10-Q 1 g65221e10-q.txt REGAL CINEMAS, INC. 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 September 28, 2000 Commission file number: 333-52943 REGAL CINEMAS, INC. -------------------------------------------------------------------------------- (Exact name of Registrant as Specified in its Charter) Tennessee 62-1412720 -------------------------------- ------------------------------- (State or Other Jurisdiction of (Internal Revenue Service Incorporation or Organization) Employer Identification Number) 7132 Commercial Park Drive Knoxville, TN 37918 ---------------------------------------- ------------------------------- (Address of Principal Executive Offices) (Zip code) Registrant's Telephone Number, Including Area Code: 865/922-1123 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 November 13, 2000 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. REGAL CINEMAS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

(UNAUDITED) (AUDITED) ~~JUNE~~SEPTEMBER 2928, DECEMBER 30, 2000 1999 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3472,~~319~~034 $ 40,604 Accounts receivable 12,~~705~~182 2,752 Reimbursable construction advances 915,~~870~~173 20,250 Inventories 5,~~151~~318 5,050 Prepaid and other current assets 1926,~~563~~881 18,283 Assets held for sale 9,~~256~~625 9,670 Deferred income tax asset 633 633 ----------- ----------- Total current assets 80131,~~497~~846 97,242 PROPERTY AND EQUIPMENT: Land 8876,~~494~~991 113,516 Buildings and leasehold improvements 1,~~103~~171,~~660~~762 999,012 Equipment ~~484~~478,~~854~~951 453,751 Construction in progress 6927,~~900~~622 75,879 ----------- ----------- 1,~~746~~755,~~908~~326 1,642,158 Accumulated depreciation and amortization (~~218~~235,~~973~~029) (185,409) ----------- ----------- Total property and equipment, net 1,~~527~~520,~~935~~297 1,456,749 GOODWILL, net of accumulated amortization of $2628,~~187~~359 and $20,952, respectively ~~379~~370,~~969~~413 398,567 DEFERRED INCOME TAX ASSET ~~113~~48,~~631~~101 86,075 OTHER ASSETS 3942,~~981~~079 41,576 ----------- ----------- TOTAL ASSETS $ 2,~~142~~112,~~013~~736 $ 2,080,209 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt, capital lease obligations and lease financing arrangements $ 73,~~288~~970 $ 6,537 Long-term debt callable under covenant provisions 1,019,750 -- Accounts payable 4930,~~751~~244 101,152 Accrued expenses 7596,~~060~~049 56,701 ----------- ----------- Total current liabilities ~~132~~1,~~099~~150,013 164,390 LONG-TERM DEBT, less current maturities: Long-term debt 1803,~~789,972~~894 1,679,217 Capital lease obligations 18,~~712~~256 19,722 Lease financing arrangements ~~110~~153,~~058~~831 74,199 OTHER LIABILITIES 3139,~~016~~909 28,521 ----------- ----------- TOTAL LIABILITIES 2,~~081~~165,~~857~~903 1,966,049 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY (DEFICIT): 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 ~~June~~September 2928, 2000 and December 30, 1999 199,661 199,778 Loans to shareholders (6,271) (6,388) Retained deficit (~~133~~246,~~234~~557) (79,230) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) $ 60(53,~~156~~167) $ 114,160 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 2,~~142~~112,~~013~~736 $ 2,080,209 =========== ===========

See accompanying notes to condensed consolidated financial statements. 3 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS)

THREE MONTHS ENDED ~~SIX~~NINE MONTHS ENDED ---------------------------- ---------------------------- ~~JUNE~~SEPTEMBER 2928, ~~JULY~~SEPTEMBER 130, ~~JUNE~~SEPTEMBER 2928, ~~JULY~~SEPTEMBER 130, 2000 1999 2000 1999 --------- --------- --------- --------- REVENUES: Admissions $ ~~182~~213,~~544~~789 $ ~~175~~205,~~055~~354 $ ~~342~~556,~~775~~564 $ ~~307~~512,~~298~~652 Concessions 7485,~~488~~862 7384,~~534~~139 ~~140~~226,~~526~~388 ~~129~~213,~~143~~282 Other operating revenue 1115,~~597~~938 1415,~~121~~548 2339,~~508~~446 2440,~~607~~155 --------- --------- --------- --------- Total revenues ~~268~~315,~~629~~589 ~~262~~305,~~710~~041 ~~506~~822,~~809~~398 ~~461~~766,~~048~~089 --------- --------- --------- --------- OPERATING EXPENSES: Film rental and advertising ~~103~~118,~~644~~973 ~~105~~114,~~502~~669 ~~184~~303,~~566~~539 ~~172~~287,~~755~~424 Cost of concessions and other 1114,~~506~~293 1112,~~929~~175 2136,~~860~~153 2130,~~421~~881 Theatre operating expenses ~~107~~117,~~254~~880 93100,~~428~~631 ~~212~~330,~~531~~411 ~~177~~280,~~354~~700 General and administrative 810,~~066~~429 8,~~532~~650 1626,~~335~~764 1624,~~129~~779 Depreciation and amortization 2124,~~702~~844 2122,~~121~~823 4368,~~358~~202 4065,~~651~~915 Theatre closing costs 98,~~101~~829 -- 1221,~~867~~696 -- Loss ~~(gain)~~ on disposal of operating assets ~~(240)~~424 -- ~~287~~711 -- Loss on impairment of ~~fixed~~ assets 1026,~~245~~748 -- 1441,~~503~~251 -- --------- --------- --------- --------- Total operating expenses ~~271~~322,~~278~~420 ~~240~~258,~~512~~948 ~~506~~828,~~307~~727 ~~428~~689,~~310~~699 --------- --------- --------- --------- OPERATING INCOME (LOSS) (26,~~649~~831) 2246,~~198~~093 ~~502~~(6,329) 3276,~~738~~390 OTHER INCOME (LOSS): Interest expense (4247,~~174~~199) (3334,~~436~~114) (82129,~~596~~795) (6395,~~628~~301) Interest income ~~248~~426 ~~113~~89 ~~506~~932 ~~316~~405 Other -- 641 -- ~~100~~101 --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (4453,~~575~~604) ~~(11~~12,~~061)~~069 (81135,~~588~~192) (3018,~~474~~405) BENEFIT (PROVISION) FROM INCOME TAXES 15(59,~~157~~719) 3(6,~~632~~483) 27(32,~~584~~135) 103,~~405~~922 --------- --------- --------- --------- NET INCOME (LOSS) $ (29113,~~418~~323) $ (75,~~429)~~586 $ (54167,~~004~~327) $ (2014,~~069~~483) ========= ========= ========= =========

See accompanying notes to condensed consolidated financial statements. 4 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)

~~SIX~~NINE MONTHS ENDED ---------------------------- ~~JUNE~~SEPTEMBER 2928, ~~JULY~~SEPTEMBER 130, 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (54167,~~004~~327) $ (2014,~~069~~483) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 4368,~~359~~202 4065,~~651~~915 Loss on impairment of assets 1441,~~503~~251 -- Loss on disposal of operating assets ~~287~~711 -- Theatre closing costs 1221,~~867~~696 -- Deferred income taxes ~~(27~~37,~~556)~~974 -- Changes in operating assets and liabilities: Accounts receivable ~~1,047~~570 ~~1,916~~97 Inventories (~~101~~268) (~~1,493~~809) Prepaids and other assets ~~367~~(9,053) (512,~~542~~674) Accounts payable (3870,~~602~~907) (506,~~432~~717) Accrued expenses and other liabilities 720,~~987~~436 (730,~~154)~~488 --------- --------- Net cash provided by (used in) operating activities (3956,~~846~~715) ~~(42~~61,~~123)~~817 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (99125,~~443~~837) (~~218~~342,~~737~~500) Proceeds from sales of fixed assets 1363,~~917~~266 -- Net change in reimbursable construction advances 105,~~380~~077 --(20,000) Investment in goodwill and other assets -- (842,688) --------- --------- Net cash used in investing activities (7557,~~146~~494) (~~218~~365,~~821~~188) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under long-term debt ~~147~~177,000 ~~245~~290,000 Payments made on long-term debt (3839,~~293~~964) (5,~~277~~498) Termination of interest rate swaps 8,603 -- Exercise of warrants, options and compensation expense -- ~~600~~172 --------- --------- Net cash provided by financing activities ~~108~~145,~~707~~639 ~~240~~284,~~323~~674 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (631,~~285)~~430 (2018,~~621~~697) CASH AND CASH EQUIVALENTS, beginning of period 40,604 20,621 --------- --------- CASH AND CASH EQUIVALENTS, end of period $ 3472,~~319~~034 $ --1,924 ========= =========

See accompanying notes to condensed consolidated financial statements. 5 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 film exhibition industry continues to face severe financial challenges due primarily to the rapid building of state of the art theatre complexes which resulted in an unanticipated oversupply of screens. The aggressive new build strategies generated significant competition in once stable markets and rendered many older theatres obsolete more rapidly than anticipated. This effect, together with the fact many of these now obsolete theatres are leased under long-term commitments, produced an oversupply of screens throughout the exhibition industry at a rate much quicker than the industry could effectively handle. This industry overcapacity coupled with declines in national box office attendance has negatively affected the operating results of the Company and many of its competitors. The exhibition industry continues to report severe liquidity concerns, defaults under credit facilities, renegotiations of financial covenants, as well as several recently announced bankruptcy filings. These industry dynamics have severely affected the Company, which continues to experience deteriorating operating results. Additionally, because the Company has funded expansion efforts over the past several years primarily from borrowings under its credit facilities, the Company's leverage has grown significantly over this time. Consequently, the Company is currently in default of certain financial covenants contained in its senior credit facilities and its equipment financing term note. Accordingly, each of these lenders has the right to accelerate the maturity of all of its outstanding indebtedness, which together totals approximately $1.02 billion. The Company does not have the ability to fund the accelerated maturity of this indebtedness. The Company has engaged financial advisers and is currently evaluating a longer-term financial plan to address various restructuring alternatives and liquidity requirements. The financial plan will provide for the closure of under-performing theatre sites, potential sales of non-strategic assets and a potential restructuring, recapitalization or a bankruptcy reorganization of the Company. In light of the Company's current financial condition, doubt exists about the Company's ability to continue operating under its existing capital structure. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or liabilities that may result from the outcome of these uncertainties, except as disclosed in Note 2 with regard to long-term debt. The Company, without audit has prepared the condensed consolidated balance sheet as of September 28, 2000, the condensed consolidated statements of operations for the three and nine month periods ended September 28, 2000 and September 30, 1999, and the condensed consolidated statements of cash flows for the nine months ended September 28, 2000 and September 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 consolidated 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. 6 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 and nine month periods ended September 28, 2000 are not necessarily indicative of the operating results for the full year. 7 2 LONG-TERM DEBT Long-term debt at September 28, 2000 and December 30, 1999, consists of the following (in thousands):

~~JUN~~SEPT. 2928, 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% 2004 103.328% 2005 101.219% 2006 101.109% 2007 and thereafter 100.000% 200,000 ~~600~~200,000 Term Loans 505,000 508,750 Revolving credit facility ~~465~~495,000 370,000 Equipment financing note payable, payable in varying quarterly 19,750 -- installments through April 1, 2005, including interest at ~~Libor~~LIBOR plus 3.25% (910.5610% at ~~June~~September 2928, 2000), collateralized by related equipment ~~19,750 --~~ Capital lease obligations, 11.5% to 14.0%, maturing in various installments through 2024 20,~~915~~463 21,311 Lease financing arrangements, 11.5%, maturing in various installments through 2019 ~~111~~155,~~392~~594 74,737 Other 3,~~973~~894 4,877 ----------- ----------- 1,~~926~~999,~~030~~701 1,779,675 Less current maturities (73,~~288~~970) (6,537) Less potentially callable debt classified as current (1,019,750) -- ----------- ----------- Total long-term obligations $ 1975,~~918,742~~981 $ 1,773,138 =========== ===========

8 CREDIT FACILITIES - 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. These 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 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 $495.0 million and $370.0 million as of September 28, 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 $235.2 million at September 28, 2000 and $237.6 million at 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 September 28, 2000 and December 30, 1999, with the balance 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 $132.3 million at September 28, 2000 and $133.7 million at December 30, 1999 with $1.35 million due annually through 2006, and the balance due in 2007. A pledge of the stock of the Company's domestic subsidiaries collateralizes the Credit Facilities. The Company's direct and indirect U.S. subsidiaries guarantee payment obligations under certain of the Credit Facilities. 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 is currently in technical default of certain financial covenants contained in the Credit Facilities. The Company is also in default of certain covenants contained in the equipment financing term note agreement ("Equipment Financing"). Therefore, each of the lenders has the ability to accelerate the maturity dates of the indebtedness, which together totals approximately $1.02 billion. The Company does not have the ability to fund the accelerated maturity of this indebtedness. Accordingly, the Company has classified the Credit Facilities and Equipment Financing as current liabilities in the accompanying balance sheet as of September 28, 2000. The Company has $600 million and $200 million of senior subordinated notes due June 1, 2008 and December 15, 2010, respectively. A technical covenant default under the Credit Facilities provides the bank syndicate the right to block any and all payments to the holders of the subordinated notes. Additionally, if the bank group exercised its option to accelerate the maturity of the indebtedness under the Company's Credit Facilities, the 9 trustee of the senior subordinated notes would have the right to accelerate the maturity of the indebtedness under the senior subordinated notes indentures. 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 Company will report a majority of the Company's construction projects for leased theatre sites in the 2000 fiscal year as on balance sheet financing. INTEREST RATE SWAPS - In September 1998, the Company entered into interest rate swap agreements for five year terms to hedge a portion of the Credit Facilities variable interest rate risk. On September 22, 2000, the Company monetized the value of all of these contracts for approximately $8.6 million. As the Company had accounted for these swaps as interest rate hedges, the gain realized from the sale has been deferred and will be amortized as a credit to interest expense over the remaining original term of these swaps (through September 2003). The current portion of this gain is included in accrued expenses and the long-term portion in other liabilities. 3 INCOME TAXES The Company periodically evaluates its deferred tax asset to determine the need for any valuation allowance that may be appropriate in light of the Company's projections for taxable income and the expiration dates of the Company's net operating loss carryforwards. Based on the results of its third quarter evaluation, the Company has recorded a $78.1 million valuation allowance to reflect the determination that a portion of the deferred tax asset may not be realized. The establishment of this valuation allowance is included in the income tax provision for the three and nine months ended September 28, 2000. The Company will continue to review this valuation allowance on a periodic basis and make adjustments as appropriate. The Company did not record a valuation allowance in the prior year. 4 CAPITAL STOCK Earnings per share information is not presented herein as the Company's shares do not trade in a public market. After the Recapitalization, the Company effected a stock split in the form of a stock dividend resulting in a price per share of $5.00, which $5.00 per share price is equivalent to the $31.00 per share consideration paid in the Merger. The Company's common shares issued and outstanding throughout the accompanying financial statements and notes reflect the retroactive effect of the Recapitalization stock split. 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 sales or dispositions of theatres. 10 Management uses the results of this analysis to determine whether impairment has occurred. The Company measures the resulting impairment loss 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:

THREE MONTHS ENDED ~~SIX~~NINE MONTHS ENDED ----------------------------- ------------------------------ ~~JUNE~~SEPTEMBER 2928, ~~JULY~~SEPTEMBER 130, ~~JUNE~~SEPTEMBER 2928, ~~JULY~~SEPTEMBER 130, 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS) Write-down of theatre property and equipment $ 120,~~022~~100 $ -- $ 121,~~749~~849 $ -- Write-off of goodwill 96,~~223~~648 -- 1219,~~754~~402 -- -------- -------- ------- -------- Total $10 26,~~245~~748 $ -- $1441,~~503~~251 $ -- ======== ======== ======= ========

THEATRE CLOSING AND LOSS ON DISPOSAL COSTS - The Company's management team continually evaluates the status of the Company's under-performing locations. During the third quarter of 2000, the Company recorded $0.4 million as the net loss on disposal of these locations as well as the write-off of certain costs incurred to develop sites, where the Company has discontinued development. In conjunction with certain closed locations, the Company has a reserve for lease termination costs of $9.6 million at September 28, 2000. 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 following is the activity in this reserve during 2000: (IN THOUSANDS)

~~(IN~~SEPTEMBER ~~THOUSANDS) JUNE 29~~28, ~~JULY 1,~~ 2000 ~~1999~~ -------- ~~-------~~Beginning ~~Supplemental~~balance ~~information~~$ on4,269 ~~cash~~Rent ~~flows:~~and ~~Interest~~other ~~paid~~termination $payments 82(11,~~000~~995) $Additional 62theatre closings 18,~~361~~935 ~~Income~~Revision ~~taxes~~in ~~paid~~prior ~~(refunds~~estimates ~~received)~~(1,563) ~~net~~-------- ~~246~~Ending (4balance $ 9,~~796)~~646 ========

Theatre properties owned by the Company, that were closed during the third 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

~~THREE~~(IN ~~MONTHS~~THOUSANDS) ~~ENDED~~SEPTEMBER ~~SIX MONTHS ENDED -------------------- -------------------- JUNE 29~~28, ~~JULY~~SEPTEMBER 130, ~~JUNE 29, JULY 1,~~ 2000 1999 ~~2000 1999~~ -------- ------- -~~-------~~ ~~-------~~Supplemental ~~REVENUES:~~information Admissions 68.0 66.6 67.6 66.7 Concessions 27.7 28.0 27.7 28.0 Other operating revenue 4.3 5.4 4.7 5.3 ----- ----- ----- ----- Total revenues 100.0 100.0 100.0 100.0 ----- ----- ----- ----- OPERATING EXPENSES: Film rental and advertising 38.6 40.2 36.4 37.5 Cost of concessions and other 4.3 4.5 4.3 4.6 Theatre operating expenses 39.9 35.6 41.9 38.5 General and administrative 3.0 3.2 3.2 3.5 Depreciation and amortization 8.1 8.1 8.6 8.8 Theatre closing costs 3.4 0.0 2.5 0.0 Loss on ~~disposal~~cash of operating assets (0.1) 0.0 0.1 0.0 Loss on impairment of fixed assets 3.8 0.0 2.9 0.0 ----- ----- ----- ----- Total operating expenses 101.0 91.6 99.9 92.9 ----- ----- ----- ----- OPERATING INCOME (LOSS) (1.0) 8.4 0.1 7.1 OTHER INCOME (LOSS)flows: Interest ~~expense~~paid ~~(15.7)~~$108,118 ~~(12.7)~~$ ~~(16.3)~~77,805 ~~(13.8)~~Income ~~Interest~~taxes ~~income~~paid ~~0.1 0.1 0.1 0.1 Other 0.0 0.0 0.0 0.0 ----- ----- ----- ----- LOSS BEFORE INCOME TAXES~~ (~~16.6)~~refunds ~~(4.2~~received), ~~(16.1)~~net ~~(6.6)~~214 ~~BENEFIT FROM INCOME TAXES 5.6 1.4 5.4 2.2 ----- ----- ----- ----- NET LOSS~~ (~~11.0) (2.8) (10.7) (~~4.4,815) ~~===== ===== ===== =====~~

NONCASH TRANSACTIONS: SEPTEMBER 28, 2000: Pursuant to EITF 97-10, the Company recorded lease financing arrangements and net assets of $83.0 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. 11 ITEM 2. 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. (the "Company") should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included herein. 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, and rebates from concession vendors. 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 September 28, 2000, approximately 10.0% 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. 12 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.

~~Item~~THREE ~~Description~~MONTHS ENDED NINE MONTHS ENDED ------------------------------ ----------------------------- SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30, 2000 1999 2000 1999 ------ ------ ------ ------ REVENUES: Admissions 67.7 67.3 67.7 66.9 Concessions 27.2 27.6 27.5 27.8 Other operating revenue 5.1 5.1 4.8 5.3 ------ ------ ------ ------ Total revenues 100.0 100.0 100.0 100.0 ------ ------ ------ ------ OPERATING EXPENSES: Film rental and advertising 37.7 37.6 36.9 37.5 Cost of concessions and other 4.5 4.0 4.4 4.0 Theatre operating expenses 37.4 33.0 40.2 36.6 General and administrative 3.3 2.8 3.3 3.2 Depreciation and amortization 7.9 7.5 8.3 8.6 Theatre closing costs 2.8 -- 2.6 -- Loss on disposal of operating assets 0.1 -- 0.1 -- Loss on impairment of fixed assets 8.5 -- 5.0 -- ------ ------ ------ ------ Total operating expenses 102.2 84.9 100.8 89.9 ------ ------ ------ ------ OPERATING INCOME (27LOSS) ~~Financial~~(2.2) ~~Data~~15.1 ~~Schedule~~(0.8) 10.1 OTHER INCOME (~~for~~LOSS): ~~SEC~~Interest ~~use~~expense ~~only~~(15.0) (11.2) (15.8) (12.4) Interest income 0.2 -- 0.2 -- Other -- -- -- -- ------ ------ ------ ------ INCOME (LOSS) BEFORE INCOME TAXES (17.0) 3.9 (16.4) (2.3) BENEFIT (PROVISION) FROM INCOME TAXES (18.9) (2.1) (3.9) 0.5 ------ ------ ------ ------ NET INCOME (LOSS) (35.9) 1.8 (20.3) (1.8) ====== ====== ====== ======

13 THREE MONTHS ENDED SEPTEMBER 28, 2000 AND SEPTEMBER 30, 1999 TOTAL REVENUES - Total revenues for the third quarter of fiscal 2000 increased by 3.5% to $315.6 million from $305.0 million in the comparable 1999 period. This increase was primarily due to increased ticket prices. Box office ticket prices for the third quarter of 2000 averaged $5.50, which was 10.0% higher than the $5.00 average ticket price in the third quarter of 1999. Average concession prices also were higher in the third quarter of 2000 ($2.21) versus the third quarter in 1999 ($2.04). The higher prices per admission increased revenue by $27.3 million which offset the effect of lower attendance in the third quarter of 2000 (38.9 million admissions) as compared to the 1999 period (41.1 million admissions) which produced a revenue shortfall of $16.8 million. DIRECT THEATRE COSTS - Direct theatre costs increased by 10.4% to $251.1 million in the third quarter 2000 from $227.5 million in the third quarter of 1999. Direct theatre costs as a percentage of total revenues increased to 79.6% in the 2000 period from 74.6% in the 1999 period. The increase was primarily attributable to increased film costs ($4.7 million), occupancy ($3.6 million), rent costs ($7.6 million), and other operating costs ($5.1 million). The increases primarily resulted from the additional theatre locations opened by the Company in the last twelve months as well as the decline in attendance in the 2000 period as compared to the 1999 period. GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative expenses increased by 20.6% to $10.4 million in the third quarter of 2000 from $8.7 million in the third quarter 1999. As a percentage of total revenues, general and administrative expenses increased to 3.3% in the 2000 period from 2.8% in the 1999 period. The increase was due to approximately $2.0 million in additional legal and professional fees relating to the Company's restructuring efforts. DEPRECIATION AND AMORTIZATION - Depreciation and amortization expense increased in the third quarter of 2000 by 8.9% to $24.8 million from $22.8 million in the third quarter of 1999. The increase is due to the additional depreciation resulting from the Company's expansion efforts offset by the effects of asset write-offs due to theatre closing and asset impairment. OPERATING INCOME (LOSS) - Operating income (loss) for the third quarter 2000 decreased to $(6.8) million from $46.1 million in the third quarter 1999. The decrease is primarily due to theatre closing and impairment charges together totaling $35.6 million. INTEREST EXPENSE - Interest expense in the third quarter of 2000 was $47.2 million up from $34.1 million in the third quarter of 1999. The increase is primarily due to higher average borrowings as well as increased interest rates. INCOME TAXES - The provision from income taxes in the third quarter of 2000 was $59.7 million as compared to $6.5 million in the third quarter of 1999. The increase is primarily due to the establishment of a valuation allowance for a portion of the Company's deferred tax assets. NET INCOME (LOSS) - The net loss in the third quarter of 2000 was $113.3 million as compared to net income of $5.6 million in the third quarter of 1999. 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 that 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 14 location. This analysis resulted in the recording of a $26.7 million impairment charge during the third 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 third quarter of 2000, the Company recorded $0.4 million as the net loss on disposal of certain of these locations. In conjunction with certain closed locations, the Company recorded an expense for theatre closing costs of $8.8 million, including lease termination costs. The reserve for lease termination costs at September 28, 2000 of $9.6 million 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 discussion with potential sublessees and individual market conditions. NINE MONTHS ENDED SEPTEMBER 28, 2000 AND SEPTEMBER 30, 1999 TOTAL REVENUES - Total revenues for the nine-month period ending September 28, 2000 increased by 7.4% to $822.4 million from $766.1 million in the comparable period in 1999. This increase was primarily due to increased ticket prices. Box office ticket prices for the nine-month period ending September 28, 2000 averaged $5.32, which was 9.5% higher than the $4.86 average ticket price for the same period in 1999. Concession prices also were higher in the first nine months of 2000 ($2.16) versus the same period in 1999 ($2.02). The higher prices per admission increased revenue by $63.4 million. The increased per admission revenue was partially offset by lower attendance in the first nine months of 2000 (104.7 million admissions) as compared to the 1999 period (105.5 million admissions). This decrease in attendance yielded a revenue decrease of $6.0 million as compared to the 1999 period. There was also a $1.1 million shortfall of other revenue from primarily the Company's entertainment centers. DIRECT THEATRE COSTS - Direct theatre costs increased by 11.9% to $670.1 million in the nine-month period ending September 28, 2000 from $599.0 million in the corresponding period in 1999. Direct theatre costs as a percentage of total revenues increased to 81.5% in the 2000 period from 78.2% in the 1999 period. The increase was primarily attributable to increased occupancy and rent 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 8.0% to $26.7 million nine-month period ending September 28, 2000 from $24.8 million in the first nine months of 1999. As a percentage of total revenues, general and administrative expenses were 3.3% in the 2000 period and 3.2% in the 1999 period. The increase was due to approximately $2.0 million in additional legal and professional fees relating to the Company's restructuring efforts. DEPRECIATION AND AMORTIZATION - Depreciation and amortization expense increased nine-month period ending September 28, 2000 by 3.5% to $68.2 million from $65.9 million in the corresponding period of 1999. The increase is due to the additional depreciation resulting from the Company's expansion efforts offset by reduced depreciation and amortization resulting from theatre closing and asset impairment. OPERATING INCOME (LOSS) - Operating loss for the nine-month period ending September 28, 2000 was $6.3 million as compared to operating income of $76.4 million in the corresponding period in 1999. The decrease is primarily due to theatre closing and impairment charges together totaling $62.9 million. INTEREST EXPENSE - Interest expense increased during nine-month period ending September 28, 2000 to $129.8 million from $95.3 million in the corresponding period of 1999. The increase is primarily due to higher average borrowings as well as increased interest rates. INCOME TAXES - The provision from income taxes during the nine-month period ending September 28, 2000 was $32.1 million as compared to a $3.9 million benefit for the same period in 1999. The increase is due primarily to the establishment of a valuation allowance for a portion of the Company's deferred tax assets. 15 NET LOSS - The net loss for the nine-month period ending September 28, 2000 was $167.3 million as compared to $14.5 million for the first nine months of 1999. 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 that 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 $41.3 million impairment charge during the first nine months 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 nine months of 2000, the Company recorded $0.7 million as the net loss on disposal of certain of these locations. In conjunction with certain closed locations, the Company recorded an expense for theatre closing costs of $21.7 million, including lease termination costs. The reserve for lease termination costs at September 28, 2000 of $9.6 million 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 discussion with potential sublesses and individual market conditions. LIQUIDITY AND CAPITAL RESOURCES The Company derives substantially all its revenues from admission revenues and concession sales, and ancillary revenues. The Company's capital requirements have historically arisen principally due to new theatre openings, acquisitions of existing theatres, and the addition of screens to existing theatres. The Company financed these capital requirements with debt and to a lesser extent, internally generated cash. The Company's Senior Credit Facilities provided for borrowings of up to $1,005.0 million in the aggregate, consisting of the Revolving Credit Facility, which permits the Company to borrow up to $500.0 million on a revolving basis and $505.0 million, in the aggregate, of term loan borrowings under three separate term loan facilities. As of September 28, 2000, the Company did not have the ability to borrow additional amounts under these facilities. Under the Senior Credit Facilities, the Company is required to comply with certain financial and other covenants. The Company is currently in technical default of certain of these financial 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 "LIBO 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). Because of the Company's non-compliance with its Senior Credit Facilities, the Company's outstanding LIBO Rate Loans will convert to Base Rate Loans as they mature. 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 16 "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 a 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 principal aggregate amount of $75.0, which were owned by KKR and Hicks Muse. On November 10, 1998, the Company issued $200.0 million aggregate principal amount of 8 7/8% 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 an additional $200.0 million aggregate principal amount of 9 1/2 % 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. In April of 2000, the Company obtained $20.0 million of equipment financing. The Company used the proceeds to repay the Revolving Credit Facility. In addition, the Company closed $45.2 million of sale-leaseback financing during its second and third quarters of 2000. 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 $47.2 million for the three-month period ended September 28, 2000. Due to the Company's non-compliance with its Senior Credit Facilities, the lenders under the Senior Credit Facilities have the right under the indenture governing the Regal Notes and Regal Debentures to prevent the Company from making any and all payments under the Regal Notes and Regal Debentures. Accordingly, no assurance can be made as to whether the Company will be able to pay interest on the Regal Notes and Regal Debentures when such interest payments are due. As of September 28, 2000, the Company's new build program consists of 17 new theatres with 252 screens for the 2000 fiscal year. As of September 28, 2000, the Company has opened 15 theatres with 228 screens. The balance of the 2000 program is expected to be completed by the end of the Company's fourth quarter and will be funded with available cash. The 2001 capital program consists of 3 new theatres with 44 screens. However, absent additional sources of capital 17 the Company's current liquidity concerns severely impact our ability to execute the 2001 capital program. 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. Currently, under the terms of the indentures governing the Regal Notes and Regal Debentures, the Company is prohibited from incurring additional indebtedness (as defined in such indentures). The Company currently is in technical default of certain financial covenants contained in the Senior Credit Facilities and Equipment Financing (as discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements). The Company reclassified all debt outstanding under the Credit Facilities and Equipment Financing from long-term debt to current debt on the Company's financial statements because of the covenant non-compliance. See Note 2 of the Notes to Condensed Consolidated Financial Statements. As of September 28, 2000, the Company has adequate liquidity to fund all of its outstanding obligations through the remainder of the 2000 fiscal year from its available cash, excluding the long-term debt callable under covenant provisions. However, absent additional sources of capital the Company's current liquidity constraints severely impact the Company's ability to fund existing liabilities over the next 12 month period. OTHER The film exhibition industry continues to face severe financial challenges due primarily to the rapid building of state of the art theatre complexes which resulted in an unanticipated oversupply of screens. The aggressive new build strategies generated significant competition in once stable markets and rendered many older theatres obsolete more rapidly than anticipated. This effect, together with the fact that many of these now obsolete theatres are leased under long-term commitments, produced an oversupply of screens throughout the exhibition industry at a rate much quicker than the industry could effectively handle. The industry overcapacity coupled with declines in national box office attendance has negatively impacted the operating results of the Company and many of its competitors. Domestic attendance levels have not increased on a level with the unprecedented growth in domestic screens. Box office and concession revenues have increased due to increased prices; however, higher occupancy costs due to higher average number of screens per location have partially offset the beneficial effect of the higher prices. In addition, film costs to movie studios have increased due to shorter run times caused by the oversupply of screens compared to the flat level of released films. The cannibalization of older theatres, combined with the under-performance of many new theatres have put pressure on industry-wide operating results, operating margins, and certain covenant requirements under bank facilities. The exhibition industry continues to report severe liquidity concerns, defaults under credit facilities, renegotiations of financial covenants, as well as several recently announced bankruptcy filings. These industry dynamics have severely effected the Company, which continues to experience deteriorating operating results. Additionally, because the Company funded expansion efforts over the past several years primarily from borrowings under its credit facilities, the Company's leverage has grown significantly over this time. Consequently, the Company is currently in default of certain financial covenants contained in its senior credit facilities and its equipment financing term note. Accordingly, each of these lenders has the right to accelerate the maturity of all of its outstanding indebtedness, which together totals approximately $1.02 billion. The Company does not have the ability to fund the accelerated maturity of this indebtedness. 18 The Company has engaged financial advisers and is currently evaluating a longer-term financial plan to address various restructuring alternatives and liquidity requirements. The potential financial plan will provide for the closure of under-performing theatre sites, potential sales of non-strategic assets and a potential restructuring, recapitalization or a bankruptcy reorganization of the Company. In light of the Company's current financial condition, doubt exists about the Company's ability to continue operating under its existing capital structure. The Company anticipates it will incur significant legal and professional fees and other restructuring costs due to the ongoing restructuring of its business operations throughout the remainder of 2000 and during 2001. 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 $83.0 million of such leases as capital leases during 2000. The application of the provisions of EITF Issue No. 97-10 has resulted in payments of $11.5 million that would have been shown as rent expense absent this pronouncement. 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. SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", released in December 1999 provides guidance for applying generally accepted accounting principles to selected revenue recognition issues. The implementation of SAB No. 101 is required no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company does not expect the application of SAB No. 101 to have a material impact on the Company's financial statements. 19 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. 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. 20 ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE SENSITIVITY During the third quarter, the Company monetized interest rate swap agreements that had effectively converted $250.0 million of LIBOR floating rate debt to fixed rate obligations with an interest rates of 5.32%. At September 28, 2000, Regal maintained an interest rate swap agreement that converts $20.0 million of LIBOR floating rate debt to a fixed rate obligation with an interest rate of 7.32% maturing in March 2003. Regal continually monitors its position and credit rating of the interest swap counterparty. The fair value of the remaining interest rate swap agreement is estimated based on quotes from dealers of these instruments and represent the estimated amount the Company would expect to (pay) or receive to terminate the agreement. The fair value of the Company's interest rate swap agreement at September 28, 2000 was $(0.2) million. 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: (27) Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K. During the third quarter of fiscal 2000 ended September 28, 2000, 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: November 13, 2000 By: /s/ Michael L. Campbell Michael L. Campbell, Chairman, President and Chief Executive Officer By: /s/ Amy Miles Executive Vice President and Chief Financial Officer Exhibit Index Item Description ---- ----------- (27) Financial Data Schedule (for SEC use only).

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