-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FyOmYKhn2n7OTZJGSpFBJEGP/M1e4Bf/toEIgb/I/6j2kPnDJ0HeGNVpcnTYptNc LyZLL0fKcMgoOes4Ycf+8w== 0000950144-97-009925.txt : 19970912 0000950144-97-009925.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950144-97-009925 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970910 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19970910 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAL CINEMAS INC CENTRAL INDEX KEY: 0000905035 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 621412720 STATE OF INCORPORATION: TN FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21772 FILM NUMBER: 97678585 BUSINESS ADDRESS: STREET 1: 7132 COMMERCIAL PARK DR CITY: KNOXVILLE STATE: TN ZIP: 37918 BUSINESS PHONE: 4239221123 MAIL ADDRESS: STREET 1: 7132 COMMERCIAL PARK DR CITY: KNOXVILLE STATE: TN ZIP: 37918 8-K/A 1 REGAL CINEMAS, INC. FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 10, 1997 (July 31, 1997) Regal Cinemas, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Tennessee 62-1412720 - ------------------------------------------------ ---------------------- (State or Other Jurisdiction of Incorporation) (I.R.S. Employer 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 Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 Item 2. Acquisition or Disposition of Assets. - -------------------------------------------------------------------------------- On July 31, 1997, Regal Cinemas, Inc. (the "Company") announced the completion of the acquisition of the business of Cobb Theatres, L.L.C. ("Cobb Theatres") through the mergers of three of the Company's wholly-owned subsidiaries with and into R.C. Cobb, Inc. ("Cobb I"), Cobb Theatres II, Inc. ("Cobb II") and Cobb Finance Corp. ("Cobb III"), each an Alabama corporation and wholly-owned subsidiary of Cobb Theatres and the acquisition by the Company of all the partnership interests of Tricob Partnership (the "Partnership"), a general partnership, in accordance with the terms of an Agreement and Plan of Merger dated June 11, 1997. The transaction was accounted for as a pooling of interests. The aggregate consideration paid by the Company was 2,837,594 shares of the Company's Common Stock. The consideration was determined through arm's-length negotiations among the Company, Cobb Theatres and the Partnership. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Cobb Theatres, L.L.C. Certain of the financial statements of Cobb Theatres required by this Item 7 were previously filed with the Securities and Exchange Commission (the "Commission"), and are incorporated by reference herein. Pursuant to paragraph (a)(4) of the instructions to this Item 7, the following financial information is provided herein: 1. Audited Historical Financial Statements of Cobb Theatres at August 31, 1996 and for each of the years in the three year period ended August 31, 1996 (incorporated by reference from the annual report on Form 10-K of Cobb Theatres for the year ended August 31, 1996); 2. Unaudited Historical Financial Statements of Cobb Theatres at May 31, 1997 and for the nine months ended May 31, 1996 and May 31, 1997 (incorporated by reference from the quarterly report on Form 10-Q of Cobb Theatres for the nine months ended May 31, 1997); and 3. Audited Historical Financial Statements of Cobb Theatres at December 31, 1996 and for the year ended December 31, 1996 (filed herewith). Regal Cinemas, Inc. The Company has determined to restate certain of its historical fiscal year end audited financial statements and its historical unaudited financial statements for the first six months of fiscal 1997 and 1996, to reflect the Cobb Theatres merger as if such transaction had taken place at the beginning of the periods presented, consistent with the accounting treatment for a pooling of interests. Listed below are the financial statements and related information filed as a part of this report, which are responsive to Item 7(b) and which modify and supersede the information included or incorporated by reference in the Company's Annual Report on Form 10-K for the year ended January 2, 1997 and the Company's Quarterly Report on Form 10-Q for the quarter ended July 3, 1997. 2 3 INDEX
PAGE NO. -------- SELECTED FINANCIAL DATA........................................................4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................5 INDEX TO FINANCIAL STATEMENTS................................................F-1
Exhibits ------------------------------------------------------------------- 11.1 Calculation of Earnings Per Share 23.1 Consent of Ernst & Young LLP 23.2 Consent of Ernst & Young LLP 23.3 Consent of Coopers & Lybrand L.L.P. 23.4 Consent of LaRocca & Co., P.C. 3 4 SELECTED FINANCIAL DATA The following table sets forth selected financial data for the Company as of and for each of its most recent five fiscal years and for the most recent comparative six month periods. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Supplemental Consolidated Financial Statements and Notes thereto included herein.
For the six months For the Fiscal Year Ended and at Fiscal Year End and at period end -------------------------------------------------------------------- --------------------- December 31, December 30, December 29, December 28, January 2, June 27, July 3, 1992(1) 1993 1994 1995 1997 1996 1997 ------------ ------------ ------------ ------------ ----------- --------- --------- (in thousands, except per share data) STATEMENT OF INCOME DATA: Revenues............................... $ 167,588 $ 214,359 $ 265,005 $ 309,022 $ 389,193 $ 174,240 $ 220,388 Operating income....................... 12,849 22,147 28,412 41,110 58,196 21,704 31,559 Income before extraordinary items...... 6,107 8,716 12,702 17,953 25,817 8,674 15,526 Extraordinary items: Gain (loss) on extinguishment of debt -- 190 (1,752) (448) (751) (751) -- ----------- ------------- ------------ ----------- ---------- --------- --------- Net income............................. 6,107 8,906 10,950 17,505 25,066 7,923 15,526 Dividends.............................. (710) (739) (380) (433) (229) (229) -- Net income applicable to common stock.. $ 5,397 $ 8,167 $ 10,570 $ 17,072 $ 24,837 $ 7,694 $ 15,526 =========== ============ ============ ============ ========== ========= ========= Earnings per common share before effects of extraordinary item: Primary....................... $ 0.39 $ 0.38 $ 0.43 $ 0.57 $ 0.74 $ 0.27 $ 0.42 Fully diluted................. 0.29 0.34 0.43 0.57 0.74 0.27 0.42 Earnings per common share: Primary....................... 0.34 0.36 0.36 0.55 0.71 0.24 0.42 Fully diluted................. 0.25 0.32 0.36 0.54 0.71 0.24 0.42 Weighted average shares and equivalents outstanding: Primary....................... 15,833 22,728 29,496 31,311 34,800 32,358 37,177 Fully diluted................. 21,282 25,728 29,669 31,482 34,892 32,381 37,330 BALANCE SHEET DATA (AT END OF PERIOD): Total assets...................... $ 137,424 $ 162,098 $ 252,630 $ 349,031 $ 488,825 $ 423,599 $ 556,913 Long-term obligations, including current maturities, and redeemable preferred stock.... 87,869 73,523 117,471 188,456 144,626 116,207 195,489 Total shareholders' equity........ 25,160 26,649 88,089 109,020 279,302 256,067 295,639
- ----------- (1) 1992 results of operations do not include the results of Georgia State Theatres, Inc. 4 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following analysis of the financial condition and results of operations of Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries (collectively referred to as the "Company") should be read in conjunction with the supplemental Consolidated Financial Statements and Notes thereto included elsewhere herein. Regal consummated the acquisitions of Litchfield Theatres, Ltd. ("Litchfield"), Neighborhood Entertainment, Inc. ("Neighborhood"), Georgia State Theatres, Inc. ("GST") and Cobb Theatres, L.L.C. and entities through which Cobb Theatres, L.L.C. and Tricob Partnership, an entity controlled by Cobb Theatres, L.L.C. members, conducted their business ("Cobb Theatres"), on June 15, 1994, April 17, 1995, May 30, 1996 and July 31, 1997, respectively. These four acquisitions have been accounted for as poolings of interests. During May 1997, Litchfield, Neighborhood and GST were merged with and into Regal. BACKGROUND OF REGAL Regal has achieved significant growth in theatres and screens since its formation in November of 1989. Since inception through July 3, 1997, Regal acquired 186 theatres with 1,429 screens, developed 49 new theatres with 571 screens and added 82 new screens to acquired theatres. Theatres developed by the Company typically generate positive theatre level cash flow within the first three months following commencement of operation and reach a mature level of attendance within one to three years following commencement of operation. Regal does not defer any preopening costs associated with opening its theatres and expenses such costs in the period incurred. Theatre closings have had no significant effect on the operations of Regal. RESULTS OF OPERATIONS The Company's revenues are generated primarily from box office receipts and concession sales. Additional revenues are generated by electronic video games located adjacent to the lobbies of certain of the Company's theatres and by on-screen advertisements and revenues from the Company's four entertainment centers which are adjacent to theatre complexes. Direct theatre costs consist of film rental costs, costs of concessions and theatre operating expenses. Film rental costs are related to the popularity of a film and the length of time since the film's release and generally decline as a percentage of admission revenues the longer a film has been released. Because certain concession items, such as fountain drinks and popcorn, are purchased in bulk and not pre-packaged for individual servings, the Company is able to improve its margins by negotiating volume discounts. Theatre operating expenses consist primarily of theatre labor and occupancy costs. Future increases in minimum wage requirements or legislation requiring additional employer funding of health care, among other things, may increase theatre operating expenses as a percentage of total revenues. 5 6 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 ------------------------------------------------------------------------------ For the Fiscal Year Ended For the Six Months Ended ---------------------------------------------- ------------------------- December 28, December 28, January 2, June 27, July 3, 1994 1995 1997 1996 1997 ------------ ------------ ---------- -------- ------- Revenues: Admissions .................. 69.9% 69.1% 68.3% 69.0% 68.3% Concessions ................. 28.2 28.2 28.3 28.1 28.6 Other ....................... 1.9 2.7 3.3 2.8 3.1 ----- ----- ----- ----- ----- Total revenues .............. 100.0 100.0 100.0 100.0 100.0 Operating expenses: Film rental and advertising costs ..................... 38.1 37.3 37.3 36.9 36.9 Cost of concessions and other 3.7 3.7 3.9 3.9 3.8 Theatre operating expenses .. 35.1 34.2 32.8 34.6 34.1 General and administrative .. 5.3 4.8 4.3 4.8 4.3 Depreciation and amortization 5.1 6.3 6.3 6.4 6.6 Merger expenses ............. 1.9 0.4 0.4 0.9 -- ----- ----- ----- ----- ----- Total operating expenses .. 89.3 86.7 85.0 87.5 85.7 Other income (expense): Interest expense ............ (2.8) (3.5) (3.3) (4.3) (2.8) Interest income ............. 0.1 0.1 0.2 0.1 0.1 Other ....................... -- (0.2) 0.2 0.2 (0.2) ----- ----- ----- ----- ----- Income before taxes and extraordinary item ........ 8.0 9.8 12.0 8.5 11.5 Provision for income taxes ..... 3.2 3.9 5.4 3.6 4.4 ----- ----- ----- ----- ----- Income before extraordinary item ...................... 4.8 5.8 6.6 4.9 7.0 Extraordinary item: Loss on extinguishment of debt ................... (0.7) (0.1) (0.2) (0.4) -- ----- ----- ----- ----- ----- Net Income ..................... 4.1% 5.7% 6.4% 4.5% 7.0% ===== ===== ===== ===== =====
6 7 SIX MONTHS ENDED JULY 3, 1997 AND JUNE 27, 1996 Total Revenues -- Total revenues for the six months ended July 3, 1997 increased by 26.5% to $220.4 million from $174.2 million in the comparable 1996 period. This increase was due to an 18.9% increase in attendance attributable primarily to the net addition of 304 screens in fiscal 1996 and the first six months of 1997 as well as strong film releases in the first six months of 1997. Of the $46.2 million net increase in revenues for the period, $18.5 million was attributed to theatres previously operated by the Company, $10.3 million was attributed to theatres acquired by the Company, and $17.4 million was attributed to new theatres constructed by the Company. Average ticket prices increased 6.3% during the period, reflecting an increase in ticket prices and a greater proportion of larger market theatres in the 1997 period than in the same period in 1996. Average concession sales per customer increased 8.0% for the period, reflecting both an increase in consumption and, to a lesser degree, an increase in concession prices. Direct Theatre Costs -- Direct theatre costs increased by 25.5% to $164.8 million for the six months ended July 3, 1997 from $131.3 million in the comparable 1996 period. Direct theatre costs as a percentage of total revenues decreased to 74.8% in the 1997 period from 75.4% in the 1996 period. The decrease of direct theatre costs as a percentage of total revenues was primarily attributable to better monitoring and control of costs at the Company's theatres, especially acquired theatres. General and Administrative Expenses -- General and administrative expenses increased by 13.7% to $9.5 million for the six months ended July 3, 1997 from $8.4 million in the comparable 1996 period. As a percentage of total revenues, general and administrative expenses decreased to 4.3% in the 1997 period from 4.8% in the 1996 period. Depreciation and Amortization -- Depreciation and amortization expense increased for the six months ended July 3, 1997 by 29.0% to $14.5 million from $11.2 million in the comparable 1996 period. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts. Operating Income -- Operating income for the six months ended July 3, 1997 increased by 45.4% to $31.6 million, or 14.3% of total revenues, from $21.7 million, or 12.5% of total revenues, in the comparable 1996 period. Interest Expense -- Interest expense decreased for the six months ended July 3, 1997 by 18.4% to $6.1 million from $7.4 million in the comparable 1996 period. The decrease was primarily due to lower average borrowings outstanding. Income Taxes -- The provision for income taxes increased for the six months ended July 3, 1997 by 58.0% to $9.8 million from $6.2 million in the comparable 1996 period. The effective tax rate was 38.7% in the 1997 period as compared to 41.7% in the 1996 period as the 1996 period reflected certain merger expenses which were not deductible for tax purposes. 7 8 Net Income -- Net income for the six months ended July 3, 1997 increased by 96.0% to $15.5 million from $7.9 million in the comparable 1996 period. The increase in net income reflects primarily the additional screens operated by the Company, as well as strong film releases in the first six months of 1997. FISCAL YEARS ENDED JANUARY 2, 1997 AND DECEMBER 28, 1995 Total Revenues. Total revenues increased in 1996 by 25.9% to $389.1 million from $309.0 million in 1995. This increase was due to a 19.0% increase in attendance attributable primarily to the net addition of 277 screens in 1996. Of the $80.1 million increase for 1996, $38.5 million was attributed to theatres previously operated by the Company, $25.2 million was attributed to theatres acquired by the Company, and $16.4 million was attributed to new theatres constructed by the Company. Average ticket prices increased 4.9% during the period, reflecting an increase in ticket prices and a greater proportion of larger market theatres in 1996 than in the same period in 1995. Average concession sales per customer increased 6.3% for the period, reflecting both an increase in consumption and, to a lesser extent, an increase in concession prices. Direct Theatre Costs. Direct theatre costs in 1996 increased by 23.9% to $288.1 million from $232.5 million in 1995. Direct theatre costs as a percentage of total revenues decreased to 74.0% in 1996 from 75.2% in 1995. The decrease of direct theatre costs as a percentage of total revenues was primarily attributable to better monitoring and control of costs at the Company's theatres, and, to a lesser extent, to a decrease in occupancy expense as a percentage of total revenues, reflecting a higher mix of owned versus leased properties. General and Administrative Expenses. General and administrative expenses increased in 1996 by 11.7% to $16.6 million from $14.8 million in 1995, representing administrative costs associated with the 1996 theatre openings and projects under construction. As a percentage of total revenues, general and administrative expenses decreased to 4.3% in 1996 from 4.8% in 1995. Depreciation and Amortization. Depreciation and amortization expense increased in 1996 by 27.6% to $24.7 million from $19.4 million in 1995. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts. Operating Income. Operating income for 1996 increased by 41.6% to $58.2 million, or 15.0% of total revenues, from $41.1 million, or 13.3% of total revenues, in 1995. Before the $1.6 million and $1.2 million of nonrecurring merger expenses for 1996 and 1995, respectively, operating income was 15.4% and 13.7% of total revenues. Interest Expense. Interest expense increased in 1996 by 20.4% to $12.8 million from $10.7 million in 1995. The increase was primarily due to higher average borrowings outstanding. Income Taxes. The provision for income taxes increased in 1996 by 70.5% to $20.8 million from $12.2 million in 1995. The effective tax rate was 44.7% in 1996 as compared to 40.5% in 1995 due to the nondeductibility of certain merger costs incurred in 1996. 8 9 Net Income. Net income in 1996 increased by 43.2% to $25.1 million from $17.5 million in 1995. Before nonrecurring merger expenses and extraordinary items, net income was $27.0 million and $19.0 million for 1996 and 1995, respectively, reflecting a 42.1% increase. FISCAL YEARS ENDED DECEMBER 28, 1995 AND DECEMBER 29, 1994 Total Revenues. Total revenues increased in 1995 by 16.6% to $309.0 million from $265.0 million in 1994. This increase was the result of a 7.4% increase in attendance attributable primarily to the net addition of 219 screens in 1995. Of the $44.0 million increase for 1995, $11.4 million was attributed to theatres previously operated by the Company, $18.6 million was attributed to theatres acquired by the Company, and $14.0 million was attributed to new theatres constructed by the Company. Average ticket prices increased 7.2% during the period, reflecting a smaller proportion of discount theatres in 1995 than in the same period in 1994 and, to a lesser degree, an increase in ticket prices. Average concession sales per customer increased 8.2% for the period, reflecting both an increase in consumption and, to a lesser extent, an increase in concession prices. Direct Theatre Costs. Direct theatre costs in 1995 increased by 14.0% to $232.5 million from $203.8 million in 1994. Direct theatre costs as a percentage of total revenues decreased to 75.2% in 1995 from 76.9% in 1994. The decrease of direct theatre costs as a percentage of total revenues was primarily attributable to better monitoring and control of costs at the Company's theatres, especially acquired theatres, and, to a lesser extent, to a decrease in occupancy expense as a percentage of total revenues, reflecting a higher mix of owned versus leased properties. General and Administrative Expenses. General and administrative expenses increased in 1995 by 5.7% to $14.8 million from $14.1 million in 1994, representing administrative costs associated with the 1995 theatre openings and projects under construction. As a percentage of total revenues, general and administrative expenses decreased to 4.8% in 1995 from 5.3% in 1994. Depreciation and Amortization. Depreciation and amortization expense increased in 1995 by 42.3% to $19.4 million from $13.6 million in 1994. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts. Operating Income. Operating income for 1995 increased by 44.7% to $41.1 million, or 13.3% of total revenues, from $28.4 million, or 10.7% of total revenues, in 1994. Before the $1.2 million and $5.1 million of nonrecurring merger expenses for 1995 and 1994, respectively, operating income was 13.7% and 12.6% of total revenues. Interest Expense. Interest expense increased in 1995 by 42.1% to $10.7 million from $7.5 million in 1994. The increase was due to higher average borrowings outstanding net of capitalized interest totaling $1.2 million during 1995, relating to projects under construction. Income Taxes. The provision for income taxes increased in 1995 by 44.2% to $12.2 million from $8.5 million in 1994. The effective tax rate was 40.5% in 1995 as compared to 40.0% in 1994. 9 10 Net Income. Net income in 1995 increased by 59.9% to $17.5 million from $11.0 million in 1994. Before nonrecurring merger expenses and extraordinary items, net income was $19.0 million and $16.3 million for 1995 and 1994, respectively, reflecting a 16.6% increase. LIQUIDITY AND CAPITAL RESOURCES Substantially all of the Company's revenues are derived from cash box office receipts and concession sales, while film rental fees are ordinarily paid to distributors 15 to 45 days following receipt of admission revenues. The Company thus has an operating cash "float" which partially finances its operations, reducing the Company's needs for external sources of working capital. The Company's capital requirements have arisen principally in connection with acquisitions of existing theatres, new theatre openings and the addition of screens to existing theatres and have been financed with equity (including equity issued in connection with acquisitions and public offerings), borrowings under the Company's loan agreement and internally generated cash. On September 30, 1996, the Company amended its $150 million revolving credit facility to change the amortization schedule to require that the indebtedness under the facility be amortized at a rate of $7.5 million per quarter commencing with the quarter ending September 30, 1999, and at a rate of $11.3 million per quarter commencing with the quarter ending September 30, 2001. Under the loan agreement the Company is also required to comply with certain financial and other covenants, including maintaining a minimum net worth of not less than $230.0 million plus 50% of the Company's net income for each quarter commencing with the quarter ending June 27, 1996. On July 3, 1997, $100.0 million was outstanding under the Company's loan agreement. During 1994, 1995 and 1996, the Company effected four acquisitions (including those accounted for as poolings of interests). The aggregate consideration paid in connection with such acquisitions was $29.5 million in cash, the issuance of 3,169,522 shares of Common Stock and the assumption of approximately $13 million of debt. On June 10, 1996, the Company completed a public offering of 4,312,500 shares of the Company's Common Stock at $30.83 per share. The total proceeds to the Company from the offering were approximately $126.5 million, net of the underwriting discount and other expenses of $6.5 million and were used to repay amounts outstanding under the Company's revolving credit facility. On May 9, 1997, the Company completed the purchase of assets consisting of an existing five theatres with 32 screens, four theatres with 52 screens under development, and a seven screen addition to an existing theatre from Magic Cinemas LLC, an independent theatre company with operations in New Jersey and Pennsylvania. The consideration paid was approximately $24.5 million in cash. On July 31, 1997, Regal consummated the acquisition of the business conducted by Cobb Theatres, L.L.C. (the "Cobb Theatres Acquisition"). The aggregate consideration paid by the Company was 2,837,594 shares of its Common Stock. The acquisition has been accounted for as a pooling of interests. Regal will recognize certain one time charges totaling approximately $4.0 10 11 million (net of tax) in its current quarter ending October 2, 1997, relating to merger expenses and severance payments. In connection with the Cobb Theatres Acquisition, Regal assumed approximately $110 million of liabilities, including $85 million of outstanding Senior Secured Notes (the "Notes"). On August 14, 1997, Regal commenced an offer to purchase all of the outstanding Notes at a purchase price based on the bid price of the United States Treasury 7 1/8% Notes due February 29, 2000 and related consent solicitation. Assuming a payment date of September 18, 1997, the purchase price for the Cobb Notes will be $1,136.97 (of which $10.00 constitutes the consent payment for Notes tendered prior to August 28, 1997), plus accrued and unpaid interest of $5.02, per $1,000 principal amount. Regal expects to finance the purchase price of the Notes with borrowings under a loan agreement with a bank lender. Regal will recognize an extraordinary charge totaling approximately $9.4 million (net of tax) (assuming all outstanding Notes are repurchased) in its current quarter ending October 2, 1997, relating to the purchase of the Notes. At August 15, 1997, the Company had 235 multi-screen theatres with an aggregate of 2,082 screens. At such date, the Company had 23 new theatres with 374 screens and 9 screens at 2 existing locations under construction. The Company intends to develop approximately 180 to 200 screens during the balance of 1997 and approximately 500 to 600 screens during 1998. The Company expects that the capital expenditures in connection with its development plan will aggregate approximately $75 million to $80 million for the balance of 1997 and $200 million to $225 million during 1998. The Company believes that its capital needs for completion of theatre construction and development for at least the next 6 to 12 months will be satisfied by available credit under the loan agreement, as amended, internally generated cash flow and available cash and equivalents. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the FASB issued Statement of Accounting Standards No. 128, Earnings Per Share ("EPS"). The Statement simplifies the standards for computing earnings per share by replacing the presentation of primary earnings per share with a presentation of basic earnings per share. Additionally, the Statement requires dual presentation of basic and diluted EPS on the face of the income statement and requires a reconciliation of the numerator and denominator of the diluted EPS calculation. The Company plans to adopt the provisions of Statement 128 in fiscal year 1997 and had the statement been in effect for the periods reflected herein, basic earnings per share would be $.74, $.56, $.37, $.43 and $.24 for the years 1996, 1995, 1994 and the six month periods ended July 3, 1997 and June 27, 1996, respectively. In June 1997, the FASB issued Statement of Accounting Standards No. 130, Reporting Comprehensive Income, which requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company plans to adopt the provisions in 1997. This Statement is effective for fiscal years beginning after December 15, 1997 and the impact on the Company's financial statements has not been determined. Additionally, in June 1997, the FASB issued Statement of Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, which requires that an 11 12 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. 12 13 INDEX TO FINANCIAL STATEMENTS REGAL CINEMAS, INC. Reports of Independent Accountants....................................................F-2 Supplemental Consolidated Balance Sheets at December 28, 1995, January 2, 1997 and July 3, 1997 (unaudited).....................................................F-8 Supplemental Consolidated Statements of Income for the years ended December 29, 1994, December 28, 1995, January 2, 1997 and the six month periods ended June 27, 1996 (unaudited) and July 3, 1997 (unaudited).............F-9 Supplemental Consolidated Statements of Changes in Shareholders' Equity for the years ended December 29, 1994, December 28, 1995, January 2, 1997 and the six month periods ended July 3, 1997 (unaudited)................................F-10 Supplemental Consolidated Statements of Cash Flows for the years ended December 29, 1994, December 28, 1995, January 2, 1997 and the six month periods ended June 27, 1996 (unaudited) and July 3, 1997 (unaudited)............F-11 Notes to Supplemental Consolidated Financial Statements..............................F-12 COBB THEATRES, L.L.C. Report of Independent Auditors.......................................................F-26 Consolidated Statement of Operations for the year ended December 31, 1996............F-27 Consolidated Balance Sheet at December 31, 1996......................................F-28 Consolidated Statement of Cash Flows for the year ended December 31, 1996............F-29 Notes to Consolidated Financial Statements...........................................F-30
F-1 14 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Regal Cinemas, Inc. We have audited the accompanying supplemental consolidated balance sheets of Regal Cinemas, Inc. and Subsidiaries (the "Company") as of December 28, 1995 and January 2, 1997, and the related supplemental consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended January 2, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The supplemental consolidated financial statements give retroactive effect to the acquisitions of Cobb Theatres, L.L.C. ("Cobb Theatres") and Neighborhood Entertainment, Inc. ("Neighborhood"), which have been accounted for as poolings of interests as described in Note 1 to the supplemental consolidated financial statements. We did not audit the financial statements of Cobb Theatres for 1994, 1995 and 1996 nor of Neighborhood for 1994. Such statements reflect aggregate total assets constituting 30% and 23% in 1995 and 1996, respectively, and aggregate total revenues constituting 45%, 34% and 31% in 1994, 1995 and 1996, respectively, of the related supplemental consolidated totals. Those statements were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Cobb Theatres and Neighborhood is based solely on the respective reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the respective reports of the other auditors provide a reasonable basis for our opinion. The supplemental consolidated financial statements give retroactive effect to the merger of the Company and Cobb Theatres on July 31, 1997, which has been accounted for as a pooling of interests as described in Note 1 to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling of interests method in financial statements that do not extend through the date of consummation. These financial statements do not extend through the date of the consummation; however, they will become the historical consolidated financial statements of the Company after financial statements covering the date of consummation of the business combination with Cobb Theatres are issued. In our opinion, based on our audits and the respective reports of the other auditors, the supplemental consolidated financial statements referred to above present fairly, in all material F-2 15 respects, the consolidated financial position of the Company as of December 28, 1995 and January 2, 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 1997, in conformity with generally accepted accounting principles applicable after financial statements are issued for a period which includes the date of consummation of the business combination with Cobb Theatres. /s/ Coopers & Lybrand L.L.P. Knoxville, Tennessee February 6, 1997, except for the combination with Cobb Theatres described in Note 1, as to which the date is July 31, 1997 F-3 16 REPORT OF INDEPENDENT AUDITORS Board of Directors Cobb Theatres, L.L.C. We have audited the accompanying consolidated balance sheet of Cobb Theatres, L.L.C. as of December 31, 1996 and the related consolidated statements of operations and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cobb Theatres, L.L.C. at December 31, 1996 and the consolidated results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Birmingham, Alabama July 2, 1997 F-4 17 REPORT OF INDEPENDENT AUDITORS Board of Directors Cobb Theatres, L.L.C. We have audited the consolidated balance sheets of Cobb Theatres, L.L.C. as of August 31, 1996 and 1995, and the related consolidated statements of operations, changes in members' equity and cash flows for the years then ended (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cobb Theatres, L.L.C. at August 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Birmingham, Alabama October 23, 1996 F-5 18 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Neighborhood Entertainment, Inc. We have audited the balance sheets of Neighborhood Entertainment, Inc. as of December 31, 1994 and 1993, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neighborhood Entertainment, Inc. at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 6 to the financial statements, in 1993 the Company changed its method of accounting for income taxes. /s/ Ernst & Young LLP Richmond, Virginia March 21, 1995 F-6 19 REPORT OF INDEPENDENT AUDITORS Board of Directors Cobb Theatres, L.L.C. We have audited the consolidated statements of operations, members' equity and cash flows of Cobb Theatres, L.L.C. for the fiscal year ended August 31, 1994 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations of Cobb Theatres, L.L.C. and its cash flows for the fiscal year ended August 31, 1994 in conformity with generally accepted accounting principles. /s/ LaRocca & Co., P.C. LaRocca & Co., P.C. Birmingham, Alabama November 15, 1994 F-7 20 REGAL CINEMAS, INC. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 28, JANUARY 2, JULY 3, 1995 1997 1997 ------------ ---------- --------- (unaudited) ASSETS Current assets: Cash and equivalents ...................................... $ 7,035 $ 17,116 $ 12,800 Accounts receivable ....................................... 1,790 2,892 1,753 Inventories ............................................... 1,729 2,024 2,391 Prepaids and other current assets ......................... 5,212 6,168 7,191 Refundable income taxes ................................... 3,023 3,477 1,504 Deferred income taxes ..................................... 122 -- -- --------- --------- --------- Total current assets ...................................... 18,911 31,677 25,639 --------- --------- --------- Property and equipment: Land ................................................ 39,032 41,793 44,816 Buildings and leasehold improvements ................ 177,161 260,184 302,088 Equipment ........................................... 136,149 167,475 191,900 Construction in progress ............................ 28,027 43,539 49,600 --------- --------- --------- 380,369 512,991 588,404 Accumulated depreciation and amortization ..................................... (71,528) (93,227) (105,506) --------- --------- --------- Total property and equipment, net ............. 308,841 419,764 482,898 Goodwill, net ............................................... 16,191 28,804 40,825 Other assets ................................................ 5,088 8,580 7,551 --------- --------- --------- Total assets .................................. $ 349,031 $ 488,825 $ 556,913 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt ................ $ 25,723 $ 761 $ 3,011 Accounts payable .................................... 22,081 31,180 27,402 Accrued expenses .................................... 17,273 19,246 23,296 --------- --------- --------- Total current liabilities ........................ 65,077 51,187 53,709 --------- --------- --------- Long-term debt, less current maturities ..................... 162,733 143,865 192,478 Other liabilities ........................................... 6,124 6,306 6,362 Deferred income taxes ....................................... 6,077 8,165 8,725 --------- --------- --------- Total liabilities ................................ 240,011 209,523 261,274 --------- --------- --------- Commitments (Note 4) Shareholders' equity: Preferred stock, no par; 1,000,000 shares authorized, none issued ................................... -- -- -- Common stock, no par; 50,000,000 shares authorized; 30,503,786 issued and outstanding in 1995; 35,977,325 issued and outstanding in 1996 ........ 74,591 221,613 222,424 Retained earnings ......................................... 34,429 57,689 73,215 --------- --------- --------- Total shareholders' equity ............................ 109,020 279,302 295,639 --------- --------- --------- Total liabilities and shareholders' equity ............ $ 349,031 $ 488,825 $ 556,913 ========= ========= =========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-8 21 REGAL CINEMAS, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SIX MONTHS ENDED ----------------------------------------------- --------------------------- DECEMBER 29, DECEMBER 28, JANUARY 2, JUNE 27, JULY 3, 1994 1995 1997 1996 1997 ------------ ------------ ---------- --------- --------- (unaudited) Revenues: .............................. Admissions .......................... $ 185,245 $ 213,388 $ 266,003 $ 120,286 $ 150,455 Concessions ......................... 74,660 87,272 110,237 49,036 62,996 Other operating revenues ............ 5,100 8,362 12,953 4,918 6,937 --------- --------- --------- --------- --------- Total revenues ................... 265,005 309,022 389,193 174,240 220,388 Operating expenses: Film rental and advertising costs ... 100,978 115,408 145,247 64,227 81,298 Cost of concessions and other ....... 9,922 11,363 15,129 6,722 8,415 Theatre operating expenses .......... 92,939 105,688 127,706 60,345 75,112 General and administrative expenses . 14,053 14,848 16,581 8,394 9,544 Depreciation and amortization ....... 13,607 19,359 24,695 11,209 14,460 Merger expenses ..................... 5,094 1,246 1,639 1,639 -- --------- --------- --------- --------- --------- Total operating expenses ......... 236,593 267,912 330,997 152,536 188,829 --------- --------- --------- --------- --------- Operating income ....................... 28,412 41,110 58,196 21,704 31,559 --------- --------- --------- --------- --------- Other income (expense): Interest expense .................... (7,510) (10,672) (12,844) (7,444) (6,077) Interest income ..................... 274 368 619 226 174 Other ............................... (12) (653) 676 388 (331) --------- --------- --------- --------- --------- Income before income taxes and extraordinary item .................. 21,164 30,153 46,647 14,874 25,325 Provision for income taxes ............. (8,462) (12,200) (20,830) (6,200) (9,799) --------- --------- --------- --------- --------- Income before extraordinary item ....... 12,702 17,953 25,817 8,674 15,526 Extraordinary item: Loss on extinguishment of debt, net of applicable taxes .................... (1,752) (448) (751) (751) -- --------- --------- --------- --------- --------- Net income ............................. 10,950 17,505 25,066 7,923 15,526 --------- --------- --------- --------- --------- GST and Neighborhood dividends ......... (380) (433) (229) (229) -- --------- --------- --------- --------- --------- Net income applicable to common stock .. $ 10,570 $ 17,072 $ 24,837 $ 7,694 $ 15,526 ========= ========= ========= ========= ========= Earnings per common share before effect of extraordinary item: Primary ............................. $ 0.43 $ 0.57 $ 0.74 $ 0.27 $ 0.42 Fully diluted ....................... $ 0.43 $ 0.57 $ 0.74 $ 0.27 $ 0.42 Extraordinary item: Primary ............................. $ (0.07) $ (0.02) $ (0.03) $ (0.03) $ -- Fully diluted ....................... $ (0.07) $ (0.03) $ (0.03) $ (0.03) $ -- Earnings per common share: Primary ............................. $ 0.36 $ 0.55 $ 0.71 $ 0.24 $ 0.42 ========= ========= ========= ========= ========= Fully diluted ....................... $ 0.36 $ 0.54 $ 0.71 $ 0.24 $ 0.42 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-9 22 REGAL CINEMAS, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
COMMON RETAINED STOCK EARNINGS TOTAL --------- --------- --------- Balances at December 30, 1993 .............................. $ 48,319 $ 6,985 $ 55,304 Payment of GST and Neighborhood dividends ............... -- (380) (380) Issuance of 2,038,500 shares of common stock, net of offering costs ...................................... 20,139 -- 20,139 Cobb capital contributions .............................. 1,000 -- 1,000 Accretion and proceeds from exercise of Litchfield stock purchase warrants prior to merger ................... 1,041 (141) 900 Issuance of 67,373 shares upon exercise of stock options and restricted stock awards ......................... 33 -- 33 Stock option amortization ............................... 109 -- 109 Net income .............................................. -- 10,950 10,950 --------- --------- --------- Balances at December 29, 1994 .............................. 70,641 17,414 88,055 Payment of GST dividends and partnership distributions .. -- (490) (490) Issuance of 241,313 shares of common stock .............. 2,426 -- 2,426 Issuance of 194,142 shares upon exercise of stock options and restricted stock awards ......................... 407 -- 407 Issuance of Neighborhood stock prior to merger .......... 150 -- 150 Income tax benefits related to exercised stock options .. 817 -- 817 Stock option amortization ............................... 150 -- 150 Net income .............................................. -- 17,505 17,505 --------- --------- --------- Balances at December 28, 1995 .............................. 74,591 34,429 109,020 Payment of GST dividends and partnership distributions .. -- (263) (263) Issuance of 5,015,741 shares of common stock, net of offering costs ...................................... 140,651 -- 140,651 Issuance of 457,902 shares upon exercise of stock options and restricted stock awards ......................... 1,177 -- 1,177 Income tax benefits related to exercised stock options .. 5,017 -- 5,017 Conformation of Cobb Theatres fiscal year (see Note 2) .. -- (1,543) (1,543) Stock option amortization ............................... 177 -- 177 Net income .............................................. -- 25,066 25,066 --------- --------- --------- Balances at January 2, 1997 ................................ 221,613 57,689 279,302 Issuance of 61,026 shares upon exercise of stock options and restricted stock awards (unaudited) ............. 151 -- 151 Income tax benefits related to exercised stock options (unaudited) ......................................... 600 -- 600 Stock option amortization (unaudited) ................... 60 -- 60 Net income (unaudited) .................................. -- 15,526 15,526 --------- --------- --------- Balances at July 3, 1997 (unaudited) ....................... $ 222,424 $ 73,215 $ 295,639 ========= ========= =========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-10 23 REGAL CINEMAS, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEARS ENDED SIX MONTHS ENDED ------------------------------------------- ------------------------- DECEMBER 29, DECEMBER 28, JANUARY 2, JUNE 27, JULY 3, 1994 1995 1997 1996 1997 ------------ ------------ ---------- --------- --------- (unaudited) Cash flows from operating activities: Net income .......................... $ 10,950 $ 17,505 $ 25,066 $ 7,923 $ 15,526 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,607 19,359 24,695 11,209 14,460 Loss on extinguishment of debt ...................... 1,752 448 751 751 -- Deferred income taxes ........ 906 3,309 4,112 573 133 Deferred compensation and rent ...................... 71 (247) (121) (683) 113 Changes in operating assets and liabilities: Accounts receivable ....... (662) 125 (1,182) 543 1,139 Current taxes receivable .. (642) (1,037) 4,757 2,493 2,773 Inventories ............... (77) (215) (365) (183) (367) Prepaids and other current assets ................. (2,477) (1,009) (236) 2,724 (593) Accounts payable .......... 5,641 4,625 10,878 (2,086) (3,778) Accrued expenses and other liabilities ...... 7,362 (2,974) (825) (4,440) 3,977 Income taxes payable ...... 39 84 -- 748 (800) --------- --------- --------- --------- --------- Net cash provided by operating activities 36,470 39,973 67,530 19,572 32,583 Cash flows from investing activities: Capital expenditures ............ (82,634) (105,284) (124,068) (49,018) (76,061) Investment in goodwill and other assets ........................ (23,756) (7,352) (7,077) (10,792) (12,513) --------- --------- --------- --------- --------- Net cash used in investing activities .................... (106,390) (112,636) (131,145) (59,810) (88,574) Cash flows from financing activities: GST and Neighborhood dividends paid ................ (282) (332) (500) (500) -- Net proceeds from issuance of stock ......................... 21,140 -- 126,763 127,086 -- Borrowings under long-term debt . 88,450 81,334 161,500 7,807 51,097 Payments on long-term debt ...... (45,933) (10,248) (211,623) (85,908) (233) Debt issuance costs ............. (854) (257) (5,127) -- -- Partnership distribution ........ -- (57) (34) (18) -- Exercise of warrants and options 933 557 1,177 60 811 Redemption of preferred stock ... -- (1,150) -- -- -- --------- --------- --------- --------- --------- Net cash provided by financing activities .................. 63,454 69,847 72,156 48,527 51,675 Net increase (decrease) in cash and equivalents ..................... (6,466) (2,816) 8,541 8,289 (4,316) Cash and equivalents at beginning of period .......................... 16,317 9,851 8,575 8,575 17,116 --------- --------- --------- --------- --------- Cash and equivalents at end of period $ 9,851 $ 7,035 $ 17,116 $ 16,864 $ 12,800 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-11 24 REGAL CINEMAS, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND BASIS OF PRESENTATION Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries, Litchfield Theatres, Ltd. ("Litchfield"), Neighborhood Entertainment Inc. ("Neighborhood"), Georgia State Theatres, Inc. ("GST") and the entities through which Cobb Theatres, L.L.C. and Tricob Partnership, an entity controlled by the members of Cobb Theatres, L.L.C., conducted their business ("Cobb Theatres"), collectively referred to as the "Company" operate multi-screen motion picture theatres principally throughout the eastern United States. The Company formally operates on a fiscal year ending on the Thursday closest to December 31. On June 15, 1994, Regal issued 8,706,068 shares of its common stock for all of the outstanding common stock of Litchfield. On April 17, 1995, Regal issued 814,755 shares of its common stock for all of the outstanding common stock of Neighborhood. On May 30, 1996, Regal issued 1,410,213 shares of its common stock for all of the outstanding common stock of GST. On July 31, 1997, Regal issued 2,837,594 shares of its common stock in the Cobb Theatres acquisition. The mergers have been accounted for as poolings of interests and, accordingly, these consolidated financial statements have been restated for all periods to include the results of operations and financial positions of Litchfield, Neighborhood, GST and Cobb Theatres. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of-interests method in financial statements that do not include the date of consummation. These financial statements do not extend through the date of consummation for the Cobb Theatres merger; however, they will become the historical consolidated financial statements of Regal Cinemas, Inc. and Subsidiaries after financial statements covering the date of consummation of the business combination are issued. Separate results of the combining entities for the years ended 1994, 1995 and 1996 are as follows:
(in thousands) 1994 1995 1996 -------- --------- --------- Revenues: Regal...................................... $117,700 $184,958 $265,127 Litchfield (through June 30 for 1994)...... 17,991 - - Neighborhood (through April 27 for 1995)... 23,974 5,135 - GST (through May 30 for 1996).............. 11,243 13,321 4,709 Cobb Theatres, L.L.C. and Tricob Partnership............................. 94,097 105,608 119,357 -------- -------- -------- $265,005 $309,022 $389,193 ======== ======== ======== Net income (loss): Regal...................................... $ 10,501 $ 19,061 $ 29,935 Litchfield (through June 30 for 1994)...... (3,522) - - Neighborhood (through April 27 for 1995)... 889 (1,824) - GST (through May 30 for 1996).............. 660 866 90 Cobb Theatres, L.L.C. and Tricob Partnership............................. 2,422 (598) (4,959) -------- -------- -------- $ 10,950 $ 17,505 $ 25,066 ======== ======== ========
F-12 25 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. THE COMPANY AND BASIS OF PRESENTATION, CONTINUED The net loss for Litchfield for the six months ended June 30, 1994, and the net loss for Neighborhood for the four months ended April 27, 1995, reflect approximately $3,203,000 and $1,219,000, respectively, of expenses (net of applicable income taxes) associated with the mergers, principally legal and accounting fees, severance and benefit related costs and other costs of consolidating. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The supplemental consolidated financial statements include the accounts of Regal and its wholly-owned subsidiaries. Prior to the merger with Regal, Cobb Theatres formally operated and reported on a fiscal year ending August 31. In connection with the retroactive combination of financial statement for the pooling-of-interests, Cobb prepared financial statements for the year ended December 31, 1996. The accompanying supplemental consolidated financial statements reflect the financial position of Cobb Theatres as of August 31, 1995 and December 31, 1996 and its results of operations for the years ended August 31, 1994 and 1995 and for the year ended December 31, 1996. Cobb Theatres incurred a net loss of $1,543,000 for the period from September 1, 1995 through December 31, 1995. Such loss has been charged directly to retained earnings in the accompanying supplemental consolidated statement of changes in stockholders' equity. All significant intercompany accounts and transactions have been eliminated from the supplemental consolidated financial statements. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Repairs and maintenance are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in income and expense when realized. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the respective assets. The Company evaluates the carrying value of property and equipment and intangibles for impairment losses by analyzing the operating performance and future cash flows for each theatre. The Company adjusts the net book value of the underlying assets if the sum of expected future cash flows is less than book value. CASH EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At December 28, 1995 and January 2, 1997, the Company held approximately $5,110,000 and $15,255,000, respectively, in temporary cash investments (valued at cost, which approximates market) in the form of certificates of deposit and variable rate investment accounts with major financial institutions. F-13 26 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED INCOME TAXES - Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. INVENTORIES - Inventories consist of concession products and theatre supplies and are stated on the basis of first-in, first-out (FIFO) cost, which is not in excess of net realizable value. DEBT ACQUISITION AND LEASE COSTS (INCLUDED IN OTHER ASSETS) - Debt acquisition and lease costs are deferred and amortized over the terms of the related agreements. DEFERRED RENT (INCLUDED IN OTHER LIABILITIES) - Rent expense is recognized on a straight-line basis after considering the effect of rent escalation provisions and rent holidays for newly opened theatres resulting in a level monthly rent expense for each lease over its term. DEFERRED REVENUE (INCLUDED IN OTHER LIABILITIES) - Deferred revenue relates primarily to vendor rebates. Rebates are recognized as a reduction of costs of concessions as earned. INTEREST RATE SWAPS - Interest rate swaps are entered into as a hedge against interest exposure of variable rate debt. The differences to be paid or received on swaps are included in interest expense. The fair value of the Company's interest rate swap agreements is based on dealer quotes. These values represent the amounts the Company would receive or pay to terminate the agreements taking into consideration current interest rates. INTERIM FINANCIAL STATEMENTS - Information in the accompanying financial statements and notes to the financial statements for the interim periods is unaudited. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended July 3, 1997, are not necessarily indicative of the results that may be expected for the year ending January 1, 1998 (1997 fiscal year). ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Unless indicated otherwise, the fair value of the Company's financial instruments approximates carrying value. F-14 27 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 3. ACQUISITIONS In addition to the Litchfield, Neighborhood, GST and Cobb Theatres mergers described in Note 1, the Company completed the purchase of substantially all of the assets of three companies which held four theatres with 40 screens in April 1995. The purchase price of the acquisition was approximately $14.3 million cash and other consideration and 241,313 shares of Regal common stock valued at approximately $2.4 million. Also, in September 1996, Regal completed the purchase of assets consisting of eight theatres with 69 screens from an individual, George Krikorian, and corporations controlled by him (collectively, "Krikorian") for consideration of 703,241 shares of Regal common stock valued at approximately $14.1 million and approximately $14.0 million cash. These transactions have been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated at fair value to the separately identifiable assets (principally property, equipment, and leasehold improvements) of the respective theatre locations, with the remaining balance allocated to goodwill, which is being amortized on a straight line basis generally over twenty to thirty years. The results of operations of these theatre locations have been included in the financial statements for the periods subsequent to the acquisition date. The following unaudited pro forma results of operations for all periods presented assume the individual acquisitions occurred as of the beginning of the respective periods after giving effect to certain adjustments, including depreciation, increased interest expense on acquisition debt and related income tax effects. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combination been in effect on the dates indicated, or which may occur in the future.
(in thousands of dollars, except per share data) 1995 ACQUISITION: 1994 1995 Revenues........................................................ $277,179 $310,849 Operating income................................................ 30,396 41,324 Income before extraordinary item................................ 13,892 17,911 Net income applicable to common stock........................... 10,843 17,030 Earnings per common share: Primary..................................................... $ 0.37 $ 0.54 ======== ======== Fully diluted............................................... $ 0.37 $ 0.54 ======== ======== 1996 ACQUISITION: 1995 1996 Revenues...................................................... $329,824 $396,598 Operating income.............................................. 42,234 58,280 Income before extraordinary item.............................. 31,399 45,451 Net income applicable to common stock......................... 18,196 24,921 Earnings per common share: Primary................................................... $ 0.58 $ 0.72 ======== ======== Fully diluted............................................. $ 0.58 $ 0.71 ======== ========
F-15 28 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. LEASES Leases entered into by the Company, principally for theatres, are accounted for as operating leases. The Company, at its option, can renew a substantial portion of the leases at defined or then fair rental rates for various periods. Certain leases for Company theatres provide for contingent rentals based on revenues. Minimum rentals payable under all noncancelable operating leases with terms in excess of one year as of January 2, 1997, are summarized for the following fiscal years: (in thousands) 1997.................. $ 46,422 1998.................. 46,394 1999.................. 45,919 2000.................. 44,686 2001.................. 43,928 Thereafter............ 401,998 Rent expense under such operating leases was $32,502, $34,459 and $41,427 for fiscal years 1994, 1995 and 1996, respectively. F-16 29 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. LONG-TERM DEBT Long-term debt at December 28, 1995 and January 2, 1997, consists of the following:
DECEMBER 28, JANUARY 2, 1995 1997 ------------ ---------- (IN THOUSANDS) $150,000,000 Regal senior reducing revolving credit facility which expires on June 30, 2003, with interest payable quarterly, at LIBOR (5.6% at January 2, 1997) plus .4%. Draw capability will expire on June 30, 1999. Repayment of the outstanding balance on the credit facility will begin September 30, 1999, and consist of 5% of the outstanding balance on a quarterly basis through June 30, 2001. Thereafter, payments will be 7.5% of the outstanding balance quarterly through June 30, 2003............................................... $ 92,450 $ 51,000 $85,000,000 Cobb Theatres senior secured notes due March 1, 2003, with interest payable semiannually at 105/8%. Collateralized by all assets and equity interests of Cobb. The fair value of the senior secured notes was $89,250,000 at December 31, 1996 based on quoted market price of the bonds at that date...... -- 85,000 Other obligations, extinguished in 1996..................... 24,227 -- Cobb Theatres senior term loans payable, repaid in 1996.............................................. 52,700 -- Cobb Theatres revolving line of credit...................... 9,700 -- Notes payable to banks at rates ranging from prime plus 0.5% to 2.0%..................................... 7,360 6,908 Other....................................................... 2,019 1,718 -------- ------- 188,456 144,626 Less current maturities..................................... (25,723) (761) -------- ------- $162,733 $143,865 ======== ========
F-17 30 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. LONG-TERM DEBT, CONTINUED Regal's credit facility contains various restrictive covenants which require Regal to maintain certain financial ratios. During 1996, Regal amended its Loan Agreement to decrease the interest rate, extend the maturity of the facility to June 30, 2003, and modify certain financial covenants. The Cobb Theatres senior secured notes and bank facility contain restrictive covenants which restrict additional debt, selling of assets and other provisions. The debt also requires compliance with specified financial ratios. As of December 31, 1996, Cobb Theatres had $12.5 million of credit available under the bank facility. Upon consummation of the Litchfield and Neighborhood mergers, Regal refinanced all existing debt of the respective acquired companies, recognizing losses on extinguishments of debt (net of applicable income taxes) of $1,752,000 in 1994 and $448,000 in 1995. Additionally, Cobb Theatres refinanced existing debt, recognizing a loss on extinguishment of debt (net of applicable income taxes) of $751,000 in 1996. Such losses are reported as extraordinary items in the accompanying consolidated statements of income. The Company's debt at January 2, 1997, is scheduled to mature as follows:
(in thousands) 1997........................ $ 761 1998........................ 866 1999........................ 9,183 2000........................ 10,499 2001........................ 10,518 Thereafter.................. 112,799 -------- Total................. $144,626 ========
In March 1995, Regal entered into a seven-year interest rate swap agreement for the management of interest rate exposure. At January 2, 1997, the agreement had effectively converted $20 million of LIBOR floating rate debt under the reducing revolving credit facility to a 7.32% fixed rate obligation. Regal continually monitors its position and the credit rating of the interest swap counterparty. The fair value of the interest swap agreement was $(709,000) at January 2, 1997. 6. COMMON AND PREFERRED STOCK COMMON STOCK - Regal's common shares authorized, issued and outstanding throughout the financial statements and notes reflect the retroactive effect of stock issued in connection with the pooling transactions described in Note 1 and the authorization of additional shares and the effect of the three 3-for-2 stock splits authorized on November 14, 1994, December 13, 1995 and September 16, 1996, respectively. F-18 31 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. COMMON AND PREFERRED STOCK, CONTINUED PREFERRED STOCK - The Company currently has 1,000,000 shares of preferred stock authorized with none issued. The Company may issue the preferred shares from time to time in such series having such designated preferences and rights, qualifications and limitations as the Board of Directors may determine. STOCK OPTIONS - The Company has three employee stock option plans under which 3,929,064 options are authorized and reserved. The options vest over three-to-five year periods and expire ten years after the respective grant dates. Options to purchase 56,330 shares of the Company's common stock are exercisable as of January 2, 1997. Activity within the plans is summarized as follows:
WEIGHTED AVERAGE SHARES EXERCISE PRICE ------ ---------------- Under option at December 30, 1993........................ 1,227,242 $ 2.71 Options granted in 1994.................................. 792,706 $ 9.78 Options exercised in 1994................................ (26,867) $ 1.21 --------- Under option at December 29, 1994........................ 1,993,081 $ 5.54 Options granted in 1995.................................. 808,875 $14.16 Options exercised in 1995................................ (174,709) $ 2.09 Options canceled in 1995................................. (29,524) $ 2.37 --------- Under option at December 28, 1995........................ 2,597,723 $ 8.49 Options granted in 1996.................................. 952,750 $25.06 Options exercised in 1996................................ (370,915) $ 2.86 --------- Under option at January 2, 1997.......................... 3,179,558 $14.11
In addition, the Company has the 1993 Outside Directors' Stock Option Plan (the "1993 Directors' Plan"). Directors' stock options for the purchase of 20,250 shares of common stock at an exercise price of $8.30, 20,250 shares at an exercise price of $12.33, and 20,250 shares at an exercise price of $29.59 were granted during 1994, 1995 and 1996, respectively. The exercise price of all options granted under the 1993 Directors' Plan vest over 3 years and expire 10 years after the respective grant dates. F-19 32 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. COMMON AND PREFERRED STOCK, CONTINUED Warrants to purchase 158,455 shares of common stock at an exercise price of $1.21 per share expire in 1998. The Company has reserved a sufficient number of shares of common stock for issuance pursuant to the authorized options and warrants. The Company makes awards of restricted stock under its employee stock plans as part of certain employees' incentive compensation. In general, the restrictions lapse in the year following grant. Restricted stock awards totaled 72,087 shares, 25,517 shares and 7,500 shares pursuant to 1994, 1995 and 1996 bonus awards, respectively. Regal has elected to continue following Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock option plans and its outside directors' plan rather than the alternative fair value accounting provided for under FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123). Under APB 25, because the exercise price of the Company's employee and director stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the accompanying financial statements. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company has accounted for its stock options under the fair value method of that Statement. The fair value for the employee and directors options granted during fiscal years 1995 and 1996, was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rates ranging from 5.9% to 6.6% for 1995 grants and 6.0% to 6.9% for 1996 grants; volatility factors of the expected market price of the Company's common stock of 32.8% and a weighted average expected life of 5 years for employee options and 7 years for outside director options. Additionally, the weighted average grant date fair value of options granted in fiscal years 1995 and 1996 was $5.67 and $10.34 per share, respectively. As of January 2, 1997, Regal has 632,432, 792,705, 808,875, and 945,546 shares under option with exercise prices ranging from $1.21 - $3.86, $9.78 - $10.08, $12.34 - $17.06 and $22.00 - $29.75, respectively. F-20 33 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. COMMON AND PREFERRED STOCK, CONTINUED The option valuation model used by the Company was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee and director options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair values of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The pro forma results do not purport to indicate the effects on reported net income for recognizing compensation expense which are expected to occur in future years. The Company's pro forma information for all 1995 and 1996 option grants follows:
(in thousands, except per share data): 1995 1996 Pro forma net income...................................... $17,276 $23,930 ======= ======= Pro forma earnings per share: Primary................................................... $ 0.55 $ 0.69 ======= ======= Fully diluted............................................. $ 0.55 $ 0.69 ======= =======
F-21 34 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAXES Deferred income taxes reflect the impact of temporary differences between amounts recorded for assets and liabilities for financial reporting purposes and amounts utilized for measurement in accordance with tax laws. The tax effects of the temporary differences giving rise to the Company's net deferred tax liability are as follows:
(in thousands) 1995 1996 ------ -------- Assets: Net operating loss carry forward........................ $ 1,482 $ 4,431 Alternative minimum tax credits......................... 327 893 Accrued expenses........................................ 2,599 2,213 Tax operating lease..................................... 744 623 State income taxes...................................... 348 531 ------- ------- 5,500 8,691 ------- ------- Liabilities: Property and equipment................................. 11,298 13,927 Other.................................................. 157 620 ------- ------- 11,455 14,547 ------- ------- Deferred tax liability.................................... (5,955) (5,856) Cobb Theatres valuation allowance for deferred tax asset.. 0 (2,309) ------- ------- Net deferred tax.......................................... $(5,955) $(8,165) ======= =======
The 1994, 1995 and 1996 provisions for income taxes before extraordinary items (see Note 5) consist of the following:
(in thousands) 1994 1995 1996 ------- -------- ------- Current............................................ $7,556 $ 8,969 $16,718 Deferred........................................... 1,154 3,309 1,803 Increase (decrease) in deferred income tax valuation allowance.............................. (248) (78) 2,309 ------ ------- ------- $8,462 $12,200 $20,830 ====== ======= =======
F-22 35 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAXES, CONTINUED A reconciliation of the Company's income tax provision to taxes computed by applying the statutory Federal rate of 34% for 1994, 35% for 1995 and 1996, to pretax financial reporting income before extraordinary items is as follows:
(in thousands) 1994 1995 1996 -------- -------- ------- Tax at statutory Federal rate................. $7,207 $10,837 $16,244 State income taxes, net of Federal benefit.... 986 1,105 1,870 Increase (decrease) in deferred income tax valuation allowance........................ (248) (78) 2,309 Nondeductible merger expenses and other....... 517 336 407 ------ ------- ------- $8,462 $12,200 $20,830 ====== ======= =======
At January 2, 1997, Cobb Theatres had net operating loss carryforwards of approximately $12.0 million that may be offset against future taxable income. Substantially all of the carryforward expires in 2009 through 2011. Neighborhood and Cobb Theatres had approximately $266,000 and $627,000, respectively, of alternative minimum tax credit carryforwards available to reduce their future income tax liabilities. Under current Federal income tax law, the alternative minimum tax credit carryforwards have no expiration date. 8. RELATED PARTY TRANSACTIONS Prior to May 1996, Regal obtained film licenses through an independent film booking agency owned by a director of the Company. Additionally, this director provides consulting services to the Company. The Company paid $590,000, $626,000 and $655,000 in 1994, 1995 and 1996, respectively, for booking fees and consulting services. Regal paid $635,000, $626,000 and $952,000 in 1994, 1995 and 1996, respectively, for legal services provided by a law firm, a member of which serves as a director of the Company. Cobb Theatres leases office and warehouse facilities from a related party. The related rent expense amounted to approximately $266,000, $233,000 and $509,000 in 1996, 1995 and 1994, respectively. The amount payable at December 31, 1996 and August 31, 1995 under these leases totaled approximately $0 and $22,000, respectively. Cobb Theatres has an agreement with Sipsey River, Inc., a corporation owned by a related party, to provide aircraft services. The fees for such services amounted to approximately $432,000, $335,000 and $238,000 for 1996, 1995 and 1994, respectively. The amount prepaid under this agreement amounted to approximately $0 and $12,000 at December 31, 1996 and August 31, 1995, respectively. F-23 36 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 9. CASH FLOW INFORMATION
(in thousands) FISCAL YEARS ENDED ------------------------------------------- DECEMBER 29, DECEMBER 28, JANUARY 2, 1994 1995 1997 ------------ ------------ ----------- Supplemental information on cash flows: Interest paid..................... $6,708 $12,379 $12,027 Less: Interest capitalized..... (383) (1,228) (1,682) ------ ------- ------- Interest paid, net................ $6,325 $11,151 $10,345 ====== ======= ======= Income taxes paid, net of Neighborhood refunds........... $6,554 $10,088 $11,318 ====== ======= =======
Noncash transactions: 1994: - Regal assumed certain obligations totaling approximately $500,000 as additional consideration for certain assets purchased from National Theatre Holdings Corp. 1995: - Regal issued 241,313 shares of Regal common stock valued at approximately $2,426,000 as additional consideration for assets purchased from three companies (see Note 3). - Regal received income tax benefits relating to exercised stock options totaling $817,000. 1996: - Regal issued 703,241 shares of Regal common stock as additional consideration for assets purchased from an individual, and corporations controlled by him (see Note 3). The value of the common stock issued in the 1996 acquisition of approximately $14,100,000 was allocated to property and equipment and goodwill. - Regal received income tax benefits relating to exercised stock options totaling $5,017,000. F-24 37 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 10. EMPLOYEE BENEFIT PLANS The Company sponsors employee benefit plans under section 401(k) of the Internal Revenue Code for the benefit of substantially all full-time employees. The Company made discretionary contributions of approximately $37,000 and $280,000 to the plans in 1995 and 1996, respectively. All full-time employees are eligible to participate in the plan upon completion of twelve months of employment with 1,000 or more hours of service, subject to a minimum age of 21. 11. EARNINGS PER SHARE Primary earnings per share have been computed by dividing net income applicable to common stock (net income less dividend requirements for preferred stock) by the weighted average number of common and common equivalent shares outstanding during each period. Shares issued in connection with the Litchfield, Neighborhood, GST and Cobb Theatres mergers have been included in shares outstanding for all periods presented. Common equivalent shares relating to options issued during the 12-month period preceding the initial public offering have been calculated using the treasury stock method assuming that the options were outstanding during each period presented and that the fair value of the Company's common stock during each period was equal to the initial public offering price. Common equivalent shares relating to options issued subsequent to the initial public offering have been calculated using the treasury stock method for the portion of each period for which the options were outstanding and using the fair value of the company's common stock for each of the respective periods. All per share data has also been adjusted to give effect to the November 1994, December 1995 and September 1996, respectively, common stock splits. After giving effect to the items described above, primary earnings per common share have been computed based on the assumed weighted average number of common and common equivalent shares outstanding in each period ((in thousands) 29,496 shares in 1994; 31,311 shares in 1995; and 34,800 shares in 1996). Fully diluted earnings per common share utilizes net income before preferred dividends based on the assumed weighted average number of common and common equivalent shares outstanding in each period ((in thousands) 29,669 shares in 1994; 31,482 shares in 1995; and 34,892 shares in 1996). F-25 38 REPORT OF INDEPENDENT AUDITORS Board of Directors Cobb Theatres, L.L.C. We have audited the accompanying consolidated balance sheet of Cobb Theatres, L.L.C. as of December 31, 1996 and the related consolidated statements of operations and cash flows for the year then ended. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cobb Theatres, L.L.C. at December 31, 1996 and the consolidated results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Birmingham, Alabama July 2, 1997 F-26 39 COBB THEATRES, L.L.C. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996 ------------ Revenues: Theatre admissions $ 81,703 Concessions 34,120 Other 3,534 -------- Total revenues 119,357 Cost of revenues: Film rental 40,666 Concession 5,444 -------- Total cost of revenues 46,110 -------- Gross profit 73,247 Operating expenses: Advertising 3,224 Payroll and related costs 14,727 Occupancy 26,241 Repairs and maintenance 1,785 General and administrative 7,234 Depreciation and amortization 9,321 Other 4,753 -------- Total operating expenses 67,285 -------- Operating income 5,962 Other income (deductions): Interest expense (8,696) Interest income 51 Loss from disposition of assets (574) -------- Total other income (deductions) (9,219) -------- Loss before income taxes and extraordinary item (3,257) Income tax expense 1,280 -------- Loss before extraordinary item (4,537) Extraordinary item -- loss on extinguishment of debt (net of income tax of $440) (751) -------- Net loss $ (5,288) ========
See accompanying notes to financial statements. F-27 40 COBB THEATRES, L.L.C. CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, 1996 ------------- ASSETS Current Assets: Cash and equivalents $ 2,154 Receivables 607 Other current assets 4,626 -------- Total current assets 7,387 -------- Property and equipment, net 79,838 Intangible assets, net 15,799 Other assets 4,283 -------- Total assets $107,307 ======== LIABILITIES AND MEMBERS' EQUITY Current liabilities: Accounts payable $ 5,169 Accrued film rentals 4,921 Accrued interest payable 3,118 Accrued expenses and other liabilities 5,000 Revolving line of credit -- Long-term debt, current installments -- Obligations under capital leases, current installments 283 -------- Total current liabilities 18,491 Long-term debt 85,000 Obligations under capital leases 1,435 Other long-term liabilities 5,004 -------- Total liabilities 109,930 Commitments and contingencies Members' equity (2,623) -------- Total liabilities and members' equity $107,307 ========
See accompanying notes to financial statements. F-28 41 COBB THEATRES, L.L.C. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996 ------------ Cash flows from operating activities: Net loss $ (5,288) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 9,321 Loss on asset dispositions 574 Provision for deferred income taxes 1,280 Extraordinary loss on debt extinguishment 751 (Increase) decrease in assets: Receivables 176 Other current assets (245) Increase (decrease) in liabilities: Accounts payable 1,551 Accrued film rental (2,351) Accrued interest payable 2,499 Accrued expenses and other liabilities (1,490) -------- Total adjustments 12,066 -------- Net cash provided by operating activities 6,778 -------- Cash flows from investing activities: Additions to property and equipment (15,735) Sales of property and equipment 5,447 Other 329 -------- Net cash provided by investing activities (9,959) -------- Cash flows from financing activities: Proceeds from senior secured notes 85,000 Payments on senior subordinated notes (10,000) Proceeds (payments) on long-term bank debt, net (61,478) Proceeds (payments) on revolving line of credit (5,600) Principal payments under capital lease (251) Capitalized debt issue costs (4,502) Debt prepayment fees (615) -------- Net cash provided by financing activities 2,554 -------- Net decrease in cash and equivalents (627) Cash and equivalents -- beginning of year 2,781 -------- Cash and equivalents -- end of year $ 2,154 ======== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 6,197 ======== Income taxes $ -- ========
See accompanying notes to financial statements. F-29 42 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES Cobb Theatres, L.L.C. (the "Company") is an Alabama limited liability company formed to acquire and operate the business of Cobb Theatres Group, a privately-held group of companies based in Birmingham, Alabama. The Company was formed to create a consolidated entity to facilitate the offering of $85 million of Senior Secured Notes (the "Debt Offering") and the establishment of the New Credit Facility (as discussed in Note 6). The existence of the Company shall terminate no later than December 31, 2046. Prior to the completion of certain Formation Transactions on March 6, 1996 (as discussed below), the Company consisted of R.C. Cobb, Inc., Cobb Theatres II, Inc. and R & J Concessions, Inc. Cobb Finance Corp., a wholly-owned subsidiary of the Company, was incorporated for the purpose of serving as a co-issuer of the Senior Secured Notes in order to facilitate the Debt Offering. Cobb Finance Corp. does not have any substantial operations or assets of any kind. Concurrently with the closing of the Debt Offering on March 6, 1996, (i) R.C. Cobb, Inc. acquired the outstanding equity of R & J Concessions, Inc., (ii) R & J Concessions, Inc. was merged into its sole shareholder, R.C. Cobb, Inc. and (iii) Cobb Theatres, L.L.C. acquired the outstanding equity of R.C. Cobb, Inc. and Cobb Theatres II, Inc. which had previously been held by members of the Cobb family (the "Formation Transactions") in exchange for an interest in Cobb Theatres, L.L.C. As a result of the foregoing Formation Transactions, R.C. Cobb, Inc. and Cobb Theatres II, Inc. became, together with Cobb Finance Corp., subsidiaries of the Company. All assets and liabilities are stated at the amounts at which they were stated in the financial statements of the predecessor entities in a manner similar to a pooling of interests. The Cobb family as members own all of the equity interest of Cobb Theatres, L.L.C. The term "Company" used herein shall mean the Cobb Theatres Group prior to the Formation Transactions and shall mean Cobb Theatres, L.L.C. and its consolidated subsidiaries after the completion of the Debt Offering. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of the Company include the accounts of the two operating subsidiaries, R.C. Cobb, Inc. and Cobb Theatres II, Inc. ("Cobb II"). All significant intercompany balances and transactions have been eliminated in consolidation. NATURE OF BUSINESS - The Company is engaged in the operation and management of multi-screen motion picture theatres. The Company currently operates in Florida, Alabama, Mississippi and Arkansas. F-30 43 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED In March 1994, Cobb II purchased certain assets, consisting of 8 multiplex theatres, and assumed the Florida theatre facility operating lease obligations of Theatre Acquisitions, L. P. d/b/a Wometco Theatres. Cobb II paid $22 million in cash which was financed through bank debt. The acquisition has been recorded using the purchase method of accounting and the results of operations of the purchased theatres have been included in the Company's consolidated results of operations since the date of acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $8.1 million is amortized over the term (including all renewal options) of the underlying facility leases. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. REVENUES AND FILM RENTAL COSTS - Revenues are recognized when admission and concession sales are received at the theatres. Film rental costs are accrued based on the applicable box office receipts and the terms of the film licenses. CASH AND EQUIVALENTS - The Company considers all temporary cash investments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost. Expenditures for additions (including interest during construction), major renewals and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. Property and equipment under capital leases are stated at the lower of the present value of minimum lease payments at the beginning of the lease term or fair value at the inception of the lease. The Company uses the straight-line method in computing depreciation and amortization over the estimated useful lives of assets as follows: Buildings and improvements............................. 20 to 30 years Fixtures and equipment................................. 5 to 15 years Leasehold improvements................................. 10 to 20 years
Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or estimated useful life of the asset. F-31 44 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED INTANGIBLE ASSETS - Intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. A noncompete agreement is amortized over its five year term. Concession rights were amortized over an estimated useful life of six years. Excess of purchase price over the fair value of net assets acquired is amortized over the term (including all renewal options) of the underlying facility leases for periods of 19 to 35 years. Favorable lease terms are amortized over the term (excluding renewal options) of the underlying facility leases for periods of 4 to 19 years. Debt issue costs are those costs associated with the issuance of the Senior Secured Notes that will be amortized over the term of the notes which are due March 1, 2003. The carrying values of intangible assets are reviewed if the facts and circumstances suggest that they may be impaired. If this review is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required. INCOME TAXES - The subsidiaries of the Company file separate federal income tax returns. For financial statement purposes, income taxes are calculated in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. The statement requires that deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. FAIR VALUE OF FINANCIAL INSTRUMENTS - At December 31, 1996 the carrying value of financial instruments approximate their fair value unless otherwise indicated. FINANCIAL INSTRUMENTS AND HEDGING - The Company used interest rate swap agreements to manage interest costs and risks associated with changing interest rates. The Company designated interest rate swaps as hedges of specific debt instruments and the differential to be paid or received was accrued as interest rates changed and was recognized over the life of the agreements as an adjustment to interest expense. Counterparties to the interest rate swap contracts were major financial institutions and credit loss from counterparty nonperformance was not anticipated. The Company does not enter into financial instruments for trading purposes. EARNINGS PER SHARE - Earnings per share information is not presented as the Company is a limited liability company consisting of member interests rather than shareholder interests. F-32 45 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. RELATED PARTY TRANSACTIONS TRICOB PARTNERSHIP - The Company leases three locations from Tricob, a partnership engaged in the ownership and leasing of real property in which the Company's members are partners. The related rent expense for these leases amounted to approximately $1.3 million in 1996. The amount payable at December 31, 1996 under these leases amounted to approximately $119,000. The Company has a loan to Tricob with a balance of approximately $354,000 as of December 31, 1996. Interest on the loan accrues at 6.35% and amounted to approximately $24,000 in 1996. The loan matures in October 2003. R.C. Cobb, Inc. is a guarantor for debts of Tricob amounting to approximately $3.3 million at December 31, 1996 with final maturity in March 1999 and secured by real property. Tricob and R.C. Cobb, Inc. have cross-default commitments. MEMBERS - The Company leases office and warehouse facilities from a member. The related rent expense amounted to approximately $266,000 in 1996. SIPSEY RIVER, INC. - The Company has an agreement with Sipsey River, Inc., a corporation owned by a member, to provide aircraft services. The fees for such services amounted to approximately $432,000 for 1996. 3. PROPERTY AND EQUIPMENT Property and equipment consists of:
1996 -------------- (in thousands) Land....................................................... $ 7,005 Buildings and leasehold improvements....................... 39,201 Fixtures and equipment..................................... 56,116 Construction in process.................................... 9,173 Capital leases............................................. 2,168 Other assets............................................... 429 -------- 114,092 Less accumulated depreciation.............................. 34,254 -------- $ 79,838 ========
Interest of approximately $527,000 has been capitalized in 1996. F-33 46 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. INTANGIBLE ASSETS Intangible assets consist of:
1996 ------------- (in thousands) Excess of purchase price over the fair value of net assets acquired.... $ 8,103 Noncompete agreement................................................... 1,800 Favorable lease terms.................................................. 5,300 Concession rights...................................................... -- Debt issue costs....................................................... 4,576 ------- 19,779 Less accumulated depreciation.......................................... 3,980 ------- $15,799 =======
Amortization expense totaled $2.0 million for 1996. 5. OTHER ASSETS AND LIABILITIES Other assets and liabilities consist of the following:
1996 ------------- (in thousands) Other current assets: Due from related parties................................. $ 42 Inventory................................................ 784 Refundable income taxes.................................. 704 Prepaid and other assets................................. 3,096 ------ $4,626 ====== Other assets: Deferred income tax benefit.............................. $2,118 Due from related parties, non-current.................... 312 Cash value of life insurance, net........................ 1,188 Other assets............................................. 665 ------ $4,283 ====== Accrued expenses and other liabilities: Due to related parties................................... $ 23 Accrued liabilities...................................... 3,465 Deferred income.......................................... 1,512 ------ $5,000 ====== Other long-term liabilities: Deferred rent............................................ $2,886 Deferred income tax liabilities.......................... 2,118 ------ $5,004 ======
F-34 47 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. LONG TERM DEBT CURRENT FINANCING - On March 6, 1996, the Company issued $85 million of 10 5/8% Senior Secured Notes due March 1, 2003 (the "Senior Secured Notes"). Interest on the Senior Secured Notes is due semiannually on September 1 and March 1. The proceeds from the Debt Offering were primarily used to repay $76.6 million of existing debt and pay approximately $4.3 million of commission and other expenses associated with the Debt Offering, with the remaining proceeds of approximately $4.1 million available for general corporate purposes, including interest and fees, funding working capital and the development of additional theatres. Prepayment fees and the write off of deferred loan costs associated with the previous debt resulted in an extraordinary loss of $751,000, net of income tax benefit of $440,000. Concurrently with the issuance of the Senior Secured Notes, the Company entered into a new $25 million bank credit facility (the "New Credit Facility"). The New Credit Facility is comprised of a $12.5 million senior secured seasonal revolver available for working capital purposes and a $12.5 million senior secured reducing revolver available for future capital expenditures. The New Credit Facility has a final maturity date of November 30, 2000. However, availability under the reducing revolver will be permanently reduced by set amounts beginning February 28, 1998. Access to the availability under the New Credit Facility will be dependent upon the achievement by the Company of certain financial ratios. As of December 31, 1996, the Company had $12.5 million of credit available under the New Credit Facility with no balance outstanding. At the Company's option, the interest rates per annum applicable to the New Credit Facility will be a fluctuating rate of interest measured by reference to either: (a) an adjusted London inter-bank offered rate ("LIBOR") plus borrowing margin or (b) the base rate of the Agent for the New Credit Facility (the "Base Rate") (which is based on the higher of the Agent's published prime rate or overnight federal funds rate plus 0.50%) plus a borrowing margin. The applicable borrowing margin for such loans will vary, based on the Company's ratio of net debt to EBITDA from 1.625% to 3.125% with respect to LIBOR borrowings and from 0.375% to 1.875% with respect to Base Rate borrowings. In connection with the New Credit Facility, the Company has agreed to pay commitment fees based on the unused portion of the New Credit Facility. F-35 48 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. LONG TERM DEBT, CONTINUED The Senior Secured Notes and the New Credit Facility are secured on an equal and ratable basis by a first pledge of the equity interests of the subsidiaries of the Company, all intercompany notes and a security interest in all of the assets (other than real property) of the Company's subsidiaries. The New Credit Facility contains covenants that, among other things, restrict the ability of the Company to incur additional debt, create certain liens, make certain investments (including certain capital expenditures), pay dividends or make other distributions, sell assets of the Company or its subsidiaries, issue or sell equity interests of the Company's subsidiaries or enter into certain mergers or consolidations. Under the New Credit Facility, the Company will be required to comply with specified financial ratios, including maximum net debt to EBITDA and minimum interest coverage and fixed charge coverage ratios. The Company was in compliance with all financial covenants as of December 31, 1996. The fair value of the Company's Senior Secured Notes as of December 31, 1996 was $89,250,000 based on the quoted market price of the bonds as of that date. PREVIOUS FINANCING -- Under the Company's previous revolving credit agreement, R.C. Cobb, Inc. and Cobb II had credit facilities that included senior term loans and an $11.0 million seasonal working capital revolver. Cobb II had a two year interest rate swap agreement with a notional principal amount of $12.0 million which matured in May 1996. The agreement effectively fixed the interest rate on a portion of the variable rate senior term loan starting at 5.3% at May 9, 1994 and incrementally increased by .3075% per quarter to 7.45% on May 9, 1996. Cobb II incurred an additional $62,000 of expenses in 1996 related to the interest rate swap. The Company has had no involvement with other derivatives in the past, with the exception of basic swaps to convert variable rate debt to fixed rate debt, and has no specific plans to use derivative products in the foreseeable future. F-36 49 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. LEASES CAPITAL LEASES - The Company is obligated under various capital leases that expire during the next four years for equipment with a net book value of approximately $1.8 million. Future minimum lease payments and the present value of future minimum lease payments under equipment capital leases as of December 31, 1996 are as follows (in thousands): 1997................................................................. $ 411 1998................................................................. 412 1999................................................................. 1,187 2000................................................................. 10 ------ Total............................................................ 2,020 Less amount representing interest (approximately 8.01%).............. 302 ------ Present value of future minimum capital lease payments........... 1,718 Less current portion................................................. 283 ------ Obligations under capital leases, excluding current portion...... $1,435 ======
OPERATING LEASES - The majority of the Company's operations are conducted in premises occupied under operating lease agreements with original base terms ranging generally from 15 to 20 years, with certain leases containing options, primarily in 5 year increments, to extend up to an additional 30 years. The leases provide for fixed rentals and/or contingent rentals based on revenues. R.C. Cobb, Inc. guarantees all of the operating leases of Cobb II. The majority of the leases provide that the Company will pay substantially all taxes, maintenance, insurance and certain other operating expenses. Future minimum lease payments under these operating leases are as follows (in thousands): Fiscal Year: 1997....................................................... $ 19,485 1998....................................................... 19,765 1999....................................................... 19,235 2000....................................................... 18,725 2001....................................................... 18,206 Thereafter................................................. 127,631 -------- $223,047 ========
Total rent expense for theatre facility operating leases for 1996 was approximately $16.5 million. Contingent rentals were approximately $98,000 in 1996. Sublease payments received were approximately $164,000 in 1996. F-37 50 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. LEASES, CONTINUED The Company records rent expense on a straight-line basis over the term of the lease. Long term liabilities include deferred rent of $2,886,000 as of December 31, 1996. SALE/LEASEBACKS - In September 1996, the Company completed the sale of a parcel of land including the attached building for approximately $1.6 million. The net book value of approximately $1.2 million has been removed from the accounts and the gain realized of approximately $403,000 has been deferred and will be amortized evenly over the term of the lease of approximately 20 years. The leaseback arrangements allow for the development of a new theatre with 20 screens scheduled to be completed in May 1997. In December 1996, the Company completed the sale of two parcels of undeveloped land for approximately $3.6 million. The book value of approximately $4.4 million has been removed from the accounts and the loss realized on the sale of approximately $817,000 has been deferred and will be amortized evenly over the term of the leases of approximately 20 years. The leaseback arrangements allow for the development of two new theatres on these parcels with a total of 36 screens scheduled to be completed in November 1997. 8. INCOME TAXES Income tax expense in the consolidated statement of operations for the year ended December 31, 1996 is as follows:
1996 ------------ (in thousands) Current Federal...................................................... $ -- State........................................................ -- ------ -- ------ Deferred Federal...................................................... 772 State........................................................ 68 ------ 840 ------ Total income tax expense....................................... 840 Tax benefit of extraordinary loss............................ 440 ------ Income tax expense before extraordinary loss................... $1,280 ======
F-38 51 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 8. INCOME TAXES, CONTINUED The difference between the effective rate and the U.S. federal income tax statutory rate is as follows:
1996 ----------------------- (Dollars in thousands) Tax at statutory rate.................................. $(1,107) (34)% Add (subtract) tax effect of: State income tax, net of federal benefit.......... (98) (3) Valuation allowance............................... 2,309 71 Other............................................. 176 5 ------- --- $ 1,280 39% ======= ===
The significant components of deferred income tax assets (liabilities) at December 31, 1996 are as follows:
1996 -------------- (in thousands) Accrued liabilities............................................ $ 1,170 Amortization................................................... 444 Depreciation................................................... (4,434) Tax operating lease............................................ 623 Deferred asset................................................. (302) Net operating loss carryforward................................ 4,431 AMT credit carryforward........................................ 627 Other.......................................................... (250) ------- Non-current deferred income tax asset..................... 2,309 Valuation allowance for deferred tax assets............... (2,309) ------- Net deferred tax asset......................................... $ -- =======
R. C. Cobb, Inc. and Cobb II have net operating loss carryforwards of approximately $12.0 million that may be offset against future taxable income. Substantially all of the carryforward expires in 2009 through 2011. F-39 52 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 9. EMPLOYEE BENEFIT PLAN The Company sponsors a defined contribution 401(k) plan covering all full-time employees who have six months of service and are age 21 or older. The Company may elect to match a portion of the participant's elective deferral. The Company contributions amounted to $163,000 in 1996. 10. COMMITMENTS AND CONTINGENCIES The Company is a party to various legal proceedings incidental to its business. In the opinion of management, the ultimate liability with respect to these actions will not materially affect the consolidated financial position or results of operations of the Company. 11. SUBSEQUENT EVENTS On June 11, 1997, the Company signed an agreement to merge with Regal Cinemas, Inc. of Knoxville, Tennessee. The transaction will be accounted for as a pooling of interests. The consideration of approximately $200 million consists of Regal common stock and the assumption of all outstanding indebtedness of Cobb Theatres. Consummation of the transaction is subject to customary closing conditions and the expiration of the waiting period under the Hart-Scott-Rodino Act. The Company expects the merger to be completed by the end of July 1997. F-40 53 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. REGAL CINEMAS, INC. Date: September 10, 1997 By: /s/ Lewis Frazer III ----------------------------------------- Lewis Frazer III Executive Vice President, Chief Financial Officer and Treasurer 54 EXHIBIT INDEX Exhibit - ------- 11.1 Calculation of Earnings Per Share 23.1 Consent of Ernst & Young LLP 23.2 Consent of Ernst & Young LLP 23.3 Consent of Coopers & Lybrand L.L.P. 23.4 Consent of LaRocca & Co., P.C. EX-11.1 2 COMPUTATION OF EARNINGS 1 EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE REGAL CINEMAS, INC. (in thousands of dollars, except per share amounts)
YEARS ENDED ----------------------------------------------------------------------------- DECEMBER 29, DECEMBER 28, JANUARY 2, JUNE 27, JULY 3, 1994 1995 1997 1996 1997 ------------ ------------ ---------- -------- -------- (unaudited) PRIMARY: Weighted average number of common shares outstanding ...... 28,430 30,428 33,726 30,978 36,027 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price ........... 1,066 883 1,074 1,380 1,150 -------- -------- -------- -------- ------- Weighted average number of common and common equivalent shares outstanding .. 29,496 31,311 34,800 32,358 37,177 ======== ======== ======== ======== ======= Net income ......................... $ 10,950 $ 17,505 $ 25,066 $ 7,923 $15,526 Less common and preferred dividends ...................... (380) (433) (229) (229) -- -------- -------- -------- -------- ------- Net income applicable to common shares ......................... $ 10,570 $ 17,072 $ 24,837 $ 7,694 $15,526 ======== ======== ======== ======== ======= Net income per common share, as reported ....................... $ 0.36 $ 0.55 $ 0.71 $ 0.24 $ 0.42 ======== ======== ======== ======== ======= FULLY DILUTED: Weighted average number of common shares outstanding ...... 28,430 30,428 33,726 30,978 36,027 Net effect of dilutive stock options and warrants based on the treasury stock method using ending market price ............ 1,239 1,054 1,166 1,403 1,303 -------- -------- -------- -------- ------- 29,669 31,482 34,892 32,381 37,330 ======== ======== ======== ======== ======= Net income ......................... $ 10,950 $ 17,505 $ 25,066 $ 7,923 $15,526 Less common and preferred dividends ...................... (380) (433) (229) (229) -- -------- -------- -------- -------- ------- Net income applicable to common shares ......................... $ 10,570 $ 17,072 $ 24,837 $ 7,694 $15,526 ======== ======== ======== ======== ======= Net income per common share assuming full dilution, as reported ....................... $ 0.36 $ 0.54 $ 0.71 $ 0.24 $ 0.42 ======== ======== ======== ======== =======
EX-23.1 3 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the: 1. Registration Statement (Form S-8 No. 33-74634) pertaining to the Regal Cinemas, Inc. Participant Stock Option Plan, Regal Cinemas, Inc. Employee Stock Option Plan, 1993 Employee Stock Incentive Plan and 1993 Outside Directors' Stock Option Plan of Regal Cinemas, Inc.; 2. Registration Statement (Form S-8 No. 333-13295) pertaining to the 401(k) Profit Sharing Plan of Regal Cinemas, Inc.; 3. Registration Statement (Form S-8 No. 333-13291) pertaining to the 1993 Employee Stock Incentive Plan of Regal Cinemas, Inc.; of our report dated July 2, 1997, with respect to the consolidated financial statements of Cobb Theatres, L.L.C. for the year ended December 31, 1996 included in the Current Report on Form 8-K/A (Amendment No. 1) of Regal Cinemas, Inc. and to the incorporation by reference therein of our report dated October 23, 1996, with respect to the consolidated financial statements of Cobb Theatres, L.L.C. for the years ended August 31, 1996 and 1995 included in the Annual Report (Form 10-K) for the year ended August 31, 1996 of Cobb Theatres, L.L.C. filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Ernst & Young LLP Birmingham, Alabama September 9, 1997 EX-23.2 4 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the: 1. Registration Statement (Form S-8 No. 33-74634) pertaining to the Regal Cinemas, Inc. Participant Stock Option Plan, Regal Cinemas, Inc. Employee Stock Option Plan, 1993 Employee Stock Incentive Plan, and 1993 Outside Directors' Stock Option Plan of Regal Cinemas, Inc.; 2. Registration Statement (Form S-8 No. 333-13295) pertaining to the 401(k) Profit Sharing Plan of Regal Cinemas, Inc.; 3. Registration Statement (Form S-8 No. 333-13291) pertaining to the 1993 Employee Stock Incentive Plan of Regal Cinemas, Inc.; of our report dated March 21, 1995 (with respect to the financial statements of Neighborhood Entertainment, Inc. not separately presented) appearing in the Current Report on Form 8-K/A dated September 10, 1997 of Regal Cinemas, Inc. filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Richmond, Virginia September 9, 1997 EX-23.3 5 CONSENT OF COOPERS & LUBRAND LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Regal Cinemas, Inc. on Form S-8 (File Nos. 33-74634, 333-13291 and 333-13295) of our report dated February 6, 1997, except for the combination with Cobb Theatres, L.L.C. ("Cobb Theatres") described in Note 1 as to which the date is July 31, 1997, on our audits of the supplemental consolidated financial statements of Regal Cinemas, Inc. as of December 28, 1995 and January 2, 1997, and for each of the three years in the period ended January 2, 1997, which report is included in the Current Report on Form 8-K/A. The supplemental consolidated financial statements give retroactive effect to the acquisitions of Cobb Theatres and Neighborhood Entertainment, Inc. ("Neighborhood"), which have been accounted for as poolings of interests. We did not audit the financial statements of Cobb Theatres, for 1994, 1995 and 1996, nor of Neighborhood for 1994. Such statements reflect aggregate total assets constituting 30% and 23% in 1995 and 1996, respectively, and aggregate total revenues constituting 45%, 34% and 31% in 1994, 1995 and 1996, respectively, of the related supplemental consolidated totals. These statements were audited by other auditors, whose reports have been furnished to us, and in our opinion, insofar as it relates to the amounts included for Cobb Theatres and Neighborhood is based solely on the respective reports of the other auditors. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Knoxville, Tennessee September 9, 1997 EX-23.4 6 CONSENT OF LAROCCA & CO. LLP 1 EXHIBIT 23.4 CONSENT OF LAROCCA & CO., P.C., INDEPENDENT AUDITORS We consent to the incorporation by reference in the: 1. Registration Statement (Form S-8 No. 33-74634) pertaining to the Regal Cinemas, Inc. Participant Stock Option Plan, Regal Cinemas, Inc. Employee Stock Option Plan, 1993 Employee Stock Incentive Plan and 1993 Outside Directors' Stock Option Plan of Regal Cinemas, Inc.; 2. Registration Statement (Form S-8 No. 333-13295) pertaining to the 401(k) Profit Sharing Plan of Regal Cinemas, Inc.; 3. Registration Statement (Form S-8 No. 333-13291) pertaining to the 1993 Employee Stock Incentive Plan of Regal Cinemas, Inc.; of our report dated November 14, 1994, (with respect to the consolidated financial statements of Cobb Theatres, L.L.C. not separately presented) appearing in the Current Report on Form 8-K/A (Amendment No. 1) of Regal Cinemas, Inc. and to the incorporation by reference therein of our report dated November 14, 1994, with respect to the consolidated financial statements of Cobb Theatres, L.L.C. for the year ended August 31, 1994 included in the Annual Report (Form 10-K) for the year ended August 31, 1996 of Cobb Theatres, L.L.C., filed with the Securities and Exchange Commission. /s/ LaRocca & Co., P.C. LaRocca & Co., P.C. Birmingham, Alabama September 9, 1997 -----END PRIVACY-ENHANCED MESSAGE-----