August 11, 2006

They Know We Are Dupes...

by Rick Forman
Just from anecdotal evidence, Knoxville and the surrounding area seem to have a high number of theaters. While I don't frequent theaters much any more, every time I go to one they are rarely more than 50% capacity. Could be that my taste in movies isn't popular but that's another story.

Now back to the story. Knoxville/Knox County can not say no. Well almost never. They turned down a small $100k grant to buy a house recently because the applicant owned the property being purchased. Evidently it was too small to be worth the risk.

However, when it comes to multi-million dollar corporate welfare deals (aka fascism) then Knoxville is foaming at the mouth.

Knoxville has entered into yet another public(taxpayer)/private deal to build a movie theater downtown for $12.4 million. And just like the "profitable" convention center, we are on the hook again.

Here's the deal:
$3.5 million of taxpayer funds as a gift to the Industrial Development Board from the city(taxpayers).
$4.5 million in bonds
$2 million from Regal Cinemas
$1.4 million tax credits
$1 million loan to IDB paid with tax increment financing

Who is bearing the risk here? Certainly not Regal. They only have 16% invested.

The tax credits were obtained through a federal program that gives tax credits to financial institutions that agree to make investments in projects that the private sector can't bear on its own, such as many urban renewal efforts.

So lets get this straight...Regal can't bear the risk?

Regal Entertainment Group (NYSE: RGC) operates the largest and most geographically diverse theatre circuit in the United States, consisting of 6,383 screens in 542 theatres in 40 states as of June 29, 2006.
As of December 29, 2005, approximately 88% of our screens were located in film licensing zones in which we are the sole exhibitor.

Well lookie here:

Total revenue for the quarter ended June 29, 2006 was $684.6 million, a 6.5% increase from total revenue of $643.1 million for the second fiscal quarter of 2005. Net income was $16.6 million in the second quarter of 2006 compared to net income of $26.4 million in the same period of 2005. Excluding loss on debt extinguishment (net of related tax effects), however, net income totaled $35.6 million in the second quarter of 2006 compared to $26.4 million in the same period of 2005. Adjusted earnings per diluted share(1) was $0.23 for the second quarter of 2006 compared to $0.17 during the second quarter of 2005. Adjusted EBITDA(2) of $148.2 million for the second quarter of 2006 increased 16.9% from the comparable quarter in 2005 and represented an Adjusted EBITDA margin of approximately 21.6%.