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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 October 2, 1997
Commission file number 0-21772
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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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
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
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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 - 36,104,599 shares at November 6, 1997
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PART I -- FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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(in thousands of dollars)
ASSETS
October 2, January 2,
1997 1997
--------- ---------
Current assets:
Cash and equivalents .................... $ 12,284 $ 17,116
Accounts receivable ..................... 1,479 2,892
Inventories ............................. 2,097 2,024
Prepaids and other current assets ....... 7,839 6,168
Refundable income taxes ................. 1,611 3,477
Deferred income taxes ................... 2,080 --
--------- ---------
Total current assets .............. 27,390 31,677
--------- ---------
Property and equipment:
Land .................................... 46,712 41,793
Buildings and leasehold improvements .... 324,133 260,184
Equipment ............................... 191,713 167,475
Construction in progress ................ 51,177 43,539
--------- ---------
613,735 512,991
Accumulated depreciation and amortization (104,481) (93,227)
--------- ---------
Total property and equipment, net . 509,254 419,764
Goodwill, net .............................. 40,352 28,804
Other assets ............................... 6,659 8,580
--------- ---------
Total assets ...................... $ 583,655 $ 488,825
========= =========
See accompanying notes to condensed consolidated
financial statements.
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
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(in thousands of dollars, except share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
October 2, January 2,
1997 1997
-------- --------
Current liabilities:
Current maturities of long-term debt ........................ $ 275 $ 761
Accounts payable ............................................ 22,302 36,101
Accrued expenses ............................................ 9,189 14,325
-------- --------
Total current liabilities ............................... 31,758 51,187
Long-term debt, less current maturities ........................ 248,366 143,865
Other liabilities .............................................. 8,881 14,471
-------- --------
Total liabilities ..................................... 289,005 209,523
-------- --------
Shareholders' equity:
Preferred stock, no par; 1,000,000 shares authorized, none
issued .................................................... -- --
Common stock, no par; 100,000,000 shares authorized,
36,085,953 and 35,977,325 shares issued and outstanding at
October 2, 1997 and January 2, 1997, respectively ......... 223,204 221,613
Retained earnings .............................................. 71,446 57,689
-------- --------
294,650 279,302
-------- --------
Total liabilities and stockholders' equity ............ $583,655 $488,825
======== ========
See accompanying notes to condensed consolidated
financial statements.
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(in thousands of dollars, except per share amounts)
Three Months Ended Nine Months Ended
------------------------- -------------------------
October 2, October 3, October 2, October 3,
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues:
Admissions .............................. $ 87,147 $ 76,070 $ 237,602 $ 196,356
Concessions ............................. 37,641 33,024 100,637 82,060
Other operating revenues ................ 3,332 3,854 10,269 8,772
--------- --------- --------- ---------
Total Revenues .......................... 128,120 112,948 348,508 287,188
--------- --------- --------- ---------
Operating Expenses:
Film rental and advertising costs ....... 48,602 41,605 129,900 105,832
Cost of concessions and other ........... 3,956 4,568 12,371 11,290
Theatre operating expenses .............. 38,851 34,159 113,963 94,504
General & administrative expenses ....... 3,392 4,108 12,936 12,502
Depreciation & amortization ............. 7,078 6,104 21,538 17,313
Merger expenses ......................... 7,789 -- 7,789 1,639
Loss on impairment of assets ............ 4,960 -- 4,960 --
--------- --------- --------- ---------
Total operating expenses ..................... 114,628 90,544 303,457 243,080
Other income (expense):
Interest expense ............................. (3,379) (2,544) (9,456) (9,988)
Interest income .............................. 560 275 734 501
Other ........................................ (122) (98) (453) 290
--------- --------- --------- ---------
Income before income taxes and extraordinary
item .................................... 10,551 20,037 35,876 34,911
Provision for income taxes ................... (2,300) (10,067) (12,099) (16,267)
--------- --------- --------- ---------
Income before extraordinary item ............. 8,251 9,970 23,777 18,644
Extraordinary item:
Loss on extinguishment of debt, net of
applicable taxes .................... (10,020) -- (10,020) (751)
--------- --------- --------- ---------
Net income (loss) ............................ $ (1,769) $ 9,970 $ 13,757 $ 17,893
========= ========= ========= =========
GST Dividends ................................ -- -- -- (229)
--------- --------- --------- ---------
Net income (loss) applicable to common stock . $ (1,769) $ 9,970 $ 13,757 $ 17,664
========= ========= ========= =========
Earnings (loss) per common share before effect
of extraordinary item:
Primary ............................. $ .22 $ .27 $ .64 $ .54
========= ========= ========= =========
Fully diluted ....................... $ .22 $ .27 $ .64 $ .54
========= ========= ========= =========
Extraordinary item:
Primary ............................. $ (.27) $ -- $ (.27) $ .02
========= ========= ========= =========
Fully diluted ....................... $ (.27) $ -- $ (.27) $ .02
========= ========= ========= =========
Earnings (loss) per common share:
Primary ............................. $ (.05) $ .27 $ .37 $ .52
========= ========= ========= =========
Fully diluted ....................... $ (.05) $ .27 $ .37 $ .52
========= ========= ========= =========
See accompanying notes to condensed consolidated
financial statements.
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(in thousands of dollars)
Nine Months Ended
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October 2, October 3,
1997 1996
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Cash flows from operating activities:
Net income ................................................... $ 13,757 $ 17,893
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................ 21,538 17,313
Loss on extinguishment of debt ....................... 10,020 751
Loss on impairment of assets ......................... 4,960 --
Deferred income taxes ................................ (4,750) 3,284
Changes in operating assets and liabilities:
Accounts receivable ................................ 1,413 (159)
Inventories ........................................ (73) (72)
Prepaids and other current assets .................. (1,671) (1,329)
Refundable income taxes ............................ 1,866 (799)
Accounts payable ................................... (13,799) (5,175)
Accrued expenses and other liabilities ............. (8,064) 188
--------- ---------
Net cash provided by operating activities ..... 25,197 31,895
Cash flows from investing activities:
Capital expenditures, net ................................. (113,551) (82,894)
Investment in goodwill and other assets ................... (22,083) (9,253)
--------- ---------
Net cash used in investing activities ......... (135,634) (92,147)
Cash flows from financing activities:
Net borrowings (payments) on long-term debt ............... 104,015 (66,858)
Dividends paid to GST shareholders ........................ -- (500)
Net proceeds from issuance of common stock ................ 1,500 126,684
Stock compensation expense ................................ 90 90
--------- ---------
Net cash provided by financing activities ..... 105,605 59,416
--------- ---------
Net increase (decrease) in cash and equivalents .............. (4,832) (836)
Cash and equivalents at beginning of period .................. 17,116 7,035
--------- ---------
Cash and equivalents at end of period ........................ $ 12,284 $ 6,199
========= =========
See accompanying notes to condensed consolidated
financial statements.
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REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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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") and the entities
through which Cobb Theatres, L.L.C. and Tricob Partnership, an entity
controlled by the members of Cobb, 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.
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 and July 31, 1997, Regal issued 1,410,213 and 2,837,594
shares of its common stock for all of the outstanding common stock of GST
and Cobb Theatres, respectively. The mergers have 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 and Cobb Theatres.
Separate results of the combining entities for the three and nine month
periods ended October 2, 1997 and the three and nine month periods ended
October 3, 1996 are as follows:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
October 2, October 3, October 2, October 3,
1997 1996 1997 1996
--------- --------- --------- ---------
(in thousands)
Revenues:
Regal ................................... $ 111,651 $ 79,746 $ 267,357 $ 190,575
GST (through May 30 for 1996) ........... -- -- -- 4,709
Cobb Theatres (through July 31 for 1997) 16,469 33,202 81,151 91,904
--------- --------- --------- ---------
$ 128,120 $ 112,948 $ 348,508 $ 287,188
========= ========= ========= =========
Net income (loss):
Regal ................................... $ 648 $ 11,855 $ 16,518 $ 21,106
GST (through May 30 for 1996) ........... -- -- -- 90
Cobb Theatres (through July 31 for 1997) (2,417) (1,885) (2,761) (3,303)
--------- --------- --------- ---------
$ (1,769) $ 9,970 $ 13,757 $ 17,893
========= ========= ========= =========
The net income 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. The net loss for Cobb Theatres for the seven
months ended July 31, 1997, reflects approximately $3.5 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 October 2, 1997, the
condensed consolidated statements of income for the three months and nine
months ended October 2, 1997 and October 3, 1996, and the condensed
consolidated statements of cash flows for the nine months ended October 2,
1997 and October 3, 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.
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REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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3. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's Report filed on Form 8-K/A dated September 10,
1997. The results of operations for the three and nine month periods ended
October 2, 1997 are not necessarily indicative of the operating results for
the full year.
4. INCOME TAXES
The Company's effective income tax rate differs from the expected federal
income tax rate of 35% due to the inclusion of state income taxes, a $2.3
million reduction in deferred tax asset valuation allowance due to the
expected level of financial reporting and taxable income to be reported by
Cobb Theatres and the nondeductibility of certain merger expenses.
5. LONG-TERM DEBT
Long-term debt at October 2, 1997 and January 2, 1997, consists of the
following:
October 2, January 2,
1997 1997
--------- ---------
(in thousands)
$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 --
$150,000,000 Regal senior reducing revolving credit facility which expires on
June 30, 2003, with interest payable quarterly, at LIBOR (5.7% at October 2,
1997) 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 ........................................................... $ 122,000 $ 51,000
$85,000,000 Cobb Theatres notes due March 1, 2003, with interest payable
semiannually at 10 5/8%.......................................................... 170 85,000
Notes payable to banks at rates ranging from prime plus 0.5% to 2.0% ............ -- 6,908
Other ........................................................................... 1,471 1,718
--------- ---------
$ 248,641 $ 144,626
Less current maturities ......................................................... (275) (761)
--------- ---------
$ 248,366 $ 143,865
========= =========
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REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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5. LONG-TERM DEBT, CONTINUED
The Company's debt at October 2, 1997, is scheduled to mature as follows:
(in thousands)
1997 .............. $ 275
1998 .............. 367
1999 .............. 829
2000 .............. --
2001 .............. --
Thereafter 247,170
--------
Total $248,641
========
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 (of which $10.00
constituted a consent payment) 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
$2,500,000 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. Regal recognized an extraordinary charge totaling
approximately $9.5 million (net of tax) in the quarter ended October 2,
1997, relating to the purchase of the Cobb Notes. On October 8, 1997, the
Company entered into its new Bank Revolving Credit Facility which permits
borrowings of up to $250,000,000. On such date, the Company had outstanding
borrowings of $122,000,000 under the Bank Revolving Credit Facility.
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REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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6. EARNINGS PER SHARE
Primary earnings per share have been computed by dividing net income
applicable to common stock (net income less dividend requirements) by the
weighted average number of common and common equivalent shares outstanding
during each period. Shares issued in connection with the GST and Cobb
Theatres mergers have been included in shares outstanding for all periods
presented. Common equivalent shares 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) 37,226 shares for the three month period
ended October 2, 1997; and 36,885 shares for the three month period ended
October 3, 1996 and 37,211 shares for the nine month period ended October
2, 1997 and 33,882 shares for the nine month period ended October 3, 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) 37,226 shares for the three month period ended October 2, 1997;
and 36,885 shares for the three month period ended October 3, 1996 and
37,211 shares for the nine month period ended October 2, 1997 and 33,882
shares for the nine month period ended October 3, 1996).
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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") includes the results 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"), 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, GST, and 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 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 October 2, 1997, Regal
acquired 187 theatres with 1,432 screens, developed 51 new theatres with 597
screens and added 82 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 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-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.
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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.
Percentage of Total Revenues
-------------------------------------------------
Three Months Ended Nine Months Ended
----------------------- ----------------------
October 2, October 3, October 2, October 3,
1997 1996 1997 1996
--------- ---------- ---------- ----------
Revenues:
Admissions ...................... 68.0% 67.3% 68.2% 68.4%
Concession ...................... 29.4% 29.3% 28.9% 28.5%
Other ........................... 2.6% 3.4% 2.9% 3.1%
------ ------ ------ ------
Total Revenues .................. 100.0% 100.0% 100.0% 100.0%
Operating Expenses:
Film rental and advertising costs 37.9% 36.9% 37.3% 36.8%
Cost of concessions and other ... 3.1% 4.0% 3.5% 3.9%
Theatre operating expenses ...... 30.3% 30.3% 32.7% 32.9%
General & administrative
expenses .................... 2.7% 3.6% 3.7% 4.4%
Depreciation & amortization ..... 5.5% 5.4% 6.2% 6.0%
Merger expenses ................. 6.1% -- 2.3% 0.6%
Loss on impairment of assets .... 3.9% -- 1.4% --
------ ------ ------ ------
Total operating expenses .... 89.5% 80.2% 87.1% 84.6%
Other income (expense):
Interest expense ................ (2.6%) (2.3%) (2.7%) (3.5%)
Interest income ................. 0.4% 0.2% 0.2% 0.2%
Other ........................... (0.1%) -- (0.1%) 0.1%
------ ------ ------ ------
Income before taxes and
extraordinary item .......... 8.2% 17.7% 10.3% 12.2%
Provision for income taxes ........... (1.8%) (8.9%) (3.5%) (5.7%)
------ ------ ------ ------
Income before extraordinary item ..... 6.4% 8.8% 6.8% 6.5%
Extraordinary item:
Loss on extinguishment of debt .. (7.8%) -- (2.9%) (0.3%)
------ ------ ------ ------
NET INCOME (LOSS) .................... (1.4%) 8.8% 3.9% 6.2%
====== ====== ====== ======
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MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
THREE MONTHS ENDED OCTOBER 2, 1997 AND OCTOBER 3, 1996
TOTAL REVENUES -- Total revenues for the third quarter of fiscal 1997
increased by 13.4% to $128.1 million from $112.9 million in the comparable 1996
period. This increase was due to a 8.6% increase in attendance attributable
primarily to the net addition of 346 screens in fiscal 1996 and first nine
months of 1997. Of the $15.2 million net increase in revenues for the period, a
$0.9 million decrease was attributed to theatres previously operated by the
Company, $3.2 million increase was attributed to theatres acquired by the
Company, and $12.9 million increase was attributed to new theatres constructed
by the Company. Average ticket prices increased 5.5% 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 4.9% 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 14.2% to
$91.7 million in the third quarter 1997 from $80.3 million in the third quarter
1996. Direct theatre costs as a percentage of total revenues increased to 71.3%
in the 1997 period from 71.2% in the 1996 period. The increase of direct theatre
costs as a percentage of total revenues was primarily attributable to higher
film rental and advertising costs as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative
expenses decreased by 17.4% to $3.4 million in the third quarter 1997 from $4.1
million in the third quarter 1996. As a percentage of total revenues, general
and administrative expenses decreased to 2.7% in the 1997 period from 3.6% in
the 1996 period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased in the third quarter 1997 by 16.0% to $7.1 million from $6.1 million
in the third 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 third quarter 1997
decreased by 39.8% to $13.5 million, or 10.5% of total revenues, from $22.4
million, or 19.8% of total revenues, in the third quarter 1996. Before
nonrecurring expenses primarily associated with the Cobb merger, operating
income for the third quarter of 1997 was $26.2 million or 20.5% of total
revenues.
INTEREST EXPENSE -- Interest expense increased in the third quarter
1997 by 32.8% to $3.4 from $2.5 million in the third quarter 1996. The increase
was primarily due to higher average borrowings outstanding.
INCOME TAXES -- The provision for income taxes decreased in the third
quarter 1997 by 77.2% to $2.3 million from $10.0 million in the third quarter
1996. The effective tax rate was 21.8% in the 1997 period as compared to 50.2%
in the 1996 period as each period reflected certain merger expenses which were
not deductible for tax purposes and the 1997 period reflected a $2.3 million
benefit associated with a deferred tax asset valuation allowance adjustment
related to Cobb Theatres.
NET INCOME (LOSS) -- The net loss in the third quarter 1997 was $1.8
million as compared to $10.0 million in the third quarter of 1996. Net income
before nonrecurring items was $14.4 million or 11.3% of total revenues in the
third quarter of 1997 as compared to $10.0 million of 8.8% of total revenues in
the 1996 period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
NINE MONTHS ENDED OCTOBER 2, 1997 AND OCTOBER 3, 1996
TOTAL REVENUES -- Total revenues for the nine months ended October 2,
1997 increased by 21.4% to $348.5 million from $287.2 million in the comparable
1996 period. This increase was due to a 15.0% increase in attendance
attributable primarily to the net addition of 346 screens in fiscal 1996 and
first nine months of 1997 as well as strong film releases in the first nine
months of 1997. Of the $61.3 million net increase in revenues for the period, a
$29.3 million increase was attributed to theatres previously operated by the
Company, $5.6 million increase was attributed to theatres acquired by the
Company, and $26.4 million increase was attributed to new theatres constructed
by the Company. Average ticket prices increased 5.3% 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 6.7% for the period, reflecting both an
increase in consumption and, to a lesser degree, an increase in concession
prices.
DIRECT THEATRE COSTS -- Direct theatre costs increased by 21.1% to
$256.2 million for the nine months ended October 2, 1997 from $211.6 million in
the comparable 1996 period. Direct theatre costs as a percentage of total
revenues decreased to 73.5% in the 1997 period from 73.7% in the 1996 period.
The decrease of direct theatre costs as a percentage of total revenues was
primarily attributable to lower cost of concessions.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative
expenses increased by 3.5% to $12.9 million for the nine months ended October 2,
1997 from $12.5 million in the comparable 1996 period. As a percentage of total
revenues, general and administrative expenses decreased to 3.7% in the 1997
period from 4.4% in the 1996 period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased for the nine months ended October 2, 1997 by 24.4% to $21.5 million
from $17.3 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 nine months ended October
2, 1997 increased by 2.1% to $45.0 million, or 12.9% of total revenues, from
$44.1 million, or 15.4% of total revenues, in the comparable 1996 period. Before
nonrecurring expenses, operating income was $57.8 million or 16.6% of total
revenues in the 1997 period as compared to $45.7 million of $15.9% of total
revenues for the 1996 period.
INTEREST EXPENSE -- Interest expense decreased for the nine months
ended October 2, 1997 by 5.3% to $9.5 million from $10.0 million in the
comparable 1996 period. The decrease was primarily due to lower average
borrowings outstanding.
INCOME TAXES -- The provision for income taxes decreased for the nine
months ended October 2, 1997 by 25.6% to $12.1 million from $16.2 million in the
comparable 1996 period. The effective tax rate was 33.7% in the 1997 period as
compared to 46.6% in the 1996 period as each period reflected certain merger
expenses which were not deductible for tax purposes and the 1997 period
reflected a $2.3 million tax benefit associated with a deferred tax asset
valuation allowance adjustment related to Cobb Theatres.
NET INCOME -- Net income for the nine months ended October 2, 1997
decreased by 22.1% to $13.8 million from $17.9 million in the comparable 1996
period. Net income fore nonrecurring items was $30.0 million or 8.6% of total
revenues in the 1997 period as compared to $19.8 million or 6.9% of total
revenues for the comparable 1996 period.
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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 loan agreement to establish a
new bank revolving credit facility (the "Bank Revolving Credit Facility"), which
permits borrowings of up to $250 million. The Company borrowed $122 million to
pay in full all amounts outstanding under its former revolving credit facility.
Under the Bank Revolving Credit Facility, 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 after October
2, 1997.
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. In
connection with the Cobb Theatres Acquisition, Regal assumed approximately $110
million of liabilities, including $85 million of outstanding Senior Secured
Notes (the "Cobb Notes"). 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 the completion of the tender offer, the
Company purchased an aggregate of 96.86% of the principal amount of the Cobb
Notes outstanding. 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
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15
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
principal amount, $1,136.97 (of which $10.00 constituted a consent payment) 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 $2,500,000 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.
Regal recognized an extraordinary charge totaling approximately $9.5 million
(net of tax) in the quarter ended October 2, 1997, relating to the purchase of
the Cobb Notes. On October 8, 1997, the Company entered into its new Bank
Revolving Credit Facility which permits borrowings of up to $250,000,000. On
such date, the Company had outstanding borrowings of $122,000,000 under the Bank
Revolving Credit Facility.
At October 2, the Company had 238 multi-screen theatres with an
aggregate of 2,111 screens. At such date, the Company had 19 new theatres with
333 screens and 17 screens at 4 existing locations under construction. The
Company intends to develop approximately 140 to 160 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 $40 million to $50 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
agreements, 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 $0.38 and $0.54 for
the nine month periods ended October 2, 1997 and October 3, 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 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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16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits:
(10) Loan Agreement dated October 8, 1997
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
The Company filed the following Current Reports on Form 8-K during
the quarter ended October 2, 1997:
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on August 14, 1997.
Current Report on Form 8-K/A, Amendment No. 1, as filed with the
Securities and Exchange Commission on September 10, 1997.
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on September 25, 1997.
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17
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: November 12, 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
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EXHIBIT INDEX
Item Description
---- ------------------------ -----------------------
(10) Loan Agreement dated October 8, 1997
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)