1
UNITED STATES
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 July 31, 1997
--------------------------------------------------------
Commission File Number 1-12360
-------------------------------------------------------
GC COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact of name of registrant as specified in its charter)
DELAWARE 04-3200876
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 BOYLSTON STREET, CHESTNUT HILL, MA 02167
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 278-5600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------- ---------
As of September 10, 1997, there were outstanding 7,705,330 shares of the
issuer's common stock, $.01 par value.
2
GC COMPANIES, INC.
I N D E X
---------
Part I. Financial Information Page Number
--------------------- -----------
Item 1. Condensed Consolidated Balance Sheets as of
July 31, 1997 and October 31, 1996 1
Condensed Consolidated Statements of Earnings for
the Three and Nine Months Ended July 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended July 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 11.1 11
Exhibit 27.1 12
3
GC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
July 31, October 31,
1997 1996
----------- -----------
Assets
- ------
Current assets:
Cash and cash equivalents $ 83,658 $ 71,745
Short-term investments 30,117 1,566
Receivable from financial institution 7,387 17,599
Other current assets 5,231 3,602
Deferred income taxes 2,552 2,552
-------- --------
Total current assets 128,945 97,064
Property and equipment, net 157,923 162,847
Other assets 61,340 54,392
-------- --------
Total assets $348,208 $314,303
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current maturities of long-term
obligations 686 721
Trade payables 46,688 30,514
Other current liabilities 72,025 62,428
-------- --------
Total current liabilities 119,399 93,663
Long-term liabilities:
Capital lease obligations 2,396 3,059
Other long-term liabilities 30,873 29,029
-------- --------
Total long-term liabilities 33,269 32,088
Deferred income taxes 12,571 12,571
Shareholders' equity:
Common stock 77 78
Additional paid-in capital 136,625 136,359
Retained earnings 46,267 39,544
-------- --------
Total shareholders' equity 182,969 175,981
-------- --------
Total liabilities and shareholders' equity $348,208 $314,303
======== ========
See Notes to Condensed Consolidated Financial Statements.
1
4
GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except Nine Months Three Months
for per share data) Ended July 31, Ended July 31,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues:
Admissions $ 241,145 $ 244,700 $ 82,132 $ 93,549
Concessions 106,738 106,041 37,626 41,619
Other 10,251 8,609 3,381 2,133
--------- --------- --------- ---------
358,134 359,350 123,139 137,301
Costs of theatre operations:
Film rentals 126,958 128,620 45,359 51,246
Concessions 19,647 18,957 7,436 7,473
Theatre operations and
administrative expenses 175,771 169,297 58,275 58,422
Depreciation and amortization 14,301 14,768 5,049 4,999
--------- --------- --------- ---------
336,677 331,642 116,119 122,140
Corporate expenses 4,798 4,679 1,397 1,544
--------- --------- --------- ---------
Operating earnings 16,659 23,029 5,623 13,617
Investment income (loss), net 3,345 (302) 1,194 1,061
Interest expense (449) (457) (198) (148)
Loss on disposition of
theatre assets (862) (739) (78) (246)
--------- --------- --------- ---------
Earnings before income taxes 18,693 21,531 6,541 14,284
Income tax expense (7,664) (8,828) (2,682) (5,856)
--------- -------- --------- ---------
Net earnings $ 11,029 $ 12,703 $ 3,859 $ 8,428
========= ========= ========= =========
Weighted average number of
common and common equivalent
shares outstanding 7,775 7,851 7,754 7,852
========= ========= ========= =========
Net earnings per common share $ 1.42 $ 1.62 $ 0.50 $ 1.07
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
2
5
GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months
Ended July 31,
---------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net earnings $ 11,029 $ 12,703
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Loss on disposition of theatre assets 862 739
Loss from minority investments -- 3,145
Depreciation and amortization 14,301 14,768
Changes in assets and liabilities:
Other current assets 8,583 (3,611)
Trade payables 16,174 18,453
Other current liabilities 9,597 4,289
-------- --------
Net cash provided by operating activities 60,546 50,486
-------- --------
Cash flows from investing activities:
Capital expenditures (11,579) (8,112)
Proceeds from the disposition of theatre assets 810 97
(Purchase of) proceeds from the liquidation of
short-term investments (28,551) 33,767
Purchase of investments (7,073) (14,195)
Other investing activities 513 (1,565)
-------- --------
Net cash (used) provided by investing activities (45,880) 9,992
-------- --------
Cash flows from financing activities:
Repurchase of common stock (4,306) --
Other financing activities 1,553 354
-------- --------
Net cash (used) provided by financing activities (2,753) 354
-------- --------
Net change in cash and cash equivalents 11,913 60,832
Cash and cash equivalents at beginning of period 71,745 35,999
-------- --------
Cash and cash equivalents at end of period $ 83,658 $ 96,831
======== ========
See Notes to Condensed Consolidated Financial Statements.
3
6
GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
---------------------
The condensed consolidated financial statements of GC Companies, Inc.
("GCC" or the "Company") are submitted in response to the requirements of
Form 10-Q and should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K. In the
opinion of management, these financial statements contain all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the interim periods presented. Certain
prior year amounts have been reclassified to conform to the current year
presentation. The Company's business is seasonal in nature, and
historically the results of operations for these periods have not been
indicative of the results for the full year.
2. Other Assets
------------
Included in other assets at July 31, 1997 were a $16.7 million investment
in an optical superstore retailer, a $13.4 million investment in a German
cable television systems operator, a $20.2 million investment in an
international telecommunications service provider and a $7.0 million
investment in a wireless location and two-way messaging company. The
Company closed on the $7.0 million investment in the wireless location and
two-way messaging company in December 1996.
3. Stock Repurchase
----------------
In December 1996, the Company's Board of Directors authorized the purchase
of up to one million shares of the Company's common stock in the open
market over the next twelve months. During the nine months ended July 31,
1997, the Company repurchased 118,700 shares at an average price of
approximately $36.27 per share. The shares repurchased were immediately
retired. Differences between the par value of the shares and the repurchase
price were charged against retained earnings.
4. Subsequent Events
-----------------
On August 14, 1997, the Company sold the seven theatres it operated in
Oklahoma to Hollywood Theatres for $15.8 million.
On August 29, 1997, the Company invested an additional $5.0 million in its
international telecommunications company investment, bringing the total
invested in that company to $25.2 million.
4
7
GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Subsequent Events (Continued)
----------------------------
On September 1, 1997, the optical superstore retailer in which GCC holds
common stock ("Vision Express" or "VE") entered into a definitive agreement
with GrandOptical-PhotoService S.A. ("GPS"), a publicly traded company
listed on the Paris stock exchange. Pursuant to this agreement, VE
shareholders will receive GPS common stock valued at approximately 148
million British pounds absent share restrictions (U.S. $237 million
translated at 1.6 U.S. dollars per British pound) in exchange for all
outstanding VE shares. GCC's portion of the share value to be received
would be approximately 20 million British pounds absent share restrictions
(U.S. $32 million translated at 1.6 U.S. dollars per British pound). The
total U.S. dollar proceeds to be received will be dependant upon the value
of GPS stock at the date of sale of such stock and the French franc
exchange rate on such date. Fifty percent of the shares to be received in
the share-for-share exchange will be restricted from sale for periods
ranging from six months to two years. The other 50% of the shares received
in the share-for-share exchange are not subject to any restrictions on
sale. The transaction is expected to close in mid October 1997.
5
8
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
---------------------
NINE MONTHS ENDED JULY 31, 1997 COMPARED WITH NINE MONTHS ENDED JULY 31, 1996
THEATRE REVENUES - Theatre revenues decreased to $358.1 million in 1997 from
$359.4 million in 1996, which was primarily attributable to a 2.6% decline in
patronage partially offset by a 1.2% increase in average ticket price and a 3.4%
increase in concession sales per patron. The increase in concession sales per
patron was due to price increases on select products, new product offerings and
increased consumption.
COST OF THEATRE OPERATIONS - Cost of theatre operations, including theatre
general and administrative expenses, increased 1.5% for the nine months ended
July 31, 1997 to $336.7 million from $331.6 million in the same 1996 period. As
a percentage of revenues, the cost of theatre operations was 94.0% for the nine
months ended July 31, 1997 and 92.3% for the nine months ended July 31, 1996.
The percentage increase was primarily a result of a lower ratio of third quarter
revenues to fixed costs during the 1997 period combined with lower concession
margins and a higher variable labor cost. The Company incurred higher labor
costs due to the impact of the minimum wage increase in 1997. The Company
operated 1,168 screens at July 31, 1997 compared to 1,179 at July 31, 1996.
INVESTMENT INCOME (LOSS) - The Company recorded net investment income of $3.3
million for the nine months ended July 31, 1997 compared to a net investment
loss of $0.3 million in the same 1996 period. The net investment income for the
first nine months of 1997 represented dividend and interest income earned on the
Company's short-term investment portfolio. The net investment loss for the
comparable 1996 period included a first quarter pretax charge of $0.6 million to
record the Company's share of losses incurred by its radio group minority
investment, a $2.5 million second quarter pretax charge to write off its
remaining investment in a children's clothing retailer offset by pretax dividend
and interest income of $2.8 million.
INCOME TAX EXPENSE - The Company's effective tax rate is expected to be 41.0% in
fiscal 1997, unchanged from fiscal 1996.
THREE MONTHS ENDED JULY 31, 1997 COMPARED WITH THREE MONTHS ENDED JULY 31, 1996
THEATRE REVENUES - Revenues decreased 10.3% to $123.1 million in the 1997
quarter from $137.3 million in the same 1996 period. The lower revenues resulted
from a 12.1% decline in patronage, reflecting an industry wide impact, partially
offset by a 2.8% increase in concession sales per patron. The increase in
concessions sales per patron was primarily due to price increases on select
products, new product offerings, and increased consumption.
COST OF THEATRE OPERATIONS - Cost of theatre operations decreased 4.9% for the
three months ended July 31, 1997 to $116.1 million from $122.1 million in the
three month period ended July 31, 1996. As a percentage of revenues, the cost of
theatre operations was 94.3% for the quarter ended July 31, 1997 and 89.0% for
the three months ended July 31, 1996. The percentage increase was primarily the
result of a lower ratio of revenues to fixed costs during the 1997 period
combined with lower film and concession margins. The film margins were impacted
by shorter film runs in 1997.
INVESTMENT INCOME - Dividend and interest income earned on the Company's
short-term investment portfolio increased 12.5% to $1.2 million for the quarter
ended July 31,1997 from $1.1 million in the same 1996 period.
6
9
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
New Accounting Standards
------------------------
The Company will adopt Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) in the first quarter of 1998. Had such standard
been applied to the earnings per share calculation for the three and nine month
periods described above, there would not have been a material change.
The Financial Accounting Standards Board recently issued two other accounting
pronouncements, SFAS No. 130, "Reporting Comprehensive Income", and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". Both
of these standards will be adopted by the Company in the fiscal year ended
October 31, 1999. The Company is currently evaluating the impact of these
disclosure standards on its financial statements.
Liquidity and Capital Resources
-------------------------------
Virtually all of GCC's revenues are collected in cash, principally through
theatre admissions and concession sales. Because revenues are received in cash
prior to the payment of related expenses, the Company has historically not
required working capital to finance its growth or to meet its operating
requirements. Cash generated by the business in excess of that needed for
operations and capital expenditures will be available for investment.
The Company has commitments to open 17 new megaplex theatres with approximately
270 screens during the next three years. Management expects to open four of
these theatres with a total of 53 screens as well as add four screens to an
existing location by January 31, 1998, the end of our fiscal 1998 first quarter.
In November 1996, two new units with a combined 30 screens opened in the Chicago
area. GCC entered into an agreement in November 1996 with a major financial
institution to provide operating leases for up to $250 million of assets over
the next five years for its theatre expansion program. A receivable due from
this financial institution may arise from time to time throughout the year from
GCC initially advancing monies for leased assets as the financial institution's
agent. On a periodic basis, these advances are reimbursed by the financial
institution. The $17.6 million receivable at October 31, 1996 was reimbursed to
the Company in December 1996.
For the nine months ended July 31, 1997, GCC made expenditures of $11.6 million
for leasehold improvements, furniture and equipment purchases, and new
point-of-sale systems. Total capital expenditures are expected to approximate
$17.1 million during fiscal 1997.
The Company invested $28.6 million of cash in certain short-term securities
during the nine months ended July 31, 1997. These securities are highly liquid
and consist of high quality commercial paper, certificates of deposit, corporate
debt securities and securities of U.S. government agencies.
On December 6, 1996, the Company invested $7.0 million in a wireless location
and two-way messaging company.
The Company has significant lease commitments. Lease payments totaled $57.7
million in 1996 and minimum lease payments from existing obligations are
expected to approximate $66.7 million in 1997. Additional lease commitments will
arise as the Company continues to implement its operating lease facility.
7
10
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
-------------------------------------------
In December 1996, the Company's Board of Directors authorized the repurchase of
up to one million shares of the Company's common stock over the next twelve
months. Through July 31, 1997, the Company repurchased 118,700 shares at a cost
of $4.3 million.
Subsequent to the end of the quarter, there were several substantial
transactions. The disposition of a number of the Company's theatre locations
yielded approximately $15.8 million in cash. A follow-on investment in a
portfolio company required approximately $5.0 million in cash and a
share-for-share exchange of the Company's investment in Vision Express will
result in a fourth quarter gain on sale and cash proceeds which will be
determined at a later date based on share values and exchange rates.
The Company believes that cash generated from operations, cash and short-term
investments on hand of $113.8 million, the $50 million available under the
Company's revolving credit agreement, which expires in December 1997 (the
Company is in the process of renegotiating), and the operating lease arrangement
will be sufficient to fund operating requirements, capital expenditures and the
Company's investment activities for the foreseeable future.
Forward-looking Statements
--------------------------
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates",
"expects", "will continue", "estimates", "projects", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements are subject
to certain risks, trends, and uncertainties that could cause actual results to
vary materially from anticipated results, including without limitation, delays
in obtaining leases, permits and approvals for new megaplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and risks associated with the Company's investment
activities and other factors described herein and in the Company's Annual Report
included in its Form 10-K.
8
11
PART II
-------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
--------
11.1 Computation of weighted average number of shares outstanding
used in determining primary and fully diluted earnings per
share.
27.1 Financial data schedule.
(b) Reports on Form 8-K.
--------------------
The Company did not file any reports on Form 8-K during the quarter
ended July 31, 1997.
9
12
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: September 15, 1997
-------------------------------
Richard A. Smith
Chairman of the Board of
Directors and Chief Executive
Officer
Date: September 15, 1997
-------------------------------
G. Gail Edwards
Vice President, Chief Financial
Officer and Treasurer
Principal Accounting Officer
10