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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 10, 1997 (July 31, 1997)
Regal Cinemas, Inc.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1412720
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(State or Other Jurisdiction of Incorporation) (I.R.S. Employer
Identification No.)
7132 Commercial Park Drive, Knoxville, Tennessee 37918
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (423) 922-1123
Not Applicable
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
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On July 31, 1997, Regal Cinemas, Inc. (the "Company") announced the
completion of the acquisition of the business of Cobb Theatres, L.L.C. ("Cobb
Theatres") through the mergers of three of the Company's wholly-owned
subsidiaries with and into R.C. Cobb, Inc. ("Cobb I"), Cobb Theatres II, Inc.
("Cobb II") and Cobb Finance Corp. ("Cobb III"), each an Alabama corporation and
wholly-owned subsidiary of Cobb Theatres and the acquisition by the Company of
all the partnership interests of Tricob Partnership (the "Partnership"), a
general partnership, in accordance with the terms of an Agreement and Plan of
Merger dated June 11, 1997. The transaction was accounted for as a pooling of
interests. The aggregate consideration paid by the Company was 2,837,594 shares
of the Company's Common Stock. The consideration was determined through
arm's-length negotiations among the Company, Cobb Theatres and the Partnership.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Cobb Theatres, L.L.C.
Certain of the financial statements of Cobb Theatres required by this
Item 7 were previously filed with the Securities and Exchange Commission (the
"Commission"), and are incorporated by reference herein. Pursuant to paragraph
(a)(4) of the instructions to this Item 7, the following financial information
is provided herein:
1. Audited Historical Financial Statements of Cobb Theatres at August 31,
1996 and for each of the years in the three year period ended August
31, 1996 (incorporated by reference from the annual report on Form 10-K
of Cobb Theatres for the year ended August 31, 1996);
2. Unaudited Historical Financial Statements of Cobb Theatres at May 31,
1997 and for the nine months ended May 31, 1996 and May 31, 1997
(incorporated by reference from the quarterly report on Form 10-Q of
Cobb Theatres for the nine months ended May 31, 1997); and
3. Audited Historical Financial Statements of Cobb Theatres at December
31, 1996 and for the year ended December 31, 1996 (filed herewith).
Regal Cinemas, Inc.
The Company has determined to restate certain of its historical fiscal
year end audited financial statements and its historical unaudited financial
statements for the first six months of fiscal 1997 and 1996, to reflect the Cobb
Theatres merger as if such transaction had taken place at the beginning of the
periods presented, consistent with the accounting treatment for a pooling of
interests. Listed below are the financial statements and related information
filed as a part of this report, which are responsive to Item 7(b) and which
modify and supersede the information included or incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended January 2, 1997 and
the Company's Quarterly Report on Form 10-Q for the quarter ended July 3, 1997.
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INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SELECTED FINANCIAL DATA........................................................4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................5
INDEX TO FINANCIAL STATEMENTS................................................F-1
</TABLE>
Exhibits
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11.1 Calculation of Earnings Per Share
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of LaRocca & Co., P.C.
3
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SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company
as of and for each of its most recent five fiscal years and for the most recent
comparative six month periods. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Supplemental Consolidated Financial Statements and
Notes thereto included herein.
<TABLE>
<CAPTION>
For the six months
For the Fiscal Year Ended and at Fiscal Year End and at period end
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December 31, December 30, December 29, December 28, January 2, June 27, July 3,
1992(1) 1993 1994 1995 1997 1996 1997
------------ ------------ ------------ ------------ ----------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................... $ 167,588 $ 214,359 $ 265,005 $ 309,022 $ 389,193 $ 174,240 $ 220,388
Operating income....................... 12,849 22,147 28,412 41,110 58,196 21,704 31,559
Income before extraordinary items...... 6,107 8,716 12,702 17,953 25,817 8,674 15,526
Extraordinary items:
Gain (loss) on extinguishment of debt -- 190 (1,752) (448) (751) (751) --
----------- ------------- ------------ ----------- ---------- --------- ---------
Net income............................. 6,107 8,906 10,950 17,505 25,066 7,923 15,526
Dividends.............................. (710) (739) (380) (433) (229) (229) --
Net income applicable to common stock.. $ 5,397 $ 8,167 $ 10,570 $ 17,072 $ 24,837 $ 7,694 $ 15,526
=========== ============ ============ ============ ========== ========= =========
Earnings per common share before effects
of extraordinary item:
Primary....................... $ 0.39 $ 0.38 $ 0.43 $ 0.57 $ 0.74 $ 0.27 $ 0.42
Fully diluted................. 0.29 0.34 0.43 0.57 0.74 0.27 0.42
Earnings per common share:
Primary....................... 0.34 0.36 0.36 0.55 0.71 0.24 0.42
Fully diluted................. 0.25 0.32 0.36 0.54 0.71 0.24 0.42
Weighted average shares and equivalents
outstanding:
Primary....................... 15,833 22,728 29,496 31,311 34,800 32,358 37,177
Fully diluted................. 21,282 25,728 29,669 31,482 34,892 32,381 37,330
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets...................... $ 137,424 $ 162,098 $ 252,630 $ 349,031 $ 488,825 $ 423,599 $ 556,913
Long-term obligations, including
current maturities, and
redeemable preferred stock.... 87,869 73,523 117,471 188,456 144,626 116,207 195,489
Total shareholders' equity........ 25,160 26,649 88,089 109,020 279,302 256,067 295,639
</TABLE>
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(1) 1992 results of operations do not include the results of Georgia State
Theatres, Inc.
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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
(collectively referred to as the "Company") should be read in conjunction with
the supplemental Consolidated Financial Statements and Notes thereto included
elsewhere herein. Regal consummated the acquisitions of Litchfield Theatres,
Ltd. ("Litchfield"), Neighborhood Entertainment, Inc. ("Neighborhood"), Georgia
State Theatres, Inc. ("GST") and Cobb Theatres, L.L.C. and entities through
which Cobb Theatres, L.L.C. and Tricob Partnership, an entity controlled by Cobb
Theatres, L.L.C. members, conducted their business ("Cobb Theatres"), on June
15, 1994, April 17, 1995, May 30, 1996 and July 31, 1997, respectively. These
four acquisitions have been accounted for as poolings of interests. During May
1997, Litchfield, Neighborhood and GST were merged with and into Regal.
BACKGROUND OF REGAL
Regal has achieved significant growth in theatres and screens since its
formation in November of 1989. Since inception through July 3, 1997, Regal
acquired 186 theatres with 1,429 screens, developed 49 new theatres with 571
screens and added 82 new screens to acquired theatres. Theatres developed by the
Company 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 preopening costs associated with opening its theatres and
expenses such costs in the period incurred. Theatre closings have had no
significant effect on the operations of Regal.
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 four 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.
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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
------------------------------------------------------------------------------
For the Fiscal Year Ended For the Six Months Ended
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December 28, December 28, January 2, June 27, July 3,
1994 1995 1997 1996 1997
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<S> <C> <C> <C> <C> <C>
Revenues:
Admissions .................. 69.9% 69.1% 68.3% 69.0% 68.3%
Concessions ................. 28.2 28.2 28.3 28.1 28.6
Other ....................... 1.9 2.7 3.3 2.8 3.1
----- ----- ----- ----- -----
Total revenues .............. 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Film rental and advertising
costs ..................... 38.1 37.3 37.3 36.9 36.9
Cost of concessions and other 3.7 3.7 3.9 3.9 3.8
Theatre operating expenses .. 35.1 34.2 32.8 34.6 34.1
General and administrative .. 5.3 4.8 4.3 4.8 4.3
Depreciation and amortization 5.1 6.3 6.3 6.4 6.6
Merger expenses ............. 1.9 0.4 0.4 0.9 --
----- ----- ----- ----- -----
Total operating expenses .. 89.3 86.7 85.0 87.5 85.7
Other income (expense):
Interest expense ............ (2.8) (3.5) (3.3) (4.3) (2.8)
Interest income ............. 0.1 0.1 0.2 0.1 0.1
Other ....................... -- (0.2) 0.2 0.2 (0.2)
----- ----- ----- ----- -----
Income before taxes and
extraordinary item ........ 8.0 9.8 12.0 8.5 11.5
Provision for income taxes ..... 3.2 3.9 5.4 3.6 4.4
----- ----- ----- ----- -----
Income before extraordinary
item ...................... 4.8 5.8 6.6 4.9 7.0
Extraordinary item:
Loss on extinguishment
of debt ................... (0.7) (0.1) (0.2) (0.4) --
----- ----- ----- ----- -----
Net Income ..................... 4.1% 5.7% 6.4% 4.5% 7.0%
===== ===== ===== ===== =====
</TABLE>
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SIX MONTHS ENDED JULY 3, 1997 AND JUNE 27, 1996
Total Revenues -- Total revenues for the six months ended July 3, 1997
increased by 26.5% to $220.4 million from $174.2 million in the comparable 1996
period. This increase was due to an 18.9% increase in attendance attributable
primarily to the net addition of 304 screens in fiscal 1996 and the first six
months of 1997 as well as strong film releases in the first six months of 1997.
Of the $46.2 million net increase in revenues for the period, $18.5 million was
attributed to theatres previously operated by the Company, $10.3 million was
attributed to theatres acquired by the Company, and $17.4 million was attributed
to new theatres constructed by the Company. Average ticket prices increased 6.3%
during the period, reflecting an increase in ticket prices and a greater
proportion of larger market theatres in the 1997 period than in the same period
in 1996. Average concession sales per customer increased 8.0% 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 25.5% to
$164.8 million for the six months ended July 3, 1997 from $131.3 million in the
comparable 1996 period. Direct theatre costs as a percentage of total revenues
decreased to 74.8% in the 1997 period from 75.4% in the 1996 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.
General and Administrative Expenses -- General and administrative
expenses increased by 13.7% to $9.5 million for the six months ended July 3,
1997 from $8.4 million in the comparable 1996 period. As a percentage of total
revenues, general and administrative expenses decreased to 4.3% in the 1997
period from 4.8% in the 1996 period.
Depreciation and Amortization -- Depreciation and amortization expense
increased for the six months ended July 3, 1997 by 29.0% to $14.5 million from
$11.2 million in the comparable 1996 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 July 3,
1997 increased by 45.4% to $31.6 million, or 14.3% of total revenues, from $21.7
million, or 12.5% of total revenues, in the comparable 1996 period.
Interest Expense -- Interest expense decreased for the six months ended
July 3, 1997 by 18.4% to $6.1 million from $7.4 million in the comparable 1996
period. The decrease was primarily due to lower average borrowings outstanding.
Income Taxes -- The provision for income taxes increased for the six
months ended July 3, 1997 by 58.0% to $9.8 million from $6.2 million in the
comparable 1996 period. The effective tax rate was 38.7% in the 1997 period as
compared to 41.7% in the 1996 period as the 1996 period reflected certain merger
expenses which were not deductible for tax purposes.
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Net Income -- Net income for the six months ended July 3, 1997
increased by 96.0% to $15.5 million from $7.9 million in the comparable 1996
period. The increase in net income reflects primarily the additional screens
operated by the Company, as well as strong film releases in the first six months
of 1997.
FISCAL YEARS ENDED JANUARY 2, 1997 AND DECEMBER 28, 1995
Total Revenues. Total revenues increased in 1996 by 25.9% to $389.1
million from $309.0 million in 1995. This increase was due to a 19.0% increase
in attendance attributable primarily to the net addition of 277 screens in 1996.
Of the $80.1 million increase for 1996, $38.5 million was attributed to theatres
previously operated by the Company, $25.2 million was attributed to theatres
acquired by the Company, and $16.4 million was attributed to new theatres
constructed by the Company. Average ticket prices increased 4.9% during the
period, reflecting an increase in ticket prices and a greater proportion of
larger market theatres in 1996 than in the same period in 1995. Average
concession sales per customer increased 6.3% for the period, reflecting both an
increase in consumption and, to a lesser extent, an increase in concession
prices.
Direct Theatre Costs. Direct theatre costs in 1996 increased by 23.9%
to $288.1 million from $232.5 million in 1995. Direct theatre costs as a
percentage of total revenues decreased to 74.0% in 1996 from 75.2% in 1995. 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, and, to a lesser extent, to a decrease in occupancy expense as a
percentage of total revenues, reflecting a higher mix of owned versus leased
properties.
General and Administrative Expenses. General and administrative
expenses increased in 1996 by 11.7% to $16.6 million from $14.8 million in 1995,
representing administrative costs associated with the 1996 theatre openings and
projects under construction. As a percentage of total revenues, general and
administrative expenses decreased to 4.3% in 1996 from 4.8% in 1995.
Depreciation and Amortization. Depreciation and amortization expense
increased in 1996 by 27.6% to $24.7 million from $19.4 million in 1995. This
increase was primarily the result of theatre property additions associated with
the Company's expansion efforts.
Operating Income. Operating income for 1996 increased by 41.6% to $58.2
million, or 15.0% of total revenues, from $41.1 million, or 13.3% of total
revenues, in 1995. Before the $1.6 million and $1.2 million of nonrecurring
merger expenses for 1996 and 1995, respectively, operating income was 15.4% and
13.7% of total revenues.
Interest Expense. Interest expense increased in 1996 by 20.4% to $12.8
million from $10.7 million in 1995. The increase was primarily due to higher
average borrowings outstanding.
Income Taxes. The provision for income taxes increased in 1996 by 70.5%
to $20.8 million from $12.2 million in 1995. The effective tax rate was 44.7% in
1996 as compared to 40.5% in 1995 due to the nondeductibility of certain merger
costs incurred in 1996.
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Net Income. Net income in 1996 increased by 43.2% to $25.1 million from
$17.5 million in 1995. Before nonrecurring merger expenses and extraordinary
items, net income was $27.0 million and $19.0 million for 1996 and 1995,
respectively, reflecting a 42.1% increase.
FISCAL YEARS ENDED DECEMBER 28, 1995 AND DECEMBER 29, 1994
Total Revenues. Total revenues increased in 1995 by 16.6% to $309.0
million from $265.0 million in 1994. This increase was the result of a 7.4%
increase in attendance attributable primarily to the net addition of 219 screens
in 1995. Of the $44.0 million increase for 1995, $11.4 million was attributed to
theatres previously operated by the Company, $18.6 million was attributed to
theatres acquired by the Company, and $14.0 million was attributed to new
theatres constructed by the Company. Average ticket prices increased 7.2% during
the period, reflecting a smaller proportion of discount theatres in 1995 than in
the same period in 1994 and, to a lesser degree, an increase in ticket prices.
Average concession sales per customer increased 8.2% for the period, reflecting
both an increase in consumption and, to a lesser extent, an increase in
concession prices.
Direct Theatre Costs. Direct theatre costs in 1995 increased by 14.0%
to $232.5 million from $203.8 million in 1994. Direct theatre costs as a
percentage of total revenues decreased to 75.2% in 1995 from 76.9% in 1994. 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 expense as a percentage of total revenues, reflecting a higher mix
of owned versus leased properties.
General and Administrative Expenses. General and administrative
expenses increased in 1995 by 5.7% to $14.8 million from $14.1 million in 1994,
representing administrative costs associated with the 1995 theatre openings and
projects under construction. As a percentage of total revenues, general and
administrative expenses decreased to 4.8% in 1995 from 5.3% in 1994.
Depreciation and Amortization. Depreciation and amortization expense
increased in 1995 by 42.3% to $19.4 million from $13.6 million in 1994. This
increase was primarily the result of theatre property additions associated with
the Company's expansion efforts.
Operating Income. Operating income for 1995 increased by 44.7% to $41.1
million, or 13.3% of total revenues, from $28.4 million, or 10.7% of total
revenues, in 1994. Before the $1.2 million and $5.1 million of nonrecurring
merger expenses for 1995 and 1994, respectively, operating income was 13.7% and
12.6% of total revenues.
Interest Expense. Interest expense increased in 1995 by 42.1% to $10.7
million from $7.5 million in 1994. The increase was due to higher average
borrowings outstanding net of capitalized interest totaling $1.2 million during
1995, relating to projects under construction.
Income Taxes. The provision for income taxes increased in 1995 by 44.2%
to $12.2 million from $8.5 million in 1994. The effective tax rate was 40.5% in
1995 as compared to 40.0% in 1994.
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Net Income. Net income in 1995 increased by 59.9% to $17.5 million from
$11.0 million in 1994. Before nonrecurring merger expenses and extraordinary
items, net income was $19.0 million and $16.3 million for 1995 and 1994,
respectively, reflecting a 16.6% increase.
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 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 equity
(including equity issued in connection with acquisitions and public offerings),
borrowings under the Company's loan agreement and internally generated cash. On
September 30, 1996, the Company amended its $150 million revolving credit
facility to change the amortization schedule to 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, 1999, and at a rate of $11.3 million per
quarter commencing with the quarter ending September 30, 2001. Under the loan
agreement the Company is also required to comply with certain financial and
other covenants, including maintaining a minimum net worth of not less than
$230.0 million plus 50% of the Company's net income for each quarter commencing
with the quarter ending June 27, 1996. On July 3, 1997, $100.0 million was
outstanding under the Company's loan agreement.
During 1994, 1995 and 1996, the Company effected four acquisitions
(including those accounted for as poolings of interests). The aggregate
consideration paid in connection with such acquisitions was $29.5 million in
cash, the issuance of 3,169,522 shares of Common Stock and the assumption of
approximately $13 million of debt.
On June 10, 1996, the Company completed a public offering of 4,312,500
shares of the Company's Common Stock at $30.83 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.
On May 9, 1997, the Company completed the purchase of assets consisting
of an existing five theatres with 32 screens, four theatres with 52 screens
under development, and a seven screen addition to an existing theatre from Magic
Cinemas LLC, an independent theatre company with operations in New Jersey and
Pennsylvania. The consideration paid was approximately $24.5 million in cash.
On July 31, 1997, Regal consummated the acquisition of the business
conducted by Cobb Theatres, L.L.C. (the "Cobb Theatres Acquisition"). The
aggregate consideration paid by the Company was 2,837,594 shares of its Common
Stock. The acquisition has been accounted for as a pooling of interests. Regal
will recognize certain one time charges totaling approximately $4.0
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million (net of tax) in its current quarter ending October 2, 1997, relating to
merger expenses and severance payments. In connection with the Cobb Theatres
Acquisition, Regal assumed approximately $110 million of liabilities, including
$85 million of outstanding Senior Secured Notes (the "Notes"). On August 14,
1997, Regal commenced an offer to purchase all of the outstanding Notes at a
purchase price based on the bid price of the United States Treasury 7 1/8% Notes
due February 29, 2000 and related consent solicitation. Assuming a payment date
of September 18, 1997, the purchase price for the Cobb Notes will be $1,136.97
(of which $10.00 constitutes the consent payment for Notes tendered prior to
August 28, 1997), plus accrued and unpaid interest of $5.02, per $1,000
principal amount. Regal expects to finance the purchase price of the Notes with
borrowings under a loan agreement with a bank lender. Regal will recognize an
extraordinary charge totaling approximately $9.4 million (net of tax) (assuming
all outstanding Notes are repurchased) in its current quarter ending October 2,
1997, relating to the purchase of the Notes.
At August 15, 1997, the Company had 235 multi-screen theatres with an
aggregate of 2,082 screens. At such date, the Company had 23 new theatres with
374 screens and 9 screens at 2 existing locations under construction. The
Company intends to develop approximately 180 to 200 screens during the balance
of 1997 and approximately 500 to 600 screens during 1998. The Company expects
that the capital expenditures in connection with its development plan will
aggregate approximately $75 million to $80 million for the balance of 1997 and
$200 million to $225 million during 1998. The Company believes that its capital
needs for completion of theatre construction and development for at least the
next 6 to 12 months will be satisfied by available credit under the loan
agreement, as amended, internally generated cash flow and available cash and
equivalents.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Accounting Standards No.
128, Earnings Per Share ("EPS"). The Statement simplifies the standards for
computing earnings per share by replacing the presentation of primary earnings
per share with a presentation of basic earnings per share. Additionally, the
Statement requires dual presentation of basic and diluted EPS on the face of the
income statement and requires a reconciliation of the numerator and denominator
of the diluted EPS calculation. The Company plans to adopt the provisions of
Statement 128 in fiscal year 1997 and had the statement been in effect for the
periods reflected herein, basic earnings per share would be $.74, $.56, $.37,
$.43 and $.24 for the years 1996, 1995, 1994 and the six month periods ended
July 3, 1997 and June 27, 1996, respectively.
In June 1997, the FASB issued Statement of Accounting Standards No.
130, Reporting Comprehensive Income, which requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company plans to adopt the
provisions in 1997. This Statement is effective for fiscal years beginning after
December 15, 1997 and the impact on the Company's financial statements has not
been determined.
Additionally, in June 1997, the FASB issued Statement of Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires that an
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enterprise (a) report financial and descriptive information about its reportable
operating segments and (b) report a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets with reconciliations of
such amounts to the enterprise's financial statements and (c) report information
about revenues derived from the Company's products or services and information
about major customers. This Statement is effective for fiscal years beginning
after December 15, 1997.
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INDEX TO FINANCIAL STATEMENTS
REGAL CINEMAS, INC.
<TABLE>
<S> <C>
Reports of Independent Accountants....................................................F-2
Supplemental Consolidated Balance Sheets at December 28, 1995, January 2, 1997
and July 3, 1997 (unaudited).....................................................F-8
Supplemental Consolidated Statements of Income for the years ended December 29,
1994, December 28, 1995, January 2, 1997 and the six month
periods ended June 27, 1996 (unaudited) and July 3, 1997 (unaudited).............F-9
Supplemental Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 29, 1994, December 28, 1995, January 2, 1997 and the
six month periods ended July 3, 1997 (unaudited)................................F-10
Supplemental Consolidated Statements of Cash Flows for the years ended December
29, 1994, December 28, 1995, January 2, 1997 and the six month
periods ended June 27, 1996 (unaudited) and July 3, 1997 (unaudited)............F-11
Notes to Supplemental Consolidated Financial Statements..............................F-12
COBB THEATRES, L.L.C.
Report of Independent Auditors.......................................................F-26
Consolidated Statement of Operations for the year ended December 31, 1996............F-27
Consolidated Balance Sheet at December 31, 1996......................................F-28
Consolidated Statement of Cash Flows for the year ended December 31, 1996............F-29
Notes to Consolidated Financial Statements...........................................F-30
</TABLE>
F-1
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Regal Cinemas, Inc.
We have audited the accompanying supplemental consolidated balance
sheets of Regal Cinemas, Inc. and Subsidiaries (the "Company") as of December
28, 1995 and January 2, 1997, and the related supplemental consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended January 2, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The supplemental consolidated financial statements give retroactive
effect to the acquisitions of Cobb Theatres, L.L.C. ("Cobb Theatres") and
Neighborhood Entertainment, Inc. ("Neighborhood"), which have been accounted for
as poolings of interests as described in Note 1 to the supplemental consolidated
financial statements. We did not audit the financial statements of Cobb Theatres
for 1994, 1995 and 1996 nor of Neighborhood for 1994. Such statements reflect
aggregate total assets constituting 30% and 23% in 1995 and 1996, respectively,
and aggregate total revenues constituting 45%, 34% and 31% in 1994, 1995 and
1996, respectively, of the related supplemental consolidated totals. Those
statements were audited by other auditors, whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for Cobb
Theatres and Neighborhood is based solely on the respective reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the respective reports of the other auditors
provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive
effect to the merger of the Company and Cobb Theatres on July 31, 1997, which
has been accounted for as a pooling of interests as described in Note 1 to the
supplemental consolidated financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements that do
not extend through the date of consummation. These financial statements do not
extend through the date of the consummation; however, they will become the
historical consolidated financial statements of the Company after financial
statements covering the date of consummation of the business combination with
Cobb Theatres are issued.
In our opinion, based on our audits and the respective reports of the
other auditors, the supplemental consolidated financial statements referred to
above present fairly, in all material
F-2
<PAGE> 15
respects, the consolidated financial position of the Company as of December 28,
1995 and January 2, 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended January 2,
1997, in conformity with generally accepted accounting principles applicable
after financial statements are issued for a period which includes the date of
consummation of the business combination with Cobb Theatres.
/s/ Coopers & Lybrand L.L.P.
Knoxville, Tennessee
February 6, 1997, except for the combination with Cobb Theatres described in
Note 1, as to which the date is July 31, 1997
F-3
<PAGE> 16
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres, L.L.C.
We have audited the accompanying consolidated balance sheet of Cobb Theatres,
L.L.C. as of December 31, 1996 and the related consolidated statements of
operations and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at December 31, 1996 and the consolidated results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
July 2, 1997
F-4
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres, L.L.C.
We have audited the consolidated balance sheets of Cobb Theatres, L.L.C. as of
August 31, 1996 and 1995, and the related consolidated statements of
operations, changes in members' equity and cash flows for the years then ended
(not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
October 23, 1996
F-5
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Neighborhood Entertainment, Inc.
We have audited the balance sheets of Neighborhood Entertainment, Inc. as of
December 31, 1994 and 1993, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1994 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Neighborhood Entertainment,
Inc. at December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, in 1993 the Company changed
its method of accounting for income taxes.
/s/ Ernst & Young LLP
Richmond, Virginia
March 21, 1995
F-6
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres, L.L.C.
We have audited the consolidated statements of operations, members'
equity and cash flows of Cobb Theatres, L.L.C. for the fiscal year ended August
31, 1994 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
of Cobb Theatres, L.L.C. and its cash flows for the fiscal year ended August 31,
1994 in conformity with generally accepted accounting principles.
/s/ LaRocca & Co., P.C.
LaRocca & Co., P.C.
Birmingham, Alabama
November 15, 1994
F-7
<PAGE> 20
REGAL CINEMAS, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 2, JULY 3,
1995 1997 1997
------------ ---------- ---------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and equivalents ...................................... $ 7,035 $ 17,116 $ 12,800
Accounts receivable ....................................... 1,790 2,892 1,753
Inventories ............................................... 1,729 2,024 2,391
Prepaids and other current assets ......................... 5,212 6,168 7,191
Refundable income taxes ................................... 3,023 3,477 1,504
Deferred income taxes ..................................... 122 -- --
--------- --------- ---------
Total current assets ...................................... 18,911 31,677 25,639
--------- --------- ---------
Property and equipment:
Land ................................................ 39,032 41,793 44,816
Buildings and leasehold improvements ................ 177,161 260,184 302,088
Equipment ........................................... 136,149 167,475 191,900
Construction in progress ............................ 28,027 43,539 49,600
--------- --------- ---------
380,369 512,991 588,404
Accumulated depreciation and
amortization ..................................... (71,528) (93,227) (105,506)
--------- --------- ---------
Total property and equipment, net ............. 308,841 419,764 482,898
Goodwill, net ............................................... 16,191 28,804 40,825
Other assets ................................................ 5,088 8,580 7,551
--------- --------- ---------
Total assets .................................. $ 349,031 $ 488,825 $ 556,913
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................ $ 25,723 $ 761 $ 3,011
Accounts payable .................................... 22,081 31,180 27,402
Accrued expenses .................................... 17,273 19,246 23,296
--------- --------- ---------
Total current liabilities ........................ 65,077 51,187 53,709
--------- --------- ---------
Long-term debt, less current maturities ..................... 162,733 143,865 192,478
Other liabilities ........................................... 6,124 6,306 6,362
Deferred income taxes ....................................... 6,077 8,165 8,725
--------- --------- ---------
Total liabilities ................................ 240,011 209,523 261,274
--------- --------- ---------
Commitments (Note 4)
Shareholders' equity:
Preferred stock, no par; 1,000,000 shares
authorized, none issued ................................... -- -- --
Common stock, no par; 50,000,000 shares
authorized; 30,503,786 issued and outstanding
in 1995; 35,977,325 issued and outstanding in 1996 ........ 74,591 221,613 222,424
Retained earnings ......................................... 34,429 57,689 73,215
--------- --------- ---------
Total shareholders' equity ............................ 109,020 279,302 295,639
--------- --------- ---------
Total liabilities and shareholders' equity ............ $ 349,031 $ 488,825 $ 556,913
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental
consolidated financial statements.
F-8
<PAGE> 21
REGAL CINEMAS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
----------------------------------------------- ---------------------------
DECEMBER 29, DECEMBER 28, JANUARY 2, JUNE 27, JULY 3,
1994 1995 1997 1996 1997
------------ ------------ ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues: ..............................
Admissions .......................... $ 185,245 $ 213,388 $ 266,003 $ 120,286 $ 150,455
Concessions ......................... 74,660 87,272 110,237 49,036 62,996
Other operating revenues ............ 5,100 8,362 12,953 4,918 6,937
--------- --------- --------- --------- ---------
Total revenues ................... 265,005 309,022 389,193 174,240 220,388
Operating expenses:
Film rental and advertising costs ... 100,978 115,408 145,247 64,227 81,298
Cost of concessions and other ....... 9,922 11,363 15,129 6,722 8,415
Theatre operating expenses .......... 92,939 105,688 127,706 60,345 75,112
General and administrative expenses . 14,053 14,848 16,581 8,394 9,544
Depreciation and amortization ....... 13,607 19,359 24,695 11,209 14,460
Merger expenses ..................... 5,094 1,246 1,639 1,639 --
--------- --------- --------- --------- ---------
Total operating expenses ......... 236,593 267,912 330,997 152,536 188,829
--------- --------- --------- --------- ---------
Operating income ....................... 28,412 41,110 58,196 21,704 31,559
--------- --------- --------- --------- ---------
Other income (expense):
Interest expense .................... (7,510) (10,672) (12,844) (7,444) (6,077)
Interest income ..................... 274 368 619 226 174
Other ............................... (12) (653) 676 388 (331)
--------- --------- --------- --------- ---------
Income before income taxes and
extraordinary item .................. 21,164 30,153 46,647 14,874 25,325
Provision for income taxes ............. (8,462) (12,200) (20,830) (6,200) (9,799)
--------- --------- --------- --------- ---------
Income before extraordinary item ....... 12,702 17,953 25,817 8,674 15,526
Extraordinary item:
Loss on extinguishment of debt, net of
applicable taxes .................... (1,752) (448) (751) (751) --
--------- --------- --------- --------- ---------
Net income ............................. 10,950 17,505 25,066 7,923 15,526
--------- --------- --------- --------- ---------
GST and Neighborhood dividends ......... (380) (433) (229) (229) --
--------- --------- --------- --------- ---------
Net income applicable to common stock .. $ 10,570 $ 17,072 $ 24,837 $ 7,694 $ 15,526
========= ========= ========= ========= =========
Earnings per common share before effect
of extraordinary item:
Primary ............................. $ 0.43 $ 0.57 $ 0.74 $ 0.27 $ 0.42
Fully diluted ....................... $ 0.43 $ 0.57 $ 0.74 $ 0.27 $ 0.42
Extraordinary item:
Primary ............................. $ (0.07) $ (0.02) $ (0.03) $ (0.03) $ --
Fully diluted ....................... $ (0.07) $ (0.03) $ (0.03) $ (0.03) $ --
Earnings per common share:
Primary ............................. $ 0.36 $ 0.55 $ 0.71 $ 0.24 $ 0.42
========= ========= ========= ========= =========
Fully diluted ....................... $ 0.36 $ 0.54 $ 0.71 $ 0.24 $ 0.42
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental
consolidated financial statements.
F-9
<PAGE> 22
REGAL CINEMAS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Balances at December 30, 1993 .............................. $ 48,319 $ 6,985 $ 55,304
Payment of GST and Neighborhood dividends ............... -- (380) (380)
Issuance of 2,038,500 shares of common stock, net of
offering costs ...................................... 20,139 -- 20,139
Cobb capital contributions .............................. 1,000 -- 1,000
Accretion and proceeds from exercise of Litchfield stock
purchase warrants prior to merger ................... 1,041 (141) 900
Issuance of 67,373 shares upon exercise of stock options
and restricted stock awards ......................... 33 -- 33
Stock option amortization ............................... 109 -- 109
Net income .............................................. -- 10,950 10,950
--------- --------- ---------
Balances at December 29, 1994 .............................. 70,641 17,414 88,055
Payment of GST dividends and partnership distributions .. -- (490) (490)
Issuance of 241,313 shares of common stock .............. 2,426 -- 2,426
Issuance of 194,142 shares upon exercise of stock options
and restricted stock awards ......................... 407 -- 407
Issuance of Neighborhood stock prior to merger .......... 150 -- 150
Income tax benefits related to exercised stock options .. 817 -- 817
Stock option amortization ............................... 150 -- 150
Net income .............................................. -- 17,505 17,505
--------- --------- ---------
Balances at December 28, 1995 .............................. 74,591 34,429 109,020
Payment of GST dividends and partnership distributions .. -- (263) (263)
Issuance of 5,015,741 shares of common stock, net of
offering costs ...................................... 140,651 -- 140,651
Issuance of 457,902 shares upon exercise of stock options
and restricted stock awards ......................... 1,177 -- 1,177
Income tax benefits related to exercised stock options .. 5,017 -- 5,017
Conformation of Cobb Theatres fiscal year (see Note 2) .. -- (1,543) (1,543)
Stock option amortization ............................... 177 -- 177
Net income .............................................. -- 25,066 25,066
--------- --------- ---------
Balances at January 2, 1997 ................................ 221,613 57,689 279,302
Issuance of 61,026 shares upon exercise of stock options
and restricted stock awards (unaudited) ............. 151 -- 151
Income tax benefits related to exercised stock options
(unaudited) ......................................... 600 -- 600
Stock option amortization (unaudited) ................... 60 -- 60
Net income (unaudited) .................................. -- 15,526 15,526
--------- --------- ---------
Balances at July 3, 1997 (unaudited) ....................... $ 222,424 $ 73,215 $ 295,639
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental
consolidated financial statements.
F-10
<PAGE> 23
REGAL CINEMAS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------------- -------------------------
DECEMBER 29, DECEMBER 28, JANUARY 2, JUNE 27, JULY 3,
1994 1995 1997 1996 1997
------------ ------------ ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .......................... $ 10,950 $ 17,505 $ 25,066 $ 7,923 $ 15,526
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 13,607 19,359 24,695 11,209 14,460
Loss on extinguishment of
debt ...................... 1,752 448 751 751 --
Deferred income taxes ........ 906 3,309 4,112 573 133
Deferred compensation and
rent ...................... 71 (247) (121) (683) 113
Changes in operating assets
and liabilities:
Accounts receivable ....... (662) 125 (1,182) 543 1,139
Current taxes receivable .. (642) (1,037) 4,757 2,493 2,773
Inventories ............... (77) (215) (365) (183) (367)
Prepaids and other current
assets ................. (2,477) (1,009) (236) 2,724 (593)
Accounts payable .......... 5,641 4,625 10,878 (2,086) (3,778)
Accrued expenses and
other liabilities ...... 7,362 (2,974) (825) (4,440) 3,977
Income taxes payable ...... 39 84 -- 748 (800)
--------- --------- --------- --------- ---------
Net cash provided by
operating activities 36,470 39,973 67,530 19,572 32,583
Cash flows from investing activities:
Capital expenditures ............ (82,634) (105,284) (124,068) (49,018) (76,061)
Investment in goodwill and other
assets ........................ (23,756) (7,352) (7,077) (10,792) (12,513)
--------- --------- --------- --------- ---------
Net cash used in investing
activities .................... (106,390) (112,636) (131,145) (59,810) (88,574)
Cash flows from financing activities:
GST and Neighborhood
dividends paid ................ (282) (332) (500) (500) --
Net proceeds from issuance of
stock ......................... 21,140 -- 126,763 127,086 --
Borrowings under long-term debt . 88,450 81,334 161,500 7,807 51,097
Payments on long-term debt ...... (45,933) (10,248) (211,623) (85,908) (233)
Debt issuance costs ............. (854) (257) (5,127) -- --
Partnership distribution ........ -- (57) (34) (18) --
Exercise of warrants and options 933 557 1,177 60 811
Redemption of preferred stock ... -- (1,150) -- -- --
--------- --------- --------- --------- ---------
Net cash provided by financing
activities .................. 63,454 69,847 72,156 48,527 51,675
Net increase (decrease) in cash and
equivalents ..................... (6,466) (2,816) 8,541 8,289 (4,316)
Cash and equivalents at beginning of
period .......................... 16,317 9,851 8,575 8,575 17,116
--------- --------- --------- --------- ---------
Cash and equivalents at end of period $ 9,851 $ 7,035 $ 17,116 $ 16,864 $ 12,800
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental
consolidated financial statements.
F-11
<PAGE> 24
REGAL CINEMAS, INC.
NOTES TO SUPPLEMENTAL 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"), Georgia State Theatres, Inc. ("GST") and the entities
through which Cobb Theatres, L.L.C. and Tricob Partnership, an entity
controlled by the members of Cobb Theatres, L.L.C., conducted their
business ("Cobb Theatres"), 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 8,706,068 shares of its common stock for all
of the outstanding common stock of Litchfield. On April 17, 1995, Regal
issued 814,755 shares of its common stock for all of the outstanding common
stock of Neighborhood. On May 30, 1996, Regal issued 1,410,213 shares of
its common stock for all of the outstanding common stock of GST. On July
31, 1997, Regal issued 2,837,594 shares of its common stock in the Cobb
Theatres acquisition. The mergers have been accounted for as poolings of
interests and, accordingly, these consolidated financial statements have
been restated for all periods to include the results of operations and
financial positions of Litchfield, Neighborhood, GST and Cobb Theatres.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of
consummation. These financial statements do not extend through the date of
consummation for the Cobb Theatres merger; however, they will become the
historical consolidated financial statements of Regal Cinemas, Inc. and
Subsidiaries after financial statements covering the date of consummation
of the business combination are issued.
Separate results of the combining entities for the years ended 1994, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Revenues:
Regal...................................... $117,700 $184,958 $265,127
Litchfield (through June 30 for 1994)...... 17,991 - -
Neighborhood (through April 27 for 1995)... 23,974 5,135 -
GST (through May 30 for 1996).............. 11,243 13,321 4,709
Cobb Theatres, L.L.C. and Tricob
Partnership............................. 94,097 105,608 119,357
-------- -------- --------
$265,005 $309,022 $389,193
======== ======== ========
Net income (loss):
Regal...................................... $ 10,501 $ 19,061 $ 29,935
Litchfield (through June 30 for 1994)...... (3,522) - -
Neighborhood (through April 27 for 1995)... 889 (1,824) -
GST (through May 30 for 1996).............. 660 866 90
Cobb Theatres, L.L.C. and Tricob
Partnership............................. 2,422 (598) (4,959)
-------- -------- --------
$ 10,950 $ 17,505 $ 25,066
======== ======== ========
</TABLE>
F-12
<PAGE> 25
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. THE COMPANY AND BASIS OF PRESENTATION, CONTINUED
The net loss for Litchfield for the six months ended June 30, 1994, and the
net loss for Neighborhood for the four months ended April 27, 1995, reflect
approximately $3,203,000 and $1,219,000, respectively, of expenses (net of
applicable income taxes) associated with the mergers, principally legal and
accounting fees, severance and benefit related costs and other costs of
consolidating.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The supplemental consolidated financial
statements include the accounts of Regal and its wholly-owned subsidiaries.
Prior to the merger with Regal, Cobb Theatres formally operated and
reported on a fiscal year ending August 31. In connection with the
retroactive combination of financial statement for the
pooling-of-interests, Cobb prepared financial statements for the year ended
December 31, 1996. The accompanying supplemental consolidated financial
statements reflect the financial position of Cobb Theatres as of August 31,
1995 and December 31, 1996 and its results of operations for the years
ended August 31, 1994 and 1995 and for the year ended December 31, 1996.
Cobb Theatres incurred a net loss of $1,543,000 for the period from
September 1, 1995 through December 31, 1995. Such loss has been charged
directly to retained earnings in the accompanying supplemental consolidated
statement of changes in stockholders' equity.
All significant intercompany accounts and transactions have been eliminated
from the supplemental consolidated financial statements.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Repairs
and maintenance are charged to expense as incurred. Gains and losses from
disposition of property and equipment are included in income and expense
when realized. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the respective
assets. The Company evaluates the carrying value of property and equipment
and intangibles for impairment losses by analyzing the operating
performance and future cash flows for each theatre. The Company adjusts the
net book value of the underlying assets if the sum of expected future cash
flows is less than book value.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. At December 28, 1995 and January 2, 1997, the Company held
approximately $5,110,000 and $15,255,000, respectively, in temporary cash
investments (valued at cost, which approximates market) in the form of
certificates of deposit and variable rate investment accounts with major
financial institutions.
F-13
<PAGE> 26
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES - Deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
INVENTORIES - Inventories consist of concession products and theatre
supplies and are stated on the basis of first-in, first-out (FIFO) cost,
which is not in excess of net realizable value.
DEBT ACQUISITION AND LEASE COSTS (INCLUDED IN OTHER ASSETS) - Debt
acquisition and lease costs are deferred and amortized over the terms of
the related agreements.
DEFERRED RENT (INCLUDED IN OTHER LIABILITIES) - Rent expense is recognized
on a straight-line basis after considering the effect of rent escalation
provisions and rent holidays for newly opened theatres resulting in a level
monthly rent expense for each lease over its term.
DEFERRED REVENUE (INCLUDED IN OTHER LIABILITIES) - Deferred revenue relates
primarily to vendor rebates. Rebates are recognized as a reduction of costs
of concessions as earned.
INTEREST RATE SWAPS - Interest rate swaps are entered into as a hedge
against interest exposure of variable rate debt. The differences to be paid
or received on swaps are included in interest expense. The fair value of
the Company's interest rate swap agreements is based on dealer quotes.
These values represent the amounts the Company would receive or pay to
terminate the agreements taking into consideration current interest rates.
INTERIM FINANCIAL STATEMENTS - Information in the accompanying financial
statements and notes to the financial statements for the interim periods is
unaudited. The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period ended July
3, 1997, are not necessarily indicative of the results that may be expected
for the year ending January 1, 1998 (1997 fiscal year).
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Unless indicated otherwise, the fair value of the Company's financial
instruments approximates carrying value.
F-14
<PAGE> 27
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACQUISITIONS
In addition to the Litchfield, Neighborhood, GST and Cobb Theatres mergers
described in Note 1, the Company completed the purchase of substantially
all of the assets of three companies which held four theatres with 40
screens in April 1995. The purchase price of the acquisition was
approximately $14.3 million cash and other consideration and 241,313 shares
of Regal common stock valued at approximately $2.4 million. Also, in
September 1996, Regal completed the purchase of assets consisting of eight
theatres with 69 screens from an individual, George Krikorian, and
corporations controlled by him (collectively, "Krikorian") for
consideration of 703,241 shares of Regal common stock valued at
approximately $14.1 million and approximately $14.0 million cash.
These transactions have been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated at fair
value to the separately identifiable assets (principally property,
equipment, and leasehold improvements) of the respective theatre locations,
with the remaining balance allocated to goodwill, which is being amortized
on a straight line basis generally over twenty to thirty years. The results
of operations of these theatre locations have been included in the
financial statements for the periods subsequent to the acquisition date.
The following unaudited pro forma results of operations for all periods
presented assume the individual acquisitions occurred as of the beginning
of the respective periods after giving effect to certain adjustments,
including depreciation, increased interest expense on acquisition debt and
related income tax effects. The pro forma results have been prepared for
comparative purposes only and do not purport to indicate the results of
operations which would actually have occurred had the combination been in
effect on the dates indicated, or which may occur in the future.
<TABLE>
<CAPTION>
(in thousands of dollars, except per share data)
1995 ACQUISITION: 1994 1995
<S> <C> <C>
Revenues........................................................ $277,179 $310,849
Operating income................................................ 30,396 41,324
Income before extraordinary item................................ 13,892 17,911
Net income applicable to common stock........................... 10,843 17,030
Earnings per common share:
Primary..................................................... $ 0.37 $ 0.54
======== ========
Fully diluted............................................... $ 0.37 $ 0.54
======== ========
1996 ACQUISITION: 1995 1996
Revenues...................................................... $329,824 $396,598
Operating income.............................................. 42,234 58,280
Income before extraordinary item.............................. 31,399 45,451
Net income applicable to common stock......................... 18,196 24,921
Earnings per common share:
Primary................................................... $ 0.58 $ 0.72
======== ========
Fully diluted............................................. $ 0.58 $ 0.71
======== ========
</TABLE>
F-15
<PAGE> 28
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LEASES
Leases entered into by the Company, principally for theatres, are accounted
for as operating leases. The Company, at its option, can renew a
substantial portion of the leases at defined or then fair rental rates for
various periods. Certain leases for Company theatres provide for contingent
rentals based on revenues. Minimum rentals payable under all noncancelable
operating leases with terms in excess of one year as of January 2, 1997,
are summarized for the following fiscal years:
(in thousands)
1997.................. $ 46,422
1998.................. 46,394
1999.................. 45,919
2000.................. 44,686
2001.................. 43,928
Thereafter............ 401,998
Rent expense under such operating leases was $32,502, $34,459 and $41,427
for fiscal years 1994, 1995 and 1996, respectively.
F-16
<PAGE> 29
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT
Long-term debt at December 28, 1995 and January 2, 1997, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 2,
1995 1997
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
$150,000,000 Regal senior reducing revolving credit
facility which expires on June 30, 2003, with interest
payable quarterly, at LIBOR (5.6% at January 2, 1997)
plus .4%. Draw capability will expire on June 30, 1999.
Repayment of the outstanding balance on the credit
facility will begin September 30, 1999, and consist of
5% of the outstanding balance on a quarterly basis
through June 30, 2001. Thereafter, payments will be
7.5% of the outstanding balance quarterly through
June 30, 2003............................................... $ 92,450 $ 51,000
$85,000,000 Cobb Theatres senior secured notes due
March 1, 2003, with interest payable semiannually at
105/8%. Collateralized by all assets and equity
interests of Cobb. The fair value of the senior
secured notes was $89,250,000 at December 31, 1996
based on quoted market price of the bonds at that date...... -- 85,000
Other obligations, extinguished in 1996..................... 24,227 --
Cobb Theatres senior term loans payable,
repaid in 1996.............................................. 52,700 --
Cobb Theatres revolving line of credit...................... 9,700 --
Notes payable to banks at rates ranging from
prime plus 0.5% to 2.0%..................................... 7,360 6,908
Other....................................................... 2,019 1,718
-------- -------
188,456 144,626
Less current maturities..................................... (25,723) (761)
-------- -------
$162,733 $143,865
======== ========
</TABLE>
F-17
<PAGE> 30
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT, CONTINUED
Regal's credit facility contains various restrictive covenants which
require Regal to maintain certain financial ratios. During 1996, Regal
amended its Loan Agreement to decrease the interest rate, extend the
maturity of the facility to June 30, 2003, and modify certain financial
covenants. The Cobb Theatres senior secured notes and bank facility contain
restrictive covenants which restrict additional debt, selling of assets and
other provisions. The debt also requires compliance with specified
financial ratios. As of December 31, 1996, Cobb Theatres had $12.5 million
of credit available under the bank facility.
Upon consummation of the Litchfield and Neighborhood mergers, Regal
refinanced all existing debt of the respective acquired companies,
recognizing losses on extinguishments of debt (net of applicable income
taxes) of $1,752,000 in 1994 and $448,000 in 1995. Additionally, Cobb
Theatres refinanced existing debt, recognizing a loss on extinguishment of
debt (net of applicable income taxes) of $751,000 in 1996. Such losses are
reported as extraordinary items in the accompanying consolidated statements
of income.
The Company's debt at January 2, 1997, is scheduled to mature as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997........................ $ 761
1998........................ 866
1999........................ 9,183
2000........................ 10,499
2001........................ 10,518
Thereafter.................. 112,799
--------
Total................. $144,626
========
</TABLE>
In March 1995, Regal entered into a seven-year interest rate swap agreement
for the management of interest rate exposure. At January 2, 1997, the
agreement had effectively converted $20 million of LIBOR floating rate debt
under the reducing revolving credit facility to a 7.32% fixed rate
obligation. Regal continually monitors its position and the credit rating
of the interest swap counterparty. The fair value of the interest swap
agreement was $(709,000) at January 2, 1997.
6. COMMON AND PREFERRED STOCK
COMMON STOCK - Regal's common shares authorized, issued and outstanding
throughout the financial statements and notes reflect the retroactive
effect of stock issued in connection with the pooling transactions
described in Note 1 and the authorization of additional shares and the
effect of the three 3-for-2 stock splits authorized on November 14, 1994,
December 13, 1995 and September 16, 1996, respectively.
F-18
<PAGE> 31
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. COMMON AND PREFERRED STOCK, CONTINUED
PREFERRED STOCK - The Company currently has 1,000,000 shares of preferred
stock authorized with none issued. The Company may issue the preferred
shares from time to time in such series having such designated preferences
and rights, qualifications and limitations as the Board of Directors may
determine.
STOCK OPTIONS - The Company has three employee stock option plans under
which 3,929,064 options are authorized and reserved. The options vest over
three-to-five year periods and expire ten years after the respective grant
dates. Options to purchase 56,330 shares of the Company's common stock are
exercisable as of January 2, 1997. Activity within the plans is summarized
as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Under option at December 30, 1993........................ 1,227,242 $ 2.71
Options granted in 1994.................................. 792,706 $ 9.78
Options exercised in 1994................................ (26,867) $ 1.21
---------
Under option at December 29, 1994........................ 1,993,081 $ 5.54
Options granted in 1995.................................. 808,875 $14.16
Options exercised in 1995................................ (174,709) $ 2.09
Options canceled in 1995................................. (29,524) $ 2.37
---------
Under option at December 28, 1995........................ 2,597,723 $ 8.49
Options granted in 1996.................................. 952,750 $25.06
Options exercised in 1996................................ (370,915) $ 2.86
---------
Under option at January 2, 1997.......................... 3,179,558 $14.11
</TABLE>
In addition, the Company has the 1993 Outside Directors' Stock Option
Plan (the "1993 Directors' Plan"). Directors' stock options for the
purchase of 20,250 shares of common stock at an exercise price of $8.30,
20,250 shares at an exercise price of $12.33, and 20,250 shares at an
exercise price of $29.59 were granted during 1994, 1995 and 1996,
respectively. The exercise price of all options granted under the 1993
Directors' Plan vest over 3 years and expire 10 years after the respective
grant dates.
F-19
<PAGE> 32
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. COMMON AND PREFERRED STOCK, CONTINUED
Warrants to purchase 158,455 shares of common stock at an exercise price of
$1.21 per share expire in 1998. The Company has reserved a sufficient
number of shares of common stock for issuance pursuant to the authorized
options and warrants.
The Company makes awards of restricted stock under its employee stock plans
as part of certain employees' incentive compensation. In general, the
restrictions lapse in the year following grant. Restricted stock awards
totaled 72,087 shares, 25,517 shares and 7,500 shares pursuant to 1994,
1995 and 1996 bonus awards, respectively.
Regal has elected to continue following Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock option plans and its
outside directors' plan rather than the alternative fair value accounting
provided for under FASB Statement 123, Accounting for Stock-Based
Compensation (Statement 123). Under APB 25, because the exercise price of
the Company's employee and director stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized in the accompanying financial statements.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company has
accounted for its stock options under the fair value method of that
Statement. The fair value for the employee and directors options granted
during fiscal years 1995 and 1996, was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates ranging from 5.9% to 6.6% for 1995
grants and 6.0% to 6.9% for 1996 grants; volatility factors of the expected
market price of the Company's common stock of 32.8% and a weighted average
expected life of 5 years for employee options and 7 years for outside
director options. Additionally, the weighted average grant date fair value
of options granted in fiscal years 1995 and 1996 was $5.67 and $10.34 per
share, respectively.
As of January 2, 1997, Regal has 632,432, 792,705, 808,875, and 945,546
shares under option with exercise prices ranging from $1.21 - $3.86,
$9.78 - $10.08, $12.34 - $17.06 and $22.00 - $29.75, respectively.
F-20
<PAGE> 33
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. COMMON AND PREFERRED STOCK, CONTINUED
The option valuation model used by the Company was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee and
director options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair values of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The pro
forma results do not purport to indicate the effects on reported net income
for recognizing compensation expense which are expected to occur in future
years. The Company's pro forma information for all 1995 and 1996 option
grants follows:
<TABLE>
<CAPTION>
(in thousands, except per share data):
1995 1996
<S> <C> <C>
Pro forma net income...................................... $17,276 $23,930
======= =======
Pro forma earnings per share:
Primary................................................... $ 0.55 $ 0.69
======= =======
Fully diluted............................................. $ 0.55 $ 0.69
======= =======
</TABLE>
F-21
<PAGE> 34
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES
Deferred income taxes reflect the impact of temporary differences between
amounts recorded for assets and liabilities for financial reporting
purposes and amounts utilized for measurement in accordance with tax laws.
The tax effects of the temporary differences giving rise to the Company's
net deferred tax liability are as follows:
<TABLE>
<CAPTION>
(in thousands)
1995 1996
------ --------
<S> <C> <C>
Assets:
Net operating loss carry forward........................ $ 1,482 $ 4,431
Alternative minimum tax credits......................... 327 893
Accrued expenses........................................ 2,599 2,213
Tax operating lease..................................... 744 623
State income taxes...................................... 348 531
------- -------
5,500 8,691
------- -------
Liabilities:
Property and equipment................................. 11,298 13,927
Other.................................................. 157 620
------- -------
11,455 14,547
------- -------
Deferred tax liability.................................... (5,955) (5,856)
Cobb Theatres valuation allowance for deferred tax asset.. 0 (2,309)
------- -------
Net deferred tax.......................................... $(5,955) $(8,165)
======= =======
</TABLE>
The 1994, 1995 and 1996 provisions for income taxes before extraordinary
items (see Note 5) consist of the following:
<TABLE>
<CAPTION>
(in thousands)
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Current............................................ $7,556 $ 8,969 $16,718
Deferred........................................... 1,154 3,309 1,803
Increase (decrease) in deferred income tax
valuation allowance.............................. (248) (78) 2,309
------ ------- -------
$8,462 $12,200 $20,830
====== ======= =======
</TABLE>
F-22
<PAGE> 35
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES, CONTINUED
A reconciliation of the Company's income tax provision to taxes computed by
applying the statutory Federal rate of 34% for 1994, 35% for 1995 and 1996,
to pretax financial reporting income before extraordinary items is as
follows:
<TABLE>
<CAPTION>
(in thousands)
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Tax at statutory Federal rate................. $7,207 $10,837 $16,244
State income taxes, net of Federal benefit.... 986 1,105 1,870
Increase (decrease) in deferred income tax
valuation allowance........................ (248) (78) 2,309
Nondeductible merger expenses and other....... 517 336 407
------ ------- -------
$8,462 $12,200 $20,830
====== ======= =======
</TABLE>
At January 2, 1997, Cobb Theatres had net operating loss carryforwards of
approximately $12.0 million that may be offset against future taxable
income. Substantially all of the carryforward expires in 2009 through 2011.
Neighborhood and Cobb Theatres had approximately $266,000 and $627,000,
respectively, of alternative minimum tax credit carryforwards available to
reduce their future income tax liabilities. Under current Federal income
tax law, the alternative minimum tax credit carryforwards have no
expiration date.
8. RELATED PARTY TRANSACTIONS
Prior to May 1996, Regal obtained film licenses through an independent film
booking agency owned by a director of the Company. Additionally, this
director provides consulting services to the Company. The Company paid
$590,000, $626,000 and $655,000 in 1994, 1995 and 1996, respectively, for
booking fees and consulting services.
Regal paid $635,000, $626,000 and $952,000 in 1994, 1995 and 1996,
respectively, for legal services provided by a law firm, a member of which
serves as a director of the Company.
Cobb Theatres leases office and warehouse facilities from a related party.
The related rent expense amounted to approximately $266,000, $233,000 and
$509,000 in 1996, 1995 and 1994, respectively. The amount payable at
December 31, 1996 and August 31, 1995 under these leases totaled
approximately $0 and $22,000, respectively.
Cobb Theatres has an agreement with Sipsey River, Inc., a corporation owned
by a related party, to provide aircraft services. The fees for such
services amounted to approximately $432,000, $335,000 and $238,000 for
1996, 1995 and 1994, respectively. The amount prepaid under this agreement
amounted to approximately $0 and $12,000 at December 31, 1996 and August
31, 1995, respectively.
F-23
<PAGE> 36
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(in thousands)
FISCAL YEARS ENDED
-------------------------------------------
DECEMBER 29, DECEMBER 28, JANUARY 2,
1994 1995 1997
------------ ------------ -----------
<S> <C> <C> <C>
Supplemental information on cash
flows:
Interest paid..................... $6,708 $12,379 $12,027
Less: Interest capitalized..... (383) (1,228) (1,682)
------ ------- -------
Interest paid, net................ $6,325 $11,151 $10,345
====== ======= =======
Income taxes paid, net of
Neighborhood refunds........... $6,554 $10,088 $11,318
====== ======= =======
</TABLE>
Noncash transactions:
1994:
- Regal assumed certain obligations totaling approximately $500,000
as additional consideration for certain assets purchased from
National Theatre Holdings Corp.
1995:
- Regal issued 241,313 shares of Regal common stock valued at
approximately $2,426,000 as additional consideration for assets
purchased from three companies (see Note 3).
- Regal received income tax benefits relating to exercised stock
options totaling $817,000.
1996:
- Regal issued 703,241 shares of Regal common stock as additional
consideration for assets purchased from an individual, and
corporations controlled by him (see Note 3). The value of the
common stock issued in the 1996 acquisition of approximately
$14,100,000 was allocated to property and equipment and goodwill.
- Regal received income tax benefits relating to exercised stock
options totaling $5,017,000.
F-24
<PAGE> 37
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. EMPLOYEE BENEFIT PLANS
The Company sponsors employee benefit plans under section 401(k) of the
Internal Revenue Code for the benefit of substantially all full-time
employees. The Company made discretionary contributions of approximately
$37,000 and $280,000 to the plans in 1995 and 1996, respectively. All
full-time employees are eligible to participate in the plan upon completion
of twelve months of employment with 1,000 or more hours of service, subject
to a minimum age of 21.
11. 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, GST and Cobb Theatres 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
November 1994, December 1995 and September 1996, 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
((in thousands) 29,496 shares in 1994; 31,311 shares in 1995; and 34,800
shares in 1996). Fully diluted earnings per common share utilizes net
income before preferred dividends based on the assumed weighted average
number of common and common equivalent shares outstanding in each period
((in thousands) 29,669 shares in 1994; 31,482 shares in 1995; and 34,892
shares in 1996).
F-25
<PAGE> 38
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres, L.L.C.
We have audited the accompanying consolidated balance sheet of Cobb Theatres,
L.L.C. as of December 31, 1996 and the related consolidated statements of
operations and cash flows for the year then ended. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at December 31, 1996 and the consolidated results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
July 2, 1997
F-26
<PAGE> 39
COBB THEATRES, L.L.C.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenues:
Theatre admissions $ 81,703
Concessions 34,120
Other 3,534
--------
Total revenues 119,357
Cost of revenues:
Film rental 40,666
Concession 5,444
--------
Total cost of revenues 46,110
--------
Gross profit 73,247
Operating expenses:
Advertising 3,224
Payroll and related costs 14,727
Occupancy 26,241
Repairs and maintenance 1,785
General and administrative 7,234
Depreciation and amortization 9,321
Other 4,753
--------
Total operating expenses 67,285
--------
Operating income 5,962
Other income (deductions):
Interest expense (8,696)
Interest income 51
Loss from disposition of assets (574)
--------
Total other income (deductions) (9,219)
--------
Loss before income taxes and extraordinary item (3,257)
Income tax expense 1,280
--------
Loss before extraordinary item (4,537)
Extraordinary item -- loss on extinguishment of debt
(net of income tax of $440) (751)
--------
Net loss $ (5,288)
========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 40
COBB THEATRES, L.L.C.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
ASSETS
Current Assets:
Cash and equivalents $ 2,154
Receivables 607
Other current assets 4,626
--------
Total current assets 7,387
--------
Property and equipment, net 79,838
Intangible assets, net 15,799
Other assets 4,283
--------
Total assets $107,307
========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 5,169
Accrued film rentals 4,921
Accrued interest payable 3,118
Accrued expenses and other liabilities 5,000
Revolving line of credit --
Long-term debt, current installments --
Obligations under capital leases, current installments 283
--------
Total current liabilities 18,491
Long-term debt 85,000
Obligations under capital leases 1,435
Other long-term liabilities 5,004
--------
Total liabilities 109,930
Commitments and contingencies
Members' equity (2,623)
--------
Total liabilities and members' equity $107,307
========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 41
COBB THEATRES, L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net loss $ (5,288)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 9,321
Loss on asset dispositions 574
Provision for deferred income taxes 1,280
Extraordinary loss on debt extinguishment 751
(Increase) decrease in assets:
Receivables 176
Other current assets (245)
Increase (decrease) in liabilities:
Accounts payable 1,551
Accrued film rental (2,351)
Accrued interest payable 2,499
Accrued expenses and other liabilities (1,490)
--------
Total adjustments 12,066
--------
Net cash provided by operating activities 6,778
--------
Cash flows from investing activities:
Additions to property and equipment (15,735)
Sales of property and equipment 5,447
Other 329
--------
Net cash provided by investing activities (9,959)
--------
Cash flows from financing activities:
Proceeds from senior secured notes 85,000
Payments on senior subordinated notes (10,000)
Proceeds (payments) on long-term bank debt, net (61,478)
Proceeds (payments) on revolving line of credit (5,600)
Principal payments under capital lease (251)
Capitalized debt issue costs (4,502)
Debt prepayment fees (615)
--------
Net cash provided by financing activities 2,554
--------
Net decrease in cash and equivalents (627)
Cash and equivalents -- beginning of year 2,781
--------
Cash and equivalents -- end of year $ 2,154
========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ 6,197
========
Income taxes $ --
========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 42
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Cobb Theatres, L.L.C. (the "Company") is an Alabama limited liability
company formed to acquire and operate the business of Cobb Theatres Group,
a privately-held group of companies based in Birmingham, Alabama. The
Company was formed to create a consolidated entity to facilitate the
offering of $85 million of Senior Secured Notes (the "Debt Offering") and
the establishment of the New Credit Facility (as discussed in Note 6). The
existence of the Company shall terminate no later than December 31, 2046.
Prior to the completion of certain Formation Transactions on March 6, 1996
(as discussed below), the Company consisted of R.C. Cobb, Inc., Cobb
Theatres II, Inc. and R & J Concessions, Inc.
Cobb Finance Corp., a wholly-owned subsidiary of the Company, was
incorporated for the purpose of serving as a co-issuer of the Senior
Secured Notes in order to facilitate the Debt Offering. Cobb Finance Corp.
does not have any substantial operations or assets of any kind.
Concurrently with the closing of the Debt Offering on March 6, 1996, (i)
R.C. Cobb, Inc. acquired the outstanding equity of R & J Concessions, Inc.,
(ii) R & J Concessions, Inc. was merged into its sole shareholder, R.C.
Cobb, Inc. and (iii) Cobb Theatres, L.L.C. acquired the outstanding equity
of R.C. Cobb, Inc. and Cobb Theatres II, Inc. which had previously been
held by members of the Cobb family (the "Formation Transactions") in
exchange for an interest in Cobb Theatres, L.L.C. As a result of the
foregoing Formation Transactions, R.C. Cobb, Inc. and Cobb Theatres II,
Inc. became, together with Cobb Finance Corp., subsidiaries of the Company.
All assets and liabilities are stated at the amounts at which they were
stated in the financial statements of the predecessor entities in a manner
similar to a pooling of interests. The Cobb family as members own all of
the equity interest of Cobb Theatres, L.L.C.
The term "Company" used herein shall mean the Cobb Theatres Group prior to
the Formation Transactions and shall mean Cobb Theatres, L.L.C. and its
consolidated subsidiaries after the completion of the Debt Offering.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of the
Company include the accounts of the two operating subsidiaries, R.C. Cobb,
Inc. and Cobb Theatres II, Inc. ("Cobb II"). All significant intercompany
balances and transactions have been eliminated in consolidation.
NATURE OF BUSINESS - The Company is engaged in the operation and management
of multi-screen motion picture theatres. The Company currently operates in
Florida, Alabama, Mississippi and Arkansas.
F-30
<PAGE> 43
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
In March 1994, Cobb II purchased certain assets, consisting of 8 multiplex
theatres, and assumed the Florida theatre facility operating lease
obligations of Theatre Acquisitions, L. P. d/b/a Wometco Theatres. Cobb II
paid $22 million in cash which was financed through bank debt.
The acquisition has been recorded using the purchase method of accounting
and the results of operations of the purchased theatres have been included
in the Company's consolidated results of operations since the date of
acquisition. The excess of the aggregate purchase price over the fair
market value of net assets acquired of approximately $8.1 million is
amortized over the term (including all renewal options) of the underlying
facility leases.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
REVENUES AND FILM RENTAL COSTS - Revenues are recognized when admission and
concession sales are received at the theatres. Film rental costs are
accrued based on the applicable box office receipts and the terms of the
film licenses.
CASH AND EQUIVALENTS - The Company considers all temporary cash investments
with original maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Expenditures for additions (including interest during construction), major
renewals and betterments are capitalized, and expenditures for maintenance
and repairs are charged to expense as incurred. Property and equipment
under capital leases are stated at the lower of the present value of
minimum lease payments at the beginning of the lease term or fair value at
the inception of the lease.
The Company uses the straight-line method in computing depreciation and
amortization over the estimated useful lives of assets as follows:
<TABLE>
<S> <C>
Buildings and improvements............................. 20 to 30 years
Fixtures and equipment................................. 5 to 15 years
Leasehold improvements................................. 10 to 20 years
</TABLE>
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
F-31
<PAGE> 44
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INTANGIBLE ASSETS - Intangible assets are amortized on a straight-line
basis over the estimated useful lives of the assets. A noncompete agreement
is amortized over its five year term. Concession rights were amortized over
an estimated useful life of six years. Excess of purchase price over the
fair value of net assets acquired is amortized over the term (including all
renewal options) of the underlying facility leases for periods of 19 to 35
years. Favorable lease terms are amortized over the term (excluding renewal
options) of the underlying facility leases for periods of 4 to 19 years.
Debt issue costs are those costs associated with the issuance of the Senior
Secured Notes that will be amortized over the term of the notes which are
due March 1, 2003. The carrying values of intangible assets are reviewed if
the facts and circumstances suggest that they may be impaired. If this
review is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow is
required.
INCOME TAXES - The subsidiaries of the Company file separate federal income
tax returns. For financial statement purposes, income taxes are calculated
in accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"), Accounting for Income Taxes. The statement requires that
deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws and regulations.
FAIR VALUE OF FINANCIAL INSTRUMENTS - At December 31, 1996 the carrying
value of financial instruments approximate their fair value unless
otherwise indicated.
FINANCIAL INSTRUMENTS AND HEDGING - The Company used interest rate swap
agreements to manage interest costs and risks associated with changing
interest rates. The Company designated interest rate swaps as hedges of
specific debt instruments and the differential to be paid or received was
accrued as interest rates changed and was recognized over the life of the
agreements as an adjustment to interest expense. Counterparties to the
interest rate swap contracts were major financial institutions and credit
loss from counterparty nonperformance was not anticipated. The Company does
not enter into financial instruments for trading purposes.
EARNINGS PER SHARE - Earnings per share information is not presented as the
Company is a limited liability company consisting of member interests
rather than shareholder interests.
F-32
<PAGE> 45
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. RELATED PARTY TRANSACTIONS
TRICOB PARTNERSHIP - The Company leases three locations from Tricob, a
partnership engaged in the ownership and leasing of real property in which
the Company's members are partners. The related rent expense for these
leases amounted to approximately $1.3 million in 1996. The amount payable
at December 31, 1996 under these leases amounted to approximately $119,000.
The Company has a loan to Tricob with a balance of approximately $354,000
as of December 31, 1996. Interest on the loan accrues at 6.35% and amounted
to approximately $24,000 in 1996. The loan matures in October 2003.
R.C. Cobb, Inc. is a guarantor for debts of Tricob amounting to
approximately $3.3 million at December 31, 1996 with final maturity in
March 1999 and secured by real property. Tricob and R.C. Cobb, Inc. have
cross-default commitments.
MEMBERS - The Company leases office and warehouse facilities from a member.
The related rent expense amounted to approximately $266,000 in 1996.
SIPSEY RIVER, INC. - The Company has an agreement with Sipsey River, Inc.,
a corporation owned by a member, to provide aircraft services. The fees for
such services amounted to approximately $432,000 for 1996.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1996
--------------
(in thousands)
<S> <C>
Land....................................................... $ 7,005
Buildings and leasehold improvements....................... 39,201
Fixtures and equipment..................................... 56,116
Construction in process.................................... 9,173
Capital leases............................................. 2,168
Other assets............................................... 429
--------
114,092
Less accumulated depreciation.............................. 34,254
--------
$ 79,838
========
</TABLE>
Interest of approximately $527,000 has been capitalized in 1996.
F-33
<PAGE> 46
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
1996
-------------
(in thousands)
<S> <C>
Excess of purchase price over the fair value of net assets acquired.... $ 8,103
Noncompete agreement................................................... 1,800
Favorable lease terms.................................................. 5,300
Concession rights...................................................... --
Debt issue costs....................................................... 4,576
-------
19,779
Less accumulated depreciation.......................................... 3,980
-------
$15,799
=======
</TABLE>
Amortization expense totaled $2.0 million for 1996.
5. OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following:
<TABLE>
<CAPTION>
1996
-------------
(in thousands)
<S> <C>
Other current assets:
Due from related parties................................. $ 42
Inventory................................................ 784
Refundable income taxes.................................. 704
Prepaid and other assets................................. 3,096
------
$4,626
======
Other assets:
Deferred income tax benefit.............................. $2,118
Due from related parties, non-current.................... 312
Cash value of life insurance, net........................ 1,188
Other assets............................................. 665
------
$4,283
======
Accrued expenses and other liabilities:
Due to related parties................................... $ 23
Accrued liabilities...................................... 3,465
Deferred income.......................................... 1,512
------
$5,000
======
Other long-term liabilities:
Deferred rent............................................ $2,886
Deferred income tax liabilities.......................... 2,118
------
$5,004
======
</TABLE>
F-34
<PAGE> 47
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. LONG TERM DEBT
CURRENT FINANCING - On March 6, 1996, the Company issued $85 million of
10 5/8% Senior Secured Notes due March 1, 2003 (the "Senior Secured
Notes"). Interest on the Senior Secured Notes is due semiannually on
September 1 and March 1. The proceeds from the Debt Offering were
primarily used to repay $76.6 million of existing debt and pay
approximately $4.3 million of commission and other expenses associated
with the Debt Offering, with the remaining proceeds of approximately $4.1
million available for general corporate purposes, including interest and
fees, funding working capital and the development of additional theatres.
Prepayment fees and the write off of deferred loan costs associated with
the previous debt resulted in an extraordinary loss of $751,000, net of
income tax benefit of $440,000.
Concurrently with the issuance of the Senior Secured Notes, the Company
entered into a new $25 million bank credit facility (the "New Credit
Facility"). The New Credit Facility is comprised of a $12.5 million senior
secured seasonal revolver available for working capital purposes and a
$12.5 million senior secured reducing revolver available for future capital
expenditures. The New Credit Facility has a final maturity date of November
30, 2000. However, availability under the reducing revolver will be
permanently reduced by set amounts beginning February 28, 1998. Access to
the availability under the New Credit Facility will be dependent upon the
achievement by the Company of certain financial ratios. As of December 31,
1996, the Company had $12.5 million of credit available under the New
Credit Facility with no balance outstanding.
At the Company's option, the interest rates per annum applicable to the New
Credit Facility will be a fluctuating rate of interest measured by
reference to either: (a) an adjusted London inter-bank offered rate
("LIBOR") plus borrowing margin or (b) the base rate of the Agent for the
New Credit Facility (the "Base Rate") (which is based on the higher of the
Agent's published prime rate or overnight federal funds rate plus 0.50%)
plus a borrowing margin. The applicable borrowing margin for such loans
will vary, based on the Company's ratio of net debt to EBITDA from 1.625%
to 3.125% with respect to LIBOR borrowings and from 0.375% to 1.875% with
respect to Base Rate borrowings.
In connection with the New Credit Facility, the Company has agreed to pay
commitment fees based on the unused portion of the New Credit Facility.
F-35
<PAGE> 48
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. LONG TERM DEBT, CONTINUED
The Senior Secured Notes and the New Credit Facility are secured on an
equal and ratable basis by a first pledge of the equity interests of the
subsidiaries of the Company, all intercompany notes and a security interest
in all of the assets (other than real property) of the Company's
subsidiaries.
The New Credit Facility contains covenants that, among other things,
restrict the ability of the Company to incur additional debt, create
certain liens, make certain investments (including certain capital
expenditures), pay dividends or make other distributions, sell assets of
the Company or its subsidiaries, issue or sell equity interests of the
Company's subsidiaries or enter into certain mergers or consolidations.
Under the New Credit Facility, the Company will be required to comply with
specified financial ratios, including maximum net debt to EBITDA and
minimum interest coverage and fixed charge coverage ratios.
The Company was in compliance with all financial covenants as of December
31, 1996.
The fair value of the Company's Senior Secured Notes as of December 31,
1996 was $89,250,000 based on the quoted market price of the bonds as of
that date.
PREVIOUS FINANCING -- Under the Company's previous revolving credit
agreement, R.C. Cobb, Inc. and Cobb II had credit facilities that included
senior term loans and an $11.0 million seasonal working capital revolver.
Cobb II had a two year interest rate swap agreement with a notional
principal amount of $12.0 million which matured in May 1996. The agreement
effectively fixed the interest rate on a portion of the variable rate
senior term loan starting at 5.3% at May 9, 1994 and incrementally
increased by .3075% per quarter to 7.45% on May 9, 1996. Cobb II incurred
an additional $62,000 of expenses in 1996 related to the interest rate
swap.
The Company has had no involvement with other derivatives in the past, with
the exception of basic swaps to convert variable rate debt to fixed rate
debt, and has no specific plans to use derivative products in the
foreseeable future.
F-36
<PAGE> 49
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LEASES
CAPITAL LEASES - The Company is obligated under various capital leases that
expire during the next four years for equipment with a net book value of
approximately $1.8 million.
Future minimum lease payments and the present value of future minimum lease
payments under equipment capital leases as of December 31, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................................. $ 411
1998................................................................. 412
1999................................................................. 1,187
2000................................................................. 10
------
Total............................................................ 2,020
Less amount representing interest (approximately 8.01%).............. 302
------
Present value of future minimum capital lease payments........... 1,718
Less current portion................................................. 283
------
Obligations under capital leases, excluding current portion...... $1,435
======
</TABLE>
OPERATING LEASES - The majority of the Company's operations are conducted
in premises occupied under operating lease agreements with original base
terms ranging generally from 15 to 20 years, with certain leases containing
options, primarily in 5 year increments, to extend up to an additional 30
years. The leases provide for fixed rentals and/or contingent rentals based
on revenues. R.C. Cobb, Inc. guarantees all of the operating leases of Cobb
II. The majority of the leases provide that the Company will pay
substantially all taxes, maintenance, insurance and certain other operating
expenses.
Future minimum lease payments under these operating leases are as follows
(in thousands):
<TABLE>
<S> <C>
Fiscal Year:
1997....................................................... $ 19,485
1998....................................................... 19,765
1999....................................................... 19,235
2000....................................................... 18,725
2001....................................................... 18,206
Thereafter................................................. 127,631
--------
$223,047
========
</TABLE>
Total rent expense for theatre facility operating leases for 1996 was
approximately $16.5 million. Contingent rentals were approximately $98,000
in 1996. Sublease payments received were approximately $164,000 in 1996.
F-37
<PAGE> 50
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LEASES, CONTINUED
The Company records rent expense on a straight-line basis over the term of
the lease. Long term liabilities include deferred rent of $2,886,000 as of
December 31, 1996.
SALE/LEASEBACKS - In September 1996, the Company completed the sale of a
parcel of land including the attached building for approximately $1.6
million. The net book value of approximately $1.2 million has been removed
from the accounts and the gain realized of approximately $403,000 has been
deferred and will be amortized evenly over the term of the lease of
approximately 20 years. The leaseback arrangements allow for the
development of a new theatre with 20 screens scheduled to be completed in
May 1997.
In December 1996, the Company completed the sale of two parcels of
undeveloped land for approximately $3.6 million. The book value of
approximately $4.4 million has been removed from the accounts and the loss
realized on the sale of approximately $817,000 has been deferred and will
be amortized evenly over the term of the leases of approximately 20 years.
The leaseback arrangements allow for the development of two new theatres on
these parcels with a total of 36 screens scheduled to be completed in
November 1997.
8. INCOME TAXES
Income tax expense in the consolidated statement of operations for the
year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996
------------
(in thousands)
<S> <C>
Current
Federal...................................................... $ --
State........................................................ --
------
--
------
Deferred
Federal...................................................... 772
State........................................................ 68
------
840
------
Total income tax expense....................................... 840
Tax benefit of extraordinary loss............................ 440
------
Income tax expense before extraordinary loss................... $1,280
======
</TABLE>
F-38
<PAGE> 51
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES, CONTINUED
The difference between the effective rate and the U.S. federal income tax
statutory rate is as follows:
<TABLE>
<CAPTION>
1996
-----------------------
(Dollars in thousands)
<S> <C> <C>
Tax at statutory rate.................................. $(1,107) (34)%
Add (subtract) tax effect of:
State income tax, net of federal benefit.......... (98) (3)
Valuation allowance............................... 2,309 71
Other............................................. 176 5
------- ---
$ 1,280 39%
======= ===
</TABLE>
The significant components of deferred income tax assets (liabilities) at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
--------------
(in thousands)
<S> <C>
Accrued liabilities............................................ $ 1,170
Amortization................................................... 444
Depreciation................................................... (4,434)
Tax operating lease............................................ 623
Deferred asset................................................. (302)
Net operating loss carryforward................................ 4,431
AMT credit carryforward........................................ 627
Other.......................................................... (250)
-------
Non-current deferred income tax asset..................... 2,309
Valuation allowance for deferred tax assets............... (2,309)
-------
Net deferred tax asset......................................... $ --
=======
</TABLE>
R. C. Cobb, Inc. and Cobb II have net operating loss carryforwards of
approximately $12.0 million that may be offset against future taxable
income. Substantially all of the carryforward expires in 2009 through 2011.
F-39
<PAGE> 52
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) plan covering all
full-time employees who have six months of service and are age 21 or older.
The Company may elect to match a portion of the participant's elective
deferral. The Company contributions amounted to $163,000 in 1996.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, the ultimate liability with respect
to these actions will not materially affect the consolidated financial
position or results of operations of the Company.
11. SUBSEQUENT EVENTS
On June 11, 1997, the Company signed an agreement to merge with Regal
Cinemas, Inc. of Knoxville, Tennessee. The transaction will be accounted
for as a pooling of interests. The consideration of approximately $200
million consists of Regal common stock and the assumption of all
outstanding indebtedness of Cobb Theatres. Consummation of the transaction
is subject to customary closing conditions and the expiration of the
waiting period under the Hart-Scott-Rodino Act. The Company expects the
merger to be completed by the end of July 1997.
F-40
<PAGE> 53
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 hereunto duly authorized.
REGAL CINEMAS, INC.
Date: September 10, 1997 By: /s/ Lewis Frazer III
-----------------------------------------
Lewis Frazer III
Executive Vice President, Chief Financial
Officer and Treasurer
<PAGE> 54
EXHIBIT INDEX
Exhibit
- -------
11.1 Calculation of Earnings Per Share
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of LaRocca & Co., P.C.
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
REGAL CINEMAS, INC.
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------------------------
DECEMBER 29, DECEMBER 28, JANUARY 2, JUNE 27, JULY 3,
1994 1995 1997 1996 1997
------------ ------------ ---------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
PRIMARY:
Weighted average number of
common shares outstanding ...... 28,430 30,428 33,726 30,978 36,027
Net effect of dilutive stock options
and warrants based on the
treasury stock method using
average market price ........... 1,066 883 1,074 1,380 1,150
-------- -------- -------- -------- -------
Weighted average number of
common and common
equivalent shares outstanding .. 29,496 31,311 34,800 32,358 37,177
======== ======== ======== ======== =======
Net income ......................... $ 10,950 $ 17,505 $ 25,066 $ 7,923 $15,526
Less common and preferred
dividends ...................... (380) (433) (229) (229) --
-------- -------- -------- -------- -------
Net income applicable to common
shares ......................... $ 10,570 $ 17,072 $ 24,837 $ 7,694 $15,526
======== ======== ======== ======== =======
Net income per common share, as
reported ....................... $ 0.36 $ 0.55 $ 0.71 $ 0.24 $ 0.42
======== ======== ======== ======== =======
FULLY DILUTED:
Weighted average number of
common shares outstanding ...... 28,430 30,428 33,726 30,978 36,027
Net effect of dilutive stock options
and warrants based on the
treasury stock method using
ending market price ............ 1,239 1,054 1,166 1,403 1,303
-------- -------- -------- -------- -------
29,669 31,482 34,892 32,381 37,330
======== ======== ======== ======== =======
Net income ......................... $ 10,950 $ 17,505 $ 25,066 $ 7,923 $15,526
Less common and preferred
dividends ...................... (380) (433) (229) (229) --
-------- -------- -------- -------- -------
Net income applicable to common
shares ......................... $ 10,570 $ 17,072 $ 24,837 $ 7,694 $15,526
======== ======== ======== ======== =======
Net income per common share
assuming full dilution, as
reported ....................... $ 0.36 $ 0.54 $ 0.71 $ 0.24 $ 0.42
======== ======== ======== ======== =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the:
1. Registration Statement (Form S-8 No. 33-74634) pertaining to the Regal
Cinemas, Inc. Participant Stock Option Plan, Regal Cinemas, Inc. Employee
Stock Option Plan, 1993 Employee Stock Incentive Plan and 1993 Outside
Directors' Stock Option Plan of Regal Cinemas, Inc.;
2. Registration Statement (Form S-8 No. 333-13295) pertaining to the 401(k)
Profit Sharing Plan of Regal Cinemas, Inc.;
3. Registration Statement (Form S-8 No. 333-13291) pertaining to the 1993
Employee Stock Incentive Plan of Regal Cinemas, Inc.;
of our report dated July 2, 1997, with respect to the consolidated financial
statements of Cobb Theatres, L.L.C. for the year ended December 31, 1996
included in the Current Report on Form 8-K/A (Amendment No. 1) of Regal
Cinemas, Inc. and to the incorporation by reference therein of our report dated
October 23, 1996, with respect to the consolidated financial statements of Cobb
Theatres, L.L.C. for the years ended August 31, 1996 and 1995 included in the
Annual Report (Form 10-K) for the year ended August 31, 1996 of Cobb Theatres,
L.L.C. filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Birmingham, Alabama
September 9, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the:
1. Registration Statement (Form S-8 No. 33-74634) pertaining to the Regal
Cinemas, Inc. Participant Stock Option Plan, Regal Cinemas, Inc. Employee
Stock Option Plan, 1993 Employee Stock Incentive Plan, and 1993 Outside
Directors' Stock Option Plan of Regal Cinemas, Inc.;
2. Registration Statement (Form S-8 No. 333-13295) pertaining to the 401(k)
Profit Sharing Plan of Regal Cinemas, Inc.;
3. Registration Statement (Form S-8 No. 333-13291) pertaining to the 1993
Employee Stock Incentive Plan of Regal Cinemas, Inc.;
of our report dated March 21, 1995 (with respect to the financial statements of
Neighborhood Entertainment, Inc. not separately presented) appearing in the
Current Report on Form 8-K/A dated September 10, 1997 of Regal Cinemas, Inc.
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Richmond, Virginia
September 9, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Regal Cinemas, Inc. on Form S-8 (File Nos. 33-74634, 333-13291 and 333-13295)
of our report dated February 6, 1997, except for the combination with Cobb
Theatres, L.L.C. ("Cobb Theatres") described in Note 1 as to which the date is
July 31, 1997, on our audits of the supplemental consolidated financial
statements of Regal Cinemas, Inc. as of December 28, 1995 and January 2, 1997,
and for each of the three years in the period ended January 2, 1997, which
report is included in the Current Report on Form 8-K/A. The supplemental
consolidated financial statements give retroactive effect to the acquisitions
of Cobb Theatres and Neighborhood Entertainment, Inc. ("Neighborhood"), which
have been accounted for as poolings of interests. We did not audit the
financial statements of Cobb Theatres, for 1994, 1995 and 1996, nor of
Neighborhood for 1994. Such statements reflect aggregate total assets
constituting 30% and 23% in 1995 and 1996, respectively, and aggregate total
revenues constituting 45%, 34% and 31% in 1994, 1995 and 1996, respectively, of
the related supplemental consolidated totals. These statements were audited by
other auditors, whose reports have been furnished to us, and in our opinion,
insofar as it relates to the amounts included for Cobb Theatres and
Neighborhood is based solely on the respective reports of the other auditors.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
September 9, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF LAROCCA & CO., P.C., INDEPENDENT AUDITORS
We consent to the incorporation by reference in the:
1. Registration Statement (Form S-8 No. 33-74634) pertaining to the Regal
Cinemas, Inc. Participant Stock Option Plan, Regal Cinemas, Inc. Employee
Stock Option Plan, 1993 Employee Stock Incentive Plan and 1993 Outside
Directors' Stock Option Plan of Regal Cinemas, Inc.;
2. Registration Statement (Form S-8 No. 333-13295) pertaining to the 401(k)
Profit Sharing Plan of Regal Cinemas, Inc.;
3. Registration Statement (Form S-8 No. 333-13291) pertaining to the 1993
Employee Stock Incentive Plan of Regal Cinemas, Inc.;
of our report dated November 14, 1994, (with respect to the consolidated
financial statements of Cobb Theatres, L.L.C. not separately presented)
appearing in the Current Report on Form 8-K/A (Amendment No. 1) of Regal
Cinemas, Inc. and to the incorporation by reference therein of our report dated
November 14, 1994, with respect to the consolidated financial statements of
Cobb Theatres, L.L.C. for the year ended August 31, 1994 included in the Annual
Report (Form 10-K) for the year ended August 31, 1996 of Cobb Theatres, L.L.C.,
filed with the Securities and Exchange Commission.
/s/ LaRocca & Co., P.C.
LaRocca & Co., P.C.
Birmingham, Alabama
September 9, 1997
