1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2000
Commission file number: 333-52943
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REGAL CINEMAS, INC.
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(Exact name of Registrant as Specified in its Charter)
Tennessee 62-1412720
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(State or Other Jurisdiction of (Internal Revenue Service Employer
Incorporation or Organization) Identification Number)
7132 Commercial Park Drive
Knoxville, TN 37918
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(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, Including Area Code: 865/922-1123
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Common Stock outstanding - 216,756,461 shares at May 9, 2000
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED) (AUDITED)
MARCH 30, DECEMBER 30,
1999 1999
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,924 $ 40,604
Accounts receivable 2,261 2,752
Reimbursable construction advances 14,319 20,250
Inventories 5,443 5,050
Prepaid and other current assets 17,059 18,283
Assets held for sale 8,159 9,670
Deferred income tax asset 633 633
----------- -----------
Total current assets 57,798 97,242
PROPERTY AND EQUIPMENT:
Land 112,908 113,516
Buildings and leasehold improvements 1,005,402 999,012
Equipment 458,416 453,751
Construction in progress 107,054 75,879
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1,683,780 1,642,158
Accumulated depreciation and amortization (201,665) (185,409)
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Total property and equipment, net 1,482,115 1,456,749
GOODWILL, net of accumulated amortization of
$23,737 and $20,952, respectively 392,100 398,567
DEFERRED INCOME TAX ASSET 86,075 86,075
OTHER ASSETS 40,814 41,576
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TOTAL ASSETS $ 2,058,902 $ 2,080,209
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,675 $ 6,537
Accounts payable 44,317 101,152
Accrued expenses 55,461 56,701
----------- -----------
Total current liabilities 106,453 164,390
LONG-TERM DEBT, less current maturities:
Long-term debt 1,734,116 1,679,217
Capital lease obligations 19,159 19,722
Lease financing arrangements 79,785 74,199
OTHER LIABILITIES 29,815 28,521
----------- -----------
TOTAL LIABILITIES 1,969,328 1,966,049
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par: 100,000,000 shares
authorized, none issued -- --
Common stock, no par: 500,000,000 shares
authorized; 216,756,461 and 216,873,501
shares issued and outstanding at
March 30, 1999 and December 30, 1999 199,661 199,778
Loans to shareholders (6,271) (6,388)
Retained deficit (103,816) (79,230)
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TOTAL SHAREHOLDERS' EQUITY $ 89,574 $ 114,160
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,058,902 $ 2,080,209
=========== ===========
See accompanying notes to condensed consolidated financial statement.
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
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MARCH 30, APRIL 1,
2000 1999
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REVENUES:
Admissions $ 160,231 $ 132,242
Concessions 66,038 55,609
Other operating revenue 11,911 10,487
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Total revenues 238,180 198,338
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OPERATING EXPENSES:
Film rental and advertising 80,922 67,252
Cost of concessions and other 10,354 9,492
Theatre operating expenses 105,277 83,926
General and administrative 8,269 7,598
Depreciation and amortization 21,656 19,530
Theatre closing costs 3,766 --
Loss on disposal of operating assets 527 --
Loss on impairment of fixed assets 4,258 --
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Total operating expenses 235,029 187,798
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OPERATING INCOME 3,151 10,540
OTHER INCOME (LOSS):
Interest expense (40,422) (30,191)
Interest income 258 202
Other -- 38
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LOSS BEFORE INCOME TAXES (37,013) (19,411)
BENEFIT FROM INCOME TAXES 12,427 6,772
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NET LOSS $ (24,586) $ (12,640)
========= =========
See accompanying notes to condensed consolidated financial statements.
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REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
-----------------------
MARCH 30, APRIL 1,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(24,586) $ (12,640)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 21,656 20,744
Loss on impairment of assets 4,258 --
Loss on disposal of operating assets 527 --
Theatre closing costs 3,766 --
Changes in operating assets and liabilities:
Accounts receivable 491 987
Inventories (393) (290)
Prepaids and other assets 1,986 (3,017)
Accounts payable (44,035) (7,210)
Accrued expenses and other liabilities (3,713) 12,699
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Net cash provided by operating activities (40,043) 11,273
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (56,555) (113,277)
Proceeds from sales of fixed assets 5,925 --
Net change in reimbursable construction advances 5,931 3,637
Investment in goodwill and other assets -- (2,234)
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Net cash used in investing activities (44,699) (111,874)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt 65,000 80,000
Payments made on long-term debt (10,938) (620)
Exercise of warrants, options and compensation expense -- 600
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Net cash provided by financing activities 54,062 79,980
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (30,680) (20,621)
CASH AND CASH EQUIVALENTS, beginning of period 40,604 20,621
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CASH AND CASH EQUIVALENTS, end of period $ 9,924 $ --
======== =========
See accompanying notes to condensed consolidated financial statement.
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REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 THE COMPANY AND BASIS OF PRESENTATION
Regal Cinemas, Inc. and its wholly owned subsidiaries (the "Company"
or "Regal") operate multi-screen motion picture theatres principally
throughout the eastern and northwestern United States. The Company
formally operates on a fiscal year ending on the Thursday closest to
December 31.
The Company, without audit has prepared the condensed consolidated
statements of operations and cash flows for the three-month periods
ending March 30, 2000 and April 1, 1999, and the condensed consolidated
balance sheet as of March 30, 1999. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly in all material respects the financial
position, results of operations and cash flows for all periods
presented have been made. The December 30, 1999 information has been
derived from the audited December 30, 1999 balance sheet of the
Company.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included
in the Company's Annual Report filed on Form 10-K dated March 29,
2000. The results of operations for the three-month period ended March
30, 2000 are not necessarily indicative of the operating results for
the full year.
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2 LONG-TERM DEBT
Long-term debt at March 30, 2000 and December 30, 1999, consists of the
following (in thousands):
MAR. 30, DEC. 30,
(IN THOUSANDS) 2000 1999
$600,000 of the Company's senior subordinated notes due June 1,
2008, with interest payable semiannually at 9.5%. Notes are
redeemable, in whole or in part, at the option of the Company at
any time on or after June 1, 2003, at the redemption prices
(expressed as percentages of the principal amount thereof) set
forth below together with accrued and unpaid interest to the
redemption date, if redeemed during the 12 month period
beginning on June 1 of the years indicated:
REDEMPTION
YEAR PRICE
2003 104.750%
2004 103.167%
2005 101.583%
2006 and thereafter 100.000% $ 600,000 $ 600,000
$200,000 of the Company's senior subordinated debentures due
December 15, 2010, with interest payable semiannually at 8.875%.
Debentures are redeemable, in whole or in part, at the option of
the Company at any time on or after December 15, 2003, at the
redemption prices (expressed as percentages of the principal
amount thereof) set forth below together with accrued and unpaid
interest to the redemption date, if redeemed during the 12 month
period beginning on December 15 of the years indicated:
REDEMPTION
YEAR PRICE
2003 104.750% $ 200,000 $ 200,000
2004 103.328%
2005 101.219%
2006 101.109%
2007 and thereafter 100.000%
Term Loans 508,750 508,750
Revolving credit facility 425,000 370,000
Other 4,427 4,877
Capital lease obligations, 11.5% to 14.0%, maturing in
various installments through 2024 20,987 21,311
Lease financing arrangements, 11.5%, maturing in
various installments through 2019 80,571 74,737
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1,839,735 1,779,675
Less current maturities (6,675) (6,537)
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Total long-term obligations $1,833,060 $1,773,138
========== ==========
CREDIT FACILITIES - In May 1998, the Company entered into credit
facilities provided by a syndicate of financial institutions. In August
1998, December 1998, and March 1999, such credit facilities were
amended. Such credit facilities (the Credit Facilities) now include
a $500.0 million Revolving Credit Facility (including the availability
of Revolving Loans, Swing Line Loans, and Letters of Credit) and three
term loan facilities: Term A, Term B, and Term C (the Term Loans). The
Company must pay an annual commitment fee ranging from 0.2% to 0.425%,
depending on the Company's Total Leverage Ratio, as defined in
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the Credit Facilities, of the unused portion of the Revolving Credit
Facility. The Revolving Credit Facility expires in June 2005.
Outstanding borrowings under the Revolving Credit Facility were $425.0
million and $370.0 million as of March 30, 2000 and December 30, 1999,
respectively.
Borrowings under the Term A Loan or the Revolving Credit Facility can
be made at the Base Rate plus a margin of 0% to 1%, or the LIBOR Rate,
plus .625% to 2.25%, both depending on the Total Leverage Ratio. The
Base Rate on revolving loans is the rate established by the
Administrative Agent in New York as its base rate for dollars loaned in
the United States. The LIBOR Rate is based on the length of loan. The
outstanding balance under the Term A Loan was $237.6 million at March
30, 2000 and December 30, 1999 with $2.4 million due annually through
2004 and the balance due in 2005.
Borrowings under the Term B Loan can be made at the Base Rate plus a
margin of 0.75% to 1.25% or the LIBOR Rate plus 2.0% to 2.5%, both
depending on the Total Leverage Ratio. The outstanding balance under
the Term B Loan was $137.5 million at March 30, 2000 and December 30,
1999 due in 2006.
Borrowings under the Term C Loan can be made at the Base Rate plus a
margin of 1.0% to 1.5% or the LIBOR Rate plus 2.25% to 2.75%, both
depending on the Total Leverage Ratio. The outstanding balance under
the Term C Loan was $133.7 million at March 30, 2000 and December 30,
1999 with $1.35 million due annually through 2006, and the balance due
in 2007.
The Credit Facilities contain customary covenants and restrictions on
the Company's ability to issue additional debt, pay dividends or engage
in certain activities and include customary events of default. In
addition, the Credit Facilities specify that the Company must meet or
exceed defined fixed charge coverage ratios and must not exceed defined
leverage ratios. The Company was in compliance with such covenants as
of March 30, 2000.
The Credit Facilities are collateralized by a pledge of the stock of
the Company's domestic subsidiaries. The Company's payment obligations
under the Credit Facilities are guaranteed by its direct and indirect
U.S. subsidiaries.
LEASE FINANCING ARRANGEMENTS - The Emerging Issues Task Force (EITF)
released in fiscal 1998, Issue No. 97-10, The Effect of Lessee
Involvement in Asset Construction. Issue No. 97-10 is applicable to
entities involved on behalf of an owner-lessor with the construction of
an asset that will be leased to the lessee when construction of the
asset is completed. Issue No. 97-10 requires the Company be considered
the owner (for accounting purposes) of these types of projects during
the construction period as well as when the construction of the asset
is completed. Therefore, the Company has recorded such leases as lease
financing arrangements on the accompanying balance sheet. As Issue
97-10 applies to construction projects committed to after May 21, 1998,
the majority of the Company's construction projects for leased theatre
sites in the 2000 fiscal year will be reported as on balance sheet
financing.
3 INCOME TAXES
The effective income tax rate for the three-month periods ending March
30, 2000 (33.6%) and April 1, 1999 (34.9%) differs from the statutory
income tax rate principally due to nondeductible goodwill amortization
and the inclusion of state income taxes.
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4 CAPITAL STOCK
Earnings per share information is not presented herein as the Company's
shares do not trade in a public market.
5 LOSS ON IMPAIRMENT OF ASSETS
ASSET IMPAIRMENT - The Company periodically reviews the carrying value
of long-lived assets, including goodwill, for impairment based on
expected future cash flows. Such reviews are performed as part of the
Company's budgeting process and are performed on an individual theatre
level, the lowest level of identifiable cash flows. Factors considered
in management's estimate of future theatre cash flows include
historical operating results over complete operating cycles, current
and anticipated impacts of competitive openings in individual markets,
and anticipated closings or dispositions of theatres.
Management uses the results of this analysis to determine whether
impairment has occurred. The resulting impairment loss is measured as
the amount by which the carrying value of the asset exceeds fair value,
which is estimated using discounted cash flows. Discounted cash flows
also include estimated proceeds for the sale of owned properties in the
instances where management intends to sell the location. This analysis
has resulted in the following impairment losses being recognized:
MARCH 30, APRIL 1,
2000 1999
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(IN THOUSANDS)
Write-down of theatre property and equipment $ 727 $ --
Write-off of goodwill 3,531 --
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Total $ 4,258 $ --
========= ========
THEATRE CLOSING AND LOSS ON DISPOSAL COSTS - The Company continuously
monitors and evaluates the performance of its theatres on a site by
site basis. As part of this analysis, the Company targets
under-performing locations for closure. During the first quarter of
2000 the Company recorded $0.5 million as the net loss on disposal of
certain of these locations. In conjunction with certain closed
locations, a reserve for lease termination costs of $5.1 million has
also been recorded. This reserve for lease termination costs represents
management's best estimate of the potential costs for exiting these
leases and are based on analyses of the properties, correspondence with
the landlord, exploratory discussions with potential sublessees and
individual market conditions. The activity in this reserve during the
first quarter of 2000 is as follows:
Beginning balance, December 30, 1999 $ 4,269
Rent and other termination payments (2,924)
Additional theatre closings 5,681
Revision of prior estimates (1,915)
========
Ending balance, March 30, 2000 $ 5,111
========
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Theatre properties owned by the Company which were closed during the
first quarter of 2000 and 1999 fiscal year are classified as assets
held for sale on the accompanying balance sheets. Such assets are
recorded at the estimated net realizable value of the individual
locations.
6 CASH FLOW INFORMATION
(IN THOUSANDS) MARCH 30, APRIL 1,
2000 1999
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Supplemental information on cash flows:
Interest paid $ 21,466 $ 11,537
Income taxes paid (refunds received), net (64) 356
NONCASH TRANSACTIONS:
MARCH 30, 2000:
Pursuant to EITF 97-10, the Company recorded lease financing
arrangements and net assets of $6.0 million.
The Company purchased and retired 23,408 shares of common stock valued
at $0.1 million in exchange for canceling notes receivables from
certain shareholders.
7. Subsequent Events
In April 2000, the Company obtained $20.0 million of equipment
financing, the proceeds of which were used to repay the revolving
credit facility (see note 2).
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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OVERVIEW
The following analysis of the financial condition and results of operations of
Regal Cinemas, Inc. (the "Company") should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto included herein.
BACKGROUND OF REGAL
The Company has achieved significant growth in theatres and screens since its
formation in November of 1989. Since inception through March 30, 1999, the
Company has acquired 278 theatres with 2,172 screens (net of subsequently closed
locations), developed 145 new theatres with 2,051 screens and added 153 new
screens to existing theatres. Theatres developed by the Company typically
generate positive theatre level cash flow within the first nine months following
commencement of operation and reach a mature level of attendance within one to
three years following commencement of operation. Theatre closings have had no
significant effect on the operations of the Company.
RESULTS OF OPERATIONS
The Company's revenues are generated primarily from admissions 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, rebates from concession vendors, and revenues from the Company's
eight entertainment centers which are adjacent to theatre complexes. Direct
theatre costs consist of film rental and advertising 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. At March 30,
1999, approximately 30.5% of the Company's employees were paid at the federal
minimum wage and, accordingly, the minimum wage largely determines the Company's
labor costs for those employees. Future increases in minimum wage requirements
or legislation requiring additional employer funding of health care, among other
things, may increase theatre operating expenses as a percentage of total
revenues.
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The following table sets forth for the fiscal periods indicated the percentage
of total revenues represented by certain items reflected in the Company's
consolidated statements of operations.
THREE MONTHS ENDED
----------------------
MARCH 30, APRIL 1,
2000 1999
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REVENUES:
Admissions $ 67.3% $ 66.7%
Concessions 27.7% 28.0%
Other operating revenue 5.0% 5.3%
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Total revenues 100.0% 100.0%
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OPERATING EXPENSES:
Film rental and advertising 34.0% 33.9%
Cost of concessions and other 4.3% 4.8%
Theatre operating expenses 44.2% 42.3%
General and administrative 3.5% 3.8%
Depreciation and amortization 9.1% 9.8%
Theatre closing costs 1.6% --
Loss on disposal of operating assets 0.2% --
Loss on impairment of fixed assets 1.8% --
---------- ---------
Total operating expenses 98.7% 94.6%
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OPERATING INCOME 1.3% 5.4%
OTHER INCOME (LOSS):
Interest expense (17.0)% (15.2)%
Interest income 0.2% 0.1%
Other -- --
---------- ---------
LOSS BEFORE INCOME TAXES (15.5)% (9.7)%
BENEFIT FROM INCOME TAXES 5.2% 3.5%
---------- ---------
NET LOSS $ (10.3)% $ (6.4)%
========== =========
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THREE MONTHS ENDED MARCH 30, 2000 AND APRIL 1, 1999
TOTAL REVENUES - Total revenues for the first quarter of fiscal 2000
increased by 20.1% to $238.2 million from $198.3 million in the comparable 1999
period. This increase was due to a 8.2% increase in attendance attributable
primarily to the net addition of 680 screens in the last twelve months. Average
ticket prices increased 1.2% during the period, reflecting an increase in ticket
prices and a greater proportion of newer multiplex theatres in the 2000 period
than in the same period in 1999. Average concession sales per customer increased
1.5% for the period, reflecting both an increase in consumption and, to a lesser
degree, an increase in concession prices.
DIRECT THEATRE COSTS - Direct theatre costs increased by 22.3% to
$196.6 million in the first quarter 2000 from $160.7 million in the first
quarter 1999. Direct theatre costs as a percentage of total revenues increased
to 82.5% in the 2000 period from 81.0% in the 1999 period. The increase in
direct theatre costs as a percentage of total revenues was primarily
attributable to increased occupancy costs resulting from the additional theatre
locations opened by the Company in the last twelve months.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative
expenses increased by 8.8% to $8.3 million in the first quarter 2000 from $7.6
million in the first quarter 1999. As a percentage of total revenues, general
and administrative expenses decreased slightly to 3.5% in the 2000 period from
3.8% in the 1999 period.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization expense
increased in the first quarter 2000 by 10.9% to $21.7 million from $19.5 million
in the first quarter 1999. The increase reflects additional costs related to the
Company's expansion efforts.
OPERATING INCOME - Operating income for the first quarter 2000
decreased to $3.2 million, or 1.3% of total revenues, from $10.5 million, or
5.4% of total revenues, in the first quarter 1999.
INTEREST EXPENSE - Interest expense increased in the first quarter 2000
to $40.2 million from $30.0 million in the first quarter 1999. The increase was
primarily due to higher average borrowings outstanding associated with the
Company's expansion efforts.
INCOME TAXES - The benefit from income taxes in the first quarter 2000
was $12.4 million as compared to $6.7 million in the first quarter 1999. The
effective tax rate was 33.6% in the 2000 period as compared to 34.9% in the 1999
period. Both periods differ from the expected statutory rates due to
nondeductible goodwill amortization and the inclusion of state income taxes.
NET LOSS - The net loss in the first quarter 2000 was $24.6 million as
compared to $12.6 million in the first quarter 1999. Net loss was 10.3% of total
revenues in the first quarter 2000 as compared to 6.3% of total revenues in the
1999 period.
IMPAIRMENT AND OTHER DISPOSAL CHARGES - The Company periodically
reviews the carrying value of long-lived assets, including goodwill, for
impairment based on expected future cash flows. Such reviews are performed as
part of the Company's budgeting process and are performed on an individual
theatre level, the lowest level of identifiable cash flows. Factors considered
in management's estimate of future theatre cash flows include historical
operating results over complete operating cycles, current and anticipated
impacts of competitive openings in individual markets, and anticipated closings
or dispositions of theatres.
Management uses the results of this analysis to determine whether
impairment has occurred. The resulting impairment loss is measured as the amount
by which the carrying value of the assets exceeds fair value which is estimated
using discounted cash flows. Discounted cash flows also include estimated
proceeds for the sale of owned properties in the instances where management
intends to sell the location. This analysis resulted in the recording of a $4.3
million impairment charge during the first quarter of 2000.
Additionally, the Company continuously monitors and evaluates the
performance of its theatres on a site by site basis. As part of this analysis,
the Company targets under-performing locations for closure. During the first
quarter of 2000 the Company recorded $0.5 million as the net loss on disposal of
certain of these locations. In conjunction with certain closed locations, a
reserve for lease termination costs of $5.1 million has also been recorded. This
reserve for lease termination costs represents management's best estimate of the
potential costs for exiting these leases and are based on analyses of the
properties, correspondance with the landlord, exploratory discussion with
potential sublesses and individual market conditions.
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 debt and
internally generated cash. The Company's Senior Credit Facilities provide for
borrowings of up to $1,008.8 million in the aggregate, consisting of the
Revolving Credit Facility, which permits the Company to borrow up to $500.0
million on a
13
revolving basis and $508.8 million, in the aggregate, of term loan
borrowings under three separate term loan facilities. As of March 30, 2000, the
Company had $73.5 million of capacity available under the Revolving Credit
Facility. Under the Senior Credit Facilities, the Company is required to comply
with certain financial and other covenants. The loans under the Senior Credit
Facilities bear interest at either a base rate (referred to as "Base Rate
Loans") or adjusted LIBO rate (referred to as "LIBOR Rate Loans") plus, in each
case, an applicable margin determined depending upon the Company's Total
Leverage Ratio (as defined in the Senior Credit Facilities).
On May 27, 1998, an affiliate of Kohlberg Kravis Roberts & Co. L.P.
("KKR") and an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks
Muse") merged with and into the Company ("The Regal Merger"), with the Company
continuing as the surviving corporation. The consummation of the Regal Merger
resulted in a recapitalization ("Recapitalization") of the Company. In the
Recapitalization, the Company's existing holders of common stock received cash
for their shares of common stock, and KKR, Hicks Muse, DLJ Merchant Banking
Partners II, L.P. ("DLJ") and certain members of the Company's management
acquired the Company. In addition, in connection with the Recapitalization, the
Company canceled options and repurchased warrants held by certain directors,
management and employees of the Company (the "Option/Warrant Redemption"). The
aggregate purchase price paid to effect the Regal Merger and the Option/Warrant
Redemption was approximately $1.2 billion.
The Regal Merger was financed by an offering of $400.0 million
aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 (the
"Original Notes"), initial borrowings of $375.0 million under the Company's
current senior credit facility (as amended, the "Senior Credit Facilities") and
$776.9 million in proceeds from the investment of KKR, Hicks Muse, DLJ and
management in the Company (the "Equity Investment").
In connection with the Recapitalization, the Company made an offer to purchase
(the Tender Offer) all $125.0 million aggregate principal amount of the
previously outstanding 8 1/2% Senior Subordinated Notes due October 1, 2007,
(the "Old Regal Notes"). In conjunction with the Tender Offer, the Company also
solicited consents to eliminate substantially all of the covenants contained in
the indenture relating to the Old Regal Notes. The purchase price paid by the
Company for the Old Regal Notes was approximately $139.5 million, including a
premium of approximately $14.5 million.
The proceeds of the Original Note Offering, the initial borrowing under
the Company's Senior Credit Facilities and the Equity Investment were used: (i)
to fund the cash payments required to effect the Regal Merger and the
Option/Warrant Redemption; (ii) to repay and retire the Company's then existing
senior credit facilities; (iii) to repurchase the Old Regal Notes; and (iv) to
pay related fees and expenses.
On August 26, 1998, the Company acquired Act III Theatres, Inc. ("Act
III"). In the Act III Merger, Act III became a wholly owned subsidiary of the
Company and each share of Act III's outstanding common stock was converted into
the right to receive one share of the Company's common stock. In connection with
the Act III Merger, the Company amended its Senior Credit Facilities and
borrowed $383.3 million thereunder to repay Act III's then existing bank
borrowings and two senior subordinated promissory notes, each in the aggregate
principal amount of $75.0 million, which were owned by KKR and Hicks Muse.
On November 10, 1998, the Company issued an additional $200.0 million
aggregate principal amount of 9 1/2% Senior Subordinate Notes due 2008 (the
"Tack-On Note") under the same indenture governing the Original Notes. The
proceeds of the Tack-On Note were used to repay and retire portions of the
Senior Credit Facilities.
On December 16, 1998, the Company issued $200.0 million aggregate
principal amount of 8 7/8% Senior Subordinated Debentures due 2010 (the "Regal
Debentures"). The proceeds of the offering of the Regal Debentures were used to
repay all of the then outstanding indebtedness under the Revolving Credit
Facility and the excess was used for working capital purposes.
Interest payments on the Regal Notes and the Regal Debentures and
interest payments and amortization with respect to the Senior Credit Facilities
represent significant liquidity requirements for the Company. The Company had
interest expense of approximately $40.2 million for the three-month period ended
March 30, 2000.
At March 30, 2000, the Company had 15 new theatres with 234 screens and
19 screens at four existing locations under construction. The Company intends to
develop approximately 310 screens during 2000. The Company expects that the
capital expenditures in connection with its development plan will aggregate
approximately $200.0 million during 2000, all of which is contractually
committed.
14
The Company believes that its capital needs for completion of theatre
construction and development for at least the fiscal year will be satisfied by
available credit under the Senior Credit Facilities, internally generated cash
flow, available cash, and future financing transactions.
In April of 2000, the Company obtained $20 million of equipment
financing, the proceeds of which were used to repay the Revolving Credit
Facility. In addition, the Company has obtained commitments from other lenders
totaling approximately $55 million. Such commitments provide for financing in
the form of sale-leaseback financing and, if executed, are expected to close
during the second or third quarter of fiscal 2000.
Based on the current level of operations and anticipated future growth,
the Company anticipates that its cash flow from operations, together with
borrowings under the Senior Credit Facilities and additional financing should be
sufficient to meet its anticipated requirements for working capital, capital
expenditure, interest payments and scheduled principal payments. The Company's
future operating performance and ability to service or refinance the Regal
Notes, the Regal Debentures and to extend or refinance the Senior Credit
Facilities will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
The Regal Notes, Regal Debentures and Senior Credit Facilities impose
certain restrictions on the Company's ability to make capital expenditures and
limit the Company's ability to incur additional indebtedness. Such restrictions
could limit the Company's ability to respond to market conditions, to provide
for unanticipated capital investments or to take advantage of business or
acquisition opportunities. The covenants contained in the Senior Credit
Facilities and/or the indentures governing the Regal Notes and the Regal
Debentures also, among other things, limit the ability of the Company to dispose
of assets, repay indebtedness or amend other debt instruments, pay
distributions, enter into sale and leaseback transactions, make loans or
advances and make acquisitions.
RISK FACTORS
This Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-Q, including,
without limitation, certain statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" may constitute
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed in the risk factors (the "Cautionary Statements") as
described in the Company's Annual Report on Form 10-K filed March 29, 2000. All
forward-looking statements are qualified in their entirety by the Cautionary
Statements.
In addition to the Cautionary Statements, the reader should refer to
the Company's Annual Report on Form 10-K ("Form 10-K"), filed March 29, 2000 for
additional guidance relating to the Company's risk factors. As noted in the
Company's Form 10-K, the Company has substantial indebtedness, lease commitments
and leverage. The Company is also anticipating the funding of certain financing
transactions as a means of providing liquidity over the next twelve months.
While management believes that such transactions will close during the 2000
fiscal year, there can be no guarantee such financings will occur.
INFLATION; ECONOMIC DOWNTURN
The Company does not believe that inflation has had a material impact
on its financial position or results of operations. In times of recession,
attendance levels experienced by motion picture exhibitors may be adversely
affected. For example, revenues declined for the industry in 1990 and 1991.
NEW ACCOUNTING PRONOUNCEMENTS
Emerging Issues Task Force (EITF) Issue No. 97-10, The Effect of Lessee
Involvement in Asset Construction, is applicable to entities involved on behalf
of an owner-lessor with the construction of an asset that will be leased to the
lessee when construction of the asset is completed. The consensus reached in
Issue No. 97-10 applies to construction projects committed to after May 21, 1998
and to those projects that were committed to on May 21, 1998 if construction did
not commence by December 31, 1999. Issue 97-10 has required the Company to be
considered the owner (for accounting purposes) of these types of projects during
the construction period as well as when construction of the asset is completed.
Subsequent to the issuance of Issue 97-10, the Company did not amend the leasing
arrangements which were historically recorded as off-balance sheet operating
leases as such amendments would have changed the economics of the lease
agreements. Management believes a change in the economics of the lease would
have been unfavorable to the Company. Therefore, the Company is required to
record such leases as lease financing arrangements (capital leases). The
application of the provisions of EITF Issue No. 97-10 did not result in the
recording of any leases or capital leases in 1998 but did result in the
recording of approximately $74.7 million of such leases as capital leases in
1999 and $6.0 million of such leases as capital leases in first quarter 2000.
The application of the provisions of EITF Issue No. 97-10 did not have a
significant effect on the results of operations for 1999 or first quarter 2000.
15
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement
No.133, Accounting for Derivative Instruments and Hedging Activities. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. The Company does not anticipate that the adoption of this
Statement will have a significant effect on its results of operations or
financial position. The Company will adopt this Statement during the first
quarter of fiscal 2001.
SEASONALITY
The Company's revenues are usually seasonal, coinciding with the timing
of releases of motion pictures by the major distributors. Generally, the most
marketable motion pictures are released during the summer and the Thanksgiving
through year-end holiday season. The unexpected emergence of a hit film during
other periods can alter the traditional trend. The timing of movie releases can
have a significant effect on the Company's results of operations, and the
results of one quarter are not necessarily indicative of results for the next
quarter. The seasonality of motion picture exhibition, however, has become less
pronounced in recent years as studios have begun to release major motion
pictures somewhat more evenly throughout the year.
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ITEM 3.
QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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INTEREST RATE SENSITIVITY
As of March 30, 2000, the Company had entered into interest rate swap agreements
ranging from five to seven years for the management of interest rate exposure.
As of March 30, 2000, such agreements had effectively converted $270 million of
LIBOR floating rate debt to fixed rate obligations with interest rates ranging
from 5.32% to 7.32%. Regal continually monitors its position and credit rating
of the interest swap counterparty. The fair values of interest rate swap
agreements are estimated based on quotes from dealers of these instruments and
represent the estimated amounts the Company would expect to (pay) or receive to
terminate the agreements. The fair value of the Company's interest rate swap
agreements at March 30, 2000 was $13.2 million.
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ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits:
(27) Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
During the first quarter of fiscal 2000 ended March 30, 1999, the
Registrant filed no Current Reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGAL CINEMAS, INC.
Date: May 15, 2000 By: /s/ Michael L. Campbell
Michael L. Campbell, Chairman, President and
Chief Executive Officer
By: /s/ Amy Miles
Senior Vice President and
Chief Financial Officer
Exhibit Index
Item Description
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(27) Financial Data Schedule (for SEC use only).