Regal CEO Says Digital Upgrade May Be Delayed

Calling it one of the worst credit markets he has seen in years, Regal Entertainment Group CEO Mike Campbell said Thursday a $1 billion industry digital upgrade could be delayed.

"We believe, and JP Morgan believes, that it will get financed once the market returns to something that is reasonably normal," Campbell said. "We're going to continue to put together the pieces behind the scenes to be in a position to react."

The news, which sent shares of the company down nearly 19 percent, came as the Knoxville-based company, which is the nation's largest movie theater operator, reported that profits declined 46 percent in the third quarter. Net income totaled $31.6 million, or 21 cents per share, compared to last year's third-quarter profit of $58 million, or 36 cents per share. Diluted earnings per share were 21 cents for the third quarter of 2008, compared to 36 cents for third-quarter 2007. Third-quarter 2008 revenues were up 1 percent to $757.6 million compared to last year.

Digital Cinema Implementation Partners, a joint venture of Regal, Cinemark and AMC Entertainment, was formed to roll out cinema digital technology to theaters nationwide. On Oct. 1, DCIP announced it had signed long-term digital deployment agreements for digital cinema upgrade with 20th Century Fox, Walt Disney Motion Pictures, Paramount Pictures, Universal Studios and Lions Gate Films. DCIP is currently in discussion with the last two major studios, Sony and Warner Brothers.

"We are excited about the conversion to digital projection because of the incremental margin opportunities provided by 3-D and alternative content," Campbell told analysts in an earnings call.

A key element to Regal's strategy in the next several years, he said, will be "to provide enhanced theatergoing experiences." That includes 3-D, an expanded base of IMAX theaters and the potential for special events like the Hannah Montana/Miley Cyrus concert film last year. A similar concert film featuring the pop singing group Jonas Brothers will debut in early 2009. Campbell said there are a total of 40 3-D films announced for release over the next several years, and Regal is installing its first digital IMAX system this month.

"We are pleased with the studios' commitment to this premium content, which also allows us to price at a premium compared to our existing 2-D ticket prices," he said.

Regal also benefited from recently acquired Consolidated Theaters, which generated cash flows that were slightly ahead of company expectations.

"We're not recession-proof, but history shows we're as recession-resistant as any business out there," Campbell said. "This is a very difficult market for everybody. At Regal, it's business as usual. We've had a good year as an industry."

Campbell pointed to last year's record third quarter resulting from a string of blockbusters. This quarter, he said, was relatively flat, and up 13 percent to 15 percent as an industry. Regal also will benefit this year from a 53rd accounting week, which contributed an additional 10.2 million attendees and approximately $40 million of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) the last time it occurred, in 2003.

Campbell said he was encouraged by a strong start to the fourth-quarter box office and is optimistic about the upcoming film slate, which includes Disney's High School Musical 3, Saw V, Quantum of Solace and the next 3-D animated film from Disney, called Bolt, featuring the voices of John Travolta and Miley Cyrus.

The company also declared a cash dividend of 30 cents. Regal Entertainment Group operates 6,782 screens in 551 locations in 39 states and the District of Columbia.

By Carly Harrington, KnoxNews