

 

(0.9

)

0.3

 

 

(0.6

)

TOTAL EQUITY (DEFICIT)

 

(257.9

)

(99.6

)

1,737.7

 

100.8

 

(1,739.5

)

(258.5

)

TOTAL LIABILITIES AND  EQUITY (DEFICIT)

 

$

 3.9

 

$

 1,640.5

 

$

 2,524.0

 

$

 177.8

 

$

 (1,833.7

)

$

 2,512.5

 

 

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CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

JANUARY 1, 2009

(in millions)

 

 

 

Regal

 

Regal
Cinemas

 

Subsidiary
Guarantors

 

Non-
Guarantor Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

 —

 

$

 117.1

 

$

 53.1

 

$

 —

 

$

 170.2

 

Trade and other receivables, net

 

 

 

71.3

 

1.9

 

 

73.2

 

Other current assets

 

3.5

 

7.5

 

14.9

 

1.3

 

2.9

 

30.1

 

TOTAL CURRENT ASSETS

 

3.5

 

7.5

 

203.3

 

56.3

 

2.9

 

273.5

 

Property and equipment, net

 

 

 

1,892.8

 

56.0

 

(12.3

)

1,936.5

 

Goodwill and other intangible assets

 

 

 

187.2

 

7.1

 

 

194.3

 

Deferred income tax asset

 

 

 

103.7

 

 

(25.5

)

78.2

 

Other non-current assets

 

3.6

 

1,645.7

 

172.6

 

53.8

 

(1,762.4

)

113.3

 

TOTAL ASSETS

 

$

 7.1

 

$

 1,653.2

 

$

 2,559.6

 

$

 173.2

 

$

 (1,797.3

)

$

 2,595.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of debt obligations

 

$

 —

 

$

 17.0

 

$

 —

 

$

 6.4

 

$

 —

 

$

 23.4

 

Accounts payable

 

0.3

 

 

151.0

 

10.7

 

 

162.0

 

Accrued expenses and other liabilities

 

49.7

 

19.6

 

151.8

 

5.6

 

(45.9

)

180.8

 

TOTAL CURRENT LIABILITIES

 

50.0

 

36.6

 

302.8

 

22.7

 

(45.9

)

366.2

 

Long-term debt, less current portion

 

190.5

 

1,696.2

 

0.3

 

 

 

1,887.0

 

Lease financing arrangements, less current portion

 

 

 

77.2

 

 

 

77.2

 

Capital lease obligations, less current portion

 

 

 

15.6

 

1.7

 

 

17.3

 

Deferred income tax liability

 

2.1

 

 

 

20.4

 

(22.5

)

 

Other liabilities

 

 

0.2

 

456.6

 

27.2

 

 

484.0

 

TOTAL LIABILITIES

 

242.6

 

1,733.0

 

852.5

 

72.0

 

(68.4

)

2,831.7

 

EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit) of Regal Entertainment Group

 

(235.5

)

(79.8

)

1,707.7

 

101.0

 

(1,728.9

)

(235.5

)

Noncontrolling interest

 

 

 

(0.6

)

0.2

 

 

(0.4

)

TOTAL EQUITY (DEFICIT)

 

(235.5

)

(79.8

)

1,707.1

 

101.2

 

(1,728.9

)

(235.9

)

TOTAL LIABILITIES AND  EQUITY (DEFICIT)

 

$

 7.1

 

$

 1,653.2

 

$

 2,559.6

 

$

 173.2

 

$

 (1,797.3

)

$

 2,595.8

 

 

30



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS) INFORMATION

QUARTER ENDED OCTOBER 1, 2009

(in millions)

 

 

 

Regal

 

Regal
 Cinemas

 

Subsidiary
Guarantors

 

Non-Guarantor Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

REVENUES

 

$

 —

 

$

 —

 

$

 617.9

 

$

 57.1

 

$

 (1.5

)

$

 673.5

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rental and advertising costs

 

 

 

224.7

 

19.9

 

 

244.6

 

Cost of concessions

 

 

 

24.6

 

2.5

 

 

27.1

 

Rent expense

 

 

 

83.9

 

9.8

 

 

93.7

 

Other operating expenses

 

 

 

175.3

 

18.9

 

 

194.2

 

General and administrative expenses

 

0.1

 

 

16.7

 

1.8

 

(1.5

)

17.1

 

Depreciation and amortization

 

 

 

48.3

 

2.9

 

 

51.2

 

Net loss (gain) on disposal and impairment of operating assets

 

 

 

7.1

 

0.1

 

 

7.2

 

TOTAL OPERATING EXPENSES

 

0.1

 

 

580.6

 

55.9

 

(1.5

)

635.1

 

INCOME (LOSS) FROM OPERATIONS

 

(0.1

)