10-K 1 rgc201710k.htm 10-K Document
Use these links to rapidly review the document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
Commission file number: 001-31315
____________________________________________________________________________
Regal Entertainment Group
(Exact name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 
02-0556934
(I. R. S. Employer
Identification Number)
101 East Blount Avenue
Knoxville, TN
(Address of Principal Executive Offices)
 
37920
(Zip Code)
Registrant's Telephone Number, Including Area Code:    865-922-1123
____________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, $.001 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:    None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o   No x
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes o   No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2017, computed by reference to the price at which the registrant's Class A common stock was last sold on the New York Stock Exchange on such date was $2,297,118,163 (112,273,615 shares at a closing price per share of $20.46).
 
Shares of Common Stock outstanding—1,000 shares at March 1, 2018

 



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




3



Explanatory Note
On December 5, 2017, Regal Entertainment Group entered into an Agreement and Plan of Merger (the "Merger Agreement") with Cineworld Group plc, a public limited company incorporated in England and Wales ("Cineworld"), Crown Intermediate Holdco, Inc., a Delaware corporation and an indirect, wholly owned subsidiary of Cineworld ("US Holdco"), and Crown Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of US Holdco (the "Merger Sub"). On February 28, 2018, following the satisfaction of the conditions in the Merger Agreement, Merger Sub was merged with and into the Company (the "Merger") pursuant to the Merger Agreement. As a result of the Merger, the Company became an indirect, wholly-owned subsidiary of Cineworld, the Company’s Class A common stock will no longer be listed on the New York Stock Exchange, and the registration of shares of the Company’s Class A common stock under the Exchange Act will be terminated. Unless otherwise noted, all references in this Annual Report on Form 10-K (this “Form 10-K”) to Regal Entertainment Group, a Delaware corporation, “we,” “us,” “our,” the “Company” or “Regal,” refer to the Company and its business prior to the Merger. This Form 10-K does not reflect any changes in the Company’s business plan that may occur over time as a result of the Merger and the Company becoming part of the Cineworld group of companies.

REGAL ENTERTAINMENT GROUP
PART I
The information in this Form 10-K contains certain forward-looking statements, including statements related to trends in the Company's business. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this Form 10-K.

Item 1.    BUSINESS.
THE COMPANY
Regal was organized on March 6, 2002 and 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"), Regal CineMedia Corporation ("RCM") and United Artists Theatre Company ("United Artists"). The terms Regal or the Company, REH, Regal Cinemas, RCI, Edwards, RCM 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. The Company manages its business under one reportable segment: theatre exhibition operations.
Our Internet address is www.regmovies.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports, are available free of charge on our Internet website under the heading "Investor Relations" as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the "Commission"). The contents of our Internet website are not incorporated into this report.

DESCRIPTION OF BUSINESS
Overview
We operate one of the largest and most geographically diverse theatre circuits in the United States, consisting of 7,322 screens in 560 theatres in 43 states along with Guam, Saipan, American Samoa and the District of Columbia as of December 31, 2017, with approximately 197 million attendees for the year ended December 31, 2017 ("fiscal 2017"). Our geographically diverse circuit includes theatres in 48 of the top 50 U.S. designated market areas. We develop, acquire and operate multi-screen theatres primarily in mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets throughout the United States. We operate our theatre circuit using our Regal Cinemas, United Artists, Edwards, Great Escape Theatres and Hollywood Theaters brands through our wholly owned subsidiaries.
Our business strategy is predicated on our ability to allocate capital effectively to enhance value for our stockholders. This strategy focuses on enhancing our position in the motion picture exhibition industry by capitalizing on prudent industry consolidation and partnership opportunities, managing, expanding and upgrading our existing asset base with new technologies and customer amenities and realizing selective growth opportunities through new theatre construction. For fiscal 2017, we reported total revenues, income from operations and net income attributable to controlling interest of $3,163.0 million, $271.7

4


million and $112.3 million, respectively. In addition, we generated $409.9 million of cash flows from operating activities during fiscal 2017.


5


THEATRE OPERATIONS
The following table details the number of locations and theatre screens in our theatre circuit ranked by the number of screens in each state along with Guam, Saipan, American Samoa and the District of Columbia as of December 31, 2017:
State/District
 
Locations
 
Number of Screens
California
 
87
 
1,061
Florida
 
46
 
683
New York
 
44
 
549
Virginia
 
30
 
429
Texas
 
28
 
415
Washington
 
29
 
347
Pennsylvania
 
23
 
311
Georgia
 
20
 
298
Ohio
 
19
 
274
North Carolina
 
20
 
256
South Carolina
 
17
 
230
Oregon
 
19
 
206
Maryland
 
14
 
196
Tennessee
 
13
 
179
Colorado
 
13
 
162
New Jersey
 
11
 
154
Nevada
 
11
 
141
Indiana
 
11
 
139
Illinois
 
9
 
129
Missouri
 
8
 
114
Massachusetts
 
9
 
106
Kansas
 
8
 
92
Idaho
 
5
 
73
Hawaii
 
7
 
72
Oklahoma
 
5
 
69
Kentucky
 
5
 
60
New Mexico
 
4
 
54
Alabama
 
3
 
52
Alaska
 
4
 
49
Mississippi
 
6
 
46
West Virginia
 
4
 
46
Connecticut
 
4
 
43
Louisiana
 
4
 
43
New Hampshire
 
3
 
33
Delaware
 
2
 
33
Michigan
 
2
 
26
Arkansas
 
2
 
24
Maine
 
2
 
20
Minnesota
 
1
 
16
Nebraska
 
1
 
16
Arizona
 
1
 
14
District of Columbia
 
1
 
14
Guam
 
1
 
14
Utah
 
1
 
14
Montana
 
1
 
11
Saipan
 
1
 
7
American Samoa
 
1
 
2
Total
 
560
 
7,322


6


NATIONAL CINEMEDIA JOINT VENTURE
We maintain an investment in National CineMedia, which operates the largest digital in-theatre advertising network in North America representing over 20,800 U.S. theatre screens (of which approximately 20,400 are part of National CineMedia's digital content network) as of December 31, 2017.
We receive theatre access fees and mandatory distributions of excess cash from National CineMedia. As of December 31, 2017, we held approximately 27.6 million common units of National CineMedia. On a fully diluted basis, we own a 17.9% interest in NCM, Inc. as of December 31, 2017.
See Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K for further discussion of National CineMedia and related transactions.

DCIP AND OPEN ROAD FILMS JOINT VENTURES
We maintain an investment in DCIP, a joint venture company formed by Regal, AMC Entertainment Holdings, Inc. ("AMC") and Cinemark Holdings, Inc. ("Cinemark"). DCIP funds the cost of digital projection equipment principally through the collection of virtual print fees from motion picture studios and equipment lease payments from participating exhibitors, including us. In addition to its U.S. digital deployment, DCIP actively manages the deployment of over 1,800 digital systems in Canada for Canadian Digital Cinema Partnership, a joint venture between Cineplex Inc. and Empire Theatres Limited.
The Company holds a 46.7% economic interest in DCIP as of December 31, 2017. As of December 31, 2017, all of our screens were fully outfitted with digital projection systems. Please refer to Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K for further discussion of DCIP.
On August 4, 2017, the Company sold all of its 50% equity interest in Open Road Films, a film distribution company jointly owned by us and AMC, to a third party for total proceeds of approximately $14.0 million. In accordance with the purchase agreement, approximately $3.7 million of the net proceeds received were in satisfaction of various receivables and other amounts due to the Company related to film marketing services provided to Open Road Films prior to the closing date. As a result of the sale, the Company recorded a gain of approximately $17.8 million, representing the difference between the net proceeds received of $10.3 million (after satisfaction of the above amounts due the Company) and the carrying amount of the Company's investment in Open Road Films (approximately $(7.5) million) as of the closing date. Also effective with closing, the Company and Open Road Films entered into a new marketing agreement with respect to films released by Open Road Films after the closing date.

FILM DISTRIBUTION
Domestic movie theatres are the primary initial distribution channel for domestic film releases. The theatrical success of a film is often the most important factor in establishing its value in other film distribution channels. Motion pictures are generally made available through several alternative distribution methods after the theatrical release date, including digital sell-through, DVD and Blu-ray, physical and digital rental, subscription video on demand and free and pay television. A strong theatrical opening often establishes a film's success and positively influences the film's potential in these downstream distribution channels.
The development of additional distribution channels has given motion picture producers the ability to generate a greater portion of a film's revenues through channels other than its theatrical release. Historically, this potential for increased revenue after a film's initial theatrical release has enabled major motion picture studios and some independent producers to increase the budgets for film production and advertising.

FILM EXHIBITION
Evaluation of Film.    We license films on a film-by-film and theatre-by-theatre basis by negotiating directly with film distributors. Prior to negotiating for a film license, we evaluate the prospects for upcoming films. Criteria we consider for each film may include cast, producer, director, genre, budget, comparative film performances and various other market conditions. Successful licensing depends greatly upon the exhibitor's knowledge of trends and historical film preferences of the residents in markets served by each theatre, as well as the availability of commercially successful motion pictures.
Film Rental Fees.    Film licenses typically specify rental fees or formulas by which rental fees may be calculated. The majority of our arrangements use a "sliding scale" formula. Under a sliding scale formula, the distributor receives a percentage of the box office receipts using a pre-determined and mutually agreed upon film rental template. This formula establishes film rental predicated on box office performance and is the predominant formula used by us to calculate film rental fees. To a much lesser extent, we have also used a "firm term" formula and a "review or settlement" method where either (1) the exhibitor and

7


distributor agree prior to the exhibition of the film on a specified percentage of the box office receipts to be remitted to the distributor or (2) the exhibitor and distributor negotiate a percentage of the box office receipts to be remitted to the distributor upon completion of the theatrical engagement.
Duration of Film Licenses.    The duration of our film licenses are negotiated with our distributors on a case-by-case basis. The terms of our license agreements depend on performance of each film. Marketable movies that are expected to have high box office admission revenues will generally have longer license terms than movies with more uncertain performance and popularity.
Relationship with Distributors.    Many distributors provide quality first-run movies to the motion picture exhibition industry. We license films from each of the major distributors and believe that our relationships with these distributors are good. For fiscal 2017, films shown from our top ten film distributors accounted for approximately 93% of our admissions revenues. Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor's motion pictures in any given year. In 2017, our largest single distributor accounted for 22.1% of our box office admissions.

CONCESSIONS
In addition to box office admissions revenues, we generated approximately 29.4% of our total revenues from concessions sales during fiscal 2017. We emphasize prominent and appealing concession stations designed for rapid and efficient service. We continually seek to increase concessions sales by actively managing concession line congestion, optimizing product mix and through expansion of our concession offerings, introducing special promotions from time to time and offering employee training and incentive programs to up-sell and cross-sell products. We have favorable concession supply contracts and have developed an efficient concession purchasing and distribution supply chain. We have historically maintained strong brand relationships and management negotiates directly with these manufacturers for many of our concession items to obtain competitive prices and to ensure adequate supplies.
To address consumer trends and customer preferences, we have continued to expand our menu of food and alcoholic beverage products to an increasing number of attendees. The enhancement of our food and alcoholic beverage offerings has had a positive effect on our operating results. As of December 31, 2017, we offered an expanded menu of food in 270 locations (reaching 63% of our attendees) and alcoholic beverages in 175 locations (reaching 38% of our attendees).

COMPETITION
The motion picture exhibition industry is highly competitive. Motion picture exhibitors generally compete on the basis of the following competitive factors:
ability to secure films with favorable licensing terms;
availability of customer amenities (including luxury reclining seating), location, reputation, stadium seating and seating capacity;
quality of projection and sound systems;
appeal of our concession products; and
ability and willingness to promote the films that are showing.
We have several hundred competitors nationwide that vary substantially in size, from small independent exhibitors to large national chains such as AMC and Cinemark. As a result, our theatres are subject to varying degrees of competition in the regions in which they operate.
We also compete with other motion picture distribution channels including digital sell-through, DVD and Blu-ray, physical and digital rental, subscription video on demand and free and pay television. Other technologies could also have an

8


adverse effect on our business and results of operations. When motion picture distributors license their products to the domestic exhibition industry, they refrain from licensing their motion pictures to these other distribution channels for a period of time, commonly called the theatrical release window. Over the past several years, the theatrical release window has contracted to approximately three to four months. Further, some film distributors have experimented with offering alternative distribution methods for certain films that rely on shorter theatrical release windows and in some cases, bypass the theatrical release altogether. We believe that a material contraction of the theatrical release window could significantly dilute the consumer appeal of the out-of-home motion picture offering. As a result, we continue to monitor the status of the theatrical release window during our film licensing decisions.
In addition, we compete for the public's leisure time and disposable income with other forms of entertainment, including sporting events, concerts, live theatre and restaurants.

SEASONALITY
The timing of movie releases can have a significant effect on our results of operations, and the results of one fiscal quarter are not necessarily indicative of results for the next fiscal quarter or any other fiscal quarter. The unexpected emergence of a hit film during other periods can alter the traditional trend. The seasonality of motion picture exhibition, however, has become less pronounced as motion picture studios are releasing motion pictures somewhat more evenly throughout the year.

EMPLOYEES
As of December 31, 2017, we employed approximately 26,000 persons. The Company considers its employee relations to be good.

EXECUTIVE OFFICERS OF THE REGISTRANT
Shown below are the names, ages and positions of our executive officers as of the filing of this Annual Report on Form 10-K. Any changes to be effected as a result of consummation of the Merger are reflected on our Current Report on Form 8-K filed on February 28, 2018. There are no family relationships between any of the persons listed below, or between any of such persons and any of the directors of the Company or any persons nominated or chosen by the Company to become a director or executive officer of the Company.
Name
 
Age
 
Position
Amy E. Miles
 
51
 
Chief Executive Officer and Chair of the Board of Directors
Gregory W. Dunn
 
58
 
President and Chief Operating Officer
Peter B. Brandow
 
57
 
Executive Vice President, General Counsel and Secretary
David H. Ownby
 
48
 
Executive Vice President, Chief Financial Officer and Treasurer
Amy E. Miles is our Chief Executive Officer and Chair of the Board of Directors. Ms. Miles has served as Chief Executive Officer since June 2009 and became Chair of the Board of Directors in March 2015. Prior thereto, Ms. Miles served as our Executive Vice President, Chief Financial Officer and Treasurer from March 2002 to June 2009. Additionally, Ms. Miles has served as the Chief Executive Officer of Regal Cinemas, Inc. since June 2009. Ms. Miles formerly served as the Executive Vice President, Chief Financial Officer and Treasurer of Regal Cinemas, Inc. from January 2000 to June 2009. Prior thereto, Ms. Miles served as Senior Vice President of Finance from April 1999, when she joined Regal Cinemas, Inc. Prior to joining the Company, Ms. Miles was a Senior Manager with Deloitte & Touche LLP from 1998 to 1999. From 1989 to 1998, she was with PricewaterhouseCoopers LLP.
Gregory W. Dunn is our President and Chief Operating Officer. Mr. Dunn has served as an Executive Vice President and Chief Operating Officer of Regal since March 2002 and became President of Regal in May 2005. Mr. Dunn served as Executive Vice President and Chief Operating Officer of Regal Cinemas, Inc. from 1995 to March 2002. Prior thereto, Mr. Dunn served as Vice President of Marketing and Concessions of Regal Cinemas, Inc. from 1991 to 1995.
Peter B. Brandow is our Executive Vice President, General Counsel and Secretary and has served as such since March 2002. Mr. Brandow has served as the Executive Vice President, General Counsel and Secretary of Regal Cinemas, Inc. since July 2001, and prior to that time he served as Senior Vice President, General Counsel and Secretary of Regal Cinemas, Inc. since February 2000. Prior thereto, Mr. Brandow served as Vice President, General Counsel and Secretary from February 1999 when he joined Regal Cinemas, Inc. From September 1989 to January 1999, Mr. Brandow was an associate with the law firm Simpson Thacher & Bartlett LLP.

9


David H. Ownby is our Executive Vice President, Chief Financial Officer and Treasurer and has served in this capacity since June 2009. Mr. Ownby also has served as our Chief Accounting Officer since May 2006. Mr. Ownby served as our Senior Vice President of Finance from March 2002 to June 2009. Prior thereto, Mr. Ownby served as the Company's Vice President of Finance and Director of Financial Projects from October 1999 to March 2002. Prior to joining the Company, Mr. Ownby served with Ernst & Young LLP from September 1992 to October 1999.

REGULATION
The distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. Consent decrees effectively require major film distributors to offer and license films to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, exhibitors cannot assure themselves of a supply of films by entering into long-term arrangements with major distributors, but must negotiate for licenses on a film-by-film basis.
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, award of damages to private litigants and additional capital expenditures to remedy such non-compliance.
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 in Note 8 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, 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 and environmental protection requirements. We believe that we are in substantial compliance with all relevant laws and regulations.

FORWARD-LOOKING STATEMENTS
Some of the information in this Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in this Form 10-K, including, without limitation, certain statements under "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" may constitute forward-looking statements. In some cases you can identify these forward-looking statements by words like "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of those words and other comparable words. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these statements as a result of certain risk factors as more fully discussed under "Risk Factors" below.

Item 1A.    RISK FACTORS.
In addition to the other information contained in this Form 10-K, you should consider the following factors.

Our substantial lease and debt obligations could impair our financial condition.
We have substantial lease and debt obligations. If we are unable to meet our lease and debt service obligations, we could be forced to restructure or refinance our obligations and seek additional financing or sell assets. We may be unable to restructure or refinance our obligations and obtain additional financing or sell assets on satisfactory terms or at all. As a result, the inability to meet our lease and debt service obligations could cause us to default on those obligations. Any such defaults could materially impair our financial condition and liquidity.
To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.
Our ability to make payments on our debt and other financial obligations will depend on the ability of our subsidiaries to generate substantial operating cash flow. This will depend on future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control. If our and our subsidiaries' cash flows prove inadequate to meet our and their debt service and other obligations in the future, we may be required to refinance all or a portion of our and our subsidiaries' existing or future debt, on or before maturity, sell assets, obtain additional financing or

10


suspend the payment of dividends. We cannot assure you that we will be able to refinance any indebtedness, sell any such assets or obtain additional financing on commercially reasonable terms or at all.
We depend on motion picture production and performance and our relationships with film distributors.
Our ability to operate successfully depends upon the availability, diversity and commercial appeal of motion pictures, our ability to license motion pictures and the performance of such motion pictures in our markets. We license first-run motion pictures, the success of which can depend on the marketing efforts of the major motion picture studios. Poor performance of, or any disruption in the production of, these motion pictures (including by reason of a strike or lack of adequate financing), or a reduction in the marketing efforts of the major motion picture studios, could hurt our business and results of operations. In addition, a change in the type and breadth of movies offered by motion picture studios may adversely affect the demographic base of moviegoers.
The distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. Consent decrees resulting from those cases effectively require major motion picture distributors to offer and license films to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for our licenses on a film-by-film and theatre-by-theatre basis. In addition, the film distribution business is highly concentrated, with the top ten film distributors accounting for approximately 93% of our admissions revenues during fiscal 2017. Our business depends on maintaining good relations with these distributors. We are dependent on our ability to negotiate commercially favorable licensing terms for first-run films. A deterioration in our relationship with any of the major film distributors could affect our ability to negotiate film licenses on favorable terms or our ability to obtain commercially successful films and, therefore, could hurt our business and results of operations.
An increase in the use of alternative film delivery methods may drive down movie theatre attendance and reduce our revenue.
We compete with other motion picture distribution channels including digital sell-through, DVD and Blu-ray, physical and digital rental, subscription video on demand and free and pay television. When motion picture distributors license their products to the domestic exhibition industry, they refrain from licensing their motion pictures to these other distribution channels during the theatrical release window. The average theatrical release window has decreased from approximately six months to approximately three to four months over the last decade. Further, some film distributors have experimented with offering alternative distribution methods for certain films that rely on shorter theatrical release windows and in some cases, bypass the theatrical release altogether. We believe that a material contraction of the current theatrical release window could significantly dilute the consumer appeal of the in-theatre motion picture offering, which could have a material adverse effect on our business and results of operations. We can provide no assurance as to the impact or timing of any material contraction to the current theatrical release window.
Our theatres operate in a competitive environment.
The motion picture exhibition industry is fragmented and highly competitive with no significant barriers to entry. Theatres operated by national and regional circuits and by small independent exhibitors compete with our theatres, particularly with respect to film licensing, attracting patrons and developing new theatre sites. Moviegoers are generally not brand conscious and usually choose a theatre based on its location, the films showing there and its amenities.
The motion picture exhibition industry has and continues to implement various initiatives, concepts, customer amenities and technological innovations aimed at delivering a premium movie-going experience for its patrons (including, but not limited to, luxury reclining seating, enhancement of food and alcoholic beverage offerings, the installation of premium format screens, digital 3D, 4DX, satellite distribution technologies and stadium seating). Theatres in our markets without these amenities may be more vulnerable to competition than those theatres with such amenities, and should other theatre operators choose to implement these or other initiatives in these markets, the performance of our theatres may be significantly and negatively impacted. In addition, while we continue to implement these and other initiatives, new innovations and technology will continue to impact our industry. If we are unable to respond to or invest in future technology and the changing preferences of our customers, we may not be able to compete with other exhibitors or other entertainment venues, which could also adversely affect our results of operations. Finally, should other theatre operators embark on aggressive capital spending strategies, our attendance, revenue and income from operations per screen could decline substantially.
We are currently the subject of an investigation by the Antitrust Division of the Department of Justice and Attorneys General in several states and have been named as defendants in third party lawsuits related to similar matters.
We are currently the subject of an investigation by the DOJ regarding potentially anticompetitive conduct and coordination among NCM, AMC, the Company and/or Cinemark, under Sections 1 and 2 of the Sherman Act, 15 U.S.C. § 1 and § 2. Additionally, we are the subject of investigations by various state attorneys general relating to our investments in various joint ventures, including NCM, as well as movie “clearances” whereby film distributors do not license the rights to

11


exhibitors to play the same first-run feature length films at the same time in the same theatrical release zones. In addition, in the past, we have been named as defendants in lawsuits commenced by other theatre operators who claim the Company has engaged in anti-competitive conduct by virtue of these clearances.
The Company has cooperated with the Federal and state investigations that have been undertaken. While we do not believe that the Company has engaged in any violation of Federal or state antitrust or competition laws related to its investments in NCM, other joint ventures, or as pertains to movie clearances, and while the Company intends to vigorously defend any allegation that it has done so, we can provide no assurances as to the scope, timing or outcome of the DOJ’s, any other state or Federal governmental reviews of the Company’s conduct. If we are subject to an adverse finding or ruling resulting from any of these investigations, we could be required to pay damages or penalties or have other remedies imposed upon us that could have a material adverse effect on our business. In addition, we have already incurred substantial legal expenses related to these matters and we may incur significant additional expenditures in the future. Furthermore, the period of time necessary to fully respond to and resolve these investigations is uncertain and could require significant management time and financial resources which could otherwise be devoted to the operation of our business.
We may not benefit from our acquisition strategy and strategic partnerships.
Identifying suitable acquisition candidates and partnership opportunities may be difficult. In the case of acquisitions, even if we are able to identify suitable candidates, there can be significant competition from other motion picture exhibitors and financial buyers when trying to acquire these candidates, and there can be no assurances that the Company would be able to acquire such candidates at reasonable prices or on favorable terms. Moreover, some of these possible buyers may be stronger financially than we are. As a result of this competition for limited assets, there is no assurance that the Company could succeed in acquiring suitable candidates or may have to pay more than we would prefer to make an acquisition. If we cannot identify or successfully acquire suitable acquisition candidates, there is no assurance that the Company could successfully expand its operations.

In any acquisition, we expect to benefit from cost savings through, for example, the reduction of overhead and theatre level costs, and from revenue enhancements resulting from the acquisition. There can be no assurance, however, that we will be able to generate sufficient cash flow from these acquisitions to service any indebtedness incurred to finance such acquisitions or realize any other anticipated benefits. Nor can there be any assurance that our profitability will be improved by any one or more acquisitions. If we cannot generate anticipated cash flows resulting from acquisitions or fail to realize their anticipated benefits, our results of operations and profitability could be adversely affected. Any acquisition may involve operating risks, such as:

the difficulty of assimilating the acquired operations and personnel and integrating them into our current business;
the potential disruption of our ongoing business;
the diversion of management's attention and other resources;
the possible inability of management to maintain uniform standards, controls, procedures and policies;
the risks of entering markets in which we have little or no experience;
the potential impairment of relationships with employees and landlords;
the possibility that any liabilities we may incur or assume may prove to be more burdensome than anticipated; and
the possibility that any acquired theatres or theatre circuit operators do not perform as expected.

We also maintain theatre-related investments and partnership opportunities that enhance and more fully leverage our asset base to improve our consolidated operating results and free cash flow. On a fully diluted basis, we own a 17.9% interest in NCM, Inc. as of December 31, 2017. We also participate in other joint ventures such as DCIP, AC JV, Digital Cinema Distribution Coalition (“DCDC”) and Atom Tickets. Risks associated with pursuing these investments and opportunities include:

the difficulties and uncertainties associated with identifying investment and partnership opportunities that will successfully enhance and utilize our existing asset base in a manner that contributes to cost savings and revenue enhancement;
our inability to exercise complete voting control over the partnerships and joint ventures in which we participate; and
our partners may have economic or business interests or goals that are inconsistent with ours, exercise their rights in a way that prohibits us from acting in a manner which we would like or they may be unable or unwilling to fulfill their obligations under the joint venture or similar agreements.

Although we have not been materially constrained by our participation in National CineMedia or other joint ventures to date, no assurance can be given that the actions or decisions of other stakeholders in these ventures will not affect our investments in National CineMedia, DCIP, AC JV, DCDC and Atom Tickets or other existing or future ventures in a way that hinders our corporate objectives or reduces any anticipated improvements to our operating results and free cash flow.

12



In addition, any acquisitions or partnership opportunities are subject to the risk that the Antitrust Division of the DOJ or state or foreign competition authorities may require us to dispose of existing or acquired theatres or other assets in order to complete acquisition and partnership opportunities, pay damages and fines, or otherwise modify our normal operations as a result of our joint venture investments. The DOJ and various state attorneys general are currently investigating our investments in our various joint ventures, including NCM, for potentially anticompetitive conduct, as described more fully herein, and until such investigations are complete, we are not able to predict their outcome.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
The efficient operation of our business is dependent on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers, cyber terrorists, employee error or misconduct, viruses and other catastrophic events, leading to unauthorized disclosure of confidential and proprietary information and exposing us to litigation that could adversely affect our reputation. We rely on industry accepted security measures and technology to protect confidential and proprietary information maintained on our information systems. However, these measures and technology may not adequately prevent security breaches. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business and results of operations.
Economic, political and social conditions could materially affect our business by reducing consumer spending on movie attendance or could have an impact on our business and financial condition in ways that we currently cannot predict.
We depend on consumers voluntarily spending discretionary funds on leisure activities. We also compete for the public's leisure time and disposable income with other forms of entertainment, including sporting events, theme parks, concerts, live theatre and restaurants. Motion picture theatre attendance may be affected by negative trends in the general economy that adversely affect consumer spending. A prolonged reduction in consumer confidence or disposable income in general may affect the demand for motion pictures or severely impact the motion picture production industry, which, in turn, could adversely affect our operations. If economic conditions are weak or deteriorate, or if financial markets experience significant disruption, it could materially adversely affect our results of operations, financial position and/or liquidity. For example, deteriorating conditions in the global credit markets could negatively impact our business partners which may impact film production, the development of new theatres or the enhancement of existing theatres.
Theatre attendance may also be affected by political events, such as terrorist attacks on, or wars or threatened wars involving, the United States, health related epidemics and random acts of violence, any one of which could cause people to avoid our theatres or other public places where large crowds are in attendance. In addition, due to our concentration in certain markets, natural disasters such as hurricanes, earthquakes and severe storms in those markets could adversely affect our overall results of operations.
All of these factors could adversely affect our financial condition and results of operations.
We are subject to substantial government regulation, which could entail significant cost.
We are subject to various federal, state and local laws, regulations and administrative practices affecting our business, and we must comply with provisions regulating health and sanitation standards, equal employment, environmental, and licensing for the sale of food and, in some theatres, alcoholic beverages. Changes in existing laws or implementation of new laws, regulations and practices could have a significant impact on our business. A significant portion of our theatre level employees are paid at or slightly above the applicable minimum wage in the theatre's jurisdiction. Increases in the minimum wage and implementation of reforms requiring the provision of additional benefits will increase our labor costs.
 Our theatres must comply with 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, award of damages to private litigants and additional capital expenditures to remedy such non-compliance.

Item 1B.    UNRESOLVED STAFF COMMENTS.
None.


13


Item 2.    PROPERTIES.
As of December 31, 2017, we operated 502 theatre locations pursuant to lease agreements and owned the land and buildings in fee for 58 theatre locations. For a list of the states in which we operated theatres and the number of theatres and screens operated in each such state as of December 31, 2017, please see the chart under Part I, Item 1 of this Form 10-K under the caption "Business—Theatre Operations," which is incorporated herein by reference.
The majority of our leased theatres are subject to lease agreements with original terms of 15 to 20 years or more and, in most cases, renewal options for up to an additional 10 to 20 years. These leases provide for minimum annual rentals and the renewal options generally provide for rent increases. Some leases require, under specified conditions, further rental payments based on a percentage of revenues above specified amounts. A significant majority of the leases are net leases, which require us to pay the cost of insurance, taxes and a portion of the lessor's operating costs. Our corporate office is located in Knoxville, Tennessee. We believe that these facilities are currently adequate for our operations.

Item 3.    LEGAL PROCEEDINGS.
Pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, as amended, the information required to be furnished by us under this Part I, Item 3 (Legal Proceedings) is incorporated by reference to the information contained in Note 8 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
In addition, on January 29, 2018 a purported class action complaint relating to the Merger, captioned Baldassano v. Regal Entertainment Group et al., Case No. 195178-3, was filed on behalf of the stockholders against members of the board of directors of the Company, the Company, Cineworld, US Holdco and Merger Sub in the Chancery Court for Knox County, Tennessee in the Sixth Judicial District at Knoxville (the “Action”). The Action alleged that the board of directors of the Company breached its fiduciary duties to the stockholders by means of (A) agreeing to an allegedly unfair price in the proposed merger and (B) allegedly engineering a transaction to benefit themselves and/or Cineworld without regard to the Company’s stockholders. The complaint also generally asserted that the Company, Cineworld, US Holdco and Merger Sub aided and abetted the board of directors’ breach of its fiduciary duties. The Action sought, among other things, to enjoin the consummation of the Merger, rescind the Merger Agreement (to the extent the Merger had already been consummated), damages, and attorneys’ fees and costs. On February 12, 2018, the Company and the plaintiff entered into a memorandum of understanding in which the plaintiff agreed to dismiss his claims with prejudice, and to dismiss claims asserted on behalf of the putative class without prejudice, in return for the Company’s agreement to make certain supplemental disclosures.

Item 4.    MINE SAFETY DISCLOSURES.
Not applicable.

PART II

Item 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Prior to the effective time of the Merger, the Company had two classes of common stock. Our Class A common stock traded on the New York Stock Exchange (the "NYSE") from May 9, 2002 under the symbol "RGC" until February 28, 2018, upon closing of the Merger. All of our Class B common stock was owned by the Anschutz Corporation and the Anschutz Foundation.

The following table sets forth the historical high and low sales prices per share of our Class A common stock as reported by the New York Stock Exchange for the fiscal periods indicated.
 
 
Fiscal 2017
 
 
High
 
Low
First Quarter (January 1, 2017 - March 31, 2017)
 
$
23.56

 
$
20.73

Second Quarter (April 1, 2017 - June 30, 2017)
 
22.88

 
19.87

Third Quarter (July 1, 2017 - September 30, 2017)
 
20.59

 
13.90

Fourth Quarter (October 1, 2017 - December 31, 2017)
 
23.09

 
14.79


14


 
 
Fiscal 2016
 
 
High
 
Low
First Quarter (January 1, 2016 - March 31, 2016)
 
$
21.82

 
$
16.50

Second Quarter (April 1, 2016 - June 30, 2016)
 
22.48

 
19.35

Third Quarter (July 1, 2016 - September 30, 2016)
 
24.19

 
21.13

Fourth Quarter (October 1, 2016 - December 31, 2016)
 
24.79

 
20.29

    
On February 28, 2018, the Company notified the NYSE that the Merger had been completed and requested that
trading of the Company’s Class A common stock on the NYSE be suspended and an application on Form 25 be filed with the Commission by the NYSE to remove the Company's Class A common stock from listing on the NYSE and deregister the Company's Class A common stock under Section 12(b) of the Exchange Act. The Company intends to file a Form 15 with the Commission to terminate registration of the Company's Class A common stock under Section 12(g) of the Exchange Act and suspend reporting obligations relating to the Company's Class A common stock under Section 15(d) of the Exchange Act.

As of March 1, 2018, the Company had only one class of common stock and there was one stockholder of record.

Dividend Policy
During the fiscal year ended December 31, 2016 (the "Fiscal 2016 Period"), Regal paid four quarterly cash dividends of $0.22 per share on each outstanding share of the Company's Class A and Class B common stock, or approximately $138.9 million in the aggregate. During the fiscal year ended December 31, 2017 (the "Fiscal 2017 Period"), Regal paid four quarterly cash dividends of $0.22 per share on each outstanding share of the Company's Class A and Class B common stock, or approximately $138.9 million in the aggregate. On February 7, 2018, the Company declared a cash dividend of $0.22 per share on each share of the Company's Class A and Class B common stock (including outstanding restricted stock), which was paid on February 26, 2018 to stockholders of record on February 17, 2018. Declared dividends have been funded through cash flow from operations and available cash on hand.

Unregistered Sales of Equity Securities and Use of Proceeds
None.

Issuer Purchases of Equity Securities
None.

Item 6.    SELECTED FINANCIAL DATA.
The selected historical consolidated financial data as of and for the fiscal years ended December 31, 2017, December 31, 2016, December 31, 2015, January 1, 2015, and December 26, 2013 were derived from the audited consolidated financial statements of Regal and the notes thereto. The selected historical financial data does not necessarily indicate the operating results or financial position that would have resulted from our operations on a combined basis during the periods presented, nor is the historical data necessarily indicative of any future operating results or financial position of Regal. In addition to the below selected financial data, you should also refer to the more complete financial information included elsewhere in this Form 10-K.

15


 
 
Fiscal year
ended
December 31, 2017
 
Fiscal year
ended
December 31, 2016
 
Fiscal year
ended
December 31, 2015
 
Fiscal year
ended
January 1, 2015 (1)
 
Fiscal year
ended
December 26, 2013
 
 
(in millions, except per share data)
Statement of Income Data:
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
3,163.0

 
$
3,197.1

 
$
3,127.3

 
$
2,990.1

 
$
3,038.1

Income from operations(4)(7)
 
271.7

 
339.4

 
319.3

 
306.4

 
339.8

Net income attributable to controlling interest(3)(4)(6)(7)
 
112.3

 
170.4

 
153.4

 
105.6

 
157.7

Earnings per diluted share(3)(4)(6)(7)
 
0.72

 
1.09

 
0.98

 
0.68

 
1.01

Dividends per common share(2)
 
$
0.88

 
$
0.88

 
$
0.88

 
$
1.88

 
$
0.84

 
 
As of or for
the fiscal
year ended
December 31, 2017
 
As of or for
the fiscal
year ended
December 31, 2016
 
As of or for
the fiscal
year ended
December 31, 2015
 
As of or for
the fiscal
year ended
January 1, 2015 (1)
 
As of or for
the fiscal
year ended
December 26, 2013
 
 
(in millions, except operating data)
Other financial data:
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities(3)(6)
 
$
409.9

 
$
410.5

 
$
434.4

 
$
349.1

 
$
346.9

Net cash used in investing activities(3)(6)
 
(410.6
)
 
(223.6
)
 
(183.3
)
 
(150.4
)
 
(258.6
)
Net cash provided by (used in) financing activities(2)
 
(17.0
)
 
(160.0
)
 
(178.6
)
 
(332.5
)
 
83.1

Balance sheet data at period end:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
228.8

 
$
246.5

 
$
219.6

 
$
147.1

 
$
280.9

Total assets(5)
 
2,842.9

 
2,645.7

 
2,601.6

 
2,511.5

 
2,678.6

Total debt obligations(5)
 
2,470.3

 
2,340.1

 
2,342.4

 
2,332.2

 
2,284.6

Deficit
 
(855.8
)
 
(838.9
)
 
(877.6
)
 
(897.3
)
 
(715.3
)
_______________________________________________________________________________
(1)
Fiscal year ended January 1, 2015 was comprised of 53 weeks.
(2)
Includes the December 15, 2014 payment of the $1.00 extraordinary cash dividend paid on each share of Class A and Class B common stock.
(3)
During the quarter ended September 26, 2013, we redeemed 2.3 million of our National CineMedia common units for a like number of shares of NCM, Inc. common stock, which the Company sold in an underwritten public offering (including underwriter over-allotments) for $17.79 per share, reducing our investment in National CineMedia by approximately $10.0 million, the average carrying amount of the shares sold. The Company received approximately $40.9 million in proceeds, resulting in a gain on sale of approximately $30.9 million. We accounted for these transactions as a proportionate decrease in the Company's Initial Investment Tranche and Additional Investments Tranche and decreased our ownership share in National CineMedia. See Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K for further information.
(4)
During the years ended December 31, 2017, December 31, 2016, December 31, 2015, January 1, 2015, and December 26, 2013, we recorded long-lived asset and favorable lease impairment charges of $15.0 million, $7.9 million, $15.6 million, $5.6 million, and $9.5 million, respectively, specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. In addition, during the years ended December 31, 2017 and December 31, 2016, we recorded goodwill impairment charges of $7.3 million and $1.7 million, respectively, as the carrying value of one of its reporting units exceeded its estimated fair value. See Note 2 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K for further information related to our impairment policies.
(5)
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest, which intended to simplify the presentation of debt issuance costs. Prior to the issuance of ASU 2015-03, debt issuance costs were reported on

16


the balance sheet as assets and amortized as interest expense. ASU 2015-03 requires that they be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability. The costs will continue to be amortized to interest expense using the effective interest method. ASU 2015-03 is to be applied retrospectively and is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company adopted this guidance during the quarter ended March 31, 2016. Debt issuance costs associated with long-term debt, net of accumulated amortization, were $23.1 million, $25.8 million, $30.7 million, $28.0 million, and $26.1 million as of December 31, 2017, December 31, 2016, December 31, 2015, January 1, 2015, and December 26, 2013, respectively. The balance sheet as of December 31, 2015 has been recast to reflect the reclassification of debt issuances costs, net of accumulated amortization, from "Other Non-Current Assets" to a reduction of "Long-Term Debt, Less Current Portion."
(6)
On August 4, 2017, the Company sold all of its 50% equity interest in Open Road Films, a film distribution company jointly owned by us and AMC, to a third party for total proceeds of approximately $14.0 million. In accordance with the purchase agreement, approximately $3.7 million of the net proceeds received were in satisfaction of various receivables and other amounts due to the Company related to film marketing services provided to Open Road Films prior to the closing date. As a result of the sale, the Company recorded a gain of approximately $17.8 million, representing the difference between the net proceeds received of $10.3 million (after satisfaction of the above amounts due the Company) and the carrying amount of the Company's investment in Open Road Films (approximately $(7.5) million) as of the closing date.
(7)
As discussed in Part I of this Form 10-K, on December 5, 2017, Regal entered into the Merger Agreement and as a result, incurred merger related expenses of approximately $12.5 million during the quarter ended December 31, 2017.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of Regal Entertainment Group for the fiscal years ended December 31, 2017, December 31, 2016, and December 31, 2015. The following discussion and analysis should be read in conjunction with the consolidated financial statements of Regal and the notes thereto included elsewhere in this Form 10-K. This discussion and analysis does not reflect any changes that may become relevant as a result of the Company’s becoming a wholly owned, indirect subsidiary of Cineworld.
Overview and Basis of Presentation
We conduct our operations through our wholly owned subsidiaries. We operate one of the largest and most geographically diverse theatre circuits in the United States, consisting of 7,322 screens in 560 theatres in 43 states along with Guam, Saipan, American Samoa and the District of Columbia as of December 31, 2017. We believe the size, reach and quality of our theatre circuit provide an exceptional platform to realize economies of scale from our theatre operations. The Company manages its business under one reportable segment: theatre exhibition operations.
We generate revenues primarily from admissions and concession sales. Additional revenues are generated by our vendor marketing programs, our gift card and bulk ticket programs, various other activities in our theatres and through our relationship with National CineMedia, which focuses on in-theatre advertising. Film rental costs depend primarily on the popularity and box office revenues of a film, and such film rental costs generally increase as the admissions revenues generated by a film increase. Because we purchase certain concession items, such as fountain drinks and popcorn, in bulk and not pre-packaged for individual servings, we are able to maximize our margins by negotiating volume discounts. Other operating expenses consist primarily of theatre labor and occupancy costs.
The timing of movie releases can have a significant effect on our results of operations, and the results of one fiscal quarter are not necessarily indicative of results for the next fiscal quarter or any other fiscal quarter. The unexpected emergence of a hit film during other periods can alter the traditional trend. The seasonality of motion picture exhibition, however, has become less pronounced as motion picture studios are releasing motion pictures somewhat more evenly throughout the year. The Company does not believe that inflation has had a material impact on its financial position or results of operations.
On December 5, 2017, the Company entered into the Merger Agreement with Cineworld, US Holdco and the Merger
Sub, pursuant to which the Company became a wholly owned, indirect subsidiary of Cineworld upon the consummation of the Merger on February 28, 2018. At the effective time of the Merger, each outstanding share of the Company’s Class A and Class B common stock were converted into the right to receive $23.00 in cash, subject to the terms and conditions of the Merger Agreement. With respect to the periods subsequent to the periods covered hereby, this discussion and analysis is qualified in all

17


respects by the fact that the Company became a wholly owned, indirect subsidiary of Cineworld upon consummation of the Merger on February 28, 2018.

Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with U.S generally accepted accounting principles ("GAAP"), which require management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheet as well as the reported amounts of revenues and expenses during the reporting period. We routinely make estimates and judgments about the carrying value of our assets and liabilities that are not readily apparent from other sources. We evaluate and modify on an ongoing basis such estimates and assumptions, which include those related to property and equipment, goodwill, deferred revenue pertaining to gift card and bulk ticket sales, income taxes and purchase accounting as well as others discussed in Note 2 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities. Actual results, under conditions and circumstances different from those assumed, may differ materially from estimates. The impact and any associated risks related to estimates, assumptions, and accounting policies are discussed elsewhere within this "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in the notes to the consolidated financial statements, if applicable, where such estimates, assumptions, and accounting policies affect our reported and expected results. Management has discussed the development and selection of its critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our related disclosures herein.
We believe the following accounting policies are critical to our business operations and the understanding of our results of operations and affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:
We have applied the principles of purchase accounting when recording theatre acquisitions. Under current purchase accounting principles, we are required to use the acquisition method of accounting to estimate the fair value of all assets and liabilities, including: (i) the acquired tangible and intangible assets, including property and equipment, (ii) the liabilities assumed at the date of acquisition (including contingencies), and (iii) the related deferred tax assets and liabilities. Because the estimates we make in purchase accounting can materially impact our future results of operations, for significant acquisitions, we have obtained assistance from third party valuation specialists in order to assist in our determination of fair value. The Company provides assumptions to the third party valuation firms based on information available to us at the acquisition date, including both quantitative and qualitative information about the specified assets or liabilities. The Company primarily utilizes the third parties to accumulate comparative data from multiple sources and assemble a report that summarizes the information obtained. The Company then uses the information to determine fair value. The third party valuation firms are supervised by Company personnel who are knowledgeable about valuations and fair value. The Company evaluates the appropriateness of the valuation methodology utilized by the third party valuation firms. The estimation of the fair value of the assets and liabilities involves a number of judgments and estimates that could differ materially from the actual amounts. Historically, the estimates made have not experienced significant changes and, as a result, we have not disclosed such changes.
FASB Accounting Standards Codification ("ASC") Subtopic 350-20, Intangibles—Goodwill and Other—Goodwill specifies that goodwill and indefinite-lived intangible assets will be subject to an annual impairment assessment. In assessing the recoverability of the goodwill, we must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets in future periods. Our goodwill impairment assessment for fiscal 2017 indicated that the carrying value of one of our reporting units exceeded its estimated fair value and as a result, we recorded a goodwill impairment charge of approximately $7.3 million. Our annual goodwill impairment assessment for fiscal 2016 indicated that the carrying value of one of our reporting units exceeded its estimated fair value and as a result, we recorded a goodwill impairment charge of approximately $1.7 million. Based on our annual impairment assessment conducted during fiscal 2015, we were not required to record a charge for goodwill impairment.
We depreciate and amortize the components of our property and equipment relating to both owned and leased theatres on a straight-line basis over the shorter of the lease term or the estimated useful lives of the assets. Each owned theatre consists of a building structure, structural improvements, seating and concession and film display equipment. While we have assigned an estimated useful life of less than 30 years to certain acquired facilities, we estimate that our newly constructed buildings generally have an estimated useful life of 30 years. Certain of our buildings have been in existence for more than 40 years. With respect to equipment (e.g., concession stand, point-

18


of-sale equipment, etc.), a substantial portion is depreciated over seven years or less, which has been our historical replacement period. Seats and digital projection equipment generally have longer useful economic lives, and their depreciable lives (10-17.5 years) are based on our experience and replacement practices. The estimates of the assets' useful lives require our judgment and our knowledge of the assets being depreciated and amortized. Further, we review the economic useful lives of such assets annually and make adjustments thereto as necessary. To the extent we determine that certain of our assets have become obsolete, we accelerate depreciation over the remaining useful lives of the assets. Actual economic lives may differ materially from these estimates.
Historical appraisals of our properties have supported the estimated lives being used for depreciation and amortization purposes. Furthermore, our analysis of our historical capital replacement program is consistent with our depreciation policies. Finally, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Such analysis generally evaluates assets for impairment on an individual theatre basis. When the estimated future undiscounted cash flows of the operations to which the assets relate do not exceed the carrying value of the assets, such assets are written down to fair value. Our experience indicates that theatre properties become impaired primarily due to market or competitive factors rather than physical (wear and tear) or functional (inadequacy or obsolescence) factors. In this regard, we do not believe the frequency or volume of facilities impaired due to these market factors are significant enough to impact the useful lives used for depreciation periods. During the years ended December 31, 2017, December 31, 2016 and December 31, 2015, we recorded long-lived asset impairment charges of $13.5 million, $7.9 million and $15.6 million, respectively, specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatres we deemed other than temporary.
For the fiscal years ended December 31, 2017, December 31, 2016 and December 31, 2015, no significant changes have been made to the depreciation and amortization rates applied to operating assets, the underlying assumptions related to estimates of depreciation and amortization, or the methodology applied. For the fiscal year ended December 31, 2017, consolidated depreciation and amortization expense was $249.7 million, representing 7.9% of consolidated total revenues. If the estimated lives of all assets being depreciated were increased by one year, the consolidated depreciation and amortization expense would have decreased by approximately $16.6 million, or 6.7%. If the estimated lives of all assets being depreciated were decreased by one year, the consolidated depreciation and amortization expense would have increased by approximately $19.2 million, or 7.7%.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a valuation allowance if it is deemed more likely than not that our deferred income tax assets will not be realized. We reassess the need for such valuation allowance on an ongoing basis. An increase in the valuation allowance generally results in an increase in the provision for income taxes recorded in such period. A decrease in the valuation allowance generally results in a decrease to the provision for income taxes recorded in such period.
Additionally, income tax rules and regulations are subject to interpretation, require judgment by us and may be challenged by the taxing authorities. As described further in Note 7 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, the Company applies the provisions of ASC Subtopic 740-10, Income Taxes—Overview. Although we believe that our tax return positions are fully supportable, in accordance with ASC Subtopic 740-10, we recognize a tax benefit only for tax positions that we determine will more likely than not be sustained based on the technical merits of the tax position. With respect to such tax positions for which recognition of a benefit is appropriate, the benefit is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Tax positions are evaluated on an ongoing basis as part of our process for determining our provision for income taxes. Among other items deemed relevant by us, the evaluations are based on new legislation, other new technical guidance, judicial proceedings, and our specific circumstances, including the progress of tax audits. Any change in the determination of the amount of tax benefit recognized relative to an uncertain tax position impacts the provision for income taxes in the period that such determination is made.
For fiscal 2017, our provision for income taxes was $101.6 million. Changes in management's estimates and assumptions regarding the probability that certain tax return positions will be sustained, the enacted tax rate

19


applied to deferred tax assets and liabilities, the ability to realize the value of deferred tax assets, or the timing of the reversal of tax basis differences could impact the provision for income taxes and change the effective tax rate. A one percentage point change in the effective tax rate from 47.5% to 48.5% would have increased the current year income tax provision by approximately $2.1 million.
As noted in our significant accounting policies for "Revenue Recognition" under Note 2 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, the Company maintains a deferred revenue balance pertaining to cash received from the sale of bulk tickets and gift cards that have not been redeemed. The Company recognizes revenue associated with bulk tickets and gift cards when redeemed, or when the likelihood of redemption becomes remote. We recognize unredeemed gift cards and other advanced sale-type certificates as revenue (known as "breakage" in our industry) based on historical experience, when the likelihood of redemption is remote, and when there is no legal obligation to remit the unredeemed gift card and bulk ticket items to the relevant jurisdiction. The determination of the likelihood of redemption is based on an analysis of historical redemption trends and considers various factors including the period outstanding, the level and frequency of activity, and the period of inactivity.

Results of Operations
Based on our review of industry sources, North American box office revenues for the time period that corresponds to the Fiscal 2017 Period were estimated to have decreased by approximately two to three percent per screen in comparison to the Fiscal 2016 Period. The industry's box office results for fiscal 2017 were negatively impacted by weaker than expected attendance generated by the overall film slate during the year.
The following table sets forth the percentage of total revenues represented by certain items included in our consolidated statements of income for the Fiscal 2017 Period, the Fiscal 2016 Period and the year ended December 31, 2015 (the "Fiscal 2015 Period") (dollars and attendance in millions, except average ticket prices and average concessions per patron):

20


 
 
Fiscal 2017 Period
 
Fiscal 2016 Period
 
Fiscal 2015 Period
 
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
% of
Revenue
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Admissions
 
$
2,008.1

 
63.5
%
 
$
2,061.7

 
64.5
%
 
$
2,038.2

 
65.2
%
Concessions
 
930.2

 
29.4

 
932.6

 
29.2

 
901.7

 
28.8

Other operating revenues
 
224.7

 
7.1

 
202.8

 
6.3

 
187.4

 
6.0

Total revenues
 
3,163.0

 
100.0

 
3,197.1

 
100.0

 
3,127.3

 
100.0

Operating expenses:
 

 
 
 
 
 
 
 
 
 
 
Film rental and advertising costs(1)
 
1,067.8

 
53.2

 
1,107.3

 
53.7

 
1,093.1

 
53.6

Cost of concessions(2)
 
123.8

 
13.3

 
119.5

 
12.8

 
114.4

 
12.7

Rent expense(3)
 
426.8

 
13.5

 
427.6

 
13.4

 
421.5

 
13.5

Other operating expenses(3)
 
912.6

 
28.9

 
883.2

 
27.6

 
863.7

 
27.6

General and administrative expenses (including share-based compensation expense of $9.2 million, $8.8 million and $8.3 million for the Fiscal 2017 Period, the Fiscal 2016 Period and the Fiscal 2015 Period, respectively)(3)
 
86.6

 
2.7

 
84.6

 
2.6

 
78.8

 
2.5

Depreciation and amortization(3)
 
249.7

 
7.9

 
230.7

 
7.2

 
216.8

 
6.9

Net loss on disposal and impairment of operating assets and other(3)
 
24.0

 
0.8

 
4.8

 
0.2

 
19.7

 
0.6

Total operating expenses(3)
 
2,891.3

 
91.4

 
2,857.7

 
89.4

 
2,808.0

 
89.8

Income from operations(3)
 
271.7

 
8.6

 
339.4

 
10.6

 
319.3

 
10.2

Interest expense, net(3)
 
125.1

 
4.0

 
128.1

 
4.0

 
129.6

 
4.1

Loss on extinguishment of debt(3)
 
1.3

 

 
2.9

 
0.1

 
5.7

 
0.2

Earnings recognized from NCM(3)
 
(24.1
)
 
0.8

 
(29.4
)
 
0.9

 
(31.0
)
 
1.0

Gain on sale of Open Road Films Investment(3)
 
(17.8
)
 
0.6

 

 

 

 

Equity in income of non-consolidated entities and other, net(3)
 
(39.2
)
 
1.2

 
(43.9
)
 
1.4

 
(38.3
)
 
1.2

Merger related expenses(3)
 
12.5

 
0.4

 

 

 

 

Provision for income taxes(3)
 
101.6

 
3.2

 
111.2

 
3.5

 
100.1

 
3.2

Net income attributable to controlling interest(3)
 
$
112.3

 
3.6

 
$
170.4

 
5.3

 
$
153.4

 
4.9

Attendance
 
196.9

 
*

 
210.9

 
*

 
216.7

 
*

Average ticket price(4)
 
$
10.20

 
*

 
$
9.78

 
*

 
$
9.41

 
*

Average concessions per patron(5)
 
$
4.72

 
*

 
$
4.42

 
*

 
$
4.16

 
*

_______________________________________________________________________________
*
Not meaningful
(1)
Percentage of revenues calculated as a percentage of admissions revenues.
(2)
Percentage of revenues calculated as a percentage of concessions revenues.
(3)
Percentage of revenues calculated as a percentage of total revenues.
(4)
Calculated as admissions revenues/attendance.
(5)
Calculated as concessions revenues/attendance.

Fiscal 2017 Period Compared to Fiscal 2016 Period
Admissions
During the Fiscal 2017 Period, total admissions revenues decreased $53.6 million, or 2.6%, to $2,008.1 million, from $2,061.7 million in the Fiscal 2016 Period. A 6.6% decrease in attendance (approximately $136.1 million of total admissions revenues), partially offset by a 4.3% increase in average ticket prices (approximately $82.5 million of total admissions

21


revenues) led to the overall decrease in the Fiscal 2017 Period admissions revenues. Attendance during the Fiscal 2017 Period in comparison to that of the Fiscal 2016 Period was negatively impacted by the weaker overall film slate during the Fiscal 2017 Period. For the Fiscal 2017 Period, the 4.3% average ticket price increase was due to selective price increases identified during our ongoing periodic pricing reviews (particularly at locations featuring luxury reclining seats), partially offset by a decrease in the percentage of our admissions revenues generated by premium format films exhibited during the Fiscal 2017 Period. Based on our review of certain industry sources, the decrease in our admissions revenues on a per screen basis was slightly greater than the industry’s per screen results for the Fiscal 2017 Period as compared to the Fiscal 2016 Period.
Concessions
Total concessions revenues decreased $2.4 million, or 0.3%, to $930.2 million during the Fiscal 2017 Period, from $932.6 million for the Fiscal 2016 Period. A 6.6% decrease in attendance (approximately $61.6 million of total concessions revenues), partially offset by a 6.8% increase in average concessions revenues per patron (approximately $59.2 million of total concessions revenues) led to the overall decrease in the Fiscal 2017 Period concessions revenues. The 6.8% increase in average concessions revenues per patron for the Fiscal 2017 Period was primarily attributable to an increase in beverage and popcorn sales, selective price increases and the continued rollout of our expanded food and alcohol menu.
Other Operating Revenues
Other operating revenues increased $21.9 million, or 10.8%, to $224.7 million during the Fiscal 2017 Period, from $202.8 million for the Fiscal 2016 Period. Included in other operating revenues are revenues from our vendor marketing programs, other theatre revenues (consisting primarily of internet ticketing surcharges, theatre rentals and arcade games), theatre access fees paid by National CineMedia (net of payments for on-screen advertising time provided to our beverage concessionaire) and revenues related to our gift card and bulk ticket programs. The increase in other operating revenues during the Fiscal 2017 Period was due to an increase in internet ticketing surcharges (approximately $13.6 million), an increase in revenues from our vendor marketing programs (approximately $9.4 million) and incremental National CineMedia revenues (approximately $1.5 million), partially offset by a decrease in revenues related to our gift card and bulk ticket programs (approximately $4.2 million).
Film Rental and Advertising Costs
Film rental and advertising costs as a percentage of admissions revenues decreased to 53.2% during the Fiscal 2017 Period from 53.7% in the Fiscal 2016 Period. The decrease in film rental and advertising costs as a percentage of admissions revenues was primarily attributable to weaker than expected attendance generated by the top tier films exhibited during the Fiscal 2017 Period.
Cost of Concessions
During the Fiscal 2017 Period, cost of concessions increased $4.3 million, or 3.6%, to $123.8 million as compared to $119.5 million during the Fiscal 2016 Period. Cost of concessions as a percentage of concessions revenues for the Fiscal 2017 Period was approximately 13.3% compared to 12.8% during the Fiscal 2016 Period. The increase in cost of concessions as a percentage of concessions revenues during the Fiscal 2017 Period was primarily related to increases in packaged goods and raw material costs and the impact of incremental expanded food and alcohol sales during such periods, partially offset by selective price increases during such periods.
Rent Expense
Rent expense decreased $0.8 million, or 0.2%, to $426.8 million in the Fiscal 2017 Period, from $427.6 million in the Fiscal 2016 Period. The decrease in rent expense in the Fiscal 2017 Period was primarily attributed to the permanent closure of ten theatres with 88 screens subsequent to the end of the Fiscal 2016 Period, along with reductions of contingent rent, partially offset by incremental rent from the opening of two new theatres with 26 screens and the acquisition of nine theatres with 134 screens subsequent to the end of the Fiscal 2016 Period.
Other Operating Expenses
Other operating expenses increased $29.4 million, or 3.3%, to $912.6 million in the Fiscal 2017 Period, from $883.2 million in the Fiscal 2016 Period. The increase in other operating expenses during the Fiscal 2017 Period was primarily due to an increase in other operating expenses from the Fiscal 2017 Period acquisitions (approximately $17.7 million), increases in non-rent occupancy and other costs (approximately $13.8 million) and increased theatre-level payroll and benefit costs (approximately $2.6 million), partially offset by decreased costs associated with lower premium format film revenues (approximately $4.7 million) during the Fiscal 2017 Period.
General and Administrative Expenses
General and administrative expenses increased $2.0 million, or 2.4%, to $86.6 million in the Fiscal 2017 Period, from $84.6 million in the Fiscal 2016 Period. The increase in general and administrative expenses during the Fiscal 2017 Period was

22


primarily attributable to expenses associated with the Santikos Theaters, Inc. and Warren Theatres acquisitions described in Note 3 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Depreciation and Amortization
Depreciation and amortization expense increased $19.0 million, or 8.2%, to $249.7 million for the Fiscal 2017 Period, from $230.7 million in the Fiscal 2016 Period. The increase in depreciation and amortization expense during the Fiscal 2017 Period was primarily related to incremental depreciation and amortization expense associated with increased capital expenditures related to the installation of luxury reclining seats, the acquisition of nine theatres with 134 screens and the opening of two new theatres with 26 screens subsequent to the end of the Fiscal 2016 Period, and accelerated depreciation on certain identified assets, partially offset by permanent closure of 10 theatres with 88 screens subsequent to the end of the Fiscal 2016 Period.
Net Loss on Disposal and Impairment of Operating Assets and Other
Net loss on disposal and impairment of operating assets and other increased $19.2 million, to $24.0 million for the Fiscal 2017 Period, from $4.8 million in the Fiscal 2016 Period. Included in net loss on disposal and impairment of operating assets and other during the Fiscal 2017 Period was a $13.5 million impairment of long-lived assets, a $7.3 million impairment of goodwill related to one of the Company's reporting units, and a $1.4 million favorable lease impairment charge related to a theatre scheduled to be closed.
Interest Expense, net
During the Fiscal 2017 Period, net interest expense decreased $3.0 million, or 2.3%, to $125.1 million, from $128.1 million in the Fiscal 2016 Period. The decrease in net interest expense during the Fiscal 2017 Period was primarily due to the impact of a lower effective interest rate under the Amended Senior Credit Facility during such periods, partially offset by additional interest expense attributable to incremental borrowings under the Amended Senior Credit Facility in connection with the June 2017 Refinancing Agreement.
Loss on Extinguishment of Debt
As described more fully in Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, during the Fiscal 2017 Period, the Company recorded a loss on debt extinguishment of $1.3 million in connection with the June 2017 Refinancing Agreement. During the Fiscal 2016 Period, the Company recorded an aggregate loss on debt extinguishment of approximately $2.9 million in connection with the June 2016 refinancing and December 2016 refinancing of our Amended Senior Credit Facility.
Gain on Sale of Open Road Films Investment
As described more fully in Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, during the quarter ended September 30, 2017, the Company recorded a gain on the sale of its investment in Open Road Films of $17.8 million.
Earnings Recognized from NCM
Earnings recognized from NCM decreased $5.3 million, or 18.0%, to $24.1 million in the Fiscal 2017 Period, from $29.4 million in the Fiscal 2016 Period. The decrease in earnings recognized from National CineMedia during the Fiscal 2017 Period was primarily attributable to lower equity income (including a $5.6 million change in interest loss as described further in Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K) from National CineMedia, partially offset by an increase in cash distributions from National CineMedia during the Fiscal 2017 Period as compared to that of the Fiscal 2016 Period.
Merger Related Expenses
As discussed in Part I of this Form 10-K, on December 5, 2017, Regal entered into the Merger Agreement and as a result, incurred merger related expenses of approximately $12.5 million during the year ended December 31, 2017.

Income Taxes
The provision for income taxes of $101.6 million and $111.2 million for the Fiscal 2017 Period and the Fiscal 2016 Period, respectively, reflect effective tax rates of approximately 47.5% and 39.5%, respectively. The increase in the effective tax rate for the Fiscal 2017 Period is primarily attributable to the remeasurement of deferred tax assets and liabilities resulting from the U.S. Tax Cuts and Jobs Act, the nondeductible goodwill impairment charge of approximately $7.3 million described further in Note 2 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, and nondeductible merger related expenses. The effective tax rates for such periods reflect the impact of certain other non-deductible expenses and other income tax credits.

23


Fiscal 2016 Period Compared to Fiscal 2015 Period
Admissions
During the Fiscal 2016 Period, total admissions revenues increased $23.5 million, or 1.2%, to $2,061.7 million, from $2,038.2 million in the Fiscal 2015 Period. A 3.9% increase in average ticket prices (approximately $78.5 million of total admissions revenues), partially offset by a 2.7% decrease in attendance (approximately $55.0 million of total admissions revenues) led to the overall increase in the Fiscal 2016 Period admissions revenues. For the Fiscal 2016 Period, the 3.9% average ticket price increase was due to selective price increases identified during our ongoing periodic pricing reviews (particularly at locations featuring luxury reclining seats), partially offset by a decrease in the percentage of our admissions revenues generated by premium format films exhibited during the Fiscal 2016 Period. The decrease in attendance during the Fiscal 2016 Period was primarily attributable to the strong attendance generated by the commercial appeal of the top tier films exhibited during the Fiscal 2015 Period including, most notably, Star Wars: The Force Awakens and Jurassic World. Based on our review of certain industry sources, the increase in our admissions revenues on a per screen basis was slightly ahead of the industry’s per screen results for the Fiscal 2016 Period as compared to the Fiscal 2015 Period.
Concessions
Total concessions revenues increased $30.9 million, or 3.4%, to $932.6 million during the Fiscal 2016 Period, from $901.7 million for the Fiscal 2015 Period. A 6.3% increase in average concessions revenues per patron (approximately $55.2 million of total concessions revenues), partially offset by a 2.7% decrease in attendance (approximately $24.3 million of total concessions revenues) led to the overall increase in the Fiscal 2016 Period concessions revenues. The 6.3% increase in average concessions revenues per patron for the Fiscal 2016 Period was primarily attributable to an increase in beverage, popcorn, and candy sales, selective price increases and the continued rollout of our expanded food and alcohol menu.
Other Operating Revenues
Other operating revenues increased $15.4 million, or 8.2%, to $202.8 million during the Fiscal 2016 Period, from $187.4 million for the Fiscal 2015 Period. Included in other operating revenues are revenues from our vendor marketing programs, other theatre revenues (consisting primarily of internet ticketing surcharges, theatre rentals and arcade games), theatre access fees paid by National CineMedia (net of payments for onscreen advertising time provided to our beverage concessionaire) and revenues related to our gift card and bulk ticket programs. During the Fiscal 2016 Period, the increase in other operating revenues was primarily due to an increase in revenues related to our gift card and bulk ticket programs (approximately $10.2 million) and an increase in revenues related to internet ticketing surcharges (approximately $3.9 million).
Film Rental and Advertising Costs
Film rental and advertising costs as a percentage of admissions revenues was 53.7% during the Fiscal 2016 Period and was consistent with that of the Fiscal 2015 Period.
Cost of Concessions
During the Fiscal 2016 Period, cost of concessions increased $5.1 million, or 4.5%, to $119.5 million as compared to $114.4 million during the Fiscal 2015 Period. Cost of concessions as a percentage of concessions revenues for the Fiscal 2016 Period was approximately 12.8% and was in line with that of the Fiscal 2015 Period.
Rent Expense
Rent expense increased $6.1 million, or 1.4%, to $427.6 million in the Fiscal 2016 Period, from $421.5 million in the Fiscal 2015 Period. The increase in rent expense in the Fiscal 2016 Period was primarily impacted by incremental rent associated with the opening of two new theatres with 19 screens subsequent to the end of the Fiscal 2015 Period and higher contingent rent associated with the increase in total revenues, partially offset by the closure of 13 theatres with 118 screens subsequent to the end of the Fiscal 2015 Period.
Other Operating Expenses
Other operating expenses increased $19.5 million, or 2.3%, to $883.2 million in the Fiscal 2016 Period, from $863.7 million in the Fiscal 2015 Period. During the Fiscal 2016 Period, the increase in other operating expenses was primarily attributable to increases in theatre level payroll and benefit costs.
General and Administrative Expenses
General and administrative expenses increased $5.8 million, or 7.4%, to $84.6 million in the Fiscal 2016 Period, from $78.8 million in the Fiscal 2015 Period. The increase in general and administrative expenses during the Fiscal 2016 Period was primarily attributable to higher legal and professional fees.
Depreciation and Amortization

24


Depreciation and amortization expense increased $13.9 million, or 6.4%, to $230.7 million for the Fiscal 2016 Period, from $216.8 million in the Fiscal 2015 Period. The increase in depreciation and amortization expense during the Fiscal 2016 Period was primarily related to the impact of increased capital expenditures associated with the installation of luxury reclining seats subsequent to the Fiscal 2015 Period, and to a lesser extent, the opening of two new theatres with 19 screens (partially offset by the closure of 13 theatres with 118 screens) subsequent to the end of the Fiscal 2015 Period.
Net Loss on Disposal and Impairment of Operating Assets and Other
Net loss on disposal and impairment of operating assets and other decreased $14.9 million, to $4.8 million for the Fiscal 2016 Period, from $19.7 million in the Fiscal 2015 Period. Included in net loss on disposal and impairment of operating assets and other was a $9.8 million gain on the early termination of a theatre lease during the Fiscal 2016 Period.
Interest Expense, net
During the Fiscal 2016 Period, net interest expense decreased $1.5 million, or 1.2%, to $128.1 million, from $129.6 million in the Fiscal 2015 Period. The decrease in net interest expense during the Fiscal 2016 Period was primarily due to interest savings associated with a lower effective interest rate under the Amended Senior Credit Facility.
Loss on Extinguishment of Debt
During the Fiscal 2016 Period, the Company recorded an aggregate loss on debt extinguishment of approximately $2.9 million in connection with the June 2016 refinancing and December 2016 refinancing of our Amended Senior Credit Facility as further described in Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Earnings Recognized from NCM
Earnings recognized from NCM decreased $1.6 million, or 5.2%, to $29.4 million in the Fiscal 2016 Period, from $31.0 million in the Fiscal 2015 Period. The decrease in earnings recognized from NCM during the Fiscal 2016 Period was primarily attributable to lower cash distributions from National CineMedia, partially offset by higher equity income from National CineMedia during the Fiscal 2016 Period.
Income Taxes
The provision for income taxes of $111.2 million and $100.1 million for the Fiscal 2016 Period and the Fiscal 2015 Period, respectively, reflect effective tax rates of approximately 39.5%. The effective tax rates for such periods reflect the impact of certain non-deductible expenses and other income tax credits.
 
Quarterly Results
The following table sets forth selected unaudited quarterly results for the eight quarters ended December 31, 2017. The quarterly financial data as of each period presented below have been derived from Regal's unaudited condensed consolidated financial statements for those periods. Results for these periods are not necessarily indicative of results for the full year. The comparability of our results between quarters is impacted by certain factors described below and to a lesser extent, seasonality. The quarterly financial data should be read in conjunction with the consolidated financial statements of Regal and notes thereto included in Part II, Item 8 of this Form 10-K.
 
Dec. 31, 2017(1)
 
Sept. 30, 2017(2)
 
June 30, 2017 (3)
 
March 31, 2017
 
Dec. 31, 2016 (4)
 
Sept. 30, 2016
 
June 30, 2016 (5)
 
March 31, 2016
 
In millions (except per share data)
Total revenues
$
861.6

 
$
716.0

 
$
764.2

 
$
821.2

 
$
812.6

 
$
811.5

 
$
785.9

 
$
787.1

Income from operations(6)
90.7

 
22.5

 
59.0

 
99.5

 
95.0

 
87.2

 
76.6

 
80.6

Net income attributable to controlling interest(6)
28.9

 
11.4

 
23.6

 
48.4

 
53.9

 
42.3

 
33.5

 
40.7

Diluted earnings per share(6)
$
0.19

 
$
0.07

 
$
0.15

 
$
0.31

 
$
0.34

 
$
0.27

 
$
0.21

 
$
0.26

Dividends per common share
$
0.22

 
$
0.22

 
$
0.22

 
$
0.22

 
$
0.22

 
$
0.22

 
$
0.22

 
$
0.22

_______________________________________________________________________________
(1)
As discussed in Part I of this Form 10-K, on December 5, 2017, Regal entered into the Merger Agreement and as a result, incurred merger related expenses of approximately $12.5 million during the quarter ended December 31, 2017.
(2)
As described more fully in Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, during the quarter ended September 30, 2017, the Company recorded a gain on the sale of its investment in Open Road Films of $17.8 million.

25


(3)
As described further in Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, on June 6, 2017, Regal Cinemas entered into a permitted secured refinancing and incremental joinder agreement with REH, the guarantors party thereto, Credit Suisse AG and the lenders party thereto. The permitted secured refinancing agreement further amends the Amended Senior Credit Facility, which was amended by the June 2016 and December 2016 Refinancing Agreements described in (2) and (3) below. In connection with the execution of the permitted secured refinancing agreement, the Company recorded a loss on debt extinguishment of approximately $1.3 million during the quarter ended June 30, 2017.
(4)
As described further in Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, on December 2, 2016, Regal Cinemas entered into a permitted secured refinancing agreement with REH, the guarantors party thereto, Credit Suisse AG and the lenders party thereto. The permitted secured refinancing agreement further amends the Amended Senior Credit Facility, which was amended by the June 2016 Refinancing Agreement described in (2) below. In connection with the execution of the permitted secured refinancing agreement, the Company recorded a loss on debt extinguishment of approximately $1.4 million during the quarter ended December 31, 2016.
(5)
As described further in Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, on June 1, 2016, Regal Cinemas entered into a permitted secured refinancing agreement with REH, the guarantors party thereto, Credit Suisse AG and the lenders party thereto. In connection with the execution of the permitted secured refinancing agreement, the Company recorded a loss on debt extinguishment of approximately $1.5 million during the quarter ended June 30, 2016.
(6)
During the eight quarters ended December 31, 2017, we recorded long-lived asset and favorable lease impairment charges of $6.5 million, $4.4 million, $2.0 million, $2.1 million, $1.5 million, $3.4 million, $0.8 million, $2.2 million, respectively, specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. In addition, during the quarter ended September 30, 2017 and the quarter ended December 31, 2016, we recorded goodwill impairment charges of $7.3 million and $1.7 million, respectively, as the carrying value of one of its reporting units exceeded its estimated fair value. See Note 2 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K for further information related to our impairment policies.

Liquidity and Capital Resources
The Company believes cash generated from operations and its existing balance of cash and cash equivalents will be sufficient to satisfy its working capital needs, outstanding commitments and other liquidity requirements associated with its existing operations over the next 12 months.

Operating Activities
Our revenues are generated principally through admissions and concessions sales with proceeds received in cash or via credit cards at the point of sale and through our internet ticketing partners. Our operating expenses are primarily related to film and advertising costs, rent and occupancy and payroll. Film costs are ordinarily paid to distributors within 30 days following receipt of admissions revenues and the cost of the Company’s concessions are generally paid to vendors approximately 30 to 35 days from purchase. Our current liabilities include items that will become due within 12 months.
Net cash flows provided by operating activities totaled approximately $409.9 million, $410.5 million and $434.4 million for the Fiscal 2017 Period, the Fiscal 2016 Period and the Fiscal 2015 Period, respectively. The $0.6 million decrease in net cash flows generated by operating activities for the Fiscal 2017 Period as compared to the Fiscal 2016 Period was caused by a decrease in net income excluding non-cash items, partially offset by a positive fluctuation in working capital activity (primarily related to the timing of vendor payments, including film payables, as a result of increased attendance and admissions revenues at our theatres during the latter part of the Fiscal 2017 Period) and an increase in landlord contributions related to our luxury reclining seating initiative. The decrease in net cash flows generated by operating activities for the Fiscal 2016 Period as compared to the Fiscal 2015 Period was caused by a negative fluctuation in working capital activity (primarily related to the timing of vendor payments, including film payables, as a result of increased attendance and admissions revenues at our theatres during the latter part of the Fiscal 2015 Period), partially offset by an increase in landlord contributions and an increase in net income excluding non-cash items.
Investing Activities
Our capital requirements have historically arisen principally in connection with acquisitions of theatres, new theatre construction, strategic partnerships, the addition of luxury amenities in select theatres, other upgrades to the Company’s theatre facilities and equipment replacement. We fund the cost of capital expenditures through internally generated cash flows, cash on

26


hand, landlord contributions, proceeds from the disposition of assets and financing activities. We intend to continue to grow our theatre circuit through selective expansion and acquisition opportunities.
During the Fiscal 2017 Period, we received approximately 0.5 million newly issued common units of National CineMedia in accordance with the annual adjustment provisions of the Common Unit Adjustment Agreement. This transaction increased our ownership share in National CineMedia to approximately 27.6 million common units. On a fully diluted basis, we own a 17.9% interest in NCM, Inc. as of December 31, 2017.
As described further in Note 3 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, on April 13, 2017, the Company completed the acquisition of two theatres with 41 screens located in Houston, Texas from Santikos Theaters, Inc. for an aggregate net cash purchase price of $29.8 million. In addition, on April 18, 2017, the Company purchased a parcel of land located in Montgomery County, Texas from an entity affiliated with Santikos Theaters, Inc. for a net cash purchase price, before post-closing adjustments, of approximately $7.3 million. Finally, on May 18, 2017, the Company completed the acquisition of seven theatres with 93 screens located in Kansas and Oklahoma from Warren Theatres for an aggregate net cash purchase price, before post-closing adjustments, of $134.5 million.
On August 4, 2017, the Company sold all of its 50% equity interest in Open Road Films to a third party for total proceeds of approximately $14.0 million. In accordance with the purchase agreement, approximately $3.7 million of the net proceeds received were in satisfaction of various receivables and other amounts due to the Company related to film marketing services provided to Open Road Films prior to the closing date. As a result of the sale, the Company recorded a gain of approximately $17.8 million, representing the difference between the net proceeds received of $10.3 million (after satisfaction of the above amounts due the Company) and the carrying amount of the Company's investment in Open Road Films (approximately $(7.5) million) as of the closing date. Also effective with closing, the Company and Open Road Films entered into a new marketing agreement with respect to films released by Open Road Films after the closing date.
Net cash flows used in investing activities totaled approximately $410.6 million, $223.6 million and $183.3 million for the Fiscal 2017 Period, the Fiscal 2016 Period and the Fiscal 2015 Period, respectively. The $187.0 million increase in cash flows used in investing activities during the Fiscal 2017 Period, as compared to the Fiscal 2016 Period, was primarily attributable to $171.6 million of net cash used to fund acquisitions, a $20.8 million increase in capital expenditures (net of proceeds from disposals), partially offset by approximately $10.3 million of proceeds received from the sale of our Open Road Films investment. The $40.3 million increase in cash flows used in investing activities during the Fiscal 2016 Period, as compared to the Fiscal 2015 Period, was primarily attributable to a $39.8 million increase in capital expenditures (net of proceeds from disposals) and higher capital investments in certain non-consolidated entities, partially offset by the impact of $9.2 million of cash used for a fiscal 2015 acquisition and $3.6 million in proceeds received related to the sale of RealD, Inc. common stock during the Fiscal 2016 Period.
Financing Activities
As described further in Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, on June 1, 2016 Regal Cinemas entered into a permitted secured refinancing agreement with REH, the guarantors party thereto, Credit Suisse AG and the lenders party thereto (the "June 2016 Refinancing Agreement"). Pursuant to the June 2016 Refinancing Agreement, Regal Cinemas consummated a permitted secured refinancing of the Term Facility under the Amended Senior Credit Facility, which had an aggregate principal balance of approximately $958.5 million, and in accordance therewith, received term loans in an aggregate principal amount of approximately $958.5 million with a final maturity date in April 2022. Together with other amounts provided by Regal Cinemas, proceeds of the term loans were applied to repay all of the outstanding principal and accrued and unpaid interest on the Term Facility under the Amended Senior Credit Facility. In connection with the execution of the June 2016 Refinancing Agreement, the Company recorded a loss on debt extinguishment of approximately $1.5 million during the quarter ended June 30, 2016.
On December 2, 2016, Regal Cinemas entered into a permitted secured refinancing agreement (the "December 2016 Refinancing Agreement") with REH, the guarantors party thereto, Credit Suisse AG and the lenders party thereto. Pursuant to the December 2016 Refinancing Agreement, Regal Cinemas consummated a permitted secured refinancing of the Term Facility, which had an aggregate principal balance of approximately $956.1 million, and in accordance therewith, received term loans in an aggregate principal amount of approximately $956.1 million with a final maturity date in April 2022. Together with other amounts provided by Regal Cinemas, proceeds of the term loans were applied to repay all of the outstanding principal and accrued and unpaid interest on the Term Facility under the Amended Senior Credit Facility. In connection with the execution of the December 2016 Refinancing Agreement, the Company recorded a loss on debt extinguishment of approximately $1.4 million during the quarter ended December 31, 2016.
On June 6, 2017, Regal Cinemas entered into a permitted secured refinancing and incremental joinder agreement (the "June 2017 Refinancing Agreement") with REH, the guarantors party thereto, Credit Suisse AG and the lenders party thereto. Pursuant to the June 2017 Refinancing Agreement, Regal Cinemas consummated a permitted secured refinancing of the Term Facility, which had an aggregate principal balance of approximately $953.7 million, and in accordance therewith, received term

27


loans in an aggregate principal amount of approximately $953.7 million with a final maturity date in April 2022 (the "Refinanced Term Loans"). Together with other amounts provided by Regal Cinemas, proceeds of the Refinanced Term Loans were applied to repay all of the outstanding principal and accrued and unpaid interest on the existing term facility under the Amended Senior Credit Facility in effect immediately prior to the making of the Refinanced Term Loans.
Pursuant to the June 2017 Refinancing Agreement, Regal Cinemas also exercised the "accordion" feature under the Amended Senior Credit Facility to increase the aggregate amount of term loans thereunder by $150.0 million (the "2017 Accordion"). The "accordion" feature provided Regal Cinemas with the option to borrow additional term loans under the Amended Senior Credit Facility in an amount of up to $200.0 million, plus additional amounts as would not cause the consolidated total leverage ratio to exceed 3.00:1.00, in each case, subject to lenders providing additional commitments for such amounts and the satisfaction of certain other customary conditions. The entire $150.0 million under the 2017 Accordion was fully drawn on June 6, 2017 on the same terms as the Refinanced Term Loans (such amounts drawn, the "Incremental Term Loans", and together with the Refinanced Term Loans, the "New Term Loans"). A portion of the proceeds of the Incremental Term Loans were used by Regal Cinemas to pay fees and expenses related to the June 2017 Refinancing Agreement, with the remainder to be used for general corporate purposes of Regal Cinemas and its subsidiaries.
The New Term Loans amortized in equal quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount of the New Term Loans, with the balance payable on the maturity date of the New Term Loans. In connection with the execution of the June 2017 Refinancing Agreement, the Company recorded a loss on debt extinguishment of approximately $1.3 million during the quarter ended June 30, 2017.
As of December 31, 2017, we had approximately $1,097.2 million aggregate principal amount outstanding (net of debt discount) under the New Term Loans, $775.0 million aggregate principal amount outstanding under the 53/4% Senior Notes Due 2022, $250.0 million aggregate principal amount outstanding under the 53/4% Senior Notes Due 2023 and $250.0 million aggregate principal amount outstanding under the 53/4% Senior Notes Due 2025. As of December 31, 2017, we had approximately $2.7 million outstanding in letters of credit, leaving approximately $82.3 million available for drawing under the Revolving Facility. As of December 31, 2017, we are in full compliance with all agreements, including all related covenants, governing our outstanding debt obligations.
In connection with the consummation of the Merger, on February 28, 2018, all amounts outstanding under the Amended Senior Credit Facility were repaid in full, and the Amended Senior Credit Facility was terminated. Additionally, on February 28, 2018: (i) we notified Wilmington Trust National Association, in its capacity as trustee (the “Trustee”), under the indentures governing our 53/4% Senior Notes Due 2022, 53/4% Senior Notes Due 2023 and 53/4% Senior Notes Due 2025 (collectively, the “Notes”) of our intention to redeem all of the aggregate principal amounts outstanding under the Notes, (ii) at our request, the Trustee distributed an irrevocable notice of redemption to holders of the Notes, and (iii) we deposited with the Trustee funds in trust solely for the benefit of the holders of the Notes sufficient to pay and discharge the entire indebtedness on the Notes and thereby satisfied and discharged the indentures pursuant to the terms therein. The Notes will be redeemed in full on March 30, 2018. For more information regarding financing activities occurring after December 31, 2017, in connection with the Merger, refer to Note 16 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
During the Fiscal 2017 Period, Regal paid four quarterly cash dividends of $0.22 per share on each outstanding share of the Company's Class A and Class B common stock, or approximately $138.9 million in the aggregate. On February 7, 2018, the Company declared a cash dividend of $0.22 per share on each share of the Company's Class A and Class B common stock (including outstanding restricted stock), which was paid on February 26, 2018 to stockholders of record on February 17, 2018. Declared dividends have been funded through cash flow from operations and available cash on hand.
Net cash flows used in financing activities were approximately $17.0 million, $160.0 million and $178.6 million for the Fiscal 2017 Period, the Fiscal 2016 Period and the Fiscal 2015 Period, respectively. The net decrease in cash flows used in financing activities during the Fiscal 2017 Period as compared to the Fiscal 2016 Period of $143.0 million was primarily attributable to incremental borrowings under the Amended Senior Credit Facility in connection with the June 2017 Refinancing Agreement. The net decrease in cash flows used in financing activities during the Fiscal 2016 Period as compared to the Fiscal 2015 Period of $18.6 million was primarily attributable to the net impact of the Amended Senior Credit Facility refinancing effected during the Fiscal 2015 Period.

Sale-Leaseback Transactions
For information regarding our various sale and leaseback transactions, refer to Note 6 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.




28


Contractual Cash Obligations and Commitments
The Company has assumed long-term contractual obligations and commitments in the normal course of business, primarily debt obligations and non-cancelable operating leases. Other than the operating leases that are detailed below, the Company does not utilize variable interest entities or any other form of off-balance sheet financing. As of December 31, 2017, the Company's estimated contractual cash obligations and commercial commitments over the next several periods are as follows (in millions):
 
 
Payments Due By Period
 
 
Total
 
Current
 
13 - 36 months
 
37 - 60 months
 
After 60 months
Contractual Cash Obligations:
 
 
 
 
 
 
 
 
 
 
Debt obligations(1)
 
$
2,375.0

 
$
12.4

 
$
23.5

 
$
1,839.1

 
$
500.0

Future interest on debt obligations(2)
 
559.1

 
114.1

 
227.7

 
174.2

 
43.1

Capital lease obligations, including interest(3)
 
12.9

 
1.0

 
1.8

 
2.0

 
8.1

Lease financing arrangements, including interest(3)
 
129.7

 
22.2

 
35.0

 
19.8

 
52.7

Purchase obligations(4)
 
119.8

 
87.6

 
32.2

 

 

Operating leases(5)
 
3,121.6

 
446.1

 
763.6

 
615.1

 
1,296.8

FIN 48 liabilities(6)
 
0.4

 
0.4

 

 

 

Total
 
$
6,318.5

 
$
683.8

 
$
1,083.8

 
$
2,650.2

 
$
1,900.7

 
 
Amount of Commitment Expiration per Period
 
 
Total Amounts Available
 
Current
 
13 - 36 months
 
37 - 60 months
 
After 60 months
Other Commercial Commitments(7)
 
$
85.0

 
$

 
$

 
$
85.0

 
$

_______________________________________________________________________________
(1)
These amounts are included on our consolidated balance sheet as of December 31, 2017. Our Amended Senior Credit Facility provided for mandatory prepayments under certain scenarios. See Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information about our long-term debt obligations and related matters.
(2)
Future interest payments on the Company's unhedged debt obligations as of December 31, 2017 (consisting of approximately $898.2 million of variable interest rate borrowings under the New Term Loans, $775.0 million outstanding under the 53/4% Senior Notes Due 2022, $250.0 million outstanding under the 53/4% Senior Notes Due 2025, $250.0 million outstanding under the 53/4% Senior Notes Due 2023 and approximately $2.8 million of other debt obligations) are based on the stated fixed rate or in the case of the $898.2 million of variable interest rate borrowings under the New Term Loans, the current interest rate specified in our Amended Senior Credit Facility as of December 31, 2017 (3.57%). Future interest payments on the Company's hedged indebtedness as of December 31, 2017 (the remaining $200.0 million of borrowings under the New Term Loans) are based on (i) the applicable margin (as defined in Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K) as of December 31, 2017 (2.0%) and (ii) the expected fixed interest payments under the Company's interest rate swap agreement, which is described in further detail under Note 13 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
(3)
The present value of these obligations, excluding interest, is included on our consolidated balance sheet as of December 31, 2017. Future interest payments are calculated based on interest rates implicit in the underlying leases, which have a weighted average interest rate of 11.22%, maturing in various installments through 2028. Refer to Note 5 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information about our capital lease obligations and lease financing arrangements.
(4)
Includes estimated capital expenditures and investments to which we were contractually obligated as of December 31, 2017, including improvements associated with existing theatres (including luxury reclining seating), the construction of new theatres and investments in non-consolidated entities. Does not include non-committed capital expenditures.
(5)
We enter into operating leases in the ordinary course of business. Such lease agreements provide us with the option to renew the leases at defined or then fair value rental rates for various periods. Our future operating lease obligations would change if we exercised these renewal options or if we enter into additional operating lease agreements. Our operating lease obligations are further described in Note 6 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
(6)
The table does not include approximately $6.3 million of recorded liabilities associated with unrecognized state tax benefits because the timing of the related payments was not reasonably estimable as of December 31, 2017.

29


(7)
In addition, as of December 31, 2017, Regal Cinemas had approximately $82.3 million available for drawing under the $85.0 million Revolving Facility. Regal Cinemas also maintained a sublimit within the Revolving Facility of $10.0 million for short-term loans and $30.0 million for letters of credit.

Off-Balance Sheet Arrangements
Other than the operating leases detailed above in this Form 10-K, under the heading "Contractual Cash Obligations and Commitments," the Company has no other off-balance sheet arrangements.

Recent Accounting Pronouncements
Adoption of New Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures (Topic 323). The purpose of ASU 2016-07 is to eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment was held. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and early adoption is permitted. The Company's adoption of ASU 2016-07 during the quarter ended March 31, 2017 had no impact on the Company's consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and early adoption is permitted. The Company's adoption of ASU 2016-09 had the impact of reducing income tax expense by approximately $1.3 million pertaining to excess tax benefits related to vesting of 493,516 restricted stock awards and to a lesser extent, dividends paid on restricted stock during the year ended December 31, 2017. Historically, such excess tax benefits would have been recorded as a component of additional paid-in capital.

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control, which requires when assessing which party is the primary beneficiary in a VIE, the decision maker considers interests held by entities under common control on a proportionate basis instead of treating those interests as if they were that of the decision maker itself, as current U.S. GAAP requires.  ASU 2016-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and early adoption is permitted. The Company's adoption of ASU 2016-17 during the quarter ended March 31, 2017 had no impact on the Company's consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of ASU 2017-04 is to simplify the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment should be applied on a prospective basis. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within that year. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted ASU 2017-04 in connection with its interim goodwill impairment test performed during the year ended December 31, 2017 as further described in Notes 2 and 14 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
 
Recently Issued FASB Accounting Standard Codification Updates

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or modified retrospective transition method. ASU 2014-09 was originally effective for annual and interim reporting periods beginning after December 15, 2016. However, the standard was deferred by ASU 2015-14, issued by the FASB in August 2015, and is now effective for fiscal years beginning on or after December 15, 2017,

30


including interim reporting periods within that reporting period, with early adoption permitted as of the original effective date. In addition, amendments in subsequent Accounting Standards Updates have either clarified or revised guidance as set forth in ASU 2014-09, including ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenues Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.

The Company has selected the modified retrospective method for adoption of ASU 2014-09 and its related ASU amendments. Under this method, we will recognize the cumulative effect of the changes in retained earnings at the date of adoption (January 1, 2018) as described below, but will not restate prior periods. The adoption of ASU 2014-09 and its related ASU amendments primarily impacts the Company's accounting for its (i) loyalty program, (ii) gift cards and bulk tickets, including commissions paid to third parties, (iii) the classification of internet ticketing surcharges and (iv) amounts recorded as deferred revenue and the method of amortization for the advanced payment received in connection with the 2007 National CineMedia ESA modification and subsequent receipts of common units of National CineMedia pursuant to the provisions of the Common Unit Adjustment Agreement. While we do not believe the adoption of ASU 2014-09 will have a material impact on our net income or cash flows from operations, we do expect the standard to materially impact the timing and classification of revenues and related expenses in the following key areas:

First, we believe the advanced payment received in connection with the 2007 National CineMedia ESA modification and subsequent receipts of common units of National CineMedia pursuant to the provisions of the Common Unit Adjustment Agreement, each as described in Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, include a significant financing component under ASU 2014-09. Accordingly, we expect advertising revenues will increase materially with a similar offsetting increase in non-cash interest expense beginning January 1, 2018. Through December 31, 2017, the Company utilized the units of revenue method to amortize such amounts, but will change its amortization to a straight-line method under ASU 2014-09 effective January 1, 2018. We do not expect these changes to have a material impact on our net income or cash flows from operations. As of the date of this Form 10-K, the Company expects to reduce its opening January 1, 2018 retained earnings balance (along with a corresponding credit to deferred revenue) by approximately $15 million to $20 million, before related tax effects, to give effect to the change in amortization method with respect to these advanced payments.

Second, under ASU 2014-09 and effective January 1, 2018, the Company will record internet ticketing surcharge fees based on the gross transaction price. Previously, the Company recorded such fees net of third-party commission or service fees. This change will have the effect of materially increasing other operating revenues and other operating expenses, but will have no impact on net income or cash flows from operations.

Third, with respect to our gift card and bulk ticket programs, the adoption of ASU 2014-09 is not expected to have a material impact on the annual revenue we currently recognize from these programs, but it will change the method in which we recognize revenue from gift cards and bulk tickets. Through December 31, 2017, the Company recognized revenue associated with gift cards and bulk tickets when redeemed, or when the likelihood of redemption became remote (known as "breakage" in our industry) based on historical experience. Under ASU 2014-09 and effective January 1, 2018, the Company will recognize revenue from unredeemed gift cards and bulk tickets as redeemed and will recognize breakage following the proportional method where revenue is recognized in proportion to the pattern of rights exercised by the customer when the Company expects that it is probable that a significant revenue reversal would not occur for any estimated breakage amounts. As of the date of this Form 10-K, the Company expects to reduce its opening January 1, 2018 retained earnings balance (along with a corresponding credit to deferred revenue) by approximately $25 million to $30 million, before related tax effects, to give effect to this change in accounting for our gift card and bulk ticket programs.

With respect to gift card commissions paid to third parties, under ASU 2014-09 and effective January 1, 2018, the Company will begin to amortize the commission fees over the expected redemption period. Previously, such gift card commissions were expensed as incurred. We do not expect these changes to have a material impact on our net income or cash flows from operations, however we do expect to increase our opening January 1, 2018 retained earnings balance (along with a corresponding debit to a gift card commission contract asset) by approximately $18 million to $20 million, before related tax effects, to give effect to this change in accounting for our gift card commissions.


31


Finally, with respect to other areas impacted by ASU 2014-09 such as our loyalty program, we do not expect those accounting changes to have a material impact on our net income or cash flows from operations. Through December 31, 2017, the Company recorded the estimated incremental cost of providing awards under the Regal Crown Club® loyalty program at the time the awards are earned. Under ASU 2014-09 and effective January 1, 2018, the Company will estimate the fair value of providing such loyalty program awards at the time the related awards are earned. As of the date of this Form 10-K, the Company expects to reduce its opening January 1, 2018 retained earnings balance (along with a corresponding credit to deferred revenue) by approximately $40 million to $50 million, before related tax effects, to give effect to this change in accounting for our loyalty program.

The Company is currently finalizing its review of ASU 2014-09 and its related ASU amendments with respect to required disclosures and financial statement presentation for fiscal 2018.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is evaluating the impact that ASU 2016-02 will have on its consolidated financial statements and related disclosures and believes that the significance of its future minimum rental payments will result in a material increase in ROU assets and lease liabilities.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The purpose of ASU 2016-15 is to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. The Company is evaluating the impact that ASU 2016-15 will have on its consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires that an entity recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time of the transfer instead of deferring the tax consequences until the asset has been sold to an outside party, as current U.S. GAAP requires. ASU 2016-16 is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted in any interim or annual period. The Company is evaluating the impact that ASU 2016-16 will have on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of ASU 2017-01 is to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. The amendments in ASU 2017-01 should be applied prospectively on or after the effective date. Early adoption is permitted. The Company does not expect that the adoption of ASU 2017-01 will have a material impact on its consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which is intended to simplify and amend the application of hedge accounting to more clearly portray the economics of an entity’s risk management strategies in its financial statements. ASU 2017-12 also amends the presentation and disclosure requirements and changes how entities assess hedge effectiveness. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date.  The Company is evaluating the impact that ASU 2017-12 will have on its consolidated financial statements and related disclosures.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Following the consummation of the Merger, the Company believes that its exposure to market risk is not material.


32


Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors
Regal Entertainment Group:

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

Management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of such controls as of December 31, 2017. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control - Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management believes that the Company's internal control over financial reporting is effective as of December 31, 2017.

KPMG LLP, independent registered public accounting firm of the Company's consolidated financial statements, has issued an audit report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2017, as stated in their report which is included herein.
/s/ AMY E. MILES
 
/s/ DAVID H. OWNBY
Amy E. Miles
 
David H. Ownby
Chief Executive Officer (Principal Executive Officer)
 
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)


33


Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of Directors
Regal Entertainment Group:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Regal Entertainment Group and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, deficit, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Mangement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

34


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

We have served as the Company’s auditor since 2001.
Knoxville, Tennessee
March 1, 2018



35



REGAL ENTERTAINMENT GROUP
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
 
 
December 31, 2017
 
December 31, 2016
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
228.8

 
$
246.5

Trade and other receivables, net
 
184.0

 
155.1

Inventories
 
22.9

 
20.9

Prepaid expenses and other current assets
 
27.6

 
24.4

TOTAL CURRENT ASSETS
 
463.3

 
446.9

PROPERTY AND EQUIPMENT:
 
 
 
 
Land
 
154.8

 
131.2

Buildings and leasehold improvements
 
2,478.7

 
2,319.7

Equipment
 
1,083.4

 
1,065.7

Construction in progress
 
34.8

 
20.2

Total property and equipment
 
3,751.7

 
3,536.8

Accumulated depreciation and amortization
 
(2,238.5
)
 
(2,146.7
)
TOTAL PROPERTY AND EQUIPMENT, NET
 
1,513.2

 
1,390.1

GOODWILL
 
345.8

 
327.0

INTANGIBLE ASSETS, NET
 
43.6

 
46.0

DEFERRED INCOME TAX ASSET
 
54.5

 
56.3

OTHER NON-CURRENT ASSETS
 
422.5

 
379.4

TOTAL ASSETS
 
$
2,842.9

 
$
2,645.7

LIABILITIES AND DEFICIT
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Current portion of debt obligations
 
$
26.6

 
$
25.5

Accounts payable
 
232.2

 
194.8

Accrued expenses
 
73.8

 
70.7

Deferred revenue
 
186.2

 
192.7

Income taxes payable
 
2.7

 
6.4

Other current liabilities
 
39.9

 
31.2

TOTAL CURRENT LIABILITIES
 
561.4

 
521.3

LONG-TERM DEBT, LESS CURRENT PORTION
 
2,339.4

 
2,197.1

LEASE FINANCING ARRANGEMENTS, LESS CURRENT PORTION
 
74.5

 
84.8

CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION
 
6.7

 
6.9

NON-CURRENT DEFERRED REVENUE
 
404.6

 
412.3

OTHER NON-CURRENT LIABILITIES
 
312.1

 
262.2

TOTAL LIABILITIES
 
3,698.7

 
3,484.6

COMMITMENTS AND CONTINGENCIES
 

 

DEFICIT:
 
 
 
 
Class A common stock, $0.001 par value; 500,000,000 shares authorized, 133,306,994 and 133,080,279 shares issued and outstanding at December 31, 2017 and December 31, 2016, 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 December 31, 2017 and December 31, 2016
 

 

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

 

Additional paid-in capital (deficit)
 
(929.4
)
 
(934.4
)
Retained earnings
 
70.9

 
96.5

Accumulated other comprehensive income (loss), net
 
2.5

 
(1.3
)
TOTAL STOCKHOLDERS' DEFICIT OF REGAL ENTERTAINMENT GROUP
 
(855.9
)
 
(839.1
)
Noncontrolling interest
 
0.1

 
0.2

TOTAL DEFICIT
 
(855.8
)
 
(838.9
)
TOTAL LIABILITIES AND DEFICIT
 
$
2,842.9

 
$
2,645.7


See accompanying notes to consolidated financial statements.

36


REGAL ENTERTAINMENT GROUP
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except share and per share data)
 
 
Year Ended
December 31, 2017
 
Year Ended
December 31, 2016
 
Year Ended
December 31, 2015
REVENUES:
 
 
 
 
 
 
Admissions
 
$
2,008.1

 
$
2,061.7

 
$
2,038.2

Concessions
 
930.2

 
932.6

 
901.7

Other operating revenues
 
224.7

 
202.8

 
187.4

TOTAL REVENUES
 
3,163.0

 
3,197.1

 
3,127.3

OPERATING EXPENSES:
 
 
 
 
 
 
Film rental and advertising costs
 
1,067.8

 
1,107.3

 
1,093.1

Cost of concessions
 
123.8

 
119.5

 
114.4

Rent expense
 
426.8

 
427.6

 
421.5

Other operating expenses
 
912.6

 
883.2

 
863.7

General and administrative expenses (including share-based compensation of $9.2, $8.8 and $8.3 for the years ended December 31, 2017, December 31, 2016 and December 31, 2015, respectively)
 
86.6

 
84.6

 
78.8

Depreciation and amortization
 
249.7

 
230.7

 
216.8

Net loss on disposal and impairment of operating assets and other
 
24.0

 
4.8

 
19.7

TOTAL OPERATING EXPENSES
 
2,891.3

 
2,857.7

 
2,808.0

INCOME FROM OPERATIONS
 
271.7

 
339.4

 
319.3

OTHER EXPENSE (INCOME):
 
 
 
 
 
 
Interest expense, net
 
125.1

 
128.1

 
129.6

Loss on extinguishment of debt
 
1.3

 
2.9

 
5.7

Earnings recognized from NCM
 
(24.1
)
 
(29.4
)
 
(31.0
)
Gain on sale of Open Road Films investment
 
(17.8
)
 

 

Equity in income of non-consolidated entities and other, net
 
(39.2
)
 
(43.9
)
 
(38.3
)
  Merger related expenses
 
12.5

 

 

TOTAL OTHER EXPENSE, NET
 
57.8

 
57.7

 
66.0

INCOME BEFORE INCOME TAXES
 
213.9

 
281.7

 
253.3

PROVISION FOR INCOME TAXES
 
101.6

 
111.2

 
100.1

NET INCOME
 
112.3

 
170.5

 
153.2

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST, NET OF TAX
 

 
(0.1
)
 
0.2

NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
 
$
112.3

 
$
170.4

 
$
153.4

EARNINGS PER SHARE OF CLASS A AND CLASS B COMMON STOCK (NOTE 12):
 
 
 
 
 
 
Basic
 
$
0.72

 
$
1.09

 
$
0.99

Diluted
 
$
0.72

 
$
1.09

 
$
0.98

AVERAGE SHARES OUTSTANDING (in thousands):
 
 
 
 
 
 
Basic
 
156,336

 
155,995

 
155,680

Diluted
 
156,986

 
156,804

 
156,511

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.88

 
$
0.88

 
$
0.88

See accompanying notes to consolidated financial statements.

37


REGAL ENTERTAINMENT GROUP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
Year Ended
December 31, 2017
 
Year Ended
December 31, 2016
 
Year Ended
December 31, 2015
NET INCOME
$
112.3

 
$
170.5

 
$
153.2

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
 
 
Change in fair value of interest rate swap transactions
2.0

 
(2.3
)
 
(4.3
)
Amounts reclassified to net income from interest rate swaps
1.6

 
3.6

 
4.5

Change in fair value of available for sale securities

 

 
(0.2
)
Reclassification adjustment for gain on sale of available for sale securities recognized in net income

 
(0.5
)
 

Change in fair value of equity method investee interest rate swaps
0.2

 

 
(0.6
)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
3.8

 
0.8

 
(0.6
)
TOTAL COMPREHENSIVE INCOME, NET OF TAX
116.1

 
171.3

 
152.6

Comprehensive (income) loss attributable to noncontrolling interest, net of tax

 
(0.1
)
 
0.2

COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST, NET OF TAX
$
116.1

 
$
171.2

 
$
152.8


See accompanying notes to consolidated financial statements.


38


REGAL ENTERTAINMENT GROUP
CONSOLIDATED STATEMENTS OF DEFICIT
(in millions, except amounts of cash dividends declared per share)
 
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid-In
Capital
(Deficit)
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Stockholders'
Deficit of Regal
Entertainment
Group
 
Noncontrolling
Interest
 
Total
Deficit
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balances, January 1, 2015
 
132.5

 
$
0.1

 
23.7

 
$

 
$
(941.8
)
 
$
48.4

 
$
(1.5
)
 
$
(894.8
)
 
$
(2.5
)
 
$
(897.3
)
  Net income attributable to controlling interest
 

 

 

 

 

 
153.4

 

 
153.4

 

 
153.4

  Other comprehensive income (loss)
 

 

 

 

 

 

 
(0.6
)
 
(0.6
)
 

 
(0.6
)
  Purchase of noncontrolling interest
 

 

 

 

 
(5.5
)
 

 

 
(5.5
)
 
2.9

 
(2.6
)
  Other noncontrolling interest adjustments
 

 

 

 

 

 

 

 

 
(0.2
)
 
(0.2
)
  Share-based compensation expense
 

 

 

 

 
7.7

 

 

 
7.7

 

 
7.7

  Tax benefits from vesting of restricted stock and other
 
(0.3
)
 

 

 

 
(0.3
)
 

 

 
(0.3
)
 

 
(0.3
)
  Issuance of restricted stock
 
0.5

 

 

 

 

 

 

 

 

 

  Cash dividends declared, $0.88 per share
 

 

 

 

 
(0.1
)
 
(137.6
)
 

 
(137.7
)
 

 
(137.7
)
Balances, December 31, 2015
 
132.7

 
0.1

 
23.7

 

 
(940.0
)
 
64.2

 
(2.1
)
 
(877.8
)
 
0.2

 
(877.6
)
  Net income attributable to controlling interest
 

 

 

 

 

 
170.4

 

 
170.4

 

 
170.4

  Other comprehensive income (loss)
 

 

 

 

 

 

 
0.8

 
0.8

 

 
0.8

  Share-based compensation expense
 

 

 

 

 
7.9

 

 

 
7.9

 

 
7.9

  Tax benefits from vesting of restricted stock and other
 
(0.1
)
 

 

 

 
(2.3
)
 

 

 
(2.3
)
 

 
(2.3
)
  Issuance of restricted stock
 
0.5

 

 

 

 

 

 

 

 

 

  Cash dividends declared, $0.88 per share
 

 

 

 

 

 
(138.1
)
 

 
(138.1
)
 

 
(138.1
)
Balances, December 31, 2016
 
133.1

 
0.1

 
23.7

 

 
(934.4
)