1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission File Number
HOLLYWOOD THEATERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2598844
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
2911 Turtle Creek Blvd., Dallas, Texas 75219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number and area code: 214 - 528 - 9500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required
to 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10 - K or any amendments to
this Form 10-K.
Documents Incorporated by Reference
-----------------------------------
None
2
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
Report of Independent Public Accountants 2
Consolidated Balance Sheets as of December 31, 1997 and 1996 3
Consolidated Statements of Operations for the Years Ended December 31, 1997
and 1996 and the Period from Inception (July 11, 1995) Through December 31, 1995 4
Consolidated Statements of Stockholder's Equity (Deficit) for the Years Ended December 31, 1997
and 1996 and the Period from Inception (July 11, 1995) Through December 31, 1995 5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996
and the Period from Inception (July 11, 1995) Through December 31, 1995 6
Notes to Consolidated Financial Statements 7
1
3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hollywood Theater Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Hollywood Theater Holdings, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1997 and 1996, and for the period from inception (July 11, 1995)
through December 31, 1995. These consolidated financial statements are the
responsibility of Hollywood Theater Holdings, Inc.'s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hollywood
Theater Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years ended
December 31, 1997 and 1996, and for the period from inception (July 11, 1995)
through December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 25, 1998
2
4
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 7,379 $ 3,559
Accounts receivable .......................................................... 1,562 366
Accounts receivable - related parties ........................................ -- 634
Inventories .................................................................. 1,012 446
Prepaid and other current assets, net ........................................ 850 1,268
Deposits ..................................................................... 1,593 1,564
--------- ---------
Total current assets .................................................. 12,396 7,837
Property and equipment, net .................................................... 104,376 43,116
Goodwill, net .................................................................. 49,215 30,783
Intangible assets, net ......................................................... 14,289 10,619
Other .......................................................................... 3,744 --
--------- ---------
Total other assets .................................................... 67,248 41,402
--------- ---------
Total assets .......................................................... $ 184,020 $ 92,355
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ........................................ $ 10,605 $ 5,887
Federal income taxes payable ................................................. -- 18
Current maturities of long-term debt ......................................... -- 137
Current maturities of capital lease obligation ............................... -- 32
Deferred revenue ............................................................. 158 --
--------- ---------
Total current liabilities ............................................. 10,763 6,074
Other liabilities:
Long-term debt, net of current maturities .................................... 110,000 50,500
Deferred lease expenses ...................................................... 1,158 658
Deferred revenue ............................................................. 302 --
--------- ---------
Total liabilities ..................................................... 122,223 57,232
Commitments and contingencies (Note 14)
Convertible Redeemable Preferred Stock:
Series B Preferred Stock, $.01 par value, 400,000 and 500,000 shares
authorized in 1997 and 1996, respectively, 178,028 and 163,319 shares issued
and outstanding in 1997 and 1996, respectively (redemption preference of
$31,154,900 and $28,580,825 as of December 31, 1997 and
1996, respectively) ........................................................ 2 2
Series C Preferred Stock, $.01 par value, 400,000 shares authorized
in 1997, 84,137 shares issued and outstanding in 1997, none in 1996
(redemption preference of $16,406,715) ..................................... 1 --
Series D Preferred Stock, $.01 par value, 400,000 shares authorized
in 1997, 61,814 shares issued and outstanding in 1997, none in 1996
(redemption preference of $12,053,730) ..................................... 1 --
Additional paid-in capital ................................................... 59,610 28,577
Redeemable Common Stock:
Common Stock, 16,413 and 12,872 shares issued and outstanding in 1997
and 1996, respectively ................................................... -- --
Additional paid-in capital ................................................... 2,872 2,252
Stockholders' equity (deficit):
Common stock, $.01 par value, 1,500,000 and 500,000 shares authorized in 1997
and 1996, respectively; 103,464 and 69,617
shares issued and outstanding in 1997 and 1996, respectively .............. 1 1
Additional paid-in capital ................................................... 15,508 8,909
Accumulated deficit .......................................................... (16,198) (4,618)
--------- ---------
Total stockholders' equity (deficit) .................................. (689) 4,292
--------- ---------
Total liabilities and stockholders' equity (deficit) .................. $ 184,020 $ 92,355
========= =========
The accompanying notes are an integral part of these consolidated balance
sheets.
3
5
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND
FOR THE PERIOD FROM INCEPTION (JULY 11, 1995) THROUGH
DECEMBER 31, 1995
(IN THOUSANDS)
1997 1996 1995
---- ---- ----
Revenues:
Admissions ........................ $ 50,616 $ 15,335 $ 3,913
Concessions ....................... 26,712 8,710 2,305
Other operating revenues .......... 1,843 834 116
-------- -------- --------
Total revenues ............ 79,171 24,879 6,334
-------- -------- --------
Operating expenses:
Film rental and advertising costs . 27,576 8,388 2,337
Cost of concessions and other ..... 4,320 1,412 339
Theater operating expenses ........ 31,180 10,998 2,620
General and administrative expenses 5,077 1,601 743
Depreciation and amortization ..... 11,479 3,152 739
-------- -------- --------
Total operating expenses .. 79,632 25,551 6,778
-------- -------- --------
Operating loss ...................... (461) (672) (444)
Interest expense, net ............... 7,485 2,121 463
-------- -------- --------
Net loss ............................ $ (7,946) $ (2,793) $ (907)
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
6
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND
FOR THE PERIOD FROM INCEPTION (JULY 11, 1995) THROUGH
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SERIES A
PREFERRED STOCK --------------------
-------------------- COMMON STOCK ADDITIONAL
SHARES SHARES PAID-IN ACCUMULATED
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL DEFICIT TOTAL
----------- ------- ----------- ------ ------- ------- -----
-- --
Balance, July 11, 1995 .......... -- $ -- -- $ -- $ -- $ -- $ --
Initial capitalization ........ 5,090 -- 22,622 -- 2,545 -- 2,545
Issuance of detachable warrants -- -- -- -- 200 -- 200
Net loss ...................... -- -- -- -- -- (907) (907)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1995 ...... 5,090 -- 22,622 -- 2,745 (907) 1,838
Issuance of stock ............. 85,000 1 77,168 1 20,501 -- 20,503
Retirement of stock ........... (90,090) (1) (30,173) -- (14,137) -- (14,138)
Retirement of warrant ......... -- -- -- -- (200) (141) (341)
Stock dividend ................ -- -- -- -- -- (422) (422)
Cash dividend ................. -- -- -- -- -- (355) (355)
Net loss ...................... -- -- -- -- -- (2,793) (2,793)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1996 ...... -- -- 69,617 1 8,909 (4,618) 4,292
Issuance of stock ............. -- -- 33,847 -- 6,599 -- 6,599
Stock dividend ................ -- -- -- -- -- (3,634) (3,634)
Net loss ...................... -- -- -- -- -- (7,946) (7,946)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1997 ...... -- $ -- 103,464 $ 1 $ 15,508 $(16,198) $ (689)
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
7
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND
FOR THE PERIOD FROM INCEPTION (JULY 11, 1995) THROUGH
DECEMBER 31, 1995
(IN THOUSANDS)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net loss .......................................................... $ (7,946) $ (2,793) $ (907)
Adjustments to reconcile net loss to net cash provided by
operating activities, net of business acquisitions- ............ 11,479 3,152 739
Depreciation and amortization
Deferred lease expenses ........................................ 500 545 149
Changes in assets and liabilities-
Increase in accounts receivable .............................. (559) (951) (50)
Decrease (increase) in prepaids and other current assets ..... 125 (963) (22)
Increase in inventories ...................................... (450) (316) --
(Increase) decrease in other assets .......................... (3,744) -- 15
Decrease (increase) in deposits .............................. 805 (1,544) --
Increase in accounts payable and accrued expenses ............ 4,616 4,285 258
Increase in deferred revenue ................................. 460 -- --
Decrease in federal income taxes payable
(18) (383) --
--------- --------- ---------
Net cash provided by operating activities 5,268 1,032 182
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............................... (66,361) (10,734) (805)
Sale/disposition of property and equipment ........................ 12,895 -- --
Payments for business acquisitions, net of cash
acquired
(36,649) (58,986) (9,864)
--------- --------- ---------
Net cash used in investing activities ..................... (90,115) (69,720) (10,669)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of senior subordinated notes ............... 110,000 -- --
Borrowings under note payable ..................................... 3,800 -- 100
Borrowings under credit facility .................................. 14,000 58,428 9,000
Payment of financing fees ......................................... (5,284) (3,718) --
Repayments of capital lease obligation ............................ (32) (44) (20)
Repayments of note payable and long-term debt ..................... (68,437) (16,691) (691)
Proceeds from issuance of stock ................................... 34,620 48,659 2,545
Repurchase of stock ............................................... -- (14,138) --
Retirement of warrants ............................................ -- (341) --
Dividends paid -- (355) --
--------- --------- ---------
Net cash provided by financing activities ................. 88,667 71,800 10,934
Net increase in cash and cash equivalents ........................... 3,820 3,112 447
--------- --------- ---------
Cash and cash equivalents, beginning of period ...................... 3,559 447 --
--------- --------- ---------
Cash and cash equivalents, at year-end .............................. $ 7,379 $ 3,559 $ 447
========= ========= =========
Supplemental information:
Cash paid for interest ............................................ $ 3,051 $ 2,089 $ 387
========= ========= =========
Noncash transactions:
Issuance of detachable warrants for common stock .................. $ -- $ -- $ 200
========= ========= =========
Stock dividend .................................................... $ 3,634 $ 422 $ --
========= ========= =========
Issuance of stock in connection with business
acquisitions ................................................... $ 620 $ 2,253 $ --
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
8
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION
Hollywood Theater Holdings, Inc. and its wholly owned subsidiary,
Hollywood Theaters, Inc., ("HTI") both Delaware corporations, were formed in
June 1995 to purchase all of the outstanding shares of Trans Texas Amusements,
Inc. ("TransTexas") and affiliates. Crown Theatre Corporation became a wholly
owned subsidiary of HTI after it was acquired by Hollywood Theater Holdings,
Inc. on November 1, 1996, the effective date of the purchase. Hollywood Theater
Holdings, Inc., HTI, and Crown Theatre Corporation (collectively "Holdings")
owned and operated 81 motion picture theaters at December 31, 1997. Holdings
currently operates theaters in Idaho, Kansas, Missouri, Ohio, Oklahoma, and
Texas.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Hollywood
Theater Holdings, Inc., and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of operating funds held in financial
institutions and petty cash held by the theaters. The Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Deposits
Deposits consist of funds held in escrow in accordance with certain
purchase agreements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist primarily of concession products and theater supplies.
Accounts Receivable
Accounts receivable are due primarily from vendors and film companies
for reimbursable vendor promotion costs and film advertising costs. Film
advertising reimbursements are generally credited against the film rental
expense. Vendor promotion reimbursements are included in other income.
Prepaid and Other Current Assets
Prepaid and other current assets consist of prepaid insurance and
theater start-up costs. Theater start-up costs are amortized over a one-year
period.
Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture
and equipment and buildings is provided using the straight-line method over an
eight-year period and thirty-year period, respectively. Leasehold improvements
are amortized using the straight-line method over the lesser of the lease period
or the estimated useful lives of the leasehold improvements.
7
9
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Intangible Assets
Intangible assets include deferred finance costs which are amortized
over the life of the related note and covenants not-to-compete which are
amortized using the straight-line method over a five year period.
Goodwill
Goodwill is recorded as the excess of cost over fair value of assets
acquired and is amortized over 15 years. Accumulated amortization of goodwill
was approximately $4.0 million and $1.2 million at December 31, 1997 and 1996,
respectively.
Holdings reviews the carrying value of goodwill at least annually on a
market-by-market basis to determine if facts and circumstances exist which would
suggest the goodwill may be impaired or that the amortization period needs to be
modified. Among the factors Holdings considers in making the evaluation are
changes in Holdings' market position, reputation, profitability and geographic
penetration. If indicators are present which may indicate impairment is
probable, Holdings will prepare a projection of the undiscounted cash flows of
the specific market and determine if goodwill is recoverable based on these
undiscounted cash flows. If impairment is indicated, then an adjustment will be
made to reduce the carrying amount of the goodwill to its fair value. Similar
reviews are made of other long-lived assets. No such adjustments were required
during the years ended December 31, 1997 and 1996 and the period from inception
(July 11, 1995) through December 31, 1995.
Deferred Lease Expenses
Rent expense is recognized on a straight-line basis after considering
the effect of rent escalation provisions.
Income Taxes
Deferred tax assets and liabilities are based upon estimated future tax
effects of the differences in the tax bases of existing assets and liabilities
and the related financial statement carrying amounts, using currently enacted
tax laws and rates.
Revenues
Revenues are recognized when admissions and concessions sales are
received at the theaters. Film rental costs are accrued based on the applicable
box office receipts and the terms of the film licenses. Holdings' business is
dependent upon the availability of commercially successful movies and upon its
relationship with motion picture distributors. During 1997, only one distributor
represented 25% or greater of Holdings' admission revenues.
Advertising
Advertising costs are expensed when incurred.
Use of 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.
8
10
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Reclassifications
Certain reclassifications have been made to the prior year statements
to conform them to the current year presentation.
Future Accounting Changes
The Company plans to adopt Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," effective for the Company's fiscal year beginning January 1, 1998.
SFAS 131 requires a public business enterprise to report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company is still evaluating the effects of this statement.
The Company plans to adopt Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal-Use," effective for the Company's fiscal year beginning January 1,
1998. SOP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use and identifies the
characteristics of internal use software. The impact from adoption will be
minimal.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996, consisted of the
following (in thousands):
1997 1996
---- ----
Buildings ..................................... $ 44,024 $ 15,645
Furniture and equipment ....................... 33,564 14,045
Leasehold improvements ........................ 19,316 8,449
Land .......................................... 10,058 4,889
Land improvements ............................. 429 429
Construction in progress ...................... 3,172 1,101
--------- ---------
110,563 44,558
Less- Accumulated depreciation and amortization (6,187) (1,442)
--------- ---------
$ 104,376 $ 43,116
========= =========
4. INTANGIBLE ASSETS
Intangible assets at December 31, 1997 and 1996, consisted of the
following (in thousands):
1997 1996
---- ----
Covenants not-to-compete ....... $ 8,307 $ 7,098
Deferred finance and other costs 9,958 4,674
-------- --------
18,265 11,772
Less- Accumulated amortization (3,976) (1,153)
-------- --------
$ 14,289 $ 10,619
======== ========
9
11
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
5. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996, consisted of the
following (in thousands):
1997 1996
---- ----
10 5/8% Senior Notes, interest at 10.625% payable
on February 1 and August 1, due 2007 .................................... $ 110,000 $ --
Term note payable to a bank; interest at LIBOR plus
2.75% or base rate plus 1.75% (10% at December 31,
1996), payable monthly; paid in 1997 .................................... -- 50,000
Revolving credit facility, interest at LIBOR plus 2.75%
or the base rate plus 1.75% (weighted average of 10%
at December 31, 1996); due 2001 ......................................... -- 500
Promissory note payable to a bank; interest of prime
plus 1% (9.25% at December 31, 1996); principal and
accrued interest paid in 1997 ........................................... -- 137
--------- ---------
Total long-term debt ...................................................... 110,000 50,637
Less- current maturities ................................................. -- (137)
--------- ---------
Long-term debt, net ....................................................... $ 110,000 $ 50,500
========= =========
10 5/8% Senior Notes
In August 1997, HTI completed an offering of $110.0 million of senior
subordinated notes (the "Offering"). The notes bear interest at 10 5/8% and are
due in 2007. The notes are redeemable, in whole or in part, at the option of HTI
at any time on or after August 1, 2002, at a redemption price of 105.312% in
2002, 103.542% in 2003, 101.771% in 2004, and 100% in 2005 and thereafter plus
any accrued but unpaid interest. In addition, on or before August 1, 2000, HTI
may, at its option and subject to certain requirements, use an amount equal to
the net cash proceeds from one or more public equity offerings, as defined, to
redeem up to an aggregate of 30% of the principal amount of the Senior Notes
originally issued at a redemption price of 110.625% plus any accrued but unpaid
interest. Upon a change in control of HTI, as defined in the indenture, HTI will
be required to make an offer to repurchase all or any part of each holder's
Senior Notes at a price equal to 101% of the principal amount thereof plus
interest. The notes also include restrictive covenants relative to the
maintenance of financial ratios and the incurrence of additional indebtedness.
Holdings used the net proceeds from the Offering to repay all of the existing
indebtedness under its existing facility, to finance certain acquisitions, to
fund a portion of construction and other expenses related to the 1997 theater
building program, and for general corporate purposes.
Revolving Credit Facility
At December 31, 1996, Holdings had a $25.0 million revolving credit
agreement and a $50.0 million term note agreement with a financial institution.
Concurrently with the consummation of the Offering, Holdings entered into a
revolving credit facility (the "Senior Bank Facility") to fund working capital
requirements and capital expenditures. The Senior Bank Facility provides for a
$50.0 million revolving credit facility with a five year term, however, the
total amount of available borrowings under the Senior Bank Facility may be less
based on leverage levels of Holdings. At December 31, 1997, Holdings was not in
compliance with two of the thirteen financial covenants in the Senior Bank
Facility. On January 7, 1998, Holdings entered into an amendment of the Senior
Bank Facility, amending among other things, certain financial covenants.
Currently, Holdings is in compliance with all financial covenants in the Senior
Bank Facility. Borrowings under the Senior Bank Facility are conditioned upon
Holdings achieving and maintaining certain financial ratios, including the
stipulation that total borrowings are not to exceed 5.75 times Holdings'
"trailing" twelve-month cash flow, as defined, and certain other restrictions.
10
12
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
As of December 31, 1997, no amounts were borrowed under the Senior Bank
Facility. Currently, $16.0 million is available for borrowings.
6. LEASES
Holdings leases certain of its theater premises with lease terms of 4
to 20 years. Additionally, certain leases provide for contingent rentals based
on operating results and require the payment of taxes, insurance, and other
costs applicable to the property. Holdings, at its option, may renew a
substantial portion of the leases at defined or then fair rental rates for
various periods. Some leases also provide for escalating rent payments
throughout the lease term. A deferred lease expense accrual of approximately
$1.2 million and $658,000 in 1997 and 1996, respectively, has been provided to
account for these leases on a straight-line basis. Rent expense for the years
ended December 31, 1997 and 1996 and the period from inception (July 11, 1995)
to December 31, 1995, totaled approximately $9.3 million, $3.0 million and
$965,000, respectively.
Future minimum payments under noncancelable leases with initial or
remaining terms in excess of one year at December 31, 1997, are due as follows
(in thousands):
1998.................................. $ 11,015
1999.................................. 10,837
2000.................................. 10,202
2001.................................. 9,036
2002.................................. 8,005
Thereafter............................ 56,335
--------
$105,430
========
7. INCOME TAXES
As of December 31, 1997, Holdings has a net operating loss (NOL)
carryforward of approximately $8.8 million for tax reporting purposes which
begins to expire in calendar year 2010. In October 1996, Holdings underwent an
ownership change pursuant to Internal Revenue Code Section 382. Therefore, the
NOL carryforward to future years will be limited. Due to the lack of an earnings
history, the tax benefits normally associated with this NOL carryforward and
other tax assets have been fully valued and have not been recorded in the
accompanying consolidated financial statements.
Holdings' net deferred income taxes at December 31, 1997 and 1996,
consisted of the following (in thousands):
1997 1996
---- ----
Amortization ........................... $ 538 $ 113
Deferred lease expenses ................ 376 224
Deferred revenue ....................... 156 --
Accrued vacation and bonuses ........... 154 --
Net operating loss carryforward ........ 3,005 859
Depreciation ........................... (341) 48
------- -------
Total deferred income tax assets 3,888 1,244
Less valuation allowance ............... (3,888) (1,244)
------- -------
Net deferred income tax assets . $ -- $ --
======= =======
The difference between the statutory federal income tax rate of 34% and
the effective federal income tax rate of 0% is due to unrecognized current year
benefit.
11
13
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires all entities to disclose the
estimated fair value of its financial instrument assets and liabilities. Cash
and cash equivalents, accounts receivable, and accounts payable and accrued
liabilities are reflected in the consolidated financial statements at fair value
because of the short-term maturity of these instruments. In addition, the fair
value of Holdings' long-term debt is $117.4 million which is based upon quoted
market prices and the carrying value is $110.0 million. At December 31, 1996,
Holdings' long-term debt was determined to approximate its carrying value since
it was issued at fair market value during 1996.
Changes in the assumptions or estimation methodologies may have a
material effect on these estimated fair values.
9. REDEEMABLE PREFERRED STOCK AND COMMON STOCK
In November 1996, The Beacon Group III - Focus Value Fund, L.P.
("Beacon") purchased approximately $19.0 million of a new class of Series B
Convertible Redeemable Preferred Stock ("Series B Preferred Stock"). The Series
B Preferred Stock is redeemable after the seventh anniversary of the issue date
by the holders, as long as a qualifying initial public offering of the common
stock has not occurred. The preferred shares are automatically converted into
common stock, upon completion of a qualifying initial public offering. The
Series B Preferred Stock is convertible, initially on a one-for-one basis,
subject to adjustment to reflect specified antidilution events, including
without limitation, stock splits, stock combinations, certain issuances of
equity and certain business combination transactions. The holders of Series B
Preferred Stock are entitled to dividends at an annual rate of 9%. The board of
directors may elect to pay dividends in shares of Series B Preferred Stock. The
liquidation preference of each share of Series B Preferred Stock is the greater
of $175 plus accrued but unpaid dividends or the per share amount the holder
would have received upon liquidation on a converted basis plus accrued but
unpaid dividends. In addition, Holdings exchanged Series A Preferred Stock held
by Beacon, Precept Investors, Inc. ("Precept") and Stratford Capital Partners
L.P. and Stratford Equity Partners, L.P. (collectively "Stratford") for the
newly authorized Series B Preferred Stock at a ratio of 1.75/1.00 shares.
The Board of Directors authorized a 9% preferred stock dividend of
Series B Preferred Stock on December 15, 1996 to the stockholders of record of
Series B Preferred Stock on December 15, 1996. The stock dividend was paid on
December 31, 1996.
In 1997 and 1996, a total of 16,413 shares were issued to Richard M.
Durwood and the Richard M. Durwood Revocable Trust ("RMD Trust") for $2.9
million in connection with the acquisition of Crown Theater Corporation. In
addition, at any time on or after October 31, 2001, provided that an offering of
Holdings' common stock has not then occurred, Richard M. Durwood and/or the RMD
Trust may require Holdings to repurchase not less than all of the shares of
Holdings Common Stock held by each at the fair market value at the time of
repurchase.
In April 1997, the Board of Directors approved 200,000 shares of $.01
par value Series C Convertible Redeemable Preferred Stock ("Series C Preferred
Stock"). The Series C Preferred Stock is redeemable under the same conditions
and requirements as Series B Preferred Stock. The holders of Series C Preferred
Stock are entitled to dividends at an annual rate of 9%. The board of directors
may elect to pay dividends in shares of Series C Preferred Stock. The
liquidation preference of each share of Series C Preferred Stock is the greater
of $195 plus accrued but unpaid dividends or the per share amount the holder
would have received upon liquidation on a converted basis plus accrued but
unpaid dividends. Holdings issued 43,076 shares of Series C Preferred Stock to
Beacon and Stratford for approximately $8.4 million.
In May 1997, Holdings issued 35,897 shares of Series C Preferred Stock
for approximately $7.0 million to Hoak Communications Funds ( the "Hoak
Entities").
12
14
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
In November 1997, Holdings issued 51,283 shares of Series C Preferred
Stock for approximately $10.0 million to Beacon and Stratford Equity Partners,
L.P.
In December 1997, the Board of Directors approved 400,000 shares of
$.01 par value Series D Convertible Redeemable Preferred Stock ("Series D
Preferred Stock"). The Series D Preferred Stock is redeemable under the same
conditions and requirements as Series B Preferred Stock. The holders of Series D
Preferred Stock are entitled to dividends at an annual rate of 11%. The board of
directors may elect to pay dividends in shares of Series D Preferred Stock. The
liquidation preference of each share of Series C Preferred Stock is the greater
of $195 plus accrued but unpaid dividends or the per share amount the holder
would have received upon liquidation on a converted basis plus accrued but
unpaid dividends. Additionally, Holdings sold 10,257 shares of Series D
Preferred Stock for approximately $2.0 million to the Hoak Entities and
exchanged 51,283 of Series C Preferred Stock for Series D Preferred Stock at a
ratio of 1/1.
The Board of Directors authorized a 9% preferred stock dividend of
Series B and C Preferred Stock and an 11% preferred stock divided of Series D
Preferred Stock on December 31, 1997, to the stockholders of record of Series B
and D Preferred Stock on December 18, 1997 and Series C Preferred Stock on
December 19, 1997. The stock dividend was paid on December 31, 1997.
10. STOCKHOLDERS' EQUITY (DEFICIT)
At December 31, 1995, shares of common stock were reserved for warrants
to purchase up to 750 shares of 10,000 shares issued and outstanding of
Hollywood Theaters, Inc. The exercise price is $0.01 per share and the warrants
expire July 11, 2002. The warrants were carried at their estimated fair value at
their issue date. The unexercised warrants were retired for $341,000 1996.
In April 1996, Holdings issued 50,000 shares of Series A Preferred
Stock ($.01 par value) to Precept and Stratford for proceeds of $5.0 million.
In October 1996, Beacon purchased 35,000 shares of Series A Preferred
Stock for $3.5 million.
In November 1996, Beacon purchased approximately $2.5 million of common
stock.
In connection with the issuance of Series B Preferred Stock in November
1996, Holdings offered to purchase the outstanding common stock from existing
stockholders for $170 per share. Shareholders sold 30,173 shares to Holdings for
a total cost of approximately $5.0 million.
In April 1997, Holdings issued 18,462 shares of common stock to Beacon
and Stratford for approximately $3.6 million.
In May 1997, Holdings issued 15,385 shares of common stock for
approximately $3.0 million to Hoak.
Holdings has reserved 37,000 shares of common stock for a stock option
plan.
11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following are condensed consolidating financial statements of
Hollywood Theater Holdings, Inc. and HTI. These statements are presented to
provide financial information with respect to HTI, the issuer of the 10 5/8%
Senior Notes.
At December 31, 1997, Holdings owns 100% interest in HTI. These
condensed consolidating financial statements present Holdings' investment in its
subsidiaries using the equity method. Under this method, investments are
recorded at cost
13
15
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
and adjusted for the parent company's ownership share of the subsidiary's
cumulative results of operations. In addition, investments increase in the
amount of contributions to subsidiaries and decrease in the amount of
distributions from investors.
14
16
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONDENSED CONSOLIDATING BALANCE SHEETS (IN THOUSANDS):
HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
AS OF DECEMBER 31, 1997 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
------------- -------------- ------- ------------
Assets:
Cash and cash equivalents .... $ -- $ 7,379 $ -- $ 7,379
Other current assets ......... -- 5,017 -- 5,017
--------- --------- --------- ---------
Total current assets ......... -- 12,396 -- 12,396
Property and equipment, net .. -- 104,376 -- 104,376
Investment in subsidiaries ... 61,797 -- (61,797) --
Other noncurrent assets ...... -- 67,248 -- 67,248
--------- --------- --------- ---------
$ 61,797 $ 184,020 $ (61,797) $ 184,020
========= ========= ========= =========
Liabilities and equity:
Current liabilities .......... $ -- $ 10,763 $ -- $ 10,763
Long-term debt ............... -- 110,000 -- 110,000
Other noncurrent liabilities . -- 1,460 -- 1,460
Redeemable Convertible
Preferred Stock .............. 59,614 -- -- 59,614
Redeemable Common Stock ...... 2,872 -- -- 2,872
Stockholders' equity (deficit) (689) 61,797 (61,797) (689)
--------- --------- --------- ---------
$ 61,797 $ 184,020 $ (61,797) $ 184,020
========= ========= ========= =========
HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
AS OF DECEMBER 31, 1996 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
------------- -------------- ------- ------------
Assets:
Cash and cash equivalents .... $ -- $ 3,559 $ -- $ 3,559
Other current assets ......... -- 4,278 -- 4,278
-------- -------- -------- --------
Total current assets ......... -- 7,837 -- 7,837
Property and equipment, net .. -- 43,116 -- 43,116
Investment in subsidiaries ... 35,260 -- (35,260) --
Other noncurrent assets ...... -- 41,402 -- 41,402
-------- -------- -------- --------
$ 35,260 $ 92,355 $(35,260) $ 92,355
======== ======== ======== ========
Liabilities and equity:
Current liabilities .......... $ 137 $ 5,937 $ -- $ 6,074
Long-term debt ............... -- 50,500 -- 50,500
Other noncurrent liabilities . -- 658 -- 658
Redeemable Convertible
Preferred Stock .............. 28,579 -- -- 28,579
Redeemable Common Stock ...... 2,252 -- -- 2,252
Stockholders' equity (deficit) 4,292 35,260 (35,260) 4,292
-------- -------- -------- --------
$ 35,260 $ 92,355 $(35,260) $ 92,355
======== ======== ======== ========
15
17
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (IN THOUSANDS):
FOR THE YEAR ENDED HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1997 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
-------------- ------------- ------- ------------
Revenues ....................... $ -- $ 79,171 $ -- $ 79,171
-------- -------- -------- --------
Operating expenses:
Direct theater costs ........ -- 63,076 -- 63,076
General and administrative .. -- 5,077 -- 5,077
Depreciation and amortization -- 11,479 -- 11,479
-------- -------- -------- --------
-- 79,632 -- 79,632
-------- -------- -------- --------
Operating loss ................. -- (461) -- (461)
-------- -------- -------- --------
Interest expense, net .......... -- 7,485 -- 7,485
-------- -------- -------- --------
Equity in loss of subsidiaries . (7,946) -- 7,946 --
-------- -------- -------- --------
Net loss ....................... $ (7,946) $ (7,946) $ 7,946 $ (7,946)
======== ======== ======== ========
FOR THE YEAR ENDED HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1996 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
-------------- ------------- ------- ------------
Revenues ....................... $ -- $ 24,879 $ -- $ 24,879
-------- -------- -------- --------
Operating expenses:
Direct theater costs ........ -- 20,798 -- 20,798
General and administrative .. -- 1,601 -- 1,601
Depreciation and amortization -- 3,152 -- 3,152
-------- -------- -------- --------
-- 25,551 -- 25,551
-------- -------- -------- --------
Operating loss ................. -- (672) -- (672)
-------- -------- -------- --------
Interest expense, net .......... -- 2,121 -- 2,121
-------- -------- -------- --------
Equity in loss of subsidiaries . (2,793) -- 2,793 --
-------- -------- -------- --------
Net loss ....................... $ (2,793) $ (2,793) $ 2,793 $ (2,793)
======== ======== ======== ========
FOR THE YEAR ENDED HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1995 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
-------------- ------------- ------- ------------
Revenues ........................ $ -- $ 6,334 $ -- $ 6,334
------- ------- ------- -------
Operating expenses:
Direct theater costs ......... -- 5,296 -- 5,296
General and administrative ... -- 743 -- 743
Depreciation and amortization -- 739 -- 739
------- ------- ------- -------
-- 6,778 -- 6,778
------- ------- ------- -------
Operating loss .................. -- (444) -- (444)
------- ------- ------- -------
Interest expense, net ........... -- 463 -- 463
------- ------- ------- -------
Equity in loss of subsidiaries .. (907) -- 907 --
------- ------- ------- -------
Net loss ........................ $ (907) $ (907) $ 907 $ (907)
======= ======= ======= =======
16
18
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (IN THOUSANDS):
FOR THE YEAR ENDED HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1997 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
-------------- ------------- ------- ------------
Operating .......................... $ -- $ 5,268 $ -- $ 5,268
--------- --------- --------- ---------
Investing:
Purchases of property
and equipment ................... -- (66,361) -- (66,361)
Sale/disposition of property
and equipment ................... -- 12,895 -- 12,895
Payments for business
acquisitions, net of
cash acquired ................... -- (36,649) -- (36,649)
Contributions to subsidiaries ... (34,620) -- 34,620 --
--------- --------- --------- ---------
(34,620) (90,115) 34,620 (90,115)
--------- --------- --------- ---------
Financing:
Borrowings under note
payable and long-term debt ...... -- 127,800 -- 127,800
Repayments of note payable and
long-term debt .................. -- (68,437) (68,437)
Proceed from issuance of stock... 34,620 34,620 (34,620) 34,620
Other ........................... -- (5,316) -- (5,316)
--------- --------- --------- ---------
34,620 88,667 (34,620) 88,667
--------- --------- --------- ---------
Net increase in cash ............... $ -- $ 3,820 $ -- $ 3,820
========= ========= ========= =========
FOR THE YEAR ENDED HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1996 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
-------------- ------------- ------- ------------
Operating .......................... $ -- $ 1,032 $ -- $ 1,032
-------- -------- -------- --------
Investing:
Purchases of property
and equipment ................... -- (10,734) -- (10,734)
Payments for business
acquisitions, net of
cash acquired ................... -- (58,986) -- (58,986)
Contributions to subsidiaries.... (48,659) -- 48,659 --
-------- -------- -------- --------
(48,659) (69,720) 48,659 (69,720)
-------- -------- -------- --------
Financing:
Borrowings under note
payable and long-term debt ...... -- 58,428 -- 58,428
Repayments of note payable and
long-term debt .................. -- (16,691) -- (16,691)
Proceed from issuance of stock... 48,659 48,659 (48,659) 48,659
Other ........................... -- (18,596) -- (18,596)
-------- -------- -------- --------
48,659 71,800 (48,659) 71,800
-------- -------- -------- --------
Net increase in cash ............... $ -- $ 3,112 $ -- $ 3,112
======== ======== ======== ========
17
19
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
FOR THE PERIOD FROM INCEPTION
(JULY 11, 1995) THROUGH HOLLYWOOD THEATER HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1995 HOLDINGS, INC. THEATERS, INC. ENTRIES CONSOLIDATED
------------- -------------- ------- ------------
Operating ....................... $ -- $ 182 $ -- $ 182
-------- -------- -------- --------
Investing:
Purchases of property
and equipment ................ -- (805) -- (805)
Payments for
business
acquisitions, net of ......... -- (9,864) -- (9,864)
cash acquired
Contributions to subsidiaries (2,545) -- 2,545 --
-------- -------- -------- --------
(2,545) (10,669) 2,545 (10,669)
-------- -------- -------- --------
Financing:
Borrowings under note
payable and long-term debt ... -- 9,100 -- 9,100
Repayments of note
payable and .................. -- (691) (691)
long-term debt
Proceed from issuance of stock 2,545 2,545 (2,545) 2,545
Other ........................ -- (20) -- (20)
-------- -------- -------- --------
2,545 10,934 (2,545) 10,934
-------- -------- -------- --------
Net increase in cash ............ $ -- $ 447 $ -- $ 447
======== ======== ======== ========
12. RETIREMENT SAVINGS PLAN
Holdings has a 401(k) profit sharing plan for the benefit of all
eligible employees and makes contributions as determined annually by the Board
of Directors. No contributions were made in 1997, 1996 or 1995.
13. ACQUISITIONS
1997 Acquisitions
In May 1997, Holdings completed the acquisition of two theaters with an
aggregate of 12 screens in Beaumont and Port Arthur, Texas, from United Artists
Theatre Circuit Inc. for a cash purchase price of approximately $3.4 million.
In June 1997, Holdings completed the acquisition of two theaters with
an aggregate of 14 screens in Killeen, Texas, from Escape Theaters, Inc. for a
cash purchase price of approximately $8.5 million.
In August 1997, Holdings completed the acquisition of seven theaters
with an aggregate of 50 screens in Oklahoma City and Tulsa, Oklahoma, from
General Cinema Corp. for a cash purchase price of approximately $15.8 million.
In September 1997, Holdings completed the acquisition of a newly
constructed 16-screen theater in Waco, Texas, for approximately $8.9 million.
Additionally, Holdings purchased furniture, fixtures and equipment for this
theater for approximately $2.7 million.
In October 1997, Holdings completed the exchange of six theaters with
an aggregate of 31 screens operated by HTI in Kansas and Missouri for five
theaters with an aggregate of 22 screens owned by Dickinson, Inc. in the same
states. Holdings also received cash of approximately $1.1 million in connection
with the exchange. Holdings recorded no gain or loss on the exchange. Holdings
also completed the acquisition of one theater with six screens in Tomball,
Texas, from Cineco Cinema Corporation for a cash purchase price of approximately
$1.8 million.
18
20
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
1996 Acquisitions
In April 1996, Holdings acquired, for approximately $3.3 million in
cash, six theaters in Texas from Cinemore, Inc. and related entities.
In August 1996, Holdings acquired, for approximately $1.8 million in
cash, two theaters in Texas from Beaumont Cinema Ventures, L.P.
In November 1996, Holdings acquired 33 theaters primarily in Kansas,
Missouri, and Ohio from Crown Cinema Corporation and Crown Theatre Corporation.
Holdings issued 16,413 shares of its common stock to the seller, at a fair
market value of approximately $2.9 million, and paid cash of approximately $41.1
million to the seller for these acquisitions. The former stakeholder of Crown
Cinema Corporation is now a stockholder and consultant of Holdings. Holdings
also acquired, for $700,000 in cash, two theaters in Texas from General Cinema
Corp. of Texas.
In November and December 1996, Holdings acquired, for approximately
$11.3 million in cash, 19 theaters in Idaho, Oklahoma, and Texas from United
Artists Theatre Circuit Inc. and related entities.
The 1997 and 1996 acquisitions have been accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired (including all identifiable intangible assets, if material)
based upon their estimated fair values at the dates of acquisition in accordance
with APB No. 16. The results of operations of the acquired theaters are included
in the consolidated financial statements from the respective dates of
acquisition. None of the acquisition agreements contain any significant earn-out
provisions with the sellers.
The following is a summary of the net assets acquired and liabilities
assumed in connection with the foregoing acquisitions in 1997 and 1996 (in
thousands):
Assets acquired: 1997 1996
---- ----
Cash and cash equivalents ............... $ 1,102 $ 56
Inventories ............................. 115 130
Prepaid and other current assets ........ 37 442
------- -------
Total current assets ............ 1,254 628
Buildings ............................... 3,854 10,964
Furniture and equipment ................. 6,123 9,011
Leasehold improvements .................. 2,240 6,123
Land .................................... 1,100 2,990
Land improvements ....................... -- 436
Construction-in-progress ................ -- 117
Covenants not-to-compete ................ 1,208 6,099
------- -------
Total other assets .............. 14,525 35,740
------- -------
Total assets acquired ........... 15,779 36,368
------- -------
Liabilities assumed:
Accounts payable ........................ 101 --
------- -------
Total liabilities assumed ....... 101 --
------- -------
Net assets acquired ............. 15,678 36,368
Purchase price, including acquisition costs 33,315 61,073
------- -------
Goodwill .................................. $17,637 $24,705
======= =======
19
21
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Pro Forma Information
The following unaudited pro forma information reflects the effect on
the consolidated statements of operations assuming that significant acquisitions
were consummated as of January 1, 1997 and 1996. This information may not be
indicative of the results that would have actually been obtained if the
acquisitions had occurred on such dates. Therefore, pro forma information cannot
be considered indicative of future operations. The unaudited pro forma
information for the years ended December 31, 1997 and 1996, is as follows (in
thousands):
1997 1996
----- ----
(UNAUDITED) (UNAUDITED)
Total revenues................ $ 90,090 $78,710
Net loss...................... 10,373 4,323
14. COMMITMENTS AND CONTINGENCIES
Holdings, in the normal course of business, is party to various matters
of litigation. Management is of the opinion that the eventual outcome of these
matters will not have a material adverse effect on Holdings' financial position
or results of operations.
15. RELATED-PARTY TRANSACTIONS
Precept, one of Holdings' shareholders, has been engaged by Holdings to
construct various theaters. During 1997, Precept was involved in the
construction of two theaters and improvements to three existing theaters, and
was paid approximately $14.5 million for these services. During 1996, Precept
was involved in the construction of one theater and improvements to one existing
theater, and was paid approximately $4.6 million for these services. No amounts
were owed to Precept as of December 31, 1997. At December 31, 1996,
approximately $1.2 million was owed to Precept and is included in accounts
payable and accrued expenses on the accompanying balance sheet.
At December 31, 1996, Holdings was owed approximately $615,000 by a
current shareholder and consultant with Holdings, who is a former shareholder of
Crown Cinema Corporation and Crown Theatre Corporation. The receivable primarily
represents costs paid by Holdings for services performed prior to the
acquisition of the theaters by Holdings. The receivable was collected in 1997.
20
22
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years ended
December 31, 1997 and 1996 is as follows (in thousands):
Year Ended December 31, 1997
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Operating revenues..................................... $ 15,965 $ 16,591 $ 22,746 $ 23,869
Operating expenses..................................... 16,925 17,527 22,503 22,677
-------- -------- -------- --------
Operating income (loss)................................ (960) (936) 243 1,192
Interest expense, net.................................. 995 1,302 2,235 2,953
-------- -------- -------- --------
Net loss..................................... $ (1,955) $ (2,238) $ (1,992) $ (1,761)
======== ======== ======== ========
Year Ended December 31, 1996
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Operating revenues..................................... $ 2,716 $ 3,779 $ 4,909 $ 13,475
Operating expenses..................................... 3,161 4,181 5,006 13,203
------- ------- ------- --------
Operating income (loss)................................ (445) (402) (97) 272
Interest expense, net.................................. 219 218 276 1,408
------- ------- ------- --------
Net loss..................................... $ (664) $ (620) $ (373) $ (1,136)
======= ======= ======= ========
21
23
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.
HOLLYWOOD THEATERS, INC.
(Registrant)
Chairman of the Board of Directors, President and /s/
Chief Executive Officer ---------------------------
Dated: April 22, 1998 Thomas W. Stephenson, Jr.
Chief Financial Officer /s/
Dated: April 22, 1998 ---------------------------
James R. Featherstone
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.
Director /s/
Dated: April 22, 1998 ---------------------------
John G. Farmer
Director /s/
Dated: April 22, 1998 ---------------------------
Thomas L. Harrison
Director /s/
Dated: April 22, 1998 ---------------------------
Thomas G. Mendell
Director /s/
Dated: April 22, 1998 ---------------------------
Harold W. Pote
Director /s/
Dated: April 22, 1998 ---------------------------
Eric R. Wilkinson
24
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule