1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended JANUARY 31, 2001
-----------------------------------------------------
Commission File Number 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 (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02467
(Address of principal executive offices) (Zip Code)
(617) 264-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of March 15, 2001, there were outstanding 7,830,921 shares of the issuer's
common stock, $0.01 par value.
2
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
I N D E X
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of
January 31, 2001 and October 31, 2000 1
Condensed Consolidated Statements of Operations for
the Three Months Ended January 31, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended January 31, 2001 and 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market
Risk 15
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
3
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31,
2001 October 31,
(Unaudited) 2000
----------- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,183 $ 12,946
Marketable equity securities 2,416 5,361
Current portion of notes receivable 5,308 2,889
Other current assets 4,601 5,014
----------- -----------
Total current assets 26,508 26,210
Property and equipment, net 100,823 104,081
Portfolio investments 67,605 68,158
Investment in international theatre affiliates 39,110 40,419
Notes receivable 2,193 4,431
Other assets 8,640 8,040
----------- -----------
$ 244,879 $ 251,339
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debtor-in-possession financing $ 4,736 $ 7,874
Trade payables 20,449 24,553
Other current liabilities 27,922 22,493
----------- -----------
Total current liabilities 53,107 54,920
Other long-term liabilities 1,320 --
Liabilities subject to compromise 185,261 185,283
Minority interest 618 648
Commitments and contingencies -- --
Shareholders' equity:
Common stock 78 78
Additional paid-in capital 141,170 141,170
Accumulated other comprehensive loss (2,784) (160)
Unearned compensation (1,091) (1,190)
Retained deficit (132,800) (129,410)
----------- -----------
Total shareholders' equity 4,573 10,488
----------- -----------
$ 244,879 $ 251,339
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
1
4
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except for per share amounts) For The Three Months
Ended January 31,
-----------------
2001 2000
Revenues:
Admissions $ 59,067 $ 64,402
Concessions 24,451 28,613
Other 2,793 4,848
----------- -----------
86,311 97,863
Costs and expenses:
Film rentals 32,277 33,263
Concessions 4,464 5,603
Theatre operations and administrative expenses 42,316 56,278
Depreciation and amortization 3,344 3,958
Gain on disposition of theatre assets (30) (587)
Impairment and restructuring -- (1,078)
Reorganization items 3,152 --
Corporate expenses 419 751
----------- -----------
Operating earnings (loss) 369 (325)
Equity losses in theatre affiliates (1,506) (798)
Investment (loss) income, net (714) 4,863
Interest expense (1,539) (559)
----------- -----------
(Loss) earnings before income taxes (3,390) 3,181
Income tax provision -- (1,272)
----------- -----------
(Loss) earnings before cumulative effect of accounting change (3,390) 1,909
Cumulative effect of accounting change, net of tax -- (2,806)
----------- -----------
Net loss $ (3,390) $ (897)
=========== ===========
(Loss) earnings per share:
Basic:
(Loss) earnings before cumulative effect of
accounting change $ (0.44) $ 0.25
Cumulative effect of accounting change -- (0.37)
----------- -----------
Net loss $ (0.44) (0.12)
=========== ===========
(Loss) earnings per share:
Diluted:
(Loss) earnings before cumulative effect of
accounting change $ (0.44) $ 0.25
Cumulative effect of accounting change -- (0.37)
----------- -----------
Net loss $ (0.44) $ (0.12)
=========== ===========
Weighted average shares outstanding:
Basic 7,790 7,734
=========== ===========
Diluted 7,790 7,735
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
2
5
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands) For the Three Months
Ended January 31,
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (3,390) $ (897)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 3,344 3,958
Equity losses in theatre affiliates 1,506 798
Realized gains on marketable equity securities and
portfolio investments (173) (5,703)
Equity losses in portfolio investments 553 47
Cumulative effect of accounting change -- 2,806
Gain on disposition of assets, impairment and
restructuring (30) (1,665)
Reorganization items 3,283 --
Other non-cash activities 1,220 752
Changes in assets and liabilities:
Liabilities for early lease terminations -- (3,995)
Trade payables (4,104) (5,108)
Other assets and liabilities 2,173 (24,782)
----------- -----------
Net cash provided (used) by operations before
reorganization items 4,382 (33,789)
----------- -----------
Operating cash flows from reorganization items
Interest income received 212 --
Professional fees paid (343) --
Personnel related costs paid (181) --
----------- -----------
Net cash used by reorganization items (312) --
----------- -----------
Net cash provided (used) by operating activities 4,070 (33,789)
----------- -----------
Cash flows from investing activities:
Capital expenditures (231) (2,185)
Proceeds from the disposition of theatre assets 41 2,558
Proceeds from sale of marketable equity securities 577 34,863
Purchase of portfolio investments -- (23,350)
Advances from international theatre affiliates -- 493
Other investing activities 33 779
----------- -----------
Net cash provided by investing activities 420 13,158
----------- -----------
Cash flows from financing activities:
Increase (decrease) in revolving credit facility -- 14,700
Decrease in debtor-in-possession financing (3,138) --
Other financing activities (115) 279
----------- -----------
Net cash (used) provided by financing activities (3,253) 14,979
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,237 (5,652)
Cash and cash equivalents at beginning of period 12,946 11,106
----------- -----------
Cash and cash equivalents at end of period $ 14,183 $ 5,454
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period:
Interest $ 1,315 $ 455
Income taxes -- --
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
3
6
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of GC Companies, Inc. (GCC or
the Company) are submitted in response to the requirements of Form 10-Q and
should be read in conjunction with the consolidated financial statements
included in the Company's Annual Report on Form 10-K. In the opinion of
management, these condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the interim period presented. Certain prior year
amounts have been reclassified to conform to the current years' presentation.
The Company's theatre business is seasonal in nature and the results of its
investment operation is subject to a high degree of volatility, accordingly, the
results of operations for this period historically have not been indicative of
the results for the full year.
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 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.
2. LIQUIDITY AND MANAGEMENT'S PLANS
The accompanying condensed 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 2000 and three theatres with ten screens in the
first quarter of 2001. 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. 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.
4
7
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 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.
A lease termination reserve of approximately $33.4 million was outstanding at
October 31, 2000. This reserve was established for theatres that were closed by
the Company and had been operated by legal entities that filed for
reorganization under Chapter 11. This reserve was 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 reserve may be
subject to future adjustments, as previously discussed, based on 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.
The activity during the three months ended January 31, 2001 in the reserve for
lease terminations and restructure was as follows:
Reserve for Reserve for
Lease Termination Personnel Total
(In thousands) Costs Related Costs Reserve
----------------- ------------- -------
Balance at October 31, 2000 $33,435 $ 940 $34,375
Cash payments -- (185) (185)
Additional reserves 515 75 590
------- ------ -------
Balance at January 31, 2001 $33,950 $ 830 $34,780
======= ====== =======
During the first quarter of 2001, additional lease termination reserves of $ 0.5
million were recorded for theatre leases the Company
5
8
anticipates will be rejected. In addition, the Company made payments of $0.2
million primarily for severance related costs.
The Company incurred and recorded in the first quarter the following expenses
directly associated with the Bankruptcy Proceedings; professional fees of $2.8
million, lease termination charges of $0.2 million, the write-off of assets of
$0.3 million and severance costs for personnel at the three theatres closed
during the quarter of approximately $75,300. These charges were partially offset
by interest income of $0.2 million earned by the Company on the cash accumulated
and invested during the Bankruptcy Proceedings.
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 condensed consolidated balance sheets as "Liabilities subject to
compromise." During the first quarter of 2001, the liabilities subject to
compromise did not change significantly.
Interest due and payable, as specified under the bank credit agreement, is also
stayed during the bankruptcy. Interest due contractually and not paid during the
first quarter of 2001 totaled $1.2 million. The Company has Bankruptcy Court
approval to make monthly adequate protection payments which totaled
approximately $1.0 million during the first quarter of 2001.
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, and certain other
pre-petition amounts were also permitted to be paid such as sales and trust fund
taxes and workers' compensation claims.
4. MARKETABLE EQUITY SECURITIES AND PORTFOLIO INVESTMENTS
Change
Cumulative in Pre-tax
Gross Pre-tax Unrealized
Aggregate Unrealized Holding
Accounting Percent of Carrying Holding Gains (Losses)
Investment as of January 31, 2001 Designation Ownership Value(a) Gains (Losses)(e) for the Year(e)
- --------------------------------- ----------- --------- -------- ----------------- ---------------
(In thousands except percentages)
Marketable Equity Securities
El Sitio, Inc. Available-for-sale(b) 3.8% $ 2,185 $(2,913) $(2,686)
GrandVision SA Available-for-sale(b) 0.1% 149 102 (16)
MotherNature.com Available-for-sale(b) 4.5% 82 2 161
------- ------- -------
Total marketable equity securities 2,416 (2,809) (2,541)
Portfolio Investments
American Capital Access Equity Method(c) 23.8% 23,933 -- --
FleetCor (formerly Fuelman) Equity Method(c) 38.1% 14,972 -- --
Vanguard Cost Method(d) 15.0% 8,000 -- --
VeloCom Cost Method(d) 3.9% 20,700 -- --
------- ------- -------
Total portfolio investments 67,605 -- --
------- ------- -------
Total marketable equity securities
and portfolio investments
$70,021 $(2,809) $(2,541)
======= ======= =======
(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 condensed consolidated balance sheets net of tax
within the caption "Accumulated other comprehensive loss."
(c) These investments are in non-public companies and are accounted for on the
equity method because the Company has a greater
6
9
than 20% equity interest in each.
(d) These investments are in non-public companies and are accounted for on the
cost method.
(e) Pre-tax unrealized holding gains and losses apply only to marketable equity
securities.
On November 30, 2000, MotherNature.com's shareholders approved a plan of
complete liquidation and dissolution. MotherNature.com 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. On December
15, 2000, MotherNature.com was delisted from the NASDAQ National Market, and the
Company's stock is currently traded on the OTC Bulletin Board. In addition, on
March 15, 2001, MotherNature.com filed Form 15 (Certification and Notice of
Termination of Registration) with the Securities and Exchange Commission.
Investment (loss) income consisted of the following for the three months ended
January 31:
(In thousands) 2001 2000
---- ----
Interest and dividend income $ -- $ 97
Realized gain on marketable equity securities and
portfolio investments 79 5,703
Equity losses in portfolio investments (553) (47)
Management fee (240) (890)
----- ------
Investment (loss) income, net $(714) $4,863
===== ======
5. 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.
7
10
(In thousands)
Three Months Ended January 31, 2001: Domestic International Other Segment Consolidated
Theatres Theatres Operations Totals Adjustments Totals
-------- -------- ---------- ------ ----------- ------
Revenues:
Admissions $ 59,067 $ 8,046 $ -- $ 67,113 ($ 8,046) $ 59,067
Concessions 24,451 2,233 -- 26,684 (2,233) 24,451
Other 2,793 913 -- 3,706 (913) 2,793
---------------------------------------------------------------------------------------
Total revenues 86,311 11,192 -- 97,503 (11,192) 86,311
---------------------------------------------------------------------------------------
Earnings (loss) before taxes, interest,
depreciation and amortization 7,253 455 (418) 7,290 (455) 6,835
Net investment income (loss) -- 672 (714) (42) (672) (714)
Earnings (loss) before income taxes 4,442 (2,281) (5,567) (3,406) 16 (3,390)
(In thousands)
Three Months Ended January 31, 2001: Domestic International Other Segment Consolidated
Theatres Theatres Operations Totals Adjustments Totals
-------- -------- ---------- ------ ----------- ------
Revenues:
Admissions $ 64,402 $ 11,384 $ -- $ 75,786 ($11,384) $ 64,402
Concessions 28,613 3,656 -- 32,269 (3,656) 28,613
Other 4,848 1,178 -- 6,026 (1,178) 4,848
---------------------------------------------------------------------------------------
Total revenues 97,863 16,218 -- 114,081 (16,218) 97,863
---------------------------------------------------------------------------------------
Earnings (loss) before taxes, interest,
depreciation and amortization 2,892 2,470 (924) 4,438 (2,470) 1,968
Net investment income 29 25 4,834 4,888 (25) 4,863
Earnings (loss) before income taxes 605 (674) 3,364 3,295 (114) 3,181
The Company's South American joint venture, Hoyts General Cinema South America
("HGCSA"), has a $28.0 million credit facility with two major financial
institutions to fund its operations in Argentina, which is secured by a several
guaranty of the joint venture's partners. Under the several guaranty of the
Argentina debt facility, the Company is liable for 50% of the outstanding
borrowings. At January 31, 2001, 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 approximately $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 January 31, 2001, the Company's portion of the outstanding exposure
under these facilities was approximately $10.4 million, which was comprised of
$8.4 million of outstanding borrowings and $2.0 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 January 31, 2001. This
certificate of deposit is included in other current assets in the condensed
consolidated balance sheets.
8
11
6. (LOSS) EARNINGS PER SHARE
The computation of basic and diluted (loss) earnings per share is shown below.
Basic earnings per share excludes any dilutive effect of common stock
equivalents.
For The Three Months Ended
January 31,
-----------
(In thousands, except per share data) 2001 2000
---- ----
(Loss) earnings before cumulative effect of accounting change $(3,390) $ 1,909
------- -------
Determination of shares:
Weighted average number of common shares outstanding 7,790 7,734
Diluted effect of contingently returnable shares and shares
issuable on exercise of stock options -- 1
------- -------
Weighted average common shares outstanding for diluted computation 7,790 7,735
------- -------
(Loss) earnings per share before cumulative effect of accounting change:
Basic $ (0.44) $ 0.25
Diluted $ (0.44) $ 0.25
7. COMPREHENSIVE (LOSS) INCOME
The components of comprehensive (loss) income are as follows for the three
months ended January 31,:
(In thousands) 2001 2000
---- ----
Net loss $ (3,390) $ (897)
Unrealized (losses) gains on securities, net of tax (2,624) 16,527
-------- --------
Ending balance $ (6,014) $ 15,630
-------- --------
9
12
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
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 accompanying condensed 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 2000 and three threatres with ten screens in
the first quarter of 2001. 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 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.
10
13
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2001 VERSUS THE THREE MONTHS ENDED JANUARY 31,
2000
THEATRE REVENUES - Total revenues decreased 11.8% to $86.3 million for the three
months ended January 31, 2001 from $97.9 million for the same period in 2000
primarily attributable to a 15.1% decrease in patronage partially offset by an
8.1% increase in average ticket price and a 0.4% increase in concession sales
per patron. The decrease in patronage was mainly due to the Company operating
fewer theatres during the first quarter compared to the same period last year.
During 2000, the Company closed 64 theatres with 417 screens, of which 55
theatres with 375 screens were closed in the fourth quarter. The Company
operated domestically 675 screens at 75 locations at January 31, 2001 compared
to 1,041 screens at 134 locations at January 31, 2000. The increase in average
ticket prices was due to the theatres closed in the fourth quarter of 2000 which
had lower average ticket prices, moderate price increases during the summer of
2000 and the films shown in the first quarter of the current year appealed more
to adult audiences. A growth in concessions sales per patron was principally
attributable to the theatres closed during the fourth quarter of 2000 which had
lower concession sales per person.
COSTS OF THEATRE OPERATIONS - Cost of theatre operations (film rentals,
concessions, theatre operations and administrative expenses and depreciation and
amortization) decreased $16.7 million to $82.4 million in 2001 from $99.1
million last year. As a percentage of total revenues, cost of theatre operations
was 95.5% for the first quarter of 2001 compared to 101.3% for the same period
in 2000. This decreased percentage of the cost of theatre operations to total
revenues for the first three months of the current year compared to the same
period in 2000 was primarily due to lower rent and rent related expenses, a
decrease in theatre payroll costs, lower administrative costs and a decrease in
other operating expenses. These decreases were partially offset by lower film
margins.
IMPAIRMENT AND RESTRUCTURING - The Company recorded a gain of $1.1 million in
the three months ended January 31, 2000, as a result of the settlement gain
associated with the voluntary special retirement program offered by the Company
in the fourth quarter of 1999. The gain was realized as a result of benefit
payments made out of the Company's pension plan under the special retirement
program.
REORGANIZATION ITEMS -- The Company incurred and recorded in the first quarter
of 2001 the following expenses directly associated with the Bankruptcy
Proceedings: professional fees of $2.8 million, lease termination charges of
$0.2 million, the write-off of assets of $0.3 million and severance costs for
personnel at the three theatres closed during the quarter of approximately
$75,300. These charges were partially offset by interest income of $0.2 million
earned by the Company on the cash accumulated and invested during the Bankruptcy
Proceedings.
CORPORATE EXPENSES - Corporate expenses decreased 44% to $0.4 million in 2001
from $0.8 million in 2000 primarily due to a reduction of expenses as a result
of down sizing the number of theatres the Company operates and other management
initiatives.
EQUITY LOSSES IN THEATRE AFFILIATES- The Company recorded equity losses in
theatre affiliates of $1.5 million for the three months ended January 31, 2001
compared to $0.8 million for the same period in 2000. The increase in equity
losses was primarily due to the Hoyts General Cinema South America ("HGCSA")
joint venture. Revenues of the HGCSA venture decreased 5.7% to $11.2 million for
the first quarter of 2001, versus $11.9 million for the same period in 2000
primarily due to a lower average ticket price. Ticket prices were lowered to
attract patrons in response to an economic recession in Argentina. The net loss
of HGCSA increased to approximately $2.3 million for the first quarter of 2001
compared to a net loss of $0.8 million for the same period last year. This
increased loss was primarily due to a decrease in revenues, higher occupancy
costs, an increase in administrative expenses and higher depreciation expense.
INVESTMENT (LOSS) INCOME, NET - The Company recorded an investment loss of $0.7
million in 2001 compared to investment income of $4.9 million in 2000. The
Company's investment loss during the current quarter included equity losses in
portfolio investments of $0.5 million and management expenses of approximately
$0.2 million. In the first quarter of 2000, the Company recorded the realized
pre-tax gain of $8.0 million on the sale of the remaining shares of PrimaCom,
partially offset by performance based compensation of $2.3 million earned by
certain former employees as a result of the sale of all the Company's holdings
in PrimaCom, management expenses of $0.9 million and other gains of $0.1
million.
11
14
INTEREST EXPENSE - The Company's interest expense increased to $1.5 million for
the three months ended January 31, 2001 compared to $0.6 million in 2000 mainly
due to increased borrowings outstanding during the quarter under the bank
credit facility and interest on the DIP Facility.
INCOME TAX EXPENSE - The Company recorded no income tax benefit in the first
quarter of 2001 due to the uncertainty surrounding the recoverability of such
losses.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX - In the first quarter of
2000, the Company adopted Statement of Position ("SOP") 98-5, "Reporting the
Costs of Start-Up Activity." SOP 98-5 requires start-up activities to be
expensed when incurred. The Company's practice had been to capitalize lease
costs incurred prior to openings of theatres and amortize the costs under
generally accepted accounting principles. The adoption of this new accounting
pronouncement resulted in a one-time non-cash charge to the Company's statements
of operations for the three months ended January 31, 2000 of $4.7 million (net
of income tax benefit of $1.9 million) or $0.37 per diluted share.
12
15
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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. 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.
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.
The Company has significant lease commitments. Lease payments totaled $82.4
million in 2000 and minimum lease payments are anticipated to approximate $60.3
million in 2001. The decrease in minimum lease payments is primarily due to the
theatres closed in 2000.
During the first quarter of 2001, the Company closed three theatres with 10
screens. The Company made cash payments of $0.2 million for personnel related
costs associated with the theatres closed during the first quarter of 2001.
For the three months ended January 31, 2001, the Company made capital
expenditures of $0.2 million for leasehold improvements, furniture and equipment
purchases as well as information services related projects. Domestic capital
expenditures are expected to approximate $3.0 million in 2001.
INTERNATIONAL THEATRES - During the first quarter of 2001, the Company opened
two theatres with 17 screens in Argentina through its South American joint
venture. The joint venture in South America, HGCSA, anticipates opening an
additional theatre with 10 screens by the end of 2001. Future advances may be
required of the partners under the South American joint venture agreement, if
sufficient bank financing is not available.
13
16
HGCSA has a $28.0 million credit facility with two major financial institutions
to fund its operations in Argentina, which is secured by the several guaranty of
the joint venture's partners. Under the several guaranty of the Argentina debt
facility, the Company is liable for 50% of the outstanding borrowings. At
January 31, 2001, 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 approximately $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 January 31, 2001, the Company's portion of the
outstanding borrowings under these facilities that it guarantees was
approximately $10.4 million, which was comprised of $8.4 million outstanding
borrowings and $2.0 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 January 31, 2001. This certificate of deposit is
included in other current assets in the consolidated balance sheets.
INVESTMENT PORTFOLIO - At January 31, 2001, marketable equity securities were
$2.4 million, a decrease of $2.9 million from the balance at October 31, 2000.
The decrease in marketable securities during the first three months of 2001 was
primarily due to a depreciation in value of El Sitio, Inc.
During the first quarter, the Company received an initial distribution of
liquidation proceeds of $0.6 million on its holdings in MotherNature.com.
OTHER - 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, available on
a revolving basis, which was authorized by the Bankruptcy Court. In 2001, the
Company made net principal payments of $3.1 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.
14
17
GC COMPANIES, INC.
(DEBITOR-IN-POSSESSION)
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 January 31, 2001 were $4.7 million, carrying an interest rate of 11.5%. Prior
to its Chapter 11 filing, the Company borrowed money under its bank credit
facility to fund operating needs, and at January 31, 2001, the Company had
outstanding borrowings of $44.6 million, carrying a variable interest rate,
which was 10.5% 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 bank 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 January 31, 2001: 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 (OTC Bulletin Board: 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 during the first quarter have traded as high as $3.38 and as low as
$0.53. At January 31, 2001,the El Sitio shares closed at $1.50. MotherNature.com
shares during the first quarter have traded as high as $0.94 and as low as
$0.09. At January 31, 2001, the MotherNature.com shares closed at $0.12. During
the quarter ended January 31, 2001, the GPS shares have traded as high as 23.24
euros and as low as 15.97 euros. As of January 31, 2001, GPS shares closed at
20.50 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.
15
18
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 20%
stake are also subject to fluctuations in value, but their current illiquidity
reduces their exposure to pure market risk.
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended January 31, 2001.
16
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GC COMPANIES, INC.
Date: March 19, 2001 /s/ G. Gail Edwards
---------------------------------------------
G. Gail Edwards President, Chief Operating
Officer, Chief Financial Officer and
Treasurer
Date: March 19, 2001 /s/ Louis E. Casavant
---------------------------------------------
Louis E. Casavant, Vice President and
Corporate Controller
17