<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 April 2, 1998
Commission file number 0-21772
Regal Cinemas, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Tennessee 62-1412720
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7132 Commercial Park Drive
Knoxville, Tennessee 37918
- ------------------------------- ------------------------------------
(Address of Principal (Zip Code)
Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (423) 922-1123
----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Common Stock outstanding - 36,120,028 shares at April 28, 1998
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>
APRIL 2, JANUARY 1,
1998 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and equivalents $ 16,905 $ 18,398
Accounts receivable 1,493 4,791
Inventories 2,155 2,159
Prepaids and other current assets 7,393 6,377
Refundable income taxes -- 2,424
-------- --------
Total current assets 27,946 34,149
-------- --------
Property and equipment:
Land 54,130 53,955
Buildings and leasehold improvements 379,669 366,323
Equipment 223,297 211,465
Construction in progress 69,324 46,529
-------- --------
726,420 678,272
Accumulated depreciation and amortization (121,768) (112,927)
-------- --------
Total property and equipment, net 604,652 565,345
Goodwill, net 52,030 52,619
Other assets 8,680 8,537
-------- --------
Total assets $693,308 $660,650
======== ========
</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>
APRIL 2, JANUARY 1,
1998 1998
-------- --------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 306 $ 306
Accounts payable 36,904 38,982
Accrued expenses 15,842 13,739
-------- --------
Total current liabilities 53,052 53,027
-------- --------
Long-term debt, less current maturities 308,070 288,277
Other liabilities 14,219 12,771
-------- --------
Total liabilities 375,341 354,075
-------- --------
Commitments (Note 4)
Shareholders' equity:
Preferred stock, no par; 1,000,000 shares authorized,
none issued -- --
Common stock, no par; 100,000,000 shares
authorized; 36,120,028 and 36,113,524 shares
issued and outstanding at April 2, 1998 and January
1, 1998 223,759 223,707
Retained earnings 94,208 82,868
-------- --------
Total shareholders' equity $317,967 $306,575
-------- --------
Total liabilities and shareholders' equity $693,308 $660,650
======== ========
</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
------------------------
APRIL 2, APRIL 3,
1998 1997
--------- ---------
<S> <C> <C>
Revenue:
Admissions $ 95,347 $ 76,514
Concessions 40,101 30,617
Other operating revenue 5,018 3,079
--------- ---------
Total revenues 140,466 110,210
--------- ---------
Operating expenses:
Film rental and advertising costs 48,846 40,176
Cost of concessions and other 4,688 4,165
Theatre operating expenses 49,669 37,122
General and administrative expenses 4,210 4,567
Depreciation and amortization 9,581 7,188
--------- ---------
Total operating expenses 116,994 93,218
--------- ---------
Operating income 23,472 16,992
Other income (expense):
Interest expense (4,791) (2,880)
Interest income 149 117
Other (240) (190)
--------- ---------
Income before provision for income taxes 18,590 14,039
Provision for income taxes (7,250) (5,452)
--------- ---------
Net income $ 11,340 $ 8,587
========= =========
Earnings per common share:
Basic $ .31 $ .24
========= =========
Diluted $ .30 $ .23
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(in thousands of dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 2, APRIL 3,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,340 $ 8,587
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,581 7,092
Loss (gain) on sale of assets (17) 243
Deferred income taxes 948 21
Changes in operating assets and liabilities:
Accounts receivable 3,297 510
Inventories 5 (197)
Prepaids and other current assets (1,016) (519)
Accounts payable (2,078) (1,077)
Accrued expenses and other liabilities 5,028 2,230
-------- --------
Net cash provided by operating activities 27,088 16,890
Cash flows from investing activities:
Capital expenditures, net (48,130) (28,341)
Investment in other assets (295) (291)
-------- --------
Net cash used in investing activities (48,425) (28,632)
Cash flows from financing activities:
Net borrowings under long-term debt 19,792 5,823
Net proceeds from issuance of common stock upon exercise
of warrants and options 27 354
Stock compensation expense 25 30
-------- --------
Net cash provided by financing activities 19,844 6,207
-------- --------
Net decrease in cash and equivalents (1,493) (5,535)
Cash and equivalents at beginning of period 18,398 17,116
-------- --------
Cash and equivalents at end of period $ 16,905 $ 11,581
======== ========
</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,
entities through which Cobb Theatres, L.L.C. and Tricob Partnership, an
entity controlled by 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 July 31, 1997, Regal issued 2,837,594 shares of its common stock for
all of the outstanding common stock of Cobb Theatres. 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
Cobb Theatres.
Separate results of the combining entities for the three-month periods
ended April 2, 1998 and April 3, 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 2, APRIL 3,
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Regal $140,466 $ 77,445
Cobb Theatres, L.L.C. and Tricob
Partnership (through April 3 for 1997) -- 32,765
-------- --------
$140,466 $110,210
======== ========
Net income:
Regal $ 11,340 $ 8,536
Cobb Theatres, L.L.C. and Tricob
Partnership (through April 3 for 1997) -- 51
-------- --------
$ 11,340 $ 8,587
======== ========
</TABLE>
2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of April 3, 1997, the
condensed consolidated statements of income for the three months ended
April 2, 1998 and April 3, 1997 and the condensed consolidated
statements of cash flows for the three months ended April 2, 1998 and
April 3, 1997 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 1, 1998 information has been
derived from the audited January 1, 1998 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
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REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
2. 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 Report filed on Form 10-K dated March 31,
1998. The results of operations for the three month period ended April
2, 1998 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 April 2, 1998 and January 1, 1998, consists of the
following:
<TABLE>
<CAPTION>
APRIL 2, JANUARY 1,
1998 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
$125,000,000 Regal senior subordinated notes due October 1, 2007, with interest
payable semiannually at 8.5%. Notes are redeemable, in whole or in part, at the
option of the Company at any time on or after October 1, 2002, at the redemption
prices (expressed as percentages of the principal amount thereof) set forth
below together with accrued and unpaid interest to the redemption date, if
redeemed during the 12 month period beginning on October 1 of the years
indicated:
Year Redemption Price
---- ----------------
2002 104.250%
2003 102.033%
2004 101.417%
2005 and thereafter 100.000% $125,000 $125,000
$250,000,000 Regal senior reducing revolving credit facility which expires on
June 30, 2003, with interest payable quarterly, at LIBOR (5.79% at April 2,
1998) plus .65%. 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 182,000 162,000
$85,000,000 Cobb Theatres notes due March 1, 2003, with interest
payable semiannually at 10 5/8% 70 170
Other 1,306 1,413
--------- ---------
308,376 288,583
Less current maturities (306) (306)
--------- ---------
$ 308,070 $ 288,277
========= =========
</TABLE>
7
<PAGE> 8
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
4. LONG-TERM DEBT, CONTINUED
The Company's debt at April 2, 1998, is scheduled to mature as follows:
(in thousands)
<TABLE>
<S> <C>
1998 $ 306
1999 1,000
2000 --
2001 --
2002 --
Thereafter 307,070
--------
Total $308,376
========
</TABLE>
On August 14, 1997, the Company commenced a tender offer for all of the
Cobb Notes and a consent solicitation in order to effect certain
changes in the Indenture. Upon completion of the tender offer, holders
had tendered and given consents with respect to 96.86% of the
outstanding principal amount of the Cobb Notes. In addition, the
Company and the trustee executed a supplement to the Indenture,
effecting the proposed amendments which included, among other things,
the elimination of all financial covenants and the release of security
for the Cobb Notes. On September 18, 1997, the Company paid, for each
$1,000 principal amount, $1,136.97 for Cobb Notes tendered on or prior
to August 28, 1997 and $1,126.97 for Cobb Notes tendered after August
28, 1997, plus, in each case, accrued and unpaid interest of $5.02.
After completion of the tender offer, the Company purchased an
additional $2,600,000 of the aggregate principal amount of the Cobb
Notes. Regal financed the purchase price of the Cobb Notes with
borrowings under a loan agreement with a bank. All such borrowings were
repaid with a portion of the net proceeds of the offering of the
$125,000,000 Regal Senior Subordinated Notes. The fair value of the
senior subordinated notes was $127,500,000 at April 2, 1998.
In March 1995, Regal entered into a seven-year interest rate swap
agreement for the management of interest rate exposure. At April 2,
1998, 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 $(995,000) at April 2, 1998.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," which changes the calculations used for earnings per share
("EPS") and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The Statement is effective
for financial statements issued for periods ending after December 15,
1997; earlier application was not permitted.
8
<PAGE> 9
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
5. EARNINGS PER SHARE, CONTINUED
The following reconciliation details the numerators and denominators
used to calculate basic and diluted earnings per share for the
three-month periods ended April 2, 1998 and April 3, 1997 (in 000's).
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 2, 1998
----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net income applicable to common
stock $11,340 36,120 $ .31
=======
Effect of dilutive securities 1,109
------- ------
Diluted EPS net income $11,340 37,229 $ .30
======= ====== =======
THREE MONTHS ENDED APRIL 3, 1997
----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS net income applicable to common
stock $ 8,587 36,006 $ .24
=======
Effect of dilutive securities 1,092
------- ------
Diluted EPS net income $ 8,587 37,098 $ .23
======= ====== =======
</TABLE>
6. AGREEMENT AND PLAN OF MERGER AND DEBT TENDER OFFER
Regal has entered into an Agreement and Plan of Merger as of January
19, 1998 (the "Merger Agreement"), among Screen Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of KKR 1996 Fund
L.P. (the "KKR Fund"), Monarch Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Hicks, Muse, Tate & Furst
Equity Fund III, L.P. (the "HTMF Fund" and together with the KKR Fund,
the "Funds"), and the Company. Pursuant to and subject to the terms and
conditions of the Merger Agreement, Screen Acquisition Corp. and
Monarch Acquisition Corp. will be merged with and into the Company (the
"Merger") and the Company will continue after the Merger as a
corporation owned by the Funds (the "Surviving Corporation"). Each
share of Company common stock will be converted into the right to
receive $31.00 in cash from the Surviving Corporation.
The Merger is subject to termination or expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), approval by Company shareholders, the obtaining of
necessary financing to consummate the Merger and certain other
conditions. The waiting period under the HSR Act expired on March 1,
1998.
Regal has announced that it has commenced a tender offer for all
$125,000,000 aggregate principal amount outstanding of its 8 1/2%
Senior Subordinated Notes due October 1, 2007. In conjunction with the
tender offer, Regal is soliciting consents to certain proposed
amendments to the indenture under which the Notes were issued,
including elimination of substantially all of the restrictive covenants
contained in the indenture. Consummation of the tender offer is subject
to the consummation of the Merger.
9
<PAGE> 10
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------------------------------------------------------
6. AGREEMENT AND PLAN OF MERGER AND DEBT TENDER OFFER, CONTINUED
Under the tender offer, the consideration for each $1,000 principal
amount of the Notes tendered and accepted for payment will be equal to
(i) the present value on the payment date of $1,042.50 per Note (the
amount payable on October 1, 2002, which is the first day on which the
Notes are redeemable (the "Earliest Redemption Date")), determined on
the basis of a yield to the Earliest Redemption Date equal to the sum
of (x) the yield to the Earliest Redemption Date on the 5 7/8% U.S.
Treasury Note due September 30, 2002, as of 5:00 p.m., New York City
time, on May 7, 1998 plus (y) 100 basis points (such price being
rounded to the nearest cent per $1,000 principal amount of Notes),
minus (ii) a consent payment of $20.00 per Note for which a valid
consent is timely received, plus (iii) accrued interest to, but not
including, the payment date, payable on the payment date.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following analysis of the financial condition and results of
operations of Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiary,
Cobb Theatres, L.L.C. and entities through Cobb Theatres, L.L.C. members,
conducted their business ("Cobb Theatres"), collectively referred to as the
"Company," should be read in conjunction with the Condensed Consolidated
Financial Statements and Notes thereto included herein. Regal consummated the
acquisition of Cobb Theatres on July 31, 1997. This acquisition has been
accounted for as pooling of interests.
BACKGROUND OF REGAL
Regal has achieved significant growth in theatres and screens since its
formation in November of 1989. Since inception through April 2, 1998, Regal
acquired 195 theatres with 1,527 screens, developed 62 new theatres with 739
screens and added 71 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.
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 five 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.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
The following table sets forth for the fiscal periods indicated the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of income.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL REVENUES
THREE MONTHS ENDED
-------------------------
APRIL 2, APRIL 3,
1998 1997
------ ------
<S> <C> <C>
Revenue:
Admissions 67.9% 69.4%
Concessions 28.5% 27.8%
Other 3.6% 2.8%
------ ------
Total revenues 100.0% 100.0%
Cost of revenues:
Film rental and advertising costs 34.8% 36.5%
Cost of concessions and other 3.3% 3.8%
Total operating expenses 35.4% 33.7%
General and administrative expenses 3.0% 4.1%
Depreciation and amortization 6.8% 6.5%
------ ------
Theatre operating expenses 83.3% 84.6%
Operating income 16.7% 15.4%
Other income (expense):
Interest expense (3.4%) (2.6%)
Interest income 0.1% 0.1%
Other (0.2%) (0.1%)
------ ------
Income before provision for income taxes 13.2% 12.8%
Provision for income taxes 5.1% 5.0%
------ ------
Net income 8.1% 7.8%
====== ======
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
THREE MONTHS ENDED APRIL 2, 1998 AND APRIL 3, 1997
TOTAL REVENUES -- Total revenues for the first quarter of fiscal 1998
increased by 27.5%to $140.5 million from $110.2 million in the comparable 1997
period. This increase was due to a 17.9% increase in attendance attributable
primarily to the net addition of 403 screens in the last 12 months. Of the $30.3
million net increase in revenues for the period, a $1.2 million decrease was
attributed to theatres previously operated by the Company, $8.2 million increase
was attributed to theatres acquired by the Company, and $23.3 million increase
was attributed to new theatres constructed by the Company. Average ticket prices
increased 5.7% during the period, reflecting an increase in ticket prices and a
greater proportion of larger market theatres in the 1998 period than in the same
period in 1997. Average concession sales per customer increased 11.1% for the
period, reflecting both an increase in consumption and, to a lesser degree, an
increase in concession prices.
DIRECT THEATRE COSTS -- Direct theatre costs increased by 26.7% to
$103.1 million in the first quarter 1998 from $81.4 million in the first quarter
1997. Direct theatre costs as a percentage of total revenues decreased to 73.5%
in the 1998 period from 74.0% in the 1997 period. The decrease of direct theatre
costs as a percentage of total revenues was primarily attributable to lower film
rental and advertising costs as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative
expenses decreased by 7.8% to $4.2 million in the first quarter 1998 from $4.6
million in the first quarter 1997. As a percentage of total revenues, general
and administrative expenses decreased to 3.0% in the 1998 period from 4.1% in
the 1997 period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased in the first quarter 1998 by 33.3% to $9.6 million from $7.2 million
in the first quarter 1997. This increase was primarily the result of theatre
property additions associated with the Company's expansion efforts.
OPERATING INCOME -- Operating income for the first quarter 1998
increased by 38.1% to $23.5 million, or 16.7% of total revenues, from $17.0
million, or 15.4% of total revenues, in the first quarter 1997 due to the
factors discussed above.
INTEREST EXPENSE -- Interest expense increased in the first quarter
1998 by 66.4% to $4.8 million from $2.9 million in the first quarter 1997. The
increase was primarily due to higher average borrowings outstanding.
INCOME TAXES -- The provision for income taxes increased in the first
quarter 1998 by 33.0% to $7.3 million from $5.4 million in the first quarter
1997. The effective tax rate was 39.0% in the 1998 period as compared to 38.9%
in the 1997 period.
NET INCOME -- Net income in the first quarter 1998 increased by 32.1%
to $11.3 million from $8.6 million in the first quarter 1997.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
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
October 8, 1997, the Company entered into a new bank revolving credit facility
(the "Bank Revolving Credit Facility") which permits borrowings of up to $250
million. Under the loan agreement the Company is required to comply with certain
financial and other covenants, including maintaining a minimum net worth of not
less than 90% of the Company's consolidated net worth on October 8, 1997 plus
50% of the Company's net income for each quarter commencing with the quarter
beginning after October 2, 1997. On April 2, 1998 and January 1, 1998, $182.0
million and $162.0 million, respectively, was outstanding under the Company's
$250 million revolving credit facility with interest payable quarterly at LIBOR
(5.79% at April 2, 1998) plus 0.65%.
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
recognized certain one time charges totaling approximately $5.4 million (net of
tax) in its quarter ended 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"). The Company has repurchased all
but $70,000 principal amount of the Notes. Regal initially financed the purchase
price of the Notes with borrowings under a short-term credit facility (the "Bank
Tender Facility"). Regal recognized an extraordinary charge totaling
approximately $10.0 million (net of tax) in its quarter ended October 2, 1997,
relating to the purchase of the Notes.
On September 24, 1997, Regal consummated the offering of $125 million
aggregate principal amount of 8 1/2% Senior Subordinated Notes due October 1,
2007. A portion of the proceeds from such offering were used to repay amounts
borrowed under the Bank Tender Facility. The balance of the proceeds were used
to repay amounts outstanding under the Company's former bank revolving credit
facility.
On November 14, 1997, the Company completed the purchase of assets
consisting of an existing 10 theatres with 78 screens from Capitol Industries,
Inc., an independent theatre company with operations in Virginia. The
consideration paid was approximately $24.0 million in cash.
At January 2, 1997, the Company anticipated that it would spend $125
million to $150 million to develop and renovate theatres during 1997, of which
the Company had approximately $58.1 million in contractual commitments for
expenditures. The actual capital expenditures for fiscal 1997 were $178.1
million.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
At April 2, 1998, the Company had 257 multi-screen theatres with an
aggregate of 2,337 screens. At such date, the Company had 32 new theatres with
535 screens and 24 screens at four existing locations under construction. The
Company intends to develop approximately 500 to 600 screens during the balance
of 1998 and approximately 500 to 600 screens during 1999. The Company expects
that the capital expenditures in connection with its development plan will
aggregate approximately $240.0 million for the balance of 1998 and approximately
$140.0 million during 1999. 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.
RECENT DEVELOPMENTS
Regal has entered into the Merger Agreement with Screen Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of the KKR Fund and
Monarch Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of the HTMF Fund. Pursuant to and subject to the terms and conditions of the
Merger Agreement, Screen Acquisition Corp. and Monarch Acquisition Corp. will be
merged with and into the Company, and the Company will continue after the Merger
as a corporation owned by the Funds. Each share of Company common stock will be
converted into the right to receive $31.00 in cash from the Surviving
Corporation.
The Merger is subject to termination or expiration of the waiting
period under the HSR Act, approval by Company shareholders, the obtaining of
necessary financing to consummate the Merger and certain other conditions. The
waiting period under the HSR Act expired on March 1, 1998.
Regal has announced that it has commenced a tender offer for all
$125,000,000 aggregate principal amount outstanding of its 8 1/2% Senior
Subordinated Notes due October 1, 2007. In conjunction with the tender offer,
Regal is soliciting consents to certain proposed amendments to the indenture
under which the Notes were issued, including elimination of substantially all of
the restrictive covenants contained in the indenture. Consummation of the tender
offer is subject to the consummation of the Merger.
Under the tender offer, the consideration for each $1,000 principal
amount of the Notes tendered and accepted for payment will be equal to (i) the
present value on the payment date of $1,042.50 per Note (the amount payable on
October 1, 2002, which is the first day on which the Notes are redeemable (the
"Earliest Redemption Date")), determined on the basis of a yield to the Earliest
Redemption Date equal to the sum of (x) the yield to the Earliest Redemption
Date on the 5 7/8% U.S. Treasury Note due September 30, 2002, as of 5:00 p.m.,
New York City time, on May 7, 1998 plus (y) 100 basis points (such price being
rounded to the nearest cent per $1,000 principal amount of Notes), minus (ii) a
consent payment of $20.00 per Note for which a valid consent is timely received,
plus (iii) accrued interest to, but not including, the payment date, payable on
the payment date.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS
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 1998. This Statement is effective for fiscal years beginning after
December 15, 1997 and the impact on the Company's financial statements is not
expected to have a material effect on the Company's financial position or
results of operations.
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 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.
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.
Current Report on Form 8-K dated January 20, 1998.
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: April 28, 1998
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
and Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
ITEM DESCRIPTION
---- -----------
(11) Statement re: computation of per share earnings
(27) FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1998 1997
------- -------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 36,120 36,006
======= =======
Net income $11,340 $ 8,587
======= =======
Net income per common share as reported $ .31 $ .24
======= =======
DILUTED:
Weighted average number of common shares outstanding 36,120 36,006
Net effect of dilutive stock options and warrants based on the treasury
stock method using average market price 1,109 1,092
------- -------
37,229 37,098
======= =======
Net income $11,340 $ 8,587
======= =======
Net income per common share assuming dilution, as reported $ .30 $ .23
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGAL CINEMAS, INC. FOR THE THREE MONTHS ENDED APRIL 2,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> APR-02-1998
<CASH> 16,905
<SECURITIES> 0
<RECEIVABLES> 1,493
<ALLOWANCES> 0
<INVENTORY> 2,155
<CURRENT-ASSETS> 27,946
<PP&E> 726,420
<DEPRECIATION> 121,768
<TOTAL-ASSETS> 693,308
<CURRENT-LIABILITIES> 53,052
<BONDS> 308,070
0
0
<COMMON> 223,759
<OTHER-SE> 74,208
<TOTAL-LIABILITY-AND-EQUITY> 693,308
<SALES> 40,101
<TOTAL-REVENUES> 140,466
<CGS> 4,688
<TOTAL-COSTS> 53,534
<OTHER-EXPENSES> 63,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,791
<INCOME-PRETAX> 18,590
<INCOME-TAX> 7,250
<INCOME-CONTINUING> 11,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,340
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
