UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF -- THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended : November 30, 1996 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934 For the transition period from ________ to _______ Commission File Number 333-2724 -------- _________________________________________ COBB THEATRES, L.L.C. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ALABAMA 63-1161322 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 924 Montclair Road Birmingham, Alabama 35213 (Address of principal executive offices) (205)591-2323 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes NOT APPLICABLE No _____________ -------------- COBB THEATRES L.L.C. FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1996 INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS 3 CONSOLIDATED BALANCE SHEETS 4 CONSOLIDATED STATEMENTS OF CASH FLOWS 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12 SIGNATURES 13 COBB THEATRES, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED NOVEMBER 30, 1996 1995 -------- -------- Revenues: Theatre admissions $ 15,702 $ 14,887 Concessions 6,569 6,107 Other 584 690 -------- -------- Total revenues 22,855 21,684 Costs of revenues: Film rental 8,100 7,259 Concession 1,066 930 -------- -------- Total cost of revenues 9,166 8,189 -------- -------- Gross profit 13,689 13,495 Operating expenses: Advertising 747 699 Payroll and related costs 3,324 2,899 Occupancy 6,616 6,161 Repairs and maintenance 412 256 General and administrative 1,638 1,758 Depreciation and amortization 2,352 2,111 Other 982 1,016 -------- -------- Total operating expenses 16,071 14,900 -------- -------- Operating income (loss) (2,382) (1,405) -------- -------- Other income (deductions): Interest expense (2,205) (1,866) Interest Income 17 84 Other - (4) -------- -------- (2,188) (1,786) -------- -------- Income (loss) before income taxes (4,570) (3,191) Income tax expense (benefit) (1,668) (1,165) -------- -------- Net income (loss) $ (2,902) $ (2,026) ======== ======== See accompanying notes to financial statements. 3 COBB THEATRES, L.L.C. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) NOVEMBER 30, AUGUST 31, 1996 1996 ------------ ------------- ASSETS (unaudited) Current assets: Cash and equivalents $ 1,442 $ 8,073 Receivables 750 1,236 Other assets 5,784 4,343 -------- -------- Total current assets 7,976 13,652 Property and equipment, net 83,797 79,683 Intangible assets, net 15,737 16,187 Other assets 4,640 3,973 ======== ======== Total assets $112,150 $113,495 ======== ======== LIABILITIES AND MEMBERS' EQUITY Current liabilities: Accounts payable $ 5,527 $ 4,276 Accrued film rentals 5,212 4,833 Accrued interest payable 2,428 4,759 Accrued expenses and other liabilities 4,887 4,836 Revolving line of credit 2,195 - Obligations under capital leases, current installments 275 275 -------- -------- Total current liabilities 20,524 18,979 Long-term debt 85,000 85,000 Obligations under capital leases 1,465 1,532 Other long-term liabilites 5,006 4,927 -------- -------- Total liabilites 111,995 110,438 Commitments and contingencies Members' equity 155 3,057 -------- -------- Total liabilities and members' equity $112,150 $113,495 ======== ======== See accompanying notes to financial statements. 4 COBB THEATRES, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED NOVEMBER 30, 1996 1995 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,902) $ (2,026) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 2,352 2,111 (Gain) loss on asset dispositions - 4 Provision for deferred income taxes (622) 805 (Increase) decrease in assets: Receivables 486 148 Other current assets (1,441) (1,851) Increase (decrease) in liabilities: Accounts payable 1,251 (2,120) Accrued film rental 379 814 Accrued interest payable (2,331) 27 Accrued expenses and other liabilities 51 (770) ------- --------- Total adjustments 125 (832) ------- --------- Net cash used for operating activities (2,777) (2,858) ------- --------- CASH FLOWS FROM INVESTING ACTIVITES: Additions to property and equipment (5,944) (3,854) Other (38) 6 ------- --------- Net cash used in investing activities (5,982) (3,848) ------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from senior subordinated notes -- 10,000 Proceeds (payments) on long-term bank debt, net -- (131) Proceeds (payments) on revolving line of credit 2,195 (4,000) Principal payments under capital lease (67) (61) ------- --------- Net cash provided by financing activities 2,128 5,808 ------- --------- Net decrease in cash and equivalents (6,631) (898) Cash and equivalents - beginning of period 8,073 1,241 ======= ========= Cash and equivalents - end of period $ 1,442 $ 343 ======= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest $ 4,661 $ 1,782 ======= ========= Income Taxes $ -- $ -- ======= ========= See accompanying notes to financial statements. 5 COBB THEATRES, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1996 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION Cobb Theatres, L.L.C. (the "Company") is an Alabama limited liability company engaged in the operation and management of multi-screen motion picture theatres. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Due to the seasonal nature of the Company's business, operating results for the three months ended November 30, 1996 are not necessarily indicative of the results that may be expected for the year ending August 31, 1997. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Form 10-K for the year ended August 31, 1996. NOTE 2 - EARNINGS PER SHARE Earnings per share information is not presented as the Company is a limited liability company consisting of members' interests rather than shareholders' interests. NOTE 3 - LONG TERM DEBT On March 6, 1996, the Company issued $85 million of 10 5/8% Senior Secured Notes due March 1, 2003. Concurrent with the issuance of the Senior Secured Notes, the Company entered into a $25 million New Credit Facility, led by one of its existing banks. Cobb Finance Corp. and the Company are joint and several obligors with respect to the Senior Secured Notes and the New Credit Facility. The Senior Secured Notes and the New Credit Facility are fully and unconditionally guaranteed on a joint and several basis by a first pledge of the equity interests of the guarantor subsidiaries of the Company, all intercompany notes and a security interest in all of the assets (other than real property) of the Company's subsidiaries. 6 NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION FOR GUARANTOR SUBSIDIARIES R.C. Cobb, Inc. and Cobb Theatres II, Inc. (the guarantor subsidiaries) along with Cobb Finance Corp. are wholly-owned subsidiaries of the Company and comprise all of the direct subsidiaries of the Company. There are no indirect subsidiaries. Cobb Finance Corp. does not have any substantial operations or assets of any kind. Summarized income statement information for the Company's guarantor subsidiaries is as follows: THREE MONTHS ENDED NOVEMBER 30, 1996 ------------------------------------ R.C. Cobb Cobb, Inc. Theatres II, Inc. ---------- ------------------ (in thousands) Total revenues $ 17,038 $ 6,095 Cost of revenues 6,459 2,707 Operating expenses 9,216 3,143 General and administrative expenses 1,582 55 Depreciation and amortization 1,481 872 Operating income (loss) (1,700) (681) Interest expense, net 1,165 1,024 Net income (loss) (1,819) (1,083) Separate financial statements and other disclosures concerning Cobb Finance Corp. and the guarantor subsidiaries are not presented because management has determined that separate disclosures for each of the two operating subsidiaries would not provide any additional information that would be material to investors that is not already presented in the consolidated financial statements. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and the notes thereto included herein. OVERVIEW The Company's revenues are generated primarily from admission revenues and concession revenues. Additional revenues are generated by on-screen advertising and electronic video games installed in the lobbies of the Company's theatres. The two major components of admissions revenues are attendance and ticket prices. Attendance is most influenced by the quality of films released by distributors and, to a lesser extent, by expansions into new markets, competition and population growth in the geographic markets. Although the Company's ticket pricing in a particular market may change in response to competition and other factors, the Company's average ticket price has remained relatively stable throughout the periods presented. The Company's principal costs of operations are film rentals, costs of concessions, payroll, occupancy costs, such as theatre rentals, ad valorem taxes and utilities, advertising costs and other expenses, such as insurance. 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: Percentage of Total Revenues ----------------------- Three Months Ended November 30, 1996 1995 Revenues: Theatre Admissions 68.7% 68.7% Concessions 28.7% 28.2% Other 2.6% 3.2% --------------------------- Total Revenues 100.0% 100.0% Cost of Revenues 40.1% 37.8% --------------------------- Gross Profit 59.9% 62.2% Other theatre operating costs 52.9% 50.9% General and administrative expenses 7.2% 8.1% Depreciation and amortization 10.3% 9.7% --------------------------- Operating income (loss) -10.4% -6.5% Interest expense, net -9.6% -8.2% Net income (loss) -12.7% -9.3% Other key ratios: Film rental costs as a percentage of admission revenues 51.6% 48.8% Cost of concessions as a percentage of concession revenues 16.2% 15.2% 8 COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995 REVENUES. Revenues increased 5.4% in the three months ended November 30, 1996 (first quarter of fiscal 1997) to $22.9 million from $21.7 million in the three months ended November 30, 1995 (first quarter of fiscal 1996). The increase in revenues is attributable to a 6.4% increase in attendance in the first quarter of fiscal 1997 from the first quarter of fiscal 1996. The increase in attendance resulted from the popularity of films released during the period and from a 3.5% increase in the average screen count. The average ticket price for first-run films decreased 1.1% to $3.54 in the first quarter of fiscal 1997 compared to $3.58 in the first quarter of fiscal 1996. The average first-run concession revenue per patron decreased to $1.56 in the first quarter of fiscal 1997 compared to $1.57 in the first quarter of fiscal 1996. The 5.4% increase in revenues was achieved while 26 screens were closed during the quarter for renovation and expansion. GROSS PROFIT. Gross profit (consisting of revenues less film rental costs and cost of concessions) increased 1.5% in the first quarter of fiscal 1997 to $13.7 million from $13.5 million in the first quarter of fiscal 1996. This increase is primarily attributable to the 5.4% increase in revenues, partially offset by the increase of 11.6% in film rental expense. Gross profit as a percentage of total revenues (the "gross profit percentage") decreased to 59.9% in the first quarter of fiscal 1997 from 62.2% in the first quarter of fiscal 1996. The decrease in gross profit as a percentage of revenues resulted primarily from an increase in film rental costs as a percentage of theatre admissions from 48.8% to 51.6% and an increase in the cost of concessions as a percentage of concession revenues from 15.2% to 16.2% due to an increased variety of products. OTHER THEATRE OPERATING COSTS. Other theatre operating costs increased 9.5% in the first quarter of fiscal 1997 to $12.1 million from $11.0 million in the first quarter of fiscal 1996, primarily resulting from the addition of 36 new screens over the past year, an increase in payroll costs per patron and an increase in repairs and maintenance costs during the quarter. Other theatre operating costs as a percentage of revenues increased to 52.9% in the first quarter of fiscal 1997 from 50.9% in the first quarter of fiscal 1996 primarily due to the reasons stated above plus the fact that facility and other costs were incurred on 26 screens which were closed during the quarter for renovation and expansion. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased 6.8% in the first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. General and administrative expenses as a percentage of revenues decreased to 7.2% in the first quarter of fiscal 1997 from 8.1% in the first quarter of fiscal 1996 due to the increase in revenues combined with the decrease in expenses. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased 11.4% in the first quarter of fiscal 1997 to $2.4 million from $2.1 million in the first quarter of fiscal 1996. This increase was primarily the result of theatre property additions over the past twelve months. INTEREST EXPENSE. Interest expense increased 18.2% in the first quarter of fiscal 1997 to $2.2 million from $1.9 million in the first quarter of fiscal 1996. The increase was due to an increase in the average debt outstanding and higher interest rates on a significant portion of the Company's debt in the first quarter of fiscal 1997 versus the first quarter of fiscal 1996. NET LOSS. The Company's net loss increased 43.2% in the first quarter of fiscal 1997 to $2.9 million from $2.0 million in the first quarter of fiscal 1996, primarily resulting from the decrease in the gross profit percentage and the increase in other theatre operating costs and interest expense. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's revenues are collected in cash, primarily through box office admissions and theatre concession revenues. The Company has an operating "float" which partially finances its operations and which permits the Company to maintain a small amount of working capital capacity. The "float" exists because its revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors within 14 to 45 days following receipt of admission revenues. On March 6, 1996, the Company issued $85 million of 10 5/8% Senior Secured Notes due 2003 and entered into a $25 million New Credit Facility. Interest on the Senior Secured Notes is paid semi-annually and commenced on September 1, 1996. The New Credit Facility consists of a seasonal revolving loan facility in the aggregate amount of $12.5 million (the "Seasonal Revolver") available for working capital purposes and a reducing revolving loan facility in the aggregate commitment amount of $12.5 million (the "Reducing Revolver") available for future capital expenditures. Under the terms of the New Credit Facility, $12.5 million was available under the Seasonal Revolver at November 30, 1996 with an outstanding balance of approximately $2.2 million. The Company will have access to the Reducing Revolver once its ratio of net debt to EBITDA is less than (i) 4.5 to 1.0, with respect to the first $7.0 million available under the Reducing Revolver and (ii) 4.25 to 1.0, with respect to the remaining $5.5 million available under the Reducing Revolver. The New Credit Facility contains covenants that, among other things, restrict the ability of the Company to incur additional debt, create certain liens, make certain investments (including certain capital expenditures), pay dividends or make other distributions, sell assets of the Company or its subsidiaries, issue or sell equity interests of the Company's subsidiaries or enter into certain mergers or consolidations. Under the New Credit Facility, the Company will be required to comply with specified financial ratios, including maximum net debt to EBITDA and minimum interest coverage and fixed charge coverage ratios. The Company's primary capital requirements are for furniture and equipment relating to new theatre openings and for remodeling, expansion and maintenance of existing theatres. The Company prefers to develop theatres on a leasehold basis rather than a fee-owned basis due to the fact that the capital requirements associated with developing a theatre on a leasehold basis are significantly less than developing a theatre on a fee-owned basis. The Company has historically developed, and plans to continue developing, a significant portion of new theatres by entering into long-term, triple net leases which provide for the incurrence by the landlord of the construction costs of the theatre, other than those for furniture, fixtures and equipment, in exchange for the Company's entering into the lease. The Company historically has funded its capital expansion needs through financing activities and with excess funds generated from its operations. During the three months ended November 30, 1996, the Company made capital expenditures of approximately $5.9 million primarily for developing new theatres and adding new screens to existing theatres. During this period the Company opened one leased theatre with 18 screens. The Company closed two leased theatres with 12 screens resulting in a circuit total of 599 screens in 69 theatres as of November 30, 1996. 10 In December 1996, the Company added 18 new screens and reopened 14 screens which were temporarily closed during the first quarter. Construction has begun in the development of one new theatre with a total of 20 screens scheduled to open in June 1997. In addition, construction has begun on the addition of fourteen new screens to an existing theatre scheduled to open in May 1997. The Company believes that availability under the New Credit Facility, cash generated from operations and existing cash balances will be sufficient to fund operations and planned capital expenditures for the next twelve months. 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is involved in various 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 proceedings currently pending is not material in the aggregate to the Company's consolidated financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS Exhibit 27 Financial Data Schedule (B) REPORTS ON FORM 8-K The Registrant filed no Current Reports on Form 8-K during the period covered by this Quarterly Report on Form 10-Q. No other Items of Form 10-Q are applicable to the Registrant for the period covered by this Quarterly Report on Form 10-Q. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COBB THEATRES, L.L.C. --------------------- (Registrant) Date: January 14, 1997 /s/ Robert M. Cobb ---------------- ------------------------------------- Robert M. Cobb President and Chief Executive Officer Date: January 14, 1997 /s/ Ricky W. Thomas ---------------- ------------------------------------- Ricky W. Thomas Senior Vice President and Chief Financial Officer 13