<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1996
Commission file number 0-21772
-------
Regal Cinemas, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Tennessee 62-1412720
- ------------------------------------ ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7132 Commercial Park Drive
Knoxville, Tennessee 37918
- ------------------------------------ ------------------------------------
(Address of Principal Executive (Zip Code)
Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (423) 922-1123
----------------------------
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
--- ---
Common Stock outstanding - 21,796,028 shares at August 12, 1996
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
ASSETS
June 27, December 28,
1996 1995
-------------------- --------------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 11,664 $ 5,775
Accounts receivable 559 927
Inventories 1,012 875
Prepaids and other current assets 3,252 3,039
Refundable income taxes - 2,493
Deferred income taxes 246 122
-------------------- --------------------
Total current assets 16,733 13,231
-------------------- --------------------
Property and equipment:
Land 25,653 25,200
Buildings and leasehold improvements 164,445 133,590
Equipment 96,903 83,523
Construction in progress 28,049 22,391
-------------------- --------------------
315,050 264,704
Accumulated depreciation and amortization (47,007) (40,995)
-------------------- --------------------
Total property and equipment, net 268,043 223,709
-------------------- --------------------
Other assets 22,504 9,941
-------------------- --------------------
Total assets $ 307,280 $ 246,881
==================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
June 27, December 28,
1996 1995
-------------------- --------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term obligations $ 73 $ 13,254
Accounts payable 13,908 16,684
Accrued expenses 4,962 5,685
Dividends payable - 271
-------------------- --------------------
Total current liabilities 18,943 35,894
Long-term obligations, less current maturities 22,600 95,088
Other liabilities 3,583 3,542
Deferred income taxes 6,151 5,454
-------------------- --------------------
Total liabilities 51,277 139,978
-------------------- --------------------
Shareholders' equity:
Common stock, no par; 50,000,000 shares
authorized, 21,766,934 and 18,444,128 shares
issued and outstanding at June 27, 1996 and
December 28, 1995, respectively 214,471 74,484
Retained earnings 41,532 32,419
-------------------- --------------------
256,003 106,903
-------------------- --------------------
Total liabilities and shareholders' equity $ 307,280 $ 246,881
==================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- ------------------------------------
June 27, June 29, June 27, June 29,
1996 1995 1996 1995
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Admissions $ 40,734 $ 33,691 $ 79,401 $ 61,206
Concessions 17,069 13,887 32,565 24,972
---------------- --------------- ---------------- ----------------
Other operating revenues 2,672 860 3,572 1,615
Total Revenues 60,475 48,438 115,538 87,793
---------------- --------------- ---------------- ----------------
Operating Expenses:
Film rental and advertising 23,040 19,399 43,024 32,786
Cost of concessions and other 2,095 1,664 4,165 3,144
Theatre operating expenses 19,023 15,720 37,724 31,394
General & administrative
expenses 2,399 2,040 4,598 3,577
Depreciation & amortization 3,317 2,484 6,459 4,699
Merger expenses 1,639 1,246 1,639 1,246
---------------- --------------- ---------------- ----------------
Total operating expenses 51,513 42,553 97,609 76,846
Other income (expense):
Interest expense (1,540) (1,178) (2,856) (2,140)
Interest income 55 94 157 150
Other 395 225 556 156
---------------- --------------- ---------------- ----------------
Income before taxes and
extraordinary item 7,872 5,026 15,786 9,113
Provision for income taxes 3,326 2,185 6,445 3,803
---------------- --------------- ---------------- ----------------
Income before extraordinary item 4,546 2,841 9,341 5,310
Extraordinary item net of tax:
Loss on extinguishment of debt - (448) - (448)
---------------- --------------- ---------------- ----------------
Net income $ 4,546 $ 2,393 $ 9,341 $ 4,862
================ =============== ================ ================
GST Dividends 68 79 229 128
---------------- --------------- ---------------- ----------------
Net income applicable to common
stock $ 4,478 $ 2,314 $ 9,112 $ 4,734
================ =============== ================ ================
Earnings per common share before
effect of extraordinary item:
Primary $ .22 $ .15 $ .46 $ .28
Fully diluted $ .22 $ .15 $ .46 $ .28
Extraordinary item:
Primary $ - $ (.03) $ - $ (.03)
Fully diluted $ - $ (.03) $ - $ (.03)
Earnings per common share: ---------------- --------------- ---------------- ----------------
Primary $ .22 $ .12 $ .46 $ .25
================ =============== ================ ================
Fully diluted $ .22 $ .12 $ .46 $ .25
================ =============== ================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------
June 27, June 29,
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,341 $ 4,862
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,459 4,699
Loss on extinguishment of debt - 448
Gain on sale of assets and other (555) (153)
Deferred income taxes 573 2,674
Changes in operating assets and liabilities:
Accounts receivable 368 818
Inventories (137) (250)
Prepaids and other current assets (213) (692)
Refundable income taxes 2,493 (1,017)
Accounts payable (2,782) (2,731)
Accrued expenses and other liabilities (678) (465)
---------------- ----------------
Net cash provided by operating activities 14,869 8,193
Cash flows from investing activities:
Capital expenditures, net (43,569) (36,660)
Investment in other assets (6,388) (3,725)
---------------- ----------------
Net cash used in investing activities (49,957) (40,385)
Cash flows from financing activities:
Net borrowings (payments) on long-term debt (85,669) 26,877
Dividends paid to GST shareholders (500) -
Redemption of preferred stock - (1,196)
Net proceeds from issuance of common stock 127,086 2,674
Stock compensation expense 60 60
---------------- ----------------
Net cash provided by financing activities 40,977 28,415
---------------- ----------------
Net increase (decrease) in cash and equivalents 5,889 (3,777)
Cash and equivalents at beginning of period 5,775 7,222
---------------- ----------------
Cash and equivalents at end of period $ 11,664 $ 3,445
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries, Litchfield
Theatres, Ltd. ("Litchfield"), Neighborhood Entertainment Inc.
("Neighborhood"), and Georgia State Theatres, Inc. ("GST"), collectively
referred to as the "Company" operate multi-screen motion picture theatres
principally throughout the eastern United States. The Company formally
operates on a fiscal year ending on the Thursday closest to December 31.
On June 15, 1994, Regal issued 5,804,045 shares of its common stock for all
of the outstanding common stock of Litchfield. On April 17, 1995, Regal
issued 543,170 shares of its common stock for all of the outstanding common
stock of Neighborhood. On May 30, 1996, Regal issued 940,142 shares of its
common stock for all of the outstanding common stock of GST. The mergers
have been accounted for as poolings of interests and, accordingly, these
condensed consolidated financial statements have been restated for all
periods to include the results of operations and financial positions of
Litchfield, Neighborhood and GST.
Separate results of the combining entities for the year ended 1995 and the
three-month and six-month periods ended June 27, 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
THREE
MONTHS
ENDED SIX MONTHS
JUNE 27, ENDED JUNE
1995 1996 27, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Regal $ 184,958 $ 58,586 $ 110,829
Litchfield (through June 30 for 1994) - - -
Neighborhood (through April 27 for 1995) 5,135 - -
GST (through May 30 for 1996) 13,321 1,889 4,709
---------------- ---------------- ----------------
$ 203,414 $ 60,475 $ 115,538
Net income (loss):
Regal $ 19,061 $ 2,626 $ 9,251
Litchfield (through June 30 for 1994) - - -
Neighborhood (through April 27 for 1995) (1,824) - -
GST (through May 30 for 1996) 866 (233) 90
---------------- ---------------- ----------------
$ 18,103 $ 2,393 $ 9,341
================ ================ ================
</TABLE>
The net loss for Neighborhood for the four months ended April 27, 1995,
reflects approximately $1,219,000 (net of applicable income taxes) of
expense associated with the merger, principally legal and accounting fees,
severance costs, and other costs of consolidating. The net loss for GST
for the five months ended May 30, 1996, reflects approximately $1,200,000
(net of applicable income taxes) of expense associated with the merger,
principally legal and accounting fees, and severance related costs.
6
<PAGE> 7
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. RECENTLY ADOPTED ACCOUNTING POLICIES
Effective December 29, 1995, the Company adopted Statement of Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, which i) requires that long-lived
assets to be held and used be reviewed for impairment whenever events or
circumstances indicate that the carrying value of an asset may not be
recoverable, ii) requires that long-lived assets to be disposed of be
reported at the lower of the carrying amount or the fair value less costs
to sell, and iii) provides guidelines and procedures for measuring
impairment losses that are different from previously existing guidelines
and procedures. Such adoption had no effect on the Company's financial
statements.
Also, effective December 29, 1995, the Company adopted Statement of
Accounting Standards No. 123, Accounting and Disclosure of Stock-Based
Compensation, which encourages but does not require companies to recognize
stock awards based on their fair value at the date of grant. As the
Company elected to adopt only the disclosure requirements of the new
standard, it will continue to apply the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25),
and related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of the Company's employee stock
options equal the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
3. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 27, 1996, the condensed
consolidated statements of income for the three months and six months ended
June 27, 1996 and June 29, 1995, and the condensed consolidated statements
of cash flows for the six months ended June 27, 1996 and June 29, 1995 have
been prepared by the Company, without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows for all periods presented have been made. The December 28, 1995
information has been derived from the audited December 28, 1995 balance
sheet of Regal Cinemas, Inc.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Report filed on Form 8-K dated July 1, 1996. The results of
operations for the three month and six month periods ended June 27, 1996
are not necessarily indicative of the operating results for the full year.
4. INCOME TAXES
The Company's effective income tax rate differs from the expected federal
income tax rate of 35% due to certain merger expenses which are not
deductible for tax purposes and the inclusion of state income taxes.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM OBLIGATIONS
Long-term obligations at June 27, 1996 and December 28, 1995, consists of
the following:
<TABLE>
<CAPTION>
June 27, December 28,
1996 1995
------------------ ------------------
(in thousands)
<S> <C> <C>
Regal $150,000,000 senior reducing revolving credit facility which expires
on June 30, 2001, with interest payable quarterly, at LIBOR (5.5% and 5.7%
at June 27, 1996 and December 28, 1995, respectively) plus .5%. Draw
capability will expire on June 30,1997. Repayment of the outstanding
balance on the credit facility will begin September 30, 1997, and consist of
5% of the outstanding balance on a quarterly basis through June 30, 1999.
Thereafter, payments will be 7.5% of the outstanding balance quarterly
through June 30, 2001. $ 20,000 $ 92,450
Demand note payable to former owners of North and South Carolina theatres.
Interest is payable at Company's senior credit facility rate less .25% and
is collateralized by letters of credit. - 9,800
GST line of credit with a declining maximum loan amount of $5,700,000 at
December 28, 1995; interest payable quarterly at prime rate; balance due in
full on August 10, 1998. - 3,400
Other obligations 2,673 2,692
------------------ ------------------
22,673 108,342
Less current maturities (73) (13,254)
------------------ ------------------
$ 22,600 $ 95,088
================== ==================
</TABLE>
8
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Regal's reducing revolving credit facility contains various restrictive
covenants which require Regal to maintain certain financial ratios and
limit annual capital expenditures. During 1995, the Company amended its
Loan Agreement to decrease the interest rate, increase the facility to $150
million, extend the maturity of the facility to June 30, 2001, modify the
collateralization of the facility to a negative pledge of substantially all
assets of the Company, and modify certain financial covenants.
The Company's debt at June 27, 1996 is scheduled to mature as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1996 73
1997 2,054
1998 4,054
1999 5,054
Thereafter 11,438
--------------
Total $ 22,673
==============
</TABLE>
6. EARNINGS PER SHARE
Primary earnings per share have been computed by dividing net income
applicable to common stock (net income less dividend requirements for
preferred stock) by the weighted average number of common and common
equivalent shares outstanding during each period. Shares issued in
connection with the Litchfield, Neighborhood and GST mergers have been
included in shares outstanding for all periods presented. Common equivalent
shares relating to options issued during the 12-month period preceding the
initial public offering have been calculated using the treasury stock
method assuming that the options were outstanding during each period
presented and that the fair value of the Company's common stock during each
period was equal to the initial public offering price. Common equivalent
shares relating to options issued subsequent to the initial public offering
have been calculated using the treasury stock method for the portion of
each period for which the options were outstanding and using the fair value
of the company's common stock for each of the respective periods. All per
share data has also been adjusted to give effect to the May 1993, November
1994 and December 1995, respectively, common stock splits. After giving
effect to the items described above, primary earnings per common share have
been computed based on the assumed weighted average number of common and
common equivalent shares outstanding in each period (19,155 shares for the
three-month period ended June 29, 1995 and 20,071 shares for the
three-month period ended June 27, 1996 and 19,035 shares for the six-month
period ended June 29, 1995 and 19,680 shares for the six-month period ended
June 27, 1996). Fully diluted earnings per common share reflect the
retroactive effect of the preferred stock conversion at the time of the
initial public offering. The calculation utilizes net income before
preferred dividends and increased common share equivalents from the
conversion (19,257 shares for the three-month period ended June 29, 1995
and 20,086 shares for the three month period ended June 27, 1996 and 19,085
shares for the six-month period ended June 29, 1995 and 19,695 shares for
the six-month period ended June 27, 1996).
9
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. ACQUISITION
On May 31, 1996, Regal completed the purchase of assets consisting of seven
theatres with 61 screens in California from an individual, George
Krikorian, and corporations controlled by him (collectively, "Krikorian")
for consideration of 428,038 shares of Regal common stock with an
approximate fair value of $12.8 million and approximately $12.8 million in
cash. The Company anticipates closing the acquisition of an eighth theatre
upon satisfaction of certain conditions to closing applicable to that
theatre. The aggregate consideration for the entire Krikorian transaction
is anticipated to be approximately 470,000 shares, with an approximate fair
value of $14.1 million of Regal common stock and approximately $14.1
million in cash.
8. STOCK OFFERING
On June 10, 1996, the Company completed a secondary stock offering of
2,875,000 shares of the Company's common stock at $46.25 per share. The
total proceeds to the Company from the offering were approximately $126.5
million, net of underwriting discount and certain other expenses of $6.5
million.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following analysis of the financial condition and results of operations of
Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries, Litchfield
Theatres, Ltd. ("Litchfield"), Neighborhood Entertainment, Inc.
("Neighborhood") and Georgia State Theatres, Inc. ("GST") (collectively
referred to as the "Company") should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Regal consummated the acquisitions of Litchfield, Neighborhood, and GST on June
15, 1994, April 17, 1995, and May 30, 1996, respectively. These three
acquisitions have been accounted for as poolings of interests.
BACKGROUND OF REGAL
Regal has achieved significant growth in theatres and screens since its
formation in November of 1989. Since inception through June 27, 1996, Regal
acquired 116 theatres with 767 screens, developed 31 new theatres with 348
screens and added 48 new screens to acquired theatres. Theatres developed by
Regal typically generate positive theatre level cash flow within the first
three months following commencement of operation and reach a mature level of
attendance within one to three years following commencement of operation.
Regal does not defer any pre-opening costs associated with opening its theatres
and expenses such costs in the periods incurred. Theatre closings have had no
significant effect on the operations of Regal.
On April 8, 1994, Regal completed the acquisition of 13 theatres from National
Theatre Holdings Corp. The purchase price of the acquisition was approximately
$24.5 million and the assumption of certain obligations totaling $500,000,
which Regal funded from cash on hand and borrowings available under the then
$60 million revolving credit facility. On April 28, 1995, the Company
completed the purchase of substantially all of the assets of three companies
which held four theatres with 40 screens. Consideration for the transaction
was approximately $14.3 million cash and other consideration and 160,875 shares
of Regal common stock. On May 31, 1996, Regal completed the purchase of assets
consisting of seven theatres with 61 screens in California from an individual,
George Krikorian and corporations controlled by him (collectively "Krikorian").
The purchase price was approximately $12.9 million cash and 428,038 shares of
Regal common stock.
RESULTS OF OPERATIONS
The Company's revenues are generated primarily from box office receipts and
concession sales. Additional revenues are generated by electronic video games
located adjacent to the lobbies of certain of the Company's theatres and by on-
screen advertisements and revenues from the Company's two entertainment centers
which are adjacent to theatre complexes. Direct theatre costs consist of film
rental costs, costs of concessions and theatre operating expenses. Film rental
costs are related to the popularity of a film and the length of time since the
film's release and generally decline as a percentage of admission revenues the
longer a film has been released. Because certain concession items, such as
fountain drinks and popcorn, are purchased in bulk and not pre-packaged for
individual servings, the Company is able to improve its margins by negotiating
volume discounts. Theatre operating expenses consist primarily of theatre
labor and occupancy costs. Future increases in minimum wage requirements or
legislation requiring additional employer funding of health care, among other
things, may increase theatre operating expenses as a percentage of total
revenues.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
The following table sets forth for the fiscal periods indicated the percentage
of total revenues represented by certain items reflected in the Company's
consolidated statements of income.
<TABLE>
<CAPTION>
Percentage of Total Revenues
-------------------------------------------------------------------------------
Three Months Ended Six Months Ended
------------------------------------- -------------------------------------
June 27, June 29, June 27, June 29,
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Admissions 67.4% 69.6% 68.7% 69.7%
Concession 28.2% 28.7% 28.2% 28.4%
Other 4.4% 1.7% 3.1% 1.9%
---------------- ---------------- ---------------- ----------------
Total Revenues 100.0% 100.0% 100.0% 100.0%
Operating Expenses:
Film rental and advertising 38.1% 40.1% 37.2% 37.3%
Cost of concessions and other 3.4% 3.4% 3.6% 3.6%
Theatre operating expenses 31.5% 32.5% 32.7% 35.7%
General & administrative 4.0% 4.2% 4.0% 4.1%
Depreciation & amortization 5.5% 5.1% 5.6% 5.4%
Merger expenses 2.7% 2.6% 1.4% 1.4%
---------------- ---------------- ---------------- ----------------
Total operating expenses 85.2% 87.9% 84.5% 87.5%
Other income (expense):
Interest expense (2.5%) (2.4%) (2.5%) (2.4%)
Interest income .1% .2% .1% .1%
Other .6% .5% .5% .2%
---------------- ---------------- ---------------- ----------------
Income before taxes and
extraordinary item 13.0% 10.4% 13.6% 10.4%
Provision for income taxes (5.6%) (4.5%) (5.5%) (4.3%)
---------------- ---------------- ---------------- ----------------
Income before extraordinary item 7.4% 5.9% 8.1% 6.1%
Extraordinary item:
Loss on extinguishment of debt 0.0% (1.0%) 0.0% (.6%)
---------------- ---------------- ---------------- ----------------
NET INCOME 7.4% 4.9% 8.1% 5.5%
================ ================ ================ ================
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
THREE MONTHS ENDED JUNE 27, 1996 AND JUNE 29, 1995
TOTAL REVENUES -- Total revenues for the second quarter of fiscal 1996
increased by 24.9% to $60.4 million from $48.4 million in the comparable 1995
period. This increase was due to a 15.4% increase in attendance attributable
primarily to the net addition of 245 screens in fiscal 1995 and first six
months of 1996 as well as strong film releases in the second quarter of 1996.
Of the $12.0 million net increase in revenues for the period, a $5.0 million
increase was attributed to theatres previously operated by the Company, $3.1
million increase was attributed to theatres acquired by the Company, and $3.9
million increase was attributed to new theatres constructed by the Company.
Average ticket prices increased 4.8% during the period, reflecting a smaller
proportion of discount theatres in the 1996 period than in the same period in
1995 and, to a lesser degree, an increase in ticket prices. Average concession
sales per customer increased 6.5% for the period, reflecting both an increase
in consumption and, to a lesser degree, an increase in concession prices.
DIRECT THEATRE COSTS -- Direct theatre costs increased by 20.1% to $44.2
million in the second quarter 1996 from $36.8 million in the second quarter
1995. Direct theatre costs as a percentage of total revenues decreased to
73.0% in the 1996 period from 75.9% in the 1995 period. The decrease of direct
theatre costs as a percentage of total revenues was primarily attributable to
better monitoring and control of costs at the Company's theatres, especially
acquired theatres, and to a lesser extent, to a decrease in occupancy expenses
as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased by 17.6% to $2.4 million in the second quarter 1996 from $2.0 million
in the second quarter 1995. As a percentage of total revenues, general and
administrative expenses decreased to 4.0% in the 1996 period from 4.2% in the
1995 period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased in the second quarter 1996 by 33.5% to $3.3 million from $2.5 million
in the second quarter 1995. This increase was primarily the result of theatre
property additions associated with the Company's expansion efforts.
OPERATING INCOME -- Operating income for the second quarter 1996 increased by
52.3% to $9.0 million, or 14.8% of total revenues, from $5.9 million, or 12.1%
of total revenues, in the second quarter 1995.
INTEREST EXPENSE -- Interest expense increased in the second quarter 1996 by
30.7% to $1.5 million from $1.2 million in the second quarter 1995. The
increase was primarily due to higher average borrowings outstanding, net of
capitalized interest totaling $479,000 during the second quarter 1996, relating
to projects under construction.
INCOME TAXES -- The provision for income taxes increased in the second quarter
1996 by 52.2% to $3.3 million from $2.2 million in the second quarter 1995.
The effective tax rate was 42.3% in the 1996 period as compared to 43.4% in the
1995 period as each quarter reflected certain merger expenses which are not
deductible for tax purposes.
NET INCOME -- Net income in the second quarter 1996 increased by 90.0% to $4.5
million from $2.4 million in the second quarter 1995. The increase in net
income reflects primarily the additional screens operated by the Company, as
well as strong film releases in the second quarter of 1996.
SIX MONTHS ENDED JUNE 27, 1996 AND JUNE 29, 1995
TOTAL REVENUES -- Total revenues for the six months ended June 27, 1996
increased by 31.6% to $115.5 million
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
from $87.8 million in the comparable 1995 period. This increase was due to a
20.0% increase in attendance attributable primarily to the net addition of 245
screens in fiscal 1995 and first six months of 1996 as well as strong film
releases in the first six months of 1996. Of the $27.7 million net increase in
revenues for the period, a $11.3 million increase was attributed to theatres
previously operated by the Company, $7.7 million increase was attributed to
theatres acquired by the Company, and $8.7 million increase was attributed to
new theatres constructed by the Company. Average ticket prices increased 8.1%
during the period, reflecting a smaller proportion of discount theatres in the
1996 period than in the same period in 1995 and, to a lesser degree, an
increase in ticket prices. Average concession sales per customer increased
8.7% for the period, reflecting both an increase in consumption and, to a
lesser degree, an increase in concession prices.
DIRECT THEATRE COSTS -- Direct theatre costs increased by 26.2% to $84.9
million for the six months ended June 27, 1996 from $67.3 million in the
comparable 1995 period. Direct theatre costs as a percentage of total revenues
decreased to 73.5% in the 1996 period from 76.7% in the 1995 period. The
decrease of direct theatre costs as a percentage of total revenues was
primarily attributable to better monitoring and control of costs at the
Company's theatres, especially acquired theatres and to a lesser extent, to a
decrease in occupance expenses as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased by 28.5% to $4.6 million for the six months ended June 27, 1996 from
$3.6 million in the comparable 1995 period. As a percentage of total revenues,
general and administrative expenses decreased to 4.0% in the 1996 period from
4.1% in the 1995 period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased for the six months ended June 27, 1996 by 37.5% to $6.5 million from
$4.7 million in the comparable 1995 period. This increase was primarily the
result of theatre property additions associated with the Company's expansion
efforts.
OPERATING INCOME -- Operating income for the six months ended June 27, 1996
increased by 63.8% to $17.9 million, or 15.5% of total revenues, from $10.9
million, or 12.5% of total revenues, in the comparable 1995 period.
INTEREST EXPENSE -- Interest expense increased for the six months ended June
27, 1996 by 33.5% to $2.9 million from $2.1 million in the comparable 1995
period. The increase was primarily due to higher average borrowings
outstanding, net of capitalized interest totaling $1.0 million during the 1996
period, relating to projects under construction.
INCOME TAXES -- The provision for income taxes increased for the six months
ended June 27, 1996 by 69.5% to $6.4 million from $3.8 million in the
comparable 1995 period. The effective tax rate was 40.8% in the 1996 period as
compared to 41.7% in the 1995 period as each period reflected certain merger
expenses which are not deductible for tax purposes.
NET INCOME -- Net income for the six months ended June 27, 1996 increased by
92.1% to $9.3 million from $4.9 million in the comparable 1995 period. The
increase in net income reflects primarily the additional screens operated by
the Company, as well as strong film releases in the six months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Substantially all of the Company's revenues are derived from cash box office
receipts and concession sales, while film rental fees are ordinarily paid to
distributors 15 to 45 days following receipt of admission revenues. The
Company thus has an operating cash "float" which partially finances its
operations, reducing the Company's needs
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
for external sources of working capital.
The Company's capital requirements have arisen principally in connection with
acquisitions of existing theatres, new theatre openings and the addition of
screens to existing theatres and have been financed with borrowings under the
Company's loan agreement, equity financings and internally generated cash. The
Company amended its loan agreement to a $150 million revolving credit facility
as of November 30, 1995. The amendments to the loan agreement require that the
indebtedness under the facility be amortized at a rate of $7.5 million per
quarter commencing with the quarter ending September 30, 1997, and at a rate of
$11.3 million per quarter commencing with the quarter ending September 30,
1999. The loan agreement requires the Company to comply with certain financial
and other covenants, including maintaining a minimum net worth of not less than
$80.0 million plus 50%of the Company's net income for each quarter commencing
with the quarter ending June 29, 1995, and also restricts the Company from
incurring capital expenditures in excess of $85.0 million in the year ending
June 30, 1995, $85.0 million in the year ending June 30, 1996, $50.0 million in
the year ending June 30, 1997, and $32.5 million in any year ending June 30,
thereafter. The loan agreement amendments also modified certain covenants to
provide for the Litchfield and Neighborhood mergers. On June 27, 1996, $20.0
million was outstanding under the Company's loan agreement.
On April 17, 1995, Regal consummated the acquisition of Neighborhood for
543,170 shares of Regal common stock. In conjunction with this transaction,
the Company refinanced approximately $10 million of debt on Neighborhood's
balance sheet under the Company's revolving credit facility, and Neighborhood
redeemed its preferred stock for $1,150,000.
On April 28, 1995, the Company completed the acquisition of two theatres with
18 screens, one theatre with 14 screens and one theatre with eight screens from
Southern Cinemas, Inc., South Asheville Cinemas, Inc. and Cinemas South, Inc.,
respectively. The respective theatres are located in Aiken and Charleston,
South Carolina, Asheville, North Carolina and Rock Hill, South Carolina.
Consideration for the transaction was approximately $14,300,000 cash and other
consideration and 160,875 shares of Regal common stock.
On May 30, 1996, the Company consummated the acquisition of GST for 940,142
shares of Regal common stock. In conjunction with the transaction, the Company
refinanced approximately $3 million of GST's debt under the Company's revolving
credit facility.
On May 31, 1996, the Company completed the purchase of assets consisting of 7
theatres with 61 screens in California from an individual, George Krikorian,
and corporation controlled by him (collectively "Krikorian") for consideration
of 428,038 shares of Regal common stock and approximately $12.9 million in
cash. The Company anticipates closing the acquisition of an eighth theatre
upon satisfaction of certain conditions to closing applicable to that theatre.
The aggregate consideration for the entire Krikorian transaction is anticipated
to be approximately 470,000 shares of Regal common stock and approximately
$14.1 million in cash.
On June 10, 1996, the Company completed a secondary stock offering of 2,875,000
shares of the Company's common stock at $46.25 per share. The total proceeds
to the Company from the offering were approximately $126.5 million, net of the
underwriting discount and other expenses of $6.5 million and were used to repay
amounts outstanding under the Company's revolving credit facility.
At June 27, 1996, the Company had 147 multi-screen theatres with an aggregate
of 1,163 screens. At such date, the Company had 14 new theatres with 169 new
screens and 11 new screens at 2 existing locations under construction. The
Company anticipates that its capital expenditures over the next twelve months
will approximate
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
$80.0 million. The Company believes that its capital needs for completion of
theatre construction and development for at least the next 12 to 18 months will
be satisfied by available credit under the loan agreement, as amended,
internally generated cash flow and available cash and equivalents.
RECENTLY ADOPTED ACCOUNTING POLICIES
Effective December 29, 1995, the Company adopted Statement of Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which i) requires that long-lived assets to
be held and used be reviewed for impairment whenever events or circumstances
indicate that the carrying value of an asset may not be recoverable, ii)
require that long-lived assets to be disposed of be reported at the lower of
the carrying amount or the fair value less costs to sell, iii) provides
guidelines and procedures for measuring impairment losses that are different
from previously existing guidelines and procedures. Such adoption had no
effect on the Company's financial statements.
Also, effective December 29, 1995, the Company adopted Statement of Accounting
Standards No. 123, Accounting and Disclosure of Stock-Based Compensation, which
encourages but does not require companies to recognize stock awards based on
their fair value at the date of grant. As the Company elected to adopt only
the disclosure requirements of the new standard, it will continue to apply the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related interpretations in accounting for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equal the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
16
<PAGE> 17
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------------------------------------
<S> <C>
(a) Exhibits:
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
(b) The Company filed the following Current Reports on Form 8-K during the
quarter ended June 27, 1996:
1. Form 8-K dated May 1, 1996 (filed May 1, 1996);
2. Form 8-K dated May 9, 1996 (filed May 9, 1996); and
3. Form 8-K dated June 11, 1996 (filed June 11, 1996).
</TABLE>
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGAL CINEMAS, INC.
Date: August 12, 1996 By: /s/ Michael L. Campbell
----------------------------------------
Michael L. Campbell, Chairman, President
and Chief Executive Officer
By: /s/ Lewis Frazer, III
----------------------------------------
Lewis Frazer III, Executive Vice President,
Chief Financial Officer and Treasurer
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
ITEM DESCRIPTION
- ------------------ -----------------------------------------------------
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (SEC use only)
</TABLE>
19
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ----------------------------
June 27, June 29, June 27, June 29,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average number of common shares
outstanding
$ 19,150 $ 18,279 $ 18,760 $ 18,172
Net effect of dilutive stock options and warrants
based on the treasury stock method using average
market price
921 876 920 863
------------- ------------- ------------- -------------
Weighted average number of common and
common equivalent shares outstanding 20,071 19,155 19,680 19,035
============= ============= ============= =============
Net income $ 4,546 $ 2,393 $ 9,341 $ 4,862
Less common and preferred dividends 68 79 229 128
------------- ------------- ------------- -------------
Net income applicable to common shares $ 4,478 $ 2,314 $ 9,112 $ 4,734
============= ============= ============= =============
Net income per common share as reported $ .22 $ .12 $ .46 $ .25
============= ============= ============= =============
FULLY DILUTED:
Weighted average number of common shares
outstanding 19,150 18,279 18,760 18,172
Net effect of dilutive stock options and warrants
based on the treasury stock method using ending
market price
936 978 935 913
------------- ------------- ------------- -------------
20,086 19,257 19,695 19,085
============= ============= ============= =============
Net income $ 4,546 $ 2,393 $ 9,341 $ 4,862
Less common and preferred dividends related to
nonconvertible securities 68 79 229 128
------------- ------------- ------------- -------------
Net income applicable to common shares $ 4,478 $ 2,314 $ 9,112 $ 4,734
============= ============= ============= =============
Net income per common share assuming full
dilution, as reported $ .22 $ .12 $ .46 $ .25
============= ============= ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGAL CINEMAS, INC. FOR THE SIX MONTHS ENDED JUNE 27,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1997
<PERIOD-START> DEC-29-1995
<PERIOD-END> JUN-27-1996
<EXCHANGE-RATE> 1
<CASH> 11,664
<SECURITIES> 0
<RECEIVABLES> 559
<ALLOWANCES> 0
<INVENTORY> 1,012
<CURRENT-ASSETS> 16,733
<PP&E> 315,050
<DEPRECIATION> 47,007
<TOTAL-ASSETS> 307,280
<CURRENT-LIABILITIES> 18,943
<BONDS> 22,673
0
0
<COMMON> 214,471
<OTHER-SE> 41,532
<TOTAL-LIABILITY-AND-EQUITY> 307,280
<SALES> 32,565
<TOTAL-REVENUES> 115,538
<CGS> 4,165
<TOTAL-COSTS> 47,189
<OTHER-EXPENSES> 50,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,856
<INCOME-PRETAX> 15,786
<INCOME-TAX> 6,445
<INCOME-CONTINUING> 9,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,341
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
