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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number
HOLLYWOOD THEATERS, INC.
HOLLYWOOD THEATER HOLDINGS, INC.
CROWN THEATER CORPORATION
(Exact names of registrants as specified in their respective charters)
Delaware 75-2598844
(State or other jurisdiction (IRS Employer
of incorporation or organization) 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
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 the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
Not Applicable
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HOLLYWOOD THEATERS, INC.
Table of Contents
PART I
Item 1 - Financial Information
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed 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
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 12
PART II
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities and Use of Proceeds 13
Item 3 - Defaults upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holder 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 16
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ITEM 1 - FINANCIAL INFORMATION
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
(in thousands, except per share amounts)
ASSETS
March 31, December 31,
1998 1997
------------ ------------
Current assets: (UNAUDITED)
Cash and cash equivalents ........................... $ 4,477 $ 7,379
Accounts receivable ................................. 1,312 1,562
Inventories ......................................... 1,789 1,012
Prepaid and other current assets .................... 1,326 850
Deposits ............................................ 2,547 1,593
------------ ------------
Total current assets ......................... 11,451 12,396
------------ ------------
Property and equipment, net ........................... 112,772 104,376
------------ ------------
Goodwill, net ......................................... 48,472 49,215
Intangible assets, net ................................ 13,824 14,289
Other ................................................. 3,733 3,744
------------ ------------
Total other assets ........................... 66,029 67,248
------------ ------------
Total assets ................................. $ 190,252 $ 184,020
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses ............... $ 6,281 $ 10,605
Deferred revenue .................................... 158 158
------------ ------------
Total current liabilities .................... 6,439 10,763
Other liabilities:
Long-term debt, net of current maturities ........... 123,900 110,000
Deferred lease expenses ............................. 1,291 1,158
Deferred revenue .................................... 288 302
------------ ------------
Total liabilities ............................ 125,479 111,460
Commitments and contingencies
Convertible Redeemable Preferred Stock,
Series B Preferred Stock, $.01 par value,
400,000 shares authorized in 1998 and 1997,
178,028 shares issued and outstanding in 1998
and 1997, (redemption preference of $31,155) ...... 2 2
Series C Preferred Stock, $.01 par value,
400,000 shares authorized in 1998 and 1997,
84,137 shares issued and outstanding in 1998
and 1997, (redemption preference of $16,407) ...... 1 1
Series D Preferred Stock, $.01 par value,
400,000 shares authorized in 1998 and 1997,
61,826 shares issued and outstanding in 1998
and 1997, (redemption preference of $12,054) ...... 1 1
Additional paid-in capital .......................... 61,013 59,610
Redeemable Common Stock:
Common Stock, 16,413 shares issued and outstanding
in 1998 and 1997 .................................. 2,872 2,872
Stockholders' deficit:
Common stock, $.01 par value, 1,500,000 shares
authorized in 1998 and 1997, 103,464 shares
issued and outstanding in 1998 and 1997 .......... 1 1
Additional paid-in capital ......................... 15,508 15,508
Accumulated deficit ................................ (21,064) (16,198)
------------ ------------
Total stockholders' deficit .................. (5,555) (689)
------------ ------------
Total liabilities and stockholders' deficit .. $ 190,252 $ 184,020
============ ============
The accompanying notes are an integral part of these balance sheets.
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HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS)
1998 1997
---------- ----------
(UNAUDITED)
Revenues:
Admissions and other operating revenues ...... $ 15,399 $ 10,430
Concessions .................................. 8,293 5,422
---------- ----------
Total revenues ....................... 23,692 15,852
---------- ----------
Operating expenses:
Film rental and advertising costs ............ 8,343 5,727
Cost of concessions and other ................ 1,378 853
Theater operating expenses ................... 9,303 6,592
General and administrative expenses .......... 1,456 1,087
Depreciation and amortization ................ 3,611 2,553
---------- ----------
Total operating expenses ............. 24,091 16,812
---------- ----------
Operating loss ................................. (399) (960)
Interest expense, net .......................... 3,063 995
---------- ----------
Net loss ....................................... $ (3,462) $ (1,955)
========== ==========
The accompanying notes are an integral part of these financial statements
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HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS)
1998 1997
---------- ----------
(UNAUDITED)
Cash flows from operating activities:
Net loss ................................................................ $ (3,462) $ (1,955)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities :
Depreciation and amortization ........................................ 3,611 2,553
Deferred lease expenses .............................................. 164 129
Changes in assets and liabilities
Increase in accounts receivable .................................... 250 138
Increase (decrease) in prepaids and other current assets ........... (628) 512
Increase in inventories ............................................ (777) (179)
Increase in deposits ............................................... (177) (212)
Decrease in deferred revenues ...................................... (14) --
Increase (decrease) in accounts payable and accrued expenses ....... (4,324) 2,546
---------- ----------
Net cash provided by (used in) operating activities ............ (5,357) 3,532
Cash flows from investing activities:
Purchases of property and equipment ..................................... (10,314) (4,977)
Deposit for construction ................................................ (777) --
---------- ----------
Net cash used in investing activities ........................... (11,091) (4,977)
Cash flows from financing activities:
Borrowings under revolving credit facility ............................. 13,900 2,000
Payment of financing fees ............................................... (354) (106)
---------- ----------
Net cash provided by financing activities ....................... 13,546 1,894
---------- ----------
Net increase (decrease) in cash and cash equivalents ..................... (2,902) 449
Cash and cash equivalents, beginning of period ............................ 7,379 3,559
---------- ----------
Cash and cash equivalents, at end of period ............................... $ 4,477 $ 4,008
========== ==========
Noncash transactions:
Stock dividend .......................................................... $ 1,403 $ 634
========== ==========
The accompanying notes are an integral part of these financial statements
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HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(unaudited)
Note 1. Basis of Presentation
In the opinion of management, the unaudited Interim Condensed Consolidated
Financial Statements of Hollywood Theater Holdings, Inc. and its subsidiaries
include all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly Holdings' financial position as of March 31, 1998,
and the results of its operations for the three months ended March 31, 1998 and
1997. Due to the seasonality of Holdings' operations, the results of its
operations for the interim periods ended March 31, 1998 and 1997, may not be
indicative of total results for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations promulgated by the Securities and Exchange
Commission. The unaudited Interim Condensed Consolidated Financial Statements
should be read in conjunction with the audited Consolidated Financial Statements
of Holdings and the accompanying notes for the years ended December 31, 1997 and
1996. These Consolidated Financial Statements were filed with the Securities and
Exchange Commission in a Special Financial Report in accordance with regulation
15(d) - Reports of Registrants Under the Securities Act of 1933.
NOTE 2. ORGANIZATION
Holdings 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. and affiliates. Crown Theatre
Corporation became a wholly owned subsidiary of HTI after it was acquired by HTI
on November 1, 1996, the effective date of the purchase. Hollywood Theater
Holdings, Inc., HTI, and Crown Theatre Corporation (collectively "Holdings")
owned and operated 77 motion picture theaters at March 31, 1998. Holdings
currently operates theaters in Idaho, Kansas, Missouri, Ohio, Oklahoma, and
Texas.
NOTE 3. FINANCING ARRANGEMENTS
10 5/8% Senior Notes
In August 1997, Holdings' 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,
Holdings' 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
notes originally issued at a redemption price of 110.625% plus any accrued but
unpaid interest. Upon a change in control of Holdings', as defined in the
indenture, Holdings' will be required to make an offer to repurchase all or any
part of each holder's 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.
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Revolving Credit Facility
In conjunction with the Senior Notes 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.
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. As of March
31, 1998, $13.9 million was borrowed under the Senior Bank Facility. Currently,
a total of $19.5 million is available for borrowings and Holdings is in
compliance with all financial covenants in the Senior Bank Facility.
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Unless the context otherwise requires, references in this 10-Q to the "Company"
includes Hollywood Theaters, Inc. and its subsidiary, Crown Theatre Corporation.
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the financial information included
herein, and the Company's Special Financial Report filed with the Securities and
Exchange Commission (the "SEC") for fiscal years ended December 31, 1997 and
1996. Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve a number of risks
and uncertainties. Factors which could cause the Company's actual results in
future periods to differ materially include, but are not limited to, the
availability of suitable motion pictures for exhibition in the Company's
markets, the availability of opportunities for expansion and competition with
other forms of entertainment, as well as those discussed or identified from time
to time in the Company's filings with the SEC, including, but not limited to,
the Company's 1997 Special Financial Report.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's revenues are generated primarily from box office receipts
and concession sales which constituted approximately 66% and 34% of revenues,
respectively, for the quarter ended March 31, 1998. Additional revenues are
generated by electronic video games located adjacent to the lobbies of certain
of the Company's theaters and by on-screen advertisements shown prior to each
feature film. The Company's revenues are principally affected by changes in
attendance and average admission and concession revenues per patron. Attendance
is primarily affected by the commercial appeal of the films released by
distributors and, to a lesser extent, by the comfort and quality of the theater,
competition, general economic conditions and population growth in the geographic
markets the Company serves.
The Company's principal costs of operations are film rentals,
concessions costs and theater operating expenses, such as theater lease rentals,
payroll, utilities, advertising costs and insurance.
The Company has experienced rapid revenue growth through theater
acquisitions and the development of new theaters. Since January 1997, the
Company has acquired 13 theaters with 98 screens, constructed five theaters with
62 screens and exchanged six theaters with 31 screens for five theaters with 22
screens and $1.1 million in cash. The results of operations of the acquired and
newly-built theaters are included in the Company's consolidated financial
statements from their respective dates of acquisition or opening dates.
The Company's admission and concession revenues are subject to seasonal
fluctuations which affect all motion picture exhibitors. These fluctuations are
the result of the distribution practice of the major motion picture studios,
which generally release the most marketable films in the summer season from
Memorial Day to Labor Day and the holiday season extending from Thanksgiving
through year-end. There are other factors, however, which may affect the
Company's revenues during any particular quarter, including the popularity of
films released during the quarter and the availability of such popular films at
the Company's theaters.
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RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated the percentage
of total revenues represented by certain items reflected in the Company's
interim condensed consolidated statement of operations (unaudited):
For the Three Months Ended March 31, 1998 and 1997
1998 1997
Revenues:
Admissions and other operating revenues 65.0% 65.8%
Concessions 35.0% 34.2%
-------- --------
Total revenues 100.0% 100.0%
-------- --------
Operating expenses:
Film rental and advertising costs 35.2% 36.1%
Cost of concessions and other 5.8% 5.4%
Theater operating expenses 39.3% 41.6%
General and administrative expenses 6.1% 6.9%
Depreciation and amortization 15.2% 16.1%
-------- --------
Total operating expenses 101.7% 106.1%
-------- --------
Operating loss (1.7%) (6.1%)
Interest expense, net 12.9% 6.3%
-------- --------
Net Income (loss) (14.6%) (12.3%)
======== ========
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
TOTAL REVENUES. Total revenues for the quarter ended March 31, 1998
increased by 49.5% to $23.7 million from $15.9 million in the comparable 1997
period. This increase in revenues was principally due to a 33.4% increase in
attendance primarily attributable to the Company's acquisition of 13 theaters
(with an aggregate of 98 screens) during the second, third and fourth quarters
of 1997. Additionally, the Company constructed five all stadium-style seating
theaters (with an aggregate of 62 screens), three of which opened during May
1997 and two which opened in November and December 1997.
The average price of a ticket for the Company's first run and discount
theaters was $4.46 and $1.33, respectively, during the quarter ended March 31,
1998 and $4.20 and $1.28, respectively, during the comparable 1997 period. This
increase was principally due to the Company acquiring theaters during 1997 with
higher average ticket prices than those previously owned and raising ticket
prices per patron. Average concession sales per customer in the Company's
theaters increased approximately 14.6% during the quarter ended March 31,1998,
reflecting both an increase in consumption and, to a lesser extent, an increase
in prices.
DIRECT THEATER COSTS. Direct theater costs for the quarter ended March
31, 1998 increased by 44.4% to $19.0 million from $13.2 million in the
comparable 1997 period. As a percentage of total revenues, direct theater costs
decreased to 80.3% for the quarter ended March 31, 1998 from 83.1% in the
comparable 1997 period. Film rental and advertising costs for the quarter ended
March 31, 1998 increased by 45.7% to $8.3 million from $5.7 million in the
comparable 1997 period. As a percentage of total revenues, film rental and
advertising costs decreased to 35.2% for the quarter ended March 31, 1998 from
36.1% in the comparable 1997 period. Cost of concessions for the quarter ended
March 31, 1998 increased by 61.6% to $1.4 million from $853,000 in the
comparable 1997 period. As a percentage of total revenues, cost of concessions
increased to 5.8% for the quarter ended March 31, 1998 from 5.4% in the
comparable 1997 period. Theater operating expenses for the quarter ended March
31, 1998 increased by 41.1% to $9.3 million from $6.6 million in the comparable
1997 period. As a percentage of total revenues, theater operating expenses
decreased to 39.3% for the quarter ended March 31, 1998 from 41.6% in the
comparable 1997 period. Each of these dollar increases was principally due to
the Company's acquisition and construction of theaters during 1997.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the quarter ended March 31, 1998 increased by 33.9% to $1.5 million
from $1.1 million in the comparable 1997 period. As a percentage of total
revenues, general and administrative expenses decreased to 6.1% for the quarter
ended March 31, 1998 from 6.9% in the comparable 1997 period as a result of such
expenses being spread over a greater number of theaters in the 1998 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
for the quarter ended March 31, 1998 increased by 41.4% to $3.6 million from
$2.6 million in the comparable 1997 period. The increase was principally due to
the Company's acquisition and construction of theaters during 1997. As a
percentage of total revenues, depreciation and amortization expense decreased to
15.2% for the quarter ended March 31, 1998 from 16.1% in the comparable 1997
period.
OPERATING LOSS. Operating loss was $399,000 for the quarter ended March
31, 1998 as compared to $960,000 in the comparable 1997 period.
INTEREST EXPENSE, NET. Interest expense, net for the quarter ended
March 31, 1998 increased by 207.9% to $3.1 million from $1.0 million in the
comparable 1997 period. The increase was due to increased borrowing by the
Company to finance the Company's theater construction and acquisition program
and an increase in the effective interest rate on the Company's borrowings as a
result of the Company's issuance of 105/8 Senior Subordinated Notes in August
1997.
NET LOSS. The Company's net loss was $3.5 million for the quarter ended
March 31, 1998 as compared to $2.0 million in the comparable 1997 period.
LIQUIDITY
The Company's revenues are collected in cash, primarily through box
office receipts and concession sales. The Company's film rentals for a given
film are ordinarily paid to film distributors 15 to 45 days following receipt of
admissions revenues. As a result of this timing difference, as well as the lack
of significant inventory and accounts receivable, the Company has generally
operated with a minimum working capital position for its ongoing theater
operations.
Cash provided by (used in) operating activities was ($5.4 million) and
$3.5 million for the quarters ended March 31, 1998 and 1997, respectively. The
payment of accrued interest on the Senior Notes, increased net loss and decrease
in accounts payable in the first quarter of 1998 contributed to the decrease in
cash provided by (used in) operating activities as compared to the first quarter
of 1997.
Cash used in investing activities was $11.1 million and $5.0 million
for the quarters ended March 31,1998 and 1997, respectively. Investing
activities consist of theater development and acquisition and remodeling and
expansion of existing theaters. Cash provided by financing activities was $13.5
million and $1.9 million for each of the three month periods ended March 31,
1998 and 1997, respectively.
CAPITAL RESOURCES
In February 1998, Hollywood completed an offering (the "Exchange
Offering") to exchange the 105/8 Senior Subordinated Notes (the "Senior Notes"),
which are registered under the Securities Act, for its then outstanding 105/8%
Senior Subordinated Notes due August 1, 2007 (the "Old Notes"), which were
initially offered (the "Old Notes Offering") and sold by Hollywood in August
1997. The Company did not receive any proceeds from the Exchange Offering but
did receive net proceeds of approximately $105.7 million from the sale of the
Old Notes. Such proceeds were used by the Company to (i) repay all of the
Company's then outstanding indebtedness under its former credit facility
(approximately $64.5 million at June 30, 1997), (ii) finance the acquisition of
a newly-built all stadium-style seating multiplex theater in Waco, Texas (the
"Waco Acquisition") and seven theaters from General Cinema Corp. of
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Oklahoma, Inc. (the "Oklahoma Acquisition"), (iii) pay a portion of construction
and other expenses relating to the Company's 1997 theater building program and
(iv) fund general corporate activities.
The Company's Senior Bank Facility provides for a $50.0 million
revolving credit facility; however, the total amount of available borrowings
under the Senior Bank Facility may be less depending on leverage levels of the
Company. At December 31, 1997, the Company was not in compliance with two of the
thirteen financial covenants in the Senior Bank Facility. On January 7, 1998,
the Company entered into an amendment of the Senior Bank Facility, amending,
among other things, certain financial covenants. Currently, the Company is in
compliance with all financial covenants contained in the Senior Bank Facility.
Borrowings under the Senior Bank Facility are conditioned upon the Company
achieving and maintaining certain financial ratios.
At March 31, 1998, the Company had $123.9 million of indebtedness
outstanding, $13.9 million of which was senior indebtedness outstanding under
the Senior Bank Facility. Amounts outstanding under the Senior Bank Facility
bear interest, at the option of the Company, at either (i) the Eurodollar Rate
(as defined therein) or (ii) the Base Rate (as defined therein), as the case may
be, plus the Applicable Margin (as defined therein). At March 31, 1998, the
applicable interest rate was 8.69%. Based on the Company's current financial
condition, the Company believes it has the ability to borrow up to an additional
$19.5 million under the Senior Bank Facility.
CAPITAL REQUIREMENTS
Since January 1997, the Company acquired 13 theaters with 98 screens,
opened five newly built theaters with 62 screens and exchanged six theaters with
31 screens for five theaters with 22 screens and $1.1 million in cash. The
Company's capital expenditures in connection with such acquisitions and theater
development in 1997 and early 1998 were approximately $103.0 million. The
Company funded these capital expenditures through cash flow from operations,
borrowings under the Senior Bank Facility, the proceeds of the Old Notes
Offering and the proceeds from the issuance of Common Stock and Preferred Stock
by Holdings.
The Company's capital requirements arise principally in connection with
new theater openings and acquisitions of existing theaters and theater circuits.
The Company's expects to fund these capital expenditures through cash flow from
operations, borrowings under the Senior Bank Facility, and proceeds from the
issuance of common stock and preferred stock by Hollywood Theater Holdings,
Inc., Hollywood's parent company. At March 31, 1998, the Company had two all
stadium-seating theaters with 23 screens under construction. Additionally, the
Company is adding four stadium auditoriums to one existing theater and adding
five stadium auditoriums and converting three auditoriums into stadium seating
at another theater. The Company's capital expenditures in connection with such
theater development at March 31, 1998, was $9.9 million and the Company expects
to spend $18.3 million completing these projects in the second quarter of 1998.
The Company intends to continue its expansion over the next several years. Any
future theater development and future acquisitions may require financing in
addition to cash generated from operations and future borrowings under the
Senior Bank Facility. There can be no assurances that such additional financing
will be available to the Company on acceptable terms or at all.
Based upon the Company's current level of operations and anticipated
growth, management believes that cash flow from operations, together with
available borrowings under the Senior Bank Facility, will be adequate to meet
the Company's requirements for working capital, capital expenditures, scheduled
lease payments and scheduled payments of interest on its indebtedness, including
the senior subordinated notes during 1998. However, the Company's business may
not generate sufficient cash flow from operations and future borrowings may not
be available under the Senior Bank Facility in an amount sufficient to enable
the Company to service its indebtedness, including the senior subordinated
notes, or make anticipated capital expenditures. Furthermore, the Company's
theater development program and future acquisitions may require financing
sources in addition to cash generated from operations and future borrowings
under the Senior Bank Facility. There can be no assurances that such additional
financing will be available to the Company on acceptable terms or at all.
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YEAR 2000 IMPACT
The Company has initiated a review of its internal information systems
for Year 2000 transition problems and has purchased and installed new accounting
software that it believes to be Year 2000 compliant. Other internal computer
systems of the Company have not been fully evaluated, but the Company has
initiated a task force to evaluate these systems. The Company has not
extensively investigated the Year 2000 compliance of its customers, suppliers
and other third parties with whom it does business, but has initiated
discussions with its significant suppliers to determine the extent to which
their failure to correct their own Year 2000 issues could affect the Company.
Compliance by such third parties is voluntary and the Company cannot guarantee
that any Year 2000 problems in other companies' systems, on which the Company
relies, will be resolved in a timely manner. The Company cannot guarantee that
other companies' failure to resolve such problems, or resolutions incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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PART II
ITEM 1 - LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings arising
from the ordinary course of its business operations. The Company does not
believe that the resolution of these proceedings will have a material adverse
effect on the Company's financial condition and results of operations.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 7 1998, Hollywood's Registration Statement on Form S-4
(File No. 333-36763) became effective relating to an offering (the "Exchange
Offering") to exchange 105/8 Senior Subordinated Notes (which are registered
under the Securities Act) for its then outstanding 105/8% Senior Subordinated
Notes due August 1, 2007 (the "Old Notes"), which were initially offered (the
"Old Notes Offering") and sold by Hollywood in August 1997. The managing
underwriter of the Old Notes Offering was Goldman, Sachs & Co. The Company
closed the Exchange Offering on March 5, 1998. The Company did not receive any
proceeds from the Exchange Offering but did receive net proceeds of
approximately $105.7 million from the sale of the Old Notes. Such proceeds were
used by the Company to (i) repay all of the Company's then outstanding
indebtedness under its former credit facility (approximately $64.5 million at
June 30, 1997), (ii) finance the Waco Acquisition and Oklahoma Acquisition
($11.6 million and $15.8 million, respectively), (iii) pay a portion of
construction and other expenses relating to the Company's 1997 theater building
program and (iv) fund general corporate activities.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not Applicable
ITEM 5 - OTHER INFORMATION
None
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
*3.1 Amended and Restated Certificate of Incorporation of Hollywood Theaters, Inc.
*3.2 Restated Certificate of Incorporation of Hollywood Theater Holdings, Inc.
*3.3 Articles of Incorporation of Crown Theatre Corporation
*3.4 By-laws of Hollywood Theaters, Inc.
*3.5 By-laws of Hollywood Theater Holdings, Inc.
*3.6 By-laws of Crown Theatre Corporation
*4.1 Indenture dated as of August 7, 1997 between Hollywood Theaters, Inc., Hollywood Theater
Holdings, Inc. and Crown Theater Corporation and U.S. Trust Company of Texas, N.A.
*4.2 Exchange and Registration Rights Agreement, dated a of August 7, 1997 among Hollywood
Theaters, Inc., Hollywood Theaters Holdings, Inc., Goldman, Sachs, & Co., and BancAmerica
Securities Inc.
*4.3 Second Amendment to Registration Rights Agreement, date as of December 17, 1997 by and
between Hollywood Theater Holdings, Inc. and The Beacon Group III - Focus Value Fund, L.P.,
as amended.
*4.4 Second Amendment to Registration Rights Agreement, dated as of December 17, 1997, by and
among Hollywood Theater Holdings, Inc., Stratford Capital Partners, L.P. and Precept Investors,
inc.
*4.5 Registration Rights Agreement, dated as of November 1, 1996, by and between Hollywood
Theater Holdings, Inc. and Richard M. Durwood Revocable Trust.
*4.6 First Amendment to Registration Rights Agreement, date as of December 17, 1997, by and among
Hollywood Theater Holdings, Inc., Hoak Communications Partners, L.P., HCP Capital Fund, L.P.
and HCP 1997 Authorized Employee Fund
*4.7 Amended and Restated Agreement with respect to Registration
Rights, dated as of May 13, 1997, by and among Hollywood
Theater Holdings, Inc., Stratford Capital Partners, L.P.,
Precept Investors, Inc., The Beacon Group III - Focus Value
Fund, L.P., Hoak Communications Partners, L.P., HCP Capital
Fund, L.P. and HCP 1997 Authorized Employee Fund, L.P.
*10.1 Purchase Agreement, dated as of July 31, 1997, by and among
Hollywood Theaters, Inc., Hollywood Theater Holdings, Inc.,
Crown Theater Corporation and Goldman, Sachs, and Co.
*10.2 Amended and Restated Credit Agreement, dated as of August 7, 1997, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc., and Bank of America National Trust and Savings
Associations.
*10.3 Amended and Restated Shareholders' and Voting Agreement, dated
as of December 17, 1997, by and among Hollywood Theater
Holdings, Inc., The Beacon Group III - Focus Value Fund, L.P.,
Stratford Capital Partners, L.P., Hoak Communications
Partners, L.P., HCP Capital Fund, L.P., and HCP 1997
Authorized Employee Fund, L.P.
*10.4 Purchase and Assignment Agreement, dated as of July 25, 1997, between General Cinema Corp.
of Oklahoma, Inc. and Hollywood Theaters, Inc., as amended by Amendment No. 1 to Purchase
and Assignment Agreement, dated as of July 30, 1997, between General Cinema Corp. of
Oklahoma, Inc. and Hollywood Theaters, Inc.
*10.5 Agreement of Purchase and Sale, dated as of July 22, 1996, by and among United Artists Theatre
Circuit, Inc., United Artists Properties I Corp., Resort Amusement Corporation and Hollywood
Theaters, Inc. as amended.
*10.6 Asset and Stock Purchase Agreement, dated as of August 26, 1996, between Crown Cinema
Corporation, Crown Theatre Corporation, Hollywood Theaters, Inc., and Hollywood Theater
Holdings, Inc., as amended.
14
15
*10.7 Asset Purchase Agreement, dated as of August 19, 1997, between Dickinson, Inc. and Hollywood
Theaters, Inc.
*10.8 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and
Thomas W. Stephenson, Jr.
*10.9 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and
James R. Featherstone.
*10.10 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and
Robert E. Painter.
*10.11 Hollywood Theaters, Inc. Savings and Profit Sharing Plan, as amended and restated.
*10.12 Hollywood Theater Holdings, Inc. 1996 Stock Option and Award Plan, dated December 15, 1996,
as amended.
*10.13 Hollywood Theaters, Inc. 401(k) Savings Plan, as amended.
*10.14 Indemnification Agreement, dated as of May 15, 1996, by and between Hollywood Theaters, Inc.,
Hollywood Theater Holdings, Inc., and Thomas W. Stephenson, Jr.
*10.15 Third Amendment to Amended and Restated Credit Agreement, dated January 7, 1998, among
Hollywood Theater Holdings, Inc., Hollywood Theaters, Inc., and Bank of America National
Trust and Savings Association.
*24.1 Power of Attorney
27 Financial Data Schedule
* - Incorporated by reference to Hollywood Theaters, Inc.'s Registration
Statement on Form S-4 (File No. 333- 36763), dated February 4, 1998.
REPORTS ON FORM 8-K
None.
15
16
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.
HOLLYWOOD THEATERS, INC. AND SUBSIDIARIES
Date: 5/14/98 /s/ Thomas W. Stephenson, Jr.
------- -----------------------------------------
Thomas W. Stephenson, Jr.
Chief Executive Officer
Date: 5/14/98 /s/ James R. Featherstone
------- -----------------------------------------
James R. Featherstone
Chief Financial Officer
16
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
*3.1 Amended and Restated Certificate of Incorporation of Hollywood Theaters, Inc.
*3.2 Restated Certificate of Incorporation of Hollywood Theater Holdings, Inc.
*3.3 Articles of Incorporation of Crown Theatre Corporation
*3.4 By-laws of Hollywood Theaters, Inc.
*3.5 By-laws of Hollywood Theater Holdings, Inc.
*3.6 By-laws of Crown Theatre Corporation
*4.1 Indenture dated as of August 7, 1997 between Hollywood Theaters, Inc., Hollywood Theater
Holdings, Inc. and Crown Theater Corporation and U.S. Trust Company of Texas, N.A.
*4.2 Exchange and Registration Rights Agreement, dated a of August 7, 1997 among Hollywood
Theaters, Inc., Hollywood Theaters Holdings, Inc., Goldman, Sachs, & Co., and BancAmerica
Securities Inc.
*4.3 Second Amendment to Registration Rights Agreement, date as of December 17, 1997 by and
between Hollywood Theater Holdings, Inc. and The Beacon Group III - Focus Value Fund, L.P.,
as amended.
*4.4 Second Amendment to Registration Rights Agreement, dated as of December 17, 1997, by and
among Hollywood Theater Holdings, Inc., Stratford Capital Partners, L.P. and Precept Investors,
inc.
*4.5 Registration Rights Agreement, dated as of November 1, 1996, by and between Hollywood
Theater Holdings, Inc. and Richard M. Durwood Revocable Trust.
*4.6 First Amendment to Registration Rights Agreement, date as of December 17, 1997, by and among
Hollywood Theater Holdings, Inc., Hoak Communications Partners, L.P., HCP Capital Fund, L.P.
and HCP 1997 Authorized Employee Fund
*4.7 Amended and Restated Agreement with respect to Registration
Rights, dated as of May 13, 1997, by and among Hollywood
Theater Holdings, Inc., Stratford Capital Partners, L.P.,
Precept Investors, Inc., The Beacon Group III - Focus Value
Fund, L.P., Hoak Communications Partners, L.P., HCP Capital
Fund, L.P. and HCP 1997 Authorized Employee Fund, L.P.
*10.1 Purchase Agreement, dated as of July 31, 1997, by and among
Hollywood Theaters, Inc., Hollywood Theater Holdings, Inc.,
Crown Theater Corporation and Goldman, Sachs, and Co.
*10.2 Amended and Restated Credit Agreement, dated as of August 7, 1997, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc., and Bank of America National Trust and Savings
Associations.
*10.3 Amended and Restated Shareholders' and Voting Agreement, dated
as of December 17, 1997, by and among Hollywood Theater
Holdings, Inc., The Beacon Group III - Focus Value Fund, L.P.,
Stratford Capital Partners, L.P., Hoak Communications
Partners, L.P., HCP Capital Fund, L.P., and HCP 1997
Authorized Employee Fund, L.P.
*10.4 Purchase and Assignment Agreement, dated as of July 25, 1997, between General Cinema Corp.
of Oklahoma, Inc. and Hollywood Theaters, Inc., as amended by Amendment No. 1 to Purchase
and Assignment Agreement, dated as of July 30, 1997, between General Cinema Corp. of
Oklahoma, Inc. and Hollywood Theaters, Inc.
*10.5 Agreement of Purchase and Sale, dated as of July 22, 1996, by and among United Artists Theatre
Circuit, Inc., United Artists Properties I Corp., Resort Amusement Corporation and Hollywood
Theaters, Inc. as amended.
*10.6 Asset and Stock Purchase Agreement, dated as of August 26, 1996, between Crown Cinema
Corporation, Crown Theatre Corporation, Hollywood Theaters, Inc., and Hollywood Theater
Holdings, Inc., as amended.
18
*10.7 Asset Purchase Agreement, dated as of August 19, 1997, between Dickinson, Inc. and Hollywood
Theaters, Inc.
*10.8 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and
Thomas W. Stephenson, Jr.
*10.9 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and
James R. Featherstone.
*10.10 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and
Robert E. Painter.
*10.11 Hollywood Theaters, Inc. Savings and Profit Sharing Plan, as amended and restated.
*10.12 Hollywood Theater Holdings, Inc. 1996 Stock Option and Award Plan, dated December 15, 1996,
as amended.
*10.13 Hollywood Theaters, Inc. 401(k) Savings Plan, as amended.
*10.14 Indemnification Agreement, dated as of May 15, 1996, by and between Hollywood Theaters, Inc.,
Hollywood Theater Holdings, Inc., and Thomas W. Stephenson, Jr.
*10.15 Third Amendment to Amended and Restated Credit Agreement, dated January 7, 1998, among
Hollywood Theater Holdings, Inc., Hollywood Theaters, Inc., and Bank of America National
Trust and Savings Association.
*24.1 Power of Attorney
27 Financial Data Schedule
* - Incorporated by reference to Hollywood Theaters, Inc.'s Registration
Statement on Form S-4 (File No. 333- 36763), dated February 4, 1998.
REPORTS ON FORM 8-K
None.