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                UNITED STATES 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 DECEMBER 30, 1999

                        COMMISSION FILE NUMBER 333-52943

                               REGAL CINEMAS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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               TENNESSEE                                 62-1412720
      (State or other jurisdiction          (IRS employer identification number)
   of incorporation or organization)

       7132 COMMERCIAL PARK DRIVE
          KNOXVILLE, TENNESSEE                             37918
(Address of principal executive offices)                 (Zip Code)
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       Registrant's telephone number, including area code: (865) 922-1123

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

        Securities registered pursuant to Section 12(g) of the Act: NONE

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. [ ]

Shares of common stock, no par value per share, outstanding on March 29, 2000,
were 216,873,501
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                               REGAL CINEMAS, INC.
                             FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS



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<S>     <C>       <C>                                                             <C>
PART I                                                                              3
        Item 1.   Business....................................................      3
                  The Company.................................................      3
                  Recapitalization and Financing..............................      4
                  Business Strategy...........................................      4
                  Industry Overview...........................................      6
                  Theatre Operations..........................................      7
                  Seasonality.................................................      9
                  Film Licensing..............................................      9
                  Complementary Concepts......................................     10
                  Competition.................................................     10
                  Management Information Systems..............................     11
                  Employees...................................................     11
                  Regulation..................................................     11
                  Risk Factors................................................     12
        Item 2.   Properties..................................................     14
        Item 3.   Legal Proceedings...........................................     15
        Item 4.   Submission of Matters to a Vote of Security-Holders.........     15
PART II                                                                            15
        Item 5.   Market for the Registrant's Common Equity and Related
                  Shareholder Matters.........................................     15
        Item 6.   Selected Financial Data.....................................     15
        Item 7.   Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...................................     17
                  Overview....................................................     17
                  Background of Regal.........................................     17
                  Result of Operations........................................     17
                  Fiscal Years Ended December 30, 1999 and December 31,
                  1998........................................................     18
                  Fiscal Years Ended December 31, 1998 and January 1, 1998....     19
                  Impairment and Other Disposal Charges.......................     20
                  Liquidity and Capital Resources.............................     20
                  Inflation; Economic Downturn................................     22
                  New Accounting Pronouncements...............................     23
                  Recent Accounting Pronouncements Not Yet Adopted............     23
        Item 7A.  Quantitative and Qualitative Disclosures About Market
                  Risk........................................................     23
        Item 8.   Financial Statements and Supplemental Data..................     25
                  Independent Auditors' Report................................     26
                  Report of Independent Accountants...........................     27
        Item 9.   Changes In and Disagreements with Accountants on Accounting
                  and Financial Disclosure....................................     45
PART III                                                                           46
        Item 10.  Directors and Executive Officers of the Registrant..........     46
                  Composition of the Board of Directors.......................     49
        Item 11.  Executive Compensation......................................     49
                  Directors' Compensation.....................................     50
                  Employment Agreements.......................................     50
                  Compensation Committee Interlocks and Insider
                  Participation...............................................     51
        Item 12.  Security Ownership of Certain Beneficial Owners and
                  Managements.................................................     51
        Item 13.  Certain Relationship and Related Transactions...............     52
PART IV                                                                            53
        Item 14.  Exhibits, Financial Statement Schedules and Reports on
                  Form 8-K....................................................     53
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                               REGAL CINEMAS, INC.

                                     PART I

ITEM 1.  BUSINESS

THE COMPANY

         Regal Cinemas, Inc. ("Regal" or the "Company") is the largest motion
picture exhibitor in the United States based upon the number of screens in
operation. At December 30, 1999, the Company operated 430 theatres, with an
aggregate of 4,413 screens in 32 states. Since its inception in November 1989,
the Company has achieved substantial growth in revenues and net income before
interest expense, income taxes, depreciation and amortization, other income or
expense, extraordinary items and non-recurring charges ("EBITDA"). As a result
of the Company's focus on enhancing revenues, operating efficiently and strictly
controlling costs, the Company has achieved what management believes are among
the highest EBITDA margins in the domestic motion picture exhibition industry.
For the five-year period ended December 30, 1999, the Company had compound
annual growth rates in revenues and EBITDA of 35.4% and 33.9% respectively.

         The Company operates primarily multiplex theatres and has an average of
10.3 screens per location, which management believes is among the highest in the
industry and which compares favorably to an average of approximately 8.1 screens
per location for the five largest North American motion picture exhibitors at
September 30, 1999. The Company develops, acquires and operates multiplex
theatres primarily in mid-sized metropolitan markets and suburban growth areas
of larger metropolitan markets, predominantly in the eastern and northwestern
United States. The Company seeks to locate theatres in markets that it believes
are underscreened or served by older theatre facilities. The Company also seeks
to locate each theatre where it will be the sole or leading exhibitor within a
particular geographic film licensing zone. Management believes that at December
30, 1999, approximately 80.2% of the Company's screens were located in film
licensing zones in which the Company was the sole exhibitor.

         The Company continually upgrades its theatre circuit by opening new
theatres, adding new screens to existing theatres and selectively closing or
disposing of under-performing multiplexes. From its inception through December
30, 1999, the Company has grown by acquiring 287 theatres with 2,233 screens
(net of subsequently closed locations), developed 143 new theatres with 2,027
screens and adding 153 screens to existing theatres. This strategy has served to
establish and enhance the Company's presence in selected geographic markets. In
addition, as a result of this strategy, the Company enjoys one of the most
modern asset bases in the industry with 42% of its circuit having been built
since 1997. The Company projects that at the end of fiscal 2000 approximately
48% of the circuit will have been built since 1997. Approximately 40% of the
Company's screens are in theatres with 15 or more screens. At December 30, 1999,
the Company had 16 new theatres with 242 screens under construction and 15 new
screens under construction at three existing theatres. In addition, the Company
had entered into leases in connection with its plans to develop an additional 16
theatres with 241 screens.

         On August 26, 1998, the Company acquired Act III Cinemas, Inc. ("Act
III"), then the ninth largest motion picture exhibitor in the United States
based on number of screens in operation (the "Act III Merger"). At the time of
the Act III Merger, Act III operated 130 theatres, with an aggregate of 835
screens, strategically located in concentrated areas throughout the Pacific
Northwest, Texas and Nevada. The Company has acquired ten other theatre circuits
during the last five years, including Cobb Theatres, Georgia State Theatres and
Litchfield Theatres. These acquisitions have enabled the Company to become a
leading operator in certain of its markets and to improve its market
concentration in the eastern and northwestern United States. Through the
integration of these acquisitions, the Company has achieved economies of scale
by consolidating purchasing, operating and other administrative functions.


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RECAPITALIZATION AND FINANCING

         On May 27, 1998, an affiliate of Kohlberg Kravis Roberts & Co. L.P.
("KKR") and an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks
Muse") merged with and into the Company (the Regal Merger), with the Company
continuing as the surviving corporation. The consummation of the Regal Merger
resulted in a recapitalization (the Recapitalization) of the Company. In the
Recapitalization, existing holders of the Company's common stock (the Common
Stock) received cash for their shares of Common Stock, and KKR, Hicks Muse, DLJ
Merchant Banking Partners II, L.P. and affiliated funds (DLJ) and certain
members of the Company's management acquired the Company. In addition, in
connection with the Recapitalization, the Company canceled options and
repurchased warrants held by certain directors, management and employees of the
Company (the Option/Warrant Redemption). The aggregate purchase price paid to
effect the Regal Merger and the Option/Warrant Redemption was approximately $1.2
billion.

         The Regal Merger was financed by an offering (the "Original Note
Offering") of $400.0 million aggregate principal amount of 9 1/2% Senior
Subordinated Notes due 2008 (the "Original Notes"), initial borrowings of $375.0
million under the Company's current senior credit facility (as amended, the
"Senior Credit Facilities") and $776.9 million in proceeds from the investment
by KKR, Hicks Muse, DLJ and management in the Company (the "Equity Investment").
The proceeds of the Original Note Offering, the initial borrowing under the
Senior Credit Facilities and the Equity Investment (collectively, the
"Financing") were used: (i) to fund the cash payments required to effect the
Regal Merger and the Option/Warrant Redemption; (ii) to repay and retire the
Company's then existing senior credit facilities; (iii) to repurchase all of the
Company's then existing senior subordinated notes; and (iv) to pay related fees
and expenses. The Financing, the Regal Merger, the Recapitalization and the
transactions contemplated thereby, including but not limited to, the application
of the proceeds of the Financing, are referred to herein as the "Transactions."

         The Company's Senior Credit Facilities provide for borrowings of up to
$1,008.8 million in the aggregate, consisting of $500.0 million under a
revolving credit facility (the "Revolving Credit Facility") and $508.8 million,
in the aggregate, under three separate term loan facilities. As of December 30,
1999, the Company had approximately $128.5 million available for borrowing under
the Senior Credit Facilities.

         On August 26, 1998, in connection with the Act III Merger, the Company
amended its Senior Credit Facilities and borrowed $383.3 million thereunder to
repay Act III's then existing bank borrowings and two senior subordinated
promissory notes, each in the aggregate principal amount of $75.0 million, which
were owned by KKR and Hicks Muse. The repayment of Act III's bank borrowings and
promissory notes, together with the Act III Merger, are referred to herein as
the "Act III Combination."

         On November 10, 1998, the Company issued an additional $200.0 million
aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 (the
"Tack-On Notes") under the same indenture governing the Original Notes. The
proceeds of the offering of the Tack-On Notes (the "Tack-On Offering") were used
to repay and retire portions of the Senior Credit Facilities. The Original Notes
and the Tack-On Notes are collectively referred to herein as the "Regal Notes."

         On December 16, 1998, the Company issued $200.0 million aggregate
principal amount of 8 7/8% Senior Subordinated Debentures due 2010 (the "Regal
Debentures"). The proceeds of the offering of the Regal Debentures (the
"Debenture Offering") were used to repay all of the then outstanding
indebtedness under the Revolving Credit Facility and the excess was used for
working capital purposes.

BUSINESS STRATEGY

Operating Strategy

Management believes that the following are the key elements of the Company's
operating strategy:

         New Multiplex Theatres: Management believes that the Company's
multiplex theatres 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


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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 more efficiently serve
patrons from common concessions and other support facilities. The Company
further believes that the development of multiplex theatres allows it to achieve
an optimal relationship between the number of screens (generally 14 to 18) and
the size of the auditoriums (100 to 500 seats). The Company's multiplex theatres
are designed to increase the profitability of the theatres by maximizing the
revenue per square foot generated by the facility and reducing the cost per
square foot of constructing and operating the theatres.

         Asset Base. The Company maintains one of the most modern circuits in
the industry with 42% of its circuit having been built since 1997. Additionally,
the Company projects that at the end of fiscal 2000 approximately 48% of the
circuit will have been built since 1997. Management believes that the modern
asset base provides the Company with a competitive advantage as consumers
continue to chose theatres based on the movie going experience. The Company
believes that the newer theatres enhance the movie going experience.

         Disposition Efforts. Management has increased the focus on the
disposition of under-performing locations. The Company plans to close between
175 and 200 screens in both 2000 and in 2001. Management believes the
acceleration of screen closures will mitigate the erosion of its older theatres.
The Company has developed specific action plans to aggressively bring
under-performing theatres off-line including subleasing certain locations,
selling owned properties and working with existing landlords to terminate
certain leases. Management believes that the cost associated with the
disposition of the under-performing sites will be insignificant in the 2000
fiscal year.

         Cost Control. The Company's cost control programs have resulted in
EBITDA margins, which management believes are among the highest in the motion
picture exhibition industry. Management's focus on cost control extends from a
theatre's initial development to its daily operation. 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 management
reports, the Company closely monitors labor scheduling, concession yields and
other significant operating expenses. A significant component of theatre
management's compensation is based on controlling operating expenses at the
theatre level.

         Revenue Enhancements. The Company strives to enhance revenue growth
through: (i) the addition of specialty cafes within certain theatre lobbies
serving non-traditional concessions; (ii) the sale of screen slide and rolling
stock advertising time prior to scheduled movies; (iii) the marketing and
advertising of certain theatres in its circuit; (iv) the addition of
state-of-the-art video arcades; and (v) the rental of theatres to organizations
during non-peak hours. Increasing ancillary revenue is a key focus for the
Company's management in fiscal 2000. The Company believes that in addition to
the items mentioned, there are opportunities with the Internet for additional
ticket sales/advertising revenues.

         Patron Satisfaction/Quality Control. The Company emphasizes patron
satisfaction by providing convenient locations, comfortable seating, spacious
neon-enhanced lobby and concession areas and a wide variety of film selections.
The Company's theatre complexes feature clean, modern auditoriums with high
quality projection and digital stereo surround-sound systems. As of December 30,
1999, approximately 64% of the Company's theatres were equipped with digital
surround-sound systems. Stadium seating (seating with an elevation between rows
to provide unobstructed viewing as well as other amenities to enhance the
movie-going experience) has been shown to be preferred by movie patrons.
Presently, the Company has 48% of its screens with stadium seating. The Company
is adding stadium seating to certain of its existing theatres and all of its
newly constructed theatres feature stadium seating. The Company believes that
all of these features serve to enhance its patrons' movie-going experience and
help build patron loyalty. In addition, the Company promotes patron loyalty
through specialized marketing programs for its theatres and feature films. To
maintain quality and consistency within the Company's theatres, the Company
conducts regular inspections of each theatre and operates a mystery shopper
program.

         Integration of Acquisitions. The Company has acquired 11 theatre
circuits during the last six years. Management believes that acquisitions
provide the opportunity for the Company to increase revenue growth while
realizing operating efficiencies through the integration of operations. In this
regard, the Company believes it has achieved cost savings through the
consolidation of its purchasing function, the centralization of certain other
operating functions and the uniform application of the most successful cost
control strategies of the Company and its acquisition targets.


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         Centralized Corporate Decision Making/Decentralized Operations. The
Company centralizes many of its functions through its corporate office,
including film licensing, concessions purchasing and new theatre construction
and design. The Company also devotes significant resources to training its
theatre managers. These managers are responsible for most aspects of a theatre's
day-to-day operations and implement cost controls at the theatre level,
including the close monitoring of payroll, concession and advertising expenses.

         Marketing. The Company actively markets its theatres through grand
opening promotions, including VIP preopening parties, newspaper and radio
advertising, television commercials in certain markets and promotional
activities, such as live music, spotlights and skydivers, which frequently
generate media coverage. The Company also utilizes special marketing programs
for specific films and concession items. The Company seeks to develop patron
loyalty through a number of marketing programs such as a free summer children's
film series, cross-promotion ticket redemptions and promotions within local
communities.

         Performance-Based Compensation Packages. The Company maintains an
incentive program for its corporate personnel, district managers and theatre
managers that links employees' compensation to profitability. The Company
believes that its incentive program, which consists of cash bonuses, purchased
stock and stock options, aligns the employees' interests with those of the
Company's shareholders.

INDUSTRY OVERVIEW

         The domestic motion picture exhibition industry is currently comprised
of approximately 548 exhibitors (in the U.S. and Canada), 155 of which operate
ten or more total screens. Based on the June 1, 1999 listing of exhibitors in
the National Association of Theatre Owners 1999-2000 Encyclopedia of Exhibition,
the five largest exhibitors (based on the number of screens) operated
approximately 42% of the total screens in operation, with Regal operating more
than 10% of the total screens. From 1988 through 1998, the number of screens in
operation in the United States increased from approximately 23,000 to
approximately 34,000, and admissions revenues increased from approximately $4.6
billion to approximately $6.9 billion. The motion picture exhibition industry
continues to grow despite the emergence of competing film distribution channels.
Since 1991, the industry has experienced significant growth with attendance
increasing at a 3.3% compound annual rate. This growth is principally attributed
to an increase in the supply of first-run, big budget films, increased
investment in advertising and promotion by studios, the investment by leading
exhibitors in appealing, modern multiplex theatres to replace aging locations
and the moderate price of movies relative to other out-of-home entertainment
options.

         In an effort to realize greater operating efficiencies, operators of
multi-theatre circuits have emphasized the development of larger multiplex
complexes. Typically, multiplexes have six or more screens per theatre, although
in some instances megaplexes may have as many as 30 screens in a single theatre.
The multi-screen format provides numerous benefits for theatre operators,
including allowing facilities (concession stands and restrooms) and operating
costs (lease rentals, utilities and personnel) to be spread over a larger base
of screens and patrons. Multiplexes have varying seating capacities (typically
from 100 to 500 seats) that allow for multiple show times of the same film and a
variety of films with differing audience appeal to be shown, and provide the
flexibility to shift films to larger or smaller auditoriums depending on their
popularity. To limit crowd congestion and maximize the efficiency of floor and
concession staff, the starting times of films at multiplexes are staggered. The
trend of developing large multiplex theatres in the theatre exhibition industry
favors larger, well-capitalized companies, creating an environment for new
construction and consolidation. Many smaller theatre owners who operate older
cinemas without state-of-the-art stadium seating and projection and sound
equipment may not have the capital required to maintain or upgrade their
circuits. The growth of the number of screens, strong domestic consumer demand
and growing foreign theatrical and domestic and foreign ancillary revenue
opportunities have led to an increase in the volume of major film releases. The
greater number of screens has allowed films to be produced for and marketed to
specific audience segments (e.g., horror films for teenagers) without using
capacity required for mainstream product.

         The greater number of screens has also prompted distributors to
increase promotion of new films. Not only are there more films in the market at
any given time, but the multiplex format allows for much larger simultaneous
national theatrical release. In prior years, a studio might have released 1,000
prints of a major film, initially releasing the film only


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in major markets, and gradually releasing it in smaller cities and towns
nationwide. Today, studios might release over 4,000 prints of a major film and
can open it nationally in one weekend. These national openings have made
up-front promotion of films critical to attract audiences and stimulate
word-of-mouth advertising.

         Motion pictures are generally made available through various
distribution methods at various dates after the theatrical release date. The
release dates of motion pictures in these other distribution windows begin four
to six months after the theatrical release date with video rentals, followed
generally by off-air or cable television programming including pay-per-view
services, pay television, other basic cable and broadcast network syndicated
programming. These distribution windows have given producers the ability to
generate a greater portion of a film's revenues through channels other than
theatrical release. This increased revenue potential after a film's initial
domestic release has enabled major studios and certain independent producers to
increase film production and theatrical advertising. The additional
non-theatrical revenue has also permitted producers to incur higher individual
film production and marketing costs. The total cost of producing a picture
averaged approximately $52.7 million in 1998 compared with approximately $18.1
million in 1988, while the average cost to advertise and promote a picture
averaged approximately $25.3 million in 1998 as compared with $8.5 million in
1988. These higher costs have further enhanced the importance of a large
theatrical release. Distributors strive for a successful opening run at the
theatre to establish a film and substantiate the film's revenue potential both
internationally and through other distribution windows. The value of home video
and pay cable distribution agreements frequently depends on the success of a
film's theatrical release. Furthermore, the studios' revenue-sharing percentage
and ability to control whom views the product within each of the distribution
windows generally declines as one moves farther from the theatrical release
window. As theatrical distribution remains the cornerstone of a film's financial
success, it is the primary distribution window for the public's evaluation of
films and motion picture promotion.

         Management expects that the overall supply of films will remain
constant, although there can be no assurance that this will occur. There has
been an increase in the number of distributors and reissues of films as well as
an increase in films made by independent producers. From January 1994 through
December 1998, the number of large budget films and the level of marketing
support provided by the production companies has increased, as evidenced by the
increase in average production costs and average advertising costs per film of
approximately 53.6% and 57.5%, respectively.

THEATRE OPERATIONS

         The Company is the largest motion picture exhibitor in the United
States based upon the number of screens in operation. The Company develops,
acquires and operates primarily multiplex theatres in mid-size metropolitan
markets and suburban growth areas of larger metropolitan markets predominately
in the eastern and northwestern United States.

         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 by shifting 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 reduce staffing requirements and lobby congestion and
contribute to more desirable parking and traffic flow patterns.

         The Company has designed prototype theatres, adaptable to a variety of
locations, which management believes result in construction and operating cost
savings. The Company'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 stadium seating with cup holders and retractable arm rests,
neon-enhanced interiors and exteriors and video game areas adjacent to the
theatre lobby.

         The Company's real estate department includes leasing and site
selection, construction supervision and property management. By utilizing a
network of contingent real estate brokers, the Company is able to service a wide
geographic region without incurring incremental staffing costs. The Company also
closely monitors the construction of its theatres to ensure that they will open
on time and remain on budget. The property management department ensures that
ongoing occupancy costs are reviewed for accuracy and compliance with the terms
of the lease.


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         In addition to leasing and site selection, the Company's central
corporate office coordinates film buying, concession purchasing, advertising and
financial and accounting activities.

         The Company's theatre operations are under the supervision of its Chief
Operating Officer and are divided into four 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.
The Company 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.

         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. Additionally, daily payroll data is input at
in-theatre terminals which allows the regular monitoring of payroll expenses. In
addition, the Company has a quality assurance program to maintain clean,
comfortable and modern facilities. Management believes that operating a theatre
circuit consisting primarily of modern multiplex theatres also enhances the
Company's ability to license commercially successful films from distributors. To
maintain quality and consistency within the Company's theatre circuit, the
district managers 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. The Company 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, the Company
receives revenues from concession sales and video games located adjacent to the
theatre lobby. Concession sales constituted 27.5% of total revenues for fiscal
1999. The Company emphasizes prominent and appealing concession stations
designed for rapid and efficient service. Although popcorn, candy and soft
drinks remain the best selling concession items, the Company's theatres offer a
wide range of concession choices. The Company continually seeks to increase
concession sales through optimizing product mix, introducing special promotions
from time to time and training employees to cross sell products. In addition to
traditional concession stations, select 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.

         The Company relies upon advertisements, including movie schedules
published in newspapers and via the Internet, 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 a newspaper's
circulation area. Multimedia advertising campaigns for major film releases are
organized and financed primarily by the film distributors.

         The Company actively markets its theatres through grand opening
promotions, including VIP preopening parties, newspaper and radio advertising,
television commercials in certain markets and promotional activities such as
live music, spotlights and skydivers, which frequently generate media coverage.
The Company also utilizes special marketing programs for specific films and
concession items. The Company seeks to develop patron loyalty through a number
of marketing programs such as free summer children's film series,
cross-promotion ticket redemptions and promotions within local communities.

         As of December 30, 1999, the Company operated 43 theatres with an
aggregate of 263 screens, which exhibit second-run movies and charge lower
admission prices (typically $1.00 to $2.00). These movies are the same high
quality features shown at all of the Company'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. The Company 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


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first-run theatres. The Company's discount theatres generate theatre level cash
flows similar to the Company's first-run theatres.

SEASONALITY

         The Company's revenues are usually seasonal, coinciding with the timing
of releases of motion pictures by the major distributors. Generally, the most
marketable motion pictures are released during the summer and the Thanksgiving
through year-end holiday season. The unexpected emergence of a hit film during
other periods can alter the traditional trend. The timing of movie releases can
have a significant effect on the Company's results of operations, and the
results of one quarter are not necessarily indicative of results for the next
quarter. The seasonality of motion picture exhibition, however, has become less
pronounced in recent years as studios have begun to release major motion
pictures somewhat more evenly throughout the year.

FILM LICENSING

         The Company licenses films from distributors on a film-by-film and
theatre-by-theatre basis. The Company negotiates directly with film
distributors. Prior to negotiating for a film license, the Company evaluates 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. As of December 30, 1999, the Company believes that
approximately 80.2% of its screens were located in film licensing zones in which
such theatres were the sole exhibitors, permitting the Company to exhibit many
of the most commercially successful films in these zones.

         In film zones where the Company 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 select an
exhibitor, who then negotiates film rental terms directly with the distributor.
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. The Company currently does not bid for films in any of its markets,
although it may be required to do so in the future. Although the Company
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
a 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 weeks or more. 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, the Company 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


                                       9
<PAGE>   10
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.

         The Company's business is dependent upon the availability of marketable
motion pictures, its relationships with distributors and its ability to obtain
commercially successful films. Many distributors provide quality first-run
movies to the motion picture exhibition industry; however, according to industry
reports, eight distributors accounted for approximately 94% of industry
admission revenues during 1997, and 46 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, the lack of
commercial success of motion pictures or the Company's inability to otherwise
obtain motion pictures for exhibition would have a material adverse effect upon
the Company's business. The Company licenses films from each of the major
distributors and believes that its relationships with 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. The
Company believes that in 1999 no single distributor accounted for more than 17%
of the films licensed by the Company.

COMPLEMENTARY CONCEPTS

         IMAX(R) 3-D Theatres. The Company has signed an agreement to include
IMAX(R) 3-D theatres in ten new multiplex theatre projects over a five-year
period, ending in 2004, the first of which opened in Chicago in November 1998.
Management believes that the Company's theatres with IMAX(R) 3-D, which will
contain highly automated projection systems and specialized sound systems, will
draw higher traffic levels than theatres without them, allow the Company to
attract patrons during non-peak hours and expand its customer base in certain
markets. During 1999 IMAX theatres were opened at the Mall of Georgia (Atlanta,
GA), Transit Center (Williamsville, NY), and New Rochelle City (New Rochelle,
NY) locations.

         FunScapes(TM). To complement the Company's theatre development, the
Company operates its FunScapes(TM) entertainment complexes in certain locations
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. As of December 30, 1999, the Company operated eight FunScapes(TM)
in Chesapeake, Virginia; Rochester, New York; Syracuse, New York; Brandywine,
Delaware; Fort Lauderdale, Florida (2); Nashville, Tennessee and Knoxville,
Tennessee. The Company currently has no plans to develop additional
FunScapes(TM). The $6.0 million to $10.0 million estimated cost of construction
of an entertainment center is comparable to the cost of constructing the
adjacent theatre complex. Each complex includes a nine to 16 screen theatre and
a 50,000 to 70,000 square foot family entertainment center, which generally
features a 36-hole, tropical-themed miniature golf course, a children's soft
play and exercise area, laser tag, video batting cages, a video golf course,
virtual reality games, a high-tech video arcade and party rooms. A food court
connects the theatres to the entertainment center and features nationally
recognized brand name pizza, taco, sandwich, and dessert restaurants. 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 continues to explore its strategic alternatives with
respect to all of its FunScapes(TM) locations, and currently expects that
certain of these locations will be subleased during the next fiscal year.
Otherwise, the Company intends to pursue other alternatives including closing
certain of these locations. In the fourth quarter of 1999, management recorded
an impairment charge of $22.1 million ($13.6 million after tax) with respect to
the FunScapes(TM) locations.

COMPETITION

         The motion picture exhibition industry is fragmented and highly
competitive, particularly in film licensing, 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. The motion
picture industry has rapidly expanded the number of U.S.screens over the past
several years as theatre companies have upgraded their theatre circuits. The
industry growth has resulted in declines in margins and returns on invested
capital as older theatres suffer due to increased competition from newer
multiplexes.


                                       10
<PAGE>   11
         The Company believes that the rate of industry screen growth is slowing
as many of the exhibitors are curtailing expansion plans for the 2000 and 2001
fiscal years. Management believes that as competitive building declines and as
older screens are aggressively closed the competitive framework significantly
improves for the Company and other exhibitors with modern circuits.

           The Company believes that the 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.

         However, in those areas where real estate is readily available, there
are few barriers preventing competing companies from opening theatres near one
of the Company's existing theatres, which may have a material adverse effect on
the Company's theatre. In addition, competitors have built or are planning to
build theatres in certain areas in which the Company operates, which may result
in excess capacity in such areas and adversely affect attendance and pricing at
the Company's theatres in such areas.

         In addition, alternative motion picture exhibition delivery systems,
including cable television, video disks and cassettes, satellite and
pay-per-view services exist for the exhibition of filmed entertainment in
periods after the theatrical release. The expansion of such delivery systems
(such as video on demand) could have a material adverse effect upon the
Company's business and results of operations. The Company also competes for the
public's leisure time and disposable income with all forms of entertainment,
including sporting events, concerts, live theatre and restaurants.

MANAGEMENT INFORMATION SYSTEMS

         The Company has a significant commitment to its management information
systems, some of which have been developed internally. The point of sale
terminals within each theatre provides comprehensive information to the
corporate office each morning. These daily management reports address all
aspects of theatre operations, including concession sales, fraud detection and
film booking. Payroll information is gathered daily from theatres through the
use of automated time keeping systems, enabling a daily comparison of actual to
budgeted labor for each theatre. The Company's systems allow it to properly
schedule and manage its hourly workforce. A corporate help desk is also
available to monitor and resolve any processing problems that might arise in the
theatres.

EMPLOYEES

         As of December 30, 1999, the Company employed 17,249 persons. Of the
Company's employees, 369 were corporate personnel, 2,979 were theatre management
personnel and the remainder hourly theatre personnel. Film projectionists at
nine of the Company's theatres in the Seattle, Washington; Las Vegas, Nevada;
Nashville, Tennessee; and 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 ("IATSE"). Certain other
employees of the Company in the State of Washington are also represented by the
IATSE. The Company's collective bargaining agreements with the IATSE expire over
various periods through March 2000. The Company's expansion into new markets may
increase the number of employees represented by unions. The Company considers
its employee relations to be good.

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. The Company 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 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 long-term arrangements with
major distributors, but must negotiate for licenses on a film-by-film and
theatre-by-theatre basis.

         The Company's theatres must comply with Title III of the Americans with
Disabilities Act of 1990 (the "ADA") to the extent that such properties are
"public accommodations" and/or "commercial facilities" as defined by the ADA.


                                       11
<PAGE>   12
Compliance with the ADA requires that public accommodations "reasonably
accommodate" individuals with disabilities and that new construction or
alterations made to "commercial facilities" conform to accessibility guidelines
unless "structurally impracticable" for new construction or technically
infeasible for alterations. Non-compliance with the ADA could result in the
imposition of injunctive relief, fines, an award of damages to private litigants
and additional capital expenditures to remedy such noncompliance. The Company
believes that it is in substantial compliance with all current applicable
regulations relating to accommodations for the disabled. The Company intends to
comply with future regulations in this regard, and the Company does not
currently anticipate that compliance will require the Company to expend
substantial funds.

         The Company's theatre operations are also subject to federal, state and
local laws governing such matters as wages, working conditions, citizenship,
health and sanitation requirements and licensing. At December 30, 1999,
approximately 30.5% of the Company's employees were paid at the federal minimum
wage and, accordingly, the minimum wage largely determines the Company's labor
costs for those employees.

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.

We Depend on Motion Picture Production and Performance and on Our Relationship
with Film Distributors

         The Company's ability to operate successfully depends upon a number of
factors, the most important of which are the availability and appeal of motion
pictures, our ability to license motion pictures and the performance of such
motion pictures in our markets. We mostly license first-run motion pictures.
Poor performance of, or disruption in the production of or our access to, these
motion pictures could hurt our business and results of operations. Because film
distributors usually release films that they anticipate will be the most
successful during the summer and holiday seasons, poor performance of these
films or disruption in the release of films during such periods could hurt our
results for those particular periods or for any fiscal year.

         Our business also depends on maintaining good relations with the major
film distributors that license films to our theatres. A deterioration in our
relationship with any of the nine major film distributors could affect our
ability to get commercially successful films and, therefore, could hurt our
business and results of operations. See Business - Film Licensing."

         In addition, in times of recession, attendance levels experienced by
motion picture exhibitors may be adversely effected. For example, revenues
declined for the industry in 1990 and 1991.

We Operate in a Competitive Environment

         The motion picture exhibition industry is very competitive. Theatres
operated by national and regional circuits and by smaller independent exhibitors
compete with our theatres. Many of our competitors have been around longer than
we have and may be better established in some of our existing and future
markets.

         In areas where real estate is readily available, competing companies
are able to open theatres near one of ours, which may affect our theatre.
Competitors have also built or are planning to build theatres in certain areas
in which we


                                       12
<PAGE>   13
operate, which may result in excess capacity in such areas and hurt attendance
and pricing at our theatres in such areas. Filmgoers are generally not brand
conscious and usually choose a theatre based on the films showing there.

         Management believes that the industry is working towards
rationalization of the overbuilding as many of the exhibitors are curtailing
expansion plans for the 2000 and 2001 fiscal years. If the overbuilding does not
subside, the Company remains at risk for increased erosion of its older theatre
base.

         In addition, there are many other ways to view movies once the movies
leave the theatre, including cable television, video disks and cassettes,
satellite and pay-per-view services. Creating new ways to watch movies (such as
video on demand) could hurt our business and results of operations. We also
compete for the public's leisure time and disposable income with all forms of
entertainment, including sporting events, concerts, live theatre and
restaurants. See Business - Competition."

We Depend on Our Senior Management

         Our success depends upon the continued contributions of our senior
management, including Michael L. Campbell, our Chairman, President and Chief
Executive Officer. We currently have employment contracts with Mr. Campbell and
our Chief Operating Officer, but we only maintain key-man life insurance for Mr.
Campbell. If we lost the services of Mr. Campbell it could hurt our business and
development. See Item 11. Executive Compensation-Employment Agreements.

Our Quarterly Results of Operations Fluctuate

         Our revenues are usually seasonal because of the way the major film
distributors release films. Generally, the most marketable movies are released
during the summer and the Thanksgiving through year-end holiday season. An
unexpected hit film during other periods can alter the traditional trend. The
timing of movie releases can have a significant effect on our results of
operations, and our results one quarter are not necessarily the same as results
for the next quarter. The seasonality of our business, however, has lessened as
studios have begun to release major motion pictures somewhat more evenly
throughout the year. See Management's Discussion and Analysis of Financial
Condition and Results of Operations."

We Have Substantial Indebtedness, Lease Commitments and Leverage

         We have a large amount of debt. As of December 30, 1999, we had
approximately $1,683.6 million of long term debt, $21.3 million of capital lease
obligations and $74.7 million of lease financing arrangements outstanding, with
approximately $128.5 million available for future borrowings under our Senior
Credit Facilities. In addition, we may incur more debt in the future, for things
such as building liquidity reserves, and funding acquisitions as part of our
growth strategy.

         Our high degree of leverage could have negative consequences for us,
including, but not limited to, the following: (i) we will have to repay our
debt, which would reduce funds available for operations and future business
opportunities and increase our vulnerability to bad general economic and
industry conditions and competition; (ii) our ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate or other purposes, may be limited; (iii) our leveraged
position and the provisions in our indentures and Senior Credit Facilities could
limit our ability to compete, as well as our ability to expand, including
through acquisitions, and to make capital improvements; and (iv) our ability to
refinance our debt in order to pay it when it matures or upon a change of
control may be adversely affected. In addition, some of the debt under our
Senior Credit Facilities bears interest at floating rates which makes our
operating results sensitive to fluctuations in interest rates. There can be no
guarantee that our future cash flow will be sufficient to meet our obligations
and commitments, and any such insufficiency could hurt our business.

         For the twelve-month period ended December 30, 1999, our interest
expense was approximately $132.2 million. The Company has also executed certain
lease agreements for the operation of theatres not yet constructed. As of
December 30, 1999, the total future minimum rental payments under the terms of
these leases approximate $568.3 million to be paid over 20 to 30 years.


                                       13
<PAGE>   14
Financing Commitments

         The Company has obtained commitments from certain third parties that
provide for an additional $60 million of financing. The Company anticipates
closing such transactions during the first and second quarters of fiscal 2000.
While management believes that this additional financing will close during the
first and second quarters of fiscal 2000, there can be no guarantee such
financing will occur.


There Is No Guarantee We Will Be Able to Service Our Debt

         Our ability to make scheduled payments on our debt, or to refinance our
debt depends on our performance, which may be subject to economic, financial,
competitive and other factors beyond our control. Based upon our current
operations and anticipated growth, we believe that future cash flow from
operations, together with the available borrowings under our Senior Credit
Facilities, will be adequate to meet our anticipated needs for capital
expenditures, interest payments and scheduled principal payments. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." There can be no guarantee,
however, that our business will continue to generate sufficient cash flow from
operations in the future to service our debt and make necessary capital
expenditures. If this should occur, we may be required to refinance all or a
portion of our debt, to sell assets or to obtain additional financing. There can
be no guarantee that any such refinancing would be possible, that any assets
could be sold (or, if sold, of the timing of such sales and the amount of
proceeds realized therefrom) or that additional financing could be obtained on
acceptable terms, if at all.

We Are Subject to Restrictive Debt Covenants

         Our indentures and our Senior Credit Facilities contain certain
covenants that restrict, among other things, our ability to incur additional
debt, pay dividends or make certain types of payments, enter into certain
transactions with affiliates, merge or consolidate with any other person or sell
all or substantially all of our assets. In addition, the Senior Credit
Facilities contain other limitations including restrictions on us prepaying
debt, and also require us to maintain specified financial ratios. Our ability to
comply with these financial ratios can be affected by events beyond our control
and there can be no guarantee that we will meet those tests. A breach of any of
these provisions could result in a default under the Senior Credit Facilities,
which would allow the lenders to declare all amounts outstanding thereunder
immediately due and payable. If we were unable to pay those amounts, the lenders
could proceed against the collateral securing that debt. If the amounts
outstanding under the Senior Credit Facilities were accelerated, there can be no
guarantee that the assets of the Company would be sufficient to repay the amount
in full.

Hicks Muse and KKR Effectively Control the Company

         Each of Hicks Muse and KKR currently owns approximately 46.1% of the
Company. Therefore, if they vote together, Hicks Muse and KKR have the power to
elect a majority of the directors of the Company and exercise control over our
business, policies and affairs. We have a stockholders agreement with KKR and
Hicks Muse that requires us to obtain the approval of the board designees of
each of Hicks Muse and KKR before the Board of Directors may act. The
stockholders agreement, however, does not contain any "deadlock" resolution
mechanisms.

ITEM 2.  PROPERTIES

         As of December 30, 1999, the Company operated 293 of its 430 theatres
pursuant to lease agreements, owned the land and buildings for 90 theatres and
operated 47 locations pursuant to ground leases. Of the 430 theatres operated by
the Company as of December 30, 1999, 287 were acquired as existing theatres and
143 have been developed by the Company.

         The majority of the Company'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. These leases provide for minimum
annual rentals and the renewal options generally provide for increased rent.
Under certain conditions, further rental payments may be


                                       14
<PAGE>   15
based on a percentage of revenues above specified amounts. A significant
majority of the leases are net leases, which require the Company to pay the cost
of insurance, taxes and a portion of the lessor's operating costs.

         The Company's corporate office is located in approximately 96,450
square feet of space in Knoxville, Tennessee, which the Company acquired in
1994. The Company believes that these facilities are adequate for its
operations.

ITEM 3.  LEGAL PROCEEDINGS

         From time to time the Company is involved in routine litigation and
proceedings in the ordinary course of business. The Company does not have any
litigation that management believes is likely to have a material adverse effect
upon the Company.

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 December 30, 1999.

                                     PART II

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

         There is no established public trading market for the Company's Common
Stock. At March 29, 2000, there were approximately 238 holders of record of the
Company's Common Stock.

         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 under its Senior Credit Facilities and the
indentures governing its senior subordinated debt.

ITEM 6.  SELECTED FINANCIAL DATA

The selected historical consolidated financial data set forth below was derived
from the consolidated financial statements of the Company. The selected
historical consolidated financial data of the Company as of and for the years
ended December 30, 1999 and December 31, 1998 were derived from the consolidated
financial statements and the notes thereto of the Company, which have been
audited by Deloitte & Touche LLP, independent auditors, whose report has been
included herein. The selected historical consolidated financial data of the
Company as of and for the years ended January 1, 1998, January 2, 1997 and
December 28, 1995 were derived from the consolidated financial statements and
the notes thereto of the Company, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The consolidated statements
of income, changes in shareholders' equity and of cash flows for the year ended
January 1, 1998 and notes thereto appears elsewhere herein. The
PricewaterhouseCoopers LLP report on the fiscal year 1995 and 1996 financial
statements is based in part on the report of other independent auditors. The
selected historical consolidated financial data set forth below should be read
in conjunction with, and are qualified in their entirety by, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and notes thereto included
elsewhere herein:


                                       15
<PAGE>   16
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS,      DECEMBER 30     DECEMBER 31      JANUARY 1     JANUARY 2      DECEMBER 28
      AND OPERATING DATA)                              1999           1998            1998           1997           1995
                                                   -----------     -----------     -----------    -----------    -----------
<S>                                                <C>             <C>             <C>            <C>            <C>
Revenue:
     Admissions                                    $     690.5     $     462.8     $     325.1    $     266.0    $     213.4
     Concessions                                         285.7           202.4           137.2          110.2           87.3
     Other operating revenues                             60.9            41.8            21.3           14.9            8.3
                                                   -----------     -----------     -----------    -----------    -----------

         Total revenues                                1,037.1           707.0           483.6          391.1          309.0

Operating expenses:
     Film rental and advertising costs                   384.9           251.3           178.2          145.2          115.4
     Cost of concessions and other                        44.3            31.7            21.1           17.1           11.4
     Theatre operating expenses                          377.7           241.7           156.5          127.7          105.7
     General and administrative expenses                  32.1            20.4            16.6           16.6           14.8
                                                   -----------     -----------     -----------    -----------    -----------

         Total costs and expenses                        839.0           545.1           372.4          306.6          247.3
                                                   -----------     -----------     -----------    -----------    -----------

         Sub-total                                       198.1           161.9           111.2           84.5           61.7
                                                   -----------     -----------     -----------    -----------    -----------

     Depreciation and amortization                        80.8            52.4            30.5           24.7           19.4
     Merger expenses                                      --              --               7.8            1.6            1.2
     Recapitalization expenses                            --              65.7            --             --             --
     Theatre closing costs (1)                             4.3            --              --             --             --
     Loss on disposal of operating assets (2)             16.8              .9            --             --             --
     Loss on impairment of assets (3)                     98.6            67.9             5.0           --             --
                                                   -----------     -----------     -----------    -----------    -----------

         Operating income (loss)                          (2.4)          (25.0)           67.9           58.2           41.1
                                                   -----------     -----------     -----------    -----------    -----------

Other (income) expense:
     Interest expense                                    132.2            59.3            14.0           12.8           10.3
     Interest income                                      (0.7)           (1.5)           (0.8)          (0.6)          --
     Other                                                 0.0             1.0             0.4           (0.7)           0.7
                                                   -----------     -----------     -----------    -----------    -----------

Income (loss) before income taxes and
     extraordinary item                                 (133.9)          (83.8)           54.3           46.7           30.1
Benefit from (provision for) income taxes                 45.4            22.2           (19.1)         (20.8)         (12.2)
                                                   -----------     -----------     -----------    -----------    -----------
Income (loss) before extraordinary item                  (88.5)          (61.6)           35.2           25.9           17.9
Extraordinary item:
     Loss on extinguishment of debt, net
      of applicable taxes                                  0.0            11.9            10.0            0.8            0.4
                                                   -----------     -----------     -----------    -----------    -----------

         Net income (loss)                         $     (88.5)    $      73.5     $      25.2    $      25.1    $      17.5
                                                   ===========     ===========     ===========    ===========    ===========

OPERATING AND OTHER FINANCIAL DATA (4):
     Cash flow provided by operating activities    $      92.7     $      45.1     $      64.0    $      67.5    $      40.0
     Cash flow used in investing activities        $     435.9     $     296.2     $     202.3    $     131.1    $     112.6
     Cash flow provided by financing activities    $     363.2     $     253.4     $     139.6    $      72.2    $      69.8
     EBITDA (5)                                          198.1           161.9           111.2           84.5           61.7
     EBITDAR (5) $                                       332.0           248.3           164.9          125.9           96.2
     EBITDA margin (6)                                    19.1%          22.9%            23.2%          21.7%          20.0%
     EBITDAR margin (6)                                   32.0%          35.1%            34.1%          32.4%          31.1%

     Theatre locations                                     430             403             256            223            206
     Screens                                             4,413           3,573           2,306          1,899          1,616
     Average screens per location                         10.3             8.9             9.0            8.5            7.8
     Attendance (in thousands)                         141,043         102,702          76,331         65,530         55,091
     Average ticket price                          $      4.90     $      4.51     $      4.26    $      4.06    $      3.87
     Average concessions per patron                $      2.03     $      1.97     $      1.80    $      1.68    $      1.58
     BALANCE SHEET DATA:
     Cash and cash equivalents                     $      40.6     $      20.6     $      18.4    $      17.1    $       7.0
     Total assets                                  $   2,080.4     $   1,662.0     $     660.6    $     488.8    $     349.0
     Long-term obligations (including current
                  maturities)                      $   1,779.7     $   1,341.1     $     288.6    $     144.6    $     188.5
     Shareholders' equity                          $     114.2     $     202.5     $     306.6    $     279.3    $     109.0
</TABLE>


                                       16
<PAGE>   17
(1)      Reflects the non-cash charge for lease termination costs.

(2)      Reflects the non-cash write off of under-performing locations, net of
         proceeds from sales of certain owned theatre sites as well as the
         non-cash write-off of certain costs to develop sites now discontinued.

(3)      Reflects non-cash charges for the impairment of long-lived assets in
         accordance with Statement of Financial Accounting Standards No. 121,
         Accounting for the Impairment of Long-Lived Assets and Long-Lived
         Assets to be Disposed of, which the Company adopted in 1995.

(4)      Operating theatres and screens represent the number of theatres and
         screens operated at the end of the period.

(5)      EBITDA represents net income before interest expense, income taxes,
         depreciation and amortization, other income or expense, extraordinary
         items and non-recurring charges. EBITDAR represents EBITDA before rent
         expense. While EBITDA and EBITDAR are not intended to represent cash
         flow from operations as defined by GAAP and should not be considered as
         indicators of operating performance or alternatives to cash flow (as
         measured by GAAP) as a measure of liquidity, they are included herein
         to provide additional information with respect to the ability of the
         Company to meet its future debt service, capital expenditure, rental
         and working capital requirements.

(6)      Defined as EBITDA and EBITDAR as a percentage of total revenue.

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 should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere herein.

BACKGROUND OF REGAL

         Regal has achieved significant growth in theatres and screens since its
formation in November 1989. From its inception through December 30, 1999, Regal
has acquired 287 theatres with 2,233 screens, developed 143 new theatres with
2,027 screens and added 153 new screens to existing theatres. Theatres developed
by the Company typically generate positive theatre level cash flow within the
first six 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 admissions and
concession sales. Additional revenues are generated by electronic video games
located adjacent to the lobbies of certain of the Company's theatres and by
on-screen advertisements, rebates from concession vendors and revenues from the
Company's eight entertainment centers which are adjacent to theatre complexes.
Direct theatre costs consist of film rental and advertising costs, costs of
concessions and theatre operating expenses. Film rental costs are related to the
popularity of a film and the length of time since the film's release and
generally decline as a percentage of admission revenues the longer a film has
been shown. Because certain concession items, such as fountain drinks and
popcorn, are purchased in bulk and not pre-packaged for individual servings, the
Company is able to improve its margins by negotiating volume discounts. Theatre
operating expenses consist primarily of theatre labor and occupancy costs. At
December 30, 1999, approximately 30.5% of the Company's employees were paid at
the federal minimum wage and, accordingly, the minimum wage largely determines
the Company's labor costs for those employees. Future increases in minimum wage
requirements or legislation requiring additional employer funding of health
care, among other things, may increase theatre operating expenses as a
percentage of total revenues.


                                       17
<PAGE>   18
         The following table sets forth for the fiscal periods indicated the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of operations.

<TABLE>
<CAPTION>
                                                                   December 30,            December 31,              January 1,
                                                                       1999                    1998                     1998
                                                                --------------------    --------------------     -------------------
<S>                                                             <C>                     <C>                      <C>
Revenues:
    Admissions                                                               66.6%                   65.5%                   67.2%
    Concessions                                                              27.5                    28.6                    28.4
    Other operating revenue                                                   5.9                     5.9                     4.4
                                                                --------------------    --------------------     -------------------
          Total revenues                                                    100.0                   100.0                   100.0
Operating expenses:
    Film rental and advertising costs                                        37.1                    35.5                    36.8
    Cost of concessions and other                                             4.3                     4.5                     4.4
    Theatre operating expense                                                36.4                    34.2                    32.4
    General and administrative                                                3.1                     2.9                     3.4
    Depreciation and amortization                                             7.8                     7.4                     6.3
    Merger expenses                                                             -                       -                     1.6
    Recapitalization expenses                                                   -                     9.3                       -
    Theatre closing costs                                                      .4                       -                       -
    Loss on disposal of operating assets                                      1.6                       -                       -
    Loss on impairment of assets                                              9.5                     9.6                     1.0
                                                                --------------------    --------------------     -------------------
         Total operating expenses                                           100.2                   103.4                    85.9
Other income (expense):
    Interest expense                                                        (12.7)                   (8.4)                   (2.9)
    Interest income                                                           0.1                     0.2                     0.2
    Other                                                                       -                    (0.3)                   (0.1)
    Income (loss) before taxes and extraordinary item                       (12.8)                  (11.9)                   11.3
Provision for income taxes:                                                   4.4                     3.1                     4.0
    Income (loss) before extraordinary item                                  (8.4)                   (8.8)                    7.3
Extraordinary item:
    Loss on extinguishment of debt                                              -                    (1.6)                   (2.1)
                                                                --------------------    --------------------     -------------------

Net Income (loss)                                                            (8.4)%                 (10.4)%                   5.2%
                                                                ====================    ====================     ===================
</TABLE>

FISCAL YEARS ENDED DECEMBER 30, 1999 AND DECEMBER 31, 1998

         Total Revenues. Total revenues increased in 1999 by 46.7% to $1,037.1
million from $707.0 million in 1998. This increase was attributable primarily to
the net addition of 840 screens in 1999, and also reflects a full year of
revenues for the Act III theatres as compared to the partial year results in
1998 (835 screens were added August 26, 1998 as a result of the Act III merger).
The $330.1 million increase for 1999 includes a $51.3 million decrease in
revenues resulting from a decline in same store revenues, $175.7 million
increase attributable to theatres acquired by the Company, and a $205.6 million
increase attributable to new theatres constructed by the Company. Average ticket
prices increased 8.6% during the period, reflecting an overall increase in
ticket prices and a greater proportion of newer theatres with higher ticket
prices in 1999 than in the same period in 1998. Average concession sales per
customer increased 3.0% for the period, reflecting the greater proportion of
newer theatres with higher concession prices and, to a lesser extent, an
increase in concession prices.

         Direct Theatre Costs. Direct theatre costs in 1999 increased by 53.8%
to $806.9 million from $524.7 million in 1998. Direct theatre costs as a
percentage of total revenues increased to 77.8% in 1999 from 74.2% in 1998. The
increase in direct theatre costs as a percentage of total revenues was primarily
attributable to a $53 million increase in occupancy and promotional costs due to
theatre property additions associated with the Company's newly constructed
theatres efforts. Additional increases are due to a full year of costs for the
Act III theatres as compared to a partial year in 1998. The increase also
reflects higher film rental cost due primarily to film rental costs associated
with "Star Wars - The Phantom Menace."


                                       18
<PAGE>   19
         General and Administrative Expenses. General and administrative
expenses increased in 1999 by 57.4% to $32.1 million from $20.4 million in 1998,
representing increased administrative costs associated with the 1999 theatre
openings and projects under construction. The increase also reflects additional
costs related to the Act III merger included in the Company's results subsequent
to the Act III merger. As a percentage of total revenues, general and
administrative expenses increased to 3.1% in 1999 from 2.9% in 1998.

         Depreciation and Amortization. Depreciation and amortization expense
increased in 1999 by 54.2% to $80.8 million from $52.4 million in 1998. This
increase was primarily the result of theatre property additions associated with
the Company's newly constructed theatres and the Act III merger.

         Operating Loss. Operating loss for 1999 decreased by 90.0% to $2.4
million, or 0.2% of total revenues, from $25.0 million, or 3.5% of total
revenues, in 1998. Before the $119.7 million and $134.5 million of nonrecurring
expenses for 1999 and 1998, respectively, operating income was 11.3% and 15.5%
of total revenues for 1999 and 1998, respectively.

         Interest Expense. Interest expense increased in 1999 by 122.9% to
$132.2 million from $59.3 million in 1998. The increase was due to higher
average borrowings outstanding associated with the recapitalization of the
Company, the Act III merger and the Company's expansion efforts.

         Income Taxes. The benefit from income taxes for the 1999 fiscal year
increased to $45.4 million from $22.2 million compared to FY 1998. The effective
tax rate was 33.9% in the 1999 fiscal year as compared to 26.4% in the
comparable 1998 period. The 1999 period reflected certain goodwill amortization
costs which were not deductible for tax purposes. Additionally, the 1998 fiscal
year reflected certain nondeductible recapitalization expenses. Both periods
also differ due to the inclusion of state income taxes.

         Net Loss. Net loss in 1999 increased by 20.4% to $88.5 million from
$73.5 million in 1998. Before nonrecurring expenses and extraordinary items, net
(loss) income was $(14.9) million and $29.6 million for 1999 and 1998,
respectively, reflecting a 150.3% decrease.

FISCAL YEARS ENDED DECEMBER 31, 1998 AND JANUARY 1, 1998

         Total Revenues. Total revenues increased in 1998 by 46.2% to $707.0
million from $483.6 million in 1997. This increase was due to a 35% increase in
attendance attributable primarily to the net addition of 1,267 screens in 1998.
Of the $223.4 million increase for 1998, $70.3 million represents an increase in
same store revenues, $93.6 million was attributed to theatres acquired by the
Company during 1998, and $59.5 million was attributed to new theatres
constructed by the Company during 1998. Average ticket prices increased 5.9%
during the period, reflecting an increase in ticket prices and a greater
proportion of larger market theatres in 1998 than in the same period in 1997.
Average concession sales per customer increased 9.4% 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 1998 increased by 47.5%
to $524.7 million from $355.8 million in 1997. Direct theatre costs as a
percentage of total revenues increased to 74.2% in 1998 from 73.6% in 1997. The
increase of direct theatre costs as a percentage of total revenues relates
primarily to increases in operating costs associated with the company's
expansion efforts primarily attributable to higher theatre operating expense as
a percentage of total revenues.

         General and Administrative Expenses. General and administrative
expenses increased in 1998 by 22.6% to $20.4 million from $67.0 million in 1997,
representing administrative costs associated with the 1998 theatre openings and
projects under construction. As a percentage of total revenues, general and
administrative expenses decreased to 2.9% in 1998 from 3.4% in 1997.


                                       19
<PAGE>   20
         Depreciation and Amortization. Depreciation and amortization expense
increased in 1998 by 71.6% to $52.4 million from $30.5 million in 1997. This
increase was primarily the result of theatre property additions associated with
the Company's expansion efforts.

         Operating Income (Loss). Operating income (loss) for 1998 decreased by
136.8% to $(25.0) million, or (3.5)% of total revenues, from $67.9 million, or
14.0% of total revenues, in 1997. Before the $134.5 million and $12.7 million of
nonrecurring expenses for 1998 and 1997, respectively, operating income was
15.5% and 16.7% of total revenues for 1998 and 1997, respectively.

         Interest Expense. Interest expense increased in 1998 by 324.8% to $59.3
million from $14.0 million in 1997. The increase was primarily due to higher
average borrowings outstanding.

         Income Taxes. The provision for income taxes decreased in 1998 by
215.9% to $(22.2) million from $19.1 million in 1997. The effective tax rate was
26.4% in 1998 as compared to 35.2% in 1997 due primarily to certain merger and
recapitalization expenses, which were not deductible for tax purposes.

         Net Income (Loss). Net income (loss) in 1998 decreased by 392.1% to
$(73.5) million from $25.2 million in 1997. Before nonrecurring merger expenses
and extraordinary items, net income was $29.6 million and $41.4 million for 1998
and 1997, respectively, reflecting a 28.5% decrease.

IMPAIRMENT AND OTHER DISPOSAL CHARGES

         The Company periodically reviews the carrying value of long-lived
assets, including goodwill, for impairment based on expected future cash flows.
Such reviews are performed as part of the Company's budgeting process and are
performed on an individual theatre level, the lowest level of identifiable cash
flows. Factors considered in management's estimate of future theatre cash flows
include historical operating results over complete operating cycles as well as
the current and anticipated future impact of competitive openings in individual
markets.

         Management uses the results of this analysis to determine whether
impairment has occurred. The resulting impairment loss is measured as the amount
by which the carrying value of the asset exceeds fair value, which is estimated
using discounted cash flows. Discounted cash flows also include estimated
proceeds for the sale of owned properties in the instances where management
intends to sell the location. This analyses resulted in the recording of a $98.6
million and a $67.9 million impairment charge during the Company's fourth
quarters of fiscal 1999 and 1998, respectively.

         Additionally, the Company's management team began an extensive analysis
of under-performing locations. Consequently, the Company decided to close or
relocate a number of existing theatre locations as well as discontinue plans to
develop certain sites. As a result, the $16.8 million represents a non cash
write off of fixed assets, net of proceeds from sales of certain owned
properties. In conjunction with certain of these closed sites, a reserve for
lease termination costs of $4.3 million which represents management's best
estimate of potential costs for exiting these leases and are based on analyses
of the properties, correspondence with the landlord, exploratory discussions
with potential sublessees and individual market conditions. Management does not
believe the costs to exit underperforming theatre sites will be significant in
fiscal year 2000.

LIQUIDITY AND CAPITAL RESOURCES

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

         The Company's capital requirements have arisen principally in
connection with acquisitions of existing theatres, new theatre openings and the
addition of screens to existing theatres and have been financed with debt and
internally generated cash. The Company's Senior Credit Facilities provide for
borrowings of up to $1,008.8 million in the aggregate, consisting of the
Revolving Credit Facility, which permits the Company to borrow up to $500.0
million on a


                                       20
<PAGE>   21
revolving basis and $508.8 million, in the aggregate, of term loan borrowings
under three separate term loan facilities. As of December 30, 1999, the Company
had $128.5 million of capacity available under the Revolving Credit Facility.
Under the Senior Credit Facilities, the Company is required to comply with
certain financial and other covenants. The loans under the Senior Credit
Facilities bear interest at either a base rate (referred to as "Base Rate
Loans") or adjusted LIBO rate (referred to as "LIBOR Rate Loans") plus, in each
case, an applicable margin determined depending upon the Company's Total
Leverage Ratio (as defined in the Senior Credit Facilities).

         On May 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 (the "Cobb Theatres Acquisition"). The aggregate
consideration paid by the Company was 17,593,083 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 "Cobb Notes"). The Company has repurchased all but
$70,000 principal amount of the Cobb Notes. Regal initially financed the
purchase price of the Cobb 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 Cobb 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 (the "Old Regal Notes"). 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. (known as RC Theatres), an independent theatre company with operations in
Virginia. The consideration paid was approximately $24.0 million in cash.

         On May 27, 1998, an affiliate of KKR and an affiliate of Hicks Muse
merged with and into the Company, with the Company continuing as the surviving
corporation. The consummation of the Regal Merger resulted in a recapitalization
of the Company. In the Recapitalization, the Company's existing holders of
Common Stock received cash for their shares of Common Stock, and KKR, Hicks
Muse, DLJ and certain members of the Company's management acquired the Company.
In addition, in connection with the Recapitalization, the Company canceled
options and repurchased warrants held by certain directors, management and
employees of the Company. The aggregate purchase price paid to effect the Regal
Merger and the Option/Warrant Redemption was approximately $1.2 billion.

         In connection with the Recapitalization, the Company made an offer to
purchase (the Tender Offer) all $125.0 million aggregate principal amount of the
Old Regal Notes. In conjunction with the Tender Offer, the Company also
solicited consents to eliminate substantially all of the covenants contained in
the indenture relating to the Old Regal Notes. The purchase price paid by the
Company for the Old Regal Notes was approximately $139.5 million, including a
premium of approximately $14.5 million.

         On May 27, 1998, the Company issued the Original Notes. The net
proceeds from the sale of the Original Notes, initial borrowings of $375.0
million under the Company's Senior Credit Facilities and $776.9 million in
proceeds from the Equity Investment were used: (i) to fund the cash payments
required to effect the Regal Merger and the Option/Warrant Redemption; (ii) to
repay and retire the Company's then existing senior credit facilities; (iii) to
repurchase the Old Regal Notes; and (iv) to pay related fees and expenses.


                                       21
<PAGE>   22
         On August 26, 1998, the Company acquired Act III. In the Act III
Merger, Act III became a wholly owned subsidiary of the Company and each share
of Act III's outstanding common stock was converted into the right to receive
one share of the Company's Common Stock. In connection with the Act III Merger,
the Company amended its Senior Credit Facilities and borrowed $383.3 million
thereunder to repay Act III's then existing bank borrowings and two senior
subordinated promissory notes, each in the aggregate principal amount of $75.0
million, which were owned by KKR and Hicks Muse.

         On November 10, 1998, the Company issued Tack-On Notes for $200 million
under the same indenture governing the Original Notes. The proceeds of the
Tack-On Offering were used to repay and retire portions of the Senior Credit
Facilities.

         On December 16, 1998, the Company issued the Regal Debentures for $200
million. The proceeds of the Debenture Offering were used to repay all of the
then outstanding indebtedness under the Revolving Credit Facility and the excess
was used for working capital purposes.

         Interest payments on the Regal Notes and the Regal Debentures and
interest payments and amortization with respect to the Senior Credit Facilities
represent significant liquidity requirements for the Company. The Company had
interest expense of approximately $132.2 million for the twelve-month period
ended December 30, 1999. In addition, for 1999, the amount paid under the
Company's non-cancelable operating leases was $129.9 million.

         At December 30, 1999, the Company had 16 new theatres with 242 screens
and 15 screens at three existing locations under construction. The Company
intends to develop approximately 320 screens during 2000. The Company expects
that the capital expenditures in connection with its development plan will
aggregate approximately $200.0 million during 2000, of which, as of December 30,
1999, the Company had approximately $200.0 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 12 months will be
satisfied by available credit under the Senior Credit Facilities, internally
generated cash flow and available cash.

         During the first quarter of fiscal 2000, the Company has obtained
commitments from lenders totaling approximately $60 million. Such commitments
provide for financings in the form of sale-leaseback financing and secured
financings. Such transactions are expected to close during the first and second
quarters of fiscal 2000.

         Based on the current level of operations and anticipated future growth
(both internally generated as well as through acquisitions), the Company
anticipates that its cash flow from operations, together with borrowings under
the Senior Credit Facilities and additional financing should be sufficient to
meet its anticipated requirements for working capital, capital expenditure,
interest payments and scheduled principal payments. The Company's future
operating performance and ability to service or refinance the Regal Notes, the
Regal Debentures and to extend or refinance the Senior Credit Facilities will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control.

         The Regal Notes, Regal Debentures and Senior Credit Facilities impose
certain restrictions on the Company's ability to make capital expenditures and
limit the Company's ability to incur additional indebtedness. Such restrictions
could limit the Company's ability to respond to market conditions, to provide
for unanticipated capital investments or to take advantage of business or
acquisition opportunities. The covenants contained in the Senior Credit
Facilities and/or the indentures governing the Regal Notes and the Regal
Debentures also, among other things, limit the ability of the Company to dispose
of assets, repay indebtedness or amend other debt instruments, pay
distributions, enter into sale and leaseback transactions, make loans or
advances and make acquisitions.

INFLATION; ECONOMIC DOWNTURN

         The Company does not believe that inflation has had a material impact
on its financial position or results of operations. In times of recession,
attendance levels experienced by motion picture exhibitors may be adversely
affected. For example, revenues declined for the industry in 1990 and 1991.


                                       22
<PAGE>   23
NEW ACCOUNTING PRONOUNCEMENTS

         Emerging Issues Task Force (EITF) Issue No. 97-10, The Effect of Lessee
Involvement in Asset Construction, is applicable to entities involved on behalf
of an owner-lessor with the construction of an asset that will be leased to the
lessee when construction of the asset is completed. The consensus reached in
Issue No. 97-10 applies to construction projects committed to after May 21, 1998
and to those projects that were committed to on May 21, 1998 if construction did
not commence by December 31, 1999. Issue 97-10 has required the Company to be
considered the owner (for accounting purposes) of these types of projects during
the construction period as well as when construction of the asset is completed.
Subsequent to the issuance of Issue 97-10, the Company did not amend the leasing
arrangements which were historically recorded as off-balance sheet operating
leases as such amendments would have changed the economics of the lease
agreements. Management believes a change in the economics of the lease would
have been unfavorable to the Company. Therefore, the Company is required to
record such leases as lease financing arrangements (capital leases). The
application of the provisions of EITF Issue No. 97-10 did not result in the
recording of any leases or capital leases in 1998 but did result in the
recording of approximately $74.7 million of such leases as capital leases in
1999, with no significant effect on the results of operations for 1999.

RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

         In June 1998, the Financial Accounting Standards Board issued Statement
No.133, Accounting for Derivative Instruments and Hedging Activities. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. The Company does not anticipate that the adoption of this
Statement will have a significant effect on its results of operations or
financial position. The Company will adopt this Statement during the first
quarter of fiscal 2001.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         With certain instruments entered into for other than trading purposes,
the Company is subject to market risk exposure related to changes in interest
rates. As of December 30, 1999, the Company has in place a $1,008.8 million bank
credit facility whose various components mature during 2005 through 2007. A
portion of that facility, a $500.0 million revolver, bears interest at a
percentage point spread from either the base rate or LIBOR both based on the
Company's total leverage ratio. As of December 30, 1999, the Company had $370.0
million outstanding under the revolver at interest rates ranging from 7.49% to
8.43%. The remaining portion of the bank credit facility is $508.8 million in
term loans.

         Borrowings under the Term A Loan or the Revolving Credit Facility can
be made at the Base Rate plus a margin of 0% to 1%, or the LIBOR Rate, plus
 .625% to 2.25%, both depending on the Total Leverage Ratio. The Base Rate on
revolving loans is the rate established by the Administrative Agent in New York
as its base rate for dollars loaned in the United States. The LIBOR Rate is
based on the length of the loan. The outstanding balance under the Term A Loan
was $237.6 million at December 30, 1999 with $2.4 million due annually through
2004 and the balance due in 2005.

         Borrowings under the Term B Loan can be made at the Base Rate plus a
margin of 0.75% to 1.25% or the LIBOR Rate plus 2.0% to 2.5%, both depending on
the Total Leverage Ratio. The outstanding balance under the Term B Loan was
$137.5 million at December 30, 1999 with the balance due in 2006.

         Borrowings under the Term C Loan can be made at the Base Rate plus a
margin of 1.0% to 1.5% or the LIBOR Rate plus 2.25% to 2.75%, both depending on
the Total Leverage Ratio. The outstanding balance under the Term C Loan was
$133.7 million at December 30, 1999 with $1.35 million due annually through
2006, and the balance due in 2007.

         The weighted average interest rates through the expected maturity dates
for the Company's term loans and revolving credit facility are 8.56% and 8.35%,
respectively, based on the Company's current spread of 2.25% for the revolver
and 2.25% to 2.75% for the term loans. While changes in the LIBOR rate would
affect the cost of funds borrowed in the future, the Company believes the
effect, if any, of reasonably possible near term changes in interest rates on
the Company's consolidated financial position, results of operations, or cash
flows would not be material. The fair market value of the outstanding credit
obligations under the bank credit facility approximate the facility's carrying
value due to the variable interest rates in place as of December 30, 1999.


                                       23
<PAGE>   24
The Company has $200.0 million in senior subordinated debentures due December
15, 2010, with interest payable semiannually at 8.875%. Debentures are
redeemable, in whole or in part, at the option of the Company at any time on or
after December 15, 2003, at the redemption prices (expressed as percentages of
the principal amount thereof) set forth below together with accrued and unpaid
interest to the redemption date, if redeemed during the 12 month period
beginning on December 15 of the years indicated:

                                   REDEMPTION
<TABLE>
<CAPTION>
         YEAR                                               PRICE
         ----                                               -----
<S>                                                       <C>
         2003                                             104.438%
         2004                                             103.328%
         2005                                             101.219%
         2006                                             101.109%
         2007 and thereafter                              100.000%
</TABLE>

The Company has $600 million in senior subordinated notes due June 1, 2008, with
interest payable semiannually at 9.5%. Notes are redeemable, in whole or in
part, at the option of the Company at any time on or after June 1, 2003, at the
redemption prices (expressed as percentages of the principal amount thereof) set
forth below together with accrued and unpaid interest to the redemption date, if
redeemed during the 12 month period beginning on June 1 of the years indicated:


                                   REDEMPTION
<TABLE>
<CAPTION>
         YEAR                                               PRICE
         ----                                               -----
<S>                                                       <C>
         2003                                             104.750%
         2004                                             103.167%
         2005                                             101.583%
         2006 and thereafter                              100.000%
</TABLE>


The fair market value of the outstanding senior subordinated debt as of December
30, 1999 was $608.0 million based on quoted market prices as of that date.

As of December 30, 1999, the Company had entered into interest rate swap
agreements ranging from five to seven years for the management of interest rate
exposure. As of December 30, 1999, such agreements had effectively converted
$270 million of LIBOR floating rate debt to fixed rate obligations with interest
rates ranging from 5.32% to 7.32%. Regal continually monitors its position and
the credit rating of the interest swap counterparty. The fair values of interest
rate swap agreements are estimated based on quotes from dealers of these
instruments and represent the estimated amounts the Company would expect to
(pay) or receive to terminate the agreements. The fair value of the Company's
interest rate swap agreements at December 30, 1999 was $11.7 million.


                                       24
<PAGE>   25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                             <C>
Independent Auditors' Report                                                    26
Report of PricewaterhouseCoopers LLP, Independent Accountants                   27
Consolidated Balance Sheets at December 30, 1999 and December 31, 1998          28
Consolidated Statements of Operations for the years ended December 30, 1999
  December 31, 1998 and January 1, 1998                                         29
Consolidated Statements of Shareholders' Equity for the years ended
  December 30, 1999, December 31, 1998 and January 1, 1998                      30
Consolidated Statements of Cash Flows for the years ended December 30, 1999,
  December 31, 1998 and January 1, 1998                                         31
Notes to Consolidated Financial Statements                                      32
</TABLE>



                                       25
<PAGE>   26
INDEPENDENT AUDITORS' REPORT

Board of Directors
Regal Cinemas, Inc.
Knoxville, Tennessee

We have audited the accompanying consolidated balance sheet of Regal Cinemas,
Inc. and subsidiaries (the Company) as of December 30, 1999 and December 31,
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Regal Cinemas, Inc. and subsidiaries as of
December 30, 1999 and December 31, 1998, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.


/s/ DELOITTE & TOUCHE LLP

February 8, 2000
Nashville, Tennessee

                                       26
<PAGE>   27
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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP


Knoxville, Tennessee
February 6, 1998


                                       27
<PAGE>   28
REGAL CINEMAS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               DECEMBER 30,    DECEMBER 31,
ASSETS                                                            1999             1998
                                                               -----------     -----------
<S>                                                            <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents                                    $    40,604     $    20,621
  Accounts receivable                                                2,752           3,161
  Reimbursable construction advances                                20,250           8,643
  Inventories                                                        5,050           4,014
  Prepaid and other current assets                                  18,283          11,455
  Assets held for sale                                               9,670            --
  Deferred income tax asset                                            633           1,271
                                                               -----------     -----------
             Total current assets                                   97,242          49,165

PROPERTY AND EQUIPMENT:
  Land                                                             113,516         111,854
  Buildings and leasehold improvements                             999,012         650,313
  Equipment                                                        453,751         368,792
  Construction in progress                                          75,879          94,610
                                                               -----------     -----------
                                                                 1,642,158       1,225,569
  Accumulated depreciation and amortization                       (185,409)       (139,643)
                                                               -----------     -----------
        Total property and equipment, net                        1,456,749       1,085,926
GOODWILL, net of accumulated amortization of $20,952 and
  $10,170, respectively                                            398,567         439,842
DEFERRED INCOME TAX ASSET                                           86,075          37,538
OTHER ASSETS                                                        41,576          47,989
                                                               -----------     -----------
TOTAL ASSETS                                                   $ 2,080,209     $ 1,660,460
                                                               ===========     ===========


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of long-term obligations                  $     6,537     $     6,524
  Accounts payable                                                 101,152          65,592
  Accrued expenses                                                  56,701          43,118
                                                               -----------     -----------
        Total current liabilities                                  164,390         115,234
LONG-TERM OBLIGATIONS, less current maturities:
  Long-term debt                                                 1,679,217       1,313,219
  Capital lease obligations                                         19,722          21,323
  Lease financing arrangements                                      74,199            --
OTHER LIABILITIES                                                   28,521           8,077
                                                               -----------     -----------
        Total liabilities                                        1,966,049       1,457,853

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Preferred stock, no par; 100,000,000 shares authorized,
    none issued and outstanding                                       --              --
  Common stock, no par; 500,000,000 shares authorized;
    216,873,501 issued and outstanding in 1999; 216,491,565
    issued and outstanding in 1998                                 199,778         197,427
  Loans to shareholders                                             (6,388)         (4,140)
  Retained earnings (deficit)                                      (79,230)          9,320
                                                               -----------     -----------
        Total shareholders' equity                                 114,160         202,607
                                                               -----------     -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $ 2,080,209     $ 1,660,460
                                                               ===========     ===========
</TABLE>

See notes to consolidated financial statements


                                       28
<PAGE>   29
REGAL CINEMAS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 30, 1999, DECEMBER 31, 1998 AND JANUARY 1, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            DECEMBER 30,     DECEMBER 31,     JANUARY 1,
                                                                1999            1998            1998
                                                             -----------     -----------     -----------
<S>                                                          <C>             <C>             <C>
REVENUES:
  Admissions                                                 $   690,469     $   462,826     $   325,118
  Concessions                                                    285,707         202,418         137,173
  Other operating revenue                                         60,895          41,783          21,305
                                                             -----------     -----------     -----------
         Total revenues                                        1,037,071         707,027         483,596

OPERATING EXPENSES:
  Film rental and advertising costs                              384,894         251,345         178,173
  Cost of concessions and other                                   44,276          31,657          21,072
  Theatre operating expenses                                     377,702         241,720         156,588
  General and administrative expenses                             32,134          20,355          16,609
  Depreciation and amortization                                   80,787          52,413          30,535
  Merger expenses                                                   --              --             7,789
  Recapitalization expenses                                         --            65,755            --
  Theatre closing costs                                            4,269            --              --
  Loss on disposal of operating assets                            16,826             861            --
  Loss on impairment of assets                                    98,587          67,873           4,960
                                                             -----------     -----------     -----------
         Total operating expenses                              1,039,475         731,979         415,726
                                                             -----------     -----------     -----------

OPERATING INCOME (LOSS)                                           (2,404)        (24,952)         67,870
                                                             -----------     -----------     -----------

OTHER INCOME (EXPENSE):
  Interest expense                                              (132,162)        (59,301)        (13,959)
  Interest income                                                    659           1,506             816
  Other                                                             --            (1,081)           (407)
                                                             -----------     -----------     -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
         EXTRAORDINARY ITEM                                     (133,907)        (83,828)         54,320

BENEFIT FROM (PROVISION FOR) INCOME TAXES                         45,357          22,170         (19,121)
                                                             -----------     -----------     -----------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                          (88,550)        (61,658)         35,199

EXTRAORDINARY ITEM:
  Loss on extinguishment of debt, net of applicable taxes           --           (11,890)        (10,020)
                                                             -----------     -----------     -----------

NET INCOME (LOSS)                                            $   (88,550)    $   (73,548)    $    25,179
                                                             ===========     ===========     ===========
</TABLE>

See notes to consolidated financial statements.


                                       29
<PAGE>   30
REGAL CINEMAS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 30, 1999, DECEMBER 31, 1998 AND JANUARY 1, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                  COMMON        PREFERRED       LOANS TO         RETAINED
                                                  STOCK           STOCK        SHAREHOLDERS      EARNINGS         TOTAL
                                                -----------     -----------     -----------     -----------     -----------
<S>                                             <C>             <C>             <C>             <C>             <C>
BALANCE, JANUARY 2, 1997                        $   221,613     $      --       $      --       $    57,689     $   279,302
  Issuance of 844,614 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
                                                -----------     -----------     -----------     -----------     -----------

BALANCE, JANUARY 1, 1998                            223,707            --              --            82,868         306,575
  Purchase and retirement of 223,937,974
    shares of common stock related to the
    Recapitalization                             (1,119,690)           --              --              --        (1,119,690)
  Issuance of 2,630,556 shares of
    Common stock related to the
    Recapitalization                                 13,153            --              --              --            13,153
  Issuance of 15,277 shares of Series A
    Convertible Preferred Stock related
     to the Recapitalization                           --           763,820            --              --           763,820
  Conversion of 15,277 shares of Series A
    Convertible Preferred Stock to
     152,763,973 shares of
     common stock                                   763,820        (763,820)           --              --              --
  Issuance of 60,383,388 shares of common
     stock and 5,195,598 options to purchase
     the Company's common stock related to
     the acquisition of Act III                     312,157            --              --              --           312,157
  Issuance of 808,313 shares of common
    stock in exchange for shareholder loans           4,212            --            (4,140)           --                72
  Stock option amortization                              68            --              --              --                68
  Net loss                                             --              --              --           (73,548)        (73,548)
                                                -----------     -----------     -----------     -----------     -----------

BALANCE, DECEMBER 31, 1998                      $   197,427     $      --       $    (4,140)    $     9,320     $   202,607
  Issuance of 120,000 shares of common
     stock upon exercise of stock options               600            --              --              --               600
  Issuance of 569,500 shares of common
     stock in exchange for shareholder loans          2,848            --            (2,848)           --              --
  Repurchase and cancellation of 307,564
     shares of common stock                          (1,097)           --               600            --              (497)
  Net loss                                             --              --              --           (88,550)        (88,550)
                                                -----------     -----------     -----------     -----------     -----------

BALANCE, DECEMBER 30, 1999                      $   199,778     $      --       $    (6,388)    $   (79,230)    $   114,160
                                                ===========     ===========     ===========     ===========     ===========
</TABLE>

See notes to consolidated financial statements.


                                       30
<PAGE>   31
REGAL CINEMAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 1999, DECEMBER 31, 1998 AND JANUARY 1, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                          DECEMBER 30,        DECEMBER 31,        JANUARY 1,
                                                             1999                1998                1998
                                                          -----------         -----------         -----------
<S>                                                       <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                         $   (88,550)        $   (73,548)        $    25,179
  Adjustments to reconcile net income (loss)
    to net cash provided by operating activities:
Depreciation and amortization                                  80,787              52,413              30,535
Non-cash loss on extinguishment of debt                          --                 4,975               2,575
Loss on impairment of assets                                   98,587              67,873               4,960
Loss on disposal of operating assets                           16,826                 861                --
Theatre closing costs                                           4,269                --                  --
Deferred income taxes                                         (47,899)            (29,771)              1,293
Changes in operating assets and liabilities,
  net of effects from acquisitions:
  Accounts receivable                                             409               3,585              (1,899)
  Inventories                                                  (1,036)               (118)               (135)
  Prepaids and other current assets                            (6,304)             (3,373)              2,150
  Accounts payable                                             22,352              13,054               2,881
  Accrued expenses and other liabilities                       13,248               9,132              (3,579)
                                                          -----------         -----------         -----------
        Net cash provided by operating activities              92,689              45,083              63,960

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                         (435,768)           (286,363)           (178,099)
Proceeds from sale of fixed assets                              8,875               1,731                --
Increase in reimbursable construction advances                (11,607)             (5,761)               --
Increase in goodwill and other assets                           2,618              (5,829)            (24,198)
                                                          -----------         -----------         -----------
        Net cash used in investing activities                (435,882)           (296,222)           (202,297)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term obligations                        390,000           1,329,800             358,418
Payments on long-term obligations                             (26,927)           (688,653)           (214,460)
Deferred financing costs                                         --               (45,137)             (5,127)
Proceeds from issuance of stock, net                             --               774,691                --
Purchase and retirement of common stock                          (497)         (1,117,407)               --
Exercise of warrants, options and stock
    compensation expense                                          600                  68                 788
                                                          -----------         -----------         -----------
         Net cash provided by financing activities            363,176             253,362             139,619
                                                          -----------         -----------         -----------

NET INCREASE IN CASH AND EQUIVALENTS                           19,983               2,223               1,282

CASH AND EQUIVALENTS, beginning of period                      20,621              18,398              17,116
                                                          -----------         -----------         -----------

CASH AND EQUIVALENTS, end of period                       $    40,604         $    20,621         $    18,398
                                                          ===========         ===========         ===========
</TABLE>

See notes to consolidated financial statements.

                                       31
<PAGE>   32
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 1999, DECEMBER 31, 1998 AND JANUARY 1, 1998

1.       THE COMPANY AND RECAPITALIZATION

         Regal Cinemas, Inc. and its wholly owned subsidiaries (the Company or
         Regal) operate multi-screen motion picture theatres principally
         throughout the eastern and northwestern United States.

         On May 27, 1998, an affiliate of Kohlberg Kravis Roberts & Co. L.P.
         (KKR) and an affiliate of Hicks, Muse, Tate & Furst Incorporated (Hicks
         Muse) merged with and into Regal Cinemas, Inc., with the Company
         continuing as the surviving corporation of the Merger (the Merger). The
         Merger and related transactions have been recorded as a
         recapitalization (the Recapitalization). In the Recapitalization, the
         Company's existing shareholders received cash for their shares of
         common stock. In addition, in connection with the Recapitalization, the
         Company canceled options and repurchased warrants held by certain
         former directors, management and employees of the Company (the
         Option/Warrant Redemption). The aggregate amount paid to effect the
         Merger and the Option/Warrant Redemption was approximately $1.2
         billion.

         The net proceeds of a $400 million senior subordinated note offering,
         initial borrowings of $375.0 million under senior credit facilities and
         the proceeds of $776.9 million from the investment by KKR, Hicks Muse,
         DLJ Merchant Banking Partners II, L.P. and affiliated funds (DLJ) and
         management in the Company were used: (i) to fund the cash payments
         required to effect the Merger and the Option/Warrant Redemption; (ii)
         to repay and retire the Company's existing senior credit facilities;
         (iii) to repurchase the Company's existing 8.5% senior subordinated
         notes; and (iv) to pay related fees and expenses. Upon consummation of
         the Merger, KKR owned $287.3 million of the Company's equity
         securities, Hicks Muse owned $437.3 million of the Company's equity
         securities and DLJ owned $50.0 million of the Company's equity
         securities. Each investor received securities consisting of a
         combination of the Company's common stock, no par value (Common Stock),
         and the Company's Series A Convertible Preferred Stock, no par value
         (Convertible Preferred Stock), which was converted into Common Stock on
         June 3, 1998. To equalize KKR's and Hicks Muse's investments in the
         Company at $362.3 million each, Hicks Muse exchanged $75.0 million of
         Convertible Preferred Stock, with KKR for $75.0 million of common stock
         of Act III Cinemas, Inc. (Act III). As a result of the Recapitalization
         and the Act III Merger (see Note 3), KKR and Hicks Muse each owned
         approximately 46.3% of the Company's Common Stock, with DLJ, management
         and other minority holders owning the remainder.

         During 1998, nonrecurring costs of approximately $65.7 million,
         including approximately $41.9 million of compensation costs, were
         incurred in connection with the Recapitalization. Financing costs of
         approximately $34.2 million were incurred and classified as deferred
         financing costs which will be amortized over the lives of the new debt
         facilities (see Note 5). Of the total Merger and Recapitalization costs
         above, an aggregate of $19.5 million was paid to KKR and Hicks Muse.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
         include the accounts of Regal and its wholly owned subsidiaries. All
         significant intercompany accounts and transactions have been eliminated
         from the consolidated financial statements.

         FISCAL YEAR - The Company maintains its accounting records on a 52 week
         fiscal year ending on the Thursday nearest December 31, with each
         quarter consisting of 13 weeks.

         CASH EQUIVALENTS - The Company considers all highly liquid debt
         instruments purchased with an original maturity of three months or less
         to be cash equivalents. At December 30, 1999 and December 31, 1998,


                                       32
<PAGE>   33
         the Company held approximately $29.1 million and $20.0 million,
         respectively, in temporary cash investments in the form of certificates
         of deposit and variable rate investment accounts with major financial
         institutions.

         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.

         START-UP COSTS - Start up costs of a new theatre are expensed as
         incurred.

         REIMBURSABLE CONSTRUCTION ADVANCES - Reimbursable construction advances
         consist of amounts due from landlords to fund a portion of the
         construction costs of new theatres that are to be operated by the
         Company pursuant to lease agreements. The landlords repay the amounts
         either during construction on a percentage of completion basis, or upon
         completion of the theatre.

         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
         as follows:

<TABLE>
<S>                                                  <C>
                  Buildings and leaseholds           20-30 years
                  Equipment                           5-20 years
</TABLE>

         Interest is capitalized in accordance with Statement of Financial
         Accounting Standards No. 34, Capitalization of Interest. Capitalized
         interest was $11.5 million, $6.2 million, and $2.6 million for fiscal
         years 1999, 1998 and 1997, respectively.

         GOODWILL - Goodwill, which represents the excess of acquisition costs
         over the net assets acquired in business combinations, is amortized on
         the straight-line method over periods ranging from 25 to 40 years.

         IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews long-lived
         assets, including goodwill, for impairment whenever events or changes
         in circumstances indicate that the carrying amounts of the assets may
         not be fully recoverable. If the sum of the expected future cash flows,
         undiscounted and without interest charges, is less than the carrying
         amount of the asset, an impairment charge is recognized in the amount
         by which the carrying value of the assets exceeds it fair market value.
         Assets are evaluated for impairment on an individual theatre basis,
         which management believes is the lowest level for which there are
         identifiable cash flows. The fair value of assets is determined using
         the present value of the estimated future cash flows or the expected
         selling price less selling costs for assets expected to be disposed of.

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

         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.

         DEFERRED REVENUE (INCLUDED IN OTHER LIABILITIES) - Deferred revenue
         relates primarily to vendor rebates. Rebates are recognized in the
         accompanying financial statements as earned.

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


                                       33
<PAGE>   34
         ADVERTISING COSTS - The Company expenses advertising costs as incurred.

         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.

         SEGMENTS - The Company manages it business based on one reportable
         segment.

         NEW ACCOUNTING STANDARDS - Emerging Issues Task Force (EITF) Issue No.
         97-10, The Effect of Lessee Involvement in Asset Construction, is
         applicable to entities involved on behalf of an owner-lessor with the
         construction of an asset that will be leased to the lessee when
         construction of the asset is completed. The consensus reached in Issue
         No. 97-10 applies to construction projects committed to after May 21,
         1998 and to those projects that were committed to on May 21, 1998 if
         construction did not commence by December 31, 1999. Issue 97-10 has
         required the Company to be considered the owner (for accounting
         purposes) of these types of projects during the construction period as
         well as when construction of the asset is completed. Therefore, as
         discussed in Note 5, the Company is required to record such leases as
         lease financing arrangements (capital leases). The application of the
         provisions of EITF Issue No. 97-10 did not result in the recording of
         any leases or capital leases in 1998, but did result in the recording
         of approximately $74.7 million of such leases as capital leases in
         1999, with no significant effect on the results of operations for 1999.

         RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - In June 1998, the
         Financial Accounting Standards Board issued Statement No.133,
         Accounting for Derivative Instruments and Hedging Activities. The
         Statement will require the Company to recognize all derivatives on the
         balance sheet at fair value. The Company does not anticipate that the
         adoption of this Statement will have a significant effect on its
         results of operations or financial position. The Company will adopt
         this Statement during the first quarter of fiscal 2001.

         RECLASSIFICATIONs - Certain reclassifications have been made to the
         1998 financial statements to conform to the 1999 presentation.

3.       ACQUISITIONS

         On August 26, 1998, the Company acquired Act III Cinemas, Inc. (the Act
         III Merger). The total purchase cost was approximately $312.2 million,
         representing primarily the value of 60,383,388 shares of the Company's
         common stock issued to acquire all of Act III's outstanding common
         stock and the value of 5,195,598 options of the Company issued for Act
         III options. In connection with the Act III Merger, the Company also
         amended its credit facilities and borrowed $383.3 million thereunder to
         repay Act III's borrowings and accrued interest under Act III's
         existing credit facilities and two senior subordinated notes totaling
         $150.0 million.


                                       34
<PAGE>   35
         The Act III Merger has been accounted for as a purchase, applying the
         applicable provisions of Accounting Principles Board Opinion No. 16.
         The allocation of the purchase price as of December 30, 1999 is as
         follows:

<TABLE>
<CAPTION>
         (IN THOUSANDS)
<S>                                                                             <C>
         Property and equipment                                                 $     343,694
         Long-term debt assumed                                                      (411,337)
         Net working capital acquired                                                 (18,541)
         Excess purchase cost over fair value of net assets acquired                  398,341
                                                                                -------------
         Total purchase cost                                                    $     312,157
                                                                                =============
</TABLE>

         The above allocation of purchase cost has been allocated to the
         acquired assets and liabilities of Act III based on estimates of fair
         value as of the closing date.

         The following pro forma unaudited fiscal year results of operations
         data give effect to the Act III Merger and the Recapitalization (Note
         1) as if they had occurred as of January 3, 1997:

<TABLE>
<CAPTION>
                                                                     1998             1997
                                                                -------------    -------------
<S>                                                             <C>              <C>
         (IN THOUSANDS)
         Revenues                                              $     897,459    $     738,668
         Loss before extraordinary items                             (67,571)         (18,601)
         Net loss                                                    (79,407)         (28,621)
</TABLE>

         On July 31, 1997, the Company issued 17,593,083 shares of its Common
         Stock for all of the outstanding common stock of Cobb Theatres. This
         merger has been accounted for as a pooling of interests and,
         accordingly, 1997 consolidated financial statements were restated to
         include the results of operations of Cobb Theatres.


         Separate results of the combining entities for fiscal year 1997 are as
         follows:

<TABLE>
<CAPTION>
                                                                                     1997
                                                                                -------------
         (IN THOUSANDS)
<S>                                                                              <C>
         Revenues:
         Regal                                                                  $     402,445
         Cobb Theatres, L.L.C. and Tricob Partnership
           (through July 31 for 1997)                                                  81,151
                                                                                -------------
                                                                                $     483,596
                                                                                =============
         Net income (loss):
         Regal                                                                  $      27,940
         Cobb Theatres, L.L.C. and Tricob Partnership
           (through July 31 for 1997)                                                  (2,761)
                                                                                -------------
                                                                                $      25,179
                                                                                =============
</TABLE>

         In addition to the acquisition of Act III and the Cobb Theatre mergers
         described above, the Company completed the purchase of 19 theatres with
         169 screens during fiscal year 1997. The theatres were purchased for
         consideration of approximately $48.5 million cash. These transactions
         were 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 and equipment,
         and leasehold improvements) of the respective theatre locations, with
         the remaining balance allocated to goodwill.


                                       35
<PAGE>   36
         The following unaudited pro forma results of operations data assume the
         individual fiscal 1997 acquisitions referred to above occurred as of
         the beginning of the fiscal year:

<TABLE>
<CAPTION>
         (IN THOUSANDS)                                              1997
                                                            -------------
<S>                                                         <C>
         Revenues                                           $     503,722
         Operating income                                          70,108
         Income before extraordinary item                          36,564
         Net income applicable to common stock                     26,544
</TABLE>

4.       IMPAIRMENT OF LONG-LIVED ASSETS

         ASSET IMPAIRMENT - As stated in Note 2, the Company periodically
         reviews the carrying value of long-lived assets, including goodwill,
         for impairment based on expected future cash flows. Such reviews are
         performed as part of the Company's budgeting process and are performed
         on an individual theatre level, the lowest level of identifiable cash
         flows. Factors considered in management's estimate of future theatre
         cash flows include historical operating results over complete operating
         cycles as well as the current and anticipated future impact of
         competitive openings in individual markets.

         Management uses the results of this analysis to determine whether
         impairment has occurred. The resulting impairment loss is measured as
         the amount by which the carrying value of the asset exceeds fair value,
         which is estimated using discounted cash flows. Discounted cash flows
         also include estimated proceeds for the sale of owned properties in the
         instances where management intends to sell the location. This analysis
         has resulted in the following impairment losses being recognized:

<TABLE>
<CAPTION>
                                                                         1999              1998             1997
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>
         (IN THOUSANDS)
         Write-down of theatre property and equipment           $      46,460     $      22,617    $       4,960
         Write-down of FunScape property and equipment                 22,017            36,950                -
         Write-off of goodwill                                         30,110             8,306                -
                                                                -------------     -------------    -------------

         Total                                                  $      98,587     $      67,873    $       4,960
                                                                 ============      ============     ============
</TABLE>

         THEATRE CLOSING AND LOSS ON DISPOSAL COSTS - During 1999, the Company's
         management team began an extensive analysis of under-performing
         locations. Consequently, the Company decided to close or relocate a
         number of theatre locations as well as discontinue plans to build new
         theatres in certain markets. The Company recorded $16.8 million as the
         net loss on disposal of these locations as well as the write-off of
         certain costs incurred to develop sites which have now been
         discontinued. In conjunction with certain closed locations, a reserve
         for lease termination costs of $4.3 million has also been recorded.
         This reserve for lease termination costs represents management's best
         estimate of the potential costs for exiting these leases and are based
         on analyses of the properties, correspondence with the landlord,
         exploratory discussions with potential sublessees and individual market
         conditions.

         Theatre properties owned by the Company which were closed during the
         1999 fiscal year are classified as assets held for sale on the
         accompanying December 30, 1999 balance sheet. Such assets are recorded
         at the estimated net realizable value of the individual locations.


                                       36
<PAGE>   37
5.       LONG-TERM OBLIGATIONS

         Long-term obligations at December 30, 1999 and December 31, 1998,
         consists of the following:

<TABLE>
<CAPTION>
                                                                                  DECEMBER 30,     DECEMBER 31,
         (IN THOUSANDS)                                                              1999              1998
<S>                                                                               <C>              <C>
         $600,000 of the Company's senior subordinated notes due June 1, 2008,
         with interest payable semiannually at 9.5%. Notes are redeemable, in
         whole or in part, at the option of the Company at any time on or after
         June 1, 2003, at the redemption prices (expressed as percentages of the
         principal amount thereof) set forth below together with accrued and
         unpaid interest to the redemption date, if redeemed during the 12 month
         period beginning on June 1 of the years indicated:
</TABLE>

<TABLE>
<CAPTION>
                                      REDEMPTION
                  YEAR                     PRICE
<S>                                   <C>                                          <C>              <C>
                  2003                   104.750%
                  2004                   103.167%
                  2005                   101.583%
                  2006 and thereafter    100.000%

                                                                                   $ 600,000        $ 600,000
</TABLE>

<TABLE>
<CAPTION>
         $200,000 of the Company's senior subordinated debentures due December
         15, 2010, with interest payable semiannually at 8.875%. Debentures are
         redeemable, in whole or in part, at the option of the Company at any
         time on or after December 15, 2003, at the redemption prices (expressed
         as percentages of the principal amount thereof) set forth below
         together with accrued and unpaid interest to the redemption date, if
         redeemed during the 12 month period beginning on December 15 of the
         years indicated:

                                       REDEMPTION
                  YEAR                      PRICE
         <S>                           <C>
                  2003                    104.750%
                  2004                    103.328%
                  2005                    101.219%
                  2006                    101.109%
                  2007 and thereafter     100.000%
</TABLE>
<TABLE>
<S>                                                                                <C>             <C>
                                                                                   $     200,000   $    200,000

         Term Loans                                                                      508,750        512,500

         Revolving credit facility                                                       370,000              -

         Other                                                                             4,877          4,757

         Capital lease obligations, 11.5% to 14.0%, maturing in various
         installments through 2024                                                        21,311         23,809

         Lease financing arrangements, 11.5% , maturing in
         various installments through 2019                                                74,737              -
                                                                                   -------------   ------------
                                                                                       1,779,675      1,341,066
         Less current maturities                                                          (6,537)        (6,524)
                                                                                   -------------   ------------

         Total long-term obligations                                               $   1,773,138    $  1,334,542
                                                                                   =============    ============
</TABLE>


                                       37
<PAGE>   38
         CREDIT FACILITIES - In connection with the Merger and Recapitalization
         (Note 1), the Company entered into credit facilities provided by a
         syndicate of financial institutions. In August 1998, December 1998, and
         March 1999, such credit facilities were amended. Such credit facilities
         (the Credit Facilities) now include a $500.0 million Revolving Credit
         Facility (including the availability of Revolving Loans, Swing Line
         Loans, and Letters of Credit) and three term loan facilities: Term A,
         Term B, and Term C (the Term Loans). The Company must pay an annual
         commitment fee ranging from 0.2% to 0.425%, depending on the Company's
         Total Leverage Ratio, as defined in the Credit Facilities, of the
         unused portion of the Revolving Credit Facility. The Revolving Credit
         Facility expires in June 2005. At December 30, 1999, there were $370.0
         million in outstanding borrowings under the Revolving Credit Facility.

         Borrowings under the Term A Loan or the Revolving Credit Facility can
         be made at the Base Rate plus a margin of 0% to 1%, or the LIBOR Rate,
         plus .625% to 2.25%, both depending on the Total Leverage Ratio. The
         Base Rate on revolving loans is the rate established by the
         Administrative Agent in New York as its base rate for dollars loaned in
         the United States. The LIBOR Rate is based on the length of loan. The
         outstanding balance under the Term A Loan was $237.6 million at
         December 30, 1999 and $240.0 million at December 31, 1998 with $2.4
         million due annually through 2004 and the balance due in 2005.

         Borrowings under the Term B Loan can be made at the Base Rate plus a
         margin of 0.75% to 1.25% or the LIBOR Rate plus 2.0% to 2.5%, both
         depending on the Total Leverage Ratio. The outstanding balance under
         the Term B Loan was $137.5 million at December 30, 1999 and December
         31, 1998 with the balance due in 2006.

         Borrowings under the Term C Loan can be made at the Base Rate plus a
         margin of 1.0% to 1.5% or the LIBOR Rate plus 2.25% to 2.75%, both
         depending on the Total Leverage Ratio. The outstanding balance under
         the Term C Loan was $133.7 million at December 30, 1999 and $135.0
         million at December 31, 1998 with $1.35 million due annually through
         2006, and the balance due in 2007.

         The Credit Facilities contain customary covenants and restrictions on
         the Company's ability to issue additional debt, pay dividends or engage
         in certain activities and include customary events of default. In
         addition, the Credit Facilities specify that the Company must meet or
         exceed defined interest coverage ratios and must not exceed defined
         leverage ratios. The Company was in compliance with such covenants as
         of December 30, 1999.

         The Credit Facilities are collateralized by a pledge of the stock of
         the Company's domestic subsidiaries. The Company's payment obligations
         under the Credit Facilities are guaranteed by its direct and indirect
         U.S. subsidiaries.

         LEASE FINANCING ARRANGEMENTS - As discussed in Note 2, the Emerging
         Issues Task Force (EITF) released in fiscal 1998, Issue No. 97-10, The
         Effect of Lessee Involvement in Asset Construction. Issue No. 97-10 is
         applicable to entities involved on behalf of an owner-lessor with the
         construction of an asset that will be leased to the lessee when
         construction of the asset is completed. Issue No. 97-10 requires the
         Company be considered the owner (for accounting purposes) of these
         types of projects during the construction period as well as when the
         construction of the asset is completed. Therefore, the Company has
         recorded such leases as lease financing arrangements on the
         accompanying balance sheet. As Issue 97-10 applies to construction
         projects committed to after May 21, 1998, the majority of the Company's
         construction projects for leased theatre sites in the 2000 fiscal year
         will be reported as on balance sheet financing.


                                       38
<PAGE>   39
         MATURITIES OF LONG TERM OBLIGATIONS --

         The Company's long term debt, capital lease obligations, and lease
         financing arrangements are scheduled to mature as follows (in
         thousands):

<TABLE>
<CAPTION>
                                                                             LEASE
                                       LONG-TERM          CAPITAL          FINANCING
                                          DEBT            LEASES          ARRANGEMENT          TOTAL
                                       ----------        ----------        ----------        ----------
<S>                                    <C>               <C>               <C>               <C>
                           2000        $    4,410        $    1,589        $      538        $    6,537
                           2001             4,192             1,976               609             6,777
                           2002             4,239             2,313               683             7,235
                           2003             4,290             2,670               766             7,726
                           2004             4,345             3,082             1,015             8,442

                           Thereafter   1,662,151             9,681            71,126         1,742,958
                                       ----------        ----------        ----------        ----------
                                       $1,683,627        $   21,311        $   74,737        $1,779,675
                                       ==========        ==========        ==========        ==========
</TABLE>

         TENDER OFFER - In connection with the Recapitalization, the Company
         commenced a tender offer for all of the Company's 8.5% senior
         subordinated notes (Regal Notes) and a consent solicitation in order to
         effect certain changes in the related indenture. Upon completion of the
         tender offer, holders had tendered and given consents with respect to
         100% of the outstanding principal amount of the Regal Notes. In
         addition, the Company and the trustee executed a supplement to such
         indenture, effecting the proposed amendments which included, among
         other things, the elimination of all financial covenants for the Regal
         Notes. On May 27, 1998, the Company paid, for each $1,000 principal
         amount, $1,116.24 for the Regal Notes tendered plus, in each case,
         accrued and unpaid interest of $13.22. Regal financed the purchase
         price of the Regal Notes with funds from the Recapitalization.

         EXTRAORDINARY LOSS - In 1998, the Company recognized a loss of $11.9
         million, net of income taxes of $7.6 million, for the write-off of
         deferred financing costs and prepayment penalties incurred in
         connection with redeeming the Regal Notes as well as for the write-off
         of deferred financing costs related to the Company's previous credit
         facility. In 1997, the Company refinanced debt of acquired companies,
         and recognized a loss on extinguishment of debt of $10.0 million (net
         of applicable income taxes). Such losses are reported as extraordinary
         losses in the accompanying financial statements

6.       COMMITMENTS AND CONTINGENCIES

          LEASES - Leases entered into by the Company prior to the issuance of
          EITF 97-10 (see Note 5), 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 December 30, 1999, are summarized for the following fiscal years:

<TABLE>
<CAPTION>
         (IN THOUSANDS)
         <S>                       <C>
                  2000             $  147,976
                  2001                154,561
                  2002                154,195
                  2003                154,202
                  2004                154,385
                  Thereafter       $2,002,474
</TABLE>

                                       39
<PAGE>   40
         Rent expense under such operating leases amounted to $130.3 million,
         $80.9 million, and $52.6 million for fiscal years 1999, 1998 and 1997,
         respectively. Contingent rent expense was $3.6 million, $2.8 million,
         and $1.0 million for fiscal years 1999, 1998, and 1997, respectively.

         The Company has also entered into certain lease agreements for the
         operation of theatres not yet constructed. The scheduled completion of
         construction for these theatre openings is at various dates during
         fiscal 2000 and 2001. As of December 30, 1999, the total future minimum
         rental payments under the terms of these leases approximate $568.3
         million to be paid over 20 to 30 years.

         CONTINGENCIES - From time to time, the Company is involved in legal
         proceedings arising in the ordinary course of its business operations,
         such as personal injury claims, employment matters and contractual
         disputes. Management believes that the Company's potential liability
         with respect to such proceedings is not material in the aggregate to
         the Company's consolidated financial position, results of operations or
         cash flows.

7.       CAPITAL STOCK AND STOCK OPTION PLANS

         COMMON STOCK - Effective May 27, 1998, the Recapitalization date, the
         Company effected a stock split in the form of a stock dividend
         resulting in a price per share of $5.00, which $5.00 per share is
         equivalent to the $31.00 per share consideration paid in the Merger.
         The Company's common shares issued and outstanding throughout the
         accompanying financial statements and notes reflect the retroactive
         effect of the Recapitalization stock split.

         EARNINGS PER SHARE - Earnings per share information is not presented
         herein as the Company's shares do not trade in a public market.

         PREFERRED STOCK - The Company currently has 100,000,000 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 OPTION PLANS - Prior to the Recapitalization, the Company had
         three employee stock option plans under which certain employees were
         granted options to purchase shares of the Company's common stock. All
         such options issued under these plans became fully vested upon
         consummation of the Recapitalization, and all participants either
         received cash for the difference between the per share price inherent
         in the Recapitalization and the exercise price of their options, or
         retained their existing options. In addition, certain key members of
         management were issued options under a newly formed 1998 Stock Purchase
         and Option Plan for Key Employees of Regal Cinemas, Inc. (the "Plan").


                                       40
<PAGE>   41
         Under the Plan, the Board of Directors of the Company may award stock
         options to purchase up to 30,000,000 shares of the Company's common
         stock. Grants or awards under the Plan may take the form of purchased
         stock, restricted stock, incentive or nonqualified stock options or
         other types of rights as specified in the Plan.

<TABLE>
<CAPTION>
                                                                       WEIGHTED          OPTIONS
                                                                       AVERAGE         EXERCISABLE
                                                                       EXERCISE            AT
                                                                     SHARES PRICE       YEAR END
                                                                      -----------      -----------
<S>                                                  <C>              <C>               <C>
         Under option at January 2, 1997              19,713,260         $2.28            349,246
         Options granted in 1997                       6,057,400         $4.55
         Options exercised in 1997                      (698,139)        $0.88
         Options canceled in 1997                       (449,500)        $3.70
                                                     -----------

         Under option at January 1, 1998              24,623,021         $2.86          3,574,945
         Options granted in 1998                      14,419,334         $4.34
         Options exercised in 1998                          --             --
                                                     -----------
         Options canceled or redeemed in 1998        (20,316,730)        $2.84

         Under option at December 31, 1998           18,725, 625         $3.76          8,021,889
         Options granted in 1999                       1,692,609         $5.00
         Options exercised in 1999                      (120,000)        $5.00
         Options canceled or redeemed in 1999         (3,742,404)        $3.72
                                                     -----------

         Under option at December 30, 1999            16,455,830         $3.78          9,027,781
                                                     ===========
</TABLE>

<TABLE>
<CAPTION>
                         Options Outstanding                               Options Exercisable
       -------------------------------------------------------         ----------------------------
                                      Weighted        Weighted                             Weighted
       Range of        Number          Average         Average            Number           Average
       Exercise      Outstanding     Contractual      Exercise         Excercisable        Exercise
        Price        at 12/30/99        Life           Price            at 12/30/99         Price
       -------------------------------------------------------         ----------------------------
       <S>           <C>             <C>              <C>              <C>                 <C>
       $0.34-$0.62    1,562,820          5.1          $0.5358            1,562,820          $0.5358
       $1.58-$3.67    3,931,243          5.3          $2.0680            3,931,243          $2.0680
       $4.03-$5.00   10,961,767          8.4          $4.8542            3,533,718          $4.5477
                     ----------                                          ---------
                     16,455,830                                          9,027,781
                     ==========                                          =========
</TABLE>


         Prior to the Recapitalization, the Company also had the 1993 Outside
         Directors' Stock Option Plan (the 1993 Directors' Plan). Directors'
         stock options for the purchase of 186,000 shares at an exercise price
         of $4.40 were granted during 1997. All such options became fully vested
         and were redeemed for cash at the date of the Recapitalization. In
         addition, the Company, prior to the Recapitalization, had issued
         warrants to purchase 982,421 shares of the Company's common stock at an
         exercise price of $.20 per share. The warrants were redeemed for cash
         at the date of the Recapitalization.

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

         Pro forma information regarding net income 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 1999, 1998 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 of 5.92% for 1999 grants, 5.0% to
         5.9% for 1998 grants, 5.90% to 6.68% for 1997 grants; with an
         inconsequential volatility factor in 1999 and 1998 due to the Company's
         Recapitalization (Note 1) and a volatility factor of the expected
         market price of the Company's common stock of 33.7% for 1997. The 1999
         pricing model assumptions used a weighted average expected life of 10
         years for employee options. The 1998 and 1997 pricing model assumptions
         used a weighted average expected life of 5 years for employee options
         and 7 years for outside director options. The weighted average grant
         date fair value of options granted in fiscal years 1999, 1998 and 1997,
         was $2.24, $ .96, and $1.85 per share, respectively.


                                       41
<PAGE>   42
         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 1999,
         1998, and 1997 option grants is as follows:

<TABLE>
<CAPTION>
         (IN THOUSANDS)                                                  1999              1998             1997
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>
         Pro forma net income (loss)                            $     (91,204)    $     (59,423)   $      22,883
                                                                =============     ==============   ==============
</TABLE>

         The 1998 pro forma net loss reflects an adjustment for the intrinsic
         value of the options redeemed at the Recapitalization date that were
         issued prior to the Company's adoption of the disclosure provisions of
         Statement 123. Such options had intrinsic value prior to the
         Recapitalization date and therefore the value of these options has been
         excluded from the amount of compensation costs reflected in the 1998
         pro forma net loss.

8.       INCOME TAXES

         Deferred income taxes reflect the net tax effects of temporary
         differences between the carrying amounts of assets and liabilities for
         financial reporting purposes and the amounts used for income tax
         purposes.

         Significant components of the Company's net deferred tax asset
         (liability) consisted of the following at

<TABLE>
<CAPTION>
         (IN THOUSANDS)                                                                    1999             1998
                                                                                  -------------    -------------
<S>                                                                               <C>              <C>
         Deferred tax assets:
              Net operating loss carryforward                                     $      49,697    $      25,766
              Excess of tax basis over book basis for leases                              4,960            5,032
              Accrued expenses                                                            6,878            4,515
              Interest expense deferred under IRC 163(j)                                  2,161            2,742
              Excess of tax basis over book basis of certain assets                      24,990              336
              AMT credit carryforward                                                       527              162
              Other                                                                       1,371            2,750
                                                                                  -------------    -------------
         Deferred tax assets                                                             90,584           41,303

         Deferred tax liabilities:
              Excess of book basis over tax basis of certain
                 intangible assets                                                       (2,640)          (1,709)
              Other                                                                      (1,236)            (785)
                                                                                   -------------   --------------
         Deferred tax liabilities                                                        (3,876)          (2,494)
                                                                                  --------------   --------------

         Net deferred tax asset                                                   $      86,708    $      38,809
                                                                                  =============    =============
</TABLE>

         The Company provided no valuation allowance against deferred tax assets
         recorded as of December 30, 1999 and December 31, 1998, as management
         believes that it is "more likely than not" that all deferred assets
         will be fully realizable in future tax periods.

         At December 30, 1999, the Company and certain of its subsidiaries have
         various federal and state net operating loss (NOL) carryforwards
         available to offset future taxable income. The Company has
         approximately $127.0 million of NOL carryforwards, in the aggregate,
         for federal purposes. Portions of the federal NOL are subject to
         utilization limitations. However, the deferred tax asset related to the
         federal NOL is expected to be fully realized as such losses do not
         begin expiring until the 2009 tax year.

         Furthermore, a substantial portion of the federal NOL does not expire
         until 2018. The Company also has NOL carryforwards for state purposes.
         The deferred tax asset related to the state NOL is expected to be fully
         realized as well. At December 30, 1999, the Company has an approximate
         $0.5 million alternative


                                       42
<PAGE>   43
          minimum tax credit carryforward available to reduce future federal
          income tax liabilities. Under current Federal income tax law, the
          alternative minimum tax credit can be carried forward indefinitely.
          The components of the provision for (benefit from) income taxes for
          income from continuing operations for each of the three fiscal years
          were as follows:

<TABLE>
<CAPTION>
         (IN THOUSANDS)                                                  1999              1998             1997
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>
         Current                                                $           -     $           -    $      17,828
         Deferred                                                     (45,357)          (22,170)           3,602
         Decrease  in deferred income tax
           valuation allowance                                              -                 -           (2,309)
                                                                -------------     -------------    --------------

         Total income tax provision (benefit)                   $     (45,357)    $     (22,170)   $      19,121
                                                                ==============    ==============   =============
</TABLE>

          Extraordinary losses are presented net of related tax benefits.
          Therefore, the 1997 income tax provision and the 1998 income tax
          benefit in the above table exclude tax benefits of $6.2 million and
          $7.6 million, respectively, on extraordinary losses related to
          expenses incurred in the extinguishment of debt and the write-off of
          debt financing costs related to the debt. The $2.3 million decrease in
          the valuation allowance in 1997 primarily reflects the change in the
          assessment of the likelihood of utilization of net operating loss
          carryforwards of a Company subsidiary subsequent to the merger of such
          subsidiary with Regal.

          A reconciliation of the provision for (benefit from) for income taxes
          as reported and the amount computed by multiplying the income before
          income taxes and extraordinary item by the U.S. federal statutory rate
          of 35% was as follows:

<TABLE>
<CAPTION>
         (IN THOUSANDS)                                                  1999              1998             1997
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>
         Provision (benefit) computed at federal statutory
           income tax rate                                      $     (46,868)    $     (29,340)   $      19,012
         State and local income taxes, net of federal benefit          (2,029)           (2,425)           2,161
         Merger expenses - non deductible                                   -             8,268              257
         Goodwill amortization                                          3,481             1,221                -
         Decrease  in valuation allowance                                   -                 -           (2,309)
         Other                                                             59               106                -
                                                                --------------    -------------    -------------

         Total income tax provision (benefit)                   $     (45,357)    $     (22,170)   $      19,121
                                                                ==============    ==============   =============
</TABLE>

9.       RELATED PARTY TRANSACTIONS

         Regal paid $1.2 million and $0.6 million in 1997 and 1998,
         respectively, for legal services provided by a law firm, a member of
         which served as a director of the Company through May of 1998.

         Cobb Theatres leased office and warehouse facilities from a related
         party. The related rent expense amounted to approximately $0.2 million
         in 1997.

         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 $0.3 million for 1997.

         In connection with the Recapitalization, the Company entered into a
         management agreement with KKR and Hicks Muse pursuant to which the
         Company has paid $1.0 million of management fees during each of the
         fiscal 1999 and 1998 years. Additionally, the Recapitalization costs
         included in the accompanying 1998 financial statement include an
         aggregate of $19.5 million of fees paid to KKR and Hicks Muse.


                                       43
<PAGE>   44
10.      CASH FLOW INFORMATION

<TABLE>
<CAPTION>
         (IN THOUSANDS)                                                  1999              1998             1997
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>
         Supplemental information on cash flows:
         Interest paid                                          $     128,909            59,745    $      14,486
         Income taxes paid (refunds received), net                     (4,884)            4,656           10,001
</TABLE>

         NONCASH TRANSACTIONS:

         1999:

         Pursuant to EITF 97-10, the Company recorded lease financing
         arrangements and net assets of $75.5 million during the fourth quarter
         of 1999.

         The Company issued 569,500 shares of common stock valued at $2.8
         million in exchange for notes receivables from certain shareholders.

         The Company cancelled 119,964 shares of common stock and the related
         notes receivable valued at $.6 million from certain shareholders.

         1998:

         Regal issued 60,383,388 shares of common stock and certain options to
         purchase shares of the Company's common stock valued at approximately
         $312.2 million and assumed debt of approximately $411.3 million as
         consideration for assets purchased from Act III (Note 3).

         Regal issued 808,313 shares of common stock valued at approximately
         $4.2 million in exchange for notes receivables from certain
         shareholders.

         In connection with the Recapitalization, 456,549 shares of common stock
         valued at approximately $2.2 million held by certain of the Company's
         senior management were reinvested in the Company.

         1997:

         Regal recognized income tax benefits relating to exercised stock
         options totaling $1.3 million.


11.      EMPLOYEE BENEFIT PLANS

         The Company sponsors employee benefit plans under section 401(k) of the
         Internal Revenue Code for the benefit of substantially all full-time
         employees. The Company made discretionary contributions of
         approximately $426,000, $319,000, and $291,000 to the plans in 1999,
         1998 and 1997, respectively. Employees become eligible on the first of
         the month after they have 1,000 hours of service. If they do not have
         1,000 hours of service in the initial 12-month period (which begins
         with their hire date), the subsequent 12-month periods for monitoring
         eligibility are based on the plan year (calendar year). A minimum age
         of 21 also applies.




12.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The methods and assumptions used to estimate the fair value of each
         class of financial instrument are as follows:

         Cash and equivalents, accounts receivable, accounts payable: The
         carrying amounts approximate fair value because of the short maturity
         of these instruments.

         Long term debt, excluding capital lease obligations and lease financing
         arrangements: The carrying amounts of the Company's term loans and the
         revolving credit facility approximate fair value because the


                                       44
<PAGE>   45
         interest rates are based on floating rates identified by reference to
         market rates. The fair values of the Company's senior subordinated
         notes and debentures and other debt obligations are estimated based on
         quoted market prices for the same or similar issues or on the current
         rates offered to the Company for debt of the same remaining maturities.
         The carrying amounts and fair values of long-term debt at December 30,
         1999 and December 31, 1998 consists of the following:

<TABLE>
<CAPTION>
         (IN THOUSANDS)                               1999             1998
                                             -------------    -------------
<S>                                          <C>              <C>
         Carrying amount                     $   1,683,627    $   1,317,257
         Fair value                          $   1,491,627    $   1,338,257
</TABLE>

         Interest rate swaps: As of December 30, 1999 and December 31, 1998 the
         Company had entered into interest rate swap agreements ranging from
         five to seven years for the management of interest rate exposure. As of
         December 30, 1999 and December 31, 1998, such agreements had
         effectively converted $270 million of LIBOR floating rate debt to fixed
         rate obligations with interest rates ranging from 5.32% to 7.32%. Regal
         continually monitors its position and the credit rating of the interest
         swap counterparty. The fair values of interest rate swap agreements are
         estimated based on quotes from dealers of these instruments and
         represent the estimated amounts the Company would expect to (pay) or
         receive to terminate the agreements. The fair value of the Company's
         interest rate swap agreements at December 30, 1999 and December 31,
         1998 were $11.7 million and $(3.2) million, respectively.


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

         The Company engaged Deloitte & Touche LLP (Deloitte & Touche) as its
         new independent accountants as of September 9, 1998. Prior to such
         date, the Company did not consult with Deloitte & Touche regarding (i)
         the application of accounting principles to a specified transaction,
         either completed or proposed; or the type of audit opinion that might
         be rendered on the Company's financial statements or (ii) any matter
         that was either the subject of a disagreement (as defined in paragraph
         304(a)(1)(iv) and the related instructions to Item 304) or a reportable
         event (as described in paragraph 304(a)(1)(v)).


                                       45
<PAGE>   46
                                    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>
     Michael L. Campbell                46         Chairman, President, Chief Executive Officer and Director

     Gregory W. Dunn                    40         Executive Vice President and Chief Operating Officer

     Amy Miles                          33         Senior Vice President,  Chief Financial Officer, and Treasurer

     Peter B. Brandow                   39         Senior Vice President, General Counsel, and Secretary

     Robert J. Del Moro                 40         Senior Vice President, Purchasing

     Denise K. Gurin                    48         Senior Vice President, Head Film Buyer

     J.E. Henry                         51         Senior Vice President, Chief Information Officer, Management
                                                   Information Systems

     Mike Levesque                      41         Senior Vice President, Operations

     Ron Reid                           58         Senior Vice President, Construction

     Raymond L. Smith                   36         Senior Vice President, Human Resources Counsel

     R. Keith Thompson                  38         Senior Vice President, Real Estate and Construction

     Phillip J.  Zacheretti             40         Senior Vice President, Marketing and Advertising

     Joseph Y. Bae                      28         Director

     Joseph E. Colonnetta               38         Director

     David Deniger                      55         Director

     Henry R. Kravis                    55         Director

     Michael J. Levitt                  41         Director

     John R. Muse                       49         Director

     Alexander Navab, Jr.               34         Director

     Paul E. Raether                    53         Director
</TABLE>

         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.

         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


                                       46
<PAGE>   47
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.

         Amy Miles has served as Senior Vice President, Chief Financial Officer,
and Treasurer since January of 2000. From April 1999 to 2000, Ms. Miles was
Senior Vice President of Finance. From 1998 to 1999, she was a Senior Manager
with Deloitte & Touche. From 1989 to 1998, Ms. Miles was with
PriceWaterhouseCoopers, LLC.

         Peter B. Brandow has served as Senior Vice President, General Counsel
and Secretary since February 2000. Prior thereto, he served as Vice President,
General Counsel and Secretary since joining the Company in February 1999. From
September 1989 to January 1999, Mr. Brandow was an Associate at Simpson Thacher
& Bartlett.

         Robert J. Del Moro has served as Senior Vice President, Purchasing
since September of 1998. From 1997 to 1998, Mr. Del Moro was Vice President,
Food Service for the Company. From 1996 to 1997, Mr. Del Moro was Vice
President, Entertainment Centers and Food Service. From 1995 to 1996, Mr. Del
Moro was Vice President, Marketing and Concession. From 1994 to 1995, Mr. Del
Moro was Director, Theatre Promotions and Concession.

         Denise K. Gurin has served as Senior Vice President, Head Film Buyer
since September of 1998. From 1997 to 1998, Ms. Gurin was Vice-President, Head
Film Buyer. From 1995 to 1997, Ms. Gurin was Senior Vice President, Film and
Marketing for Mann Theatres, a Los Angeles, California based theatre chain
("Mann Theatres"). From 1992 to 1995, Ms. Gurin was a film buyer for Mann
Theatres.

         J.E. Henry has served as Senior Vice President, Chief Information
Officer, Management Information Systems since September of 1998. From 1996 to
1998, Mr. Henry was Vice President, Management Information Systems. From 1994 to
1996, Mr. Henry served as Director of Management Information Systems.

         Mike Levesque has served as Senior Vice President, Operations since
January of 1999. From 1996 to 1999, Mr. Levesque was Vice President, Operations
- Northern Region. From 1995 to 1996, Mr. Levesque served as Director of
Marketing. During 1995, Mr. Levesque was a District Manager for the Eastern
Region, and from 1994 to 1995, Mr. Levesque was a theatre general manager.

         Ronald Reid has served as Senior Vice President, Construction since
joining the Company in May,1999. Prior thereto, he was the Executive Vice
President and Chief Operating Officer at Silver Cinemas from August, 1996 to
May, 1999. Prior to that, Mr. Reid was Vice President of Construction,
Purchasing and International Shipping at Cinemark from November, 1987 to August,
1996.

         Raymond L. Smith has served as Senior Vice President, Human Resources
Counsel since July 1999. Prior thereto, he served as Vice President, Human
Resources Counsel since joining the Company in April 1998. From January 1995 to
April 1998, he was a partner of the law firm of Pitt, Fenton & Smith. From May
1989 to January 1995, he was a senior associate at Rodgers, Fuller & Pitt.

         R. Keith Thompson has served as Senior Vice President, Real Estate and
Construction 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.

         Phillip J. Zacheretti has served as Senior Vice President, Marketing
and Advertising since August of 1998. During 1998, Mr. Zacheretti was Vice
President, Marketing and during 1997 Mr. Zacheritti was Director of Marketing.
From 1989 through 1996, Mr. Zacheretti was Director of Marketing for Cinemark
USA, Inc., a Plano, Texas based theatre chain.

         Joseph Y. Bae became Director of the Company in February 2000. He has
been an executive of KKR since 1996. From 1994 to 1996, Mr. Bae was an
investment banker at Goldman Sachs & Co. He is also a director of Shoppers Drug
Mart Limited.


                                       47
<PAGE>   48
         Joe Collonnetta became a Director of the Company in December 1999. Mr.
Collonnetta has served as a principal of Hicks Muse since January 1999. From
1995 to 1998, Mr. Collonnetta served as a Managing Principal of a management
affiliate of Hicks Muse. From 1994 to 1995, Mr. Collonnetta was the Chief
Executive Officer of Triangle FoodService. From 1989 to 1994, Mr. Collonnetta
was the Chief Financial Officer of TRC, Inc. Mr. Collonnetta is also a director
of Home Interiors & Gifts, Inc., Cooperative Computing, Inc., Minsa, S.A.,
Belding Sports, and The Grand Union Company.

         David Deniger became a director of the Company upon the closing of the
Regal Merger. Mr. Deniger is a Managing Director and principal of Hicks Muse.
Mr. Deniger is also General Partner, President and CEO of Olympus Real Estate
Corporation. Prior to forming Olympus Real Estate Corporation with Hicks Muse,
Mr. Deniger was a founder and served as President and Chief Executive Officer of
GE Capital Realty Group, Inc. (GECRG), a wholly owned subsidiary of General
Electric Capital Corporation ("GE Capital"), organized to underwrite, acquire
and manage real estate equity investments made by GE Capital and its
co-investors. Prior to forming GECRG, Mr. Deniger was President and CEO of FGB
Realty Advisors, a wholly owned subsidiary of MacAndrews & Forbes Financial
Service Group. Mr. Deniger also serves as a director of the Arnold Palmer Golf
Management Company, Olympus Real Estate Corporation and Park Plaza
International.

         Henry R. Kravis became a director of the Company upon the closing of
the Regal Merger. He is a managing member of the limited liability company which
serves as the general partner of KKR. He is also a director of Accuride
Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd.,
Bruno's, Inc., Evenflo & Spalding Holdings Corporation, The Gillette Company,
IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreational Group,
Inc., Newsquest Capital plc, Owens-Illinois, Inc., Owens-Illinois Group, Inc.,
PRIMEDIA, Inc., Randall's Food Markets, Inc., Reltec Corporation, Sotheby's
Holdings, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc.

         Michael J. Levitt became a director of the Company upon the closing of
the Regal Merger. Mr. Levitt is a Partner of Hicks Muse. Before joining Hicks
Muse, Mr. Levitt was a Managing Director and Deputy Head of Investment Banking
with Smith Barney Inc. from 1993 through 1995. From 1986 through 1993, Mr.
Levitt was with Morgan Stanley & Co. Incorporated, most recently as a Managing
Director responsible for the New York based Financial Enterpreneurs Group. Mr.
Levitt also serves as a director of Capstar Broadcasting Corporation, Chancellor
Media Corporation, Group MVS, S.A. de C.V., International Home Foods, Inc., LIN
Television Corporation and Sunrise Television Corp.

         John R. Muse became a director of the Company upon the closing of the
Regal Merger. Mr. Muse is Chief Operating Officer and co-founder of Hicks Muse.
Prior to the formation of Hicks Muse in 1989, Mr. Muse headed the
investment/merchant banking activities of Prudential Securities for the
southwestern region of the United States from 1984 to 1989. Prior to joining
Prudential Securities, Mr. Muse served as Senior Vice President and a director
of Schneider, Bernet & Hickman, Inc. in Dallas from 1979 to 1983 and was
responsible for the company's investment banking activities. Mr. Muse is a
director of Arena Brands Holding Corp, Arnold Palmer Golf Management Company,
Glass's Information Services, International Home Foods, Inc., LIN Television
Corporation, Lucchese, Inc., Olympus Real Estate Corporation, Suiza Foods
Corporation and Sunrise Television Corp.

         Alexander Navab, Jr. became a director of the Company upon the closing
of the Regal Merger. He has been a director of KKR since 1999 and has been an
executive of KKR and a limited partner of KKR Associates since 1993. He is also
a director of Borden Inc., Birch Telecom Inc., CAIS Internet Inc., KSL
Recreation Group Inc., Intermedia Communications and Zhone Technologies.

         Paul E. Raether became a Director of the Company in December 1999.
Since January 1996, he has been a member of the limited liability company which
serves as the general partner of KKR. Mr. Raether has been a general partner of
KKR Associates, L.P. since prior to 1995 and was a general partner of KKR from
prior to 1995 to December 1995. Mr. Raether is also a director of IDEX
Corporation, KSL Recreation Corporation and Shoppers Drug Mart.


                                       48
<PAGE>   49
COMPOSITION OF THE BOARD OF DIRECTORS

         The Board of Directors of the Company consists of nine members,
including four directors designated by KKR and four directors designated by
Hicks Muse. Directors of the Company are elected annually by the stockholders to
serve during the ensuing year or until their respective successors are duly
elected and qualified.

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 the Company's four most highly compensated executive
officers who were serving as executive officers at the end of fiscal 1999 whose
salary and bonus exceeded $100,000 during fiscal 1999:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                                   LONG TERM
                                                                                                                  COMPENSATION
                                                                        ANNUAL COMPENSATION                           AWARDS
                                                           -------------------------------------------------------------------
                                                                                                                    SECURITIES
                                                          FISCAL                                                    UNDERLYING
NAME AND POSITION                                          YEAR             SALARY ($)          BONUS ($)(1)      OPTIONS/SARS(#)
                                                           ----              -------              -------            ---------
<S>                                                       <C>               <C>                 <C>               <C>
Michael L. Campbell                                        1999              526,350                 --                   --
  Chairman, President & Chief Executive Officer            1998              402,000              500,000            3,631,364
                                                           1997              241,500              671,941              190,000

Gregory W. Dunn                                            1999              372,278                 --                   --
  Executive Vice President & Chief Operating               1998              252,000              219,213              413,255
  Officer                                                  1997              125,000              135,000               60,000

Neal Rider(2)                                              1999              193,106                 --                   --
  Executive Vice President & Chief Financial               1998                 --                   --                   --
  Officer                                                  1997                 --                   --                   --

Denise Gurin                                               1999              210,000               40,000                 --
   Senior Vice President, Head Film Buyer                  1998               43,700              108,763              164,251
                                                           1997                 --                 10,000              139,500

R. Keith Thompson                                          1999              211,194                 --                   --
    Senior Vice President, Real Estate &                   1998              145,000              101,175              227,687
    Development                                            1997              110,000               70,000               40,000
</TABLE>

(1)  Reflects cash bonus earned in fiscal 1999, 1998 and 1997, respectively, and
     paid the following fiscal year.

(2)  As of January 2000, Mr. Rider was no longer employed by the Company.

During the 1999 fiscal year, the Company did not grant options to the named
executive officers.


                                       49
<PAGE>   50
         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 1999 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                  NUMBER OF SECURITIES                 VALUE OF UNEXERCISED
                                                                        UNDERLYING                        IN-THE-MONEY
                                                               UNEXERCISED OPTIONS HELD AT               OPTIONS HELD AT
                                                                     DECEMBER 30 1999                  DECEMBER 30 1999 (1)
                                                                            (#)                                 ($)
                                                               ------------------------------------------------------------------
                                     SHARES         NET
                                   ACQUIRED ON     VALUE
         NAME                      EXERCISE (#)  REALIZED($)   EXERCISABLE       UNEXERCISABLE       EXERCISABLE    UNEXERCISABLE
         ----                      ------------  -----------   -----------       -------------       -----------    -------------
<S>                                <C>           <C>           <C>               <C>                 <C>            <C>
         Michael L. Campbell            --          --          2,759,119          2,784,046          7,176,497          --

         Gregory W. Dunn                --          --            595,080            316,829          1,878,087          --

         Neal Rider(2)                  --          --               --                 --                 --            --

         Denise Gurin                   --          --            177,825            125,926            124,155          --

         R. Keith Thompson              --          --            325,889            174,537          1,034,649          --
</TABLE>

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

(1)  Reflects the market value of the underlying security at exercise, $5.00,
     minus the average exercise price.

(2)  As of January 2000, Mr. Rider was no longer employed by the Company.

DIRECTORS' COMPENSATION

         Each director of the Company who is not also an officer or employee of
the Company receives a fee of $40,000 per year. Directors of the Company are
entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors of the Company or committees thereof.

EMPLOYMENT AGREEMENTS

         The Company has entered into employment agreements with Messrs.
Campbell and Dunn pursuant to which they respectively serve as Chief Executive
Officer and Chief Operating Officer of the Company. The terms of the employment
agreements commenced upon the closing of the Regal Merger and continue for three
years. The employment agreements provide for initial base salaries of $500,000
and $325,000 per year for Messrs. Campbell and Dunn, respectively. Messrs.
Campbell and Dunn are entitled to receive annual target bonuses of 140% and
100%, respectively, of their base salaries based upon the achievement by the
Company of certain EBITDA and other performance targets set by the Board of
Directors of the Company. The employment agreements also provide that the
Company will supply Messrs. Campbell and Dunn with other customary benefits
generally made available to other senior executives of the Company. Each of the
employment agreements also contains a noncompetition and no-raid provision
pursuant to which each of Messrs. Campbell and Dunn has agreed, subject to
certain exceptions, that during the term of his employment agreement and for one
year thereafter, he will not compete with the Company or its theatre affiliates
and will not solicit or hire certain employees of the Company. Each of the
employment agreements also contains severance provisions providing for the
termination of employment of Messrs. Campbell and Dunn by the Company under
certain circumstances in which Messrs. Campbell and Dunn will be entitled to
receive severance payments equal to the greater of (i) two times their
respective annual base salaries and (ii) the balance of their respective base
salaries over the then-remaining employment term, in either case payable over 24
months (or if longer, the remaining balance of the employment term) and
continuation of health, life, disability and other similar welfare plan
benefits.


                                       50
<PAGE>   51
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         During fiscal 1999, the Compensation Committee was comprised of Messrs.
Levitt, Muse, and Navab. None of these persons has at any time been an officer
or employee of the Company or its subsidiaries. Mr. Clifton S. Robbins served on
the Compensation Committee until his resignation in December of 1999, when he
was replaced by Mr. Raether.

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 29, 1999, by (i) each person
who is known to the Company to own beneficially more than 5% of the Common
Stock; (ii) each director of the Company; (iii) the Named Executive Officers of
the Company; and (iv) all directors and executive officers of the Company as a
group. Unless noted otherwise, the address for each executive officer is in the
care of the Company at 7132 Commercial Park Drive, Knoxville, Tennessee 37918.

<TABLE>
<CAPTION>
                                                                           Amount and
             Name and Address of                                      Nature of Beneficial                Percent
             Beneficial Owners                                            Ownership (1)                  of Class
             -----------------                                            -------------                  --------
<S>                                                                   <C>                                <C>
    5% STOCKHOLDERS:
    Hicks Muse Parties (2)                                                 100,000,000                     46.1%
                   c/o Hicks, Muse, Tate & Furst Incorporated
                   200 Crescent Court
                   Suite 1600
                   Dallas, Texas 75201

    KKR 1996 GP L.L.C. (3)                                                 100,000,000                     46.1%
                   c/o Kohlberg Kravis Roberts & Co. L.P.
                   9 West 57th Street
                   Suite 4200
                   New York, New York 10019

    OFFICERS AND DIRECTORS:
    Joseph Y. Bae                                                                    -                         *
    Joe Colonnetta                                                                   -                         *
    David Deniger                                                                    -                         *
    Henry R. Kravis                                                                  -                         *
    Michael J. Levitt                                                                -                         *
    John R. Muse                                                                     -                         *
    Alexander Navab, Jr.                                                             -                         *
    Paul E. Raether                                                                  -                         *
    Michael L. Campbell                                                      4,062,987                      1.1%
    Gregory W. Dunn                                                            691,506                         *
    Neal Rider                                                                       -                         *
    Denise Gurin                                                               246,150                         *
    R. Keith Thompson                                                          379,009                         *
                                                                                                               *

    All directors and executive officers as a group                          6,256,155                      2.9%
    (15 persons)
</TABLE>

------------------------
*Indicates ownership of less than one percent of the Company's outstanding
Common Stock.

(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 30, 2000 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.

(2)  Includes shares owned of record by Regal Equity Partners, L.P. (Regal
     Partners), a limited partnership whose sole general partner is TOH/Ranger,
     LLC (Ranger LLC). Mr. Hicks is the sole member and director of Ranger LLC
     and, accordingly, may be deemed to be the beneficial owner of the Common
     Stock held directly or indirectly by Regal


                                       51
<PAGE>   52
     Partners. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D. Stuart,
     Jr. and Michael J. Levitt are officers of Ranger LLC and as such may be
     deemed to share with Mr. Hicks the power to vote or dispose of the Common
     Stock held by Regal Partners. Each of Messrs. Hicks, Muse, Tate, Furst,
     Stuart and Levitt disclaims beneficial ownership of the Common Stock not
     respectively owned of record by him.

(3)  KKR 1996 GP L.L.C. is the sole general partner of KKR Associates 1996 L.P.
     KKR Associates 1996 L.P., a limited partnership, is the sole general
     partner of KKR 1996 Fund L.P., a limited partnership formed at the
     direction of KKR, and possesses sole voting and investment power with
     respect to such shares. KKR 1996 GP L.L.C. is a limited liability company,
     the managing members of which are Henry R. Kravis and George R. Roberts,
     and the other members of which are Robert I. MacDowell, Paul E. Raether,
     Michael W. Michelson, Michael T. Tokarz, James H. Greene, Jr., Perry
     Golkin, Scott M. Stuart and Edward A. Gilhuly. Messrs. Kravis, Raether are
     directors of the Company. Mr. Alexander Navab, Jr. is a limited partner of
     KKR Associates 1996 L.P. and is also a director of the Company. Each of
     such individuals may be deemed to share beneficial ownership of the shares
     shown as beneficially owned by KKR 1996 GP L.L.C. Each of such individuals
     disclaims beneficial ownership of such shares.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The following is a summary description of the principal terms of the
following agreements and is subject to and qualified in its entirety by
reference to the full text of such agreements, which are filed as exhibits to
this Form 10-K.

KKR/HICKS MUSE STOCKHOLDERS AGREEMENT

         Concurrently with the consummation of the Regal Merger, the Company
entered into a stockholder agreement with Hicks Muse and KKR (the KKR/Hicks Muse
Stockholders Agreement). Among other things, the KKR/Hicks Muse Stockholders
Agreement provides that each of Hicks Muse and KKR has the right to appoint an
equal number of directors to the Board of Directors of the Company, subject to
maintaining specified ownership thresholds. The number of directors appointed by
KKR and Hicks Muse together shall constitute a majority of the Board of
Directors. The KKR/Hicks Muse Stockholders Agreement further provides that Hicks
Muse and KKR will amend the Company's bylaws to provide that no action may be
validly taken at a meeting of the Board of Directors unless a majority of the
Board of Directors, a majority of the directors designated by Hicks Muse and a
majority of the directors designated by KKR have approved such action.

         The KKR/Hicks Muse Stockholders Agreement provides that neither Hicks
Muse nor KKR may transfer its shares of Common Stock to a person other than its
respective affiliates for a period of five years following the closing date of
the Regal Merger. In addition, the KKR/Hicks Muse Stockholders Agreement
provides KKR and Hicks Muse with certain registration rights and limits the
ability of either KKR or Hicks Muse to separately acquire motion picture
exhibition assets in excess of a specified amount without first offering the
other the right to participate in such acquisition opportunity.

DLJ STOCKHOLDERS AGREEMENT

         Concurrently with the consummation of the Regal Merger, the Company,
Hicks Muse, KKR and DLJ entered into a stockholders agreement (the DLJ
Stockholders Agreement). Under the DLJ Stockholders Agreement, DLJ has the right
to participate pro rata in certain sales of Common Stock by KKR and Hicks Muse,
and KKR and Hicks Muse have the right to require DLJ to participate pro rata in
certain sales by KKR and Hicks Muse. The DLJ Stockholders Agreement also grants
DLJ stockholders certain registration and preemptive rights.

CERTAIN FEES

         Each of KKR and Hicks Muse received a fee for negotiating the
Recapitalization and arranging the financing therefor, plus the reimbursement of
their respective expenses in connection therewith, and from time to time, each
of KKR and Hicks Muse may receive customary investment banking fees for services
rendered to the Company in connection with divestitures, acquisitions and
certain other transactions. In addition, KKR and Hicks Muse have agreed to
render management, consulting and financial services to the Company for an
aggregate annual fee of $1.0 million.


                                       52
<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.

                           Independent Auditors' Report
                           Report of Independent Accountants
                           Consolidated Balance Sheets at December 30, 1999 and
                              December 31, 1998.
                           Consolidated Statements of Operations for the years
                              ended December 30, 1999, December 31, 1998 and
                              January 1, 1998.
                           Consolidated Statements of Changes in Shareholders'
                              Equity for the years ended December 30, 1999,
                              December 31, 1998 and January 1, 1998.
                           Consolidated Statements of Cash Flows for the years
                              ended December 30, 1999, December 31, 1998 and
                              January 1, 1998.

                           Notes to Consolidated Financial Statements

         2.       Financial Statement Schedules - Not applicable.

         3.       Exhibits:

<TABLE>
<CAPTION>
    Exhibit
    Number          Description
    ------          -----------
<S>                 <C>
    2.1             --  Agreement and Plan of Merger, dated as of January 19,
                        1998, by and among Regal Cinemas, Inc., Screen
                        Acquisition Corp. and Monarch Acquisition Corp. (1)

    2.2             --  Agreement and Plan of Merger, dated as of August 20,
                        1998, by and among Regal Cinemas, Inc., Knoxville
                        Acquisition Corp. and Act III Cinemas, Inc. (2)

    3.1             --  Amended and Restated Charter of the Registrant. (3)

    3.2             --  Restated Bylaws of the Registrant. (4)

    4.1             --  Specimen Common Stock certificate. (4)

    4.2             --  Article 5 of the Registrant's Amended and Restated
                        Charter (included in the Amended and Restated Charter
                        filed as Exhibit 3.1 hereto).

    4.3             --  Indenture, dated as of May 27, 1998, by and between
                        Regal Cinemas, Inc. and IBJ Whitehall Bank & Trust
                        Company (formerly IBJ Schroder Bank & Trust Company).
                        (5)

    4.4             --  Form of Regal Cinemas, Inc. 9 1/2% Senior Subordinated
                        Note due June 1, 2008 (contained in Indenture filed as
                        Exhibit 4.3 hereto).

    4.5             --  Indenture, dated as of December 16, 1998, by and between
                        Regal Cinemas, Inc. and IBJ Whitehall Bank & Trust
                        Company (IBJ Schroder Bank & Trust Company). (6)

    4.6             --  Form of Regal Cinemas, Inc. 8 7/8% Senior Subordinated
                        Debenture due December 15, 2010 (contained in the
                        Indenture filed as Exhibit 4.5 hereto).

    10.1            --  Employment Agreement, dated as of May 27, 1998, by and
                        between Regal Cinemas, Inc. and Michael L. Campbell. (5)

    10.2            --  Employment Agreement, dated as of May 27, 1998, by and
                        between Regal Cinemas, Inc. and Gregory W. Dunn. (5)

    10.3            --  Severance Agreement and General Release, dated as of
                        September 30, 1998, by and between Regal Cinemas, Inc.
                        and Lewis Frazer III. (9)
</TABLE>

                                       53
<PAGE>   54
<TABLE>
<S>                 <C>
    10.4            --  Credit Agreement, dated as of May 27, 1998, by and
                        between Regal Cinemas, Inc., its subsidiaries and the
                        lenders named therein. (5)

    10.4-1          --  First Amendment, dated as of August 26, 1998, by and
                        between Regal Cinemas, Inc., its subsidiaries and the
                        lenders named therein. (3)

    10.4-2          --  Second Amendment, dated as of December 31, 1998, by and
                        between Regal Cinemas, Inc., its subsidiaries and the
                        lenders named therein. (7)

    10.4-3          --  Third Amendment, dated as of March 3, 1999, by and
                        between Regal Cinemas, Inc., and its subsidiaries and
                        the lenders named therein. *

    10.5            --  1993 Employee Stock Incentive Plan. (4)

    10.6            --  Regal Cinemas, Inc. Participant Stock Option Plan. (4)

    10.7            --  Regal Cinemas, Inc. Employee Stock Option Plan. (4)

    10.8            --  1998 Stock Purchase and Option Plan for Key Employees of
                        Regal Cinemas, Inc. (8)

    10.9            --  Form of Management Stockholder's Agreement. (8)

    10.10           --  Form of Non-Qualified Stock Option Agreement. (8)

    10.11           --  Form of Sale Participation Agreement. (8)

    10.12           --  Form of Registration Rights Agreement. (8)

    10.13           --  Stockholders' Agreement, dated as of May 27, 1998, by
                        and among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR
                        Partners II, L.P. and Regal Equity Partners, L.P. (3)

    10.14           --  Stockholders' and Registration Rights Agreement, dated
                        as of May 27, 1998, by and among Regal Cinemas, Inc.,
                        KKR 1996 Fund, L.P., KKR Partners II, L.P., Regal Equity
                        Partners, L.P. and the DLJ signatories thereto. (3)

    21              --  Subsidiaries.*

    23.1            --  Consent of Deloitte & Touche LLP. *

    23.2            --  Consent of PricewaterhouseCoopers LLP.*

    27              --  Financial Data Schedule (for SEC use only).*
</TABLE>

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

*        Filed herewith.

(1)  Incorporated by reference to the Registrant's Current Report on Form 8-K
     dated January 20, 1998.

(2)  Incorporated by reference to the Registrant's Current Report on Form 8-K
     dated September 1, 1998.

(3)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4, Registration No. 333-64399.

(4)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-1, Registration No. 33-62868.

(5)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     for the quarter ended July 2, 1998.

(6)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4, Registration No. 333-69943.

(7)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4/A, Registration No. 333-69931.

(8)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-8, Registration No. 333-52943.

(9)  Incorporated by reference to the Registrant's Annual Report on Form 10-K
     for the fiscal year ended December 31, 1998.

(b)  During the fourth quarter of fiscal 1998 ended December 31, 1998, the
     Registrant filed a Current Report on Form 8-K/A on September 23, 1998,
     reporting changes in the Registrant's Certifying Accountant.


                                       54
<PAGE>   55
         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 29, 2000         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 29, 2000
    -----------------------                           President, Chief Executive
    Michael L. Campbell                               Officer and Director (Principal
                                                      Executive Officer)

    /s/ Amy Miles                                 Senior Vice President, Chief             March 29, 2000
    -------------                                     Financial Officer and Treasurer
    Amy Miles                                         (Principal Financial and
                                                      Accounting Officer)

    /s/  Joseph Y. Bae                            Director                                 March 29, 2000
    ------------------
    Joseph Y. Bae

    /s/ Joe Colonnetta                            Director                                 March 29, 2000
    ------------------
    Joe Colonnetta

    /s/ David Deniger                             Director                                 March 29, 2000
    -----------------
    David Deniger

    /s/ Henry R. Kravis                           Director                                 March 29, 2000
    -------------------
    Henry R. Kravis

    /s/ Michael J. Levitt                         Director                                 March 29, 2000
    ---------------------
    Michael J. Levitt

                                                  Director                                 March 29, 2000
    ----------------
    John R. Muse

    /s/ Alexander Navab, Jr.                      Director                                 March 29, 2000
    ------------------------
    Alexander Navab, Jr.

    /s/ Paul E. Raether                           Director                                 March 29, 2000
    -------------------
    Paul E. Raether
</TABLE>


                                       55
<PAGE>   56
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

    No annual report or proxy material has been sent to security holders.


                                       56