SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 1996
Commission File Number 1-12360
GC COMPANIES, INC.
(Exact of name of registrant as specified in its charter)
Delaware 04-3200876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02167
(Address of principal executive offices) (Zip Code)
(617) 278-5600
(Registrant's telephone number, including area code)
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
As of September 9, 1996, there were outstanding 7,816,294 shares of the issuer's
common stock, $.01 par value.
GC COMPANIES, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
July 31, 1996 and October 31, 1995 1
Condensed Consolidated Statements of Earnings
for the Three and Nine Months Ended July 31,
1996 and 1995 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended July 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
Exhibit 11.1 9
Exhibit 27.1 10
GC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
July 31, October 31,
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 96,831 $ 35,999
Short-term investments 1,546 35,313
Other current assets 9,275 5,664
Deferred income taxes 2,850 2,850
Total current assets 110,502 79,826
Property and equipment, net 164,353 171,276
Other assets 60,576 48,965
Total assets $335,431 $300,067
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term
obligations $ 724 $ 716
Trade payables 51,547 33,094
Other current liabilities 66,002 61,713
Total current liabilities 118,273 95,523
Long-term liabilities:
Capital lease obligations 3,121 3,623
Other long-term liabilities 28,504 28,156
Total long-term liabilities 31,625 31,779
Deferred income taxes 14,061 14,061
Shareholders' equity:
Common stock 78 78
Additional paid-in capital 136,389 136,324
Retained earnings 35,005 22,302
Total shareholders' equity 171,472 158,704
Total liabilities and shareholders' equity $335,431 $300,067
See Notes to Condensed Consolidated Financial Statements.
1
GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except Nine Months Three Months
for per share data) Ended July 31, Ended July 31,
1996 1995 1996 1995
Revenues:
Admissions $244,700 $239,746 $ 93,549 $ 94,940
Concessions 106,041 102,670 41,619 41,967
Other 8,609 7,482 2,133 1,945
359,350 349,898 137,301 138,852
Costs of theatre operations:
Film rentals 128,620 123,204 51,246 51,801
Concessions 19,801 21,063 7,473 9,008
Theatre operations and
administrative expenses 168,453 166,843 58,422 58,624
Depreciation and amortization 14,768 14,657 4,999 4,789
331,642 325,767 122,140 124,222
Corporate expenses 4,679 5,217 1,544 1,910
Operating earnings 23,029 18,914 13,617 12,720
Investment income (loss), net (302) 486 1,061 1,105
Interest expense (457) (470) (148) (171)
Loss on disposition of
theatre assets (739) (259) (246) (41)
Earnings before income taxes 21,531 18,671 14,284 13,613
Income tax expense (8,828) (7,655) (5,856) (5,581)
Net earnings $ 12,703 $ 11,016 $ 8,428 $ 8,032
Weighted average number of
common and common equivalent
shares outstanding 7,851 7,858 7,852 7,865
Net earnings per common share $ 1.62 $ 1.40 $ 1.07 $ 1.02
See Notes to Condensed Consolidated Financial Statements.
2
GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months
Ended July 31,
1996 1995
Cash flows from operating activities:
Net earnings $12,703 $11,016
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Loss on disposition of theatre assets 739 259
Loss from minority investments 3,145 2,877
Depreciation and amortization 14,768 14,657
Changes in assets and liabilities:
Other current assets (3,611) 2,921
Trade payables 18,453 9,100
Other current liabilities 4,289 3,460
Net cash provided by operating activities 50,486 44,290
Cash flows from investing activities:
Capital expenditures (8,112) (15,611)
Proceeds from the disposition of theatre assets 97 3,629
Proceeds from the liquidation of (purchase of)
short-term investments 33,767 (31,420)
Investments (14,195) (16,848)
Other investing activities (1,565) (2,107)
Net cash provided (used) by investing activities 9,992 (62,357)
Net cash provided (used) by financing activities 354 (131)
Net change in cash and cash equivalents 60,832 (18,198)
Cash and cash equivalents at beginning of period 35,999 85,021
Cash and cash equivalents at end of period $96,831 $66,823
See Notes to Condensed Consolidated Financial Statements.
3
GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The condensed consolidated financial statements of GC Companies, Inc. (GCC
or the Company) are submitted in response to the requirements of Form 10-Q
and should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K. In the
opinion of management, these financial statements contain all adjustments,
consisting only of normal recurring accruals and as described in note two
below, necessary for a fair presentation of the results for the interim
periods presented. The Company's business is seasonal in nature and
historically the results of operations for these periods have not been
indicative of the results for the full year.
2. Other assets
Included in other assets at July 31, 1996 were a $16.6 million investment
in a privately-held eyeglass retailer, a $13.4 million investment in a
cable television systems operator in Germany, an $11.8 million investment
in a radio group that owns radio stations in the San Francisco, Las Vegas
and Albuquerque markets and a $14.2 million investment in an international
telecommunications company with operations in Europe, the Commonwealth of
Independent States, India and China.
In April 1996, the Company recorded a $2.5 million pretax charge to write
off its remaining investment in a children's clothing retailer as a result
of that company's continued cash flow problems and operating losses. The
charge is included in net investment income in the Company's statement of
earnings for the nine month period ended July 31, 1996.
During late April and early May 1996, the Company's radio group investment
entered into definitive agreements with four separate buyers to sell all of
its radio stations. GCC expects to realize aggregate pretax gains of
approximately $10.0 million upon completion of these transactions and
distribution of the related proceeds by the partnership. The sales, which
are subject to the approval of the Federal Communications Commission, are
expected to close by fiscal year-end.
In July 1996, the Company invested $14.2 million in an international
telecommunications company with operations in Europe, the Commonwealth of
Independent States, India and China. An additional $6.0 million was
invested in this company on August 22, 1996.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended July 31, 1996 Compared with Nine Months Ended July 31, 1995
Theatre revenues - Theatre revenues increased 2.7% to $359.4 million in 1996
from $349.9 million in 1995. The increase in revenues was primarily
attributable to a 2.2% increase in comparable unit patronage, a 2.0% increase
in average ticket price and a 3.2% increase in concession sales per patron.
The increase in concession sales per patron was primarily due to increased
consumption and new product offerings. The positive box office trends
experienced during the first nine months of our fiscal year did not continue
into August. Consistent with the industry box office decline in August 1996,
the Company's results were down substantially from August 1995.
Cost of theatre operations - Cost of theatre operations, including theatre
general and administrative expenses, increased 1.8% for the nine months ended
July 31, 1996 to $331.6 million from $325.8 million in the same 1995 period.
The increase was primarily due to higher film cost related to the increase in
revenues. As a percentage of revenues, the cost of theatre operations was 92.3%
for the nine months ended July 31, 1996 and 93.1% for the nine months ended July
31, 1995. The improvement was primarily a result of higher revenues during the
1996 period and continued cost containment efforts. The Company operated 1,179
screens at July 31, 1996 compared to 1,192 at July 31, 1995.
Investment income (loss) - The Company recorded a net investment loss of $0.3
million for the nine months ended July 31, 1996 compared to net investment
income of $0.5 million in the same 1995 period. The net investment loss for the
first nine months of 1996 included a first quarter pretax charge of $0.6 million
to record the Company's share of losses incurred by its radio group minority
investment, a $2.5 million second quarter pretax charge to write off its
remaining investment in a children's clothing retailer and pretax dividend and
interest income of $2.8 million. Net investment income for the comparable 1995
period included a $2.9 million first quarter pretax charge to write off the
Company's investment in a food service company and pretax dividend and interest
income of $3.4 million. The decrease in dividend and interest income in the
1996 period was due to a lower rate of return on portfolio assets.
Income tax expense - The Company's effective tax rate is expected to be 41.0%
in fiscal 1996, unchanged from fiscal 1995.
Three Months Ended July 31, 1996 Compared with Three Months Ended July 31, 1995
Theatre revenues - Revenues decreased slightly to $137.3 million in the 1996
quarter compared to $138.9 million in the same 1995 period. The lower revenues
resulted from a 4.6% decline in patronage partially offset by a 3.3% increase
in average ticket price and a 4.0% increase in concession sales per patron. The
increase in concessions sales per patron was primarily due to increased
consumption and new product offerings.
Cost of theatre operations - Cost of theatre operations decreased 1.7% for the
three months ended July 31, 1996 to $122.1 million from $124.2 million in the
three month period ended July 31, 1995. The decrease was primarily attributable
to lower film cost, improved concession margins and lower variable costs due to
the decrease in revenues. As a percentage of revenues, the cost of theatre
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
operations was 89.0% for the quarter ended July 31, 1996 and 89.5% for the three
months ended July 31, 1995.
Investment income - Dividend and interest income remained essentially flat at
$1.1 million for the quarter ended July 31, 1996 compared to the same 1995
period.
Liquidity and Capital Resources
Virtually all of GCC's revenues are collected in cash, principally through
theatre admissions and concession sales. Because revenues are received in cash
prior to the payment of related expenses, the Company has historically not
required working capital to finance its growth or to meet its operating
requirements. Cash generated by the business in excess of that needed for
operations and capital expenditures will be available for investment.
The Company's investing activities primarily relate to construction costs for
new theatres, the renovation of existing theatres and investing in other
companies. For the nine months ended July 31, 1996, capital expenditures
amounted to $8.1 million. One new unit with 5 screens opened in December 1995
and two new units are scheduled to open in the Chicago area in November 1996.
These new units are located at Northbrook Court and Randhurst and will house 14
and 16 screens, respectively.
Total capital expenditures for the motion picture exhibition business are
expected to remain at approximately $8.1 million during fiscal 1996. The
Company has signed a letter of intent for a lease financing arrangement that
will allow the Company to finance substantially all of its new theatre
development and other capital expansion.
During the quarter ended July 31, 1996, the Company invested $14.2 million in
an international telecommunications company with operations in Europe, the
Commonwealth of Independent States, India and China. An additional $6.0 million
was invested on August 22, 1996.
The Company received proceeds of $33.8 million from the liquidation of certain
short-term investments during the nine month period ended July 31, 1996.
Crescent Communications L.P., the Company's radio group investment, expects to
close on the sales of all of its radio stations during GC Companies' fourth
quarter. GC Companies anticipates aggregate pretax gains of approximately $10.0
million upon completion of these transactions and distribution of the related
proceeds by the partnership. The sales are subject to approval of the Federal
Communications Commission.
The Company has significant lease commitments. Lease payments for the full
fiscal year totaled $62.0 million in 1995 and are expected to approximate $61.3
million in 1996.
The Company believes that cash generated from operations, cash and short-term
investments on hand, and the $50 million available under the Company's revolving
credit agreement, which expires in March 1997, will be sufficient to fund
operating requirements, capital expenditures and the Company's investing
activities for the foreseeable future.
6
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of weighted average number of shares
outstanding used in determining primary and fully
diluted earnings per share.
27.1 Financial data schedule.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during
the quarter ended July 31, 1996.
7
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 hereunto duly authorized.
GC COMPANIES, INC.
Date: September 11, 1996 s/ Richard A. Smith
Richard A. Smith
Chairman of the Board of
Directors and Chief Executive
Officer
Date: September 11, 1996 s/ G. Gail Edwards
G. Gail Edwards
Vice President and
Chief Financial Officer
Date: September 11, 1996 s/ Stephen C. Richards
Stephen C. Richards
Vice President and Controller
Principal Accounting Officer
8
EXHIBIT 11.1
GC COMPANIES, INC.
Computation of weighted average number of shares outstanding used in determining
primary and fully diluted earnings per share:
(In thousands) Nine Months Three Months
Ended July 31, Ended July 31,
1996 1995 1996 1995
PRIMARY
1. Weighted average number of common
shares outstanding 7,816 7,812 7,816 7,815
2. Assumed exercise of certain stock
options based on average
market value 35 46 36 50
3. Weighted average number of shares
used in primary per share
computations 7,851 7,858 7,852 7,865
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 7,816 7,812 7,816 7,815
2. Assumed exercise of all dilutive
options based on higher of
average or closing market value 37 51 38 50
3. Weighted average number of shares
used in fully diluted per share
computations 7,853 7,863 7,854 7,865
(A) This calculation is submitted in accordance with the Securities
Exchange Act of 1934 Release No. 9083 although not required by
Footnote 2 to Paragraph 14 of APB Opinion No. 15 because it results
in dilution of less than 3%.
9