Regal Entertainment Group (RGC)

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Regal Entertainment Group (RGC)

F2Q08 Earnings Call

July 24, 2008 9:30 am ET

Executives

Don De Laria - Vice President of Investor Relations

Michael L. Campbell - Chairman of the Board, Chief Executive Officer

Amy E. Miles - Chief Financial Officer, Executive Vice President, Treasurer

Analysts

Eric Handler - Lehman Brothers

Lloyd Walmsley - Thomas Weisel Partners

Jeffrey B. Logsdon - Bank of Montreal

Barton Crockett - J.P. Morgan

Drew E. Crum - Stifel Nicolaus

Hunter R. DuBose - Morgan Stanley

David Miller - Caris & Company

Jake Hindelong - Monness Crespi Hardt & Co.

Presentation

Operator

Good morning. My name is Latonya and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group second quarter 2008 earnings release conference call with our hosts, Mike Campbell, Chief Executive Officer or Regal Entertainment Group, and Amy Miles, Chief Financial Officer of Regal Entertainment Group. (Operator Instructions) I would now like to turn the call over Don De Laria, Vice President of Investor Relations. Please go ahead, sir.

Don De Laria

Good morning. Before we begin today, I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27-A of the Securities Exchange Act of 1933 as amended and sections 21-E of the Securities Exchange Act of 1934 as amended.

All statements other than statements of historical facts 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 10-K dated February 26, 2008. All forward-looking statements are expressly qualified in their entirety by such factors.

Now I would like to turn the call over to Michael Campbell.

Michael L. Campbell

Thanks, Don and welcome and thank all of you for dialing into our second quarter conference call. Today I will provide an overview of the industry and Regal's second quarter results and a review of current trends in the exhibition industry, including some of our expectations regarding box office trends for the late summer of this year and holiday season as well.

Following my remarks, Amy Miles will provide a summary review of our financial results and as always, we will conclude the call with a question-and-answer session.

Now turning to second quarter industry results, we were very pleased at second quarter industry box office, driven primarily by the strong performances of Iron Man, Indiana Jones and the Kingdom of the Crystal Skull, which was the fourth installment of the Indiana Jones franchise, and the big screen version of Sex in the City, box office declined only slightly despite very difficult comps generated by last year’s release of Spider-man 3, Shrek the Third, and Pirates of the Caribbean: At World’s End.

As a note, all of these films last year grossed over $300 million at the domestic box office and accounted for three of the four top-grossing films of 2007.

For the period that corresponds to Regal's fiscal second quarter, industry sources report a decrease in aggregate box office revenues of approximately 2% to 2.5%. When taken together with an estimated 1% increase in the total number of screens, industry box office per screen decreased approximately 3% to 3.5%.

The acquisition of Consolidated Theaters during the second quarter clearly benefited our reported box office revenues as we were essentially flat with last year during a period of declining box office revenues.

On a per screen basis, our box office revenues were down approximately 4.5%, primarily as a results of our outperformance on the top films and premium priced films of last year’s comparable period, which created a more difficult comparison for Regal in the current period and a somewhat easier comparison for some of our peers.

As we have indicated in the past, Regal tends to outperform the industry on proven franchise films that offer something for all age groups, from teens to kids to adults. We also tend to generate greater market share on premium priced IMAX and 3D pictures and benefited from that outperformance in the second quarter of last year.

Now, turning to our second quarter highlights, I would like to address a few key second quarter highlights the demonstrate our commitment to pursuing accretive acquisition opportunities and our focus on efficient theater operations.

We are pleased to report the closing of the 400-screen Consolidated Theater acquisition ahead of the key summer box office season. Our extensive acquisition experience resulted in a seamless integration of the newly acquired theaters and we are on track to produce the expected synergies.

In a quarter of declining industry box office revenues, we focused on cost control and we are pleased with the following quarterly comparisons. Our concession margin increased by 60 basis points despite a modest decline in average concessions per patron and a challenging macroeconomic environment. Other operating expenses declined slightly on a per screen basis as well, and lastly film and advertising expense as a percentage of admissions revenue decreased 90 basis points during the quarter.

Thanks to our cost control efforts, we were able to generate $43 million of free cash flow and ended the quarter with approximately $224 million of cash on our balance sheet.

Turning briefly to our outlook for the balance of the third quarter and the holiday film slate, we were obviously extremely pleased with this past weekend’s record opening of The Dark Knight, which according to the final numbers generated approximately $158.4 million over the weekend.

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