<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  ------------

                                    FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

For the fiscal year ended January 1, 1998
                                                  Commission file number 0-21772


                               REGAL CINEMAS, INC.
             (Exact name of registrant as specified in its charter)


            Tennessee                                  62-1412720
---------------------------------        --------------------------------------
  (State or other jurisdiction           (I.R.S. employer identification number)
of incorporation or organization)

      7132 Commercial Park Drive
         Knoxville, Tennessee                                37918
----------------------------------------         ------------------------------
(Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (423) 922-1123

       Securities registered pursuant to Section 12(b) of the Act:  None

          Securities registered pursuant to Section 12(g) of the Act:

                      Common Stock, no par value per share
             ---------------------------------------------------------
                                (Title of class)


         Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X   No
                                               ---     ---
         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant on March 25, 1998, was $976,000,000 approximately. The market
value calculation was determined using the closing sale price of the
Registrant's common stock on March 25, 1998, as reported on The Nasdaq Stock
Market's National Market.

Shares of common stock, no par value per share, outstanding on March 17, 1998,
were 36,119,028.



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                               REGAL CINEMAS, INC.
                             FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                              Page
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<S>                                                                           <C>
PART I..........................................................................1
         Item 1. Business.......................................................1
              Strategy..........................................................1
              Theatre Operations................................................3
              Film Licensing....................................................4
              Complementary Concepts............................................6
              Industry Overview.................................................6
              Competition.......................................................7
              Regulation........................................................8
              Employees.........................................................8
              Recent Developments...............................................8
              Risk Factors......................................................9
         Item 2. Properties....................................................11
         Item 3. Legal Proceedings.............................................11
         Item 4. Submission of Matters to a Vote of Security-Holders...........11

PART II........................................................................12
         Item 5. Market for the Registrant's Common Equity and Related
                   Shareholder Matters.........................................12
         Item 6. Selected Financial Data.......................................12
         Item 7. Management's Discussion and Analysis of Financial
                   Condition and Results of Operations.........................14
              Overview.........................................................14
              Background of Regal..............................................14
              Results of Operations............................................14
              Fiscal Years Ended January 1, 1998 and January 2, 1997...........16
              Fiscal Years Ended January 2, 1997 and December 28, 1995.........16
              Liquidity and Capital Resources..................................17
              Recent Developments..............................................19
              New Accounting Pronouncements....................................19
         Item 8. Financial Statements and Supplementary Data...................19
              Index to Financial Statements....................................19
         Item 9. Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure.........................41

PART III.......................................................................42
         Item 10. Directors and Executive Officers of the Registrant...........42
         Item 11. Executive Compensation.......................................44
         Item 12. Security Ownership of Certain Beneficial
                    Owners and Management......................................49
         Item 13. Certain Relationships and Related Transactions...............50

PART IV........................................................................51
         Item 14. Exhibits, Financial Statement Schedules and
                    Reports on Form 8-K........................................51

SIGNATURES.....................................................................54

INDEX TO EXHIBITS..............................................................55
</TABLE>


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                               REGAL CINEMAS, INC.

                                     PART I


ITEM 1. BUSINESS

         Regal Cinemas, Inc. ("Regal" or the "Company") is the second largest
motion picture exhibitor in the United States based on screens in operation. At
January 1, 1998, the Company operated 256 multiplex theatres with an aggregate
of 2,306 screens in 22 states. Since inception, Regal has increased its average
screens per location from 4.8 to 9.0 screens, which management believes is among
the highest in the industry, as compared to the average of approximately 6.2
screens for the five largest motion picture exhibitors at May 1, 1997. The
Company has also achieved substantial growth in revenues and EBITDA. For the
fiscal year ended January 1, 1998, the Company generated revenue and EBITDA
(excluding nonrecurring merger costs) of approximately $479 million and $111
million, respectively. As a result of the Company's focus on increasing
operating efficiencies and on strict cost controls, Regal has increased its
margins each year, achieving what management believes are the highest operating
margins in the motion picture exhibition industry. From 1992 to 1997, operating
margins increased from 7.7% to 16.8%. As of January 1, 1998, the Company had a
total equity market capitalization of approximately $1.0 billion.

         The Company was incorporated under the laws of the State of Tennessee
in November 1989. The Company's principal offices are located at 7132 Commercial
Park Drive, Knoxville, Tennessee 37918, and its telephone number is (423)
922-1123.

STRATEGY

         OPERATING STRATEGY. Management believes the following characteristics
are the key elements of its operating strategy:

         -   Multiplex Theatres. Management believes that the Company's
             multiplex theatres, substantially all of which show first-run
             movies, promote increased attendance and maximize operating
             efficiencies through reduced labor costs and improved utilization
             of theatre capacity. The Company's multiplex theatres enable it to
             offer a diverse selection of films; stagger movie starting times;
             increase management's flexibility in determining the number of
             weeks that a film will run and the size of the auditorium in which
             it is shown; and serve patrons from common support facilities.

        -    Cost Control. The Company's tight cost control drives its operating
             margins, which management believes are the highest in the movie
             exhibition industry. Management's focus on cost control extends
             from theatre development through operation of the Company's
             theatres. Management believes that it is able to reduce
             construction and operating costs by designing prototype theatres
             adaptable to a variety of locations and by actively supervising
             all aspects of construction. In addition, through the use of
             detailed daily management reports, the Company closely monitors
             theatre level costs. A significant component of theatre level
             management's compensation is based on controlling operating
             expenses at the theatre level. The shifting of films to smaller
             auditoriums within a theatre to accommodate changing attendance
             levels allows the Company to exhibit films on a more cost effective
             basis.

        -    Patron Satisfaction/Quality Control. Regal emphasizes conveniently
             located, modern, high quality facilities that offer a wide variety
             of films. To maintain quality and consistency within



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             the Company's theatres, Regal conducts regular inspections of each
             theatre and operates a "mystery shopper" program. To enhance the
             movie going experience, the Company invests in high quality
             projection and stereo sound equipment, including the latest digital
             surround-sound systems. As of January 1, 1998, the Company had 68%
             of its theatres equipped with digital surround-sound systems.

        -    Centralized Corporate Decision Making/Decentralized Operations.
             Functions centralized through the Company's corporate office
             include film licensing and concession purchasing, as well as
             decisions on theatre construction and configuration. Cost controls
             at the theatre level include close monitoring of concession,
             advertising and payroll expenses. Regal devotes significant
             resources to training its theatre managers, who are responsible for
             most aspects of its theatres' day-to-day operations.

        -    Marketing. Regal actively markets its theatres through grand
             opening promotions, including "VIP" preopening parties, direct mail
             campaigns, television commercials in certain markets and
             promotional activities, such as live music, spotlights and
             skydivers, which frequently generate media coverage. Regal also
             utilizes special marketing programs for specific films and
             concession items. Regal develops patron loyalty through a number of
             marketing programs such as a summer children's film series in which
             children's films are shown at reduced rates during the morning
             hours.

        -    Performance-based Compensation Packages. The Company maintains an
             incentive program for its corporate personnel, district managers
             and theatre managers which rewards employees for incremental
             improvements in profitability. The Company believes that its
             incentive program, which consists of cash bonuses and stock
             options, aligns the employees' interests with those of the
             Company's shareholders.

         GROWTH STRATEGY. Management believes that the following characteristics
are the key elements of its growth strategy:

         -   Develop New Theatres in Existing and Target Markets. At January 1,
             1998, the Company had approximately 500 new screens under
             construction and currently plans to open 500 to 600 screens
             during 1998. Regal will seek to develop multiplex theatres with
             at least ten screens in both its existing markets and in other
             mid-sized metropolitan markets and suburban growth areas of
             larger metropolitan markets in the United States. Management also
             seeks to locate theatres in areas that are underscreened or that
             are served by aging theatre facilities. Regal targets theatre
             locations with high visibility and convenient roadway access in
             geographic film licensing zones in which it will be the sole
             exhibitor. Regal continually reviews potential sites for theatres,
             including both new construction and the conversion of existing
             retail space.

         -   Add Screens to Existing Theatres. To enhance profitability and
             maintain competitiveness at existing theatres, the Company will
             continue to add additional screens where appropriate. The Company
             currently has nine screens under construction at existing theatre
             facilities and anticipates the addition of 50 to 60 screens to
             certain of its theatres over the next 12 to 24 months. The addition
             of screens to existing theatres is designed not to disrupt
             operations at the theatres.

         -   Acquire Theatres. While management believes that a significant
             portion of its future growth will come through the development of
             new theatres, Regal will continue to consider strategic
             acquisitions of complementary theatres or theatre circuits at which
             Regal can improve


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             profitability and increase screen counts. Since its inception
             through January 1, 1998, Regal has acquired a net of 188 theatres
             with 1,503 screens, which has served to establish and enhance the
             Company's presence in selected geographic markets.

         -   Develop Complementary Theatre Concepts. To complement the Company's
             theatre development, Regal opened its FunScape(TM) family
             entertainment centers in Chesapeake, Virginia, Rochester, New
             York, Syracuse, New York, Brandywine, Delaware and Fort
             Lauderdale, Florida. The Company currently has two additional
             FunScapes(TM) under construction and may seek to develop
             additional FunScape(TM) complexes at strategic locations. Regal
             signed an agreement to include IMAX 3-D theatres in ten new
             multiplex theatre projects over the next five years. Management
             believes that theatres with IMAX 3-D will draw higher traffic
             levels than theatres without them.

THEATRE OPERATIONS

         As of January 1, 1998, Regal operated 256 multiplex theatres with an
aggregate of 2,306 screens in 22 states. Since inception, Regal has increased
its average screens per location from 4.8 to 9.0 screens, as compared to the
average of approximately 6.2 screens for the five largest domestic motion
picture exhibitors at May 1, 1997. Multiplex theatres enable the Company to
offer a wide selection of films attractive to a diverse group of patrons
residing within the drawing area of a particular theatre complex. Varied
auditorium seating capacities within the same theatre enable the Company to
exhibit films on a more cost effective basis for a longer period of time through
the shifting of films to smaller auditoriums to meet changing attendance levels.
In addition, operating efficiencies are realized through the economies of having
common box office, concession, projection, lobby and rest room facilities, which
enable the Company to spread certain costs, such as payroll, advertising and
rent, over a higher revenue base. Staggered movie starting times also minimize
staffing requirements, reduce lobby congestion and contribute to more desirable
parking and traffic flow patterns.

         Regal has designed prototype theatres, adaptable to a variety of
locations, which management believes result in construction and operating cost
savings. Regal's multiplex theatre complexes, which typically contain
auditoriums ranging from 100 to 500 seats each, feature wall-to-wall screens,
digital stereo surround-sound, multi-station concessions, computerized ticketing
systems, plush seating with cup holders, neon-enhanced interiors and exteriors,
and video game areas adjacent to the theatre lobby. In addition, the Company has
a continuing program to maintain clean, comfortable and modern facilities.
Management believes that maintaining a theatre circuit consisting primarily of
modern multiplex theatres also enhances the Company's ability to license
commercially successful modern films from distributors.
See "Film Licensing."

         Functions centralized at the Company's corporate office include site
selection, lease negotiation, theatre design and construction, coordination of
film selection, concession purchasing, advertising and financial and accounting
activities. Regal's theatre operations are under the supervision of its Chief
Operating Officer and are divided into two geographic divisions, each of which
is headed by a Vice President supervising several district theatre supervisors.
The district theatre supervisors are responsible for implementing Company
operating policies and supervising the managers of the individual theatres, who
are responsible for most of the day-to-day operations of the Company's theatres.
Regal seeks theatre managers with experience in the motion picture exhibition
industry and requires all new managers to complete a training program at
designated training theatres. The program is designed to encompass all phases of
theatre operations, including the Company's philosophy, management strategy,
policies, procedures and operating standards.



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         Management closely monitors the Company's operations and cash flow
through daily reports generated from computerized box office terminals located
in each theatre. These reports permit the Company to maintain an accurate and
immediate count of admissions by film title and show times and provide
management with the information necessary to effectively and efficiently manage
the Company's theatre operations. To maintain quality and consistency within the
Company's theatre circuit, the district supervisors regularly inspect each
theatre and the Company operates a "mystery shopper" program, which involves
unannounced visits by unidentified customers who report on the quality of
service, film presentation and cleanliness at individual theatres. Regal has an
incentive compensation program for theatre level management which rewards
managers for controlling theatre level operating expenses while complying with
the Company's operating standards.

         In addition to revenues from box office admissions, Regal receives
revenues from concession sales and video games located adjacent to the theatre
lobby. Concession sales constituted 28.6% of total revenues for fiscal 1997.
Regal emphasizes prominent and appealing concession stations designed for rapid
service and efficiency. Although popcorn, candy and soft drinks remain the best
selling concession items, the Company's theatres offer a wide range of
concession choices. Regal continually seeks to increase concession sales through
optimizing product mix, introducing special promotions from time to time and
training staff to cross sell products. In addition to traditional concession
stations, certain of the Company's existing theatres and theatres currently
under development feature specialty concession cafes serving items such as
cappuccino, fruit juices, cookies and muffins, soft pretzels and yogurt.
Management negotiates directly with manufacturers for many of its concession
items to ensure adequate supplies and to obtain competitive prices.

         Regal relies upon advertisements including movie schedules published in
newspapers to inform its patrons of film selections and show times. Newspaper
advertisements are typically displayed in a single grouping for all of the
Company's theatres located in the newspaper's circulation area. Primary multi-
media advertising campaigns for major film releases are carried out and paid for
by the film distributors.

         The Company conducts marketing efforts throughout the year to promote
specific films, concession items and its theatre complexes. Regal markets its
new theatres through grand opening promotions, including "VIP" preopening
parties, direct mail campaigns, radio and television commercials in certain
markets and promotional activities such as live music, spotlights and skydivers,
which frequently generate media coverage. Regal's theatres also exhibit previews
of coming attractions and films presently playing on the Company's other screens
in the same market area.

         Regal operates 31 theatres with an aggregate of 197 screens, which
exhibit second run movies and charge lower admission prices (typically $1.50).
These movies are the same high quality features shown at all of Regal's
theatres. The terminology "second run" is an industry term for the showing of
movies after the film has been shown for varying periods of time at other
theatres. Regal believes that the increased attendance resulting from lower
admission prices and the lower film rental costs of second run movies compensate
for the lower admission prices and slightly higher operating costs as a
percentage of admission revenues at the Company's discount theatres. The design,
construction and equipment in the Company's discount theatres are of the same
high quality as its first run theatres. Regal's discount theatres generate
theatre level cash flows similar to Regal's first run theatres. Management does
not anticipate a significant increase in the percentage of discount theatres in
its theatre circuit.

FILM LICENSING

         Regal licenses films from distributors on a film-by-film and
theatre-by-theatre basis. Film buyers negotiate directly with film distributors
on behalf of the Company. Prior to negotiating for a film license,



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the Company and its film buyers evaluate the prospects for upcoming films.
Criteria considered for each film include cast, director, plot, performance of
similar films, estimated film rental costs and expected Motion Picture
Association of America rating. Successful licensing depends greatly upon the
exhibitor's knowledge of trends and historical film preferences of the residents
in markets served by each theatre, as well as on the availability of
commercially successful motion pictures.

         Films are licensed from film distributors owned by major film
production companies and from independent film distributors that generally
distribute films for smaller production companies. Film distributors typically
establish geographic film licensing zones and allocate each available film to
one theatre within that zone. Film zones generally encompass a radius of three
to five miles in metropolitan and suburban markets, depending primarily upon
population density. Regal believes that approximately 74% of its theatres are
now located in film licensing zones in which they are now the sole exhibitors,
permitting the Company to exhibit many of the most commercially successful films
in these zones.

         In film zones where Regal is the sole exhibitor, the Company obtains
film licenses by selecting a film from among those offered and negotiating
directly with the distributor. In film zones where there is competition, a
distributor will either require the exhibitors in the zone to bid for a film or
will allocate its films among the exhibitors in the zone. When films are
licensed under the allocation process, a distributor will choose which exhibitor
is offered a movie and then that exhibitor will negotiate film rental terms
directly with the distributor for the film. Over the past several years,
distributors have generally used the allocation rather than bidding process to
license their films. When films are licensed through a bidding process,
exhibitors compete for licenses based upon economic terms. Regal currently does
not bid for films in any of its markets, although it may be required to do so in
the future. Although Regal predominantly licenses "first run" films, if a film
has substantial remaining potential following its first run, the Company may
license it for a second run. Film distributors establish second run availability
on a national or market-by-market basis after the release from first run
theatres.

         Film licenses entered into in either a negotiated or bidding process
typically specify rental fees based on the higher of a gross receipts formula or
theatre admissions revenue formula. Under a gross receipts formula, the
distributor receives a specified percentage of box office receipts, with the
percentage declining over the term of the film run. First run film rental fees
may begin at up to 70% of admission revenues and gradually decline to as low as
30% over a period of four to seven weeks. Second run film rental fees typically
begin at 35% of admission revenues and often decline to 30% after the first
week. Under a theatre admissions revenue formula, the distributor receives a
specified percentage of the excess of admission revenues over a negotiated
allowance for theatre expenses. In addition, Regal is occasionally required to
pay non-refundable guarantees of film rental fees or to make refundable advance
payments of film rental fees or both in order to obtain a license for a film.
Rental fees actually paid by the Company generally are adjusted subsequent to
the exhibition of a film in a process known as settlement. The commercial
success of a film relative to original distributor expectations is the primary
factor taken into account in the settlement process; secondarily, the past
performance of other films in a specific theatre is a factor. To date, the
settlement process has not resulted in material adjustments in the film rental
fees accrued by the Company.

         Regal's business is dependent upon the availability of marketable
motion pictures and its relationships with distributors. Many distributors
provide quality first run movies to the motion picture exhibition industry;
however, eight distributors accounted for approximately 91% of industry
admission revenues during 1997, and 47 of the top 50 grossing films. No single
distributor dominates the market. Disruption in the production of motion
pictures by the major studios and/or independent producers or lack of commercial
success of motion pictures would have a material adverse effect upon the
Company's business. Regal licenses films from each of the major distributors and
believes that its relationship with


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distributors are good. From year to year, the revenues attributable to
individual distributors will vary widely depending upon the number and quality
of films each distributes. Based on industry statistics, Regal believes that in
1997 no single distributor accounted for more than 21% of the films licensed by
the Company, or films producing more than 21% of the Company's admission
revenues.

COMPLEMENTARY CONCEPTS

         ENTERTAINMENT CENTERS.

         To complement the Company's theatre development, Regal developed and
operates its FunScape(TM) entertainment complexes which are designed to increase
both the drawing radius for patrons and patron spending by offering a wider
array of entertainment options at a single destination. Regal currently operates
FunScapes(TM) in Chesapeake, Virginia, Rochester, New York, Syracuse, New York,
Brandywine, Delaware and Fort Lauderdale, Florida. Each complex, includes a 13
to 16 screen theatre and a 50,000 to 70,000 square foot family entertainment
center. Each theatre facility exhibits first run films, is equipped with the
latest Dolby and DTS digital sound systems, and features an oversized lobby with
two concession stands and a specialty cafe. A food court connects the theatres
to the entertainment center and features nationally recognized brand name pizza,
taco, sandwich and dessert restaurants.

         The entertainment center generally will feature a 36-hole,
tropical-themed miniature golf course, a children's soft play and exercise area,
multi-level laser tag, video batting cages, a video golf course, helmet type and
motion simulator virtual reality units and a high-tech video arcade. In
addition, the center contains eight party rooms for various social gatherings.
The two level family entertainment center is totally enclosed and under roof for
year-round operation.

         Each theatre and entertainment center totals approximately 95,000 to
140,000 square feet and management believes the facility is a comprehensive
entertainment destination. The Company currently has two additional FunScape(TM)
complexes under construction and may seek to develop additional FunScape(TM)
complexes at strategic locations. The $5.0 million to $10.0 million estimated
cost of construction of the entertainment center is comparable to the cost of
constructing the adjacent theatre complex. The Company is financing the
construction of the entertainment centers and the attached theatre facility
through cash flow from operations and borrowings available under its credit
facility.

         IMAX 3-D THEATRES.

         The Company has signed an agreement to include IMAX 3-D theatres in ten
new multiplex theatre projects over the next five years. Management believes
that the Company's theatres with IMAX 3-D, which will contain highly automated
projection systems and specialized sound systems, will draw higher traffic
levels than theatres without them.

INDUSTRY OVERVIEW

         The domestic motion picture exhibition industry is comprised of
approximately 360 exhibitors, 122 of which operate ten or more total screens. At
May 1, 1997, the five largest exhibitors operated approximately 37% of the total
screens in operation with no one exhibitor operating more than 10% of the total
screens. From 1986 through 1997 the net number of screens in operation in the
United States increased from approximately 22,000 to approximately 29,000, and
admissions revenues increased from approximately $3.8 billion to approximately
$6.2 billion. In an effort to realize greater operating efficiencies, operators
of multi-theatre circuits have emphasized the development of larger multiplex
complexes.


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         Theatrical motion picture exhibition is the initial way most films are
made available to the public to see. Management believes that forms of home
entertainment, such as cable television, video cassettes and pay per view, have
not adversely affected theatre admissions or the number of films released for
theatrical exhibition. Overall attendance has remained relatively stable over
the past five years, with no single year varying more than approximately 15%
from the industry average of 1.34 billion during that period. Management
believes the number of films released for theatrical exhibition will remain
relatively stable or increase because a film's initial theatrical exhibition
success establishes the value of the film throughout its life cycle in ancillary
markets.

         In recent years, there has been an increasing consolidation of the
major film production companies. During 1997, films distributed by the eight
largest film production companies accounted for approximately 91% of the
domestic admissions revenues and included 47 of the top 50 grossing films. Films
are licensed through film distributors, who typically establish geographic film
licensing zones and allocate each available film to one theatre within that
zone. See "Film Licensing."

         Historically, the motion picture exhibition industry has experienced
some seasonality, as major film distributors have generally released the films
expected to have the greatest commercial appeal during the summer and the
Thanksgiving through year-end holiday season. 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.

COMPETITION

         The motion picture exhibition industry is highly competitive,
particularly in licensing aspects of films, attracting patrons and finding new
theatre sites. Theatres operated by national and regional circuits and by
smaller independent exhibitors compete with the Company's theatres. Regal
believes that the principal competitive factors in the motion picture exhibition
industry include licensing terms, the seating capacity, location and reputation
of an exhibitor's theatres, the quality of projection and sound equipment at the
theatres and the exhibitor's ability and willingness to promote the films.
Competition for patrons is dependent upon factors such as the availability of
popular films, the location of theatres, the comfort and quality of theatres and
ticket prices. Failure to compete favorably with respect to any of these factors
could have a material adverse effect on the Company's business and results of
operations.

         There are approximately 360 participants in the domestic motion picture
exhibition industry. Industry participants vary substantially in size, from
small independent operators of a single screen theatre to large national chains
of multiplex theatres affiliated with entertainment conglomerates. Many of the
Company's competitors have been in existence significantly longer than Regal and
may be better established in certain of the markets where the Company's theatres
are located.

         Other theatre operators also have sought to increase the number of
theatres and screens in operation. Such increases may cause certain local
markets or portions thereof to become over screened, resulting in a negative
impact on the earnings of the theatres involved and thus on the Company's
theatres in those markets. Concurrent with the increase in the number of
screens, there has been a reduction in the number of theatre locations and a
consolidation among exhibitors. At May 1, 1997, the five largest motion picture
exhibition companies operated approximately 37% of the total screens, the
largest of which operated less than 10% of the total screens.

         The motion picture exhibition industry faces competition from a number
of motion picture exhibition delivery systems. In recent years alternative
delivery systems, including cable television, video cassettes and pay per view,
have been developed for the exhibition of filmed entertainment. While the



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impact of such delivery systems on movie theatres is difficult to determine
precisely, there can be no assurance that they will not adversely impact
attendance at the Company's theatres. Movie theatres also face competition from
other forms of entertainment competing for the public's leisure time and
disposable income.

REGULATION

         The distribution of motion pictures is in large part regulated by
federal and state antitrust laws and has been the subject of numerous antitrust
cases. Regal has never been a party to any of such cases, but the manner in
which it can license films is subject to consent decrees resulting from these
cases. Consent decrees which predate the formation of the Company, bind certain
major film distributors and require the films of such distributors to be offered
and licensed to exhibitors, including the Company, on a theatre-by-theatre
basis. Consequently, exhibitors cannot assure themselves of a supply of films by
entering into long-term arrangements with major distributors, but must negotiate
for licenses on a film-by-film and theatre-by-theatre basis.

         The Company believes that it is in substantial compliance with all
current applicable regulations relating to accommodations for the disabled.
Regal intends to comply with future regulations in that regard, and the Company
does not currently anticipate that compliance will require the Company to expend
substantial funds.

         Regal's theatre operations are also subject to federal, state and local
laws governing such matters as wages, working conditions, citizenship, and
health and sanitation requirements and licensing. Approximately 52.3% of the
Company's employees are paid at the federal minimum wage and, accordingly, the
minimum wage largely determines the Company's labor costs for those employees.

EMPLOYEES

         As of fiscal year end 1997, Regal employed 7,605 persons, of which
1,073 were full-time and 6,532 were part-time employees. Of the Company's
employees, 191 are corporate personnel, 1,081 are theatre management personnel
and the remainder are hourly theatre personnel. Film projectionists at 14 of the
Company's theatres in the Cleveland and Youngstown, Ohio markets are represented
by the International Alliance of Theatrical Stage Employees and Moving Picture
Machine Operators of the United States and Canada pursuant to collective
bargaining agreements. These collective bargaining agreements expired over
various periods through March 3, 1998. Regal's expansion into new markets may
increase the number of employees represented by unions. Regal considers its
employee relations to be good.

RECENT DEVELOPMENTS

         Regal has entered into an Agreement and Plan of Merger as of January
19, 1998 (the "Merger Agreement"), among Screen Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of KKR 1996 Fund L.P. (the "KKR
Fund"), Monarch Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Hicks, Muse, Tate & Furst Equity Fund III, L.P. (the "HTMF Fund"
and together with the KKR Fund, the "Funds"), and the Company. Pursuant to and
subject to the terms and conditions of the Merger Agreement, Screen Acquisition
Corp. and Monarch Acquisition Corp. will be merged with and into the Company
(the "Merger") and the Company will continue after the Merger as a corporation
owned by the Funds (the "Surviving Corporation"). Each share of the Company's
Common Stock will be converted into the right to receive $31.00 in cash from the
Surviving Corporation.




                                        8

<PAGE>   11



         The proposed Merger is subject to termination or expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), approval by Company shareholders, the obtaining of necessary
financing to consummate the Merger and certain other conditions. The waiting
period under the HSR Act expired on March 1, 1998.

RISK FACTORS

         This Form 10-K 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-K, including, without
limitation, certain statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" 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 following risk factors (the "Cautionary
Statements"). All forward-looking statements are expressly qualified in their
entirety by the Cautionary Statements.

         Expansion Plans. The Company's growth strategy involves the development
of new theatres. The Company intends to open approximately 500 to 600 screens
during 1998. The Company expects that the capital expenditures in connection
with its expansion plan will aggregate approximately $225 million to $250
million during 1998. The Company's ability to open theatres on a timely and
profitable basis is subject to various contingencies, some of which are beyond
the Company's control. There is significant competition in the United States for
site locations from both theatre companies and other businesses. There can be no
assurance that the Company will be able to obtain attractive theatre sites,
negotiate acceptable lease terms, build theatres on a timely and cost-effective
basis, hire, train and retain skilled managers and personnel and obtain adequate
capital resources. There can be no assurance that the Company will achieve its
planned expansion or that new theatres will achieve levels of profitability
comparable to the Company's existing theatres. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "-- Strategy" and "-- Competition."

         Acquisition Risks. The Company's growth strategy also may involve the
acquisition of additional theatres and/or theatre companies. There can be no
assurance that the Company will be able to successfully acquire suitable
acquisition candidates or integrate acquired operations into its existing
operations. There can also be no assurance that future acquisitions will not
have an adverse effect upon the Company's operating results, particularly in the
quarters immediately following the completion of an acquisition while the
operations of an acquired business are being integrated. Once integrated,
acquired theatres may not achieve (or may not be expected to achieve) levels of
revenue or profitability comparable with those achieved by the Company's
existing theatres, or otherwise perform as expected. There is substantial
competition for attractive acquisition candidates.

         Dependence on Motion Picture Production and Performance; Relationship
with Film Distributors. The ability of Regal to operate successfully depends
upon a number of factors, the most important of which is the availability and
popularity of motion pictures and the performance of such motion pictures in the
Company's markets. The Company predominantly licenses "first-run" motion
pictures. Poor performance of, or disruption in the production of or access to,
motion pictures by the major studies and/or independent producers could
adversely affect the Company's business and results of operations. Since film
distributors have historically released those films which they anticipate will
be the most successful during the summer and holiday seasons, poor performance
of such films or disruption in the release of films during such periods could
adversely affect the Company's quarterly results for those particular periods.
In addition, because the Company's business depends to a significant degree on
maintaining good relations with the


                                        9

<PAGE>   12



major film distributors, a deterioration in the Company's relationship with one
or more of the major film distributors could adversely affect the Company's
access to commercially successful films and have a material adverse effect on
the Company's business and results of operations. See "-- Film Licensing."

         Fluctuations in Quarterly Results of Operations. Regal's revenues have
been seasonal, coinciding with the timing of releases of motion pictures by the
major distributors. Generally, the most marketable motion pictures have been
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 such releases can have a significant effect on
Regal'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.

         Competition. The motion picture exhibition industry is highly
competitive, particularly in licensing aspects of films, attracting patrons and
finding new theatre sites. Theatres operated by national and regional circuits
and by smaller independent exhibitors compete with the Company's theatres. Many
of the Company's competitors have been in existence significantly longer than
Regal and may be better established in certain of the markets where the
Company's theatres are located. Many of the Company's competitors have sought to
increase the number of theatres and screens in operation. Such increases may
cause certain local markets or portions thereof to become over screened,
resulting in negative impact on the earnings of the theatres involved and thus
on the Company's theatres in those markets.

         Regal believes that the principal competitive factors in the motion
picture exhibition industry include licensing terms, the seating capacity,
location and reputation of an exhibitor's theatres, the quality of projection
and sound equipment at the theatres and the exhibitor's ability and willingness
to promote the films. Competition for patrons is dependent upon factors such as
the availability of popular films, the location of theatres, the comfort and
quality of theatres and ticket prices. Failure to compete favorably with respect
to any of these factors could have a material adverse effect on the Company's
business and results of operations. Alternative motion picture exhibition
delivery systems, including cable television, video cassettes and pay per view,
exist for the exhibition of filmed entertainment. An expansion of such delivery
systems could have a material adverse effect upon Regal's business and results
of operations. See "-- Film Licensing" and "Competition."

         Dependence on Senior Management. Regal's success depends upon the
continued contributions of its senior management, including Michael L. Campbell,
Chairman, President and Chief Executive Officer of the Company. The loss of the
services of one or more of Regal's senior management could have a material
adverse effect upon its business and development. Regal's loan agreement
provides that Mr. Campbell or a successor reasonably acceptable to Regal's
lenders must be employed as Chief Executive Officer. Regal has an employment
agreement with Mr. Campbell.

         Volatility of Market Price. From time to time, there may be significant
volatility in the market price for Regal common stock. Quarterly operating
results of Regal or of other motion picture exhibitors, changes in general
conditions in the economy, the financial markets or the motion picture industry,
natural disasters or other developments affecting Regal or its competitors could
cause the market price of the Regal common stock to fluctuate substantially. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.



                                       10

<PAGE>   13



ITEM 2.  PROPERTIES

         As of January 1, 1998, Regal operated 200 of its 256 theatres pursuant
to lease agreements, owned the land and buildings for 42 theatres and operated
pursuant to ground leases at 14 locations. Of the 256 theatres operated by Regal
as of January 1, 1998, 188 were acquired as existing theatres and 68 have been
developed by Regal.

         The majority of Regal's leased theatres are subject to lease agreements
with original terms of 20 years or more and, in most cases, renewal options for
up to an additional ten years. The renewal options generally provide for
increased rent. These leases provide for minimum annual rentals. Under certain
conditions, further rental payments may be based on a percentage of revenues
above specified amounts. A significant majority of the leases are net leases,
which require Regal to pay the cost of insurance, taxes and a portion of the
lessor's operating costs.

         Regal's corporate office is located in approximately 50,000 square feet
of space in Knoxville, Tennessee. The Company purchased the corporate office
property in the second quarter of 1994.

ITEM 3.  LEGAL PROCEEDINGS

         From time to time the Company is involved in routine litigation and
proceedings in the ordinary course of business. In addition, in January 1998,
four lawsuits were filed by alleged shareholders of the Company relating to the
proposed Merger of the Company with Screen Acquisition Corp., a Delaware
corporation and newly formed corporation which is owned by KKR 1996 Fund L.P., a
Delaware limited partnership organized at the direction of Kohlberg Kravis
Roberts & Co. L.P. ("KKR") and its affiliates, and Monarch Acquisition Corp., a
Delaware corporation and newly formed corporation which is owned by an affiliate
of Hicks, Muse, Tate & Furst Equity Fund III, L.P., a Delaware limited
partnership organized at the direction of Hicks, Muse, Tate & Furst Incorporated
and its affiliates.

         Three of the lawsuits were filed in the Circuit Court for Knox County
in Knoxville, Tennessee (the "Knoxville Complaints") and have been ordered to be
consolidated into a single lawsuit. The remaining lawsuit was filed in the
Chancery Court for Davidson County in Nashville, Tennessee (the "Nashville
Complaint"). Each of the lawsuits names the Company, its directors, KKR and
Hicks Muse as defendants. The plaintiff in each lawsuit seeks to represent a
putative class of all public holders of the Company's common stock. The
complaints allege, among other things, that the directors of the Company
breached their fiduciary duties to the Company and/or the Company's public
shareholders by approving the Merger. The Knoxville Complaints seek, among other
things, preliminary and permanent injunctive relief prohibiting consummation of
the Merger as presently proposed and permanent injunctive relief requiring the
Company's Board of Directors to obtain a higher price for the shares to be
converted as part of the Merger and/or to inquire of parties other than KKR and
Hicks Muse regarding the same. The Nashville Complaint seeks, among other
things, preliminary and permanent injunctive relief prohibiting consummation of
the Merger and the declaration that the directors have breached their fiduciary
duties by approving the Merger. The complaints also seek unspecified damages,
attorneys' fees and other relief. Regal intends to contest these actions
vigorously.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         No matters were submitted to a vote of the shareholders during the
fourth quarter ended January 1, 1998.



                                       11

<PAGE>   14




                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
        MATTERS.

         The Company's Common Stock is listed on The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "REGL." The
following table sets forth, for the calendar quarters indicated, the high and
low prices for the Common Stock as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                            High*          Low*
                                                          --------       ---------
<S>                                                       <C>             <C>
1996
First Quarter......................................        $25.34         $17.83
Second Quarter ....................................         33.50          24.59
Third Quarter......................................         30.83          22.75
Fourth Quarter.....................................         34.25          23.50

1997
First Quarter......................................        $30.75         $23.50
Second Quarter ....................................         36.25          25.25
Third Quarter......................................         34.25          23.25
Fourth Quarter.....................................         28.88          20.75
</TABLE>

-----------------

         * Adjusted for a 50% stock dividend in September 1996.

         On March 17, 1998, the last reported sales price for the Company's
Common Stock on the Nasdaq National Market was $29.66 per share. At March 17,
1998, there were approximately 410 holders of record of the Company's Common
Stock and approximately 18,000 beneficial holders.

         The Company has not declared or paid a cash dividend on its Common
Stock. It is the present policy of the Board of Directors to retain all earnings
to support operations and to finance expansion. The Company is restricted from
the payment of cash dividends without prior approval pursuant to its loan
agreements.

         On July 31, 1997, Regal completed the mergers of three wholly-owned
subsidiaries with and into R. C. Cobb, Inc., Cobb Theatres II, Inc. and Cobb
Finance Corp. The merger consideration was 2,837,594 shares of Regal common
stock. The issuance was made in reliance on the exemption provided by Section
4(2) of the Securities Act of 1933, as amended, for a transaction not involving
a public offering.

ITEM 6. SELECTED FINANCIAL DATA

         The selected consolidated financial data set forth below as of 1996 and
1997 and for each of the past three fiscal years ending in 1997 are derived from
financial statements of the Company which have been audited by Coopers & Lybrand
L.L.P., independent accountants. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Report.



                                       12

<PAGE>   15





(in thousands, except per share data)


<TABLE>
<CAPTION>

                                                    For the Fiscal Year Ended and at Fiscal Year End
                                     ----------------------------------------------------------------------------
                                      December 30,     December 29,    December 28,     January 2,     January 1,
                                         1993             1994            1995            1997           1998
                                      -----------      -----------     ------------    -----------    ----------
STATEMENT OF INCOME DATA:                                 (in thousands, except per share data)
<S>                                    <C>             <C>              <C>           <C>             <C>

Revenues...........................    $214,359         $265,005        $309,022       $389,193       $479,097
Operating income...................      22,147           28,412          41,110         58,196         67,870
Income before extraordinary item...       8,716           12,702          17,953         25,817         35,199
Extraordinary item net of tax:
   Gain (loss) on extinguishment
       of debt.....................         190          (1,752)            (448)          (751)       (10,020)
                                       --------         -------         --------       --------       ---------
Net income.........................       8,906           10,950          17,505         25,066         25,179
Dividends (Neighborhood and
   Georgia State)..................        (739)            (380)           (433)          (229)            --
                                       --------         --------        --------       --------       --------
Net income applicable to
   common stock....................    $  8,167         $ 10,570        $ 17,072       $ 24,837       $ 25,179
                                       ========         ========        ========       ========       ========
Earnings per common share
   before effects of extraordinary
   item:
      Basic........................    $    .36         $    .43        $    .57       $    .76       $    .98
      Diluted......................         .31              .42             .56            .73            .95
Earnings per common share:
      Basic........................         .37              .37             .56            .74            .70
      Diluted......................         .32              .36             .55            .71            .68
Weighted average shares and
  equivalents outstanding:
      Basic........................      22,112           28,430          30,428         33,726         36,113
      Diluted......................      25,559           29,496          31,311         34,800         37,185
BALANCE SHEET DATA (AT END OF
PERIOD):
  Total assets.....................    $162,098         $252,630        $349,031       $488,825       $660,650
  Long-term obligations,
      including current maturities,
      and redeemable preferred           73,523          117,471         188,456        144,626        288,583
      stock........................
  Total shareholders' equity.......      26,649           88,089         109,020        279,302        306,575
</TABLE>



                                       13

<PAGE>   16



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

         The following analysis of the financial condition and results of
operations of Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries
(collectively referred to as the "Company") should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere
herein. Regal consummated the acquisitions of Neighborhood Entertainment, Inc.
("Neighborhood"), Georgia State Theatres, Inc. ("GST") and Cobb Theatres, L.L.C.
and entities through which Cobb Theatres, L.L.C. and Tricob Partnership, an
entity controlled by Cobb Theatres, L.L.C. members, conducted their business
("Cobb Theatres"), on April 17, 1995, May 30, 1996 and July 31, 1997,
respectively. These three acquisitions have been accounted for as poolings of
interests. During May 1997, Neighborhood and GST were merged with and into
Regal.

BACKGROUND OF REGAL

         Regal has achieved significant growth in theatres and screens since its
formation in November of 1989. Since inception through January 1, 1998, Regal
acquired 188 theatres with 1,503 screens, developed 68 new theatres with 732
screens and added 71 new screens to acquired theatres. Theatres developed by the
Company typically generate positive theatre level cash flow within the first
three months following commencement of operation and reach a mature level of
attendance within one to three years following commencement of operation.
Theatre closings have had no significant effect on the operations of Regal.

RESULTS OF OPERATIONS

         The Company's revenues are generated primarily from box office receipts
and concession sales. Additional revenues are generated by electronic video
games located adjacent to the lobbies of certain of the Company's theatres and
by on-screen advertisements and revenues from the Company's five entertainment
centers which are adjacent to theatre complexes. Direct theatre costs consist of
film rental costs, costs of concessions and theatre operating expenses. Film
rental costs are related to the popularity of a film and the length of time
since the film's release and generally decline as a percentage of admission
revenues the longer a film has been released. Because certain concession items,
such as fountain drinks and popcorn, are purchased in bulk and not pre-packaged
for individual servings, the Company is able to improve its margins by
negotiating volume discounts. Theatre operating expenses consist primarily of
theatre labor and occupancy costs. Future increases in minimum wage requirements
or legislation requiring additional employer funding of health care, among other
things, may increase theatre operating expenses as a percentage of total
revenues.



                                       14

<PAGE>   17



         The following table sets forth for the fiscal periods indicated the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of income.


<TABLE>
<CAPTION>


                                                       Percentage of Total Revenues
                                                 --------------------------------------
                                                        For the Fiscal Year Ended
                                                 --------------------------------------
                                                 December 28,   January 2,   January 1,
                                                     1995          1997         1998
                                                 ------------   ----------   ----------
<S>                                              <C>            <C>          <C>
Revenues:
   Admissions.....................................   69.1%         68.4%         67.9%
   Concessions....................................   28.2          28.3          28.6
   Other..........................................    2.7           3.3           3.5
                                                    -----         -----         -----
   Total revenues.................................  100.0         100.0         100.0
Operating expenses:
   Film rental and advertising costs..............   37.3          37.3          37.2
   Cost of concessions and other..................    3.7           3.9           3.5
   Theatre operating expenses.....................   34.2          32.8          32.7
   General and administrative.....................    4.8           4.3           3.5
   Depreciation and amortization..................    6.3           6.3           6.4
   Merger expenses................................    0.4           0.4           1.6
   Loss on impairment of assets...................    --            --            1.0
                                                    -----         -----         -----
     Total operating expenses.....................   86.7          85.0          85.9
Other income (expense):
   Interest expense...............................   (3.5)         (3.3)         (2.9)
   Interest income................................    0.1           0.2           0.2
   Other..........................................   (0.2)          0.2          (0.1)
                                                    -----         -----         -----
   Income before taxes and extraordinary item.....    9.7          12.1          11.3
Provision for income taxes........................    3.9           5.4           4.0
                                                    -----         -----         -----
   Income before extraordinary item...............    5.8           6.7           7.3
Extraordinary item:
   Loss on extinguishment of debt.................   (0.1)         (0.2)         (2.0)
                                                    -----         -----         -----
Net Income........................................    5.7%          6.5%          5.3%
                                                    =====         =====         =====
</TABLE>


                                       15

<PAGE>   18



FISCAL YEARS ENDED JANUARY 1, 1998 AND JANUARY 2, 1997

         Total Revenues. Total revenues increased in 1997 by 23.1% to $479.1
million from $389.2 million in 1996. This increase was due to a 16.5% increase
in attendance attributable primarily to the net addition of 407 screens in 1997.
Of the $89.9 million increase for 1997, $30.3 million was attributed to theatres
previously operated by the Company, $23.5 million was attributed to theatres
acquired by the Company, and $36.1 million was attributed to new theatres
constructed by the Company. Average ticket prices increased 4.9% during the
period, reflecting an increase in ticket prices and a greater proportion of
larger market theatres in 1997 than in the same period in 1996. Average
concession sales per customer increased 6.8% for the period, reflecting both an
increase in consumption and, to a lesser extent, an increase in concession
prices.

         Direct Theatre Costs. Direct theatre costs in 1997 increased by 21.9%
to $351.3 million from $288.1 million in 1996. Direct theatre costs as a
percentage of total revenues decreased to 73.3% in 1997 from 74.0% in 1996. The
decrease of direct theatre costs as a percentage of total revenues was primarily
attributable to lower concession costs as a percentage of total revenues.

         General and Administrative Expenses. General and administrative
expenses increased in 1997 by 0.2% to $16.6 million from $16.5 million in 1996,
representing administrative costs associated with the 1997 theatre openings and
projects under construction. As a percentage of total revenues, general and
administrative expenses decreased to 3.5% in 1997 from 4.3% in 1996.

         Depreciation and Amortization. Depreciation and amortization expense
increased in 1997 by 23.6% to $30.5 million from $24.7 million in 1996. This
increase was primarily the result of theatre property additions associated with
the Company's expansion efforts.

         Operating Income. Operating income for 1997 increased by 16.6% to $67.9
million, or 14.2% of total revenues, from $58.2 million, or 15.0% of total
revenues, in 1996. Before the $12.7 million and $1.6 million of nonrecurring
merger expenses for 1997 and 1996, respectively, operating income was 16.8% and
15.4% of total revenues.

         Interest Expense. Interest expense increased in 1997 by 8.7% to $14.0
million from $12.8 million in 1996. The increase was primarily due to higher
average borrowings outstanding.

         Income Taxes. The provision for income taxes decreased in 1997 by 8.2%
to $19.1 million from $20.8 million in 1996. The effective tax rate was 35.2% in
1997 as compared to 44.7% in 1996 as each period reflected certain merger
expenses which were not deductible for tax purposes and 1997 reflected a $2.3
million benefit associated with a deferred tax asset valuation allowance
adjustment related to Cobb Theatres.

         Net Income. Net income in 1997 increased by 1.4% to $25.2 million from
$25.1 million in 1996. Before nonrecurring merger expenses and extraordinary
items, net income was $41.4 million and $27.0 million for 1997 and 1996,
respectively, reflecting a 53.2% increase.

FISCAL YEARS ENDED JANUARY 2, 1997 AND DECEMBER 28, 1995

         Total Revenues. Total revenues increased in 1996 by 25.9% to $389.2
million from $309.0 million in 1995. This increase was due to a 19.0% increase
in attendance attributable primarily to the net addition of 277 screens in 1996.
Of the $80.1 million increase for 1996, $38.5 million was attributed to theatres
previously operated by the Company, $25.2 million was attributed to theatres
acquired by the Company,



                                       16

<PAGE>   19



and $16.4 million was attributed to new theatres constructed by the Company.
Average ticket prices increased 4.9% during the period, reflecting an increase
in ticket prices and a greater proportion of larger market theatres in 1996 than
in the same period in 1995. Average concession sales per customer increased 6.3%
for the period, reflecting both an increase in consumption and, to a lesser
extent, an increase in concession prices.

         Direct Theatre Costs. Direct theatre costs in 1996 increased by 23.9%
to $288.1 million from $232.5 million in 1995. Direct theatre costs as a
percentage of total revenues decreased to 74.0% in 1996 from 75.2% in 1995. The
decrease of direct theatre costs as a percentage of total revenues was primarily
attributable to better monitoring and control of costs at the Company's
theatres, and, to a lesser extent, to a decrease in occupancy expense as a
percentage of total revenues, reflecting a higher mix of owned versus leased
properties.

         General and Administrative Expenses. General and administrative
expenses increased in 1996 by 11.7% to $16.6 million from $14.8 million in 1995,
representing administrative costs associated with the 1996 theatre openings and
projects under construction. As a percentage of total revenues, general and
administrative expenses decreased to 4.3% in 1996 from 4.8% in 1995.

         Depreciation and Amortization. Depreciation and amortization expense
increased in 1996 by 27.6% to $24.7 million from $19.4 million in 1995. This
increase was primarily the result of theatre property additions associated with
the Company's expansion efforts.

         Operating Income. Operating income for 1996 increased by 41.6% to $58.2
million, or 15.0% of total revenues, from $41.1 million, or 13.3% of total
revenues, in 1995. Before the $1.6 million and $1.2 million of nonrecurring
merger expenses for 1996 and 1995, respectively, operating income was 15.4% and
13.7% of total revenues.

         Interest Expense. Interest expense increased in 1996 by 20.4% to $12.8
million from $10.7 million in 1995. The increase was primarily due to higher
average borrowings outstanding.

         Income Taxes. The provision for income taxes increased in 1996 by 70.7%
to $20.8 million from $12.2 million in 1995. The effective tax rate was 44.7% in
1996 as compared to 40.5% in 1995 due to the nondeductibility of certain merger
costs incurred in 1996.

         Net Income. Net income in 1996 increased by 43.2% to $25.1 million from
$17.5 million in 1995. Before nonrecurring merger expenses and extraordinary
items, net income was $27.0 million and $19.0 million for 1996 and 1995,
respectively, reflecting a 42.1% increase.

LIQUIDITY AND CAPITAL RESOURCES

         Substantially all of the Company's revenues are derived from cash box
office receipts and concession sales, while film rental fees are ordinarily paid
to distributors 15 to 45 days following receipt of admission revenues. The
Company thus has an operating cash "float" which partially finances its
operations, reducing the Company's needs for external sources of working
capital.

         The Company's capital requirements have arisen principally in
connection with acquisitions of existing theatres, new theatre openings and the
addition of screens to existing theatres and have been financed with equity
(including equity issued in connection with acquisitions and public offerings),
borrowings under the Company's loan agreement and internally generated cash. On
October 8, 1997, the Company entered into a new bank revolving credit facility
(the "Bank Revolving Credit Facility") which




                                       17

<PAGE>   20



permits borrowings of up to $250 million. Under the loan agreement the Company
is required to comply with certain financial and other covenants, including
maintaining a minimum net worth of not less than 90% of the Company's
consolidated net worth on October 8, 1997 plus 50% of the Company's net income
for each quarter commencing with the quarter beginning after October 2, 1997. On
January 1, 1998, $162.0 million was outstanding under the Company's $250 million
revolving credit facility with interest payable quarterly at LIBOR (5.8% at
January 1, 1998) plus 0.65%. On January 2, 1997, $51.0 million was outstanding
under the Company's $150.0 million revolving credit facility, with interest
payable quarterly at LIBOR (5.6% at January 2, 1997) plus 0.4%.

         During 1995 and 1996 the Company effected four acquisitions (including
those accounted for as poolings of interests). The aggregate consideration paid
in connection with such acquisitions was $283.0 million in cash, the issuance of
3,169,522 shares of Common Stock and the assumption of approximately $13 million
of debt.

         On June 10, 1996, the Company completed a public offering of 4,312,500
shares of the Company's Common Stock at $30.83 per share. The total proceeds to
the Company from the offering were approximately $126.5 million, net of the
underwriting discount and other expenses of $6.5 million and were used to repay
amounts outstanding under the Company's revolving credit facility.

         On May 9, 1997, the Company completed the purchase of assets consisting
of an existing five theatres with 32 screens, four theatres with 52 screens
under development, and a seven screen addition to an existing theatre from Magic
Cinemas LLC, an independent theatre company with operations in New Jersey and
Pennsylvania. The consideration paid was approximately $24.5 million in cash.

         On July 31, 1997, Regal consummated the acquisition of the business
conducted by Cobb Theatres, L.L.C. (the "Cobb Theatres Acquisition"). The
aggregate consideration paid by the Company was 2,837,594 shares of its Common
Stock. The acquisition has been accounted for as a pooling of interests. Regal
recognized certain one time charges totaling approximately $5.4 million (net of
tax) in its quarter ended October 2, 1997, relating to merger expenses and
severance payments. In connection with the Cobb Theatres Acquisition, Regal
assumed approximately $110 million of liabilities, including $85 million of
outstanding Senior Secured Notes (the "Notes"). On September 18, 1997, Regal
completed an offer to purchase the Notes, and all but $170,000 principal amount
of Notes were repurchased. Regal initially financed the purchase price of the
Notes with borrowings under a short-term credit facility (the "Bank Tender
Facility"). Regal recognized an extraordinary charge totaling approximately
$10.0 million (net of tax) in its quarter ended October 2, 1997, relating to the
purchase of the Notes.

         On September 24, 1997, Regal consummated the offering of $125 million
aggregate principal amount of 8 1/2% Senior Subordinated Notes due October 1,
2007. A portion of the proceeds from such offering were used to repay amounts
borrowed under the Bank Tender Facility. The balance of the proceeds were used
to repay amounts outstanding under the Company's former bank revolving credit
facility.

         On November 14, 1997, the Company completed the purchase of assets
consisting of an existing 10 theatres with 78 screens from Capitol Industries,
Inc., an independent theatre company with operations in Virginia. The
consideration paid was approximately $24.0 million in cash.

         At January 2, 1997, the Company anticipated that it would spend $125
million to $150 million to develop and renovate theatres during 1997, of which
the Company had approximately $58.1 million in contractual commitments for
expenditures. The actual capital expenditures for fiscal 1997 were $178.1
million.


                                       18

<PAGE>   21



         At January 1, 1998, the Company had 256 multi-screen theatres with an
aggregate of 2,306 screens. At such date, the Company had approximately 500
screens under construction. The Company intends to open approximately 500 to 600
screens during 1998. The Company anticipates spending $225.0 million to $250.0
million to develop and renovate theatres during 1998, of which, as of January 1,
1998, the Company had approximately $131.6 million in contractual commitments
for expenditures. The Company believes that its capital needs for completion of
theatre construction and development for at least the next 6 to 12 months will
be satisfied by available credit under the loan agreement, as amended,
internally generated cash flow and available cash and equivalents.

RECENT DEVELOPMENTS

         Regal has entered into the Merger Agreement with Screen Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of the KKR Fund and
Monarch Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of the HTMF Fund. Pursuant to and subject to the terms and conditions of the
Merger Agreement, Screen Acquisition Corp. and Monarch Acquisition Corp. will be
merged with and into the Company, and the Company will continue after the Merger
as a corporation owned by the Funds. Each share of Company common stock will be
converted into the right to receive $31.00 in cash from the Surviving
Corporation.

         The Merger is subject to termination or expiration of the waiting
period under the HSR Act, approval by Company shareholders, the obtaining of
necessary financing to consummate the Merger and certain other conditions. The
waiting period under the HSR Act expired on March 1, 1998.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1997, the FASB issued Statement of Accounting Standards No.
130, Reporting Comprehensive Income, which requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company plans to adopt the
provisions in 1998. This Statement is effective for fiscal years beginning after
December 15, 1997 and the impact on the Company's financial statements is not
expected to have a material effect on the Company's financial position or
results of operations.

         Additionally, in June 1997, the FASB issued Statement of Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires that an enterprise (a) report financial and
descriptive information about its reportable operating segments and (b) report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets with reconciliations of such amounts to the enterprise's
financial statements and (c) report information about revenues derived from the
Company's products or services and information about major customers. This
Statement is effective for fiscal years beginning after December 15, 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS


<TABLE>

      <S>                                                                      <C>
      Report of Independent Accountants........................................21
      Consolidated Balance Sheets at January 2, 1997
           and January 1, 1998.................................................24
      Consolidated Statements of Income for the years ended
           December 28, 1995, January 2, 1997 and January 1, 1998..............25
</TABLE>






                                       19

<PAGE>   22

<TABLE>
     <S>                                                                        <C>

     Consolidated Statements of Changes in Shareholders' Equity
              for the years ended December 28, 1995, January 2,
              1997 and January 1, 1998.........................................26
     Consolidated Statements of Cash Flows for the years ended
              December 28, 1995, January 2, 1997 and
              January 1, 1998..................................................27
     Notes to Consolidated Financial Statements................................28

</TABLE>





                                       20

<PAGE>   23



REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Directors
Regal Cinemas, Inc.

We have audited the accompanying consolidated balance sheets of Regal Cinemas,
Inc. and Subsidiaries (the "Company") as of January 2, 1997 and January 1, 1998,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended January
1, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the acquisition of Cobb Theatres, L.L.C. which has been
accounted for as pooling of interests as described in Note 1 to the consolidated
financial statements. We did not audit the financial statements of Cobb
Theatres, L.L.C. for 1995 and 1996. Such statements reflect aggregate total
assets constituting 23% in 1996 and aggregate total revenues constituting 34%
and 31% in 1995 and 1996, respectively, of the related consolidated totals.
Those statements were audited by other auditors, whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for Cobb
Theatres, L.L.C. is based solely on the report of other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Regal Cinemas, Inc. and Subsidiaries as
of January 2, 1997 and January 1, 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
January 1, 1998, in conformity with generally accepted accounting principles.


                                    /s/ Coopers & Lybrand L.L.P.



Knoxville, Tennessee
February 6, 1998



                                       21

<PAGE>   24



                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


Board of Directors
Cobb Theatres, L.L.C.

We have audited the accompanying consolidated balance sheet of Cobb Theatres,
L.L.C. as of December 31, 1996 and the related consolidated statements of
operations and cash flows for the year then ended (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at December 31, 1996 and the consolidated results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

                                          /s/ Ernst & Young LLP

Birmingham, Alabama
July 2, 1997



                                       22

<PAGE>   25



                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


Board of Directors
Cobb Theatres, L.L.C.

We have audited the consolidated balance sheets of Cobb Theatres, L.L.C. as of
August 31, 1996 and 1995, and the related consolidated statements of operations,
changes in members' equity and cash flows for the years then ended (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.


                                              /s/ Ernst & Young LLP

Birmingham, Alabama
October 23, 1996




                                       23

<PAGE>   26



REGAL CINEMAS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                              ASSETS
                                                                             JANUARY 2,     January 1,
                                                                                1997           1998
                                                                             ----------     ----------
<S>                                                                          <C>            <C>
Current assets:
     Cash and equivalents                                                    $  17,116      $  18,398
     Accounts receivable                                                         2,892          4,791
     Inventories                                                                 2,024          2,159
     Prepaids and other current assets                                           6,168          6,377
     Refundable income taxes                                                     3,477          2,424
                                                                             ---------      ---------
        Total current assets                                                    31,677         34,149
                                                                             ---------      ---------
Property and equipment:
     Land                                                                       41,793         53,955
     Buildings and leasehold improvements                                      260,184        366,323
     Equipment                                                                 167,475        211,465
     Construction in progress                                                   43,539         46,529
                                                                             ---------      ---------
                                                                               512,991        678,272
     Accumulated depreciation and amortization                                 (93,227)      (112,927)
                                                                             ---------      ---------
        Total property and equipment, net                                      419,764        565,345

Goodwill, net                                                                   28,804         52,619
Other assets                                                                     8,580          8,537
                                                                             ---------      ---------

        Total assets                                                         $ 488,825      $ 660,650
                                                                             =========      =========

                              LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Current maturities of long-term debt                                    $     761      $     306
     Accounts payable                                                           36,101         38,982
     Accrued expenses                                                           14,325         13,739
                                                                             ---------      ---------
        Total current liabilities                                               51,187         53,027
                                                                             ---------      ---------

Long-term debt, less current maturities                                        143,865        288,277
Other liabilities                                                               14,471         12,771
                                                                             ---------      ---------
        Total liabilities                                                      209,523        354,075
                                                                             ---------      ---------

Commitments (Note 4)

Shareholders' equity:
     Preferred stock, no par; 1,000,000 shares authorized, none issued            --             --
     Common stock, no par; 100,000,000 shares authorized;
        35,977,325 issued and outstanding in 1996; 36,113,524 issued
        and outstanding in 1997                                                221,613        223,707
Retained earnings                                                               57,689         82,868
                                                                             ---------      ---------
        Total shareholders' equity                                             279,302        306,575
                                                                             ---------      ---------

        Total liabilities and shareholders' equity                           $ 488,825      $ 660,650
                                                                             =========      =========
</TABLE>


              The accompanying notes are an integral part of these consolidated
financial statements.


                                       24

<PAGE>   27



REGAL CINEMAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>



                                                                                      YEARS ENDED
                                                                  ----------------------------------------------
                                                                   December 28,      January 2,       January 1,
                                                                       1995             1997             1998
                                                                   ------------      ----------       ----------
<S>                                                                <C>               <C>              <C>
Revenues:
     Admissions                                                    $ 213,388         $ 266,003        $ 325,118
     Concessions                                                      87,272           110,237          137,173
     Other operating revenues                                          8,362            12,953           16,806
                                                                   ---------         ---------        ---------
         Total revenues                                              309,022           389,193          479,097

Operating expenses:
     Film rental and advertising costs                               115,408           145,247          178,173
     Cost of concessions and other                                    11,363            15,129           16,573
     Theatre operating expenses                                      105,688           127,706          156,588
     General and administrative expenses                              14,848            16,581           16,609
     Depreciation and amortization                                    19,359            24,695           30,535
     Merger expenses                                                   1,246             1,639            7,789
     Loss on impairment of assets                                          -                 -            4,960
                                                                   ---------         ---------        ---------

         Total operating expenses                                    267,912           330,997          411,227
                                                                   ---------         ---------        ---------

Operating income                                                      41,110            58,196           67,870
                                                                   ---------         ---------        ---------

Other income (expense):
     Interest expense                                                (10,672)          (12,844)         (13,959)
     Interest income                                                     368               619              816
     Other                                                              (653)              676             (407)
                                                                   ---------         ---------        ---------

Income before income taxes and extraordinary item                     30,153            46,647           54,320
Provision for income taxes                                           (12,200)          (20,830)         (19,121)
                                                                   ---------         ---------        ---------

Income before extraordinary item                                      17,953            25,817           35,199

Extraordinary item:
     Loss on extinguishment of debt, net of applicable taxes            (448)             (751)         (10,020)
                                                                   ---------         ---------        ---------

Net income                                                            17,505            25,066           25,179

GST and Neighborhood dividends                                          (433)             (229)               -
                                                                   ---------         ---------        ---------

Net income applicable to common stock                              $  17,072         $  24,837        $  25,179
                                                                   =========         =========        =========

Earnings per common share before effect of extraordinary item:
     Basic                                                         $    0.57         $    0.76        $    0.98
     Diluted                                                       $    0.56         $    0.73        $    0.95

Extraordinary item:
     Basic                                                         $   (0.01)        $   (0.02)       $   (0.28)
     Diluted                                                       $   (0.01)        $   (0.02)       $   (0.27)

Earnings per common share:
     Basic                                                         $    0.56         $    0.74        $    0.70
     Diluted                                                       $    0.55         $    0.71        $    0.68


</TABLE>


             The accompanying notes are an integral part of these consolidated
financial statements.


                                       25
<PAGE>   28


REGAL CINEMAS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                                        COMMON      Retained
                                                                         Stock      Earnings         Total
                                                                       ---------    ---------      --------
<S>                                                                    <C>           <C>           <C>
Balances at December 29, 1994                                          $ 70,641      $17,414       $ 88,055
     Payment of GST dividends and partnership distributions                   -         (490)          (490)
     Issuance of 241,313 shares of common stock                           2,426            -          2,426
     Issuance of 194,142 shares upon exercise of stock options and
         restricted stock awards                                            407            -            407
     Issuance of Neighborhood stock prior to merger                         150            -            150
     Income tax benefits related to exercised stock options                 817            -            817
     Stock option amortization                                              150            -            150
     Net income                                                               -       17,505         17,505
                                                                       --------      --------      --------

Balances at December 28, 1995                                            74,591       34,429        109,020
     Payment of GST dividends and partnership distributions                   -         (263)          (263)
     Issuance of 5,015,741 shares of common stock, net of
         offering costs                                                 140,651            -        140,651
     Issuance of 457,902 shares upon exercise of stock options and
         restricted stock awards                                          1,177            -          1,177
     Income tax benefits related to exercised stock options               5,017            -          5,017
     Conformation of Cobb Theatres fiscal year (see Note 2)                   -       (1,543)        (1,543)
     Stock option amortization                                              177            -            177
     Net income                                                               -       25,066         25,066
                                                                       --------      -------       --------

Balances at January 2, 1997                                             221,613       57,689        279,302
     Issuance of 136,228 shares upon exercise of stock options and
         restricted stock awards                                            723            -            723
     Income tax benefits related to exercised stock options               1,306            -          1,306
     Stock option amortization                                               65            -             65
     Net income                                                               -       25,179         25,179
                                                                        --------     -------       --------
Balances at January 1, 1998                                            $223,707      $82,868       $306,575
                                                                       ========      =======       ========

</TABLE>

              The accompanying notes are an integral part of these consolidated
financial statements.



                                       26

<PAGE>   29



REGAL CINEMAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)


<TABLE>
<CAPTION>


                                                                                  YEARS ENDED
                                                                   ------------------------------------------
                                                                    DECEMBER 28,    JANUARY 2,     JANUARY 1,
                                                                       1995           1997           1998
                                                                    ------------   -----------    -----------
<S>                                                                 <C>            <C>            <C>
Cash flows from operating activities:
     Net income                                                     $  17,505      $  25,066      $  25,179
     Adjustments to reconcile net income to net cash provided
         by operating activities:
              Depreciation and amortization                            19,359         24,695         30,535
              Noncash loss on extinguishment of debt                      448            751          2,575
              Loss on impairment of assets                                  -              -          4,960
              Deferred income taxes                                     3,309          4,112          1,293
              Changes in operating assets and liabilities:
                  Accounts receivable                                     125         (1,182)        (1,899)
                  Current taxes receivable                             (1,037)         4,757          2,359
                  Inventories                                            (215)          (365)          (135)
                  Prepaids and other current assets                    (1,009)          (236)          (209)
                  Accounts payable                                      4,625         10,878          2,881
                  Accrued expenses and other liabilities               (3,137)          (946)        (3,579)
                                                                    ---------      ---------       --------

                      Net cash provided by operating activities        39,973         67,530         63,960

Cash flows from investing activities:
     Capital expenditures                                            (105,284)      (124,068)      (178,099)
     Investment in goodwill and other assets                           (7,352)        (7,077)       (24,198)
                                                                    ---------      ---------       --------

     Net cash used in investing activities                           (112,636)      (131,145)      (202,297)

Cash flows from financing activities:
     GST and Neighborhood dividends paid                                 (332)          (500)             -
     Net proceeds from issuance of stock                              126,763              -
     Borrowings under long-term debt                                   81,334        161,500        358,418
     Payments on long-term debt                                       (10,248)      (211,623)      (214,460)
     Debt issuance costs                                                 (257)        (5,127)        (5,127)
     Partnership distribution                                             (57)           (34)             -
     Exercise of warrants and options                                     557          1,177            788
     Redemption of preferred stock                                     (1,150)             -              -
                                                                    ---------      ---------      ---------

                      Net cash provided by financing activities        69,847         72,156        139,619

Net increase (decrease) in cash and equivalents                        (2,816)         8,541          1,282
Cash and equivalents at beginning of period                             9,851          8,575         17,116
                                                                    ---------      ---------      ---------

Cash and equivalents at end of period                               $   7,035      $  17,116      $  18,398
                                                                    =========      =========      =========
</TABLE>



              The accompanying notes are an integral part of these consolidated
financial statements.


                                       27

<PAGE>   30



REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       THE COMPANY AND BASIS OF PRESENTATION

         Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries,
         Neighborhood Entertainment Inc. ("Neighborhood"), Georgia State
         Theatres, Inc. ("GST") and the entities through which Cobb Theatres,
         L.L.C. and Tricob Partnership, an entity controlled by the members of
         Cobb Theatres, L.L.C., conducted their business ("Cobb Theatres"),
         collectively referred to as the "Company" operate multi-screen motion
         picture theatres principally throughout the eastern United States. The
         Company formally operates on a fiscal year ending on the Thursday
         closest to December 31. Neighborhood and GST were merged with and into
         Regal during May 1997.

         On April 17, 1995, Regal issued 814,755 shares of its common stock for
         all of the outstanding common stock of Neighborhood. On May 30, 1996,
         Regal issued 1,410,213 shares of its common stock for all of the
         outstanding common stock of GST. On July 31, 1997, Regal issued
         2,837,594 shares of its common stock for the Cobb Theatres acquisition.
         The mergers have been accounted for as poolings of interests and,
         accordingly, these consolidated financial statements have been restated
         for all periods to include the results of operations and financial
         positions of Neighborhood, GST and Cobb Theatres.

         Separate results of the combining entities for the fiscal years ended
         1995, 1996 and 1997 are as follows:

         (in thousands)

<TABLE>
<CAPTION>


                                               1995         1996            1997
                                             --------     ---------       --------
<S>                                          <C>          <C>             <C>
Revenues:
Regal                                        $184,958      $265,127       $397,946
Neighborhood (through April 27 for 1995)        5,135             -              -
GST (through May 30 for 1996)                  13,321         4,709              -
Cobb Theatres, L.L.C. and Tricob
Partnership (through July 31 for 1997)        105,608       119,357         81,151
                                             --------      --------       --------

                                             $309,022      $389,193       $479,097
                                             ========      ========       ========

Net income (loss):
Regal                                        $ 19,061      $ 29,935       $ 27,940
Neighborhood (through April 27 for 1995)       (1,824)            -              -
GST (through May 30 for 1996)                     866            90              -
Cobb Theatres, L.L.C. and Tricob
Partnership (through July 31 for 1997)           (598)       (4,959)        (2,761)
                                             --------      --------       --------

                                             $ 17,505      $ 25,066       $ 25,179
                                             ========      ========       ========
</TABLE>


         The net loss for Neighborhood for the four months ended April 27, 1995,
         and the net loss for Cobb Theatres for the seven months ended July 31,
         1997, reflect approximately $1.2 million and $3.5 million,
         respectively, of expenses (net of applicable income taxes) associated
         with the mergers, principally legal and accounting fees, severance and
         benefit related costs and other costs of consolidation.



                                       28

<PAGE>   31


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
         include the accounts of Regal and its wholly-owned subsidiaries. Prior
         to the merger with Regal, Cobb Theatres formerly operated and reported
         on a fiscal year ending August 31. The accompanying consolidated
         financial statements reflect the financial position of Cobb Theatres as
         of December 31, 1996 and January 1, 1998, and its results of operations
         for the year ended August 31, 1995 and for the years ended December 31,
         1996 and January 1, 1998. Cobb Theatres incurred a net loss of
         $1,543,000 for the period from September 1, 1995 through December 31,
         1995. Such loss has been charged directly to retained earnings in the
         accompanying consolidated statement of changes in stockholders' equity.

         All significant intercompany accounts and transactions have been
         eliminated from the consolidated financial statements.

         PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
         Repairs and maintenance are charged to expense as incurred. Gains and
         losses from disposition of property and equipment are included in
         income and expense when realized. Depreciation and amortization are
         provided using the straight-line method over the estimated useful lives
         of the respective assets. The Company evaluates the carrying value of
         property and equipment and intangibles for impairment losses by
         analyzing the operating performance and future undiscounted cash flows
         for each theatre. The Company adjusts the net book value of the
         underlying assets if the sum of expected future cash flows is less than
         book value.

         CASH EQUIVALENTS - The Company considers all highly liquid debt
         instruments purchased with an original maturity of three months or less
         to be cash equivalents. At January 2, 1997 and January 1, 1998, the
         Company held approximately $15,255,000 and $12,549,000, respectively,
         in temporary cash investments (valued at cost, which approximates
         market) in the form of certificates of deposit and variable rate
         investment accounts with major financial institutions.

         INCOME TAXES - Deferred tax liabilities and assets are determined based
         on the difference between the financial statement and tax bases of
         assets and liabilities using enacted tax rates in effect for the year
         in which the differences are expected to reverse.

         INVENTORIES - Inventories consist of concession products and theatre
         supplies and are stated on the basis of first-in, first-out (FIFO)
         cost, which is not in excess of net realizable value.

         DEBT ACQUISITION AND LEASE COSTS (INCLUDED IN OTHER ASSETS) - Debt
         acquisition and lease costs are deferred and amortized over the terms
         of the related agreements.

         DEFERRED RENT (INCLUDED IN OTHER LIABILITIES) - Rent expense is
         recognized on a straight-line basis after considering the effect of
         rent escalation provisions and rent holidays for newly opened theatres
         resulting in a level monthly rent expense for each lease over its term.

         DEFERRED REVENUE (INCLUDED IN OTHER LIABILITIES) - Deferred revenue
         relates primarily to vendor rebates. Rebates are recognized as a
         reduction of costs of concessions as earned.


                                       29

<PAGE>   32


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

         INTEREST RATE SWAPS - Interest rate swaps are entered into as a hedge
         against interest exposure of variable rate debt. The differences to be
         paid or received on swaps are included in interest expense. The fair
         value of the Company's interest rate swap agreements is based on dealer
         quotes. These values represent the amounts the Company would receive or
         pay to terminate the agreements taking into consideration current
         interest rates.

         ESTIMATES - The preparation of financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect the reported amounts of assets
         and liabilities and disclosure of contingent assets and liabilities at
         the date of the financial statements and the reported amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

         Unless indicated otherwise, the fair value of the Company's financial
         instruments approximates carrying value.

3.       ACQUISITIONS

         In addition to the Neighborhood, GST and Cobb Theatres mergers
         described in Note 1, the Company completed the purchase of 23 theatres
         with 179 screens during 1996 and 1997. The theatres were purchased for
         consideration of 703,241 shares of Regal common stock valued at $14.1
         million and approximately $62.5 million cash.

         These transactions have been accounted for using the purchase method of
         accounting and, accordingly, the purchase prices have been allocated at
         fair value to the separately identifiable assets (principally property,
         equipment, and leasehold improvements) of the respective theatre
         locations, with the remaining balance allocated to goodwill, which is
         being amortized on a straight line basis generally over twenty to
         thirty years. The results of operations of these theatre locations have
         been included in the financial statements for the periods subsequent to
         the acquisition date.

         The following unaudited pro forma results of operations for all periods
         presented assume the individual acquisitions occurred as of the
         beginning of the respective periods after giving effect to certain
         adjustments, including depreciation, increased interest expense on
         acquisition debt and related income tax effects. The pro forma results
         have been prepared for comparative purposes only and do not purport to
         indicate the results of operations which would actually have occurred
         had the combination been in effect on the dates indicated, or which may
         occur in the future.



                                       30

<PAGE>   33


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.       ACQUISITIONS, CONTINUED

         (in thousands of dollars, except per share data)



<TABLE>
<CAPTION>

                                                           1995            1996
                                                         --------        --------
<S>                                                      <C>              <C>
1996 ACQUISITION:
     Revenues                                             $329,824        $396,598
     Operating income                                       42,234          58,280
     Income before extraordinary item                       31,399          45,451
     Net income applicable to common stock                  18,196          24,921
     Earnings per common share:
         Basic                                            $   0.60        $   0.74
                                                          ========        ========
         Diluted                                          $   0.58        $   0.72
                                                          ========        ========

                                                            1996            1997
                                                          --------        --------
1997 ACQUISITIONS:
     Revenues                                             $413,743        $499,223
     Operating income                                       62,533          70,108
     Income before extraordinary item                       28,463          36,564
     Net income applicable to common stock                  27,483          26,544
     Earnings per common share:
         Basic                                            $   0.81        $   0.74
                                                          ========        ========
         Diluted                                          $   0.79        $   0.71
                                                          ========        ========
</TABLE>


4.       LEASES

         Leases entered into by the Company, principally for theatres, are
         accounted for as operating leases. The Company, at its option, can
         renew a substantial portion of the leases at defined or then fair
         rental rates for various periods. Certain leases for Company theatres
         provide for contingent rentals based on revenues. Minimum rentals
         payable under all noncancelable operating leases with terms in excess
         of one year as of January 1, 1998, are summarized for the following
         fiscal years:

         (in thousands)

<TABLE>

                    <S>                          <C>

                    1998                         $ 58,790
                    1999                           58,542
                    2000                           57,409
                    2001                           56,678
                    2002                           55,380
                    Thereafter                    642,069
</TABLE>


         Rent expense under such operating leases was $34,459, $41,427 and
         $52,632 for fiscal years 1995, 1996 and 1997, respectively.



                                       31

<PAGE>   34


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.       LONG-TERM DEBT

         Long-term debt at January 2, 1997 and January 1, 1998, consists of the
following:

<TABLE>
<CAPTION>
                                                             JANUARY 2,      JANUARY 1,
                                                                1997           1998
                                                             ----------      ----------
                                                                   (IN THOUSANDS)
<S>                                                          <C>             <C>
$125,000,000 Regal senior subordinated
notes due October 1, 2007, with interest
payable semiannually at 8.5%. Notes are
redeemable, in whole or in part, at the
option of the Company at any time on or
after October 1, 2002, at the redemption
prices (expressed as percentages of the
principal amount thereof) set forth
below together with accrued and unpaid
interest to the redemption date, if
redeemed during the 12 month period
beginning on October 1 of the years
indicated:

<CAPTION>

           Year                      Redemption Price
           ----                      ----------------
           <S>                       <C>
           2002                      104.250%
           2003                      102.033%
           2004                      101.417%
           2005 and thereafter       100.000%                $      -          $125,000

$250,000,000 Regal senior reducing
revolving credit facility which expires on
June 30, 2003, with interest payable
quarterly, at LIBOR (5.8% at January 1,
1998) plus .65%. Draw capability will
expire on June 30, 1999. Repayment of the
outstanding balance on the credit facility
will begin September 30, 1999, and
consist of 5% of the outstanding balance
on a quarterly basis through June 30,
2001. Thereafter, payments will be 7.5%
of the outstanding balance quarterly through
June 30, 2003.                                                 51,000           162,000

$85,000,000 Cobb Theatres notes due
March 1, 2003, with interest payable
semiannually at 10 5/8%.                                       85,000               170

Notes payable to banks at rates ranging
from prime plus 0.5% to 2.0%.                                   6,908                 -

Other                                                           1,718             1,413
                                                             --------          --------

                                                              144,626           288,583

Less current maturities                                          (761)             (306)
                                                             --------          --------

                                                             $143,865          $288,277
                                                             ========          ========
</TABLE>




                                       32

<PAGE>   35


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.       LONG-TERM DEBT, CONTINUED

         The Company's debt at January 1, 1998, is scheduled to mature as
         follows:

         (in thousands)

<TABLE>
                       <S>                                   <C>

                       1998                                  $    306
                       1999                                       821
                       2000                                         -
                       2001                                         -
                       2002                                         -
                       Thereafter                             287,456
                                                             --------

                       Total                                 $288,583
                                                             ========
</TABLE>


         On August 14, 1997, the Company commenced a tender offer for all of the
         Cobb Notes and a consent solicitation in order to effect certain
         changes in the Indenture. Upon completion of the tender offer, holders
         had tendered and given consents with respect to 96.86% of the
         outstanding principal amount of the Cobb Notes. In addition, the
         Company and the trustee executed a supplement to the Indenture,
         effecting the proposed amendments which included, among other things,
         the elimination of all financial covenants and the release of security
         for the Cobb Notes. On September 18, 1997, the Company paid, for each
         $1,000 principal amount, $1,136.97 for Cobb Notes tendered on or prior
         to August 28, 1997 and $1,126.97 for Cobb Notes tendered after August
         28, 1997, plus, in each case, accrued and unpaid interest of $5.02.
         After completion of the tender offer, the Company purchased an
         additional $2,500,000 of the aggregate principal amount of the Cobb
         Notes. Regal financed the purchase price of the Cobb Notes with
         borrowings under a loan agreement with a bank. All such borrowings were
         repaid with a portion of the net proceeds of the offering of the
         $125,000,000 Regal Senior Subordinated Notes. Regal recognized an
         extraordinary charge totaling approximately $10.0 million (net of tax)
         in 1997, relating to the purchase of the Cobb Notes. The fair value of
         the senior subordinated notes was $126,250,000 at January 1, 1998.

         Upon consummation of the Neighborhood merger, Regal refinanced all
         existing debt of the acquired company, recognizing a loss on
         extinguishment of debt (net of applicable income taxes) of $448,000 in
         1995. Additionally, Cobb Theatres refinanced existing debt, recognizing
         a loss on extinguishment of debt (net of applicable income taxes) of
         $751,000 in 1996. Such losses are reported as extraordinary items in
         the accompanying consolidated statements of income.

         In March 1995, Regal entered into a seven-year interest rate swap
         agreement for the management of interest rate exposure. At January 1,
         1998, the agreement had effectively converted $20 million of LIBOR
         floating rate debt under the reducing revolving credit facility to a
         7.32% fixed rate obligation. Regal continually monitors its position
         and the credit rating of the interest swap counterparty. The fair value
         of the interest swap agreement was $(955,000) at January 1, 1998.


                                       33

<PAGE>   36


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.       COMMON AND PREFERRED STOCK

         COMMON STOCK - Regal's common shares authorized, issued and outstanding
         throughout the financial statements and notes reflect the retroactive
         effect of stock issued in connection with the pooling transactions
         described in Note 1 and the authorization of additional shares and the
         effect of the two 3-for-2 stock splits authorized on December 13, 1995
         and September 16, 1996, respectively.

         PREFERRED STOCK - The Company currently has 1,000,000 shares of
         preferred stock authorized with none issued. The Company may issue the
         preferred shares from time to time in such series having such
         designated preferences and rights, qualifications and limitations as
         the Board of Directors may determine.

         STOCK OPTIONS - The Company has three employee stock option plans under
         which 4,929,064 options are authorized and reserved. The options vest
         over three-to-five year periods and expire ten years after the
         respective grant dates. Activity within the plans is summarized as
         follows:


<TABLE>
<CAPTION>
                                                         WEIGHTED         OPTIONS
                                                         AVERAGE       EXERCISABLE AT
                                         SHARES       EXERCISE PRICE      YEAR END
                                        ---------     --------------   --------------
<S>                                     <C>             <C>              <C>
Under option at December 29, 1994       1,993,081         $ 5.54
Options granted in 1995                   808,875         $14.16
Options exercised in 1995                (174,709)        $ 2.09
Options canceled in 1995                  (29,524)        $ 2.37
                                        ---------

Under option at December 28, 1995       2,597,723         $ 8.49            32,927
                                                                           =======
Options granted in 1996                   952,750         $25.06
Options exercised in 1996                (370,915)        $ 2.86
                                        ---------

Under option at January 2, 1997         3,179,558         $14.11            56,330
                                                                           =======
Options granted in 1997                   977,000         $28.18
Options exercised in 1997                (112,603)        $ 5.44
Options canceled in 1997                  (72,500)        $22.96
                                        ---------

Under option at January 1, 1998         3,971,455         $17.72           576,604
                                        =========         ======           =======
</TABLE>




                                       34

<PAGE>   37


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.       COMMON AND PREFERRED STOCK, CONTINUED

<TABLE>
<CAPTION>

                                      OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                      ---------------------------------------------------  --------------------------------
                                           WEIGHTED-
                           NUMBER           AVERAGE           WEIGHTED         NUMBER          WEIGHTED
      RANGE OF          OUTSTANDING        REMAINING          AVERAGE       EXERCISABLE        AVERAGE
   EXERCISE PRICES       AT 1/1/98      CONTRACTUAL LIFE   EXERCISE PRICE    AT 1/1/98      EXERCISE PRICE
  -----------------   --------------    ----------------   --------------   ------------    --------------
  <S>                 <C>               <C>                <C>              <C>             <C>
  $ 1.21                    14,625            4.25            $ 1.21          11,812           $1.21
  $ 2.37                   212,233            4.52            $ 2.37         184,810           $2.37
  $ 3.86                   323,366            5.52            $ 3.86         153,348           $3.86
  $ 9.78 -  $10.08         755,106            6.62            $ 9.79         226,634           $9.79
  $12.34 -  $17.06         795,375            7.57            $14.11               -               -
  $22.00 -  $31.88       1,870,750            9.14            $26.71               -               -
                        ----------                                           -------

                         3,971,455                                           576,604
                        ==========                                           =======
</TABLE>


         In addition, the Company has the 1993 Outside Directors' Stock Option
         Plan (the "1993 Directors' Plan"). Directors' stock options for the
         purchase of 20,250 shares at an exercise price of $12.33, 20,250 shares
         at an exercise price of $29.59 and 30,000 shares at an exercise price
         of $27.25 were granted during 1995, 1996 and 1997, respectively. The
         exercise price of all options granted under the 1993 Directors' Plan
         vest over 3 years and expire 10 years after the respective grant dates.
         Options exercisable at the end of 1995, 1996 and 1997, were 47,250,
         70,875, and 67,500, respectively.

         Warrants to purchase 158,455 shares of common stock at an exercise
         price of $1.21 per share expire in 1998. The Company has reserved a
         sufficient number of shares of common stock for issuance pursuant to
         the authorized options and warrants.

         The Company makes awards of restricted stock under its employee stock
         plans as part of certain employees' incentive compensation. In general,
         the restrictions lapse in the year following grant. Restricted stock
         awards totaled 25,517 shares, 7,500 shares and 5,000 shares pursuant to
         1995, 1996 and 1997 bonus awards, respectively.

         Regal has elected to continue following Accounting Principles Board
         Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
         related interpretations in accounting for its employee stock option
         plans and its outside directors' plan rather than the alternative fair
         value accounting provided for under FASB Statement 123, "Accounting for
         Stock-Based Compensation" (Statement 123). Under APB 25, because the
         exercise price of the Company's employee and director stock options
         equals the market price of the underlying stock on the date of grant,
         no compensation expense is recognized in the accompanying financial
         statements.



                                       35

<PAGE>   38


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.       COMMON AND PREFERRED STOCK, CONTINUED

         Pro forma information regarding net income and earnings per share is
         required by Statement 123, and has been determined as if the Company
         has accounted for its stock options under the fair value method of that
         Statement. The fair value for the employee and directors options
         granted during fiscal years 1995, 1996 and 1997, was estimated at the
         date of grant using a Black-Scholes option pricing model with the
         following weighted-average assumptions: risk-free interest rates
         ranging from 5.96% to 6.59% for 1995 grants, 6.06% to 6.95% for 1996
         grants and 5.9% to 6.68% for 1997 grants; volatility factors of the
         expected market price of the Company's common stock of 32.8% for 1995,
         32.8% for 1996 and 33.7% for 1997, and a weighted average expected life
         of 5 years for employee options and 7 years for outside director
         options. Additionally, the weighted average grant date fair value of
         options granted in fiscal years 1995, 1996 and 1997, was $5.67, $10.34
         and $11.48 per share, respectively.

         The option valuation model used by the Company was developed for use in
         estimating the fair value of traded options which have no vesting
         restrictions and are fully transferable. In addition, option valuation
         models require the input of highly subjective assumptions including the
         expected stock price volatility. Because the Company's employee and
         director options have characteristics significantly different from
         those of traded options, and because changes in the subjective input
         assumptions can materially affect the fair value estimate, in
         management's opinion, the existing models do not necessarily provide a
         reliable single measure of the fair values of its stock options.

         For purposes of pro forma disclosures, the estimated fair value of the
         options is amortized to expense over the options' vesting periods. The
         pro forma results do not purport to indicate the effects on reported
         net income for recognizing compensation expense which are expected to
         occur in future years. The Company's pro forma information for 1995,
         1996 and 1997 option grants follows:

         (in thousands, except per share data):

<TABLE>
<CAPTION>

                                             1995          1996            1997
                                           -------       -------         -------
<S>                                        <C>           <C>             <C>
Pro forma net income                       $17,276       $23,930         $22,883

Pro forma earnings per share:
     Basic                                 $  0.55       $  0.70         $  0.63
     Diluted                               $  0.54       $  0.68         $  0.62

</TABLE>

                                       36

<PAGE>   39


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.       INCOME TAXES

         Deferred income taxes reflect the impact of temporary differences
         between amounts recorded for assets and liabilities for financial
         reporting purposes and amounts utilized for measurement in accordance
         with tax laws. The tax effects of the temporary differences giving rise
         to the Company's net deferred tax liability are as follows:

<TABLE>
<CAPTION>

(in thousands)                                               1996           1997
                                                            -------        -------
<S>                                                         <C>            <C>
Assets:
     Net operating loss carryforward                        $ 4,431        $ 4,036
     Alternative minimum tax credits                            893            627
     Accrued expenses                                         2,213          1,230
     Tax operating lease                                        623            524
     State income taxes                                         531            632
     Other                                                        -            296
                                                            -------        -------

                                                              8,691          7,345
                                                            -------        -------
Liabilities:
     Property and equipment                                  13,927         16,313
     Other                                                      620            490
                                                            -------        -------

                                                             14,547         16,803
                                                            -------        -------

Deferred tax liability                                       (5,856)        (9,458)

Cobb Theatres valuation allowance for deferred tax asset     (2,309)             -
                                                            -------        -------

Net deferred tax                                            $(8,165)       $(9,458)
                                                            =======        =======
</TABLE>




                                       37

<PAGE>   40


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.       INCOME TAXES, CONTINUED

         The 1995, 1996 and 1997 provisions for income taxes before
         extraordinary items (see Note 5) consist of the following:

<TABLE>
<CAPTION>


         (in thousands)

                                                     1995       1996        1997
                                                   -------    --------     -------
<S>                                                <C>         <C>         <C>
Current                                            $8,969      $16,718     $17,828
Deferred                                            3,309        1,803       3,602

Increase (decrease) in deferred income tax
     valuation allowance                              (78)       2,309      (2,309)
                                                      ---        -----      ------

                                                  $12,200      $20,830     $19,121
                                                  =======      =======     =======

</TABLE>

         A reconciliation of the Company's income tax provision to taxes
         computed by applying the statutory Federal rate of 35% to pretax
         financial reporting income before extraordinary items is as follows:

<TABLE>
<CAPTION>

         (in thousands)

                                               1995            1996              1997
                                              -------         -------          --------
<S>                                           <C>             <C>              <C>
Tax at statutory Federal rate                 $10,837         $16,244           $19,012
state income taxes, net of Federal benefit      1,105           1,870             2,161
Increase (decrease) in deferred income tax
     valuation allowance                          (78)          2,309            (2,309)
Nondeductible merger expenses and other           336             407               257
                                              -------         -------           -------

                                              $12,200         $20,830           $19,121
                                              =======         =======           =======
</TABLE>


         At January 1, 1998, Cobb Theatres had net operating loss carryforwards
         of approximately $10.6 million that may be offset against future
         taxable income. Substantially all of the carryforward expires in 2009
         through 2011. The $2,309 increase in the valuation allowance in 1996,
         and corresponding decrease in 1997, primarily reflect the change in the
         assessment of the likelihood of utilization of Cobb net operating loss
         carryforwards prior to, and after the merger of Cobb with Regal.
         Neighborhood and Cobb Theatres had approximately $266,000 and $627,000,
         respectively, of alternative minimum tax credit carryforwards available
         to reduce their future income tax liabilities. Under current Federal
         income tax law, the alternative minimum tax credit carryforwards have
         no expiration date.


                                       38

<PAGE>   41


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.       RELATED PARTY TRANSACTIONS

         Prior to May 1996, Regal obtained film licenses through an independent
         film booking agency owned by a director of the Company. Additionally,
         this director provides consulting services to the Company. The Company
         paid $626,000 and $655,000 in 1995 and 1996, respectively, for booking
         fees and consulting services.

         Regal paid $626,000, $952,000 and $1,200,057 in 1995, 1996 and 1997,
         respectively, for legal services provided by a law firm, a member of
         which serves as a director of the Company.

         Cobb Theatres leased office and warehouse facilities from a related
         party. The related rent expense amounted to approximately $266,000,
         $509,000 and $186,826 in 1995, 1996 and 1997, respectively.

         Cobb Theatres had an agreement with a corporation owned by a related
         party, to provide aircraft services. The fees for such services
         amounted to approximately $335,000, $432,000 and $257,250 for 1995,
         1996 and 1997, respectively.

9.       EARNINGS PER SHARE

         In February 1997, the Financial Accounting Standard Board issued
         Statement of Financial Accounting Standards No. 128, "Earnings Per
         Share," which changes the calculations used for earnings per share
         ("EPS") and makes them comparable to international EPS standards. It
         replaces the presentation of primary EPS with a presentation of basic
         EPS. It also requires dual presentation of basic and diluted EPS on the
         face of the income statement for all entities with complex capital
         structures and requires a reconciliation of the numerator and
         denominator of the basic EPS computation to the numerator and
         denominator of the diluted EPS computation. The Statement is effective
         for financial statements issued for periods ending after December 15,
         1997; earlier application was not permitted. All per share data has
         also been adjusted to give effect to the December 1995 and September
         1996 common stock splits.


                                       39

<PAGE>   42


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.       EARNINGS PER SHARE, CONTINUED

         The following reconciliation details the numerators and denominators
         used to calculate basic and diluted earnings per share for 1995, 1996
         and 1997 (in 000's).

<TABLE>
<CAPTION>


                                                                       1995
                                                  ----------------------------------------------
                                                    INCOME           SHARES            PER-SHARE
                                                  (NUMERATOR)     (DENOMINATOR)          AMOUNT
                                                  -----------     ------------         ----------
<S>                                               <C>             <C>                  <C>
Basic EPS net income applicable to common
     stock                                          $17,072          30,428              $0.56
                                                                                         =====
Effect of dilutive securities                                           883
                                                    -------          ------
Diluted EPS net income                              $17,072          31,311              $0.55
                                                    =======          ======              =====
<CAPTION>
                                                                      1996
                                                  ----------------------------------------------
                                                     INCOME          SHARES            PER-SHARE
                                                   (NUMERATOR)    (DENOMINATOR)         AMOUNT
                                                  ------------    -------------        ---------
<S>                                               <C>             <C>                  <C>
Basic EPS net income applicable to common
     stock                                          $24,837          33,726              $0.74
                                                                                         =====
Effect of dilutive securities                                         1,074
                                                    -------          ------
Diluted EPS net income                              $24,837          34,800              $0.71
                                                    =======          ======              =====
<CAPTION>
                                                                       1997
                                                   ----------------------------------------------
                                                     INCOME          SHARES            PER-SHARE
                                                  (NUMERATOR)     (DENOMINATOR)          AMOUNT
                                                  -----------     -------------        ----------
<S>                                               <C>             <C>                  <C>
Basic EPS net income applicable to common
     stock                                          $25,179          36,113              $0.70
                                                                                         =====
Effect of dilutive securities                                         1,072
                                                    -------          ------
Diluted EPS net income                              $25,179          37,185              $0.68
                                                    =======          ======              =====

</TABLE>

10.      SUBSEQUENT EVENT

         Regal has entered into an Agreement and Plan of Merger as of January
         19, 1998 (the "Merger Agreement"), among Screen Acquisition Corp., a
         Delaware corporation and a wholly owned subsidiary of KKR 1996 Fund
         L.P. (the "KKR Fund"), Monarch Acquisition Corp., a Delaware
         corporation and a wholly owned subsidiary of Hicks, Muse, Tate & Furst
         Equity Fund III, L.P. (the "HTMF Fund" and together with the KKR Fund,
         the "Funds"), and the Company. Pursuant to and subject to the terms and
         conditions of the Merger Agreement, Screen Acquisition Corp. and
         Monarch Acquisition Corp. will be merged with and into the Company (the
         "Merger") and the Company will continue after the Merger as a
         corporation owned by the Funds (the "Surviving Corporation"). Each
         share of Company common stock will be converted into the right to
         receive $31.00 in cash from the Surviving Corporation.

         The Merger is subject to termination or expiration of the waiting
         period under the Hart-Scott- Rodino Antitrust Improvements Act of 1976
         (the "HSR Act"), approval by Company shareholders, the obtaining of
         necessary financing to consummate the Merger and certain other
         conditions. The waiting period under the HSR Act expired on March 1,
         1998.


                                       40

<PAGE>   43



ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

        Not applicable.









                                       41

<PAGE>   44



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following persons are the current directors and executive officers
of the Company. Certain information relating to the directors and executive
officers, which has been furnished to the Company by the individuals named, is
set forth below.

<TABLE>
<CAPTION>

      NAME                      AGE                            POSITION
----------------------      ------------     ----------------------------------------
<S>                         <C>              <C>
Philip D. Borack                62           Director

Michael E. Gellert              66           Director

William H. Lomicka              61           Director

J. David Grissom                59           Director

Herbert S. Sanger, Jr.          61           Director

Jack Tyrrell                    51           Director

Michael L. Campbell             44           Chairman, President, Chief Executive
                                             Officer and Director

R. Neal Melton                  38           Vice President Equipment and
                                             Purchasing and Director

Gregory W. Dunn                 38           Executive Vice President and Chief
                                             Operating Officer

Robert A. Engel, Jr.            45           Senior Vice President Film and Advertising

Lewis Frazer III                33           Executive Vice President, Chief Financial
                                             Officer and Secretary

R. Keith Thompson               36           Senior Vice President, Real Estate and
                                             Development

Susan Seagraves                 41           Vice President, Corporate Controller
                                             and Assistant Secretary
</TABLE>



         Philip D. Borack has served as a director of the Company since December
1989. Since 1971, Mr. Borack has served as President of Tri-State Theatre
Service, Inc., a motion picture booking and buying agent for independent
theatres.

         Michael E. Gellert has served as a director of the Company since March
1990. Mr. Gellert has served as general partner of Windcrest Partners, a New
York investment partnership since 1967. From 1958 to 1989, Mr. Gellert was
associated with Drexel Burnham Lambert and its predecessors and served as an
Executive Director. Mr. Gellert is a director of Devon Energy Corp., an
independent energy company, Seacor Smit, Inc., an owner and operator of marine
vessels for oil exploration and development,



                                       42

<PAGE>   45



Premier Parks, Inc., an owner and operator of midsized theme parks, and Humana
Inc., a health care services company.

         William H. Lomicka has served as a director of the Company since March
1990. Since 1989, he has served as President of Mayfair Capital, Inc., a private
investment firm. From September 1988 through April 1989, Mr. Lomicka served as
acting President of Citizens Security Life Insurance Company. He was Secretary
of Economic Development of the Commonwealth of Kentucky from 1987 to 1988. From
1986 to 1987 he was President of Old South Life Insurance Company. Mr. Lomicka
serves as a director of Vencor, Inc., an operator of an integrated long-term
healthcare network and Sabratek Corporation, a medical products company.

         J. David Grissom has served as a director of the Company since March
1990. Mr. Grissom is the Chairman and founder of Mayfair Capital, Inc., a
private investment firm founded in 1989. Prior thereto, he served as Chairman
and Chief Executive Officer of Citizens Fidelity Corporation, a bank holding
company, from 1978 to 1989 and served as Vice Chairman of PNC Bank Corp. from
1987 to 1989. Mr. Grissom serves as a director of Churchill Downs, Inc., LG&E
Energy Corp., a diversified energy company, and Providian Corporation, an
insurance holding company.

         Herbert S. Sanger, Jr. has served as a director of the Company since
March 1990. Mr. Sanger is a member in the Knoxville, Tennessee law firm of
Wagner, Myers & Sanger, P.C., and has been a member of the firm since November
1986. Mr. Sanger was an attorney for the Tennessee Valley Authority ("TVA") from
1961 to 1986, serving as TVA's general counsel from 1975 to 1986.

         Jack Tyrrell has served as a director of the Company since March 1991.
Mr. Tyrrell is a general partner of Lawrence, Tyrrell, Ortale & Smith, a venture
capital firm founded in 1985. He also serves as a general partner of Lawrence,
Tyrrell, Ortale & Smith II, L.P., Richland Ventures, L.P. and Richland Ventures
II, L.P., also venture capital firms. Mr. Tyrrell serves as a director of
Premier Parks, an owner and operator of midsized theme parks and National Health
Investors, Inc., a real estate investment trust.

         Michael L. Campbell founded the Company in November 1989 and has served
as Chairman of the Board, President and Chief Executive Officer since inception.
Prior thereto, Mr. Campbell was the Chief Executive Officer of Premiere Cinemas
Corporation ("Premiere"), which he co-founded in 1982, and served in such
capacity until Premiere was sold in October 1989. Mr. Campbell serves on the
Executive Committee of the Board of Directors of the National Association of
Theatre Owners.

         R. Neal Melton has served as Vice President Equipment and Purchasing
and a director since 1990. Mr. Melton served as Secretary from 1990 to May 1997.
Prior to joining the Company, Mr. Melton co-founded Premiere with Mr. Campbell
and served as Senior Vice President, Secretary and a director of Premiere from
1982 through 1989.

         Gregory W. Dunn has served as Executive Vice President and Chief
Operating Officer since 1995. From 1991 to 1995, Mr. Dunn was Vice President
Marketing and Concessions. From 1989 to 1991, Mr. Dunn was the Purchasing and
Operations Manager for Goodrich Quality Theaters, a Grand Rapids, Michigan based
theatre chain. From 1986 to 1989, he was a film buyer for Tri-State Theatre
Service, Inc.

         Robert A. Engel, Jr. has served as Senior Vice President Film and
Advertising since 1990. From 1987 through 1989, Mr. Engel was Vice President of
Operations at Premiere and from 1971 to 1987 he worked at Associated Theatres of
Kentucky in various capacities, rising to Vice President of Operations and Film
Buying.



                                       43

<PAGE>   46



         Lewis Frazer III is a certified public accountant and has served as
Executive Vice President and Chief Financial Officer since February 1993 and a
Secretary since May 1997. From May 1992 to February 1993, Mr. Frazer served as
Controller. Prior to joining the Company, he served from 1990 to 1992 as
Corporate Controller for Kel-San, Inc., an affiliate of Institutional Jobbers.
From June 1986 to July 1990, Mr. Frazer was an auditor with Coopers & Lybrand.
Mr. Frazer serves as a member of the CFO Committee of the National Association
of Theatre Owners.

         R. Keith Thompson has served as Senior Vice President Real Estate and
Development since February 1993. Prior thereto, he served as Vice President
Finance since joining the Company in 1991. From June 1984 to July 1991, Mr.
Thompson was a Vice President of Corporate Lending at PNC Commercial
Corporation.

         Susan Seagraves has served as Vice President and Corporate Controller
since January 1994 when she joined the Company and as Assistant Secretary since
May 1997. Ms. Seagraves is a certified public accountant, a certified management
accountant and a fellow of health care management. From 1990 through 1993, Ms.
Seagraves was an adjunct faculty member of Tusculum College and Bristol
University and from 1988 to 1990 she served as Associate Executive Director of
the Thompson Cancer Survival Center. From 1980 to 1988, Ms. Seagraves was in
public accounting.


                          COMPLIANCE WITH SECTION 16(A)
                    BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. The executive officers,
directors and greater than ten percent shareholders are required by federal
securities regulations to furnish the Company with copies of all Section 16(a)
forms they file.

         Based solely on the Company's review of the copies of such forms and
written representations from certain reporting persons furnished to the Company,
the Company believes that its officers, directors, and greater than ten percent
shareholders were in compliance with all applicable filing requirements, except
that one transaction for Mr. Melton was not timely reported. This transaction
has been subsequently reported.

ITEM 11. EXECUTIVE COMPENSATION

         The following table provides information as to annual, long-term or
other compensation during the last three fiscal years for the Company's Chief
Executive Officer and each of the Company's other executive officers whose
salary and bonus exceeded $100,000 during fiscal 1997 (collectively the "Named
Executive Officers").



                                       44

<PAGE>   47



                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                 LONG TERM
                                                                                                COMPENSATION
                                                             ANNUAL COMPENSATION                   AWARDS
                                                  -----------------------------------------   ---------------
                                                                                                SECURITIES
                                                                                                UNDERLYING
NAME AND POSITION                                 FISCAL YEAR     SALARY($)    BONUS($)(1)    OPTIONS/SARS(#)
                                                  -----------     ---------    -----------    ---------------
<S>                                               <C>             <C>          <C>            <C>
Michael L. Campbell                                   1997         $241,500     $671,941          190,000
   Chairman, President and Chief                      1996          209,463      716,988          150,000
   Executive Officer                                  1995          179,236      441,252          112,500
Gregory W. Dunn                                       1997         $125,000     $135,000           60,000
   Executive Vice President and Chief                 1996          115,358      130,000           52,500
   Operating Officer                                  1995           87,536       75,000           61,875
Lewis Frazer III                                      1997         $120,000     $120,000           60,000
   Executive Vice President, Chief                    1996          108,413      124,950           45,000
   Financial Officer and Secretary                    1995           84,804       70,000           56,250
R. Keith Thompson                                     1997         $110,000     $ 70,000           40,000
   Senior Vice President Real Estate and              1996           95,568       60,000           30,000
   Development                                        1995           77,033       50,000           22,500
Robert A. Engel                                       1997         $ 95,000     $ 50,000               --
   Senior Vice President Film and                     1996           85,540       55,000           30,000
   Advertising                                        1995           77,033       45,000           22,500

</TABLE>

------------------


(1)      For fiscal years 1997 and 1996, reflects cash bonus earned in fiscal
         1997 and 1996, respectively, and paid the following fiscal year. For
         fiscal year 1995, reflects bonuses earned in the fiscal year indicated
         and paid in the following fiscal year one-half in cash and one-half in
         restricted stock purchased in the name of the executive officer. Shares
         of restricted stock vested on January 2, 1997, one year after the grant
         date. Restricted stock was awarded as follows: Mr. Campbell - 10,227
         shares for fiscal 1995; Mr. Dunn - 1,738 shares for fiscal 1995; Mr.
         Frazer - 1,623 shares for fiscal 1995; Mr. Thompson -1,159 shares for
         fiscal 1995; and Mr. Engel - 1,042 shares for fiscal 1995. Such shares
         for fiscal 1995 represent the total aggregate holdings of restricted
         stock by the Named Executive Officers for fiscal 1995 and had a fair
         market value of approximately $192,574, $32,727, $30,561, $21,824,
         $19,621, for Messrs. Campbell, Dunn, Frazer, Thompson and Engel,
         respectively, based on a price of $18.83, the closing price of the
         Common Stock on The Nasdaq Stock Market on December 28, 1995 (as
         adjusted for a three-for-two stock split in September 1996). Dividends
         are paid on all restricted shares to the same extent as on any other
         shares of Common Stock.




                                       45

<PAGE>   48



         The following table summarizes certain information regarding stock
options issued to the Named Executive Officers during fiscal 1997. No stock
appreciation rights ("SARs") have been granted by the Company.

                       OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                             INDIVIDUAL GRANTS
                           -----------------------------------------------------
                                           PERCENT OF
                             NUMBER OF       TOTAL
                             SECURITIES     OPTIONS                                       POTENTIAL REALIZABLE
                             UNDERLYING    GRANTED TO                                        VALUE AT ASSUMED
                              OPTIONS       EMPLOYEES    EXERCISE                            ANNUAL RATES OF
                              GRANTED       IN FISCAL     PRICE      EXPIRATION            STOCK APPRECIATION
       NAME                    (#)(1)         1997      ($/SHARE)       DATE                 OPTION TERM (2)
    -----------             -----------    ----------   ---------    ----------         ---------------------------
                                                                                           5%($)           10%($)
                                                                                        ----------       ----------
<S>                          <C>            <C>          <C>          <C>               <C>              <C>
Michael L. Campbell           150,000         14.90%     $31.875      08/08/07          $3,006,885       $7,620,069
                               40,000          3.97%      22.75       11/07/07             572,290        1,450,303

Gregory W. Dunn                50,000          4.97%      31.875      08/08/97           1,002,295        2,540,023
                               10,000          0.99%      22.75       11/07/07             143,072          362,575

Lewis Frazer III               50,000          4.97%      31.875      08/08/07           1,002,295        2,540,023
                               10,000          0.99%      22.75       11/07/07             143,072          362,575

R. Keith Thompson              30,000          2.98%      31.875      08/08/07             601,377        1,524,013
                               10,000          0.99%      22.75       11/07/07             143,072          362,575

Robert A. Engel                    --            --           --           --                   --               --
</TABLE>

------------

(1)  All options were granted pursuant to the 1993 Employee Stock Incentive Plan
     (the "1993 Plan"), have a term of ten years, and vest in one-third
     increments annually beginning August 8, 2000 and November 7, 2000,
     respectively.
(2)  Potential realizable value is calculated from a base stock price of $22.75
     and $31.875, the exercise prices of the options granted.



                                       46

<PAGE>   49



         The following table summarizes certain information with respect to
stock options exercised by the Named Executive Officers pursuant to the
Company's Stock Option Plans.

               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                       FISCAL 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
                                                             NUMBER OF SECURITIES        VALUE OF UNEXERCISED IN-
                                                                  UNDERLYING                       THE-
                                                         UNEXERCISED OPTIONS HELD AT       MONEY OPTIONS HELD AT
                                                               JANUARY 1, 1998              JANUARY 1, 1998(1)
                                                                     (#)                            ($)
                                                         ----------------------------- ---------------------------
                              SHARES
                           ACQUIRED ON      VALUE
NAME                       EXERCISE (#)   REALIZED($)    EXERCISABLE    UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
--------------------      -------------   -----------    -----------    -------------  -----------   -------------
<S>                       <C>             <C>            <C>            <C>            <C>           <C>
Michael L. Campbell              --            --          222,357         674,857     $4,966,121      $6,724,840

Gregory W. Dunn                  --            --           42,749         226,969        943,477       2,126,744

Lewis Frazer III                 --            --           50,203         234,940      1,084,520       2,457,802

R. Keith Thompson             3,677       $69,530           23,954         126,110        530,282       1,164,124

Robert A. Engel                  --            --           59,701          89,795      1,403,604       1,202,416
</TABLE>

------------

(1)      Reflects the market value of the underlying securities at exercise or
         at $27.875, the closing price on The Nasdaq Stock Market on December
         31, 1997, less the exercise price.

DIRECTORS' COMPENSATION

         Each non-employee director is reimbursed for out-of-pocket expenses
incurred in attending Board of Directors and committee meetings and non-employee
directors receive stock options pursuant to the 1993 Outside Director's Stock
Option Plan (the "Outside Directors' Plan"). Upon the Company's initial public
offering, each non-employee director was granted a one-time option for the
purchase of 10,125 shares of the Company's Common Stock. In addition, on the
anniversary date of each non-employee director's election, provided the person
continues to serve as a director, the non-employee director will receive an
option for the purchase of 5,000 shares. All options granted under the Outside
Directors' Plan will have an exercise price equal to the fair market value of
the Common Stock at the date of grant, will vest in one-third increments
annually from the date of grant and will have a term of ten years, subject to
the non-employee director's continued service as a director.

EMPLOYMENT AGREEMENTS

         Michael L. Campbell and R. Neal Melton are each employed by the Company
under an Agreement of Employment and Covenant Not to Compete dated March 17,
1990 (the "Employment Agreements"). Under the Employment Agreements, Messrs.
Campbell and Melton, respectively, were employed as President and Chief
Executive Officer and Vice President and Secretary for an initial term ended
March 31, 1993, with automatically renewable one year terms unless the Company
or such officer gives advance written notice of intent not to renew. The
Employment Agreements will terminate upon permanent disability and may be
terminated by the Company for cause. Upon termination or nonrenewal of their
respective Employment Agreements, Messrs. Campbell and Melton have each agreed,
for a period of two



                                       47

<PAGE>   50



years, not to become employed, directly or indirectly, by, or to have a
financial interest in, any other business engaged in the motion picture theatre
business in a manner similar in nature to the business of the Company within a
15 mile radius of any theatre location the Company operates at the time of
termination or any location at which the Company has plans or negotiations in
progress to develop, open or build a theatre at the time of such termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         During fiscal 1997, the Compensation Committee was comprised of Messrs.
Gellert, Grissom and Sanger. None of these persons has at any time been an
officer or employee of the Company or its subsidiaries.

         The law firm of Wagner, Myers & Sanger, P.C. serves as counsel to the
Company, and Mr. Sanger is a member of the firm. For fiscal 1997, the Company
paid fees to Wagner, Myers & Sanger, P.C. of $1,200,057.




                                       48

<PAGE>   51



ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information with respect to the
beneficial ownership of shares of the Common Stock as of March 19, 1998, by (i)
each director of the Company; (ii) the executive officers of the Company; and
(iii) by all directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                        Amount and
              Name and Address of                  Nature of Beneficial      Percent
               Beneficial Owners                       Ownership(1)          of Class
----------------------------------------------   ----------------------    -----------
<S>                                              <C>                       <C>
Michael E. Gellert**                                  1,027,618(2)            2.8%

J. David Grissom**                                      906,999(3)            2.5%

Jack Tyrrell**                                          107,829(4)            *

Michael L. Campbell***                                1,174,319(5)            3.2%

R. Neal Melton***                                       617,599(6)            1.7%

Philip D. Borack**                                       38,389(7)            *

William H. Lomicka**                                    220,366(8)            *

Herbert S. Sanger, Jr.**                                 32,000(9)            *

Gregory W. Dunn****                                     273,266(10)           *

Lewis Frazer III****                                    286,766(11)           *

Robert A. Engel****                                     226,781(12)           *

R. Keith Thompson****                                   152,926(13)           *

Susan Seagraves****                                      95,417(14)           *

All directors and executive officers as a group       5,160,275(15)          13.4%
(13 persons)
</TABLE>

------------------------

*Indicates ownership of less than one percent of the Company's outstanding
 Common Stock.
**Director of the Company.
***Director and Executive Officer.
****Executive Officer.

(1)   Pursuant to the rules of the Securities and Exchange Commission, certain
      shares of the Company's Common Stock which a beneficial owner has the
      right to acquire within 60 days of March 19, 1998 pursuant to the exercise
      of stock options or warrants are deemed to be outstanding for the purpose
      of computing the percentage ownership of such owner but are not deemed
      outstanding for the purpose of computing the percentage ownership of any
      other person. Assumes that the Merger will be consummated within 60 days
      of March 19, 1998 and, therefore, that all options and warrants are
      exercisable as of March 19, 1998.
(2)   Mr. Gellert is a general partner of Windcrest Partners and, therefore, is
      deemed to beneficially own the 861,170 shares and the 76,316 shares
      issuable upon the exercise of certain warrants held by Windcrest Partners.
      Also includes 25,250 shares issuable upon the exercise of outstanding
      options.


                                       49

<PAGE>   52



(3)   Includes 58,682 shares issuable upon the exercise of certain warrants;
      10,125 shares held by Longview Foundation, a not for profit corporation
      for which Mr. Grissom serves as President; and 25,250 shares issuable upon
      the exercise of outstanding options. Mr. Grissom disclaims beneficial
      ownership of the shares held by Longview Foundation. Does not include
      certain shares owned by Mr. Grissom's wife of which Mr. Grissom disclaims
      beneficial ownership.
(4)   Includes 11,750 shares of Regal Common Stock issuable upon the exercise of
      outstanding options. Does not include certain shares owned by Mr.
      Tyrrell's wife, of which he disclaims beneficial ownership.
(5)   Includes 897,214 shares of Regal Common Stock issuable upon the exercise
      of outstanding stock options of which 150,000 have an exercise price in
      excess of the $31.00 per share consideration to be received in the Merger
      and, therefore, will have no value if the Merger is consummated.
(6)   Includes 130,951 shares of Regal Common Stock issuable upon the exercise
      of outstanding stock options.
(7)   Includes 1,375 shares held by Mr. Borack's daughter and 37,014 shares
      issuable upon the exercise of outstanding options.
(8)   Includes 23,457 shares issuable upon the exercise of certain warrants and
      25,250 shares issuable upon the exercise of outstanding options.
(9)   Includes 16,875 shares held for the benefit of Mr. Sanger by The Trust Co.
      of Knoxville, Inc., trustee for Wagner, Myers & Sanger, P. C. Money
      Purchase Pension Plan, and 15,125 shares issuable upon the exercise of
      outstanding options.
(10)  Includes 269,718 shares issuable upon the exercise of outstanding
      options of which 50,000 have an exercise price in excess of the $31.00
      per share consideration to be received in the Merger and, therefore, will
      have no value if the Merger is consummated. Includes 704 shares held by
      Mr. Dunn's spouse for the benefit of his two children and 1,105 shares
      held by his spouse.
(11)  Includes 285,143 shares issuable upon the exercise of outstanding options
      of which 50,000 have an exercise price in excess of the $31.00 per share
      consideration to be received in the Merger and, therefore, will have no
      value if the Merger is consummated.
(12)  Includes 149,496 shares issuable upon the exercise of outstanding options
      and 505 shares held by his spouse.
(13)  Includes 150,064 shares issuable upon the exercise of outstanding options
      of which 30,000 have an exercise price in excess of the $31.00 per share
      consideration to be received in the Merger and, therefore, will have no
      value if the Merger is consummated.
(14)  Includes 95,000 shares issuable upon the exercise of outstanding options.
(15)  Includes 2,117,225 shares issuable upon the exercise of outstanding
      options and 158,455 shares issuable upon the exercise of outstanding
      warrants.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The law firm of Wagner, Myers & Sanger, P.C. serves as counsel to the
Company, and Mr. Sanger is a member of the firm. For fiscal 1997, the Company
paid fees to Wagner, Myers & Sanger, P.C. of $1,200,057.

         The Board of Directors has adopted a policy which provides that any
transaction between the Company and any of its directors, officers or principal
shareholders or affiliates thereof must be on terms no less favorable to the
Company than could be obtained from unaffiliated parties, and must be approved
by a vote of a majority of the disinterested directors of the Company. The
Company believes that past transactions have complied with this policy.




                                       50

<PAGE>   53



                                     PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)      1.    Financial Statements:

                     The following Financial Statements of Regal Cinemas, Inc.
                     are included in Part II, Item 8.

                     Reports of Independent Accountants
                     Consolidated Balance Sheets at January 2, 1997 and
                              January 1, 1998.
                     Consolidated Statements of Income for the years ended
                              December 28, 1995, January 2, 1997 and
                              January 1, 1998.
                     Consolidated Statements of Changes in Shareholders'
                              Equity for the years ended December 28, 1995,
                              January 2, 1997 and January 1, 1998.
                     Consolidated Statements of Cash Flows for the years
                              ended December 28, 1995, January 2, 1997 and
                              January 1, 1998.
                     Notes to Consolidated Financial Statements

         2.    Financial Statement Schedules - Not applicable.

         3.    Exhibits:



<TABLE>
<CAPTION>

Exhibit
Number          Description
---------       ----------------------------------------------------------------
<S>             <C>

3.1(1)          Restated Charter of Registrant
3.2(1)          Restated Bylaws of Registrant
4.1(1)          Specimen Common Stock certificate.
4.2(1)          Article 5 of the Registrant's Restated Charter (included in
                Exhibit 3.1).
4.3(2)          Indenture dated September 24, 1997 between Regal Cinemas, Inc.
                and IBJ Schroder Bank & Trust Company.
4.4(2)          Form of Regal Cinemas, Inc. 8 1/2% Senior Subordinated Note due
                October 1, 2007 (contained in Indenture filed as Exhibit 4.3).
4.5(2)          Registration Rights Agreement dated July 31, 1997 among
                Regal Cinemas, Inc., Cobb Theatres, L.L.C., the Members
                of Cobb Theatres, L.L.C. and the partners of Tricob Partnership.
4.6(3)          Form of 10 5/8% Notes due 2003.
4.7(3)          Indenture dated March 6, 1996 among Cobb Theatres, L.L.C., R.C.
                Cobb, Inc., Cobb Theatres II, Inc., Cobb Finance Corp. and IBJ
                Schroder Bank & Trust Company.
4.8(4)          First Supplemental Indenture dated August 30, 1996 among Cobb
                Theatres, L.L.C., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc. and IBJ Schroder Bank & Trust Company.
4.9(4)          Second Supplemental Indenture dated July 30, 1997 among Cobb
                Theatres, L.L.C., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc. and IBJ Schroder Bank & Trust Company.
4.10(4)         Third Supplemental Indenture dated July 31, 1997 among Cobb
                Theatres, L.L.C., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc., Regal Cinemas, Inc. and IBJ Schroder Bank &
                Trust Company.
4.11(2)         Fourth Supplemental Indenture dated August 28, 1997 among Regal
                Cinemas, Inc., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc. and IBJ Schroder Bank & Trust Company.
10.1(1)         Warrant Certificate dated April 26, 1990.
10.2(1)         Form of Warrant Certificate executed January 11, 1991.
10.3(1)         Amended and Restated Subordinated Agreement dated April 20, 1994.
10.4(1)         Form of Indemnification Agreement.
10.5(1)         Amended and Restated Warrant Certificate replacing Warrant
                Certificate dated April 26, 1990.

</TABLE>



                                       51


<PAGE>   54

<TABLE>


<S>             <C>
10.6(1)         Form of Amended and Restated Warrant Certificate replacing
                Warrant Certificates dated January 11, 1991.
10.7(5)         Acquisition Agreement dated March 25, 1996 among Regal Cinemas,
                Inc. and Del Rosa Cinema 8, Inc., Krikorian Premiere Theatres,
                Inc., George Krikorian, El Cajon Cinemas, Inc., Peninsula Cinema
                9, Inc., Terrace Cinema 6, Inc., Whittwood Cinema, Inc., Diamond
                Bar Cinema 10, Inc., Hemet Cinemas, Inc., Lake Elsinore Cinemas,
                Inc., and What If Enterprises, LLC.
10.8(6)         Amended and Restated Agreement and Plan of Merger dated as of
                February 2, 1996 between Regal Cinemas, Inc. and Georgia State
                Theatres, Inc.
10.9(7)         Agreement and Plan of Merger dated June 11, 1997 among Regal
                Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation,
                RAC Finance Corp., Cobb Theatres, L.L.C., R. C. Cobb, Inc., Cobb
                Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.
10.10(4)        Agreement and Waiver dated July 31, 1997, by and among Regal
                Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation,
                RAC Finance Corp., Cobb Theatres, L.L.C., R. C. Cobb, Inc., Cobb
                Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.
10.11(8)        Loan Agreement dated October 8, 1997.

MANAGEMENT CONTRACT OR COMPENSATORY PLAN

10.12(1)        1993 Employee Stock Incentive Plan.
10.13(1)        1993 Outside Directors' Stock Option Plan.
10.14(1)        Regal Cinemas, Inc. Participant Stock Option Plan.
10.15(1)        Regal Cinemas, Inc. Employee Stock Option Plan.
10.16(1)        Agreement of Employment and Covenant Not to Compete by and between
                Michael L. Campbell and Regal Cinemas, Inc. dated March 17, 1990.
10.17(1)        Agreement of Employment and Covenant Not to Compete by and between R.
                Neal Melton and Regal Cinemas, Inc. dated March 17, 1990.
10.18(9)        401(k) Profit Sharing Plan.
11              Statement re: computation of Per Share Earnings.
21              Subsidiaries of the Registrant
23.1            Consent of Coopers & Lybrand L.L.P.
23.2            Consent of Ernst & Young LLP
27              Financial Data Schedule (for SEC use only).
</TABLE>



                                       52

<PAGE>   55

-----------------

(1)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-1, Registration No. 33-62868.
(2)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4, Registration No. 333-40019.
(3)  Incorporated by reference to Cobb Theatres, L.L.C.'s Registration
     Statement on Form S-4, Registration No. 333-02724.
(4)  Incorporated by reference to the Registrant's Current Report on Form 8-K
     dated August 14, 1997.
(5)  Incorporated by reference to the Registrant's Current Report on Form 8-K
     dated May 1, 1996.
(6)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4, Registration No. 333-2514.
(7)  Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on
     Form 10-Q for the quarter ended May 31, 1997.
(8)  Incorporated by reference to the Registrant's Quarterly Report on Form
     10-Q for the quarter ended October 2, 1997.
(9)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-8, Registration No. 333-13295.





         (b) During the fourth quarter of fiscal 1997 ended January 1, 1998, the
Registrant filed no reports on Form 8-K.




                                       53

<PAGE>   56



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 30, 1998               By: /s/ Michael L. Campbell
                                       -----------------------------------------
                                       Michael L. Campbell, Chairman, President,
                                       Chief Executive Officer and Director

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>

Signature                              Title                              Date
---------                              -----                              ----
<S>                                    <C>                                <C>

/s/ Michael L. Campbell               Chairman of the Board,              March 30, 1998
----------------------------------      President, Chief Executive
Michael L. Campbell                     Officer and Director (Principal
                                        Executive Officer)


/s/ Lewis Frazer III                  Executive Vice President, Chief     March 30, 1998
----------------------------------      Financial Officer and Secretary
Lewis Frazer III                        (Principal Financial and
                                        Accounting Officer)

/s/ R. Neal Melton                    Vice President Equipment and        March 30, 1998
----------------------------------      Purchasing and Director
R. Neal Melton

/s/ Philip D. Borack                  Director                            March 30, 1998
----------------------------------
Philip D. Borack

/s/ Michael E. Gellert                Director                            March 30, 1998
----------------------------------
Michael E. Gellert

/s/ J. David Grissom                  Director                            March 30, 1998
----------------------------------
J. David Grissom

/s/ William H. Lomicka                Director                            March 30, 1998
----------------------------------
William H. Lomicka

/s/ Herbert S. Sanger, Jr.            Director                            March 30, 1998
----------------------------------
Herbert S. Sanger, Jr.

/s/ Jack Tyrrell                      Director                            March 30, 1998
----------------------------------
Jack Tyrrell
</TABLE>




                                       54

<PAGE>   57



                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

Exhibit
Number          Description
--------        ---------------------------------------------------------
<S>             <C>
3.1(1)          Restated Charter of Registrant
3.2(1)          Restated Bylaws of Registrant
4.1(1)          Specimen Common Stock certificate.
4.2(1)          Article 5 of the Registrant's Restated Charter (included in
                Exhibit 3.1).
4.3(2)          Indenture dated September 24, 1997 between Regal Cinemas, Inc.
                and IBJ Schroder Bank & Trust Company.
4.4(2)          Form of Regal Cinemas, Inc. 8 1/2% Senior Subordinated Note due
                October 1, 2007 (contained in Indenture filed as Exhibit 4.3).
4.5(2)          Registration Rights Agreement dated July 31, 1997 among
                Regal Cinemas, Inc., Cobb Theatres, L.L.C., the Members
                of Cobb Theatres, L.L.C. and the partners of Tricob Partnership.
4.6(3)          Form of 10 5/8% Notes due 2003.
4.7(3)          Indenture dated March 6, 1996 among Cobb Theatres, L.L.C., R.C.
                Cobb, Inc., Cobb Theatres II, Inc., Cobb Finance Corp. and IBJ
                Schroder Bank & Trust Company.
4.8(4)          First Supplemental Indenture dated August 30, 1996 among Cobb
                Theatres, L.L.C., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc. and IBJ Schroder Bank & Trust Company.
4.9(4)          Second Supplemental Indenture dated July 30, 1997 among Cobb
                Theatres, L.L.C., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc. and IBJ Schroder Bank & Trust Company.
4.10(4)         Third Supplemental Indenture dated July 31, 1997 among Cobb
                Theatres, L.L.C., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc., Regal Cinemas, Inc. and IBJ Schroder Bank &
                Trust Company.
4.11(2)         Fourth Supplemental Indenture dated August 28, 1997 among Regal
                Cinemas, Inc., Cobb Finance Corp., R. C. Cobb, Inc., Cobb
                Theatres II, Inc. and IBJ Schroder Bank & Trust Company.
10.1(1)         Warrant Certificate dated April 26, 1990.
10.2(1)         Form of Warrant Certificate executed January 11, 1991.
10.3(1)         Amended and Restated Subordinated Agreement dated April 20, 1994.
10.4(1)         Form of Indemnification Agreement.
10.5(1)         Amended and Restated Warrant Certificate replacing Warrant
                Certificate dated April 26, 1990.
10.6(1)         Form of Amended and Restated Warrant Certificate replacing
                Warrant Certificates dated January 11, 1991.
10.7(5)         Acquisition Agreement dated March 25, 1996 among Regal Cinemas,
                Inc. and Del Rosa Cinema 8, Inc., Krikorian Premiere Theatres,
                Inc., George Krikorian, El Cajon Cinemas, Inc., Peninsula Cinema
                9, Inc., Terrace Cinema 6, Inc., Whittwood Cinema, Inc., Diamond
                Bar Cinema 10, Inc., Hemet Cinemas, Inc., Lake Elsinore Cinemas,
                Inc., and What If Enterprises, LLC.
10.8(6)         Amended and Restated Agreement and Plan of Merger dated as of
                February 2, 1996 between Regal Cinemas, Inc. and Georgia State
                Theatres, Inc.
10.9(7)         Agreement and Plan of Merger dated June 11, 1997 among Regal
                Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation,
                RAC Finance Corp., Cobb Theatres, L.L.C., R. C. Cobb, Inc., Cobb
                Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.
</TABLE>


                                       55

<PAGE>   58

<TABLE>

<S>             <C>
10.10(4)        Agreement and Waiver dated July 31, 1997, by and among Regal
                Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation,
                RAC Finance Corp., Cobb Theatres, L.L.C., R. C. Cobb, Inc., Cobb
                Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.
10.11(8)        Loan Agreement dated October 8, 1997.

MANAGEMENT CONTRACT OR COMPENSATORY PLAN

10.12(1)        1993 Employee Stock Incentive Plan.
10.13(1)        1993 Outside Directors' Stock Option Plan.
10.14(1)        Regal Cinemas, Inc. Participant Stock Option Plan.
10.15(1)        Regal Cinemas, Inc. Employee Stock Option Plan.
10.16(1)        Agreement of Employment and Covenant Not to Compete by and between
                Michael L. Campbell and Regal Cinemas, Inc. dated March 17, 1990.
10.17(1)        Agreement of Employment and Covenant Not to Compete by and between R.
                Neal Melton and Regal Cinemas, Inc. dated March 17, 1990.
10.18(9)        401(k) Profit Sharing Plan.
11              Statement re: computation of Per Share Earnings.
21              Subsidiaries of the Registrant
23.1            Consent of Coopers & Lybrand L.L.P.
23.2            Consent of Ernst & Young LLP
27              Financial Data Schedule (for SEC use only).
</TABLE>


-----------------

(1)   Incorporated by reference to the Registrant's Registration Statement on
      Form S-1, Registration No. 33-62868.
(2)   Incorporated by reference to the Registrant's Registration Statement on
      Form S-4, Registration No. 333-40019.
(3)   Incorporated by reference to Cobb Theatres, L.L.C.'s Registration
      Statement on Form S-4, Registration No. 333-02724.
(4)   Incorporated by reference to the Registrant's Current Report on Form 8-K
      dated August 14, 1997.
(5)   Incorporated by reference to the Registrant's Current Report on Form 8-K
      dated May 1, 1996.
(6)   Incorporated by reference to the Registrant's Registration Statement on
      Form S-4, Registration No. 333-2514.
(7)   Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on
      Form 10-Q for the quarter ended May 31, 1997.
(8)   Incorporated by reference to the Registrant's Quarterly Report on Form
      10-Q for the quarter ended October 2, 1997.
(9)   Incorporated by reference to the Registrant's Registration Statement on
      Form S-8, Registration No. 333-13295.



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