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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 OCTOBER 31, 2000
COMMISSION FILE NUMBER 1-12360
GC COMPANIES, INC.
DEBTOR-IN-POSSESSION AS OF OCTOBER 11, 2000
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3200876
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
27 BOYLSTON STREET
CHESTNUT HILL, MASSACHUSETTS 02467
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER AND AREA CODE: 617-264-8000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $16,131,697 on January 22, 2001.
There were 7,830,921 shares of Common Stock outstanding as of January
22, 2001.
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GC COMPANIES, INC.
DEBTOR-IN-POSSESSION AS OF OCTOBER 11, 2000
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000
TABLE OF CONTENTS
PART I PAGE NO.
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 7a. Quantitative and Qualitative Disclosure about Market Risk 22
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 51
PART III
Item 10. Directors and Executive Officers of the Registrant 51
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management 54
Item 13. Certain Relationships and Related Transactions 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 60
Signatures 61
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PART I
ITEM 1. BUSINESS
GENERAL
GC Companies, Inc. (the "Company"), through its subsidiaries, operates a motion
picture exhibition circuit in the United States under the name "General Cinema
Theatres," through a joint venture, operates motion picture theatres in South
America and also manages a pool of the Company's capital for investments.
Through its investment operations, the Company invested in businesses which are
unrelated to the Company's theatre business and the broader entertainment
industry. INVESTMENTS MADE BY THE COMPANY MAY BE HIGHLY ILLIQUID AND MAY INVOLVE
CONSIDERABLE RISK. SEE "GCC INVESTMENTS, INC." BELOW.
The Company was incorporated under the laws of the State of Delaware in
September, 1993. On October 11, 2000, the Company and a number of its domestic
subsidiaries (the "Debtors") filed petitions to reorganize under Chapter 11
("Chapter 11" or the "Chapter 11 cases") of the United States Bankruptcy Code,
and certain of its domestic theatre subsidiaries filed petitions to liquidate
under Chapter 7 ("Chapter 7") of the United States Bankruptcy Code (collectively
the "Bankruptcy Proceedings"). A principal reason for the Company's Bankruptcy
Proceedings was to permit the Company to reject real estate leases that were or
were expected to become burdensome due to cash losses at these locations. The
Company is currently operating its businesses as debtors-in-possession subject
to the jurisdiction of the United States Bankruptcy Court in the District of
Delaware. The Company's subsidiary which holds the Company's interest in its
South American theatre joint venture did not file a petition for reorganization
and therefore is not subject to the jurisdiction of the Bankruptcy Court. See
Item 3 Legal Proceedings.
In the Chapter 11 cases, as debtors-in-possession, the Company is authorized to
operate its businesses in the ordinary course. Actions to collect pre-petition
indebtedness are stayed.
The Company currently retains the exclusive right to file a plan of
reorganization until February 9, 2001; however, an extension of this date is
currently being requested through May 9, 2001 by motions now pending before the
Bankruptcy Court. If granted, this would allow the Company the exclusive right
to file a plan of reorganization until May 9, 2001 and to solicit acceptance of
a plan of reorganization until July 9, 2001, subject to any further extensions
as approved by the Bankruptcy Court. The determination of how liabilities will
be ultimately treated cannot be made until the Bankruptcy Court approves the
Company's plan of reorganization, which is currently being prepared.
The Company entered into an agreement dated October 13, 2000 with major
financial institutions for a debtor-in-possession credit facility (the "DIP
Facility") under which the Company may borrow up to $45.0 million, subject to
certain limitations, to fund ongoing working capital needs while the Bankruptcy
Proceedings are pending. A further discussion regarding liquidity is in Item 7
and Note 2 to the Company's consolidated financial statements.
GENERAL CINEMA THEATRES, INC.
The Company's theatre operations are the outgrowth of a motion picture
exhibition business which originated in 1922. The predecessors of the Company
are credited with opening two of the first drive-in movie theatres in 1938 and
one of the first indoor shopping center theatres in 1951.
As of October 31, 2000, the Company operated 78 theatres with a total of 685
screens in 20 states. Substantially all of the Company's theatres are
state-of-the-art facilities, equipped with high-quality sound and projection
equipment and exhibit a popular selection of films on a "first run" basis.
Approximately 72% of the Company's theatres and screens are located in 23 of the
50 largest Areas of Dominant Influence (television market areas as defined by
Nielson Media Research) in the United States.
From the beginning of fiscal 2000 through the end of fiscal 2000, the Company
increased its average number of screens per theatre from 7.6 to 8.8 as a result
of opening four theatres with 50 screens and closing 64 older theatres with 417
screens through the year. All of the Company's theatres are multi-screen
theatres, and approximately 60% of the Company's screens are located in theatres
having 10 to 18 screens. The Company expects to continue to increase the average
number of screens per theatre in its circuit by selectively closing or selling
less productive theatres, which
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generally have fewer screens. Since November 1, 1991, the Company has opened 29
new theatres with an average of 12 screens each. In addition, the Company
currently operates two "Premium Cinemas" which are upscale movie-going
experiences with features such as large leather seats, a bistro menu of
appetizers and an elegant lounge. Key factors which the Company considers in
selecting new theatre sites are demographic trends derived from statistical
sources, distance from competitive theatres, and accessibility and proximity to
retail and other entertainment and dining areas.
Multi-screen theatres enable the Company to present a variety of films appealing
to diverse segments of the movie-going public while serving patrons from common
support facilities such as concession stands and box offices. The Company
believes that this strategy enhances attendance, increases the utilization of
theatre capacity and promotes operating efficiencies. Staggered scheduling of
movie starting times minimizes staffing requirements for auditorium entry and
exit and box office and concession stand services, and reduces congestion
throughout the theatre and its parking areas. Multi-screen theatres also provide
increased flexibility in determining the length of time that a film will run and
the size of the auditorium in which it will be shown.
The Company continually seeks to maximize cash flows through adherence to cost
containment practices. In addition, the Company provides incentive compensation
to its theatre managers on the basis of performance, customer service
responsiveness and quality of theatre operations.
MARKETING AND ADVERTISING
The Company relies principally upon television, radio and newspaper display
advertisements (substantially paid for by distributors) and newspaper directory
film schedules (generally paid for by the Company) to inform its patrons of film
titles and exhibition times. The Company also shows previews of coming
attractions and films presently playing on the other screens operated by the
Company in the same theatre or geographic area. The Company also benefits from
promotional programs involving various products and merchants.
FILM LICENSING
Consistent with industry practice, and in part required by consent decrees to
which certain film distributors are parties, distributors generally license
films to exhibitors on a screen-by-screen basis. Film licenses are obtained by
negotiating directly with film distributors.
Fees payable to distributors are based upon several factors including theatre
location, film supply, competition, season and film content. Film licensing
(termed "film buying" in the industry) typically requires payment of a fee based
on the higher of a gross receipts formula or a theatre admissions revenue
sharing formula. Under a gross receipts formula, the distributor receives a
specified percentage of box office receipts, with the percentage declining over
the term of the run. Under a theatre admissions revenue sharing formula, the
distributor receives a specified percentage of the excess of box office receipts
over a negotiated allowance for theatre expenses. The Company may agree to
guarantee minimum license fees or make recoupable advance payments on licensing
fees, or both, in order to obtain a license for a film that is in high demand.
The Company's film buyers evaluate the prospects for upcoming films prior to the
time that distributors solicit interest. Criteria considered for each film
include all of the factors which affect box office potential including cast,
director, plot, performance of similar films, the production cost and marketing
budget for the film, estimated film licensing costs, estimated impact on
concession sales and the expected Motion Picture Association of America rating.
The Company maintains records of attendance by film title and theatre location
so as to enable its film buyers to evaluate a prospective film's suitability and
likelihood of success with respect to each theatre location.
The Company's business is dependent upon the availability of motion pictures
that have substantial popular appeal. There are fewer than ten major
distributors which provide a substantial portion of quality first run movies to
the exhibition industry. Historically, and during fiscal 2000, less than 17% of
the Company's total annual box office receipts have been attributable to the
films of any single distributor. From year to year, however, the Company's
revenues attributable to individual distributors may vary significantly
depending upon the commercial success of each distributor's films. The Company
believes that its relationships with each of the major distributors generally
are good.
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The Company continues to receive film in the ordinary course. The Company has
not experienced an interruption of film supply as a result of the Company filing
Chapter 11 and continues to enjoy a good supply of film product. The Company has
received Bankruptcy Court approval to pay in full all of its pre-petition
obligations to film distributors.
The failure to maintain good relationships with, or the poor performance by, one
or more of the major distributors, or the disruption in the production of motion
pictures for any reason (such as labor unrest, the increased cost of production
or distribution of films, or the diversion of funds from production and
distribution to other ventures by the major studios or independent producers)
might have a materially adverse effect upon the Company's business and its
results of operations.
CONCESSIONS
The Company owns and operates the concession stands in all of its theatres.
Concession sales are the second largest source of revenue for the Company after
box office receipts and contribute significantly to the Company's earnings.
Concession items consist primarily of popcorn, soft drinks and candy. The
Company is continuing its efforts to increase concession sales through
optimizing product mix, introducing new products such as brand name fast foods,
coffee and other beverages, novelty items and film-related merchandise, offering
bulk candy snacks, training staff to cross-sell products, and making efficient
use of concession facilities and staff. In addition, the introduction of cafes
and the expansion of game rooms in our theatres are also contributing to
increased sales. The Company's strategy emphasizes prominent and appealing
concession counters designed for rapid service, efficiency, and optimal
merchandising of concession items.
COMPETITION
The Company's theatres are subject to varying degrees of competition in the
geographic areas in which they operate. Competition is often intense with
respect to licensing films, attracting patrons and finding new theatre sites.
The Company believes that the principal competitive factors with respect to film
licensing include licensing terms, box office grossing histories, seating
capacity, location of theatres, the quality of projection and sound equipment
and the exhibitors' ability and willingness to promote films. The Company
believes that the principal competitive factors with respect to attracting
patrons include the availability and licensing of popular films, the location
and comfort of theatres, the quality of the projection and sound equipment and
ticket prices.
Industry participants vary substantially in size, from small independent
operators of a single theatre with a single screen to large national chains of
multi-screen theatres. All compete aggressively with the Company for films,
patrons and theatre locations. The Company competes directly with its largest
competitors in most of the geographic areas in which it operates. In recent
years, construction of megaplex theatres has occurred in the industry which has
resulted in significant additions to the total industry screen count. Since
these new screens are being added at a faster rate than the increase in total
industry demand, the Company anticipates intense competition for domestic box
office receipts. New megaplex construction by competitors has impacted the
Company in certain markets in which it operates.
The Company's theatres compete with other forms of entertainment for the
public's leisure time and disposable income. For example, the Company's theatres
face competition from a number of alternative motion picture exhibition delivery
systems such as video cassettes and cable television, including pay-per-view and
satellite entertainment technology. While the future impact of such delivery
systems on the motion picture exhibition industry cannot be determined
precisely, such delivery systems may have had, and in the future may have, an
adverse impact on attendance at the Company's theatres.
SEASONALITY
The major film distributors generally release most of the films which they
anticipate will be the most successful during the summer (Memorial Day weekend
through Labor Day weekend) and holiday (Thanksgiving weekend through New Year's
Day) seasons. Consequently, the Company historically has generated higher
revenues, and substantially all of its earnings, during these periods.
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INTERNATIONAL
Effective July 1, 1998, the Company entered into a 50/50 joint venture with
Hoyts Cinema Group creating Hoyts General Cinema South America (HGCSA), a
stand-alone theatre circuit which pursues theatre opportunities in South
America. As of October 31, 2000, HGCSA operated seven theatre units with 70
screens in Argentina, six theatres with 50 screens in Chile, a theatre with 15
screens in Brazil and a joint venture with an eight-screen theatre in Uruguay.
Key factors which are considered in selecting new theatre sites are demographic
trends derived from statistical sources, distance from competitive theatres and
accessibility and proximity to retail and other entertainment and dining areas.
All of the Company's theatres in South America are state-of-the-art multi-screen
facilities, are equipped with high quality sound and projection equipment and
exhibit films on a "first-run" basis. Multi-screen theatres enable the joint
venture to present a variety of films appealing to diverse segments of the
movie-going public while serving patrons from common support facilities such as
concession stands, box office and sales outlets. This strategy enhances
attendance, increases the utilization of theatre capacity and promotes operating
efficiencies. Staggered scheduling of movie starting times minimizes staffing
requirements for auditorium entry and exit and parking areas. Multi-screen
theatres also provide flexibility in determining the length of time that a film
will run and the size of the auditorium in which it will be shown.
As the Company expands internationally, it becomes subject to regulation of
foreign governments. There are significant differences between the theatrical
exhibition industry regulatory environment in the United States and
international markets. The Company's international operations also face the
additional risks of fluctuating currency values. The Company does not hedge
against the currency risks. Quota systems used by some countries to protect
their domestic film industry may adversely affect revenues from theatres that
the Company develops in such markets.
In May, 2000, the Company sold its Mexican theatre investment for approximately
$14.3 million of which $7.5 million of the sales price was received in cash, and
the remaining balance will be paid in three installments over two years.
EMPLOYEES
At October 31, 2000, the Company had approximately 450 full-time and 3,473
part-time theatre employees. The number of part-time employees generally
increases during the summer and holiday seasons in keeping with the seasonal
nature of the motion picture exhibition business.
Certain of the Company's projectionists, representing approximately 8.3% of the
Company's employees, are represented by the International Alliance of Theatrical
Stage Employees and Motion Picture Machine Operators. The Company believes that
its relationships with this union and with its employees generally are good.
GCC INVESTMENTS, INC.
Through GCC Investments, Inc., the Company invested in companies that are
engaged in businesses which are unrelated to the Company's theatre business and
the broader entertainment industry. The Company's investment professionals
monitor the Company's investments and, as designees of the Company, serve as
members of the boards of directors of such companies. To date, the Company has
financed its investments with existing cash balances. At the present time, the
Company is restricted from making any additional new investments under
agreements with its lenders, and certain sales of portfolio investments require
consent of the DIP Facility lenders.
The investments of the Company are minority positions. Although the Company does
not seek to provide day-to-day managerial support to the companies in which it
holds investments, the Company, through its board of directors representation,
may provide such companies assistance with strategic, financial and operational
matters.
In August of 1999, the Company formed GCC Investments, LLC ("LLC"), a limited
liability company, to act as a vehicle to hold the Company's investment
portfolio. Existing investments in non-public portfolio companies were
transferred to LLC. LLC is owned 99% by GCC Investments, Inc. (a wholly-owned
subsidiary of the Company) and 1% by Chestnut Hill Capital Partners, LLC
("CHCP"). CHCP is owned by the Company's former Chief Investment Officer and
other professional investment personnel formerly employed by GCC Investments,
Inc.
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The LLC agreement specifies that the profit sharing in the LLC will be between
GCC and CHCP in accordance with certain contractual calculations. CHCP also had
a management agreement with regard to GCC Investments, LLC, which specified that
CHCP was to be reimbursed for certain expenses according to a specific formula.
This management agreement was terminated in October, 2000, and the remaining
members of CHCP now provide services as employees of the Company.
INVESTMENTS MADE BY THE COMPANY MAY BE HIGHLY ILLIQUID AND MAY INVOLVE
CONSIDERABLE RISK. BECAUSE OF THE COMPANY'S DESIRE TO MAXIMIZE RETURNS FROM ITS
INVESTMENT OPERATIONS, CURRENT INCOME CONSTITUTES A LOW STRATEGIC PRIORITY.
THERE CAN BE NO ASSURANCE THAT THE COMPANY'S INVESTMENT OPERATIONS WILL MAKE A
CONTRIBUTION TO THE COMPANY'S EARNINGS IN THE FORESEEABLE FUTURE. THE COMPANY'S
INVESTMENT OPERATIONS MAY REDUCE THE COMPANY'S EARNINGS OR CAUSE THE COMPANY TO
INCUR LOSSES. FOR INFORMATION CONCERNING THE INVESTMENTS MADE BY THE COMPANY,
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND NOTES 4, 5 and 23 TO THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS.
RELATIONSHIP WITH HARCOURT GENERAL, INC.
Harcourt General, Inc. ("Harcourt General") provided certain corporate services
to the Company in consideration of a fee based on Harcourt General's costs.
Harcourt General's Chairman also serves as Chairman of the Company, and, until
October 10, 2000, one of Harcourt's Chief Executive Officers served as President
and Chief Operating Officer of the Company. The fees payable to Harcourt General
have been subject to the approval of the Company's Special Review Committee, a
committee of the Board of Directors consisting solely of directors who are not
affiliated with Harcourt General. The fees paid or accrued by the Company to
Harcourt General for management and other corporate services were $150,000,
$465,000 and $477,000 in fiscal years 2000, 1999 and 1998, respectively. The
reduction in the amount paid in 2000 was a result of an agreement with Harcourt
General which provided that no charges for the services of Richard A. Smith and
Robert A. Smith be incurred after April, 2000.
In addition, a majority of the pre-1993 theatre leases to which the Company is a
party are guaranteed by Harcourt General (the "Guaranteed Leases"). Pursuant to
a Reimbursement and Security Agreement entered into between the Company and
Harcourt General at the time the Company became a stand-alone entity
("Spinoff"), the Company has agreed to reimburse Harcourt General for all
liabilities, if any, which may be incurred by Harcourt General after the Spinoff
in connection with the Guaranteed Leases, and has pledged all of the stock of
its theatre subsidiaries to Harcourt General as security for such agreement. The
Reimbursement and Security Agreement contains financial and operating covenants;
however, enforceability of these covenants and other limitations are stayed in
connection with the Chapter 11 proceedings. In consideration of Harcourt
General's continuing guarantees of the Guaranteed Leases, the Company paid
Harcourt General a guarantor's fee measured as a percentage of the present value
of all amounts owing under the Guaranteed Leases for which Harcourt General has
potential liability. The guarantor's fees paid by the Company to Harcourt
General for fiscal years 2000, 1999 and 1998 were approximately $555,000,
$695,000 and $230,000, respectively. Harcourt General has not guaranteed any
theatre leases entered into by the Company following the Spinoff.
In addition, the Company subleases office space and a theatre location from
Harcourt General. The rent and rent-related expense associated with this
sublease totaled $1.2 million in 2000, 1999 and 1998, respectively.
Although Harcourt General has no equity ownership in the Company, Richard A.
Smith and certain members of his family (the "Smith Family Group") beneficially
own approximately 29.09% of the outstanding shares of Common Stock of the
Company and approximately 28.28% of the outstanding equity securities of
Harcourt General. In addition, Richard A. Smith, the Chairman of Harcourt
General, serves as the Chairman of the Company. Robert A. Smith, one of the
Chief Executive Officers of Harcourt General, served as the President and Chief
Operating Officer of the Company until his resignation on October 10, 2000.
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ITEM 2. PROPERTIES
DOMESTIC
As of October 31, 2000, the Company operated 78 domestic theatres with a total
of 685 screens in 20 states. The Company opened four theatres with 50 screens
and closed 64 older theatres with 417 screens throughout the year. In the fourth
quarter of 2000, the Company closed 55 theatres with 375 screens. All of the
Company's theatres, with one exception, are operated pursuant to leases. The
Company's theatre leases are generally entered into on a long-term basis with
terms (including options) ranging from 15 to 40 years. Theatre leases typically
provide for rent based on box office receipts subject to an annual minimum
rental. The Company also is usually obligated to pay taxes, utilities, common
area maintenance costs and certain other expenses related to its leased
theatres.
The Company's corporate, theatre and investment headquarters are located in
Chestnut Hill, Massachusetts, a suburb of Boston. Corporate headquarters'
functions include overall administration, finance, accounting, human resources
and management of the Company and all investment operations. Theatre
headquarters' functions include administration with respect to theatre
operations, information services, marketing, real estate development and
strategic planning. The Company subleases its corporate and theatre headquarters
from Harcourt General.
For additional information regarding the Company's lease obligations, see the
Notes to the consolidated financial statements contained in Item 8, and
Financial Statements and Supplementary Data.
INTERNATIONAL
As of October 31, 2000, the Company operates through HGCSA, seven theatre units
with 70 screens in Argentina, six theatre units with 50 screens in Chile, a
theatre with 15 screens in Brazil and, through a joint venture, a theatre unit
with eight screens in Uruguay. The average number of screens per theatre is 9.5
with the theatres ranging in size from 5 to 16 screens. All of the international
theatres are operated pursuant to leases. The theatre leases are generally
entered into on a long-term basis with terms (including options) ranging from 10
to 30 years. The theatre leases typically provide for rent based on box office
receipts subject to an annual minimal rental and typically will require for the
payment of taxes, utilities, common area maintenance and certain other expenses
related to the leased theatre.
The South American joint venture has a corporate office in Buenos Aires,
Argentina and a regional theatre office in Santiago, Chile. The corporate office
functions include overall administration, finance, information services, real
estate development, accounting and management of the joint venture operations.
The Chile regional office functions include administration with respect to
theatre operations, human resources, marketing, film licensing and theatre
management with respect to Chile.
ITEM 3. LEGAL PROCEEDINGS
On October 11, 2000, the Company and the following domestic operating
subsidiaries filed voluntary petitions to reorganize their businesses under
Chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware under the case name In re GC Companies, Inc., et. al.
---------------------------------
Case Numbers 00-3897 through 00-3927 (the "Chapter 11 cases"):
GCC Investments, Inc.
General Cinema Theatres, Inc.
G.C. Theatre Corp. of California
General Cinema Corp. of Clifton
General Cinema Theatre of Columbia, Inc.
General Cinema Theatres of Delaware, Inc.
General Cinema Corp. of Greenwood
General Cinema Theatres of Illinois, Inc.
General Cinema Corp. of Indiana
General Cinema Corp. of Landmark
General Cinema Corp. of Maryland, Inc.
General Cinema Corp. of Massachusetts
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General Cinema Corp. of Mayfair
General Cinema Corp. of Mazza
General Cinema Corp. of Minnesota, Inc.
General Cinema Theatres of New Jersey, Inc.
General Cinema of New Mexico, Inc.
General Cinema Corp. of New York, Inc.
General Cinema Corp. of North Carolina
General Cinema Corp. of Northwestern
General Cinema Theatres of Ohio, Inc.
General Cinema Corp. of Owings Mills
General Cinema Corp. of Parkway Pointe
General Cinema Corp. of Pennsylvania
General Cinema Corp. of Plymouth Meeting
General Cinema Corp. of South Carolina
General Cinema Corp. of Texas
General Cinema Corp. of Virginia
General Cinema Corp. of Washington
General Cinema Theatre of Yorktown, Inc.
In addition, on October 11, 2000, the following domestic subsidiaries filed
voluntary petitions for protection under Chapter 7 of US Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware:
General Cinema Theatres of Georgia (Case No. 00-3932)
General Cinema Corp. of Florida, Inc. (Case No. 00-3933)
General Cinema Corp. of Louisiana (Case No. 00-3931)
General Cinema Corp. of Tennessee, Inc. (Case No. 00-3929)
General Cinema Corp. of Rhode Island (Case No. 00-3930)
General Cinema Corp. of West Palm Beach (Case No. 00-3928)
All of the Chapter 11 and Chapter 7 proceedings are currently pending.
At this time, it is not possible to predict the outcome of the Chapter 11 cases
or their effect on the Company's business. Additional information regarding the
Chapter 11 cases is set forth in Item 1, Item 7, and Notes 1, 2 and 3 to the
consolidated financial statements.
The Company is involved in various other legal proceedings arising in the
ordinary course of its business operations. The Company does not believe that
the disposition of any such proceedings will have a material adverse effect on
the financial position or continuing operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the New York Stock Exchange under the
symbol "GCX." The high and low sales prices for the Common Stock on the New York
Stock Exchange for the past two fiscal years were as follows:
FISCAL 2000: HIGH LOW
First Quarter $29.88 $23.00
Second Quarter $35.75 $27.50
Third Quarter $32.82 $16.13
Fourth Quarter $20.75 $ 1.19
FISCAL 1999: HIGH LOW
First Quarter $42.00 $37.00
Second Quarter $37.88 $30.00
Third Quarter $37.44 $34.63
Fourth Quarter $36.00 $22.44
At January 22, 2001, there were 2,542 record holders of Common Stock. In
December, 1999, the Company's Board of Directors authorized the repurchase of up
to one million shares of the Company's common stock through December, 2000. No
repurchases were made in fiscal 2000, and the Company did not renew this program
in 2001.
The Company has been notified by the New York Stock Exchange ("NYSE") that the
Company is below the NYSE's continued listing standards and that the Company's
current listing with the NYSE is subject to review by the NYSE in accordance
with its continued listing procedures. Accordingly, while an established public
trading market exists, with respect to the Common Stock, there can be no
assurance that the Common Stock will remain listed on the NYSE or otherwise be
subject of an established trading market.
DIVIDEND POLICY
The Company has not paid and has no current plans to pay cash dividends on its
Common Stock. The Company currently intends to retain earnings for use in its
theatre business.
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ITEM 6. SELECTED FINANCIAL DATA
(Unaudited) Fiscal Years(1)
(Dollar amounts in thousands except for per share amounts) 2000 1999 1998 1997 1996
Revenues $ 358,042 $ 386,150 $ 407,386 $ 445,133 $ 443,984
=================================================================
Operating (loss) earnings (92,671) (13,658) (66,898) 11,822 20,373
Equity losses in theatre affiliates (3,643) (7,468) (539) -- --
Investment (loss) income, net (19,834) 20,116 (1,378) 13,880 10,107
Interest expense (4,311) (2,430) (1,048) (586) (639)
(Loss) gain on disposition of non-operating assets (1,076) (382) 593 (100) (617)
-----------------------------------------------------------------
(Loss) earnings before income taxes (121,535) (3,822) (69,270) 25,016 29,224
Income tax (provision) benefit (9,341) 1,529 27,708 (10,257) (11,982)
-----------------------------------------------------------------
(Loss) earnings before cumulative effect of
accounting change (130,876) (2,293) (41,562) 14,759 17,242
Cumulative effect of accounting change (4,676) -- -- -- --
-----------------------------------------------------------------
Net (loss) earnings $(135,552) $ (2,293) $ (41,562) $ 14,759 $ 17,242
=================================================================
(Loss) earnings per share
Basic
(Loss) earnings before cumulative effect
of accounting change $ (16.89) $ (0.30) $ (5.39) $ 1.91 $ 2.21
Cumulative effect of accounting change (0.60) -- -- -- --
-----------------------------------------------------------------
Net (loss) earnings $ (17.49) $ (0.30) $ (5.39) $ 1.91 $ 2.21
=================================================================
Diluted
(Loss) earnings before cumulative effect
of accounting change $ (16.89) $ (0.30) $ (5.39) $ 1.90 $ 2.19
Cumulative effect of accounting change (0.60) -- -- -- --
-----------------------------------------------------------------
Net (loss) earnings $ (17.49) $ (0.30) $ (5.39) $ 1.90 $ 2.19
=================================================================
Weighted average shares outstanding
Basic 7,750 7,715 7,710 7,728 7,816
=================================================================
Diluted 7,750 7,715 7,710 7,768 7,858
=================================================================
Depreciation and amortization $ 17,255 $ 16,256 $ 19,180 $ 19,229 $ 19,369
Marketable equity securities $ 5,361 $ 102,956 $ 78,162 $ -- $ --
Portfolio investment assets $ 68,158 $ 54,657 $ 61,769 $ 87,078 $ 50,187
Total assets $ 251,339 $ 375,607 $ 389,961 $ 339,600 $ 314,303
Revolving credit facility (2) $ 44,600 $ 13,000 $ 16,775 $ -- $ --
Debtor-in-Possession financing $ 7,874 $ -- $ -- $ -- $ --
Long-term capital lease obligations (2) $ 412 $ 990 $ 1,722 $ 2,254 $ 3,059
Other long-term liabilities (2) $ 34,122 $ 36,297 $ 33,523 $ 31,912 $ 29,029
Number of movie screens
Domestic 685 1,052 1,045 1,113 1,159
International(3) 143 186 120 53 --
Number of locations
Domestic 78 138 150 175 189
International(3) 15 18 13 5 --
(1) The selected financial data are derived from the consolidated financial
statements of the Company.
(2) These liability categories are classified in "Liabilities subject to
compromise" at October 31, 2000.
(3) These locations and screens are owned by the Company's South American
joint venture and, as such, are accounted for under the equity method.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
On October 11, 2000, the Company and a number of its domestic subsidiaries filed
petitions to reorganize under Chapter 11 ("Chapter 11" or the "Chapter 11
cases")of the United States Bankruptcy Code, and certain of its domestic theatre
subsidiaries filed petitions to liquidate under Chapter 7 ("Chapter 7") of the
United States Bankruptcy Code (collectively the "Bankruptcy Proceedings"). The
Company's subsidiary which holds the Company's interest in its South American
theatre joint venture did not file a petition for reorganization, and therefore
it is not subject to the jurisdiction of the Bankruptcy Court.
The Company has incurred a significant loss in 2000. The accompanying
consolidated financial statements have been prepared on a going concern basis
of accounting and do not reflect any adjustments that might result if the
Company is unable to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to maintain
compliance with debt covenants under the debtor-in-possession credit facility
(the "DIP Facility"), the confirmation of a plan of reorganization by the
Bankruptcy Court and the successful refinancing of certain financial
obligations.
In order to address the continuing losses at its older theatres that had
experienced substantial patronage declines due to competitive building against
the Company's theatre locations, the Company closed 55 locations with 375
screens in the fourth quarter of the year. These closures will permit the
ongoing losses associated with those theatres to be eliminated. The Chapter 11
filings will allow the Company to incur a far lower cost to terminate these
leases than would have been incurred had these leases been terminated outside of
the Chapter 11 process because of the lease termination cost limitation
contained in Section 502(b)(6) of the Bankruptcy Code. The Company is
negotiating with certain of its remaining landlords and is continuing to
evaluate its remaining leases as part of its reorganization plan process. The
Company has addressed its general and administrative costs, and these have
already been reduced in part as a result of the downsizing of the number of
theatres operated and other management initiatives.
Management's objective is to have a plan of reorganization confirmed prior to
the expiration of the DIP Facility on October 13, 2001 and believes that this
timing is reasonably likely. Management believes that cash from operations along
with exit financing, or asset sales proceeds, if required, will be available to
provide sufficient liquidity to allow the Company to continue as a going
concern. However, there can be no assurance of this. The Company is currently
preparing a plan of reorganization for presentation to its creditors. Until such
a plan of reorganization is confirmed by the Bankruptcy Court, there can be no
assurance that the Company will emerge from these reorganization proceedings,
and the effect of the terms and conditions of such a plan of reorganization on
the Company's business cannot be determined.
Forward-Looking Statements
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to shareholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates",
"expects", "will continue", "estimates", "projects", or similar expressions are
intended to identify "forward-looking statements". The Company believes that its
forward-looking statements are within the meaning of the safe harbor provisions
of the federal securities laws.
The results contemplated by the Company's forward-looking statements are subject
to certain risks, trends and uncertainties that could cause actual results to
vary materially from anticipated results, including without limitation, the
ability of the Company to continue to be in compliance with the terms of the DIP
Facility, the terms and conditions that may be required by the Company's
financial institutions and creditors in connection with its plan of
reorganization, the Company's actual results of operations, the lack of strong
film product, the impact of competition including its impact on patronage, risks
associated with international operations, market and other risks associated with
the Company's investment activities and other factors described herein.
Forward-looking statements related to the Bankruptcy Proceedings also involve
known and unknown risks, uncertainties and other factors. In particular, the
successful emergence of the debtors-in-possession from the Chapter 11 cases is
subject to confirmation of a plan of reorganization.
YEAR ENDED OCTOBER 31, 2000 COMPARED WITH YEAR ENDED OCTOBER 31, 1999
In order to alleviate continuing cash flow losses at a number of theatre
locations and the inability to reach appropriate resolution to the leases with
the landlords at these locations and to restructure the Company's financial
obligations, on October 11, 2000 (the "Filing Date"), the Company and certain of
its domestic subsidiaries voluntarily filed petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code. Certain other subsidiaries of
the Company, located in Georgia, Tennessee, Florida, Louisiana and Rhode Island
filed petitions for relief under Chapter 7 of the United States Bankruptcy Code.
The Chapter 7 subsidiaries have been deconsolidated and the net assets of these
subsidiaries were written off and included in reorganization items in the
consolidated statements of operations. The Company is presently operating its
domestic theatre business and managing its investment assets as
debtors-in-possession subject to the jurisdiction of the United States
Bankruptcy Court in the District of Delaware (the "Bankruptcy Court").
Net losses increased $133.3 million to a loss of $135.6 million in 2000 from a
net loss of $2.3 million in 1999. The net loss in 2000 included an impairment
and restructuring charge of $37.6 million relating to the nonrecoverability of
assets of the Company's domestic theatre businesses and ventures, a
reorganization charge of $28.9 million related to the Bankruptcy Proceedings as
well as impairment charges on the investment portfolio of $19.1 million. Net
losses in 1999 included $19.9 million of pre-tax gains associated with the
Company's marketable securities and investment portfolio, a pre-tax gain of $2.1
million related to a sale of a theatre in New York, a charge of $6.7 million
relating to restructuring of the domestic theatre business, a charge of $3.5
million to write-down the net book values of impaired theatre assets, a charge
of $3.6 million to accrue for lease termination costs, a gain of $8.5 million
related to lease settlements less than the amount previously accrued and a gain
of $7.9 million related to change in estimates of lease termination costs.
Theatre operations showed a loss of $73.9 million in 2000 compared to a loss of
$6.2 million in 1999. Operating losses after corporate expenses for 2000 were
$92.7 million, an increase of $79.0 million from an operating loss after
corporate expenses of $13.7 million in 1999.
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Theatre Revenues
Total revenues decreased 7.3% to $358.0 million for the year ended October 31,
2000 from $386.2 million for the same period in 1999 primarily attributable to a
13.9% decrease in patronage, partially offset by a 7.9% increase in average
ticket price and a 6.1% increase in concession sales per patron. The decrease in
patronage was mainly due to continued competitor impacts resulting from the
construction of megaplex theatres throughout the country. The build-up of
megaplex theatres over the past three years has resulted in a dramatic increase
in the number of screens throughout the country. This has negatively impacted
the Company's patronage and profitability. The Company operated domestically 685
screens at 78 locations at October 31, 2000 compared to 1,052 screens at 138
locations at October 31, 1999. During 2000, the Company closed 64 theatres with
417 screens, of which 55 theatres with 375 screens were closed in the fourth
quarter. The increase in average ticket prices was due to price increases
adopted in November, 1999 and May, 2000 in a majority of theatres. The growth in
concessions sales per patron was principally attributable to marketing
promotions during the year and some minor price increases. In addition, both the
Company's average ticket price and concession sales per person were positively
impacted by the closing of theatres, which, as a group, had lower ticket prices
and weaker concession performance.
Costs of Theatre Operations
Cost of theatre operations (film rentals, concessions, theatre operations,
administrative expenses and depreciation and amortization) decreased $17.2
million to $381.0 million for the year ended October 31, 2000 from the $398.3
million from the previous year; however, as a percentage of total revenues, cost
of theatre operations was 106.4% for the year ended October 31, 2000 compared to
103.1% for the same period in 1999. This increased percentage of the cost of
theatre operations to total revenues for the year ended October 31, 2000
compared to the same period in 1999, was primarily due to higher rent, occupancy
and depreciation costs associated with new megaplex theatres opened over the
last twelve months. These increases were partially offset by lower
administration costs, lower pre-opening expenses and higher film and concession
margins.
Disposition of Theatre Assets
During the year ended October 31, 2000, the Company sold two theatres with 10
screens as well as miscellaneous assets generating net proceeds of $2.4 million
and a pre-tax gain of $0.6 million. During 1999, the Company sold three theatres
in Michigan, two theatres in Texas, a theatre in New York, a theatre in Florida
and other miscellaneous assets generating net proceeds of $6.6 million and a
pre-tax gain of $2.1 million.
Impairment and Restructuring
In 2000, the Company recorded a loss on impairment and restructuring of $37.6
million, which included a charge for impairment of assets of $34.2 million and
an accrual for lease termination costs of $6.9 million which were limited due to
the Bankruptcy Code Section 502(b)(6), partially offset by the reversal, as a
result of a change in estimate, of previously accrued lease termination costs of
$3.5 million. In 1999, the Company reversed previously accrued lease termination
costs of $7.9 million and recorded a credit of $8.5 million from lease
settlements less than amounts accrued. These credits were partially offset by an
impairment of assets charge of $3.5 million, an accrual for new lease
termination costs of $3.6 million and a restructuring charge of $6.7 million.
Impairment of assets in 2000 includes a charge of $27.3 million to write-down
fixed assets of under performing theatres currently operating under Chapter 11
and a charge of $6.9 million for the impairment of assets of the Company's
domestic joint venture as a result of the inability of the venture to obtain
funds for required capital expenditures.
During the ordinary course of business, management has and will make
determinations that impact the recoverability of theatre assets. Such decisions
have impacted operations in 2000 and 1999. As part of the Company's annual
budgeting process, management has and will review the long-lived assets used in
the theatre business for impairment. This analysis has and will take place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management has and will
review internal management reports as well as monitor current and potential
future competition in its markets for indicators of impairment of individual
theatre assets. As a result of this analysis, management has and will
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14
determine whether impairment has occurred, whether a write-down of the asset
carrying value to fair value is required and whether to abandon or continue to
operate the theatre. The impairment loss is measured as the amount by which the
carrying value of the asset exceeds the fair value, which is based on
management's estimates. The primary technique to determine fair value is to
discount the future cash flows of the theatre. There is considerable management
judgement necessary to determine the future cash flows of a theatre, and,
accordingly, actual results could vary significantly from such estimates.
Continued significant industry building of new megaplexes has caused the Company
to re-assess the value and utility of certain theatre locations through its
internal evaluation process described above. This increase in competition in
certain markets as a result of the opening of megaplexes by competitors, which
has tended to and is projected to draw audiences away from certain theatre
locations that the Company operates.
Accrual for lease termination costs of $6.9 million in 2000 represents a charge
related to the guarantee of certain third party leases. The amount accrued by
the Company was determined in accordance with Section 502(b)(6) of the
Bankruptcy Code, which limits a landlord's lease claim to the greater of one
year's rental obligation or 15% of the total lease term obligation, not to
exceed three year's rental obligation. The accrual recorded for these leases may
be subject to future adjustments based on the claims filed by the landlords and
Bankruptcy Court actions. The Company cannot presently determine or reasonably
estimate the ultimate liability which may result from the filing of claims for
any rejected contracts or from additional leases, which may be rejected in
connection with the Bankruptcy Proceedings. These estimated lease termination
accruals were partially offset by a reversal, as a result of a change in
estimate of previously accrued lease termination costs of $3.5 million.
In addition, in 2000 the Company recorded a post retirement benefit charge of
$1.9 million, offset by a pension settlement gain of $1.9 million related to the
1999 special retirement program.
Reorganization Items
The Company incurred and recorded the following expenses directly associated
with the Bankruptcy Proceedings: (i) reorganization items of $28.9 million,
which included the write-off of the net book value of assets of $6.0 million for
the 55 theatres closed during the fourth quarter, (ii) accrued lease termination
costs of $20.0 million, (iii) professional services related to the bankruptcy of
$2.4 million and (iv) severance of $0.5 million. The accrued lease termination
costs are for those 36 of the 55 closed theatres that were operated by
subsidiaries that filed for reorganization under Chapter 11 and have been
closed. This provision is based upon the Company's estimates of the landlords'
Section 502(b)(6) claim for these theatre locations, based upon the assumption
that these leases will be rejected. The provision recorded in respect of the 36
leases noted above may be subject to future adjustments based on claims filed by
the landlords and Bankruptcy Court determinations. The Company cannot presently
determine or reasonably estimate the ultimate liability, which may result from
the filing of claims for any rejected contracts or from additional leases which
may be rejected in connection with Bankruptcy Proceedings.
Nineteen of the 55 closed theatres, which were located in Florida, Georgia,
Louisiana, Tennessee and Rhode Island were operated by subsidiaries that filed
for bankruptcy under Chapter 7. As a result, the Company did not provide for any
Section 502(b)(6) claims for these locations during the fourth quarter of 2000
since the Company is not liable to the landlords under the provisions of the
Bankruptcy Code.
Corporate Expenses
Corporate expenses decreased 38.7% to $3.8 million in 2000 from $6.3 million in
1999 primarily due to a reclassification of the investment group expenses from
corporate expenses to investment income (loss) as a result of the new subsidiary
established in the fourth quarter of 1999, GCC Investments, LLC ("LLC"). This
subsidiary is owned 99% by the Company and the remaining 1% interest is owned by
Chestnut Hill Capital Partners, LLC ("CHCP"), which is owned by the former Chief
Investment Officer and investment professionals formerly employed by the
Company's investment subsidiary. Through October 10, 2000 CHCP had a management
agreement with LLC, which specified that CHCP was to be reimbursed for certain
expenses according to a specific formula. Under this agreement, the management
fee expense for the year ended October 31, 2000, and included in investment
income, was $3.3 million. The management agreement was terminated in October,
2000.
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Equity Losses in Theatre Affiliates
The Company recorded net equity losses in theatre affiliates of $3.6 million for
the year ended October 31, 2000 compared to $7.5 million for the same period in
1999. Included in equity losses in theatre affiliates for the year ended October
31, 2000 was a charge of $1.6 million related to the Company's Mexican theatre
investment sold in May, 2000 for approximately $14.3 million and losses of $0.5
million incurred with respect to the Company's domestic theatre venture. The
Company's equity losses in Hoyts General Cinema South America ("HGCSA") joint
venture improved for the year ended October 31, 2000 to a loss of $1.5 million
from a loss of $3.7 million in 1999. This improvement was primarily due to an
increase in revenues and a reduction of start-up costs incurred by the venture
in 1999. Revenues of the HGCSA venture increased 33.7% to $59.1 million for the
year ended October 31, 2000 versus $44.2 million for the same period in 1999.
This increase in revenues was primarily due to higher patronage as a result of
opening two theatres with 16 screens in 2000 and for having a full year of
operating results for the five theatres with 59 screens that opened during 1999.
Investment Income (Loss), Net
The Company recorded an investment loss of $19.8 million for the year ended
October 31, 2000 compared to investment income of $20.1 million for the same
period in 1999. The Company's investment loss during fiscal year 2000 included a
charge of $9.6 million for the permanent impairment taken on American Capital
Access ("ACA"), a charge of $9.5 million on MotherNature.com, a realized pre-tax
loss of $2.9 million on the sale of the remaining shares of Global TeleSystems,
Inc. in the fourth quarter, equity losses of $1.5 million, management expenses
of $3.3 million and performance-based compensation of $2.0 million. These
investment losses were partially offset by the realized pre-tax gain of $8.0
million on the sale of PrimaCom, interest and dividend income of $0.6 million as
well as miscellaneous income of $0.4 million. The Company's investment income
for the year ended October 31, 1999 included the unrealized pre-tax gain on the
PrimaCom trading securities of approximately $14.7 million, the realized pre-tax
gain on the GTS trading and available-for-sale securities sold during fiscal
1999 of approximately $10.3 million, the realized pre-tax gain recognized on the
shares of PrimaCom trading securities of $5.2 million, the realized gain of $2.1
million on the lifting of restrictions on GrandVision escrow shares held by the
Company, partially offset by the realized pre-tax loss of $2.9 million on the
GrandVision available-for-sale securities sold during the fourth quarter,
performance-based compensation of $0.9 million and miscellaneous investment
losses of $0.1 million. This income was partially offset by the impairment
charge on the Teletrac investment of $8.3 million.
Interest Expense
The Company's interest expense increased to $4.3 million for the year ended
October 31, 2000 compared to $2.4 million in 1999 mainly due to increased
borrowings outstanding during the year under the revolving credit facility, a
higher interest rate and interest accrued on the DIP Facility.
Income Tax Expense
The Company recorded an income tax provision of $9.3 million in 2000. No benefit
from losses incurred was recorded due to uncertainty surrounding the recovera-
bility of such losses. The Company's effective tax rate was 40% in 1999.
Cumulative Effect of Accounting Change
In the first quarter of 2000, the Company adopted Statement of Position ("SOP")
98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires that
start-up activities be expensed when incurred. The Company's practice had been
to capitalize lease costs incurred prior to the openings of theatres and
amortize the costs under accounting principles generally accepted in the United
States of America. The adoption of this new accounting pronouncement resulted in
a one-time non-cash charge to the Company's statements of operations for the
year ended October 31, 2000 of $4.7 million or $0.60 per diluted share.
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16
YEAR ENDED OCTOBER 31, 1999 COMPARED WITH YEAR ENDED OCTOBER 31, 1998
Net losses decreased $39.3 million to a loss of $2.3 million in 1999 from a loss
of $41.6 million in 1998. The loss in 1999 included $19.9 million of pre-tax
gains associated with the Company's marketable securities and investment
portfolio, a pre-tax gain of $2.1 million related to a sale of a theatre in New
York, a charge of $6.7 million relating to restructuring of the domestic theatre
business, a charge of $3.5 million to write-off the net book values of impaired
theatre assets, a charge of $3.6 million to accrue for lease termination costs,
a gain of $8.5 million related to lease settlements less than the amount
previously accrued and a gain of $7.9 million related to change in estimates of
lease termination costs. Net losses in 1998 included a $28.6 million pre-tax
impairment charge on theatre assets, a pre-tax charge of $39.6 million primarily
relating to the cost of exiting certain leases, a $12.8 million pre-tax gain
related to the sale of a theatre in Texas and $1.0 million of interest expense.
Theatre operations showed a loss of $6.2 million in 1999 compared to a loss of
$58.6 million in 1998. Operating losses after corporate expenses for 1999 were
$13.7 million, an improvement of $53.2 million from a loss of $66.9 million in
1998.
Theatre Revenues
Total revenues decreased 5.2% to $386.2 million for the year ended October 31,
1999 from $407.4 million for the same period in 1998 primarily attributable to a
10.5% decrease in patronage partially offset by a 3.4% increase in concession
sales per patron, a 5.0% increase in the average ticket price and a $4.2 million
increase in other revenue. The decrease in patronage was primarily attributable
to competitor impacts in certain markets and a reduction in average theatre
screens operated by the Company in 1999 compared to 1998. The opening of
megaplexes by the Company's competitors has drawn audiences away from certain of
the Company's theatre locations. During 1999, the Company operated an average of
1,063 screens at 142 locations compared to an average of 1,121 screens at 167
locations in 1998. The decrease in the average screens and units is primarily
due to the closing of 19 theatres with 96 screens during the fourth quarter of
1998. In 1999, the Company opened nine new theatres with 118 screens, which was
offset by the closing of 21 theatres with 111 screens. The Company operated
domestically 1,052 screens at 138 locations at October 31, 1999 compared to
1,045 screens at 150 locations at October 31, 1998. The growth in concession
sales per person was principally due to the continued rollout of new products,
increased consumption and certain price increases. The increase in average
ticket price was due to price increases in certain markets. The increase in
other revenues is primarily due to income generated from the management of
theatres owned by independent third parties and increased in-theatre advertising
revenues.
Costs of Theatre Operations
Cost of theatre operations (film rentals, concessions, theatre operating and
administrative expenses as well as depreciation and amortization) decreased in
absolute value by $13.0 million to $398.3 million for the year ended October 31,
1999 from $411.3 million in the same 1998 period. However, as a percentage of
total revenues, the cost of theatre operations was 103.1% for the year ended
October 31, 1999 compared to 101.0% for the same period in 1998. This increased
percentage of the cost of theatre operations to total revenues for the current
year compared to the same period in 1998 was primarily due to certain fixed
operating costs, pre-opening expenses incurred in the opening of nine new
theatres during the year compared to five new locations in 1998, and lower film
and concession margins partially offset by a reduction in depreciation expense
due to the impairment charge recorded in the fourth quarter of 1998. In
addition, in the third quarter of fiscal 1998, the Company settled certain
litigation, which had previously been accrued for, thereby lowering the cost of
theatre operations by $1.6 million during 1998. Fixed expenses such as occupancy
costs and administrative expenses are compared to a lower revenue amount
generated in the current year than the previous year. Occupancy costs have
increased as a percentage of total revenues in 1999 compared to the same period
in 1998 primarily as a result of the Company's operating lease arrangement
associated with new theatres. The average pre-opening costs associated with a
new multiplex theatre range from $0.2 million to $0.5 million but may vary
depending on several factors including, among other things, number of screens,
location of the theatre and additional amenities which may be offered in the
theatre such as premium auditoriums and cafes. Lower film margins were due to
higher rental charges on certain film product primarily during the summer
season. Overall concession profitability increased due to a change in product
mix that resulted in a higher concession spending per patron and improved
concession margin dollars.
Gain on Disposition of Theatre Assets
During the year ended October 31, 1999, the Company sold three theatres in
Michigan, two theatres in Texas, a theatre in New York, a theatre in Florida and
other miscellaneous assets generating net proceeds of $6.6 million and a pre-tax
gain of $2.1 million. In 1998, the Company sold a theatre in Texas resulting in
a pre-tax gain of $12.8 million. The theatre asset sales and resulting gains
16
17
recognized by the Company in 1999 and 1998 are not indicative of possible
results from future sales.
Impairment and Restructuring
In 1999, the Company recorded a net gain of $2.6 million related to the
impairment of theatre assets and the restructuring of the domestic theatre
business. A charge of $68.2 million was recorded in 1998 related to the
impairment of theater assets and to establish a reserve for early lease
terminations. The components of these charges are discussed below.
During the ordinary course of business, management has and will make
determinations that impact the recoverability of theatre assets. Such decisions
have impacted operations in 1999 and 1998. As part of the Company's annual
budgeting process, management has and will review the long-lived assets used in
the theatre business for impairment. This analysis has and will take place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management has and will
review internal management reports as well as monitor current and potential
future competition in its markets for indicators of impairment of individual
theatre assets. As a result of this analysis, management has and will determine
whether impairment has occurred, whether a write-down of the asset carrying
value to fair value is required and whether to abandon or continue to operate
the theatre. The impairment loss is measured as the amount by which the carrying
value of the asset exceeds the fair value, which is based on management's
estimates. The primary technique to determine fair value is to discount the
future cash flows of the theatre. There is considerable management judgement
necessary to determine the future cash flows of a theatre, and, accordingly,
actual results could vary significantly from such estimates.
Significant industry building of new megaplexes has caused the Company to
re-assess the value and utility of certain theatre locations through its
internal evaluation process described above. There continues to be an increase
in competition in certain markets as a result of the opening of megaplexes by
competitors, which have tended to, and are projected to draw audiences away from
certain theatre locations that the Company operates.
The evaluation described above resulted in an impairment charge of $3.5 million
in 1999 and $28.6 million in 1998. The significant decrease in the amount of
impairment charges in 1999 was due to the bulk of decisions regarding individual
theatre assets being made in 1998.
In 1999, the Company accrued additional reserves of $3.6 million for theatres
that management had committed to exiting within the next 12 months in accordance
with the evaluation process described above. In 1998, the Company recorded a
$39.6 million reserve to cover such lease abandonments.
During 1999, the Company executed the termination of 12 leases resulting in
payments of approximately $12.2 million and made additional payments of $2.7
million for other related closing costs. Of the lease terminations executed by
the Company in 1999, and previously accrued for in 1998, the payment was less
than the amount previously accrued by $5.8 million, partially offset by amounts
accrued for lease terminations executed in 1999 and not accrued in 1998 of $1.5
million. In addition, the Company either reduced or reversed the amount reserved
on certain theatre locations by $7.9 million due to a number of factors,
including revisions made in the estimates to terminate the leases because
negotiations with landlords indicated that the buyout would not be as high as
originally anticipated, because anticipated competitor construction did not
occur in the market or management had determined that the location would not be
closed in the foreseeable future.
In the fourth quarter of 1999, the Company's Board of Directors approved a
restructuring plan of its domestic theatre operations to centralize its existing
regional offices into the Company's home
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office located in Massachusetts. Accrued restructuring charges of $6.7 million
include the cost of involuntary employee termination benefits for 45 employees
of approximately $1.5 million, the cost of a voluntary special retirement
program of $4.3 million for 30 employees, which will be funded by the Company's
pension asset, and a charge of $0.9 million for subleasing certain regional
office space. Employee termination benefits include severance, medical and other
benefits and outplacement services. No cash payments were made in 1999 related
to this restructuring charge. Cash payments were anticipated to be made over the
next 18 months.
Corporate Expenses
Corporate expenses in 1999 of $6.3 million were comparable to 1998.
Equity Loss in Theatre Affiliates
The Company recorded net equity losses in theatre affiliates of $7.5 million for
1999 compared to $0.5 million in 1998. The equity losses primarily resulted from
the Company's international theatre joint ventures and were primarily due to a
charge of $3.5 million related to a permanent loss in value of the Company's
Mexican investment and administrative and start-up costs incurred in South
America in opening new theatres in Argentina, Brazil and Chile. In addition,
operating results in the international joint ventures were negatively impacted
by a soft economic environment in Chile and Argentina.
Investment Income (Loss), Net
The Company recorded investment income of $20.1 million for the year ended
October 31, 1999 compared to an investment loss of $1.4 million for the same
period in 1998. The Company's investment income for the year ended October 31,
1999 included the unrealized pre-tax gain on the PrimaCom trading securities of
approximately $14.7 million, the realized pre-tax gain on the GTS trading and
available-for-sale securities sold during fiscal 1999 of approximately $10.3
million, the realized pre-tax gain recognized on the shares of PrimaCom trading
securities of $5.2 million, the realized gain of $2.1 million on the lifting of
restrictions on GrandVision escrow shares held by the Company, partially offset
by the realized pre-tax loss of $2.9 million on the GrandVision
available-for-sale securities sold during the fourth quarter, performance-based
compensation of $0.9 million and miscellaneous investment losses of $0.1
million. This income was partially offset by the impairment charge on the
Teletrac investment of $8.3 million.
The Company's investment loss of $1.4 million in 1998 included performance-based
compensation of $8.8 million earned by certain employees as a result of the
successful completion of the initial public offering by GTS during the year,
equity losses of $0.6 million for those investments accounted for under the
equity method and included as part of portfolio investments, partially offset by
the unrealized pre-tax gain of $6.8 million on the GTS securities designated as
trading and $1.3 million of dividend and interest income.
Interest Expense
The Company's interest expense increased $1.4 million to $2.4 million for the
year ended October 31, 1999 from $1.0 million for the same period in 1998 due to
increased borrowings outstanding during the year under the Company's revolving
credit facility. During the same period in 1998, the Company had outstanding
borrowings under its revolving credit facility only during the fourth quarter.
Income Tax Expense
The Company's effective tax rate was 40.0% in 1999, unchanged from 1998.
LIQUIDITY AND CAPITAL RESOURCES
On October 11, 2000, the Company and certain of its subsidiaries filed a
petition to reorganize under Chapter 11, which will affect the Company's
liquidity and capital resources in 2001. As a result, substantially all of the
Company's pre-petition debts, obligations and guarantees as of this date are
stayed from collection or action by creditors and, with the exception of the
payment of pre-petition obligations to film distributors as approved by the
Bankruptcy Court, no payments have been made to date with respect to these
pre-petition claims. The company is operating its domestic theatre business in
the ordinary course and is
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paying all post-petition debts and liabilities on normal terms as they become
due. In order to finance the Company's operations and its obligations to pay
adequate protection payments to secured creditors of the Company and certain of
its subsidiaries, the Company has entered into a DIP Facility in the amount of
$45.0 million, of which approximately $5.0 million is outstanding at January 28,
2001. The Company completed all domestic theatre construction project
commitments prior to the Chapter 11 filing and has no remaining construction
commitments to be financed. The DIP Facility is available to the Company through
the earlier of emergence from Chapter 11 or October 13, 2001. It is management's
belief that along with estimated cash flow from operations, this DIP Facility
amount is sufficient to fund its operations through October 13, 2001. The DIP
Facility restricts the sale of certain investment assets, without DIP Lender
approval.
Management's objective is to have a plan of reorganization confirmed prior to
the expiration of the DIP Facility on October 13, 2001 and believes that this
timing is reasonably likely. Management believes that cash from operations along
with exit financing, or asset sales proceeds, if required, will be available to
provide sufficient liquidity to allow the Company to continue as a going
concern. However, there can be no assurance of this. The Company is currently
preparing a plan of reorganization for presentation to its creditors. Until such
a plan of reorganization is confirmed by the Bankruptcy Court, there can be no
assurance that the Company will emerge from these reorganization proceedings,
and the effect of the terms and conditions of such a plan of reorganization on
the Company's business cannot be determined.
Domestic Theatres
Virtually all of the GCC's revenues are collected in cash, principally through
theatre admissions and concession sales. The Company has an operating "float"
which partially finances its operations and allows the Company to operate on a
negative working capital basis. This "float" exists because admissions and
concessions revenues are typically received in cash, while film rentals and
concessions costs are ordinarily paid to suppliers generally 14 to 30 days after
the receipt of box office admissions and concessions revenues. Occasionally, the
Company is required to make film advances to distributors. Significant changes
to components of the Company's working capital will be discussed in the
appropriate sections below.
In the year ended October 31, 2000, General Cinema Theatres, Inc. (GCT) opened a
14-screen theatre in Chicago, Illinois, a seven-screen theatre in Washington,
D.C., a 14-screen theatre in Greenwood, Indiana, a 13-screen theatre in Boston,
Massachusetts and added two screens to an existing theatre in the Boston,
Massachusetts area. Aggregate costs including construction and pre-opening costs
paid by the Company during fiscal 2000 and over the term of the project in
opening these theatres amounted to approximately $35.5 million and $53.6
million, respectively. The aggregate construction costs paid by the Company for
a theatre vary depending on the lease negotiated with the landlord, the number
of auditoriums, and additional amenities that may be offered at the theatre.
The Company has significant lease commitments. Lease payments totaled $82.4 in
the year ended October 31, 2000 as compared to $76.5 million for the same period
in 1999.
During the year ended October 31, 2000, the Company sold two theatres with ten
screens and miscellaneous assets generating net proceeds of $2.4 million. During
the year, the Company made cash payments of $6.4 million to terminate leases and
$2.2 million for rent, severance and other payments.
The Company's total capital expenditures of $61.4 million for the year ended
October 31, 2000 included cash expenditures of $45.9 million and the
reclassification of the outstanding receivable due from a financing institution
at October 31, 1999 of $15.5 million. The cash expenditures were for new theatre
projects, domestic joint ventures, leasehold improvements, furniture and
equipment purchases as well as information services related projects.
International Theatres
During the year ended October 31, 2000, the Company opened an eight-screen
theatre in Chile and an 8-screen theatre in Argentina through its South American
joint venture. The joint venture in South America, HGCSA, anticipates opening an
19
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additional three theatres with 27 screens by the end of July, 2001. Future
advances may be required of the partners under the South American joint venture
agreement if sufficient bank financing is not available.
HGCSA has a $50.0 million debt financing agreement with two major financial
institutions to fund its operations in Argentina, which is secured by the
several guaranty of the joint venture's partners. There is currently no
availability of this financing beyond $28.0 million as the remaining funds were
not drawn prior to the expiration of the funding commitment on December 29,
2000. Under the several guaranty of the Argentina debt facility, the Company is
liable for 50% of the outstanding borrowings. At October 31, 2000, the Company's
portion of the outstanding borrowings under this facility that it guarantees was
approximately $14.0 million.
HGCSA has debt arrangements for a total of $21.0 million with financial
institutions to fund its operations in Chile, which is secured by the several
guaranty of the joint venture's partners. The Company is liable for 50% of the
outstanding borrowings. At October 31, 2000, the Company's portion of the
outstanding borrowings under these facilities that it guarantees was
approximately $10.5 million, which was comprised of $8.4 million outstanding
borrowings and $2.1 million of outstanding guarantees. In respect of these
outstanding guarantees the Company invested approximately $1.4 million in a
certificate of deposit, which is held as collateral for a portion of the
outstanding guarantees at October 31, 2000. This certificate of deposit is
included in other current assets in the consolidated balance sheets.
In May, 2000, the Company sold its Mexican theatre investment for approximately
$14.3 million of which $7.5 million of the sales price was received in cash, and
the remaining balance will be paid in three installments over two years.
Investment Portfolio
At October 31, 2000, marketable equity securities were $5.4 million, a decrease
of $97.6 million from the balance at October 31, 1999. The decrease in
marketable securities during the year ended October 31, 2000 was primarily due
to the sale of the remaining shares of PrimaCom and Global TeleSystems, Inc.,
offset by the addition of the Company's El Sitio and MotherNature.com
investments to this category due to their respective initial public offerings.
During the year ended October 31, 2000, the Company sold 139,740 shares of
GrandVision SA generating proceeds of approximately $4.3 million. The Company
also sold 3,070,298 shares of Global TeleSystems, Inc. during the fourth quarter
of 2000 generating net cash proceeds of approximately $18.4 million. In
addition, the Company sold its remaining 532,702 shares in PrimaCom during the
first quarter of 2000, generating net cash proceeds of approximately $33.1
million.
During the year ended October 31, 2000, the Company invested an additional $6.0
million in Fuelman, now known as FleetCor. On December 17, 1999, the Company
invested $8.0 million in Vanguard Modular Building Systems, a leading provider
of relocatable classrooms and other commercial modular space solutions. In
addition, during the year, the Company invested $20.7 million in VeloCom Inc., a
facilities-based voice, data and Internet provider in Brazil and Argentina.
During the third quarter, the Company invested an additional $5.0 million in
American Capital Access, a financial guaranty insurance company.
Both El Sitio and MotherNature.com completed initial public offerings during the
first quarter of 2000. As a result of these public offerings, and in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the Company reclassified
both these investments to marketable equity securities and recorded them at
their fair values at October 31, 2000 of $4.9 million for El Sitio and $0.3
million for MotherNature.com.
Other
The Company received net borrowings of $31.6 million on its outstanding
revolving credit facility and paid interest of $2.9 million during the year
ended October 31, 2000. The average interest rate for the year of 2000 was 8.5%.
20
21
In connection with the Company's Chapter 11 filing, the Company entered into a
DIP Facility providing for up to $45.0 million of financing which was authorized
by the Bankruptcy Court. In 2000, the Company received net borrowings of $7.9
million on the DIP Facility. The average interest rate for the period borrowings
were outstanding was 11.5%. Proceeds of the DIP Facility may be utilized for
expenditures approved by the DIP Facility lenders under an approved DIP Facility
budget. As a condition to the DIP Facility, the Company has agreed to certain
restrictions, which limit capital expenditures and which prevent the Company
from: (a) borrowing additional funds other than through the DIP Facility; (b)
entering into any new financial leasing transactions; (c) making any additional
portfolio investments; (d) making any distributions from the Company; and (e)
making certain sales of portfolio investments without the consent of the DIP
Facility lenders.
Given the restrictions contained in its DIP Facility, during the term of the DIP
Facility, the Company (a) will not enter into any new domestic theatre lease
commitments; (b) will not make new investments; and (c) may utilize in whole or
in part, any net proceeds received from the future sales of assets to prepay the
DIP Facility.
Recent Accounting Pronouncement
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133, as amended, is required to be adopted by
the Company in the first quarter of 2001. Management believes that the effect of
adopting this standard will not be material to the Company's financial position
or results of operations.
Subsequent Event
On November 30, 2000, MotherNature.com's shareholders approved a plan of
complete liquidation and dissolution. The company is proceeding with the sale of
all of its assets, and thereafter intends to make distributions of liquidation
proceeds to its shareholders. Because of uncertainties as to the precise net
realizable value of assets and the ultimate settlement amount of liabilities, it
is impossible to predict with certainty the aggregate net values that will
ultimately be distributed to shareholders. However, management believes based
upon information available from MotherNature.com, that the Company could, over
time, receive proceeds from liquidation of approximately $1.00 per share. An
initial distribution of liquidation proceeds of $0.6 million ($0.85 per share)
was received by GCC in the first quarter of 2001.
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ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
GC Companies operates in three major reported segments. The first segment is the
domestic motion picture exhibition market. The second segment is the South
American motion picture exhibition market which operates through equity method
investees. The third segment is a venture capital arm which holds investments
in a variety of companies in several industries. Disclosures under this heading
address risks arising from changes in interest rates, foreign currency exchange
rates, commodity prices, equity prices and other market changes that affect
market risk-sensitive instruments.
The domestic motion picture exhibition segment is subject primarily to interest
rate risks. As a result of the Company's Bankruptcy Proceedings, the Company
entered into the DIP Facility. Net borrowings under the DIP Facility outstanding
at October 31, 2000 were $7.9 million, carrying an interest rate of 11.5%. Prior
to its Chapter 11 filing, the Company borrowed money under its revolving credit
facility to fund operating needs, and at October 31, 2000, the Company had
outstanding borrowings of $44.6 million, carrying a variable interest rate,
which was 10.0% on that date. The Company's exposure related to variable
interest rates resides in the earnings and cash flow implications caused by
changes in interest rates. However, a 100 basis point change in the variable
rate of interest paid by the Company on its outstanding borrowings under its DIP
Facility and revolving credit facility would not have a significant impact on
either the earnings or cash flows of the Company. As a result of the Chapter 11
filing by the Company, principal and interest payments may not be made on
pre-petition debt (other than court approved adequate protection payments) until
the plan of reorganization defining the repayment terms has been approved by the
Bankruptcy Court.
Operations in South America are undertaken through equity method investees.
Fluctuations in the market value of the underlying equity are not reported for
financial purposes nor can a sensitivity analysis be performed relative to the
market risk of the underlying equity. Because the investment is in South
America, and operations are conducted utilizing local currencies, the Company's
results of operations are exposed to foreign currency exchange rate changes.
Market risk relative to exchange fluctuations does not exist in the Company's
South American locations since these currently operate in non hyper-inflationary
environments.
The Company does not consider its cash flows to be currently exposed to exchange
rate risk because it has no current intention of repatriating earnings from the
South American locations. Certain of the international joint venture debt
facilities are guaranteed by the Company. In the event of default under certain
of these debt facilities and if such guarantees were called, the contingent
guaranteed obligations would be subject to changes in foreign currency exchange
rates.
The Company's investment portfolio is primarily exposed to risks arising from
changes in equity prices. Such portfolio has been segmented into two categories.
The first category of investments held in the portfolio relate to those
marketable equity securities classified as available-for-sale. Three investment
holdings are classified herein at October 31, 2000: the Company's investments in
El Sitio (NASDAQ:LCTO), an Internet provider of global and country-specific
content targeting Spanish and Portuguese speaking people in Latin America;
MotherNature.com (NASDAQ:MTHR), a Web-based retailer of vitamins, supplements
and minerals; and GrandVision ("GPS"), an optical and photo retailer that is
publicly-traded on the French Exchange under the symbol "GPS." El Sitio shares
since its initial public offering through October 31, 2000 have traded as high
as $41.00 and as low as $2.50. At October 31, 2000,the El Sitio shares closed at
$3.34. MotherNature.com shares since its initial public offering through October
31, 2000 have traded as high as $13.00 and as low as $0.44. At October 31, 2000,
the MotherNature.com shares closed at $0.50. During the year ended October 31,
2000, the GPS shares have traded as high as 33.20 euros and as low as 21.84
euros. As of October 31, 2000, GPS shares closed at 23.00 euros. Equity market
fluctuations, without taking into account the impact of fluctuations in the euro
vis-a-vis the US dollar, can impact fair values (although not earnings, unless
such equity positions are actually liquidated). A 20% fluctuation in the
aggregate value of the available-for-sale securities would not be material to
total assets.
In addition, the GrandVision securities are traded in euros. A 10% fluctuation
in the value of the euro versus the US dollar (holding the value of the
underlying equity securities constant) would not impact pre-tax earnings and
total assets by a significant amount because the Company currently holds only
16,240 shares of GrandVision.
The final category of securities in the Company's investment portfolio includes
a number of holdings in non-publicly traded companies. The Company values these
at either cost less impairment (if any) or under the equity method of
accounting. Equity method investees are specifically excluded from the scope of
this disclosure. Non-public investees where the Company owns less than a
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20% stake are also subject to fluctuations in value, but their current
illiquidity reduces their exposure to pure market risk.
23
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
October 31,
- ---------------------------------------------------------------------------------------------
(In thousands except par value) 2000 1999
ASSETS
Current assets
Cash and cash equivalents $ 12,946 $ 11,106
Marketable equity securities 5,361 102,956
Receivable due from financing institution -- 15,522
Current portion of note receivable 2,889 --
Other current assets 5,014 5,123
Income tax receivable -- 8,666
---------------------------
Total current assets 26,210 143,373
Property and equipment, net 104,081 109,353
Portfolio investments 68,158 54,657
Investment in international theatre affiliates 40,419 58,815
Notes receivable 4,431 --
Other assets 8,040 4,641
Deferred income taxes -- 4,768
---------------------------
$ 251,339 $ 375,607
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ -- $ 587
Debtor-in-possession financing 7,874 --
Trade payables 24,553 34,325
Liability for early lease terminations -- 15,477
Other current liabilities 22,493 81,740
Deferred income taxes -- 16,732
---------------------------
Total current liabilities 54,920 148,861
Long-term liabilities
Capital lease obligations -- 990
Other long-term liabilities -- 36,297
Revolving credit facility -- 13,000
---------------------------
Total long-term liabilities -- 50,287
Liabilities subject to compromise 185,283 --
Minority interest 648 --
Commitments and contingencies -- --
Shareholders' equity
Common stock - $.01 par value
Authorized - 25,000 shares
Issued and outstanding - 7,831 and 7,796 shares 78 78
Additional paid-in capital 141,170 140,166
Accumulated other comprehensive (loss) income (160) 32,353
Unearned compensation (1,190) (2,280)
(Deficit) retained earnings (129,410) 6,142
---------------------------
Total shareholders' equity 10,488 176,459
---------------------------
$ 251,339 $ 375,607
===========================
See Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended October 31,
- ------------------------------------------------------------------------------- ----------------------------------
(In thousands except for per share amounts) 2000 1999 1998
REVENUES
Admissions $ 237,093 $ 255,752 $ 271,999
Concessions 105,056 115,093 124,317
Other 15,893 15,305 11,070
-------------------------- ----------------
Total Revenues 358,042 386,150 407,386
COSTS AND EXPENSES
Film rentals 121,811 135,062 138,565
Concessions 18,741 21,639 21,975
Theatre operations and administrative expenses 223,212 225,313 231,556
Depreciation and amortization 17,255 16,256 19,180
Gain on disposition of theatre assets (640) (2,117) (11,342)
Impairment and restructuring 37,648 (2,601) 68,186
Reorganization items 28,852 -- --
Corporate expenses 3,834 6,256 6,164
-------------------------- ----------------
Operating loss (92,671) (13,658) (66,898)
Equity losses in theatre affiliates (3,643) (7,468) (539)
Investment (loss) income, net (19,834) 20,116 (1,378)
Interest expense (4,311) (2,430) (1,048)
(Loss) gain on disposition of non-operating assets (1,076) (382) 593
-------------------------- ----------------
Loss before income taxes (121,535) (3,822) (69,270)
Income tax (provision) benefit (9,341) 1,529 27,708
-------------------------- ----------------
Loss before cumulative effect of accounting change (130,876) (2,293) (41,562)
Cumulative effect of accounting change (4,676) -- --
-------------------------- ----------------
Net loss $(135,552) $ (2,293) $ (41,562)
========================== ================
LOSS PER SHARE
Basic
Loss before cumulative effect of accounting change $ (16.89) $ (0.30) $ (5.39)
Cumulative effect of accounting change $ (0.60) $ -- $ --
-------------------------- ----------------
Net loss $ (17.49) $ (0.30) $ (5.39)
========================== ================
Diluted
Loss before cumulative effect of accounting change $ (16.89) $ (0.30) $ (5.39)
Cumulative effect of accounting change $ (0.60) $ -- $ --
-------------------------- ----------------
Net loss $ (17.49) $ (0.30) $ (5.39)
========================== ================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 7,750 7,715 7,710
========================== ================
Diluted 7,750 7,715 7,710
========================== ================
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Cash Flows
Year Ended October 31,
- ------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(135,552) $ (2,293) $(41,562)
Adjustments to reconcile net loss to net
cash (used) provided by operating activities
Depreciation and amortization 17,255 16,256 19,180
Deferred income taxes 8,885 7,137 (19,224)
Equity losses in theatre affiliates 3,643 7,468 539
Realized (losses) gains on marketable equity
securities and portfolio investments (3,711) (14,047) --
Unrealized gains (losses) on marketable
equity securities 214 (14,690) (6,815)
Cumulative effect of accounting change 4,676 -- --
Loss on impairment of portfolio investments 19,119 8,273 --
Equity losses in portfolio investments 1,480 589 571
Reorganization items 26,642 -- --
Loss (gain) on impairment or disposition
of theatre assets and restructuring 38,100 (4,336) 19,672
Vesting of restricted stock awards 1,646 575 --
Other non-cash activities 909 6,059 2,228
Changes in assets and liabilities
Liabilities for early lease terminations (8,164) (15,228) 36,579
Income tax receivable 8,666 3,952 (12,618)
Trade payables 12,685 1,413 (3,434)
Other current assets and liabilities 2,653 787 (9,564)
--------------------------------------------
Net cash (used) provided by operating activities (854) 1,915 (14,448)
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (61,450) (20,967) (19,788)
Proceeds from the disposition of theatre assets 2,419 6,578 19,805
Proceeds from the liquidation of short-term
investments -- 12,989 7,025
Proceeds from the sale of portfolio investments and
marketable equity securities 55,821 35,904 --
Proceeds from sale of Mexican theatre investment 7,500 -- --
Purchase of portfolio investments (39,700) (15,554) (12,315)
Incremental investments in international theatre affiliates (369) (5,029) (24,325)
Other investing activities (901) (2,949) 131
--------------------------------------------
Net cash (used) provided by investing activities (36,680) 10,972 (29,467)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in revolving credit facility 31,600 (3,775) 16,775
Increase in debtors-in-possession facility 7,874 -- --
Other financing activities (100) (485) (419)
--------------------------------------------
Net cash provided (used) by financing activities 39,374 (4,260) 16,356
--------------------------------------------
Net change in cash and cash equivalents 1,840 8,627 (27,559)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,106 2,479 30,038
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 12,946 $ 11,106 $ 2,479
============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year:
Interest $ 2,922 $ 1,883 $ --
Income taxes (6,459) (5,197) 8,000
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING ACTIVITIES:
Note received in partial payment for sale of Mexican theatre
Investment $ 6,750 $ -- $ --
============================================
See Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Other Retained
Common Stock Paid-in Comprehensive Earnings Unearned
Shares Amount Capital Earnings (Loss) (Deficit) Compensation
- ----------------------------------------------------------------------------------------------------------------
(In thousands)
BALANCE AT NOVEMBER 1, 1997 7,705 $77 $136,646 $ -- $49,997 $ --
Comprehensive earnings (loss)
Net loss (41,562)
Other comprehensive earnings
Unrealized gains
on securities, net of tax 20,782
Comprehensive earnings (loss)
Exercise of stock options 5 403
-------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1998 7,710 77 137,049 20,782 8,435 --
Comprehensive earnings (loss)
Net loss (2,293)
Other comprehensive earnings
Unrealized gains
on securities, net of tax 10,485
Foreign currency
translation adjustments 1,086
Other comprehensive earnings
Comprehensive loss
Exercise of stock options 10 263
Grant of restricted stock
for future services 76 1 2,854 (2,855)
Amortization of
restricted stock awards 575
-------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1999 7,796 78 140,166 32,353 6,142 (2,280)
Comprehensive loss
Net loss (135,552)
Other comprehensive loss
Unrealized loss
on securities, net of tax (31,427)
Foreign currency
translation adjustments (1,086)
Other comprehensive loss
Comprehensive loss
Grant of restricted stock
for future services 17 556 (556)
Amortization of restricted
stock awards 1,646
Exercise of stock options 18 448
-------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 2000 7,831 $78 $141,170 $(160) $(129,410) $(1,190)
=========================================================================
Comprehensive
Earnings
(Loss) Total
- -------------------------------------------------------------------
(In thousands)
BALANCE AT NOVEMBER 1, 1997 $186,720
Comprehensive earnings (loss)
Net loss $(41,562) (41,562)
Other comprehensive earnings
Unrealized gains
on securities, net of tax 20,782 20,782
--------
Comprehensive earnings (loss) (20,780)
========
Exercise of stock options 403
--------
BALANCE AT OCTOBER 31, 1998 166,343
Comprehensive earnings (loss)
Net loss (2,293) (2,293)
Other comprehensive earnings
Unrealized gains
on securities, net of tax 10,485 10,485
Foreign currency
translation adjustments 1,086 1,086
-------
Other comprehensive earnings 11,571
-------
Comprehensive earnings 9,278
=======
Exercise of stock options 263
Grant of restricted stock
for future services --
Amortization of
restricted stock awards 575
--------
BALANCE AT OCTOBER 31, 1999 176,459
Comprehensive loss
Net loss (135,552) (135,552)
Other comprehensive loss
Unrealized loss
on securities, net of tax (31,427) (31,427)
Foreign currency
translation adjustments (1,086) (1,086)
-------
Other comprehensive loss (32,513)
-------
Comprehensive loss $(168,065)
=======
Grant of restricted stock
for future services
Amortization of restricted
stock awards 1,646
Exercise of stock options 448
-------
BALANCE AT OCTOBER 31, 2000 $10,488
=======
See Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
GC Companies, Inc. ("GCC" or "the Company") operates a motion picture exhibition
circuit in the United States under the name "General Cinema Theatres,"
through a joint venture, operates motion picture theatres in South America and
also manages a pool of the Company's capital for investments. Its investment
portfolio includes United States, European and Latin American holdings.
In order to alleviate continuing cash flow losses at a number of theatre
locations and the inability to reach appropriate resolution to the leases with
the landlords at these locations and to restructure the Company's financial
obligations, on October 11, 2000 (the "Filing Date"), GC Companies, Inc. and
certain of its domestic subsidiaries voluntarily filed petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter
11" or the "Chapter 11 cases"). Certain other subsidiaries of the Company,
located in Georgia, Tennessee, Florida, Louisiana, and Rhode Island, filed
petitions for relief under Chapter 7 of the United States Bankruptcy Code
("Chapter 7" or the "Chapter 7 cases"). The Chapter 11 cases and Chapter 7 cases
are herein referred to as the "Bankruptcy Proceedings". The Chapter 7
subsidiaries have been deconsolidated in the consolidated balance sheet at
October 31, 2000 and therefore the net assets of these subsidiaries were
written-off and included in reorganization items in the consolidated statements
of operations. The Company is presently operating its domestic theatre business
and managing its investment assets as debtors-in-possession subject to the
jurisdiction of the United States Bankruptcy Court in the District of Delaware
(the "Bankruptcy Court"). The Company's subsidiary which holds the Company's
interest in its South American theatre joint venture did not file a petition for
reorganization and therefore is not subject to the jurisdiction of the
Bankruptcy Court.
The Company's Chapter 11 and Chapter 7 filings were the result of continued cash
losses of certain theatre locations, the inability to reach appropriate
resolution to the leases with the landlords at these locations and the Company's
need to restructure its financial obligations.
2. LIQUIDITY AND MANAGEMENT'S PLANS
The Company has incurred a significant loss in 2000 and has filed Bankruptcy
Proceedings. The accompanying consolidated financial statements have been
prepared on a going concern basis of accounting and do not reflect any
adjustments that might result if the Company is unable to continue as a going
concern. The Company's ability to continue as a going concern is dependent upon
its ability to maintain compliance with debt covenants under the
debtor-in-possession facility (the "DIP Facility"), the confirmation of a plan
of reorganization by the Bankruptcy Court and the successful refinancing of
certain financial obligations.
In order to address the continuing losses at its older theatres that had
experienced substantial patronage declines due to competitive building against
the Company's theatre locations, the Company closed 55 locations with 375
screens in the fourth quarter of the year. These closures will permit the
ongoing losses associated with those theatres to be eliminated. The Bankruptcy
Proceedings will allow the Company to incur a far lower cost to terminate these
leases than would have been incurred had these leases been terminated outside of
the Bankruptcy Proceedings because of the lease termination cost limitation
provided for in Section 502(b)(6) of the Bankruptcy Code discussed in Note 3.
The Company is negotiating with certain of its remaining landlords and is
continuing to evaluate its remaining leases as part of its reorganization plan
process. The Company has addressed its general and administrative costs, and
these have already been reduced in part as a result of the downsizing of the
number of theatres operated and other management initiatives. The Company
completed all domestic theatre construction commitments prior to the Chapter 11
cases and has no remaining construction commitments to be financed.
As a result of the Bankruptcy Proceedings, substantially all of the Company's
pre-petition indebtedness, obligations and guarantees are stayed from collection
or action by creditors. No payments have been made to date with respect to
pre-petition claims, with the exception of the payment of pre-petition
obligations to film distributors as approved by the Bankruptcy Court. The
Company is operating its domestic theatre business in the ordinary course and is
paying all post-petition debts and liabilities on normal terms as they become
due. Pre-petition claims will be funded in accordance with the Company's plan of
reorganization.
Management's objective is to have a plan of reorganization confirmed prior to
the expiration of the DIP Facility on October 13, 2001 and believes that this
timing is reasonably likely. Management believes that cash from operations along
with exit financing, or asset sales proceeds, if required, will be available to
provide sufficient liquidity to allow the Company to continue as a going
concern. However, there can be no assurance of this. The Company is currently
preparing a plan of reorganization for presentation to its creditors. Until such
a plan of reorganization is confirmed by the Bankruptcy Court, there can be no
assurance that the Company will emerge from these reorganization proceedings,
and the effect of the terms and conditions of such a plan of reorganization on
the Company's business cannot be determined.
3. REORGANIZATION UNDER CHAPTER 11 AND LIABILITIES SUBJECT TO COMPROMISE
In the Chapter 11 cases, approximately $185.3 million of liabilities as of the
Filing Date are subject to compromise under a plan of reorganization to be voted
upon by the Company's creditors and shareholders and confirmed by the Bankruptcy
Court (the "Reorganization Plan"). Differences between liability amounts
estimated by the Company and claims filed by creditors will be investigated and
a final determination of the allowable claim will be made by the Bankruptcy
Court. These claims may also be subject to adjustment depending on the
determination of the validity and the value of the security held in respect of
certain claims. The ultimate amount and settlement terms for such liabilities
are subject to the Reorganization Plan and, accordingly, are not presently
determinable. The Company currently retains the exclusive right to file a plan
of reorganization until February 9, 2001; however, an extension of this date is
currently being requested through May 9, 2001 by motions now pending before the
Bankruptcy Court. If granted, this would allow the Company the exclusive right
to file a plan of reorganization until May 9, 2001 and to solicit acceptance of
a plan of reorganization until July 9, 2001, subject to any further extensions
as approved by the Bankruptcy Court.
Under the Bankruptcy Code, the Company may elect to assume or reject executory
pre-petition contracts, including real estate leases, subject to Bankruptcy
Court approval. A principal reason for the Company's Bankruptcy Proceedings was
to permit the Company to reject real estate leases that were or were expected to
become burdensome due to cash losses at these locations. Section 502(b)(6) of
the Bankruptcy Code provides that the amount that may be claimed by landlords
with respect to rejected real estate leases is limited to the greater of (a) one
year's rental obligations or (b) 15% of the total lease term obligations, not to
exceed three year's rental obligations (the "Section 502(b)(6) Claim"). This
limitation provides the Company with a far smaller lease termination liability
than would have been incurred if these leases had been terminated without the
protection of the Bankruptcy Code.
During the fourth quarter of 2000, the Company closed 55 theatres with 375
screens. A lease termination liability charge of approximately $20.0 million has
been recorded by the Company for 36 of the 55 closed theatres that were operated
by legal entities that filed for reorganization under Chapter 11. This provision
is based upon the Company's estimates of the landlords' Section 502(b)(6) Claim
for these theatre locations, based upon the assumption that these leases will be
rejected. The provision recorded in respect of the 36 leases noted above may be
subject to future adjustments, as previously discussed, based on claims filed by
the landlords and Bankruptcy Court
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actions. The Company cannot presently determine or reasonably estimate the
ultimate liability which may result from the filing of claims for any rejected
contracts or from additional leases which may be rejected in connection with
the Bankruptcy Proceedings.
Nineteen of these theatres which were located in Florida, Georgia, Louisiana,
Tennessee and Rhode Island were operated by subsidiaries that filed for
bankruptcy under Chapter 7. As a result, the Company did not provide for any
Section 502(b)(6) Claims for these locations during the fourth quarter of 2000
since the Company is not liable to the landlords of these locations under the
provisions of the Bankruptcy Code.
Liabilities Subject to Compromise
Certain claims against the Company in existence prior to the filing of petitions
under Chapter 11 of the Bankruptcy Code are stayed while the Company operates
its business as debtors-in-possession. These pre-petition claims are reflected
in the consolidated balance sheet as of October 31, 2000 as "Liabilities subject
to compromise." Liabilities subject to compromise consist of the following:
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(In thousands)
Revolving credit facility $ 44,600
Trade payables 23,074
Rent and rent related charges 14,720
Payroll compensation and related benefits 6,029
Self insurance 10,959
Deferred lease obligations 23,827
Post retirement health care benefits (see Note 19) 8,363
Lease terminations and restructure (see Notes 6 and 8) 34,375
Other 19,336
---------
$185,283
=========
As part of the first day orders granted by the Bankruptcy Court, the Company is
permitted to continue to operate its business in the ordinary course, which
includes ongoing payments to vendors, employees, and others for any
post-petition obligations. In addition, the Bankruptcy Court approved payment of
all of the Company's pre-petition film liability claims. These amounts were paid
one-third prior to the Company's fiscal year-end and two-thirds following the
Company's fiscal year-end with the final payments occurring during the week of
December 29, 2000. Certain other pre-petition amounts were also permitted to be
paid such as sales and trust fund taxes and workers' compensation claims.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Presentation
The consolidated financial statements include the accounts of GCC and all of its
majority-owned subsidiaries. Where GCC has the ability to exercise significant
influence over the operating and financial policies of companies in which GCC
has invested, those investments are accounted for under the equity method, and
GCC's share of the net earnings or losses of those companies is included under
either the caption "Equity losses in theatre affiliates" (for those investees
engaged in theatre operations) or "Investment (loss) income, net" (for those
investees engaged in non-theatre related operations) in the consolidated
statements of operations. These investments are included under either the
caption "Portfolio investments" or "Investments in international theatre
affiliates" in the consolidated balance sheets. Investments in international
theatre affiliates and other investments accounted for under the equity method
are reported on a one-month lag.
Other investments where the Company has less than a 20% interest in an investee
and which do not have readily-determinable fair values because of a lack of
quoted market prices, are carried at cost less impairment, if applicable. These
investments are also included under the caption "Portfolio investments" in the
consolidated balance sheets. Investments with readily-determinable fair values
are accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." These investments are included under the caption "Marketable equity
securities" in the consolidated balance sheets.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The plan of reorganization that is ultimately approved by the Bankruptcy Court
could materially change the amounts currently recorded in the consolidated
financial statements.
Cumulative Effect of Accounting Change
In the first quarter of 2000, the Company adopted Statement of Position ("SOP")
98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires that
start-up activities be expensed when incurred. The Company's practice had been
to capitalize lease costs incurred prior to the openings of theatres and
amortize the costs under accounting principles generally accepted in the United
States of America. The adoption of this new accounting pronouncement resulted in
a one-time non-cash charge to the Company's statements of operations for the
year ended October 31, 2000 of $4.7 million or $0.60 per diluted share.
Foreign Currency Translation
The Company's South American joint venture, which is recorded using the equity
method of accounting, uses the local currency as the functional currency and, as
such, translation adjustments are not included as part of the equity losses
recorded in the consolidated statements of operations; rather, they are included
as a component of "Accumulated other comprehensive (loss) income" in the
consolidated balance sheets.
30
31
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.
The Company's investment in GrandVision SA ("GrandVision") is traded on a public
exchange in euros. Accordingly, the Company has recorded both realized and
unrealized foreign currency translation gains relative to these securities.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three
months or less from the date of purchase. Cash equivalents are stated at cost
plus accrued interest, which approximates market value. The Company's policy is
to invest cash with financial institutions or in instruments that have
acceptable credit ratings and to limit the amount of credit exposure to any one
financial institution or issuer.
Marketable Equity Securities
Marketable equity securities are stated at fair value. Unrealized holding gains
or losses on trading securities are included in the consolidated statements of
operations under the caption "Investment (loss) income, net." Unrealized holding
gains and losses on available-for-sale securities are excluded from the
consolidated statements of operations and are included as a component of
shareholders' equity under the caption "Accumulated other comprehensive (loss)
income."
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization except impaired assets, which are stated at net realizable value.
Also included in property and equipment is the cost of certain
internally-developed software. These costs include external direct costs of
materials and services consumed as well as payroll and payroll-related costs for
employees who are directly associated with such projects. No such costs were
capitalized in 2000. Such amounts totaled approximately $2.0 million in 1999.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of 20 to 30 years for buildings and improvements and
3 to 20 years for equipment and fixtures. 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. When property and
equipment are retired or have been fully depreciated, the cost and the related
accumulated depreciation are eliminated from the respective accounts. Gains or
losses arising from dispositions of property and equipment are reported as
income or expense.
Stock-based Compensation
The Company follows the precepts set forth in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
its Common Stock incentive plan. In compliance with SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company has disclosed, in Note 16, the
required pro-forma effect on net loss and diluted loss per share had the Company
employed this statement.
Long-lived Assets
On an ongoing basis, the Company evaluates the carrying value of its long-lived
assets, including goodwill included in its investments accounted for under the
equity method. It relies on a number of factors, including operating results,
future anticipated cash flows, business plans and certain economic projections.
In addition, the Company considers non-financial data such as changes in the
operating environment, competitive information, market trends and business
relationships. As discussed in Notes 6 and 7, impairment charges have been
recorded in the consolidated financial statements.
Income Taxes
Income taxes are accounted for using the asset and liability method under which
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement
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carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes for a change in tax rates is recognized in income in
the period that includes the enactment date. No provision is made for United
States income taxes on the undistributed earnings of its foreign joint ventures
as it is the Company's intention to utilize those earnings in the foreign
operations for an indefinite period of time.
Revenues
Revenues are recognized when admission and concession proceeds are received at
the theatres. Revenues for other services are recognized at the time those
services are provided.
Film Rental Costs
Film rental costs are recognized as a percentage of admission revenue.
Net Loss Per Share
Basic loss per share is computed by dividing loss available to common
shareholders (the numerator) by the weighted average number of common shares
outstanding ("the denominator") for the period. Such outstanding shares are
adjusted for those shares that are contingently returnable. The computation of
diluted earnings per share is similar to basic earnings per share, except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential dilutive common shares had
been issued and restrictions on contingently returnable shares had been lifted.
October 31,
- -------------------------------------------------------------------------------------------------------
(In thousands except per share data) 2000 1999 1998
Net loss $ (135,552) $ (2,293) $ (41,562)
Determination of shares:
Weighted average number of
common shares outstanding 7,750 7,715 7,710
Dilutive effect of contingently returnable shares -- -- --
Net loss per share ("EPS"):
Basic $ (17.49) $ (0.30) $ (5.39)
Diluted $ (17.49) $ (0.30) $ (5.39)
In 2000, there were no common stock equivalents excluded from the computation of
diluted net loss per share. As a result of the losses incurred by the Company in
1999 and 1998, options to purchase 44,084 shares of common stock in 1999 and
46,153 shares of common stock in 1998 as well as 76,131 shares of contingently
returnable shares in 1999 were not included in the computation of diluted EPS in
1999 and 1998.
Significant Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management (i) to make estimates and assumptions that affect the
recorded amounts of assets and liabilities and (ii) to provide 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. In
the process of preparing its consolidated financial statements, the Company
estimates the appropriate carrying value of certain assets and liabilities which
are not readily apparent from other sources. Actual results could differ from
these estimates. The primary estimates underlying the Company's consolidated
financial statements include the estimated useful lives of fixed assets,
goodwill, impairment charges, lease termination reserves, deferred taxes,
accruals for pension and post-retirement benefits, insurance, liabilities
subject to compromise and other matters. Material changes in estimates are
summarized in Notes 2, 3 and 6. Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable under
the circumstances at the time such estimates are made.
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Recent Accounting Pronouncement
The Financial Accounting Standards Board recently issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, is required to be adopted by the Company in 2001. Management believes
that the effect of adopting this standard will not be material to the Company's
financial position or results of operations or cash flows.
Changes in Presentation
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
5. MARKETABLE EQUITY SECURITIES AND PORTFOLIO INVESTMENTS
Cumulative
Gross Pre-tax
Aggregate Unrealized
Accounting Percent of Carrying Holding
Investment as of October 31, 2000 Designation Ownership Value(a) Gains (Losses)(i)
- ----------------------------------------------------------------------------------------------------------------------
(In thousands except percentages)
Marketable Equity Securities
El Sitio, Inc. Available-for-sale(b)(f) 3.8% 4,871 (227)
GrandVision SA Available-for-sale(b) 0.1% 151 118
MotherNature.com Available-for-sale(b)(g) 4.5% 339 (159)
---------------------------------
Total marketable equity securities 5,361 (268)
Portfolio Investments
American Capital Access Equity Method(d) 23.8% 23,933 --
Fuelman Equity Method(d) 42.1% 15,525 --
Vanguard Cost Method(e) 15.0% 8,000 --
VeloCom Cost Method(e) 3.9% 20,700 --
---------------------------------
Total portfolio investments 68,158 --
---------------------------------
Total marketable equity securities
and portfolio investments $73,519 $(268)
=================================
Change
in Pre-tax
Unrealized
Holding
Gains (Losses)
Investment as of October 31, 2000 for the Year(i)
- ----------------------------------------------------------
(In thousands except percentages)
Marketable Equity Securities
El Sitio, Inc. (227)
GrandVision SA 146
MotherNature.com (159)
-----------
Total marketable equity securities (240)
Portfolio Investments
American Capital Access --
Fuelman --
Vanguard --
VeloCom --
-----------
Total portfolio investments --
-----------
Total marketable equity securities
and portfolio investments $(240)
===========
Cumulative
Gross Pre-tax
Aggregate Unrealized
Accounting Percent of Carrying Holding
Investment as of October 31, 1999 Designation Ownership Value(a) Gains (Losses)(i)
- ----------------------------------------------------------------------------------------------------------------------
(In thousands except percentages)
Marketable Equity Securities
Global TeleSystems, Inc. Available-for-sale(b) 1.9 $ 73,495 $52,140
PrimaCom AG
(formerly named Kabelmedia) Trading(c)(h) 3.3 25,092 --
GrandVision SA Available-for-sale(b) 1.6 4,369 (28)
----------------------------------
Total marketable equity securities 102,956 52,112
Portfolio Investments
American Capital Access Equity Method(d) 23.8 28,757 --
Fuelman Equity Method(d) 45.2 10,800 --
MotherNature.com Cost Method(e) 5.5 10,000 --
El Sitio Inc. Cost Method(e) 7.6 5,100 --
----------------------------------
Total portfolio investments 54,657 --
----------------------------------
Total marketable equity securities
and portfolio investments $157,613 $52,112
==================================
Change
in Pre-tax
Unrealized
Holding
Gains (Losses)
Investment as of October 31, 1999 for the Year(i)
- ----------------------------------------------------------
(In thousands except percentages)
Marketable Equity Securities
Global TeleSystems, Inc. $14,394
PrimaCom AG
(formerly named Kabelmedia) --
GrandVision SA 3,081
------------
Total marketable equity securities 17,475
Portfolio Investments
American Capital Access --
Fuelman --
MotherNature.com --
El Sitio Inc. --
------------
Total portfolio investments --
------------
Total marketable equity securities
and portfolio investments $17,475
============
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(a) Carrying values for public portfolio investments were determined based
on the share price of the securities traded on public markets as of the
last business day of the period. The carrying values of the non-public
portfolio investments were determined under either the equity or cost
method of accounting, less impairment, if any.
(b) Unrealized gains or losses on securities classified as
available-for-sale securities are recorded in the consolidated balance
sheets net of tax within the caption "Accumulated other comprehensive
(loss) income."
(c) Unrealized gains or losses on securities classified as trading
securities are recorded in the consolidated statements of operations
within the caption "Investment (loss) income, net."
(d) These investments are in non-public companies and are accounted for on
the equity method because the Company has a greater than 20% equity
interest in each.
(e) These investments are in non-public companies and are accounted for on
the cost method.
(f) El Sitio, Inc. became public in December, 1999, and this resulted in
its transfer from Portfolio Investments to Marketable Equity
Securities.
(g) MotherNature.com became public in December, 1999, and this resulted in
its transfer from Portfolio Investments to Marketable Equity
Securities.
(h) PrimaCom AG (formerly Kabelmedia) became public in February, 1999, and
this resulted in its transfer from Portfolio Investments to Marketable
Equity Securities.
(i) Pre-tax unrealized holding gains and losses apply only to marketable
equity securities.
Investment Activity - Marketable Equity Securities
El Sitio, Inc.
On July 6, 1999, the Company invested $5.1 million in El Sitio, a leading
Internet provider of global and country-specific content targeted to Spanish and
Portuguese speaking customers in Latin America. In December, 1999, El Sitio
completed an initial public offering and is currently traded on the NASDAQ under
the symbol "LCTO." The Company currently owns 1,456,756 shares of El Sitio. As a
result of this public offering, and in accordance with SFAS No. 115, the Company
reclassified its investment in El Sitio from portfolio investments to marketable
equity securities and recorded the investment at its fair value. The Company has
designated its investment in El Sitio as available-for-sale.
MotherNature.com
On May 9, 1999, the Company invested $10.0 million in MotherNature.com, a
Web-based retailer of vitamins, supplements and minerals. In December, 1999,
MotherNature.com completed an initial public offering and was traded on the
NASDAQ under the symbol "MTHR." As a result of this public offering, and in
accordance with SFAS 115, the Company reclassified its investment from portfolio
investments to marketable equity securities and recorded the investment at its
fair value. The Company designated its investment in MotherNature.com as
available-for-sale.
During the third quarter of 2000, the Company determined that its investment in
Mothernature.com had become permanently impaired and recorded a pre-tax charge
of $9.5 million to the consolidated statement of operations. As a result of the
marketable equity security's designation as available-for-sale, previous
declines in the investment's market value had been reflected in the Company's
consolidated balance sheet within the shareholders' equity section under the
caption "Accumulated other comprehensive (loss) income."
Global TeleSystems, Inc.
Global TeleSystems, Inc. ("GTS") is an operator of long distance and access
telecommunications networks and a provider of voice and data telecommunications
services to business customers and other telecommunications service providers in
Europe, the Commonwealth of Independent States and Asia.
In February 1998, GTS completed an initial public offering of its common stock,
which is traded on the New York Stock Exchange under the symbol "GTS." Under
SFAS No. 115, the GTS shares were split into two separate classifications within
marketable equity securities - available-for-sale securities and trading
securities. Unrealized holding gains on these securities in 1999 are shown in
the table above and have been recorded either in "Investment income (loss), net"
for the securities designated as trading or in "Accumulated other comprehensive
(loss) income" for the securities designated as available-for-sale. During 1999
all the GTS securities designated as "trading" and a portion of the GTS
securities designated as "available-for-sale" were sold. Realized gains on the
sale of GTS securities were
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determined on a specific identification basis and totaled $17.2 million, of
which $6.9 million had been previously recognized in the consolidated statements
of operations as an unrealized holding gain in 1998.
On May 21, 1999, the Company exercised stock options to purchase 26,000 shares
of GTS at a cost of $17.45 per share. These options were part of the Company's
original investment in GTS. These shares were designated as available-for-sale
securities.
During the fourth quarter of 2000, the Company sold its remaining holdings in
GTS, generating net proceeds of $18.4 million and a pre-tax realized loss of
$2.9 million. The cumulative net proceeds on the sale of the Company's holdings
in GTS through 2000 were $39.9 million, generating a pre-tax gain of $14.2
million.
PrimaCom AG (formerly Kabelmedia)
On December 30, 1998, Kabelmedia, the German cable television systems operator,
merged with another company and was renamed PrimaCom AG ("PrimaCom"). At the
time of the merger, Kabelmedia shareholders owned 47% of the new company and
GCC's ownership in the merged company was 4.3%. In February 1999, PrimaCom
successfully completed an initial public offering and is currently traded on the
German Neuer Markt under the symbol "PRC." As a result of this public offering,
and in accordance with SFAS No. 115, the Company reclassified this investment
from portfolio investments to marketable equity securities and designated the
shares as trading securities. Unrealized gains in 1999 of $14.7 million were
recorded in the consolidated statements of operations within the caption
"Investment (loss) income, net."
In the fourth quarter of 1999, the Company sold a portion of its PrimaCom
holdings, generating net proceeds of $8.1 million and a pre-tax realized gain
of $5.2 million.
During the first quarter of 2000, the Company sold the remaining 532,702 shares
of its investment in PrimaCom, which generated net proceeds of $33.1 million and
a pre-tax gain of $8.0 million.
GrandVision (SA)
During 2000, the Company sold 139,740 shares of its investment in GrandVision,
which generated net proceeds of $4.3 million and a realized pre-tax gain of
$133,000. All shares of GrandVision SA ("GrandVision"), an optical and photo
retailer, have been classified as "available-for-sale." Unrealized holding gains
and losses on these securities in 2000 and 1999 are shown in the table above and
were recorded in the consolidated balance sheets under the caption "Accumulated
other comprehensive (loss) income."
In the fourth quarter of 1999, the Company sold a portion of its GrandVision
holdings, generating net proceeds of $6.4 million and a realized loss of $2.9
million.
The shares of GrandVision had been received in connection with the Company's
sale of a portfolio investment in 1997. The agreement required that shares of
GrandVision be held back pending the resolution of certain purchase
contingencies. In the fourth quarter of 1999, pursuant to the agreement, certain
shares held in escrow were released to the Company. The value as of the date of
the release was recorded by the Company as a transaction-related gain of $2.1
million in "Investment (loss) income, net." These shares were subsequently
designated as available-for-sale securities.
Investment Activity - Portfolio Investments Accounted
for Under the Cost Method
On December 17, 1999, the Company invested $8.0 million in Vanguard Modular
Building Systems ("Vanguard"), a leading regional provider of relocateable
classrooms and other commercial modular space stations. In 2000, the Company
invested $20.7 million in VeloCom, Inc. ("VeloCom"), a facilities-based voice,
data and Internet provider in Brazil and Argentina. Because of the illiquidity
of these investments and the Company's less than 20% ownership, such investments
are carried at cost.
During the second quarter of 1999, Teletrac, a wireless location and two-way
messaging company, announced that it had retained the services of an investment
banking firm in its efforts to raise additional capital and to assist in
discussions with the holders of Teletrac's senior debt concerning a possible
restructuring of that debt. In addition, Teletrac disclosed that if it failed
35
36
to secure additional capital or alternative sources of liquidity, its ability to
continue current operations would be in jeopardy. Because Teletrac's
fund-raising efforts were not expected to yield sufficient new capital at an
acceptable valuation, GCC believed its investment had become impaired. As a
result, during the second quarter of 1999, the Company recorded a charge of $8.3
million to the consolidated statements of operations under the caption
"Investment (loss) income, net" to write-off its entire interest in Teletrac. On
June 9, 1999, Teletrac filed a petition for protection under Chapter 11 of the
U.S. Bankruptcy Code. This investment was subsequently sold for a nominal
amount.
Investment Activity - Portfolio Investments Accounted
for Under the Equity Method
On February 9, 1998, the Company completed an $11.0 million investment in
Fuelman, a leading provider of fleet management services. Through its
proprietary systems and network, Fuelman currently provides services to
commercial vehicle operators throughout the United States. In 2000, the Company
invested an additional $6.0 million in Fuelman bringing its total interest to
42.1% on a fully diluted basis. Fuelman's results of operations for the 12
months ended September 30, 2000 and 1999 are shown below.
On September 24, 1997, the Company invested $30.0 million in a newly-formed
financial guaranty insurance company, American Capital Access ("ACA"). During
the first quarter of 2000, ACA began to actively pursue raising additional
capital to maintain the long-term stability of its "A" rating. In May, 2000,
existing investors contributed $15.0 million as part of this effort (GCC's
portion was $5.0 million). ACA also retained an investment banking firm to help
raise an additional $45.0 million. As of January, 2001, those efforts have been
unsuccessful. As a result, on January 3, 2001, Standard & Poors Corporation
placed ACA on "Credit Watch" with negative implications. ACA continues to pursue
alternatives for new capital. However, because of the uncertainty of additional
capital being raised at an attractive valuation, GCC has reduced the carrying
value of its investment in ACA by $9.6 million.
Unaudited summarized financial information of the Company's investees accounted
for under the equity method for the periods ended September 30, 2000 and 1999
were as follows:
Unaudited American Capital Access Fuelman
- -----------------------------------------------------------------------------------------------------
(In thousands) 12 Months 12 Months 12 Months 12 Months
------------------------------------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Current assets $ 175,110 $ 153,356 $ 48,402 $ 32,370
Non-current assets 48,705 26,498 36,181 24,216
Current liabilities 9,786 7,734 22,431 15,276
Non-current liabilities 86,607 57,657 41,960 26,326
Redeemable preferred stock -- -- 30,488 18,448
Total revenues or premiums written 46,215 54,551 326,789 157,428
Loss before taxes (996) (1,155) (3,388) (163)
Net loss (996) (1,155) (2,067) (549)
Investment Activity - Summary of Results Shown in the
Consolidated Statements of Operations
In summary, investment (loss) income consisted of the following:
Years Ended October 31,
- -----------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
-------- -------- --------
Interest and dividend income $ 616 $ 241 $ 1,300
Unrealized (loss) gain on marketable equity securities (214) 14,690 (2,107)
Realized gain on marketable equity securities
and portfolio investments 3,711 14,047 --
Equity-losses in portfolio investments (1,480) (589) (571)
Loss on impairment of portfolio investments (19,119) (8,273) --
Management fee (3,348) -- --
----------------------------------------
Investment (loss) income, net $(19,834) $ 20,116 $ (1,378)
========================================
36
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Also included in investment (loss) income are charges of $2.0 million, $0.9
million and $8.8 million in 2000, 1999 and 1998, respectively, relating to
performance-based compensation earned by certain employees based on certain
investment events as defined in the GCC Investments, Inc. Incentive Pool Plan.
This compensation calculation is determined according to a plan adopted in 1996.
The amounts are paid in cash and/or restricted shares of GCC. The cash payments
are made over time, and the restricted shares vest over a period of time.
Compensation related to the GCC restricted shares is recognized pro-ratably over
the vesting period. This Incentive Pool Plan is applicable for gains on
investments in GTS, GrandVision and PrimaCom for both current and certain former
employees.
In August, 1999, the Company established a new 99% owned subsidiary, GCC
Investments, LLC ("LLC"). A portion of the investment portfolio - specifically
the investments in El Sitio, MotherNature.com, ACA and Fuelman, was transferred
into this entity at its fair value which approximated its current carrying
amount. The remaining 1% interest was purchased at fair value by Chestnut Hill
Capital Partners, LLC ("CHCP"), which is owned by the Company's former Chief
Investment Officer and other professional investment personnel formerly employed
by GCC Investments, Inc.
The LLC agreement specifies that profit sharing in the LLC will be between GCC
and CHCP in accordance with certain contractual calculations. CHCP also had a
management agreement with GCC Investments, LLC which specifies that CHCP is to
be reimbursed for certain expenses according to a specific formula. The amounts
payable or paid under this agreement were $3.3 million in 2000 and $0.7 million
in 1999. The management agreement was terminated in October, 2000, and the
remaining members of CHCP now provide services as employees of the Company.
6. IMPAIRMENT AND RESTRUCTURING
The components of impairment and restructuring charges in the consolidated
statements of operations were as follows:
Years Ended October 31,
- ----------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
Impairment of assets $ 34,237 $ 3,501 $ 28,614
Accrual of lease termination costs 6,874 3,588 39,572
Lease settlements less than amounts accrued -- (8,491) --
Changes in estimates of lease termination costs (3,467) (7,861) --
Restructuring 4 6,662 --
----------------------------------------
$ 37,648 $ (2,601) $ 68,186
========================================
Impairment of assets in 2000 includes a charge of $27.3 million to write-off
fixed assets of under performing theatres currently operating under Chapter 11
and a charge of $6.9 million for the impairment of assets of the Company's
domestic joint venture, due to the inability of the venture to obtain further
funds for required capital expenditures.
During the ordinary course of business, management has and will make
determinations that impact the recoverability of theatre assets. Such decisions
have impacted operations in 2000, 1999 and 1998. As part of the Company's annual
budgeting process, management has and will review the long-lived assets used in
the theatre business for impairment. This analysis has and will take place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management has and will
review internal management reports as well as monitor current and potential
future competition in its markets for indicators of impairment of individual
theatre assets. As a result of this analysis, management has and will determine
whether impairment has occurred, whether a write-down of the asset carrying
value to fair value is required and whether to abandon or continue to operate
the theatre. The impairment loss is measured as the amount by which the carrying
value of the asset exceeds the fair value, which is based on management's
estimates. The primary technique to determine fair value is to discount the
future cash flows of the theatre. There is considerable management judgement
necessary to determine the future cash flows of a theatre, and, accordingly,
actual results could vary significantly from such estimates.
Continued significant industry building of new megaplexes has caused the Company
to re-assess the value and utility of certain theatre locations through its
internal evaluation process described above. This increase in competition in
certain markets as a result of the opening of megaplexes by competitors, which
has tended to and is projected to draw audiences away from certain theatre
37
38
locations that the Company operates.
The accrual for lease termination costs of $6.9 million in 2000 represents a
charge related to the Company's guarantee of certain third party leases. The
amount of the lease termination costs accrued by the Company was determined in
accordance with Section 502(b)(6) of the Bankruptcy Code, which limits a
landlord's lease claim to the greater of one year's rental obligation or 15% of
the total lease term obligation, not to exceed three year's rental obligation.
The accrual recorded for these leases may be subject to future adjustments
based on the claims filed by the landlords and Bankruptcy Court actions. The
Company cannot presently determine or reasonably estimate the ultimate
liability, which may result from the filing of claims for any rejected
contracts or from additional leases, which may be rejected in connection with
Bankruptcy Proceedings. The impairment and restructuring was partially
offset by a reversal of previously accrued lease termination costs of
approximately $3.5 million.
In addition, the Company recorded in 2000 a post-retirement benefit charge of
$1.9 million, offset by a pension settlement gain of $1.9 million related to the
1999 special retirement program.
7. REORGANIZATION ITEMS
The Company incurred and recorded the following expenses directly associated
with the Bankruptcy Proceedings: (i) reorganization items of $28.9 million,
which included the write-off of the net book value of assets of $6.0 million of
the 55 theatres closed during the fourth quarter, (ii) lease termination costs
of $20.0 million, (iii) professional services related to the bankruptcy of $2.4
million, and (iv) severance of $0.5 million. The accrued lease termination costs
are for those 36 of the 55 closed theatres that were operated by subsidiaries
that filed for reorganization under Chapter 11 and have been closed. This
provision is based upon the Company's estimates of the landlords' claims under
Section 502(b)(6) of the Bankruptcy Code for these theatre locations, based upon
the assumption that these leases will be rejected. The provision recorded in
respect of the 36 leases noted above may be subject to future adjustments based
on claims filed by the landlords and Bankruptcy Court determinations. The
Company cannot presently determine or reasonably estimate the ultimate
liability, which may result from the filing of claims for any rejected
contracts, or from additional leases, which may be rejected in connection with
the Bankruptcy Proceedings.
Nineteen of the 55 closed theatres, which were located in Florida, Georgia,
Louisiana, Tennessee and Rhode Island were operated by subsidiaries that filed
for bankruptcy under Chapter 7. As a result, the Company did not provide for any
Section 502(b)(6) claims for these locations during the fourth quarter of 2000
since the Company is not liable to the landlords under the provisions of the
Bankruptcy Code.
8. ACCRUAL FOR LEASE TERMINATIONS AND RESTRUCTURE COSTS
The following is a tabular presentation of the reserves for lease termination
and restructure costs:
Reserve for
Reserve for Lease Personnel
Termination Costs Related Costs Total Reserve
- ----------------------------------------------------------------------------------------------------------------------
(In thousands)
Balance at November 1, 1999 $13,930 $1,547 $15,477
Cash payments in 2000:
Lease buyouts (6,403) -- (6,403)
Rent and other payments (709) (1,052) (1,761)
Changes in previously established reserve estimates (3,615) 164 (3,451)
Additional 2000 reserves 30,233 281 30,513
-----------------------------------------------
Balance at October 31, 2000 $33,436 $940 $34,375
===============================================
At October 31, 2000, the reserve for lease termination and restructure costs is
included in "Liabilities subject to compromise." (see Note 3)
38
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9. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at October 31
- ----------------------------------------------------------------------------------------------
(In thousands) 2000 1999
Cost:
Land $ 1,426 $ 1,234
Building and improvements 19,792 26,970
Leasehold improvements 83,739 104,837
Furniture and fixtures 85,697 111,646
------------------------
190,654 244,687
Less accumulated depreciation and amortization 86,573 135,334
------------------------
Net property and equipment $104,081 $109,353
========================
10. INVESTMENT IN INTERNATIONAL THEATRE AFFILIATES
The Company has equity-based investments in theatre operations in South America
which are joint ventures with unrelated third parties. These joint ventures are
accounted for by the Company under the equity method. The net assets of these
joint ventures appear in the balance sheet under the caption "Investment in
international theatre affiliates." The results of operations of these joint
ventures appear under the caption "Equity losses in theatre affiliates." (See
Note 21)
The Company purchased its interest in these joint ventures in September, 1997
for a cash purchase price of $36.3 million. The purchase price has been
allocated to assets acquired (primarily fixed assets) and liabilities assumed
based on their fair value at the date of acquisition and in accordance with the
purchase method of accounting. The excess of purchase price over net assets
acquired is being amortized by the Company over a 10-year period.
In October, 1999, the Company determined that there was a loss in value of its
Mexican investment that was other than temporary. Accordingly, it recorded in
"Equity losses in theatre affiliates" a charge of approximately $3.5 million
relating to this loss in value of the Mexican joint venture.
In May 2000, the Company sold its Mexican theatre investment for approximately
$14.3 million resulting in a charge of approximately $1.6 million relating to
its further loss in value. The Company received $7.5 million in cash proceeds
and a $6.75 million note due in installments over the next two years.
The Company's South American joint venture, Hoyts General Cinema South America
("HGCSA"), has a $50.0 million debt financing arrangement with two major
financial institutions to fund its operations in Argentina, which is secured by
a several guaranty of the joint venture's partners. There is currently no
availability of this financing beyond $28.0 million as the remaining funds were
not drawn prior to the expiration of the funding commitment on December 29,
2000. Under the several guaranty of the Argentina debt facility, the Company is
liable for 50% of the outstanding borrowings. At October 31, 2000, the Company's
portion of the outstanding borrowings under this facility that it guarantees was
approximately $14.0 million.
HGCSA has debt arrangements for a total of $21.0 million in debt financings to
fund its operations in Chile, which are secured by the several guaranty of the
partners. The Company is liable for 50% of the outstanding exposure. At October
31, 2000, the Company's portion of the outstanding exposure under these
facilities was approximately $10.5 million, which was comprised of $8.4 million
of outstanding borrowings and $2.1 million of outstanding guarantees. In respect
of these outstanding guarantees, the Company invested approximately $1.4 million
in a certificate of deposit, which is held as collateral for a portion of the
outstanding guarantees at October 31, 2000. This certificate of deposit is
included in other current assets in the consolidated balance sheets.
39
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11. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at October 31
- ----------------------------------------------------------------------------------------
(In thousands) 2000 1999
------- -------
Rent and related charges $ -- $16,352
Payroll and related benefits 1,234 4,204
Deal-related performance-based compensation -- 9,568
Insurance 131 12,207
Deferred income 17,240 18,364
Other 3,888 21,045
------------------------
$22,493 $81,740
========================
At October 31, 2000, certain other current liabilities are included in
liabilities subject to compromise in the consolidated balance sheets. (See
Note 3).
12. LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at October 31
- -----------------------------------------------------------------------------------------
(In thousands) 2000 1999
----- -------
Deferred lease obligations -- $23,664
Post-retirement health care benefits (see Note 19) -- 6,556
Other -- 6,077
---------------------
---------------------
$ -- $36,297
=====================
At October 31, 2000, the present value of the future minimum lease payments due
under capital lease obligations over the remaining term of the leases was $1.0
million.
The net book value of property under capital leases was $0.1 million at October
31, 2000 and $0.6 million at October 31, 1999.
At October 31, 2000, other long-term liabilities are included in liabilities
subject to compromise in the consolidated balance sheets (see Note 3).
13. RELATED-PARTY TRANSACTIONS
GCC was previously a 100%-owned subsidiary of Harcourt General, Inc. ("Harcourt
General"). Certain shareholders also function as officers of both companies and
have significant interests in both companies.
As a result of the 1993 spin-off of GCC, certain leases were transferred from
Harcourt General to GCC. Under an Amended and Restated Reimbursement and
Security Agreement ("Reimbursement and Security Agreement") dated January 26,
1999, GCC has agreed to indemnify Harcourt General from losses Harcourt General
could incur due to its secondary liability on theatre leases that were
transferred to GCC as part of the spin-off. In order to secure its obligations
under the Reimbursement and Security Agreement, GCC pledged all of the stock of
its theatre subsidiaries to Harcourt General. In connection with the Harcourt
General guarantee, the Company is charged a fee based on total commitments
outstanding. This fee totaled $555,000, $695,000 and $230,000 in 2000, 1999 and
1998, respectively. In addition, GCC is required to maintain certain financial
covenants under its Reimbursement and Security Agreement. Enforceability of
these covenants and other limitations are stayed in connection with the Chapter
11 proceedings.
Harcourt General provided certain management services to GCC. The fees for these
services, which totaled $150,000, $465,000 and $477,000 million in each of 2000,
1999 and 1998, respectively, were based on Harcourt General's costs. The
reduction in the amount paid in 2000 was a result of an agreement with Harcourt
General, which provided that no charges for services of Richard A. Smith and
Robert A. Smith would be incurred after April, 2000. Harcourt General's Chairman
and Chief Executive Officer also serves as the Chairman of the Company, and one
of Harcourt General's Presidents and Co-Chief Operating Officers served as
President and Chief Operating Officer of GCC until October 10, 2000. The fees
payable to Harcourt General were subject to the approval of a committee of
independent directors of GCC who are not affiliated with Harcourt General.
In addition, the Company subleases office space and a theatre location from
Harcourt General. The rent and rent-related expense associated with these
subleases totaled $1.2 million in 2000, 1999 and 1998.
40
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14. DEBTOR-IN-POSSESSION FINANCING
In connection with the Company's Chapter 11 filing, the Company entered into a
Debtor-in-Possession Credit Agreement on October 13, 2000 providing initial
financing of $25 million as of October 31, 2000 and as approved by the
Bankruptcy Court on November 8, 2000, final financing up to $45.0 million. The
DIP Facility expires at the earliest of the emergence of the Company from
Chapter 11 proceedings or October 13, 2001. At October 31, 2000, the Company had
outstanding borrowings under the DIP Facility of $7.9 million. The interest rate
on the DIP Facility is the greater of a participating bank's prime lending rate
plus 2.00% or the Federal Reserve Rate plus 0.50%. In addition, the Company is
required to pay a commitment fee of 0.5% per annum on the unused portion of the
DIP Facility in 2000.
Proceeds of the DIP Facility may be utilized for expenditures as outlined in the
approved DIP Facility budget. As a condition to the DIP Facility, the Company
has agreed to the following restrictions, which limit capital expenditures and
which prevent the Company from: (a) borrowing additional funds other than
through the DIP Facility; (b) entering into any new financial leasing
transactions; (c) making additional portfolio investments; (d) making any
distributions from the Company; and (e) making certain sales of portfolio
investments without the consent of the DIP Facility lenders. In addition, the
Company must maintain minimum operating earnings.
Given the restrictions contained in its DIP Facility, the Company (a) will not
enter into any new domestic theatre lease commitments; (b) will not make any new
portfolio investments; and (c) may utilize, in whole or in part, any new
proceeds received from the future sale of assets to prepay the DIP Facility.
The lenders under the DIP Facility have a "super priority" claim against the
assets of the Company and its subsidiaries. The Company is currently in
compliance with the DIP Facility covenants.
15. REVOLVING CREDIT AGREEMENT AND LETTERS OF CREDIT
As a result of the Chapter 11 cases, all outstanding borrowings under the
Company's revolving credit agreement have been included in "Liabilities subject
to compromise" at October 31, 2000 (See Note 2). At October 31, 2000 and 1999,
the Company had outstanding borrowings under its revolving credit agreement of
$44.6 million and $13.0 million, respectively. The Company was able to select a
floating interest rate based on the primary bank's base interest rate for up to
six months. The fixed rate interest rates are based on the Eurodollar rate plus
a margin that ranges from 0.625% to 1.25% based on the level of total debt to
cash flow earnings as defined in the agreement. As of October 31, 2000 and 1999,
the variable interest rate on the outstanding borrowings of the revolving credit
agreement was 10.0% and 6.7%, respectively. There is currently no availability
under the revolving credit facility.
At October 31, 2000 and 1999, the Company had outstanding standby letters of
credit totaling $6.7 million and $7.6 million, respectively.
Interest due and payable, as specified under the revolving credit agreement, is
also stayed during bankruptcy. Interest due contractually and not paid from the
date the Company filed Chapter 11 on October 11, 2000 to the end of the fiscal
year totaled $260,000. The Company has Bankruptcy Court approval to make monthly
adequate protection payments of $321,000, in respect of the revolving credit
agreement, beginning in November, 2000.
16. SHAREHOLDERS' EQUITY
Common Stock
Common Stock is entitled to dividends if declared by the Board of Directors, and
each share carries one vote. Holders of Common Stock have no cumulative voting,
redemption or preemptive rights.
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Common Stock Incentive Plan
The Company has a Common Stock incentive plan that provides for the granting of
stock options, stock appreciation rights, restricted stock or other stock-based
awards. Options outstanding at October 31, 2000 were granted at prices not less
than 100% of the fair market value on the date of original grant. These options
generally vest over five years and have maximum terms of 10 years and one day.
Options for 69,059, 86,131 shares and 66,143 shares were exercisable under all
option arrangements at October 31, 2000, 1999 and 1998, respectively. Under the
existing stock incentive plan, there were 407,329 and 465,214 shares available
for future grants at October 31, 2000 and 1999, respectively. Exercises in the
year ended October 31, 1998 took the form of both stock option exercises and
stock appreciation awards, the latter being permitted at the sole discretion of
the Company. All 2000 and 1999 exercises were in the form of stock option
exercises.
The following summarizes transactions under all stock option arrangements for
the years ended October 31, 2000, 1999 and 1998:
Weighted
Number Average
of Shares Per Share Option Price Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as of November 1, 1997 146,281 $15.81 -- $51.25 $30.28
Granted 36,192 41.94 -- 52.42 43.86
Exercised (25,839) 15.81 -- 35.00 23.93
Canceled (530) 25.50 -- 41.94 33.05
-----------------------------------------------------------------------------------------------
Outstanding as of October 31, 1998 156,104 15.81 -- 52.42 34.45
Granted 24,555 40.00 40.00
Exercised (9,801) 15.81 -- 35.00 23.64
Canceled (7,967) 25.50 -- 52.42 37.15
-----------------------------------------------------------------------------------------------
Outstanding as of October 31, 1999 162,891 15.81 -- 52.42 35.81
Granted 97,500 -- 28.75 28.75
Exercised (14,065) 15.81 -- 28.99 23.34
Canceled (56,201) 25.50 -- 52.54 36.01
-----------------------------------------------------------------------------------------------
Outstanding as of October 31, 2000 190,125 $15.81 -- $52.54 $33.05
===============================================================================================
The following summarizes information about all stock options outstanding at
October 31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------------------------
Weighted-Average
-----------------------------------------
Number Remaining Number Weighted
Outstanding Contractual Exercise Exercisable Average
Range of Exercise Prices at 10/31/00 Life (years) Price at 10/31/00 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
$15.01 - 20.00 1,529 1.1 $15.81 1,529 $15.81
$20.01 - 30.00 103,014 8.2 28.54 14,514 27.27
$30.01 - 40.00 60,497 6.0 36.32 37,083 35.24
$40.01 - 50.00 19,502 6.2 42.46 11,339 42.83
$50.01 - 52.42 5,583 5.6 52.00 4,594 51.91
--------------------- ---------------------
Total 190,125 69,059
===================== =====================
Had compensation cost for stock option grants issued during 2000, 1999 and 1998
been determined under the provisions of SFAS No. 123, the Company's net loss as
well as basic and diluted loss per share would have been as follows:
Years Ended October 31,
(In thousands except for per share amounts) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $(135,334) $(2,518) $(41,820)
Basic loss per share $ (17.46) $ (0.33) $ (5.42)
Diluted loss per share $ (17.46) $ (0.33) $ (5.42)
The pro-forma effect on net loss as well as basic and diluted loss per share for
2000, 1999 and 1998 is not representative of the pro-forma effect on net income
in future years because it does not take into consideration pro-forma
compensation expense related to grants made prior to 1996.
42
43
The fair value of each stock option granted in 2000, 1999 and 1998 under the
Company's plans was estimated on the date of the grant using the Black-Scholes
option-pricing model. The following weighted average assumptions were used to
value grants issued under the plans in 2000, 1999 and 1998:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Expected volatility 21.58% 24.62% 18.00%
Risk-free interest rates 6.23% 4.54% 5.88%
Expected life 7 years 7 years 7 years
Dividend payments None None None
The weighted average fair values per share of stock options granted during 2000,
1999 and 1998 were $11.81, $15.25 and $15.03, respectively.
Unearned Compensation
The Company's GCC Investments, Inc. Incentive Pool Plan provides for
performance-based compensation for certain employees based on certain investment
events. A portion of the performance-based compensation may be paid in
restricted shares, which vest over a period of time subsequent to the investment
event. The balance in unearned compensation represents the unvested portion of
the restricted stock award. Compensation expense related to the restricted
shares is charged to the consolidated statement of operations pro-ratably over
the vesting period or at the time the employee terminates their employment. Such
expense totaled approximately $1.6 million in 2000 and $0.6 million in 1999.
There was no expense in 1998.
17. RETIREMENT PLANS
GCC has a non-contributory defined benefit pension plan covering substantially
all full-time employees. GCC also sponsors an unfunded supplemental executive
retirement plan, which provides certain employees additional pension benefits.
Benefits under the plans are based on years of service and compensation prior to
retirement. When funding is required for the defined benefit plans, the policy
is to contribute amounts that are deductible for federal income tax purposes.
Pension plan assets consist primarily of equity and fixed income securities. The
components of the net periodic pension costs are as follows:
Years Ended October 31,
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Service cost $ 413 $ 433 $ 431
Interest cost 1,467 1,332 1,278
Expected return on plan assets (2,426) (2,483) (2,364)
Amortization of prior service 76 76 76
Recognized actuarial gains (529) (161) (190)
Amortization of transition asset (298) (298) (298)
---------------------------------------------------
Total (1,297) (1,101) (1,067)
Special termination benefit -- 4,284 --
Settlement gain on special termination benefits (1,924) -- --
---------------------------------------------------
Net pension (credit) charge $(3,221) $ 3,183 $(1,067)
===================================================
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The following table sets forth the change in the defined benefit plans' funded
status for the years ended October 31, 2000 and 1999:
2000 1999
Funded Unfunded Funded Unfunded
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year $19,268 1,284 $17,912 $2,047
Service cost 358 55 380 53
Interest cost -- 144 1,229 103
Plan amendments 1,323 183 -- --
Special termination benefit -- -- 4,284 --
Actuarial (gain) loss (294) 511 (3,666) (850)
Benefits paid (8,400) (287) (871) (69)
--------------------------------------------------------------------------
Benefit obligation, end of year 12,255 1,890 19,268 1,284
==========================================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year 29,459 -- 28,234 --
Actual return on plan assets 656 -- 2,096 --
Company contributions -- 287 -- 69
Benefits paid (8,400) (287) (871) (69)
--------------------------------------------------------------------------
Fair value of plan assets, end of year 21,715 -- 29,459 --
==========================================================================
Over (under) funded status 9,460 (1,890) 10,191 (1,284)
Unrecognized net transition asset -- -- (298) --
Unrecognized net actuarial gain (loss) (3,274) 219 (7,207) (287)
Unrecognized prior service cost 17 449 21 377
--------------------------------------------------------------------------
Net asset (liability) recognized
in the consolidated balance sheets $6,203 $(1,222) $2,707 $(1,194)
==========================================================================
The significant actuarial assumptions as of the year-end measurement dates were
as follows:
Years Ended October 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
Discount rate 8.0% 8.0% 7.0%
Rate of compensation increases 4.5% 4.5% 5.0%
Rate of return on plan assets 9.0% 9.0% 9.0%
In addition to the defined benefit plans, GCC has two defined contribution plans
for certain employees. The GCC Savings Plan permits employee contributions and
provides for certain matching contributions by the Company. The Company's
contributions in fiscal years 2000, 1999 and 1998 were $533,978, $508,432 and
$337,525, respectively. The GCC Employee Stock Ownership Plan ("ESOP") is
non-contributory.
18. COMMITMENTS AND CONTINGENCIES
Leases
GCC conducts the majority of its operations in leased premises under
noncancelable leases which typically have initial lease terms of 20 years. In
connection with the Bankruptcy Proceedings, all lease contracts, whether assumed
or rejected, are subject to Bankruptcy Court approval. Therefore, the
commitments shown below may not reflect actual future cash outlays.
These leases generally provide for the payment of fixed monthly rentals,
contingent rentals based on a percentage of revenue over a specified amount and
the payment of property taxes, common area maintenance, insurance and repairs.
At its option, GCC can renew a substantial portion of such leases, following the
initial lease term, for various periods up to an additional 20 years. Certain of
GCC's leases require periodic increased rentals. The rental costs on these
leases have been recognized on a straight-line basis and are included in
deferred lease obligations. Assuming
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renewal options are not exercised, the future minimum payments under
noncancelable operating leases as of October 31, 2000 were as follows:
Operating Leases
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
2001 $ 66,202
2002 65,021
2003 64,085
2004 65,267
2005 81,169
Thereafter 475,404
-------------------------
$817,148
=========================
Rent expense under noncancelable leases was as follows:
Years Ended October 31,
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum rentals $80,049 $73,401 $68,198
Percentage rentals based on revenues 2,354 3,096 3,049
------------------------------------------------------
$82,403 $76,497 $71,247
======================================================
On theatre locations assigned to third parties, GCC is secondarily liable for
certain lease commitments that extend through 2023 and totaled approximately
$58.8 million at October 31, 2000.
The Company has entered into $118.8 million of operating leases with a major
financial institution under a lease financing arrangement. The receivable due
from the financing institution at October 31, 1999 of $15.5 million was
reclassified to capital expenditures in 2000. The Company has Bankruptcy Court
approval to make monthly adequate protection payments of approximately $1.1
million, in respect of the lease financing arrangement.
Litigation
On October 11, 2000, the Company and 30 of its domestic subsidiaries filed to
reorganize under Chapter 11 of the United States Bankruptcy Code, and six of its
domestic subsidiaries filed for liquidation under Chapter 7 of the United States
Bankruptcy Code (See Notes 1, 2 and 3).
GCC is involved in various other suits and claims in the ordinary course of
business. Management does not believe that the disposition of such suits and
claims will have a material adverse effect upon the consolidated financial
position or continuing operations of the Company.
19. POST-RETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits for retired employees that are funded
as claims are incurred. Retirees and active employees hired prior to March 1,
1989 are eligible for these benefits if they meet certain service and minimum
age requirements. The Company paid $473,000, $358,000 and $271,000 during fiscal
2000, 1999 and 1998, respectively, for post-retirement health care benefit
claims.
Net post-retirement benefit costs are as follows:
Years Ended October 31,
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Service cost $ 7 $ 18 $ 25
Interest cost 475 311 300
Net amortization and deferral 104 (101) (168)
------------------------------------------------------
Net post-retirement benefit cost $586 $ 228 $ 157
======================================================
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The following table sets forth the funded status of the Company's
post-retirement benefit obligations and the amounts recognized in GCC's
consolidated balance sheets:
(In thousands) 2000 1999
------ ------
Change in benefit obligation:
Benefit obligation, beginning of year $ 4,170 $ 4,375
Service cost 7 18
Interest cost 475 311
Actuarial loss (gain) 104 (176)
Benefits paid (473) (358)
Special termination benefits 1,928 --
---------------------------------------
Benefit obligation, end of year 6,211 4,170
=======================================
Fair value of plan assets -- --
=======================================
Under funded status (6,211) (4,170)
Unrecognized net actuarial gain (2,152) (2,386)
---------------------------------------
Net liability recognized in the balance sheets $(8,363) $(6,556)
=======================================
The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 10% in fiscal 2000 and 12.0% in fiscal
1999, gradually declining to 5.0% in fiscal 2005. Measurement of the accumulated
post-retirement benefit obligation was based on an assumed 8.0% discount rate
for 2000, 8.0% for 1999 and 7.0% for 1998. If the health care cost trend rate
assumptions were increased by 1.0%, the accumulated post-retirement obligation
as of October 31, 2000 would be increased by $680,000. The effect of this change
on the service cost and interest cost would be an aggregate increase of $56,000.
20. INCOME TAX BENEFIT (PROVISION)
Income tax benefit (provision) was as follows:
Years Ended October 31,
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT
Federal $ (399) $ 8,666 $ 7,442
State (57) -- 1,042
--------------------------------------------------------------
(456) 8,666 8,484
DEFERRED
Federal (7,774) (6,245) 16,754
State (1,111) (892) 2,470
--------------------------------------------------------------
(8,885) (7,137) 19,224
--------------------------------------------------------------
$(9,341) $ 1,529 $27,708
==============================================================
GCC's effective income tax rate was 7.4% in 2000 and 40.0% in both 1999 and
1998. The differences between the statutory federal tax rate and the effective
tax rate for 2000 are due primarily to the recording of a valuation allowance.
The differences between the statutory federal tax rate and the effective tax
rates for 1999 and 1998 are due primarily to state income taxes.
Significant components of the Company's net deferred income tax liability
(asset) stated on a gross basis at October 31, were as follows:
(In thousands) 2000 1999
GROSS DEFERRED INCOME TAX ASSETS
Financial accruals and reserves $ 19,663 $20,591
Investment write downs 14,454 2,953
Impairment of theatre assets 12,590 12,902
Post-retirement health care benefits 3,345 2,661
Net operating loss carryforwards 20,975 1,114
Self insurance accruals 1,440 773
---------------------------------------
Total deferred tax assets 72,467 40,994
Valuation allowance (55,168) --
---------------------------------------
NET DEFERRED INCOME TAX ASSETS 17,299 40,994
GROSS DEFERRED INCOME TAX LIABILITIES
Basis difference in fixed assets 17,299 26,161
Unrealized gain on trading securities -- 5,948
Unrealized gain on available-for-sale securities -- 20,849
---------------------------------------
Total deferred income tax liabilities -- 52,958
---------------------------------------
Net deferred tax liability $ -- $11,964
=======================================
46
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The Company anticipates utilizing its deferred tax assets only to the extent of
its deferred tax liabilities. Accordingly, the Company has fully reserved all
remaining deferred tax assets, which it presently cannot utilize.
As of October 31, 2000, the Company has net operating loss carryforwards of
approximately $59.9 million, which will begin to expire in 2021.
21. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION
The Company has segmented its operations in a manner that reflects how its chief
operating decision maker reviews the results of the businesses that make up the
consolidated entity. The Company has identified three reportable segments: one
segment is the domestic theatre operation (which encompass all theatres in the
continental United States); the second segment includes the Company's joint
ventures in South America; and the final segment primarily includes all of the
activity related to the investment portfolio business and corporate
administration. This identification of segments emanates from management's
recognition that its investing activity in a variety of non-theatre related
activities is wholly separate from theatre operations, and its South American
operations are new theatre ventures in markets that are completely dissimilar to
the United States market. The other expenses segment primarily includes the
regional and home office administration. The Company evaluates both domestic and
international theatre performance and allocates resources based on earnings
before interest, taxes, depreciation and amortization. Information concerning
(loss) earnings before income taxes has also been provided so as to aid in the
reconciliation to the consolidated totals. The international theatre segment has
been reported in this footnote as if it were a fully-consolidated subsidiary
rather than under the equity method as it has been reported in the consolidated
financial statements because the chief operating decision maker evaluates
operations on this basis. The adjustment column is utilized to return the
international theatre segment to the equity method and eliminate intercompany
balances. Performance of the investment portfolio business is evaluated using
the same measures as are seen in the consolidated financial statements.
47
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TOTAL COMPANY
Year Ended October 31, 2000
---------------------------------------------------------------------------------------------
Domestic International Other Segment Consolidated
Theatres Theatres Operations Totals Adjustments Totals
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Revenues:
Admissions $ 237,093 $ 55,426 $-- $ 292,519 $ (55,426) $ 237,093
Concessions 105,056 17,528 -- 122,584 (17,528) 105,056
Other 15,893 4,107 -- 20,000 (4,107) 15,893
---------------------------------------------------------------------------------------------
Total revenues 358,042 77,061 -- 435,103 (77,061) 358,042
---------------------------------------------------------------------------------------------
(Loss) earnings before
interest, taxes, depreciation
and amortization (5,343) 12,542 (4,213) 2,986 (12,542) (9,556)
Depreciation and amortization 17,156 8,233 99 25,488 (8,233) 17,255
Disposition, impairment and
restructuring and reorganization (51,345) -- (14,515) (65,860) (65,860)
Net (loss) investment income 70 1,905 (19,904) (17,929) (1,905) (19,834)
Loss before income taxes (74,728) (2,417) (44,080) (121,225) (310) (121,535)
Total assets 177,304 116,583 74,035 367,922 (116,583) 251,339
Total capital expenditures 56,301 18,554 5,150 80,005 (18,554) 61,451
Year Ended October 31, 1999
---------------------------------------------------------------------------------------------
Domestic International Other Segment Consolidated
Theatres Theatres Operations Totals Adjustments Totals
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Revenues:
Admissions $ 255,752 $ 45,010 $-- $ 300,762 $ (45,010) $ 255,752
Concessions 115,093 14,577 -- 129,670 (14,577) 115,093
Other 15,305 2,595 -- 17,900 (2,595) 15,305
---------------------------------------------------------------------------------------------
Total revenues 386,150 62,182 -- 448,332 (62,182) 386,150
---------------------------------------------------------------------------------------------
Earnings (loss) before
interest, taxes, depreciation
and amortization 5,127 6,341 (7,246) 4,222 (6,341) (2,119)
Depreciation and amortization 16,071 6,870 185 23,126 (6,870) 16,256
Gain on impairment or
disposition of assets
and restructuring (4,718) -- -- (4,718) -- (4,718)
Net investment income 40 825 20,076 20,941 (825) 20,116
Earnings (loss)
before income taxes (6,637) (8,282) 9,163 (5,756) 1,934 (3,822)
Total assets 237,740 142,982 179,637 560,359 (184,752) 375,607
Total capital expenditures 18,123 33,507 2,844 54,474 (33,507) 20,967
Year Ended October 31, 1998
---------------------------------------------------------------------------------------------
Domestic International Other Segment Consolidated
Theatres Theatres Operations Totals Adjustments Totals
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Revenues:
Admissions $ 271,999 $ 24,483 $-- $ 296,482 $ (24,483) $ 271,999
Concessions 124,317 8,823 -- 133,140 (8,823) 124,317
Other 11,070 958 -- 12,028 (958) 11,070
---------------------------------------------------------------------------------------------
Total revenues 407,386 34,264 -- 441,650 (34,264) 407,386
---------------------------------------------------------------------------------------------
Earnings (loss) before
interest, taxes, depreciation
and amortization 17,234 4,435 (8,108) 13,561 (4,435) 9,126
Depreciation and amortization 18,987 3,906 193 23,086 (3,906) 19,180
Loss on impairment or
disposition of assets 56,844 -- -- 56,844 -- 56,844
Net investment income (loss) 50 (10) (956) (916) (462) (1,378)
Earnings (loss)
before income taxes (58,797) 24 (9,462) (68,235) (1,035) (69,270)
Total assets 269,192 103,670 157,529 530,391 (140,430) 389,961
Total capital expenditures 17,597 28,761 2,191 48,549 (28,761) 19,788
As a result of the Company's filing of a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, management no longer reviews
its domestic theatre operations in the segments of core market, other markets,
impaired theatres and other expenses. Below is a condensed operating statement
for 2000 that provides financial data of those theatres that were open at
October 31, 2000 and those theatres closed during the year.
48
49
GENERAL CINEMA THEATRES, INC.
Theatres Theatres
Open at Closed in Total
(In thousands) October 31, 2000 2000 Domestic
- ---------------------------------------------------------------------------------------------------
Revenues
Admissions $193,935 $ 43,158 $237,093
Concessions 82,847 22,209 105,056
Other 14,126 1,767 15,893
--------------------------------------------------------
290,908 67,134 358,042
--------------------------------------------------------
Costs and expenses
Film rentals 99,851 21,960 121,811
Concessions 14,346 4,395 18,741
Theatre operating expenses 154,445 51,358 205,803
--------------------------------------------------------
Theatre cash flow(1) $ 22,266 $(10,579) $ 11,687
--------------------------------------------------------
# of locations 78 64
# of screens 685 417
(1) Theatre cash flow is the domestic theatres' earnings (loss) before
interest, taxes, depreciation, amortization and without consideration of
general and administrative expenses.
22. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000
--------------------------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands except for per share amounts)
Revenues $ 97,863 $ 79,313 $108,631 $ 72,235 $ 358,042
Gross profit 7,683 846 8,849 (6,450) 10,928
Earnings (loss) before effect of accounting
change 1,909 (6,005) (10,077) (116,703) (130,876)
Cumulative effect of an accounting change,
net (2,806) -- -- (1,870) (4,676)
Net loss (897) (6,005) (10,077) (118,573)(1) (135,552)
Net loss per share
Basic
Earnings (loss) before effect of
accounting change 0.25 (0.77) (1.30) (15.06) (16.89)
Cumulative effect of an accounting
change, net (0.37) -- -- (0.24) (0.60)
Diluted (0.12) (0.77) (1.30) (15.30) (17.49)
Earnings (loss) before effect of
accounting change 0.25 (0.77) (1.30) (15.06) (16.89)
Cumulative effect of an accounting
change, net (0.37) -- -- (0.24) (0.60)
Diluted (0.12) (0.77) (1.30) (15.30) (17.49)
1999
--------------------------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands except for per share amounts)
Revenues $104,398 $ 74,216 $115,082 $ 92,454 $ 386,150
Gross profit 9,537 200 11,479 6,049 27,265
Net earnings (loss) 1,417 (2,921) 3,788 (4,577) (2,293)
Net earnings (loss) per share
Basic $ 0.18 $ (0.38) $ 0.49 $ (0.59) $ (0.30)
Diluted $ 0.18 $ (0.38) $ 0.49 $ (0.59) $ (0.30)
(1) The net loss in the fourth quarter includes a charge for restructuring and
reorganization of $70.0 million and an impairment charge of $9.6 million
(See Notes 6 and 7).
23. SUBSEQUENT EVENT
On November 30, 2000, MotherNature.com's shareholders approved a plan of
complete liquidation and dissolution. The company is proceeding with the sale of
all of its assets, and thereafter intends to make distributions of liquidation
proceeds to its shareholders. Because of uncertainties as to the precise net
realizable value of assets and the ultimate settlement amount of liabilities, it
is impossible to predict with certainty the aggregate net values that will
ultimately be distributed to shareholders. However, management believes based
upon information available from MotherNature.com management, that the Company
could, over time, receive proceeds from liquidation of approximately $1.00 per
share. An initial distribution of liquidation proceeds of $0.6 million ($0.85
per share) was received by GCC in the first quarter of 2001.
49
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
GC Companies, Inc., Debtor-in Possession
Chestnut Hill, Massachusetts
We have audited the accompanying consolidated balance sheets of GC Companies,
Inc. and subsidiaries, Debtors-in-Possession (the "Company"), as of October 31,
2000 and 1999, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended October 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 present fairly, in all
material respects, the financial position of GC Companies, Inc. and subsidiaries
as of October 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended October 31, 2000, in
conformity with accounting principles generally accepted in the United States
of America.
As discussed in Note 2 to the consolidated financial statements, the Company and
certain of its subsidiaries filed petitions to reorganize under Chapter 11 of
the United States Bankruptcy Code. The accompanying consolidated financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such financial statements do not purport
to show (a) as to assets, their realizable value on a liquidation basis or
their availability to satisfy liabilities; (b) as to pre-petition liabilities,
the amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to shareholder accounts, the effect of any changes
that may be made in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in its business.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for costs of start-up activities to conform
with the American Institute of Certified Public Accountants Statement of
Position 98-5.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced significant
losses from operations. On October 11, 2000, the Company and certain of its
subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the
United States Bankruptcy Code. The Company is currently preparing its plan of
reorganization, which includes the restructuring of certain of its financial
obligations. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans concerning these matters are
also discussed in Note 2 to the consolidated financial statements. The
consolidated financial statements do not include adjustments that might result
from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
January 26, 2001
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Below are the name, age and principal occupations for each current director of
the Company.
RICHARD A. SMITH - 76 - Director since 1993. Chairman of the Company since 1993;
Chairman and Chief Executive Officer of the Company from 1993 until October
2000; President of the Company from 1993 until November 1995; Chairman of
Harcourt General, Inc. ("Harcourt General") and of The Neiman Marcus Group,
Inc., ("NMG"); Chief Executive Officer of Harcourt General (until November 1999)
and of NMG (until December 1998) and since January 15, 1997 and prior to
December 1991; Director of NMG. Mr. Smith is the father-in-law of John G.
Berylson, Senior Vice President and former Chief Investment Officer of the
Company.
PETER C. READ - 64 - Director since 1994. Currently active in consulting,
venture capital and civic and charitable matters; Executive Vice President of
The First National Bank of Boston until his retirement in September 1992;
Director of Granite State Bank.
FRANCIS E. SUTHERBY - 68 - Director since 1993. Partner of Deloitte & Touche
LLP, the independent auditors of the Company, from 1968 until his retirement in
May 1992.
EXECUTIVE OFFICERS
Below are the name, age and principal occupations for the last five years of
each current executive officer of the Company. All such persons have been
elected to serve until the next annual election of officers and their successors
are elected or until their earlier resignation or removal.
G. GAIL EDWARDS - 45 - President, Chief Operating Officer, Chief Financial
Officer and Treasurer of the Company since October 2000; Vice President, Chief
Financial Officer and Treasurer of the Company from July 1996 to October 2000;
Vice President and Treasurer of Delaware North Companies, Incorporated, a
private holding company, prior thereto.
FRANK T. STRYJEWSKI - 44 - President and Chief Operating Officer of General
Cinema Theatres Inc. since September 1999. Executive Vice President and Chief
Operating Officer from November 1998 to September 1999. Senior Vice President,
operations from 1996 to November 1998; Senior Vice President of Operations for
the South Division of AMC Entertainment, Inc. from 1994 to 1996.
JOHN G. BERYLSON - 47 - Senior Vice President and Chief Investment Officer of
the Company since 1993 until October 10, 2000; Managing Director of Advent
International Financial Services, a venture capital and financial services firm,
prior thereto. Mr. Berylson is the son-in-law of Richard A. Smith, Chairman of
the Company.
PHILIP J. SZABLA - 46 - Vice President, General Counsel and Secretary of the
Company since December 1996; Member of the law firm of Albrecht, Maguire,
Heffern & Gregg, P.C. prior thereto.
LOUIS E. CASAVANT - 45 - Vice President and Corporate Controller of the Company
since December 1998 and Corporate Controller prior thereto; Controller of Finast
Supermarkets from 1994 to 1997; Controller of Childcraft, Inc. from 1992 to
1994.
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides information on the compensation provided for
services rendered to the Company during fiscal 2000, 1999 and 1998 by the
Company's Chief Executive Officer, President, Chief Operating Officer, and the
other executive officers of the Company at the end of fiscal 2000.
Annual Compensation Long Term Compensation
------------------------------------ ----------------------------------------
Awards Payouts
----------------------------- ---------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Fiscal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position Year ($) ($)(2) ($)(3) ($)(4) (#) ($)(5) ($)(6)
- ------------------------ ------ -------- -------- ------------ ----------- ------------ -------- ------------
Richard A. Smith, 2000 -- -- -- -- -- -- --
Chairman (President 1999 -- -- -- -- -- -- --
until November 1998 -- -- -- -- -- -- --
1995 and Chief
Executive Officer
until October 10, 2000)(1)
Robert A. Smith 2000 -- -- -- -- -- -- --
President and Chief 1999 -- -- -- -- -- -- --
Operating Officer until 1998 -- -- -- -- -- -- --
October 10, 2000(1)
G. Gail Edwards 2000 $327,500 $175,000 $350,000(7) -- 16,000 -- $131,310
President, Chief Operating 1999 $270,000 $162,000 -- -- 3,553 -- $ 13,753
Officer, Chief Financial 1998 $270,000 $135,000 -- -- 3,992 -- $ 11,114
Officer and Treasurer
Frank T. Stryjewski 2000 $300,000 $ 60,000 -- -- 16,000 -- $ 12,442
President of General 1999 $256,538 -- $100,000(8) -- 5,000 -- $ 9,716
Cinema Theatres, Inc. 1998 $250,000 $ 15,750 -- -- 1,070 -- $ 8,841
John G. Berylson 2000 $169,231 -- $435,558(10) $ 319,978 -- $2,559,468 $ 12,417
Senior Vice President and 1999 $369,337 $247,500 -- -- 4,441 $1,536,749 $ 62,485
Chief Investment Officer 1998 $337,500 $168,750 -- $1,602,168 3,530 $ 164,852 $ 21,722
until October 10, 2000(9)
Philip J. Szabla 2000 $236,346 $100,000 $250,000(11) -- 6,500 -- $ 66,176
Vice President and 1999 $205,000 $ 65,600 -- -- 2,000 -- $ 9,835
General Counsel 1998 $190,000 $ 76,000 -- -- 1,647 -- $ 5,771
(1) Harcourt General, Inc. ("Harcourt General") provided the services of
Richard A. Smith as Chairman and Chief Executive Officer of the Company, and
Robert A. Smith as President and Chief Operating Officer of the Company through
October 10, 2000. The payment of fees to Harcourt General for these services is
subject to the approval of the Special Review Committee, a committee of the
Company's Board of Directors consisting solely of directors who are not
affiliated with Harcourt General. Richard A. Smith and Robert A. Smith receive
all of their cash and non-cash compensation from Harcourt General. Of the
amounts paid by the Company to Harcourt General for fiscal 2000, 1999 and 1998,
approximately $65,433, $210,048 and $228,416, respectively, were attributable to
Richard A. Smith's services, and approximately $76,812, $244,985 and $227,488,
respectively, were attributable to Robert A. Smith's services. The reduction in
the amount paid in 2000 is as a result of an agreement with Harcourt General,
which provided that no charges for the services of Richard or Robert Smith were
incurred for services after April, 2000. These amounts include costs related to
their base compensation, bonus and benefits, all of which are direct obligations
of Harcourt General. Richard A. Smith resigned as Chief Executive Officer, and
Robert A. Smith resigned as President and Chief Operating Officer on October 10,
2000.
(2) Bonus payments are reported with respect to the year in which the
related services were performed.
(3) No disclosure regarding items included in this category is required
unless the amount in any year exceeds the lesser of $50,000 or 10% of the annual
salary and bonus for the named executive officer.
(4) Value is calculated by multiplying the number of shares awarded by the
closing price of the Common Stock on the New York Stock Exchange on the last
date of the fiscal quarter in which the related services were performed. In
general, twenty percent of an award of restricted Common Stock
52
53
are freed from the restrictions on transfer each year, commencing one year after
the date of grant, provided that the recipient continues to be employed by the
Company on the anniversary date of the grant. Holders of restricted stock are
entitled to vote their restricted shares.
(5) The long term incentive plan ("LTIP") payout reported in this category
with respect to Mr. Berylson for fiscal 2000 includes cash portions of Mr.
Berylson's share of incentive pool payment relating to the Company's investment
activity in accordance with the terms of the GCC Investments, Inc. Incentive
Pool Plan (the "Pool Plan"). Of the Pool Plan awards, 70% is payable in cash in
three equal installments over three years, and 30% is paid in restricted stock
at the time of the award which vests over the succeeding five years. Mr.
Berylson received $1,246,130, which is the second cash installment of a total
$5,340,559 award relating to the initial public offering of Global TeleSystems,
Inc. in fiscal 1998, plus interest of $97,207. Mr. Berylson also received
$1,010,447 representing the first two installments of a total $1,729,289 award
relating to the gain from the sale of PrimaCom plus interest of $12,471. Mr.
Berylson received $37,750 representing the last installment due from the share
exchange for GrandVision, plus interest of $6,575. Mr. Berylson received
$126,902 plus interest of $21,986, representing the last installment of a
$380,705 investment banking fee relating to the acquisition of international
theatre assets, which fee is payable in cash in three equal installments over
two years. In connection with the Global TeleSystems and PrimaCom awards, a
total of 9,399 restricted shares were awarded in fiscal 2000, which had a value
of $2.38 per share or $22,370 on October 31, 2000.
(6) The items accounted for in this category include the value of allocated
ESOP shares, the cost to the Company of matching contributions under the Key
Employee Deferred Compensation Plan and life insurance premiums. For fiscal
2000, such amounts for each of the named executive officers other than Richard
A. Smith and Robert A. Smith were, respectively, as follows: Mr. Berylson -- $0,
$11,856 and $561; and Ms. Edwards -- $0, $13,583 and $1,141; Mr. Stryjewski --
$0, $11,389 and $1,053; and Mr. Szabla - $0, $8,337 and $825. In addition,
pursuant to their agreements with the Company, Ms. Edwards and Mr. Szabla
received payment in respect of their SERP benefit of $116,586 and $57,014,
respectively. In August, 2000, the Company's Board of Directors terminated the
Company's Key Employee Deferred Compensation Plan (the "Deferred Comp Plan")
which allowed key executives to defer receipt of up to 15% of base salary
annually. As a result, current participants received payment of their account
balances as of August 31, 2000 as follows: Ms. Edwards - $198,099; Mr.
Stryjewski - $104,346; Mr. Berylson - $578,848; and Mr. Szabla - $86,773. These
amounts included employee contributions as follows: Ms. Edwards - $114,550; Mr.
Stryhewski - $59,390; Mr. Berylson - $291,933; and Mr. Szabla - $54,954 with the
remaining amount paid representing Company matching contributions of the current
and prior years and interest earned on balances.
(7) Represents a retention payment pursuant to Ms. Edward's 1999 agreement
with the Company.
(8) Represents a retention payment to Mr. Stryjewski upon his promotion to
President of General Cinema Theatres, Inc. in September, 1999.
(9) Mr. Berylson resigned as Chief Investment Officer of the Company on
October 10, 2000. He remains President of GCC Investments, Inc.
(10) Represents Mr. Berylson's share of management fees paid to Chestnut
Hill Capital Partners under a management agreement with the Company. This
management agreement was terminated on October 10, 2000.
(11) Represents a retention payment pursuant to Mr. Szabla's 1999 agreement
with the Company.
Pension Plans
The Company maintains a funded, qualified pension plan known as the GC
Companies, Inc. Retirement Plan (the "Retirement Plan"). Non-union employees of
the Company who have reached the age of 21 and completed one year of service
with 1,000 or more hours participate in the Retirement Plan, which pays benefits
upon retirement or termination of employment by reason of disability. Benefits
under the Retirement Plan become fully vested after five years of service with
the Company.
The Company also maintains a Supplemental Executive Retirement Plan (the
"SERP"). The SERP is an unfunded, non-qualified plan under which benefits are
paid to certain employees following their retirement from the Company from the
Company's general assets to supplement Retirement Plan
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54
benefits. Employees with an annual base salary at least equal to a self
adjusting minimum at the time of initial participation ($170,000 as of January
21, 2000) are eligible to participate in the SERP. Benefits under the SERP
become fully vested after five years of service with the Company. Former
Harcourt General employees who became employees of the Company have been given
full credit under the SERP for their service with Harcourt General. At normal
retirement age, a participant with 25 or more years of service is entitled to
payments under the SERP sufficient to bring his or her combined annual benefit
from the Retirement Plan and the SERP, up to 50% of the participant's highest 60
month average of annual pensionable earnings, less 60% of his or her estimated
annual primary Social Security benefit. If the participant has fewer than 25
years of service or retired before age 62, the combined benefit is reduced. In
computing the combined benefit, "pensionable earnings" means base salary,
including any salary which may have been deferred.
The following table shows the estimated annual pension benefits payable to
employees in various compensation and years of service categories. The estimated
benefits apply to an employee retiring at age 65 in 2000 who elects to receive
his or her benefit in the form of a straight life annuity. These benefits
include amounts attributable to both the Retirement Plan and the SERP, in
aggregate, and exclude the impact of any retirement benefits that might be
received from Social Security.
Estimated Aggregate Annual Retirement Benefits
Under the Retirement Plan and the SERP (1)
Total Years of Service
Average ---------------------------------------------------
Pensionable 25
Earnings 5 10 15 20 or more
- -------------- - -- -- -- -------
$100,000............... $10,000 $ 20,000 $ 30,000 $ 40,000 $ 50,000
200,000............... 20,000 40,000 60,000 80,000 100,000
300,000............... 30,000 60,000 90,000 120,000 150,000
400,000............... 40,000 80,000 120,000 160,000 200,000
500,000............... 50,000 100,000 150,000 200,000 250,000
(1) The amounts actually payable will be lower than the amounts shown
above, since the above amounts will be reduced by 60% of the participant's
estimated Social Security benefit.
The following table shows the pensionable earnings and credited years of
service for the executive officers named in the Summary Compensation Table as of
October 31, 2000 and years of service creditable at age 65. Credited service may
not exceed 25 years for purpose of calculating retirement benefits under any of
the Company's retirement plans. Richard A. Smith and Robert A. Smith do not
participate in the Retirement Plan or the SERP.
Pensionable Credited Years of Service
Earnings -------------------------
for Year Ended at at
Name October 31, 1999 October 31, 2000 Age 65
---- ---------------- ---------------- ------
Ms. Edwards.............. $ 327,500 6 25
Mr. Stryjewski........... $ 300,000 4 25
Mr. Berylson............. $ 168,631 7 25
Mr. Szabla............... $ 236,346 4 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 22, 2001 (except as
noted in footnotes 4, 5 and 6 below) with respect to the beneficial ownership of
the Company's Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of the Company's Common
Stock, (ii) each executive officer named in the Summary Compensation Table,
(iii) each director of the Company, and (iv) all current executive officers and
directors as a group.
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Shares of Common
Stock
NAME AND ADDRESS Beneficially Owned
of Beneficial Owner Number Percent
------------------- ----------- ----------
Smith Family Group(1)(2)(3) .................... 2,277,929 29.09%
c/o Richard A. Smith
GC Companies, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Richard A. Smith(2)(3) ......................... 1,468,614 18.75%
c/o GC Companies, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Nancy L. Marks(2)(3) ........................... 1,034,734 13.21%
c/o GC Companies, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Gabelli Funds, Inc.(4) ......................... 1,984,050 25.34%
One Corporate Center
Rye, NY 10580
The Baupost Group, L.L.C. (5) .................. 837,000 10.69%
44 Brattle Street
Cambridge, MA 02138
Dimensional Fund Advisors, Inc.(6) ............. 453,900 5.80%
1299 Ocean Avenue,
11th Floor
Santa Monica, CA 90401
Peter C. Read(7) ............................... 4,003 *
Francis E. Sutherby(7) ......................... 3,527 *
John G. Berylson(1)(2)(3)(8) ................... 214,988 2.75%
G. Gail Edwards(1) ............................. 11,318 *
Frank T. Stryjewski(1) ......................... 7,484 *
Philip J. Szabla (1) ........................... 4,718 *
All current directors and officers as a group (8
persons)(1)(2)(3)(7)(8)(9) ................... 1,716,382 21.92
- ----------
* Less than 1%
(1) The number of shares of Common Stock reported in the table for the
executive officers of the Company individually and as a group includes
shares allocated to each executive officer's account under the Company's
Employee Stock Ownership Plan ("ESOP"), as to which the officers share
voting power with the trustee of the ESOP. The number of shares is as
follows: John G. Berylson -- 55; G. Gail Edwards -- 30; Frank T.
Stryjewski -- 42, Philip J. Szabla - 30, and all current executive
officers as a group -- 187. Except as set forth in the preceding
sentence or in the following footnotes, each stockholder referred to
above has sole voting and investment power with respect to the shares
listed. The number of shares reported in the table also includes shares
of Common Stock subject to options exercisable within 60 days of January
22, 2001 as follows: John G. Berylson -- 12,491; G. Gail Edwards --
11,288; Frank T. Stryjewski -- 7,442; Philip J. Szabla - 4,688; and all
current executive officers as a group -- 37,609.
(2) Certain of the shares included in the table have been counted more than
once because of certain rules and regulations of the Securities and
Exchange Commission ("SEC"). The total number of shares owned by, or for
the benefit of, Richard A. Smith, Nancy L. Marks and members of their
families is as shown for the "Smith Family Group". See Note 3. Mr. Smith
and Mrs. Marks are "control" persons of the Company within the meaning
of the rules and regulations of the SEC.
(3) The Smith Family Group includes Richard A. Smith, Chairman of the
Company; Nancy L. Marks, Richard A. Smith's sister; Robert A. Smith,
former President and Chief Operating Officer of the Company and son of
Richard A. Smith; John G. Berylson, President of GCC Investments, Inc.,
a subsidiary of the Company, who is Richard A. Smith's son-in-law; other
members of their families; and various Smith family corporations, trusts
and charitable foundations. Members of
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the Smith Family Group possess sole or shared voting power over all of
the shares shown in the table as being beneficially owned by the Smith
Family Group.
Certain members of the Smith Family Group have filed a Schedule 13D
dated December 15, 1993 (the "Smith Family Group 13D") with the SEC. The
Smith Family Group 13D discloses that certain members of the Smith
Family Group have executed the "Smith-Lurie/Marks Family Stockholders'
Agreement Re GC Companies, Inc." dated December 15, 1993, as amended and
supplemented (the "Stockholders' Agreement"). The Stockholders'
Agreement imposes obligations on members of the Smith Family Group prior
to disposing of their shares of Common Stock of the Company. According
to the Smith Family Group 13D, not all of the shares of Common Stock
owned beneficially by the members of the Smith Family Group are subject
to the Stockholders' Agreement. Currently, 1,801,432 shares of Common
Stock are subject to the terms of the Stockholders' Agreement.
(4) The information reported is based on an amendment to Schedule 13D dated
November 27, 2000 filed with the SEC by the Gabelli Funds, Inc. and its
affiliates (collectively, the "Gabelli Affiliates"). The Gabelli
Affiliates have sole investment power over 1,984,050 and sole voting
power over 1,974,050 of such shares.
(5) The information reported is based on a Schedule 13G dated December 11,
2000 filed with the SEC by The Baupost Group, L.L.C. and its affiliates
(collectively, the "Baupost Affiliates"). The Baupost Affiliates have
sole investment power and sole voting power over all such shares.
(6) The information reported is based upon a Schedule 13G dated February 4,
2000 filed with the SEC by Dimensional Fund Advisors, Inc.
("Dimensional") and subsequent information provided by Dimensional to
the Company. Dimensional has sole investment power and sole voting power
over all of such shares.
(7) Messrs. Read and Sutherby hold, respectively 3,503 and 3,527 Common
Stock based units which are included in the table. These individuals do
not have voting or dispositive power with respect to these Common Stock
based units, which were received in lieu of the payment of directors'
fees.
(8) Includes 94,462 shares held by Mr. Berylson's wife, 2,219 shares held by
Mr. Berylson's daughter, 16,000 shares held in an insurance trust for
the benefit of Mr. Berylson's wife, 42,481 shares held by Mr. Berylson
as a trustee, and 4,438 shares held as guardian for his children, as to
which Mr. Berylson disclaims beneficial ownership. Also includes 42,401
shares of restricted stock over which Mr. Berylson has voting, but not
investment power. Mr. Berylson, a member of the Smith Family Group, is
the son-in-law of Richard A. Smith, Chairman of the Company.
Option Grants in Last Fiscal Year
The following table provides information regarding options granted in
November, 1999 under the Company's 1993 Equity Incentive Plan during the fiscal
year ended October 31, 2000 to the executive officers named in the Summary
Compensation Table.
Individual Grants(1)
--------------------------------------------------------- Potential Realizable
Value at Assumed
Number of Annual
Securities Rates of Stock Price
Underlying % of Total Appreciation for
Options Options Granted Exercise or Option Term(3)
Granted to Employees Base Price Expiration --------------------
Name (#)(1) in Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
- ------------------- ----------- ------------------ ------------ ------------ ---------- ---------
Richard A. Smith(4)...... -- -- -- -- -- --
Robert A. Smith (4)...... -- -- -- -- -- --
G. Gail Edwards.......... 16,000 16.41% $28.75 11-19-09 $ 289,292 $1,483,469
Frank T. Stryjewski...... 16,000 16.41% $28.75 11-19-09 $ 289,292 $1,483,469
John G. Berylson......... -- -- -- -- -- --
Philip J. Szabla......... 6,500 6.67% $28.75 11-19-09 $ 117,525 $ 602,659
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 2000. The option grants listed are non-qualified stock options
having a term of 10 years and one day; they become exercisable at the rate
of 20% on each of the first five anniversary dates of the
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grant.
(2) The options reflected in this table were granted at not less than fair
market value measured by the closing price of the Common Stock on the New
York Stock Exchange on the date of grant.
(3) These potential realizable values are based on assumed rates of appreciation
required by applicable regulations of the Securities and Exchange
Commission. However, based upon the closing price of the Company's Common
Stock on October 31, 2000, these options have no value.
(4) Richard A. Smith and Robert A. Smith did not participate in the Company's
1993 Equity Incentive Plan.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
The following table provides information regarding stock options exercised
during fiscal 2000 and the number and value of stock options held at October 31,
2000 by the executive officers named in the Summary Compensation Table.
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs In-the-Money
(#)(3) Options ($)
------------- --------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable(1)
- --------------------- --------------- ------------- ------------------ ----------------
Richard A. Smith(2).. -- -- -- --
Robert A. Smith (2).. -- -- -- --
G. Gail Edwards...... -- -- 5,154 / 24,087 $0 / $0
Frank T. Stryjewski.. -- -- 6,228 / 17,842 $0 / $0
John G. Berylson..... -- -- 10,337 / 6,7915 $0 / $0
Philip J. Szabla..... -- -- 2,258 / 9,889 $0 / $0
(1) The value of unexercised in-the-money options is calculated by multiplying
the number of underlying shares by the difference between the closing price
of the Company's Common Stock on the New York Stock Exchange at October 31,
2000 ($2.38 per share) and the option exercise price for those shares. As a
result of the decline in the Company's share price, none of the options
currently outstanding has any value.
(2) Richard A. Smith and Robert A. Smith do not participate in the Company's
1993 Equity Incentive Plan.
(3) There are no outstanding SAR's.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions Involving Management
G. Gail Edwards
In June, 1996, the Company provided unsecured loans totaling $120,000
to Ms. Edwards, the Company's President, Chief Operating Officer, Chief
Financial Officer and Treasurer. The loans bear interest at 5% per annum and are
payable in annual principal installments equal to the lesser
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of $20,000 per year or 20% of Ms. Edwards' annual bonus. The loans had a
principal balance of $40,000 on October 31, 2000 and are payable in full on or
before December 31, 2002 or sooner if Ms. Edwards' employment is terminated for
cause.
Pursuant to an amended and restated agreement between Ms. Edwards and
the Company, which is subject to Bankruptcy Court approval, Ms. Edwards may
receive a retention payment of one times her base salary upon confirmation of
the Company's plan of reorganization, which amount is payable 2/3 on
confirmation of the plan of reorganization and 1/3 on October 31, 2001, unless
confirmation occurs thereafter, in which case, payment will be on confirmation
of the plan of reorganization. Ms. Edwards may also receive a performance
payment equal to one times her base salary when the Company's plan of
reorganization is effective, which amount is payable 1/3 on filing of the plan
of reorganization and 2/3 on the effective date of the plan of reorganization.
The performance payment will be reduced to 50% if the effective date of the
Company's plan of reorganization occurs after November 15, 2001. In addition, in
the event the Company enters into one or more defined major transactions, Ms.
Edwards will be paid an incentive payment equal to one times her base salary
which amount is payable in two installments over 6 months. Pursuant to the same
agreement, Ms. Edwards shall receive a bonus payment equal to 50% of her base
salary on October 31, 2001.
In the event Ms. Edwards' employment is terminated other than for
cause, total disability or death, or if Ms. Edwards voluntarily terminates her
employment due to a reduction in duties following a change of control of the
Company or if she is required to relocate out of the Boston area, she will
receive termination benefits consisting of (1) severance payments equal to her
then base salary for up to 18 months following such termination, which payments
will be reduced by any amounts received by her from other employment beginning
six months and ending 18 months following such termination (the severance
payable during the first six months following termination is to be secured by an
irrevocable letter of credit); (2) continuation of medical and dental insurance
coverage during this 18 month period or until such earlier time as Ms. Edwards
commences full time employment; (3) outplacement services; and (4) immediate
vesting of all her stock options.
For each of the five fiscal years commencing with fiscal year 1999 that
Ms. Edwards is employed by the Company, she will receive credit for an
additional year of supplemental pension service, and in lieu of payments due
under the Company's Supplemental Executive Retirement Plan (the "SERP") for 2001
and each subsequent year, annual payments equal to the present value of the
benefits payable under the SERP upon retirement, earned with respect to such
year.
Frank T. Stryjewski
Pursuant to an agreement between Mr. Stryjewski and the Company, the
Company has agreed that, provided he remains employed in good standing, Mr.
Stryjewski will receive a retention payment of 50% of his base salary on each of
October 31, 2001 and October 31, 2002. In addition, in the event Mr.
Stryjewski's employment is terminated other than for cause, total disability or
death, or if Mr. Stryjewski voluntarily terminates his employment due to a
reduction in duties following a change of control of the Company , or if he is
required to relocate out of the Boston area, he will receive termination
benefits consisting of (1) a continuation of his then current annual base salary
for 18 months, reduced by any amounts earned from subsequent employment during
this period; (2) continuation of medical and dental insurance coverage during
this 18 month period or until such earlier time as Mr. Stryjewski commences full
time employment; (3) outplacement services and (4) immediate vesting of all his
stock options.
John G. Berylson
Mr. Berylson is the President of GCC Investments, Inc., a subsidiary
of the Company, and Senior Manager of Chestnut Hill Capital Partners, LLC (the
"Manager") formed in 1999 to manage the Company's investment portfolio pursuant
to a Management Agreement dated August 11, 1999. The Management Agreement
between the Company and the Manager was terminated on October 10, 2000. Prior to
the termination of the Management Agreement, Mr. Berylson received $435,558 of
the fees paid by the Company to the Manager.
Under the agreements with the Manager, capital contributions required
for investments were made 99% by the Company and 1% by the Manager. The Company
provided loans to each member of the Manager, including Mr. Berylson for these
required capital contributions. Interest is payable at 8% annually. Principal is
payable in full at the end of seven years, unless prepayments are required based
upon the share of any investment gains payable to the Manager under these
agreements. The note is secured by Mr. Berylson's interest in the Manager and
any amounts due to him by the Company. The amount of the principal currently
owed by Mr. Berylson under this note is $419,308.
Philip J. Szabla
Pursuant to an amended and restated agreement between Mr. Szabla and
the Company, which is subject to Bankruptcy Court approval, Mr. Szabla may
receive a retention payment equal to one times
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his base salary upon confirmation of the Company's plan of reorganization, which
amount is payable 2/3 on confirmation of the plan of reorganization and 1/3 on
October 31, 2001, unless confirmation occurs thereafter, in which case, payment
will be on confirmation of the plan of reorganization. Mr. Szabla may also
receive a performance payment equal to one times his base salary when the
Company's plan of reorganization is effective, which amount is payable 1/3 on
filing of the plan of reorganization and 2/3 on the effective date of the plan
of reorganization. The performance payment will to be reduced to 50% if the
effective date of the Company's plan of reorganization occurs after November 15,
2001. In addition, in the event the Company enters into one or more defined
major transactions, Mr. Szabla will be paid an incentive payment equal to one
times his base salary which amount is payable in two installments over 6 months.
Pursuant to the same agreement, Mr. Szabla shall receive a bonus payment equal
to 40% of his base salary on October 31, 2001.
In the event Mr. Szabla's employment is terminated other than for
cause, total disability or death, or if Mr. Szabla voluntarily terminates his
employment due to a reduction in duties following a change of control of the
Company or if he is required to locate out of the Boston area, he will receive
termination benefits consisting of: (1) severance payments equal to his then
base salary for up to 18 months following such termination, which payments will
be reduced by any amounts received by him from other employment beginning six
months and ending 18 months following such termination. (the severance payable
during the first six months following termination is to be secured by an
irrevocable letter of credit); (2) continuation of medical and dental insurance
coverage during this 18 month period or until such earlier time as Mr. Szabla
commences full time employment; (3) outplacement services; and (4) immediate
vesting of all his stock options.
For each of the five fiscal years commencing with fiscal year 1999, Mr.
Szabla will receive credit for an additional year of supplemental pension
service, and in lieu of payments due under the Company's SERP for 2001 and each
subsequent year, Mr. Szabla shall receive annual payments equal to the present
value of the benefits payable under the SERP upon his retirement earned with
respect to such year.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) FINANCIAL STATEMENTS
The following financial statements are incorporated into Item 8 above:
Consolidated Balance Sheets - October 31, 2000 and 1999.
Consolidated Statements of Operations for the fiscal years ended October 31,
2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the fiscal years ended October 31,
2000, 1999 and 1998.
Consolidated Statements of Shareholders' Equity for the fiscal years ended
October 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
14(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission have been omitted because the information is
disclosed in the Consolidated Financial Statements or because such schedules are
not required or are not applicable.
14(a)(3) EXHIBITS
The exhibits filed as part of this Annual Report on Form 10-K are listed in the
Exhibit Index immediately preceding the exhibits. The Company has identified
with an asterisk (*) in the Exhibit Index each management contract and
compensation plan filed as an exhibit to this Annual Report on Form 10-K in
response to Item 14(c) of Form 10-K.
14(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K on October 11, 2000, disclosing that the Company
and certain of its domestic subsidiaries, including General Cinema Theatres,
Inc., filed voluntary petition to reorganize their businesses under Chapter 11
of the U.S. Bankruptcy Code and certain subsidiaries petitioned to liquidate
under Chapter 7 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. The 8-K filing did not include consolidated
financial statements.
14(c) EXHIBITS
See Item 14(a)(3) above.
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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.
DATED: JANUARY 29, 2001 GC COMPANIES, INC.
By: /s/ G. Gail Edwards
-----------------------------------
President, Chief Operating Officer
and Chief Financial Officer
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 following capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER
/s/ G. Gail Edwards President, Chief January 29, 2001
- ------------------------------- Operating Officer
G. Gail Edwards Chief Financial
Officer and
Treasurer
/s/ Louis E. Casavant Vice President and January 29, 2001
- ------------------------------- Corporate Controller
Louis E. Casavant
DIRECTORS:
/s/ Richard A. Smith January 29, 2001
- -------------------------------
Richard A. Smith
/s/ Peter C. Read January 29, 2001
- -------------------------------
Peter C. Read
/s/ Francis E. Sutherby January 29, 2001
- -------------------------------
Francis E. Sutherby
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EXHIBIT INDEX
DOCUMENT
3.1 Restated Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995.
3.2 Amended and Restated By-Laws of the Company, incorporated herein by
reference to Exhibit 3.2 to the Company's Annual Report of Form 10-K
for the fiscal year ended October 31, 1996.
4.1 Form of Stock Certificate of the Company's Common Stock,
incorporated herein by reference to Exhibit 4 to the Company's
Registration Statement on Form 10, as amended.
4.2 Smith-Lurie/Marks Stockholders' Agreement Re GC Companies, Inc.,
dated as of December 15, 1993, incorporated herein by reference to
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994.
10.1 Distribution Agreement, dated as of December 14, 1993, between
Harcourt General, Inc. and the Company, incorporated herein by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994.
10.2 Reimbursement and Security Agreement ("Reimbursement and Security
Agreement"), dated as of December 14, 1993, between Harcourt
General, Inc. and the Company, incorporated herein by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994.
10.3 First Amendment to Reimbursement and Security Agreement, dated as of
September 29, 1994, between Harcourt General, Inc. and the Company,
incorporated herein by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1994.
10.4 Intercompany Services Agreement, dated as of December 14,1993,
between Harcourt General, Inc. and the Company, incorporated herein
by reference to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994.
10.5 Amended and Restated Intercompany Services Agreement, dated as of
November 1, 1995, between Harcourt General, Inc. and the Company,
incorporated herein by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1995.
10.6 Tax Agreement, dated as of December 14, 1993, between Harcourt
General, Inc. and the Company, incorporated herein by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994.
10.7* GC Companies, Inc. 1993 Equity Incentive Plan, incorporated herein
by reference to Exhibit 10.8 to the Company's Registration Statement
on Form 10, as amended.
10.8* GC Companies, Inc. Retirement Plan, effective December 2, 1993,
incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form 10, as amended.
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10.9 GC Companies, Inc, Supplemental Executive Retirement Plan, effective
December 1, 1993, incorporated herein by reference to Exhibit 10.10
to the Company's Registration Statement on Form 10, as amended.
10.10* GC Companies, Inc, Key Employee Deferred Compensation Plan,
effective December 1, 1993, incorporated herein by reference to
Exhibit 10.11 to the Company's Registration Statement on Form 10, as
amended.
10.11* GC Companies, Inc. Key Executive Stock Purchase Loan Plan,
incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form 10, as amended.
10.12* Agreement, dated as of December 14, 1993, between Paul R. Del Rossi
and the Company, incorporated herein by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10- K for the fiscal year ended
October 31, 1994.
10.13* Termination Agreement dated as of August 17, 1995 between William B.
Doeren and the Company, "incorporated herein by reference to Exhibit
10.13 (or .14, respectively) to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996."
10.14* Master Lease Agreement dated as of November 21, 1996 between General
Electric Capital Corporation, for itself and as agent for certain
participants and General Cinema Theatres, Inc., incorporated herein
by reference to Exhibit 10.13 (or 10.14, respectively) to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996.
10.15* GC Companies, Inc. 1993 Incentive Plan First Amendment incorporated
herein by reference to Exhibit 10.15 to the Company's Quarterly
Report on Form 10-Q for the Quarter ended April 30, 1997.
10.16* GC Companies, Inc. Key Executive Stock Purchase Loan Plan First
Amendment, incorporated herein by reference to Exhibit 10.16 to the
Company's Quarterly Report or Form 10-Q for the Quarter ended April
30, 1997.
10.17* GCC Investments, Inc. Incentive Pool Plan, incorporated herein by
reference to Exhibit 10.17 to the Company's Quarterly Report on form
10-Q for the quarter ended April 30, 1997.
10.18 Stock Purchase Agreement, dated as of July 25, 1997, by and among
General Cinema International, Inc., United Artists Theatre Circuit,
Inc., UA Mexico Holdings, S.A. de C.V., UATC Europe B.V. and Fondo
Optima, S.A. de C.V., incorporated herein by reference to Exhibit
10.18 to the Company's Form 8-K filed September 30, 1997.
10.19 Amendment No. 1, dated as of September 24, 1997, by and among
General Cinema International, Inc., United Artists Theatre Circuit,
Inc., UA Mexico Holdings, S.A. de C.V., UATC Europe B.V. and Fondo
Optima, S.A. de C.V., incorporated herein by reference to Exhibit
10.19 to the Company's Form 8-K filed September 30, 1997.
10.20* Amended and Restated Employment Agreement between Paul R. Del Rossi
and the Company, dated as of November 1, 1997 incorporated herein by
reference to Exhibit 10.21 of the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1997.
10.21* GC Companies, Inc. Deferred Compensation Plan for Non-Employee
Directors, Effective May 1, 1997, incorporated herein by reference
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to Exhibit 10.21 of the Company's Quarterly Report for the Quarter
ended July 31, 1997.
10.22* First Amendment to GCC Investments, Inc. Incentive Pool Plan
incorporated herein by reference to Exhibit 10.21 of the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1997.
10.23* Amendment No. 1 to the GC Companies, Inc. Deferred Compensation Plan
for Non-Employee Directors, dated as of May 1, 1998, incorporated
herein by reference to Exhibit 10.23 to the Company's Quarterly
Report on form 10-Q for the quarter ended July 31, 1998.
10.24 Revolving Credit Agreement dated as of January 26, 1999 among GC
Companies, Inc., BancBoston Robertson Stephens Inc., The Bank of
Nova Scotia and BankBoston, N.A. incorporated herein by reference to
Exhibit 10.24 of the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1998.
10.25 Amended and Restated Reimbursement and Security Agreement dated as
of January 26, 1999 between Harcourt General, Inc. and GC Companies,
Inc. incorporated herein by reference to Exhibit 10.25 of the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1998.
10.26 Termination and Change of Control Agreement between GC Companies,
Inc. and G. Gail Edwards dated as of September 1, 1999, incorporated
herein by reference to Exhibit 10.26 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1999.
10.27 Limited Liability Company Agreement of GCC Investments, LLC dated as
of August 11, 1999, incorporated herein by reference to Exhibit
10.27 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1999.
10.28 Put Agreement between GC Companies, Inc. and Chestnut Hill Capital
Partners, LLC dated as of August 11, 1999, incorporated herein by
reference to Exhibit 10.28 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1999.
10.29 Management Agreement between Chestnut Hill Capital Partners, LLC and
Chestnut Hill Re, Inc. dated August 11, 1999, incorporated herein by
reference to Exhibit 10.29 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1999.
10.30 Debtor-in-Possession Credit Agreement, dated as of October 13, among
GC Companies, Inc., General Electric Capital Corporation as DIP
Administrative Agent and DIP Collateral Agent and Fleet National
Bank as DIP Documentation Agent.
10.31* Amended and Restated Termination and Change of Control Agreement
between GC Companies, Inc. and G. Gail Edwards, dated as of
September 15, 2000 and first modification thereto.
10.32* Amended and Restated Termination and Change of Control Agreement
between GC Companies, Inc. and Philip J. Szabla, dated as of
September 15, 2000 and first modification thereto.
11.1 Statement regarding computation of per share earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
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*Exhibits filed pursuant to Item 14(c) of Form 10-K.
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