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 January 31, 1997
Commission File Number 1-12360
GC COMPANIES, INC.
(Exact 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 March 6, 1997, there were outstanding 7,705,239 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
January 31, 1997 and October 31, 1996 1
Condensed Consolidated Statements of Earnings for
the Three Months Ended January 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended January 31, 1997 and 1996 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
(In thousands)
January 31, October 31,
1997 1996
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 62,794 $ 71,745
Short-term investments 35,800 1,566
Receivable from financial institution 6,611 17,599
Other current assets 3,505 3,602
Deferred income taxes 2,552 2,552
Total current assets 111,262 97,064
Property and equipment, net 160,341 162,847
Other assets 61,570 54,392
Total assets $ 333,173 $ 314,303
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term
obligations $ 718 $ 721
Trade payables 44,066 30,514
Other current liabilities 66,059 62,428
Total current liabilities 110,843 93,663
Long-term liabilities:
Capital lease obligations 2,910 3,059
Other long-term liabilities 29,072 29,029
Total long-term liabilities 31,982 32,088
Deferred income taxes 12,571 12,571
Shareholders' equity:
Common stock 77 78
Additional paid-in capital 136,606 136,359
Retained earnings 41,094 39,544
Total shareholders' equity 177,777 175,981
Total liabilities and shareholders' equity $ 333,173 $ 314,303
See Notes to Condensed Consolidated Financial Statements.
1
GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except for per share amounts)
For the three months
ended January 31,
1997 1996
Revenues:
Admissions $ 85,269 $ 86,004
Concessions 36,568 36,585
Other 4,397 3,893
126,234 126,482
Costs of theatre operations:
Film rentals 46,444 46,951
Concessions 6,557 6,790
Theatre operations and administrative expenses 58,702 56,589
Depreciation and amortization 4,625 5,030
116,328 115,360
Corporate expenses 1,708 1,548
Operating earnings 8,198 9,574
Investment income, net 1,026 239
Interest expense (134) (160)
Gain/(loss) on disposition of theatre assets 385 ( 46)
Earnings before income taxes 9,475 9,607
Income tax expense (3,885) (3,939)
Net earnings $ 5,590 $ 5,668
Weighted average number of common and
common equivalent shares outstanding 7,825 7,850
Net earnings per common share $ .71 $ .72
See Notes to Condensed Consolidated Financial Statements.
2
GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the three months
ended January 31,
1997 1996
Cash flows from operating activities:
Net earnings $ 5,590 $ 5,668
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
(Gain) loss on disposition of theatre assets (385) 46
Loss from minority investment - 645
Depreciation and amortization 4,625 5,030
Changes in current assets and liabilities:
Other current assets 11,085 2,524
Trade payables 13,552 7,642
Other current liabilities 3,631 1,407
Net cash provided by operating activities 38,098 22,962
Cash flows from investing activities:
Capital expenditures (2,474) (5,404)
Proceeds from the disposition of theatre assets 765 35
(Purchase of) proceeds from the liquidation of
short-term investments (34,234) 25,486
Purchase of investment (7,000) -
Other investing activities (395) 136
Net cash (used) provided by investing activities (43,338) 20,253
Cash flows from financing activities:
Repurchase of common stock (4,040) -
Other financing activities 329 26
Net cash (used) provided by financing activities (3,711) 26
Net change in cash and cash equivalents (8,951) 43,241
Cash and cash equivalents at beginning of period 71,745 35,999
Cash and cash equivalents at end of period $62,794 $79,240
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, necessary for a fair presentation of the
results for the interim periods presented. Certain prior year amounts have
been reclassified to conform to the current year presentation. 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 January 31, 1997 were a $16.6 million investment
in an optical superstore retailer, a $13.4 million investment in a German
cable television systems operator, a $20.2 million investment in an
international telecommunications service provider and a $7.0 million
investment in a wireless location and two-way messaging company. The Company
closed on the $7.0 million investment in the wireless location and two-way
messaging company in December 1996.
3. Stock repurchase
In December 1996, the Company's Board of Directors authorized the purchase of
up to one million shares of the Company's common stock in the open market
over the next twelve months. During the quarter ended January 31, 1997, the
Company repurchased 111,400 shares at an average price of approximately
$36.28 per share. The shares repurchased were immediately retired.
Differences between the par value of the shares and their repurchase price
were charged against retained earnings.
4
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended January 31, 1997 versus Three Months Ended January 31, 1996
Theatre revenues - Total revenues decreased slightly to $126.2 million in 1997
from $126.5 million in 1996. The decrease in revenues was primarily
attributable to a 2.9% decrease in patronage substantially offset by a 2.1%
increase in average ticket price, and a 2.9% increase in concession sales per
patron. The growth in concession sales per patron was principally due to
limited price increases and new product offerings.
Costs of theatre operations - Costs of theatre operations, including theatre
general and administrative expenses, increased slightly for the three months
ended January 31, 1997 to $116.3 million from $115.4 million in the same 1996
period. As a percentage of revenues, costs of theatre operations were 92.2%
for the 1997 quarter compared to 91.2% for the 1996 quarter. The increase
was primarily due to an increase in the minimum wage rate and operating costs
related to the two recently opened megaplexes in Chicago. These increases were
partially offset by lower film and concession costs. The Company operated
1,181 screens at January 31, 1997 compared to 1,191 screens at January 31, 1996.
Investment income (loss), net - Net investment income increased to $1.0 million
in the first quarter of 1997 from $0.2 million in the same 1996 period. During
the first three months of 1997, the Company recorded $1.0 million of dividend
and interest income from its short-term investment portfolio. Net investment
income for the three months ended January 31, 1996 included $1.0 million of
dividend and interest income partially offset by a $0.6 million pretax charge to
record the Company's share of losses incurred by its radio group minority
investment.
Income tax expense - The Company's effective tax rate is expected to be 41.0% in
fiscal 1997,unchanged from fiscal 1996.
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 has commitments to open 17 new megaplex theatres with approximately
270 screens during the next three years, including 80 screens in fiscal 1997.
In November 1996, two new units with a combined 30 screens opened in the Chicago
area. GCC entered into an agreement in November 1996 with a major financial
institution to provide operating leases for up to $250 million of assets
over the next five years for its theatre expansion program. A receivable due
from this financial institution may arise from time to time throughout the
year from GCC initially advancing monies for leased assets as the financial
institution's agent. On a periodic basis, these advances are reimbursed by the
financial institution. The $17.6 million receivable at October 31, 1996 was
reimbursed to the Company in December 1996.
5
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
For the three months ended January 31, 1997, GCC made expenditures of $2.5
million for leasehold improvements, furniture and equipment purchases, and new
point-of-sale systems. Total capital expenditures are expected to
approximate $10.3 million during fiscal 1997.
The Company invested $34.2 million of cash in certain short-term securities
during the first three months of 1997. These securities are highly liquid and
consist of high quality commercial paper, certificates of deposit, corporate
debt securities and securities of U.S. government agencies.
On December 6, 1996, the Company invested $7.0 million in a wireless location
and two-way messaging company.
The Company has significant lease commitments. Lease payments totaled $57.7
million in 1996 and minimum lease payments from existing obligations are
expected to approximate $62.7 million in 1997. Additional lease commitments
will arise as the Company implements its new operating lease facility.
In December 1996, the Company's Board of Directors authorized the repurchase of
up to one million shares of the Company's common stock over the next twelve
months. During January 1997, the Company repurchased 111,400 shares at a cost
of $4.0 million.
The Company believes that cash generated from operations, cash and short-term
investments on hand, the $50 million available under the Company's revolving
credit agreement, which expires in June 1997, and the operating lease
arrangement will be sufficient to fund operating requirements, capital
expenditures and the Company's investment activities for the foreseeable future.
It is the Company's intention to negotiate a new revolving credit agreement when
the existing facility expires in June 1997.
Forward-looking Statements
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates",
"expects", "will continue", "estimates", "projects", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements are subject
to certain risks, trends, and uncertainties that could cause actual results to
vary materially from anticipated results, including without limitation, delays
in obtaining leases for new megaplex locations, construction risks and delays,
the lack of strong film product, the impact of competition, market and other
risks associated with the Company's investment activities and other factors
described herein and in the Company's Annual Report included in its Form 10-K.
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 January 31, 1997.
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: March 10, 1997 s/ Richard A. Smith
Richard A. Smith
Chairman of the Board of
Directors and Chief Executive
Officer
Date: March 10, 1997 s/ G. Gail Edwards
G. Gail Edwards
Vice President, Chief Financial
Officer and Treasurer
Principal Accounting Officer
8