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Regal Entertainment Group (NYSE:RGC)

Q4 2008 Earnings Call

February 19, 2009 9:30 am ET

Executives

Michael Campbell – Chairman of the Board, Chief Executive Officer

Amy Miles – Executive Vice President, Chief Financial Officer and Treasurer

Don De Laria – Vice President, Investor Relations

Analysts

Tony Wible – Janney Montgomery Scott

Analyst for James Marsh – Piper Jaffray

David Miller – Caris & Co.

Barry Scott – Credit Suisse

Ben [Mobile] – Thomas Weisel Partners

Analyst – Waterstone Capital Partners

Jake Hindelong – Monness, Crespi, Hardt & Co.

Eric Wold – Merriman, Curhan Ford & Co.

Jeffrey Logsdon – BMO Capital Markets

Barton Crockett – Lazard Capital Markets

David Gober – Morgan Stanley

Operator

Welcome everyone to the Regal Entertainment Group fourth quarter 2008 earnings release conference call with our hosts, Mike Campbell, Chief Executive Officer of Regal Entertainment Group and Amy Miles, Chief Financial Officer of Regal Entertainment Group. (Operator Instructions)

I would now like to turn the call over to Don DeLaria, Vice President of Investor Relations.

Don De Laria

Hi and good morning. Before I begin today I would like to remind our listeners this conference call contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 as amended and section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact communicated during this conference call may constitute forward-looking statements.

These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company’s expectations are disclosed in the risk factors contained in the company’s annual report on form 10K dated February 26, 2008. All forward-looking statements are expressively qualified in their entirety by such factors.

Now I’ll turn the call over to Mike Campbell.

Michael Campbell

Thanks Don. Welcome and thank you for dialing in to our fourth quarter conference call. Today I will provide an overview of the industry and Regal’s fourth quarter results, a brief recap of the 2008 fiscal year and review current trends in the exhibition industry including some of our expectations regarding box office trends for the remainder of the first quarter and the summer 2009 film slate and also an update regarding the digital cinema roll out. Following my remarks Amy will provide a summary review of our financial results and as always we will complete the call with a question-and-answer session.

Now turning to fourth quarter industry results we are pleased to report continued strength in domestic box office results in a period when many other businesses are feeling the impact of a weak economy. The fourth quarter benefited from strong performances from the DreamWorks picture Madagascar II: Escape from Africa, from Sony’s James Bond film Quantum of Solace and also the surprise hit Twilight from Summit Entertainment.

Quarterly results were achieved in spite of mid-year change in release date for the next Harry Potter film which was moved from its original release date in November 2008 to July 2009. The good news is Harry Potter should be one of the top grossing films in our 2009 fiscal year.

For the period that corresponds to Regal’s fiscal fourth quarter industry sources indicate that United States box office revenue increased approximately 16%. The increase was driven by an additional accounting week in the fiscal 2008 fourth quarter which generated approximately $378 million of industry and box office revenue making it the second highest grossing week in the history of our industry.

Now turning briefly to Regal’s fourth quarter results we were pleased to report the significant increases in total revenues, EBITDA and net income for the fourth quarter of 2008. Our fourth quarter results include the impact of an additional week in the 2008 quarter. The additional week falls between Christmas and New Year’s and is a significant week for both the company and the industry. Amy will provide additional details with respect to the impact of the calendar on our fourth quarter results a bit later in the call.

The fourth quarter 2008 also includes the operations of the consolidated theaters that we acquired in May 2008 which have continued to meet our expectations and contributed very nicely to the company’s operating results in the quarter and the 2008 fiscal year.

During the quarter we were particularly pleased by continued improvement in many of our key operating metrics. Our average ticket price grew by 2.3%, our average concession sales per patron increased by 5.4% which is our highest increase since the record setting second quarter of 2007, our film and advertising expense as a percentage of admission revenue declined by 10 basis points and we benefited as I said earlier from the 53rd week as our adjusted EBITDA for the current quarter grew by just over $33 million and our net income increased by 29.7%.

Now turning briefly to highlights of the 2008 fiscal year, we remain encouraged with the overall success of the 2008 box office during these challenging economic times. As we have said in the past, film exhibition industry revenues grew in five of the last seven recessions. We believe this supports our belief that the performance of the industry is significantly more correlated to perceived quality and appeal of the film slate rather than to prevailing economic conditions.

According to industry sources, 2008 calendar box office fell just short of a record 2007 which was by the way the highest box office total in nearly 50 years. In 2008 169 films, which compares to 189 films in 2007, reached wide release with 25 films grossing more than $100 million each, 6 films grossing over $200 million each and one film, Batman the Dark Knight, grossing over $500 million.

Over the summer, The Dark Knight established several new records. It became the second highest domestic grossing movie of all time with the widest ever release. It had the number one opening day, the number one opening weekend, and number one opening week and is the fastest movie ever to reach $200 million, $300 million, $400 million and ultimately $500 million at the box office.

The number two and three movies of the year, Iron Man and Indiana Jones, both finished in the top 25 highest grossing movies of all time. Our Regal Entertainment Group also had a successful 2008. We completed a strategic and accretive acquisition of Consolidated Theaters. The acquisition of Consolidated provides solid evidence of our commitment to creating growth opportunities through a prudent acquisition strategy.

With the benefit of the 53rd week, adjusted EBITDA reached a record $548.2 million. DCIP reached agreements with a total of five studios including four of the top six studios, clearing the way to proceed with the financing stage of the conversion to digital projection technology.

Our concession revenue remained healthy with total concession revenue up 3.1% and average concession revenue per person up 2% including a 5.4% per cap as I mentioned earlier in the fourth quarter.

Looking forward to 2009, as we previously stated the industry continues to generate solid box office and concession revenues and we remain optimistic regarding the 2009 box office potential. Through the most recent weekend in February the industry box office is up approximately 15% versus the same period last year and up approximately 3.6 on our fiscal year basis.

We benefited from strong performances from the Clint Eastwood movie Grand Torino, the Kevin James comedy Paul Blart Mall Cop and strong holdover business from The Curious Case of Benjamin Button as well as Marley and Me. For the remainder of the first quarter we are particularly excited about the Jonas Brothers Concert Movie which is in 3D, the big screen adaptation of the graphic novel Watchmen, Disney’s Race to Witch Mountain, Universals Duplicity and the DreamWorks film Monsters versus Aliens which is in 3D as well.

Now looking briefly at other opportunities for the 2009 film slate, as we look past the first quarter we expect the remainder of the 2009 film slate to be stable and provide a firm footing on which to grow our existing base of next generation movie-going technologies which includes both 3D and IMAX products.

The slate is filled with exciting new titles and a significant number of proven franchise titles. On April 10th Miley Cyrus is back in the Hannah Montana Movie. On May 1, Fox opens the next installment in the X-Men franchise with X-Men Origins: Wolverine. On May 8, director J.J. Abrams introduces a new Star Trek series which is a prequel to the highly popular franchise. On May 15, Sony releases Angels and Demons with Tom Hanks. On May 22, Ben Stiller is back in Night at the Museum II: Battle at the Smithsonian and Warner Brothers opens another film in the Terminator series, Terminator Salvation which stars The Dark Knight’s Christian Bale.

On May 29, Disney releases the next Pixar film entitled Up which is in 3D. On June 26, Shia LeBeouf is back in Transformers Revenge of the Fallen. On July 1, Fox opens the third installment in the Ice Age franchise, Ice Age Dawn of the Dinosaurs which also will be in 3D. On July 17, Warner Brothers releases the long awaited next installment of the Harry Potter franchise, Harry Potter and the Half Blood Prince. On November 6, Disney recreates the timeless story of A Christmas Carol starring Jim Carey which will be released also in 3D and IMAX. On November 20, Summit Entertainment introduces Twilight New Moon which is a sequel to the very successful Twilight that was just released in the fourth quarter of 2008. On December 18, director James Cameron debut’s Avatar, a live action 3D spectacle and finally on December 25 Alvin and the Chipmunks return in Alvin and the Chipmunks The Squeakwel.

Now turning to the digital cinema initiative, through DCIP Regal continues to work towards a financing plan that would provide for a studio financed conversion to digital projection. Over the past year we have finalized a number of details and as I mentioned earlier signed a total of five studios including four of the top six. We are close with one of the remaining top six studios and do not expect the remaining studio grievance to be gating issue as far as timing of the roll out.

The credit markets have shown some early signs of improvement but it remains a question as to when the credit markets will ease enough to allow this transaction to be funded. Regal will be ready to quickly move to a roll out to digital as soon as DCIP financing is secured. A key element to Regal’s strategy in the coming years will be to provide enhanced theater going experiences which of course include 3D but also include an expanded base of IMAX theaters.

We believe that the 3D film slate, which as of today includes approximately 45 future films breaks down to 18 films in 2009, 16 listed films in 2010 and 11 films already listed in 3D for 2011. This will create significant incremental margin opportunity. While we expect to install a total of 1,500 3D systems once the financing for the conversion to digital projection has been secured in the interim Regal is currently redeploying approximately 80 digital projectors which had previously been part of our all-digital theaters and we are combining those with 3D systems from Real D so we will have a minimum of 232 3D equipped screens in time for Monster versus Aliens on March 27.

We also continue to expand our IMAX presence and are currently operating 33 IMAX systems across the country which is up from 18 systems a year ago. We expect to install seven additional IMAX systems before the release of Night at the Museum II in late May and have a total of 50 systems in place by the end of 2010.

We are additionally excited about the prospect of playing an expanded slate of IMAX films as the new IMAX digital systems eliminate the costly film prints and will allow studios to produce films in the IMAX format in a much more cost effective manner.

In summary, we are pleased with our 2008 financial results and look forward to continued box office success during 2009. We also hope to see improvement in the credit markets and are ready to move quickly to a digital roll out as soon as the financing markets support the funding of the digital conversion. We are also committed to building additional free cash flow for the company and our recent announcements regarding modifications to our capital allocation strategy will strengthen Regal’s balance sheet and position the company to capitalize on potential strategic and other opportunities.

At this time I would like to turn the presentation over to Amy Miles, our CFO, to discuss the company’s financial performance.

Amy Miles

Good morning and thanks Mike. Before we start discussing the numbers this morning I want to remind you that Regal’s fiscal fourth quarter of 2008 contained 14 weeks and fiscal 2008 contained 53 weeks for the fiscal year and obviously 13 weeks in the fourth quarter last year and 52 for the 2007 year. Again, as we go through the comments today I will provide commentary with respect to the impact of that extra week.

For the fourth quarter Regal reported total revenues of $711.7 million consisting of $478.6 million from box office revenues, $193.4 million from concessions and $39.7 million of other operating revenues. Our admission revenue this quarter increased approximately 18.4% primarily as the result of a 15.8% increase in attendance which was driven by the 53rd accounting week, the addition of Consolidated Theaters and a 2.2% increase in our average admission revenue from [KTRAM].

Concession revenues this quarter increased 22.1% as a result of the previously mentioned 53rd accounting week, the addition of Consolidated and these revenues were further supported by a 5.4% in our concession per caps for the quarter. The increase in our concession per cap was driven primarily by price increases taken during the third quarter and we also benefited from concession friendly film product this quarter.

We were particularly pleased with the increases in both our average ticket price and our concession per cap given the current economic environment. We were also pleased to report other revenues for the fourth fiscal quarter of 2008 increased $2.3 million which is approximately 6% over the comparable quarter of 2007 and this was driven primarily by improvements in both our NCM revenues as well as our other theater revenues.

Now turning briefly to the expense line items for the fiscal period, film and advertising as a percent of box office for the current quarter represented 51.3% of admissions revenue. Film rental and advertising decreased by 10 basis points over the prior comparable quarter primarily as a result of the mix of film product for the quarter. The top ten pictures represented 48.3% of our box office revenues versus 49.9% in the fourth quarter of 2007 and also films outside the top fifteen represented 38.7% of our box office revenues versus 37.4% in the Q4 of 2007 period.

Our concession margins decreased 84 basis points over the comparable period of 2007 and that resulted in a margin of 85.5%. As in the first three quarters we had slightly higher food and beverage costs which were offset partially by a benefit from our new beverage agreements. Total rent expense increased $9.9 million or 11.5% due to the acquisition of the 400 screens from Consolidated Theaters and to a lesser extent our new filled screens which replaced our older screens.

Other operating expenses increased approximately $26.2 million or 15.7% for the quarter and again that was due primarily to our 53rd week. On a per screen basis if you exclude the additional week other operating expenses were only up 0.7% as a result of strong cost control programs. Please note that G&A expense excludes approximately $1.4 million of share based compensation expense in the quarter. If you exclude the share based compensation all other G&A expenses were essentially flat for this quarter as compared to the same period last year.

The fourth quarter also produced adjusted EBITDA of $145.8 million versus $112.7 million for the same quarter last year. The increase in adjusted EBITDA was attributed to the extra week in the fourth quarter of 2008 which contributed $106 million of revenue, 9.7 million attendees and approximately $45 million of adjusted EBITDA. The $145.8 million approximates the street estimate for the quarter. Also on a positive note we ended the fiscal year with approximately $548 million of adjusted EBITDA which exceeded the street estimate for the 2008 fiscal year.

Looking briefly at EPS for the quarter, we reported an unadjusted $0.20 if you back out a gain we received on the Fandango transaction. The adjusted EBITDA would be $0.18 and that compares to a street estimate of $0.25 to $0.26 for the quarter. Our review of the estimates indicate the difference in EPS is largely related to incremental depreciation and amortization expense for a 14-week period versus a 13-week as well as incremental interest expense with two factors; an extra week in the quarter as well as a short-term increase in LIBOR that existed during the company’s fourth quarter.

Now looking briefly at our balance sheet and asset base. We ended the quarter with approximately $170 million in cash, total debt balance of approximately $2 billion. As a reminder, due to the timing of our fiscal quarter Regal made two interest and debt payments during the quarter for our senior credit facility. As of the end of the quarter our leverage ratio as defined by our senior credit facility was approximately 2.9 times.

Looking at our Capex, for the fourth quarter total Capex was $37.6 million and we did not have any asset sales this quarter. During the fourth quarter we opened four theaters with 61 screens and closed three theaters with 42 screens bringing our total to 552 theaters and 6,801 screens. As we have previously stated we do believe the current lending environment will have an impact on real estate development in the near-term. As a result, we expect our building program to slow down as well as others in the industry and we would expect our 2009 capital expenditures to be approximately $85-100 million and would expect assets sales in the $5 million range.

For 2009 we would expect to open three theaters with 50-75 screens and close 10-15 theaters with 75-100 screens which would result in an ending theater count of approximately 545 and screen count of 6,775 screens. If you combine the impact of the dividend reduction with the expected Capex reduction we would expect incremental cash savings of approximately $100-120 million for the 2009 fiscal year as compared to the 2008 fiscal year.

Our recently amended senior credit facility and dividend reduction reflect the prudent and conservative approach to our capital allocation strategy. We are now in a position to potentially benefit by de-leveraging in an accretive manner. While not faced with any near-term financing concerns and having access to ample liquidity we do believe that our strategy better positions the company for both strategic and consensual financial opportunities. As Mike previously stated we remain optimistic regarding 2009 film slates and are very pleased with the performance of our business in spite of this challenging economic environment.

That concludes the remarks that we have today and we now would like to answer any questions you have.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Tony Wible – Janney Montgomery Scott.

Tony Wible – Janney Montgomery Scott

I wonder if you could speak to whether or not you see any opportunity on your rent just given the broader macro economic environment or should we continue to see rent just gradually move up with some escalators built in there from previous contracts?

Amy Miles

I think we always try to be opportunistic where you can with respect to rent and I think if we have any situation where we have co-tenancy requirements or other factors that may not be met in development we can potentially have opportunity there. That would be minimal with respect to that because we are a healthy company and developers know that so I think that makes it difficult in this environment to expect any changes in rent. So, we do focus on our rent but a lot of that increase is already in there but to your point you should expect that historical increase in rent when you look forward to 2009 and future years.

Tony Wible – Janney Montgomery Scott

I understand it might be a little bit difficult to answer this next one but any color around what we should be thinking towards NCM contribution just given the broader ad environment and some of the stuff NCMS had to say in this quarter? I think the contribution percentage is actually a little bit higher than where you have been this quarter. Is that something you think will be sustained in 2009?

Amy Miles

I think when you are looking at it and again [Kurt] has already given guidance and he’ll have an earnings call soon so it is probably a better question for him but the only thing I would say from a quarterly perspective is based on the timing of revenue you do see some cyclical movement in the quarter so it would be hard to take we will usually have a give in the second quarter, that is where he pays us for the first quarter, so that is historically a low quarter. Fourth quarter is historically a high quarter so I wouldn’t take any one quarter and extrapolate it. I would just take an overall number and then compare that towards guidance.

Operator

The next question comes from James Marsh – Piper Jaffray.

Analyst for James Marsh – Piper Jaffray

Can you walk us through expiration dates for the interest rate swap agreements and how the expiration and lower current LIBOR rates might impact interest expense for 2009?

Amy Miles

LIBOR today is approximately 1.25%. That is as we speak. That is not a projection for a week or a year that is just what it is today. We have a $300 million swap that expires June 9 and that is approximately 4.2%. We have the remaining $400 million of interest rate swaps which have an effective rate of I’d call it 4.5% to 4.6% and those expire in September 2009. We have just recently entered into new swap agreements to replace the roll off of these swaps. A new swap for $250 million starts at the end of March, so April 1 call it, at approximately 2.4%. Then we have $550 million of new swaps that start July 1 and those are at 2.4%.

Analyst for James Marsh – Piper Jaffray

I have a question about ticket prices. The way I am figuring it, Regal’s average ticket price versus the industry average was about a 9% premium for 2007. For 2008 that premium decreased to somewhere around 6.5% to 7%. I guess first of all, is that consistent with your figures? Second, might this indicate some pricing power weakness in major markets relative to small to mid sized markets?

Amy Miles

Not at all. Let me step back and say I’m not sure how you are calculating your premium but if you look at 2007 and you look at [NAO] statistics…we’ll use that as our data point, industry ticket pricing was up 5%. For the 2007 year Regal was up 6.4%. If you look at those same numbers for 2008 the industry ended up right around 4.4-4.5% and Regal ended the year at 3.4%. So I believe what you are seeing in the 2008 fiscal year is some catch up where we exceeded the industry by 140 basis points in 2007. It would be hard to continue that again into 2008 because you need time for your competitors to catch up, for lack of better words, with respect to your pricing. So going forward we wouldn’t expect there to be some type of pricing dynamic where people are resistant to that historic 3-4% and when I say that it is just base ticket price increases. I’m not talking about any kind of benefit you may have from 3D or IMAX pricing.

Operator

The next question comes from David Miller – Caris & Co.

David Miller – Caris & Co.

The bear case on you has always been that okay we are in a very difficult economic environment and people want to escape their problems and the box office has been up five of the last seven recessions and clearly the box office is holding its own as witnessed by Michael’s prepared remarks. But that eventually concession spending would crack and yet that has not happened. Concession spending I believe was up; correct me if I’m wrong, 2.5% concession spending per cap up 5.4%...very nice numbers. Are you guys doing anything different at the concession stand in your opinion versus other chains and if not are the bears just simply wrong?

Michael Campbell

I think it is a combination of both. We have added some additional products to our concession stand. An example would be some prepared food. We have been searching for a long time for a quality pizza, for example, things like that. Egg rolls and so on. That has added a little bit of incremental to the concession. I think more importantly and I think this is where a lot of the critics out there are probably wrong is if you look at our customer base let’s kind of dissect that for a minute.

The average American goes to the movies 5-5.5 times a year but that is spread across a very broad base of the entire population base. We have known for years that probably, and these are just guestimates, 25% of the U.S. population probably accounts for 90% of our admissions because those are the core movie goers. The reason they are the core movie goers is they can afford to go to the movies, they enjoy the experience, a lot of those people enjoy the concession part of the experience as well, they have always paid for that and it has always been part of that experience and that has continued. Now what we have seen in some cases in certain markets is we have seen a little bit of change in the mix that makes up that concession sale.

For example we have seen in certain markets where people are perhaps buying larger sizes which costs more obviously than a smaller size and then sharing those sizes with no real measurable impact on our overall concession per cap.

David Miller – Caris & Co.

A quick follow-up, Jeff [Hatteberg] at DreamWorks Foundation is still sort of marketing rhetorically at least say $5 up charge for Monsters versus Aliens. Who knows, that may not work very well given the current macro backdrop. It seems like an up charge of somewhere between $2-3 is working pretty well as evidenced by the numbers from Bloody Valentine. Can you comment at all at this point on how you will price Monsters Versus Aliens in 3D?

Michael Campbell

I can just give you some general comments but first of all we haven’t had the opportunity to screen that film yet. A lot of times we base our decisions on the screen. I have said in the past and I continue to believe that as this higher quality product reaches the market in 3D there will be an opportunity for higher premiums but we are still reviewing our markets. We haven’t seen the finished film yet but I would expect that clearly as you get more DreamWorks animation, Pixar products, big budget live action that you will see some increase in that premium.

Operator

The next question comes from Barry Scott – Credit Suisse.

Barry Scott – Credit Suisse

If I back out that 5.7 million attendees on the 53rd week it looks like your attendance is down close to 9% in Q4 which is worse than I had anticipated. Maybe you could just address the performance versus the industry in the fourth quarter and more broadly your performance versus the industry for the full year?

Amy Miles

Let me take a full year first, and then we will talk a little bit harder from a quarter perspective with films. What we did is we looked at this is a source using Rentrak which populates a lot of the industry sources with respect to box office revenues. We look at the data for the industry on the same period for Regal for the 2008 fiscal year. So to clarify that means for 2008 we look at 53 weeks, exact 53 weeks that corresponds to our calendar and 52 weeks for fiscal 2007. If you take a step further we pro forma consolidated. What I mean by that is we assumed we had consolidated for all of 2008 and all of 2007 so you didn’t have disparity in the numbers. These are consolidated. When we did that, over that time period Regal was up about 1% into revenue and the industry was up 3.5%. So we stepped back and said okay what is the difference between Regal and the industry for that fiscal year period. The two big factors we could see driving that difference were increase in screen growth in our markets, and that was probably about 1% of that difference. There was higher screen growth and Regal did not participate in that as well as what we addressed previously in connection with a prior question related to pricing. Last year we were above the industry by 140 basis points so we are comping against a harder number and this year we are below the industry by 100 basis points so really when we look at those two factors that really bridged the gap between our fiscal 2008 performance and the industry’s fiscal 2008 performance.

Again that was, pro formas were consolidated. Then I think that same dynamic exists again in the fourth quarter but on any time later we out perform or under perform we would always say you need to be very cautionary from a quarter perspective extrapolating a trend. That goes both ways. In addition to those two factors we just talked about for the year the fourth quarter we did have a few unique things. There were a couple of weekends where you had very strong box office and we had pockets in the U.S. particularly the Pacific Northwest where we had a lot of bad weather and we really noted a dip in revenues for those markets during that time period. The only other factor was while we did have some markets where we have larger market share where it just didn’t seem like the film product played as well this year as it did last year. Those markets weren’t pockets where you would say are those disproportionately impacted by the economy. None of the markets gave us cause for concern it was a bigger picture issue.

Operator

The next question comes from Ben [Mobile] – Thomas Weisel Partners.

Ben [Mobile] – Thomas Weisel Partners

I just want to make sure I understand the $9.7 million number. I realize you have the extra week. Could you give us just sort of on a pro forma, just from attendance perspective what the attendance was in the fourth quarter of 2007 to give us an apples-to-apples comparison number?

Amy Miles

Well, with respect to pro forma from what perspective?

Ben [Mobile] – Thomas Weisel Partners

From both the extra week…and I want to get a sense for what the change was if the calendars were the same and you also had Consolidated in the fourth quarter of 2007.

Amy Miles

The Christmas week 100% of that is incremental to the quarter so that is the 9.7. The impact of Consolidated would be, call it another 3 million attendees.

Ben [Mobile] – Thomas Weisel Partners

So basically you are looking at call it about a little less than 13 million. Does that sound about right?

Amy Miles

Yes. Right at 12. Since you brought that up, just in case somebody doesn’t have this let me give you some more information about how to think about that in the first quarter of 2009, I want to make sure I clarify this, when you look forward into 2009 and the first quarter and you think about how did this shift impact Regal obviously you lose the $9.7 million but you pick up a March week. If you look over time and do about a 3-year average we will pick up about 4 million attendees for that March week. So you do shift because obviously both first quarter’s will have 13 weeks so you pick up 4 million attendees and then if you add Consolidated and call that 3 million attendees for that quarter we would expect a net impact on the calendar shift of right around 2.83 million attendees for the first quarter of 2009.

Ben [Mobile] – Thomas Weisel Partners

So basically all things being equal you would lose about 3 million attendees for the quarter.

Amy Miles

That’s right, to that calendar shift. So, sorry if I distracted you from the next question but I just wanted to clarify that.

Ben [Mobile] – Thomas Weisel Partners

I think most of us were going there anyway. That gets me to a larger question. Is this kind of economic environment obviously the attendance declines were significant on a pro forma basis in the fourth quarter. What is your thoughts, and I realize you price ticketing theater-by-theater, but just from a general perspective I think 3-4% excluding 3D and IMAX, does that look to be a little bit high in this environment and is there a concern that you will see some push back on the concession spend?

Michael Campbell

We haven’t seen any indication of that so far. I mean, half way through the first quarter we are viewing the inflationary increases we have seen historically as being available in this environment. Are we maybe slightly more conservative than we normally would be? Yes. The answer is yes. I think that is reflected, as Amy said earlier, in what we did on our pricing increases in calendar 2008. We were allowing some catch up with the rest of the industry but we don’t see any huge impact from that. I do think there will be additional per capita shown in 2009 just through operating a higher number of IMAX, operating a higher number of 3D screens and with the premiums associated with that we really haven’t factored any of that into this 2-3% inflation.

Ben [Mobile] – Thomas Weisel Partners

So is it 2-3% or 3-4%?

Michael Campbell

It depends on whether you are talking concession or box office.

Ben [Mobile] – Thomas Weisel Partners

Box office.

Amy Miles

3-4%.

Ben [Mobile] – Thomas Weisel Partners

So box office is 3-4%?

Amy Miles

Yes.

Ben [Mobile] – Thomas Weisel Partners

The other thing I would be curious about is from a regional perspective obviously you have theaters across the country, are you seeing any regions like a lot of economic weakness like Michigan, parts of Florida and areas like that? Are you seeing any meaningful difference in terms of attendance or people going to cheaper weekdays or people doing more concession sharing like Mike had referenced earlier? I’m just curious regionally do you see anything you can point to?

Michael Campbell

Nothing significant. In Florida we have had very strong box office in Florida. You mentioned Michigan. Maybe the rust belt or the upper mid west we don’t have a huge amount of presence in Michigan. We have got 1-2 theaters. Strangely, at least year-to-date to this year we are seeing places like Cleveland which had been markets that have been declining markets over the years actually showing some surprising strength in this environment. Do I think that is economy related? Probably not. Here again I think the product is appealing to people in those markets a little bit more than it normally would, just the mix of product. The short answer is we are not seeing any correlation to huge drops in box office in markets that are impacted by the housing environment and so on.

Operator

The next question comes from Analyst – Waterstone Capital Partners.

Analyst – Waterstone Capital Partners

You did decline about $10 million, did you buy back any converts or how did you reduce debt? Secondly if you could give us flavor for what you think about potentially buying some assets that National Amusements may be able to sell and how you could finance such a thing?

Amy Miles

The debt reduction was just principal payments scheduled, not voluntary. So we had two principle payments on the senior facility during the quarter.

Michael Campbell

Regarding the National Amusement assets clearly that is something that has been in the press for several months now. Our position really hasn’t changed. We said historically that as a company Regal has been a major acquirer of properties for two decades now and as a result we have an opportunity to review almost anything that is available on the market and that would include probably National Amusements. That being said I have also said in the past this climate that may be making those asset sales possible from a seller standpoint those same circumstances create barriers for us to do deals. We will review anything that is on the market and make a decision going forward but bottom line in this environment clearly financing would be an issue and any asset that is purchased is going to have to be financed and we would have to review the circumstances.

Analyst – Waterstone Capital Partners

In that regard the commercial real estate environment is tough to get financing and the levels you can get financing on are typically lower than they were in the past. Would you expect that you also wouldn’t be able to get the same kind of leverage that you in the past have been able to do if you were to buy something?

Michael Campbell

I think leverage going forward is a whole new world. We are being a bit conservative there. As I said we are not saying we are out of the acquisition business. Clearly we bought Consolidated last year but we just have to view everything differently in this environment.

Operator

The next question comes from Jake Hindelong – Monness, Crespi, Hardt & Co.

Jake Hindelong – Monness, Crespi, Hardt & Co.

As far as your outlook relative to the street it sounds like ticket pricing and concessions are relatively healthy relative to history. Does that make you comfortable with the numbers that have been published?

Amy Miles

We are not going to give guidance this year and that makes it difficult with respect to comment on whether or not we would be comfortable with that. That is the same thing as giving guidance. What we can say is if you look at 2008 and are trying to think about 2009 we did have $9.7 million from the 53rd week but we are gaining 3 million attendees due to the Consolidated acquisition. If you adjust 2008 for that it is the right way to then start how you would think about 2009 and you can just apply your own attendance assumptions to that. That would get you on an apples-to-apples basis.

Jake Hindelong – Monness, Crespi, Hardt & Co.

Just bigger picture I think you have got the studio film space and how the recent strong box office has been in pretty stark contrast to weak DVD sales. Is it going to help you that theatrical may be more important or do you have some concern that overall less content will be produced?

Michael Campbell

I think that clearly the studios at least some of the studios have announced less content but within reason less content normally doesn’t have any correlation to box office. We have, and I said this before, we have had weeks over the last few years where we have too many films. It is hard for the market to absorb 4-6 new films on consecutive weekends into the marketplace. I think as long as the production is targeted, as long as the release schedule is spread among fewer films properly it doesn’t necessary mean less box office for us. Clearly a factor going forward in this business is the studios ability to produce these films and get capital and my money is still on the studios. I have been through a lot of these cycles, ups and downs and financing cycles and recessions and studios are content driven and I believe they will find a way to produce that content.

Operator

The next question comes from Eric Wold – Merriman, Curhan Ford & Co.

Eric Wold – Merriman, Curhan Ford & Co.

One, I know you aren’t giving guidance on the number of screens and theaters that you are going to net close this year. Is there a sense that is more front weighted or back weighted? Is there more one big group that happens earlier or back end of the year?

Amy Miles

No, I think once you move kind of past the first quarter it is probably evenly spread.

Eric Wold – Merriman, Curhan Ford & Co.

On the 2.2-2.3% increase in average ticket price in the fourth quarter is there a sense how much of that was driven by actual ticket price increase versus mix of tickets? Is that kind of mix shift changing much in 2009 excluding the three IMAX pictures?

Amy Miles

I think if you look at the fourth quarter and say okay what was the mix, we did about 5% of our business on G pictures. If you look at last year we did 1.6% of G business. So typically your G pictures are obviously lower price tickets. If you look at your R statistics we did about 36% of our business in R rated pictures in 2007 and about 18% of our business related to R rated pictures in 2008. So some of the 2.3% increase in ticket price was we have taken increases that were probably ball parked close to 3% that were minimized by the mix in films to get to the 2.3%.

Operator

The next question comes from Jeffrey Logsdon – BMO Capital Markets.

Jeffrey Logsdon – BMO Capital Markets

I just want to make sure I am comparing apples-to-apples. A comment was made that year-to-date calendar box office industry wide was up something close to 15%. Regal up close to 3.6%. That differentiation takes out the $9.7 million in attendance, does that comparison also add back in the Consolidated or does that leave Consolidated out?

Amy Miles

That leaves Consolidated in and takes out the $9.7 million. Obviously it is not, the back end will still be 13 weeks when it is all said and done but this is just a period to date where you lose the $9.7 but you pick up Consolidated.

Jeffrey Logsdon – BMO Capital Markets

From there your comparison you would see off more what is going on generally in the box office to as you…

Amy Miles

You are exactly right.

Jeffrey Logsdon – BMO Capital Markets

So if box office kind of theoretically may end the quarter up 10-15% or 5% that is the number that will then track on to your attendance?

Amy Miles

Right. Once we’ve made the shift for the week. You are exactly right.

Jeffrey Logsdon – BMO Capital Markets

Then also, we have to think through the fact we have interest expense and depreciation expense coming off in the quarter because that was taken in the last year, is that correct? Or is the interest and depreciation going to be the total 13 weeks then?

Amy Miles

The total 13 weeks.

Operator

The next question comes from Barton Crockett – Lazard Capital Markets.

Barton Crockett – Lazard Capital Markets

I wanted to ask you about what you are seeing in the credit markets for the digital picture financing in terms of what are the bankers telling you in terms of how close they feel the credit markets are to a place where you can actually proceed with financing or how far we are away from that? Can you kind of characterize what kind of credit markets day or year you would need to see in order to go ahead?

Amy Miles

I think that is a question that today is hard for anybody to answer. If you look at the credit markets at this minute and you look at January and February you would say that it has improved since November and December. I do believe there has been some positive traction. There have been high yield deals that are happening the first part of this year that you were not seeing in November and December. That being said I think today the credit markets are so volatile and new changes day-to-day and you have very short-term swings that I think the bankers in general feel better today than they did at the end of last year. However, until you are actually in the process of launching the deal and raising the money it is going to be hard for anybody to kind of pinpoint a day or timeframe due to what is just unprecedented volatility in the banks or the financing market.

Barton Crockett – Lazard Capital Markets

So it sounds like if volatility eases that would help get you focused.

Amy Miles

It would help give you clarity. You need more money flowing in the system to get DCIP financed. But less volatility would give you more clarity, not necessarily more financing.

Barton Crockett – Lazard Capital Markets

Is there a spread to a benchmark beyond which the deal wouldn’t make sense and it wouldn’t happen also a hang up perhaps the pricing environment?

Amy Miles

That is part of it too. You just want to make sure that when that money is available it is priced in a way that it still makes the deal accretive for all parties.

Barton Crockett – Lazard Capital Markets

Can you give us a sense for where that number might be?

Amy Miles

No, I think it depends on too many factors. How the deal is ultimately structured, what percent is equity and what percent of that is debt. I think there are moving pieces in there that would make this a hard number difficult to say today.

Barton Crockett – Lazard Capital Markets

In terms of the first ring kind of box offices comparisons you gave us for fiscal 2008 I think the 1% or you guys 3.5% for the industry could you give us those numbers similar for the fourth quarter?

Amy Miles

I’m sorry, I don’t have those. I look at the fiscal year so I’m sorry I don’t have that.

Operator

The next question comes from David Gober – Morgan Stanley.

David Gober – Morgan Stanley

Going back to the M&A and capital allocation question, I’m just curious if you could talk a little bit about your appetite for international acquisitions or whether or not you are absolutely tied to remaining a domestic operator and kind of as an aside to that do you feel there are a substantial number of assets that are coming out to the market that will be attractively priced or do you feel like there are only a couple of pockets such as the National Amusements asset?

Michael Campbell

I think international our position really hasn’t changed. We have been content to be a domestic operator and we obviously continue to acquire domestic assets as they become available. I said before we would never say never to international but we just haven’t seen anything that we find that attractive. Historically there has been a disconnect on valuation between international assets and what we as a public company here in the U.S. trade for so it makes it a little bit difficult to look at those transactions as creating shareholder value for us.

Regarding domestic assets, clearly I think this type of environment could lead to more distressed offerings of assets from different companies. National Amusements is obviously just one example of that. Bear in mind what I said earlier is the environment that creates that opportunity is also the environment that makes it difficult for us to move forward on acquisitions due to financing or lack thereof, leverage issues and even the cost of financing even if it were available. We are just going to look at every opportunity individually and our mindset in this environment just bottom line is to be more conservative than not.

David Gober – Morgan Stanley

One follow-up on DCIP and the roll out of 3D, obviously the funding of DCIP has been a huge hurdle to the broader expansion of 3D. Is there any scenario in which you, I know you said previously you don’t want to go outside of DCIP, but is there any scenario in which you take up the offers from companies like Paramount to finance the expansion of 3D on your own outside of DCIP?

Michael Campbell

We are still committed to DCIP. There has been a lot of work and I think to go in a different direction would just retrace a lot of steps and just take even more time but just to kind of clarify the Paramount situation we were encouraged obviously to see a studio at least step out and make that offer but the problem is it doesn’t work. It doesn’t pay for the cost of the roll out unless you get all studios to contribute to that because Paramount would only be producing a small percentage of the films and paying a small percentage of the virtual print fees that would be necessary to finance a digital roll out and my understanding is there are several of the major studios who do not have an interest in going the route that Paramount has suggested. There just wouldn’t be enough funding to pay for it with just 2-3 studios doing that.

Thank you very much. We appreciate everybody dialing in this time. We’ll do this again in a couple of months for the first quarter. Thank you.

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