<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1997
Commission file number 0-21772
-------
Regal Cinemas, Inc.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Tennessee 62-1412720
- ----------------------------------------- ----------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7132 Commercial Park Drive
Knoxville, Tennessee 37918
- ---------------------------------------- ----------------------------
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (423) 922-1123
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Common Stock outstanding - 33,230,009 shares at August 14, 1997
1
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands of dollars)
ASSETS
<TABLE>
<CAPTION>
July 3, January 2,
1997 1997
-------- ---------
<S> <C> <C>
Current assets:
Cash and equivalents............................... $ 11,835 $ 14,778
Accounts receivable................................ 1,110 2,285
Inventories........................................ 1,659 1,240
Prepaids and other current assets.................. 3,949 3,030
Refundable income taxes............................ -- 2,773
-------- --------
Total current assets........................... 18,553 24,106
-------- --------
Property and equipment:
Land............................................... 35,573 32,550
Buildings and leasehold improvements............... 247,231 207,412
Equipment.......................................... 125,026 111,358
Construction in progress........................... 45,672 34,247
-------- --------
453,502 385,567
Accumulated depreciation and amortization.......... (63,068) (54,343)
-------- --------
Total property and equipment, net ............. 390,434 331,224
Other assets............................................ 35,428 23,189
-------- --------
Total assets................................... $444,415 $378,519
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
-------------------------------------------------
(in thousands of dollars, except share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 3, January 2,
1997 1997
-------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable ........................................ $ 23,790 $ 26,011
Accrued expenses ........................................ 7,654 6,202
-------- --------
Total current liabilities ......................... 31,444 32,213
Long-term debt, less current maturities .................... 100,000 51,000
Other liabilities .......................................... 3,362 3,420
Deferred income taxes ...................................... 8,725 8,165
-------- --------
Total liabilities ................................. 143,531 94,798
-------- --------
Shareholders' equity:
Preferred stock, no par; 1,000,000 shares
authorized, none issued ............................... -- --
Common stock, no par; 100,000,000 shares
authorized, 33,189,259 and 33,168,573 shares
issued and outstanding at July 3, 1997 and
January 2, 1997, respectively ......................... 222,317 221,506
Retained earnings .......................................... 78,567 62,215
-------- --------
300,884 283,721
-------- --------
Total liabilities and stockholders' equity ........ $444,415 $378,519
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
July 3, June 27, July 3, June 27,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Admissions .................................. $ 52,765 $ 40,734 $ 106,272 $ 79,401
Concessions ................................. 22,376 17,069 43,902 32,565
Other operating revenues .................... 3,158 2,672 5,570 3,572
--------- --------- --------- ---------
Total Revenues .............................. 78,299 60,475 155,744 115,538
--------- --------- --------- ---------
Operating Expenses:
Film rental and advertising costs ........... 29,571 23,040 57,388 43,024
Cost of concessions and other ............... 2,719 2,095 5,533 4,165
Theatre operating expenses .................. 25,353 19,023 50,363 37,724
General & administrative expenses ........... 2,695 2,399 5,453 4,598
Depreciation & amortization ................. 4,670 3,317 9,291 6,459
Merger expenses ............................. -- 1,639 -- 1,639
--------- --------- --------- ---------
Total operating expenses ......................... 65,008 51,513 128,028 97,609
Other income (expense):
Interest expense ................................. (665) (1,540) (1,102) (2,856)
Interest income .................................. 55 55 170 157
Other ............................................ 33 395 (77) 556
--------- --------- --------- ---------
Income before provision for taxes ................ 12,714 7,872 26,707 15,786
Provision for income taxes ....................... 4,902 3,326 10,359 6,445
--------- --------- --------- ---------
Net income ....................................... $ 7,812 $ 4,546 $ 16,348 $ 9,341
========= ========= ========= =========
GST Dividends .................................... -- 68 -- 229
--------- --------- --------- ---------
Net income applicable to common stock ............ $ 7,812 $ 4,478 $ 16,348 $ 9,112
========= ========= ========= =========
Earnings per common share:
Primary ................................. $ .23 $ .15 $ .48 $ .31
========= ========= ========= =========
Fully diluted ........................... $ .23 $ .15 $ .47 $ .31
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(in thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
July 3, June 27,
1997 1996
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 16,348 $ 9,341
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization ...................... 9,291 6,459
Deferred income taxes .............................. 133 573
Changes in operating assets and liabilities:
Accounts receivable .............................. 1,175 368
Inventories ...................................... (419) (137)
Prepaids and other current assets ................ (489) (213)
Refundable income taxes .......................... 2,773 2,493
Accounts payable ................................. (2,221) (2,782)
Accrued expenses and other liabilities ........... 1,394 (678)
--------- ---------
Net cash provided by operating activities ... 27,985 15,424
Cash flows from investing activities:
Capital expenditures, net ............................... (67,935) 44,124)
Investment in other assets .............................. (12,804) (6,388)
--------- ---------
Net cash used in investing activities ....... (80,739) (50,512)
Cash flows from financing activities:
Net borrowings (payments) on long-term debt ............. 49,000 (85,669)
Dividends paid to GST shareholders ...................... -- (500)
Net proceeds from issuance of common stock .............. 751 127,086
Stock compensation expense .............................. 60 60
--------- ---------
Net cash provided by financing activities ... 49,811 40,977
--------- ---------
Net increase (decrease) in cash and equivalents ............ (2,943) 5,889
Cash and equivalents at beginning of period ................ 14,778 5,775
--------- ---------
Cash and equivalents at end of period ...................... $ 11,835 $ 11,664
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
1. THE COMPANY AND BASIS OF PRESENTATION
Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries,
Litchfield Theatres, Ltd. ("Litchfield"), Neighborhood Entertainment, Inc.
("Neighborhood") and Georgia State Theatres, Inc. ("GST"); collectively
referred to as the "Company" operate multi-screen motion picture theatres
principally throughout the eastern United States. During May 1997,
Litchfield, Neighborhood and GST were merged with and into Regal. The
Company formally operates on a fiscal year ending on the Thursday
closest to December 31.
On May 30, 1996, Regal issued 1,410,213 shares of its common stock for all
of the outstanding common stock of GST. The merger has been accounted for
as a pooling of interests and, accordingly, these condensed consolidated
financial statements have been restated for all periods to include the
results of operations and financial positions of GST.
Separate results of the combining entities for the three and six-month
periods ended July 3, 1997 and the three and six-month periods ended June
27, 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 3, 1997 June 27, 1996 July 3, 1997 June 27, 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues: ................................ (in thousands)
Regal ................................. $ 78,299 $ 58,586 $ 155,744 $ 110,829
GST (through May 30 for 1996) ......... -- 1,889 -- 4,709
--------- --------- --------- ---------
$ 78,299 $ 60,475 $ 155,744 $ 115,538
========= ========= ========= =========
Net income (loss):
Regal ................................. $ 7,812 $ 4,779 $ 16,348 $ 9,251
GST (through May 30 for 1996) ......... -- (233) -- 90
--------- --------- --------- ---------
$ 7,812 $ 4,546 $ 16,348 $ 9,341
========= ========= ========= =========
</TABLE>
The net loss for GST for the five months ended May 30, 1996, reflects
approximately $1.2 million (net of applicable income taxes) of expense
associated with the merger, principally legal and accounting fees, and
severance related costs.
2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of July 3, 1997, the condensed
consolidated statements of income for the three months and six months
ended July 3, 1997 and June 27, 1996, and the condensed consolidated
statements of cash flows for the six months ended July 3, 1997 and June
27, 1996 have been prepared by the Company, without audit. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows for all periods presented have been made. The
January 2, 1997 information has been derived from the audited January 2,
1997 balance sheet of Regal Cinemas, Inc.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
6
<PAGE> 7
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report to Shareholders for the year ended
January 2, 1997. The results of operations for the three and six-month
periods ended July 3, 1997 are not necessarily indicative of the operating
results for the full year.
3. INCOME TAXES
The Company's effective income tax rate differs from the expected federal
income tax rate of 35% due to the inclusion of state income taxes.
4. LONG-TERM DEBT
Long-term debt at July 3, 1997 and January 2, 1997, consists of the
following:
<TABLE>
<CAPTION>
July 3, January 2,
1997 1997
--------- ----------
(in thousands)
<S> <C> <C>
Regal $150,000,000 senior reducing revolving credit
facility which expires on June 30, 2003, with interest
payable quarterly, at LIBOR (5.78% at July 3, 1997 and
5.6% at January 2, 1997, respectively) plus 0.4%. 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 balance quarterly
through June 30, 2003......................................... $100,000 $51,000
Less current maturities....................................... -- --
-------- -------
$100,000 $51,000
======== =======
</TABLE>
Regal's credit facility contains various restrictive covenants which
require Regal to maintain certain financial ratios. During 1996, the
Company amended its Loan Agreement to decrease the interest rate, extend
the maturity of the facility to June 30, 2003, and modify certain
financial covenants.
7
<PAGE> 8
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
The Company's debt at July 3, 1997 is scheduled to mature as follows:
(in thousands)
<TABLE>
<S> <C>
1997............... $ --
1998............... --
1999............... 10,000
2000............... 20,000
2001............... 20,000
Thereafter......... 50,000
--------
$100,000
========
</TABLE>
5. EARNINGS PER SHARE
Primary earnings per share have been computed by dividing net income
applicable to common stock (net income less GST dividends) by the weighted
average number of common and common equivalent shares outstanding during
each period. Shares issued in connection with the GST merger 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 September 1996 common stock split. 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)
34,403 shares for the three month period ended July 3, 1997; and 30,107
shares for the three month period ended June 27, 1996 and 34,339 shares
for the six month period ended July 3, 1997 and 29,520 shares for the six
month period ended June 27, 1996). Fully diluted earnings per common share
utilizes net income before preferred dividends based upon the assumed
weighted average number of common and common equivalent shares outstanding
in each period ((in thousands) 34,493 shares for the three month period
ended July 3, 1997; and 30,129 shares for the three month period ended
June 27, 1996 and 34,492 shares for the six month period ended July 3,
1997 and 29,543 shares for the six month period ended June 27, 1996).
6. SUBSEQUENT EVENT -- BUSINESS COMBINATION
Subsequent to the end of the three-month period ended July 3, 1997, Regal
consummated the acquisition of the business conducted by Cobb Theatres,
L.L.C. (the "Cobb Theatres Acquisition"). In the Cobb Theatres
Acquisition, Regal issued an aggregate of 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
million (net of tax) in its current quarter ending October 2, 1997,
related to merger expenses and
8
<PAGE> 9
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
severance payments. In connection with the Cobb Theatres Acquisition, Regal
assumed approximately $110 million of indebtedness, including $85 million of
outstanding Senior Secured Notes (the "Notes"). Regal has commenced an offer to
purchase all of the outstanding Notes at a purchase price determined on the
basis of a fixed spread over the yield of Treasury Notes to the first call date
for the Notes. Regal expects to finance the purchase price of the Notes with
borrowings under a loan agreement with a bank lender. Regal will recognize
certain one time charges totaling approximately $9.1 million (net of tax) in its
current quarter ending October 2, 1997, relating to the purchase of the Notes
(assuming all outstanding Notes are purchased).
The following unaudited pro forma results of operations for the period ended
July 3, 1997 and June 27, 1996, respectively, give retroactive effect to the
Cobb Acquisition which has been accounted for as a pooling of interests. The pro
forma results of operations assume the acquisition occurred at the beginning of
fiscal 1996 and have been prepared for comparative purposes only and do not
purport to indicate the results of operations that actually would have occurred
had the combination been in effect on the dates indicated, or which may occur in
the future.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
July 3, 1997 June 27, 1996
------------ -------------
<S> <C> <C>
Revenues:
Regal .................................. $ 78,299 $ 60,475
Cobb ................................... 31,879 29,925
--------- ---------
$ 110,178 $ 90,400
========= =========
Net Income (Loss):
Regal .................................. $ 7,812 $ 4,478
Cobb ................................... (873) (401)
--------- ---------
$ 6,939 $ 4,077
========= =========
Pro forma earnings per common share ......... $ 0.19 $ 0.12
========= =========
</TABLE>
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
July 3, 1997 June 27, 1996
------------ -------------
<S> <C> <C>
Revenues:
Regal .................................. $ 155,744 $ 115,538
Cobb ................................... 64,644 58,702
--------- ---------
$ 220,388 $ 174,240
========= =========
Net Income (Loss):
Regal .................................. $ 16,348 $ 9,112
Cobb ................................... (822) (1,571)
--------- ---------
$ 15,526 $ 7,541
========= =========
Pro forma earnings per common share ......... $ 0.42 $ 0.23
========= =========
</TABLE>
9
<PAGE> 10
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") includes the results of Litchfield Theatres, Ltd.
("Litchfield"), Neighborhood Entertainment, Inc. ("Neighborhood") and Georgia
State Theatres, Inc. ("GST"), collectively referred to as the "Company," and
should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes thereto included herein. Regal consummated the acquisitions
of Litchfield, Neighborhood, and GST on June 15, 1994, April 17, 1995 and May
30, 1996, respectively. These three acquisitions have been accounted for as
poolings of interest. 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 118 theatres with 792 screens, developed 49 new theatres with 551
screens and added 74 new screens to acquired theatres. Theatres developed by
Regal typically generate positive theatre level cash flow within the first three
months following commencement of operation and reach a mature level of
attendance within one to three years following commencement of operation. Regal
does not defer any 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 three 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-packed
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.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
The following table sets forth for the fiscal periods indicated the percentage
of total revenues represented by certain items reflected in the Company's
consolidated statements of income.
<TABLE>
<CAPTION>
Percentage of Total Revenues
-----------------------------------------------------------
Three Months Ended Six Months Ended
------------------------- -------------------------
July 3, June 27, July 3, June 27,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Admissions ................................ 67.4% 67.4% 68.2% 68.7%
Concession ................................ 28.6% 28.2% 28.2% 28.2%
Other ..................................... 4.0% 4.4% 3.6% 3.1%
------- ------- ------- -------
Total Revenues ............................ 100.0% 100.0% 100.0% 100.0%
Operating Expenses:
Film rental and advertising costs ......... 37.8% 38.1% 36.8% 37.2%
Cost of concessions and other ............. 3.4% 3.4% 3.6% 3.6%
Theatre operating expenses ................ 32.4% 31.5% 32.3% 32.7%
General & administrative
expenses .............................. 3.4% 4.0% 3.5% 4.0%
Depreciation & amortization ............... 6.0% 5.5% 6.0% 5.6%
Merger expenses ........................... -- 2.7% -- 1.4%
------- ------- ------- -------
Total operating expenses .............. 83.0% 85.2% 82.2% 84.5%
Other income (expense):
Interest expense .......................... (.8%) (2.5%) (.7%) (2.5%)
Interest income ........................... -- .1% -- .1%
Other ..................................... -- .6% -- .5%
------- ------- ------- -------
Income before provision for
income taxes .......................... 16.2% 13.0% 17.1% 13.6%
Provision for income taxes ..................... (6.2%) (5.6%) (6.6%) (5.5%)
------- ------- ------- -------
NET INCOME ..................................... 10.0% 7.4% 10.5% 8.1%
======= ======= ======= =======
</TABLE>
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
THREE MONTHS ENDED JULY 3, 1997 AND JUNE 27, 1996
TOTAL REVENUES -- Total revenues for the second quarter of fiscal 1997 increased
by 29.5% to $78.3 million from $60.4 million in the comparable 1996 period. This
increase was due to a 26.2% increase in attendance attributable primarily to the
net addition of 254 screens in fiscal 1996 and first six months of 1997. Of the
$17.8 million net increase in revenues for the period, a $5.1 million increase
was attributed to theatres previously operated by the Company, $3.0 million
increase was attributed to theatres acquired by the Company, and $9.7 million
increase was attributed to new theatres constructed by the Company. Average
ticket prices increased 2.6% 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
3.8% 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 30.5% to $57.6 million
in the second quarter 1997 from $44.2 million in the second quarter 1996. Direct
theatre costs as a percentage of total revenues increased to 73.6% in the 1997
period from 73.0% in the 1996 period. The increase of direct theatre costs as a
percentage of total revenues was primarily attributable to an increase in
occupancy expenses as a percentage of total revenues, reflecting a higher mix of
leased versus owned properties.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased by 12.3% to $2.7 million in the second quarter 1997 from $2.4 million
in the second quarter 1996. As a percentage of total revenues, general and
administrative expenses decreased to 3.4% in the 1997 period from 4.0% in the
1996 period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense increased
in the second quarter 1997 by 40.8% to $4.7 million from $3.3 million in the
second quarter 1996. This increase was primarily the result of theatre property
additions associated with the Company's expansion efforts.
OPERATING INCOME -- Operating income for the second quarter 1997 increased by
48.3% to $13.3 million, or 17.0% of total revenues, from $9.0 million, or 14.8%
of total revenues, in the second quarter 1996.
INTEREST EXPENSE -- Interest expense decreased in the second quarter 1997 by
56.8% to $665,000 from $1.5 million in the second quarter 1996. The decrease was
primarily due to lower average borrowings outstanding.
INCOME TAXES -- The provision for income taxes increased in the second quarter
1997 by 47.4% to $4.9 million from $3.3 million in the second quarter 1996. The
effective tax rate was 38.6% in the 1997 period as compared to 42.3% in the 1996
period as the 1996 period reflected certain merger expenses which are not
deductible for tax purposes.
NET INCOME -- Net income in the second quarter 1997 increased by 71.8% to $7.8
million from $4.5 million in the second quarter 1996. The increase in net income
reflects primarily the additional screens operated by the Company.
SIX MONTHS ENDED JULY 3, 1997 AND JUNE 27, 1996
TOTAL REVENUES -- Total revenues for the six months ended July 3, 1997 increased
by 34.8% to $155.7 million from $115.5 million in the comparable 1996 period.
This increase was due to a 29.0% increase in attendance attributable primarily
to the net addition of 254 screens in fiscal 1996 and first six months of 1997
as well as strong film releases in the first six months of 1997. Of the $40.2
million net increase in revenues for the period, a $18.5
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
million increase was attributed to theatres previously operated by the Company,
$4.3 million increase was attributed to theatres acquired by the Company, and
$17.4 million increase was attributed to new theatres constructed by the
Company. Average ticket prices increased 3.8% 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 4.5% for the period, reflecting both an increase in
consumption and, to a lesser degree, an increase in concession prices.
DIRECT THEATRE COSTS -- Direct theatre costs increased by 33.5% to $113.3
million for the six months ended July 3, 1997 from $84.9 million in the
comparable 1996 period. Direct theatre costs as a percentage of total revenues
decreased to 72.8% in the 1997 period from 73.5% 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 18.6% to $5.5 million for the six months ended July 3, 1997 from
$4.6 million in the comparable 1996 period. As a percentage of total revenues,
general and administrative expenses decreased to 3.5% in the 1997 period from
4.0% in the 1996 period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense increased
for the six months ended July 3, 1997 by 43.8% to $9.3 million from $6.5 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 54.6% to $27.7 million, or 17.8% of total revenues, from $17.9
million, or 15.5% of total revenues, in the comparable 1996 period.
INTEREST EXPENSE -- Interest expense decreased for the six months ended July 3,
1997 by 61.4% to $1.1 million from $2.9 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 60.7% to $10.4 million from $6.4 million in the comparable
1996 period. The effective tax rate was 38.8% in the 1997 period as compared to
40.8% in the 1996 period as the 1996 period reflected certain merger expenses
which are not deductible for tax purposes.
NET INCOME -- Net income for the six months ended July 3, 1997 increased by
75.0% to $16.3 million from $9.3 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.
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 have been financed with borrowings under the
Company's loan agreement, equity financings and internally generated cash. On
September 30, 1996, the
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
Company amended its $150 million revolving credit facility. The amendments to
the loan agreement require that the indebtedness under the facility be amortized
at a rate of $7.5 million per quarter commencing with the quarter ending
September 30, 1999, and at a rate of $11.3 million per quarter commencing with
the quarter ending September 30, 2001. The loan agreement requires the Company
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.
On May 30, 1996, the Company consummated the acquisition of GST for 1,410,213
shares of Regal common stock. In conjunction with the transaction, the Company
refinanced approximately $3 million of GST's debt under the Company's revolving
credit facility.
On June 10, 1996, the Company completed a secondary stock 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 September 13, 1996, the Company completed the purchase of assets consisting
of 8 theatres with 69 screens in California from an individual, George
Krikorian, and corporations controlled by him (collectively "Krikorian") for
consideration of 703,241 shares of Regal common stock and approximately $14.0
million in cash.
On May 9, 1997, the Company completed the purchase of assets consisting of an
existing 5 theatres with 32 screens, 4 theatres with 52 screens under
development, and a 7 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.
Subsequent to the end of the three-month period ended July 3, 1997, Regal
consummated the acquisition of the business conducted by Cobb Theatres, L.L.C.
(the "Cobb Theatres Acquisition"). In the Cobb Theatres Acquisition, Regal
issued an aggregate of 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 million (net of tax) in its current
quarter ending October 2, 1997, related to merger expenses and severance
payments. In connection with the Cobb Theatres Acquisition, Regal assumed
approximately $110 million of indebtedness, including $85 million of outstanding
Senior Secured Notes (the "Notes"). Regal has commenced an offer to purchase all
of the outstanding Notes at a purchase price determined on the basis of a fixed
spread over the yield of Treasury Notes to the first call date for the Notes.
Regal expects to finance the purchase price of the Notes with borrowings under a
loan agreement with a bank lender. Regal will recognize certain one time charges
totaling approximately $9.1 million (net of tax) in its current quarter ending
October 2, 1997, relating to the purchase of the Notes (assuming all outstanding
Notes are purchased).
At July 3, 1997, the Company had 167 multi-screen theatres with an aggregate of
1,417 screens. At such date, the Company had 20 new theatres with 293 new
screens and 9 new screens at 2 existing locations under construction. The
Company anticipates that its capital expenditures over the next 12 months will
approximate $125 to $150 million. 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.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
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 the
Statement 128 in fiscal year 1997 and the impact on the Company's financial
statements has not been determined.
15
<PAGE> 16
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
- --------------------------------------------------------------------------------
On May 1, 1997, the shareholders of the Company approved a proposal to
amend Section 5 of the Restated Charter of the Company to increase the number of
authorized shares of the Company's common stock, no par value, from 50,000,000
to 100,000,000 shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- --------------------------------------------------------------------------------
On May 1, 1997, the Company held its 1997 Annual Meeting of Shareholders.
At the Annual Meeting, the shareholders of the Company elected the following
persons to serve as directors for a term of three (3) years or until their
successors are duly elected and qualified with the number of votes cast for and
withheld as set forth opposite their names:
<TABLE>
<CAPTION>
VOTES
------------------------------------
FOR WITHHOLD AUTHORITY
----------- -------------------
<S> <C> <C>
Philip D. Borack........................... 25,596,620 396,011
Michael E. Gellert......................... 25,611,337 381,294
William H. Lomicka......................... 25,612,374 380,257
</TABLE>
The shareholders of the Company also voted on a proposal to amend to the
Company's Restated Charter to increase the number of authorized shares from
50,000,000 to 100,000,000 with the following number of votes cast for, against,
abstaining or broker non-votes:
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN NON-VOTE
- --------------------------------------------------------------------------------
23,767,762 2,069,132 27,911 127,826
The shareholders of the Company also voted on a proposal to amend the
Company's 1993 Employee Stock Incentive Plan to increase the number of shares
issuable thereunder with the following number of votes cast for, against,
abstaining or broker non-votes:
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN NON-VOTE
- --------------------------------------------------------------------------------
17,322,224 4,774,475 40,830 3,855,102
The shareholders of the Company also voted on a proposal to amend the
Company's 1993 Outside Directors' Stock Option Plan to increase the number of
shares issuable thereunder and increase the number of options granted to
non-employee directors on the date of each annual meeting of shareholders with
the following number of votes cast for, against, abstaining or broker non-votes:
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN NON-VOTE
- --------------------------------------------------------------------------------
21,041,282 1,235,075 47,172 3,669,102
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------------
(a) Exhibits:
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed for the quarterly period
ended July 3, 1997.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGAL CINEMAS, INC.
Date: August 13, 1997 By: /s/ Michael L. Campbell
---------------------------------
Michael L. Campbell, Chairman,
President and
Chief Executive Officer
By: /s/ Lewis Frazer III
---------------------------------
Lewis Frazer III, Executive Vice
President, Chief Financial
Officer and Treasurer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM DESCRIPTION
- ------------ ----------------------------------------------------------
<S> <C>
(11) Statement re: computation of per share earnings
(27) FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -----------------------
July 3, June 27, July 3, June 27,
1997 1996 1997 1996
-------- --------- ------- --------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average number of common shares
outstanding ............................................. 33,189 28,725 33,189 28,140
Net effect of dilutive stock options and warrants
based on the treasury stock method using
average market price .................................... 1,214 1,382 1,150 1,380
------- ------- ------- -------
Weighted average number of common and common
equivalent shares outstanding ........................... 34,403 30,107 34,339 29,520
======= ======= ======= =======
Net income ................................................... $ 7,812 $ 4,546 $16,348 $ 9,341
Less common and preferred dividends .......................... -- 68 -- 229
------- ------- ------- -------
Net income applicable to common shares ....................... $ 7,812 $ 4,478 $16,348 $ 9,112
======= ======= ======= =======
Net income per common share as reported ...................... $ .23 $ .15 $ .48 $ .31
======= ======= ======= =======
FULLY DILUTED:
Weighted average number of common shares
outstanding ............................................. 33,189 28,725 33,189 28,140
Net effect of dilutive stock options and warrants
based on the treasury stock method using ending
market price ............................................ 1,304 1,404 1,303 1,403
------- ------- ------- -------
34,493 30,129 34,492 29,543
======= ======= ======= =======
Net income ................................................... $ 7,812 $ 4,546 $16,348 $ 9,341
Less common and preferred dividends related to
nonconvertible securities ............................... -- 68 -- 229
------- ------- ------- -------
Net income applicable to common shares ....................... $ 7,812 $ 4,478 $16,348 $ 9,112
======= ======= ======= =======
Net income per common share assuming full
dilution, as reported ................................... $ .23 $ .15 $ .47 $ .31
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGAL CINEMAS, INC. FOR THE SIX MONTHS ENDED JULY 3,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1996
<PERIOD-START> JAN-03-1997
<PERIOD-END> JUL-03-1997
<EXCHANGE-RATE> 1
<CASH> 11,835
<SECURITIES> 0
<RECEIVABLES> 1,110
<ALLOWANCES> 0
<INVENTORY> 1,659
<CURRENT-ASSETS> 18,553
<PP&E> 453,502
<DEPRECIATION> 63,068
<TOTAL-ASSETS> 444,415
<CURRENT-LIABILITIES> 31,444
<BONDS> 100,000
0
0
<COMMON> 222,317
<OTHER-SE> 78,567
<TOTAL-LIABILITY-AND-EQUITY> 444,415
<SALES> 43,902
<TOTAL-REVENUES> 155,744
<CGS> 5,533
<TOTAL-COSTS> 62,921
<OTHER-EXPENSES> 65,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,102
<INCOME-PRETAX> 26,707
<INCOME-TAX> 10,359
<INCOME-CONTINUING> 16,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,348
<EPS-PRIMARY> .48
<EPS-DILUTED> .47
</TABLE>
