<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended : August 31, 1996
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES ACT OF 1934
For the transition period from ________ to _______
Commission File Number 333-2724
--------
_________________________________________
COBB THEATRES, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ALABAMA 63-1161322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
924 Montclair Road
Birmingham, Alabama 35213
(Address of principal executive offices)
(205)591-2323
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes NOT APPLICABLE No _____________
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<PAGE>
COBB THEATRES FORM 10-K
INDEX
PAGE
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1: Business . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) General Development of Business . . . . . . . . . . . 1
(b) Financial Information about Industry Segments . . . . 1
(c) Narrative Description of Business . . . . . . . . . . 1
Item 2: Properties . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 5
Item 4: Submission of Matters to a Vote of Security Holders. . . . 5
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . 6
Item 6: Selected Financial Data. . . . . . . . . . . . . . . . . . 6
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 7
Item 8: Financial Statements and Supplementary Data . . . 12
Item 9: Changes in and Disagreements on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . 12
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 10: Directors and Executive Officers of the Registrant . . . . 13
Item 11: Executive Compensation and Other Information . . . . . . . 14
Item 12: Principal Equityholders. . . . . . . . . . . . . . . . . . 16
Item 13: Certain Relationships and Related Transactions . . . . . . 16
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 14: Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 18
<PAGE>
FORM 10-K
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Cobb Theatres, L.L.C. (the "Company") is an Alabama limited liability
company formed to acquire and operate the business of Cobb Theatres Group, a
privately-held group of companies based in Birmingham, Alabama.
Concurrently with the closing of the offering of the Senior Secured Notes
on March 6, 1996, (i) R.C. Cobb, Inc. acquired all right, title and interest in
and to all of the outstanding equity securities of R & J Concessions, Inc., (ii)
R & J Concessions, Inc. was merged into its sole shareholder, R.C. Cobb, Inc.
with R.C. Cobb, Inc. being the surviving corporation, and (iii) Cobb Theatres,
L.L.C. acquired all right, title and interest in and to all of the outstanding
equity securities of R.C. Cobb, Inc. and Cobb Theatres II, Inc., which had
previously been held by members of the Cobb family (the "Formation
Transactions"). R & J Concessions, Inc. was merged out of existence in this
transaction. All of the outstanding equity interest of the Company are
held by members of the Cobb family and by two revocable trusts for the
benefit of certain members of the Cobb family.
The Company and its predecessors have been involved in the motion picture
exhibition industry since 1921 and have been owned and managed by members of the
Cobb family throughout this period. Moreover, the Company's six top executives
have an average of over 28 years of experience in the industry.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The registrant operates exclusively in the motion picture exhibition
industry.
(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company is the twelfth largest motion picture exhibitor in
the United States and the largest exhibitor in Florida, based on the number of
screens operated. At August 31, 1996, the Company operated 70 theatres with an
aggregate of 593 screens in Florida, Alabama, Arkansas and Mississippi,
including 55 theatres and 455 screens in Florida. The Company has been a pioneer
in the development and operation of multi-screen theatres, and management
believes that its average number of screens per theatre of 8.5 at August 31,
1996 is the second highest among major theatre exhibitors.
The Company's revenues are generated primarily from admission revenues and
concession revenues. Additional revenues are generated by on-screen advertising
and electronic video games installed in the lobbies of the Company's theatres.
The two major components of admission revenues are attendance and ticket prices.
Attendance is most influenced by the quality of films released by distributors
and, to a lesser extent, by expansions into new markets, competition and
population growth in the geographic market. Although the Company's ticket prices
in a particular market may change in response to competition and other factors,
the Company's average ticket price has remained relatively stable over the past
few years. The Company's principal costs of operations are film rentals, cost of
concessions, payroll, occupancy costs, such as theatre rentals, ad valorem taxes
and utilities, advertising costs and other expenses, such as insurance.
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STRATEGY
The Company's strategy is to continue to grow revenues and EBITDA
(operating revenues before non-cash and non-recurring expenditures) primarily by
expanding its theatre circuit. Key elements of the Company's operating strategy
include the following:
Maintain Market Leadership in Florida. The Company is the largest motion
picture exhibitor in Florida based on number of theatres and screens operated.
The Company has concentrated, and plans to continue to concentrate, a majority
of its expansion efforts in Florida. Management believes Florida is one of the
more attractive theatre markets in the United States due to its favorable
demographic profile and economic outlook.
Target Non-Competitive Zones. The Company's strategy is to locate its
theatres in given areas or "zones" where it is the sole or a leading exhibitor
in order to assure that its theatres have access to the best available film
product and to strengthen its ability to negotiate more advantageous film
licensing terms. At August 31, 1996, approximately 75% of the Company's theatres
were located in zones where the Company is the sole exhibitor, and approximately
one-half of the Company's remaining theatres were located in zones where
management believes the Company is the leading exhibitor.
Maximize Revenue and Profitability with Multi-Screen Theatres. All of the
Company's theatres are multi-screen facilities and 86% of its theatres have six
or more screens. Multi-screen theatres allow for a variety of films with
differing audience appeal to be shown simultaneously, or, alternatively, allow
for an increased number of showings of more popular films in multiple
auditoriums. In addition, the ability to shift films from larger auditoriums to
smaller auditoriums in a multi-screen theatre enables the Company to exhibit
films for a longer period of time, thereby taking advantage of lower licensing
fees during the latter part of a film's release period and reducing film rental
costs as a percentage of admission revenues. Operating efficiencies are also
realized in multi-screen theatres through the economies of having common box
office, concession, projection, lobby and restroom facilities, which enable the
Company to spread certain costs over a higher revenue base. Management believes
that the Company's average number of screens per theatre of 8.5 at August 31,
1996 is the second highest among major theatre exhibitors and is considerably
higher than the 5.9 average number of screens per theatre for the top ten motion
picture exhibitors as of May 1, 1996.
Operate Attractive, High Quality Theatres. The Company's management
believes that maintaining high quality theatres provides significant competitive
advantages because theatre patrons and, therefore, film distributors generally
seek clean, conveniently located, modern facilities with state-of-the-art
equipment. As of August 31, 1996, more than 68% of the Company's first-run
theatres had one or more auditoriums equipped with digital sound capabilities.
Additionally, to enhance its theatre patrons' comfort and enjoyment, the seats
in all new Cobb theatres are specially designed for the Company, with wider
cushions, higher backs and more spacing between rows than is standard in the
theatre industry.
Focus on Cost Controls. The Company seeks to be an efficient exhibitor
through careful control of operating expenses. The Company pursues a regional
strategy in operating its theatres in order to profitably serve its markets and
minimize corporate overhead costs. The Company also controls costs and realizes
operating efficiencies as a result of its focus on multi-screen theatres. The
Company's high percentage of theatres in non-competitive zones enables the
Company to negotiate aggressively film licensing terms and thereby minimize film
rental costs.
CONCESSIONS
Sales of concession items accounted for approximately 28.5% of total
revenues for the fiscal year ended August 31, 1996. Since concession sales
provide higher gross profit percentages than ticket sales, increasing concession
sales remains a focus of the Company's management. The Company's primary
concession products are varying sizes of popcorn, soft drinks, candy and certain
other items such as hot dogs and nachos. In an effort to increase concession
revenues per patron, the Company is expanding its concession menus in many
theatres to include bulk-sized items. The Company is also devoting additional
resources to training its concession personnel to
2
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"up-sell" or "cross-sell" its products more effectively. The Company conducts
quarterly concession promotions in conjunction with suppliers who provide
marketing funds to the Company in order to offset advertising and food cost.
Retail prices for concession items vary by the size of the item and are
generally market sensitive.
FUTURE EXPANSION
The Company continually evaluates existing and potential theatre locations
in order to increase profitability and maintain the Company's leadership
position in certain of its markets. The Company generally seeks to develop or
acquire theatres in zones that are underscreened as a result of changing
demographic trends or that are served by aging theatre facilities. The Company
targets theatre locations with high visibility, proximity to retail
establishments or entertainment venues and convenient roadway access.
The Company intends to continue to develop new theatres primarily with 16
to 24 screens in zones where the Company can be the sole or a leading exhibitor.
Management expects that the Company's expansion for the foreseeable future will
remain focused primarily in the Southeastern United States, where management
believes it has extensive knowledge of the grossing potential of film zones and
the competitive environment.
The Company currently plans to open two additional theatres (38 screens)
and expand three theatres (18 screens) by August 31, 1997. The Company
anticipates that the new theatres will be developed pursuant to operating
leases. The Company prefers to develop theatres as leasehold properties in order
to preserve the capital that would otherwise be required to develop fee-owned
properties. The Company has historically developed, and plans to continue to
develop, a significant portion of new theatres by entering into long-term,
triple net leases which provide for the incurrence by the landlord of the
construction costs of the theatre (other than costs for furniture, fixtures and
equipment) in exchange for the Company's entering into the lease. Generally, it
takes 18 to 24 months to open a new multi-screen theatre from the time that the
Company commits to opening such a theatre.
FILM LICENSING
The Company licenses movies from film distributors owned by major film
production companies and from independent film distributors that typically
distribute films for small production companies. The Company's licensing
activities are conducted from its booking office located in Dallas, Texas, the
closest city to the Company's operations in which all of the major film
distribution companies have offices. Successful licensing depends greatly upon
the knowledge of the tastes of residents in markets served by each theatre.
Film distributors typically license each first-run film to only one theatre
in a given market area or "zone." The size of a film zone is generally
determined by the population density, demographics and grossing potential of a
particular market, and can range from a radius of a few miles in major
metropolitan areas to one or more towns in more suburban and rural areas. The
Company believes that its strategy of maintaining an extensive circuit of modern
state-of-the-art multi-screen theatres enhances its ability to aggressively
license commercially popular films from distributors. In film zones where the
Company has no competition, it obtains film licenses by selecting a film from
among those offered and negotiates directly with the distributor. In film zones
where there is competition, a distributor will generally allocate its films
among the exhibitors in the zone. When films are licensed under the allocation
process, a distributor will decide on a picture-by-picture, theatre-by-theatre
basis which exhibitor will be offered a movie and then that exhibitor will
negotiate directly with the distributor for the film. In recent years,
distributors have generally used this allocation process rather than a bidding
process to license their films.
Film licenses typically provide that a film distributor receives a
specified percentage of the gross box office receipts, determined on a weekly
basis, with the percentage generally declining over time. Final terms of the
film licenses (and hence the film rental costs) with many film distributors are
agreed upon subsequent to exhibition of the film in a process know as
"settlement." The settlement process considers, among other things, the actual
success of a film relative to original expectations.
3
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The Company's business is dependent upon availability of popular motion
pictures and upon its relationship with motion picture distributors. There are
nine major distributors whose films accounted for approximately 94.0% of the
domestic admission revenues and which distributed the top 75 grossing films in
1995. These distributors consist of Buena Vista Pictures Distribution (Disney),
Miramax, MGM/United Artists, New Line Cinema, Paramount Pictures, Sony Releases,
Twentieth Century Fox, Universal Film Exchanges, Inc. and Warner Bros.
Distribution. There are also numerous smaller distributors. No single
distributor dominates the market. From year to year, the Company's revenues
attributable to individual distributors may vary significantly depending upon
the commercial success of such distributor's films in any given year. The
Company believes that it generally has good relationships with the film
distributors.
COMPETITION
The Company is subject to varying degrees of competition in the geographic
areas in which it operates. The Company competes aggressively with respect to
licensing films, attracting patrons and obtaining new theatre sites. The Company
competes against local and national exhibitors, some of whom have greater
financial resources than the Company.
In terms of film licensing, the Company's management believes that the
principal competitive factors include licensing terms, grossing potential,
seating capacity, location and quality of an exhibitor's theatres. The
competition for patrons is dependent upon factors such as the availability of
popular films, the location of theatres, the comfort and quality of theatres and
ticket prices. The Company believes that its admission prices are competitive
with admission prices of competing theatres.
Certain of the Company's competitors have sought to expand the number of
theatres and screens in operation through aggressive building programs. Such
expansion has caused certain zones in which the Company operates or portions
thereof to become overscreened, although to date this has not adversely
affected the Company's overall business. Moreover, the theatre exhibition
industry has undergone significant consolidation, and as a result, at May 1,
1996, the ten largest motion picture exhibitors operated approximately 56% of
the total number of screens in the United States.
The Company's theatres face competition from a number of other motion
picture delivery systems, such as video cassette rentals, pay-per-view, pay
television, other basic cable television services and broadcast and syndicated
television. While the future impact of such delivery systems on the motion
picture exhibition industry is difficult to determine precisely, there can be no
assurance that such delivery systems will not have an adverse impact on the
Company's business. Management believes, however, that these delivery systems
are helpful in that they encourage more film production and enhance public
awareness of the Company's business. The Company's theatres also face
competition from other forms of entertainment which compete for the public's
leisure time and disposable income.
SEASONALITY
Admission and concession revenues are subject to seasonal
fluctuations which affect all motion picture exhibitors. These fluctuations are
the result of the distribution practices of the major motion picture studios
which have historically concentrated the release of films during the summer and
holiday seasons. As a result, the Company's second and fourth fiscal quarters
have been historically strong compared to its first and third fiscal quarters.
EMPLOYEES
At August 31, 1996, the Company employed approximately 300 full-time
employees (including 51 full-time employees at the corporate and booking
offices) and 1,400 part-time employees. Virtually all of the part-time employees
are paid entry level wages. The number of part-time employees fluctuates because
of the seasonal nature of the Company's business. At August 31, 1996, no
employees were represented by union organizations. The Company considers its
employee relations to be good.
4
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ITEM 2. PROPERTIES
As of August 31, 1996, the Company operated 70 theatre locations (593
screens), 58 of which (representing 513 screens) were first-run theatres and the
balance of which were second-run theatres. Of these 70 theatres, the Company
leased 64 theatres (519 screens) and owned 6 theatres (74 screens). The
Company's leases typically have initial terms of either 15 or 20 years, with
three to five five-year renewal options. Rents may escalate during the initial
term and almost always escalate during renewal periods. During the next five
years, approximately 15 theatre leases (87 screens) will expire, 14 of which (85
screens) will be subject to renewal options. Rent escalations on lease options
are negotiated upon the signing of the lease. Some leases have a minimum annual
rent, and provide for additional rental in the form of percentage rent based
upon the performance of the theatre. The Company leases its headquarters
building located in Birmingham, Alabama.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of its business operations, such as personal
injury claims, employment matters and contractual disputes. Management believes
that the Company's potential liability with respect to proceedings currently
pending is not material in the aggregate to the Company's consolidated financial
position or results of operations.
As of March 6, 1996, R.C. Cobb, Inc., had an informal appeal with the
Florida Department of Revenue ("DOR") with respect to a sales tax audit for the
period July 1, 1989, through July 31, 1993, and a proposed assessment for that
period in the amount of $3,028,203 which represented assessed sales tax,
penalties and accrued interest. The dispute was related to intercompany payments
paid pursuant to a Concession Lease Agreement between R.C. Cobb, Inc. and R & J
Concessions, Inc. ("R&J"). Proper sales tax was collected by R.C. Cobb, Inc. and
paid at the point of sale of concessions to theatre patrons. Under Chapter 212,
Florida Statutes, payments for a lease or license to use real property are
generally subject to sales tax. With regard to theatre concessions, however,
only licenses to use real property are subject to sales tax, while leases are
exempt from sales tax. The DOR initially took the position that certain payments
made by R&J to R.C. Cobb, Inc. under the written concession agreement
constituted payments for the license (as opposed to a lease) to use the theatre
premises. R.C. Cobb, Inc. took the position that no part of the payments it
received from R&J were for the right to use or possess real property. The
dispute was recently settled for less than $20,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Security holders during the
quarter ended August 31, 1996.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any equity interest of
the Company. The Company is a limited liability company consisting of member
interests rather than shareholder interest.
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company as
of and for each of its most recent five fiscal years. The following information
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
document.
<TABLE>
<CAPTION>
Years Ended August 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 68,878 $ 83,712 $ 94,097 $ 105,608 $ 119,145
Gross profit 40,961 50,503 58,234 65,496 73,445
Other theatre operating costs 30,278 34,936 39,062 43,943 49,101
General and administrative expense 4,661 5,124 6,739 7,088 7,548
Depreciation and amortization 3,963 4,216 5,374 8,062 9,121
Operating income 2,059 6,227 7,059 6,403 7,675
Interest expense, net 1,858 1,904 2,736 4,992 8,058
Income (loss) before extraordinary item (679) 1,622 2,456 216 (400)
Extraordinary loss-debt extinguishment -- -- -- -- (751)
Net income (loss) (679) 1,622 2,456 216 (1,151)
Other Financial Data:
Net cash provided (used) by operating activities $ 5,133 $ 9,195 $ 11,432 $ 7,423 $ 9,457
Net cash provided (used) in investing activities (3,875) (3,462) (44,667) (24,730) (11,724)
Net cash provided (used) in financing activities (1,140) (4,188) 32,601 16,643 9,099
Capital expenditures and acquisitions 6,820 5,087 46,895 25,380 11,572
EBITDA (a) 6,546 10,685 12,647 14,716 17,023
Operating Data:
Number of theatres operated (at period end) 56 56 68 71 70
Number of screens operated (at period end) 409 411 525 575 593
Average screens per location (at period end) 7.3 7.3 7.7 8.1 8.5
Attendance (in thousands) 13,456 15,841 18,311 20,484 23,027
<CAPTION>
August 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and equivalents $ 994 $ 2,539 $ 1,905 $ 1,241 $ 8,073
Property and equipment, net 30,326 29,300 56,306 75,427 79,683
Total assets 38,473 37,879 79,445 98,140 113,495
Total indebtedness 22,119 22,289 55,275 72,754 86,807
Members' equity 2,954 535 3,992 4,208 3,057
</TABLE>
(a) EBITDA is defined as net income plus net interest expense, provision
for income taxes, depreciation and amortization, changes in deferred rent
liability and other non-cash or non-recurring items. The Company has included
EBITDA because it is a measure that will be used in determining compliance
with certain covenants. EBITDA should not be construed as an alternative to
operating income or cash flows from operations (as determined in accordance
with generally accepted accounting principles).
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and the notes thereto included herein.
OVERVIEW
The Company's revenues are generated primarily from admission revenues and
concession revenues. Additional revenues are generated by on-screen advertising
and electronic video games installed in the lobbies of the Company's theatres.
The two major components of admissions revenues are attendance and ticket
prices. Attendance is most influenced by the quality of films released by
distributors and, to a lesser extent, by the opening of new theatres,
competition and population growth in the geographic markets. The Company's
principal costs of operations are film rentals, costs of concessions, payroll,
occupancy costs, such as theatre rentals and utilities, advertising costs and
other expenses, such as insurance.
Substantially all of the Company's revenue growth has been due to theatre
acquisitions and the development of new theatres. The largest acquisition took
place in March 1994, when the Company acquired eight theatres (63 screens) in
Florida from Wometco (the "Wometco Acquisition"). The results of operations of
the theatres acquired from Wometco are represented by the financial statements
of Cobb Theatres II, Inc. from the date of the Wometco Acquisition. The Company
believes that fiscal years ended August 31, 1996, 1995 and 1994 are not
comparable due to the effects of acquired theatres, new theatre openings and the
impact of the debt service associated with the debt incurred in connection with
their acquisition and development. Theatre closings have had no significant
effect on the operations of the Company.
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RESULTS OF OPERATIONS
The following table presents certain income statement items as a percentage of
total revenues and other key information for the last three fiscal years.
<TABLE>
<CAPTION>
August 31, % of Total August 31, % of Total August 31, % of Total
1996 Revenues 1995 Revenues 1994 Revenues
----------- ------------ ---------- ------------ ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Admissions $ 81,662 68.5% $ 73,190 69.3% $ 65,951 70.1%
Concessions 33,917 28.5 29,432 27.9 26,113 27.8
Other 3,566 3.0 2,986 2.8 2,033 2.2
--------- -------- --------- -------- ---------- -------
Total revenues 119,145 100.0 105,608 100.0 94,097 100.0
Cost of revenues
Film rentals 40,381 33.9 35,896 34.0 32,255 34.3
Concession 5,319 4.5 4,216 4.0 3,608 3.8
--------- -------- --------- -------- ---------- -------
Total costs of revenues 45,700 38.4 40,112 38.0 35,863 38.1
--------- -------- --------- -------- ---------- -------
Gross profit 73,445 61.6 65,496 62.0 58,234 61.9
Other theatre operating costs 49,101 41.2 43,943 41.6 39,062 41.5
General and administrative expenses 7,548 6.3 7,088 6.7 6,739 7.2
Depreciation and amortization 9,121 7.7 8,062 7.6 5,374 5.7
--------- -------- --------- -------- ---------- -------
Operating income 7,675 6.4 6,403 6.1 7,059 7.5
Interest expense, net 8,058 6.8 4,992 4.7 2,736 2.9
Income (loss) before
extraordinary item (400) (0.3) 216 10.2 2,456 2.6
Extraordinary loss-
debt extinguishment (751) (0.6) - - - -
Net income (loss) $ (1,151) (1.0) $ 216 0.2 $ 2,456 2.6
Other key information:
Film rental costs as a percentage
of admissions revenue 49.4% 49.0% 48.9%
Cost of concessions as a percentage
of concession revenues 15.7% 14.3% 13.8%
Average screen count (weighted by month) 583 550 471
Revenues per average screen count $ 204.37 $ 192.01 $ 199.78
</TABLE>
COMPARISON OF YEARS ENDED AUGUST 31, 1996 AND AUGUST 31, 1995
REVENUES. Revenues increased 12.8% in fiscal 1996 to $119.1 million from $105.6
million in fiscal 1995. Attendance increased 12.4% primarily due to the opening
of 38 screens in fiscal 1996 and the first full year of operations of 50 screens
added in fiscal 1995. The average screen count increased 6.0% in fiscal 1996 to
583 from 550 in fiscal 1995. The average ticket price for first-run films
decreased 1.0% to $4.00 in fiscal 1996 from $4.04 in fiscal 1995. The average
first-run concession revenue per patron increased by 1.3% in fiscal 1996 to
$1.55 from $1.53 in fiscal 1995.
GROSS PROFIT. Gross profit increased 12.1% in fiscal 1996 to $73.4 million from
$65.5 million in fiscal 1995. This increase is primarily attributable to the
12.8% increase in revenues. The gross profit as a percentage of total revenues
decreased to 61.6% in fiscal 1996 versus 62.0% in fiscal 1995 due to the 0.4
percentage point increase in film rental costs and the 1.4 percentage points
increase in the cost of concessions as a percentage of concession revenues.
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OTHER THEATRE OPERATING COSTS. Other theatre operating costs increased 11.7% in
fiscal 1996 to $49.1 million from $43.9 million in fiscal 1995, primarily
resulting from a 6.0% increase in the average screen count and a 12.4% increase
in attendance. Other theatre operating costs as a percentage of revenues
decreased to 41.2% in fiscal 1996 versus 41.6% in fiscal 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 6.0% in fiscal 1996 to $7.5 million from $7.1 million in fiscal 1995,
primarily resulting from the 6.0% increase in the average screen count and
increased payroll and related costs and professional fees. General and
administrative expenses as a percentage of revenues decreased to 6.3% in fiscal
1996 from 6.7% in fiscal 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
13.1% in fiscal 1996 to $9.1 million from $8.1 million in fiscal 1995. This
increase was primarily the result of theatre property additions and the increase
in debt issue cost amortization.
INTEREST EXPENSE, NET. Net interest expense increased 61.4% in fiscal 1996 to
$8.1 million from $5.0 million in fiscal 1995. The increase was due to an
increase in the average debt outstanding and higher interest rates on a
significant portion of the Company's debt in fiscal 1996 versus fiscal 1995.
NET LOSS. The Company incurred a net loss in fiscal 1996 of $1.2 million
compared to net income of $0.2 million in fiscal 1995. In addition to the
factors previously discussed, in fiscal 1996 the Company incurred $1.2 million
of debt refinance costs consisting of $615,000 of prepayment fees and the
write-off of $576,000 of deferred loan costs associated with the Company's
previous debt which was refinanced on March 6, 1996.
COMPARISON OF YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
REVENUES. Revenues increased 12.2% in fiscal 1995 to $105.6 million from $94.1
million in fiscal 1994. Attendance increased 11.9% primarily due to the opening
of 50 screens in fiscal 1995 and the first full year of operations of 114
screens added in fiscal 1994, including 84 screens that were acquired.
Sixty-three of these acquired screens were acquired from Wometco in March 1994.
The average screen count increased 16.8% in fiscal 1995 to 550 from 471 in
fiscal 1994. The average ticket price for first-run films decreased 0.7% to
$4.04 in fiscal 1995 from $4.07 in fiscal 1994. The decrease in ticket prices
was primarily due to a management decision to discount ticket prices for a
period of time in fiscal 1995 in response to declining attendance as a result of
the reduced number of higher grossing box office films. The average first-run
concession revenue per patron increased 4.9% in fiscal 1995 to $1.53 from $1.46
in fiscal 1994.
GROSS PROFIT. Gross profit increased 12.5% in fiscal 1995 to $65.5 million from
$58.2 million in fiscal 1994. This increase is primarily attributable to the
12.2% increase in revenues. The gross profit percentage remained relatively flat
at 62.0% in fiscal 1995 versus 61.9% in fiscal 1994.
OTHER THEATRE OPERATING COSTS. Other theatre operating costs increased 12.5% in
fiscal 1995 to $43.9 million from $39.1 million in fiscal 1994, primarily due to
the 16.8% increase in the average screen count. Other theatre operating costs as
a percentage of revenues remained relatively flat at 41.6% in fiscal 1995 versus
41.5% in fiscal 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 5.2% in fiscal 1995 to $7.1 million from $6.7 million in fiscal 1994.
General and administrative expenses as a percentage of revenues decreased to
6.7% in fiscal 1995 from 7.2% in fiscal 1994. After adjusting for the increase
of $1.2 million in non-recurring executive bonuses in fiscal 1994, general and
administrative expenses increased $1.6 million or 29.0% in fiscal 1995 compared
to fiscal 1994 primarily due to a full year of operation of the theatres
acquired in the Wometco Acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense in 1995
increased to $8.1 million from $5.4 million in fiscal 1994. This increase was
primarily the result of theatre property additions.
9
<PAGE>
INTEREST EXPENSE, NET. Net interest expense increased in 1995 to $5.0 million
from $2.7 million in fiscal 1994. The increase was due to an increase in the
average debt outstanding in fiscal 1995 versus fiscal 1994, which in turn was
primarily attributable to the Wometco Acquisition and other capital
expenditures. Net interest expense also increased as a result of higher interest
rates on a significant portion of the Company's debt in fiscal 1995 versus
fiscal 1994.
NET INCOME. Net income decreased in fiscal 1995 to $0.2 million from $2.5
million in fiscal 1994. In addition to the factors previously discussed, the
Company incurred $1.2 million of non-recurring expenses in 1995 due to an
unconsummated financing transaction. The non-recurring expenses included
development costs, financing costs and legal expenses associated with the
development of several theatre projects which were abandoned when satisfactory
financing was not available.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, primarily through box office
admissions and theatre concession revenues. The Company has an operating "float"
which partially finances its operations and which permits the Company to
maintain a small amount of working capital capacity. The "float" exists because
its revenues are received in cash, while exhibition costs (primarily film
rentals) are ordinarily paid to distributors within 14 to 45 days following
receipt of admission revenues.
On March 6, 1996, the Company issued $85 million of 10 5/8% Senior Secured Notes
due 2003 (the "Senior Secured Notes") and entered into a $25 million New Credit
Facility (the "New Credit Facility"). Interest on the Senior Secured Notes is
paid semi-annually and commenced on September 1, 1996. The New Credit Facility
consists of a seasonal revolving loan facility in the aggregate amount of $12.5
million (the "Seasonal Revolver") available for working capital purposes and a
reducing revolving loan facility in the aggregate commitment amount of $12.5
million (the "Reducing Revolver") available for future capital expenditures. No
borrowings were outstanding under the New Credit Facility at August 31, 1996.
Under the terms of the New Credit Facility, $12.5 million was available under
the Seasonal Revolver at August 31, 1996. The Company will have access to the
Reducing Revolver once its ratio of net debt to EBITDA is less than (i) 4.5 to
1.0, with respect to the first $7.0 million available under the Reducing
Revolver and (ii) 4.25 to 1.0, with respect to the remaining $5.5 million
available under the Reducing Revolver.
The New Credit Facility contains covenants that, among other things, restrict
the ability of the Company to incur additional debt, create certain liens, make
certain investments (including certain capital expenditures), pay dividends or
make other distributions, sell assets of the Company or its subsidiaries, issue
or sell equity interests of the Company's subsidiaries or enter into certain
mergers or consolidations. Under the New Credit Facility, the Company will be
required to comply with specified financial ratios, including maximum net debt
to EBITDA and minimum interest coverage and fixed charge coverage ratios.
The Company's primary capital requirements are for furniture and equipment
relating to new theatre openings and for remodeling, expansion and maintenance
of existing theatres. The Company prefers to develop theatres on a leasehold
basis rather than a fee-owned basis due to the fact that the capital
requirements associated with developing a theatre on a leasehold basis are
significantly less than developing a theatre on a fee-owned basis. The Company
has historically developed, and plans to continue developing, a significant
portion of new theatres by entering into long-term, triple net leases which
provide for the incurrence by the landlord of the construction costs of the
theatre, other than those for furniture, fixtures and equipment, in exchange for
the Company's entering into the lease.
10
<PAGE>
The Company historically has funded its capital expansion needs through bank
borrowings and with excess funds generated from its operations. The table below
summarizes net cash provided by operating activities and net cash used for
investing activities in fiscal 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Years Ended
August 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net cash provided by operating activities $ 9,457 $ 7,423 $ 11,432
Net cash used for investing activities:
Wometco Acquisition -- -- (22,000)
Purchase of land for the construction of theatres -- (6,509) (4,124)
Construction of fee-owned theatres (5,035) (10,766) (7,777)
Theatre openings (leasehold), expansions, remodeling
and acquisitions (6,537) (7,255) (11,608)
Other (152) (200) 842
-------- --------- ---------
Net cash used for investing activities (11,724) (24,730) (44,667)
-------- --------- ---------
Net cash provided by operating activities less net
cash used for investing activities $(2,267) $(17,307) $(33,235)
======== ========= =========
</TABLE>
Notwithstanding the Company's preference to develop theatres on a leasehold
basis, the Company expended $5.0 million in fiscal 1996, $17.3 million in fiscal
1995 and $11.9 million in fiscal 1994 to construct or expand fee-owned
properties, including $4.1 million of land purchased in fiscal 1994 and $6.5
million of land purchased in fiscal 1995 for the construction of new theatres.
The amount expended in fiscal 1996 primarily related to a 20-plex theatre in
Naples, Florida, which opened on December 15, 1995 (the "Naples Theatre").
The following table summarizes the growth in the Company's theatre circuit since
the beginning of fiscal 1994:
<TABLE>
<CAPTION>
Years Ended August 31,
------------------------------------------------------------------------
1994 1995 1996
---------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Theatres Screens Theatres Screens Theatres Screens
-------- ------- -------- ------- -------- -------
Beginning of the period 56 411 68 525 71 575
Additions due to:
New development 1 16 3 38 2 32
Expansion -- 14 -- 12 -- 6
Acquisition 13 98 -- -- -- --
---------------------- ----------------------- ---------------------
14 128 3 50 2 38
Theatre closings and sales (2) (14) -- -- (3) (20)
====================== ======================= =====================
End of the period 68 525 71 575 70 593
====================== ======================= =====================
</TABLE>
Net cash provided by operating activities was insufficient to meet net cash used
for investing activities by approximately $33.2 million in fiscal 1994, $17.3
million in fiscal 1995 and $2.3 million in fiscal 1996. The Company's cash needs
during these periods up until March 6, 1996 were provided primarily by the
Existing Credit Facilities entered into in March 1994 which provided for up to
$55.0 million of senior term loans and an $11.0 million seasonal working capital
revolver. In addition, the Company arranged $8.8 million of financing to
construct two fee-owned properties during fiscal 1994. In September 1995, the
Company issued $10.0 million of Senior Subordinated Notes, the proceeds of which
were used to complete the Naples Theatre and repay borrowings under the seasonal
working capital revolver. Since March 6, 1996, the Company's cash needs are
being provided by the issuance of the $85 million Senior Secured Notes and the
$25 million New Credit Facility.
During fiscal 1996, the Company expended $11.6 million primarily for developing
new theatres and adding new screens to existing theatres. During this period the
Company opened one fee-owned theatre with 20 screens and one leased theatre with
12 screens. The Company closed three leased theatres with 20 screens and
expanded two leased theatres by a total of 6 screens resulting in a circuit
total of 593 screens in 70 theatres as of August 31, 1996.
11
<PAGE>
Construction has begun in the development of one new theatre in Miami, Florida
for 18 new screens scheduled to open in December 1996. In addition, the Company
is currently adding six new screens to an existing theatre in Fayetteville,
Arkansas and 12 new screens to an existing theatre in Tampa, Florida. For fiscal
1997, the Company estimates that total capital expenditures will be
approximately $13.5 million, consisting of $9.5 million for new theatre openings
and expansions which are expected to add 58 screens and $4.0 million for
remodeling and maintenance. The Company believes that availability under the New
Credit Facility, cash generated from operations and existing cash balances will
be sufficient to fund operations and planned capital expenditures for at least
the next twelve months.
The Company had one interest rate swap agreement with a $12.0 million notional
amount which matured in May 1996. The sole purpose of the swap was to convert a
portion of the Company's variable rate debt to fixed rate, with the counterparty
being one of the Company's primary lending institutions. The Company has had no
involvement with other derivatives in the past, with the exception of basic
swaps to convert variable rate debt to fixed rate debt, and has no specific
plans to use derivative products in the foreseeable future.
SEASONALITY
Admission and concession revenues are subject to seasonal fluctuations which
affect all motion picture exhibitors. These fluctuations are the result of the
distribution practices of the major motion picture studios which have
historically concentrated the release of films during the summer and holiday
seasons. As a result, the Company's second and fourth fiscal quarters have been
historically strong compared to its first and third fiscal quarters.
INFLATION
For the three years ended August 31, 1996, inflation and changing prices have
not had a significant impact on the Company's results of operations and
financial condition.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed on the Index at
F-1. Such financial statements and supplementary data are included herein
beginning on page F-2.
ITEM 9: CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
[cad 171]
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF COBB
The following table sets forth certain information with respect to the
directors and executive officers of the Company. Each of the persons named below
is elected to his respective office or offices annually.
<TABLE>
<CAPTION>
Names Age Position with the Company
- ----- --- -------------------------
<S> <C>
Rowland C. Cobb, Jr. ...... 75 Chairman of the Board
Robert M. Cobb ............ 47 President, Chief Executive Officer and Director
Jefferson R. Cobb.......... 42 Executive Vice President, Secretary/Treasurer and Director
Ricky W. Thomas............ 38 Senior Vice President and Chief Financial Officer
Stephen L. Colson.......... 50 Senior Vice President -- Operations
Gary Golden ............... 48 Senior Vice President -- Film Buying and Booking
A. Fox deFuniak............ 56 Director
Claude Nielsen............. 45 Director
</TABLE>
ROWLAND C. COBB, JR. served as Chairman of the Board and Chief Executive
Officer of R.C. Cobb, Inc. until December 1, 1995, when he was succeeded as
Chief Executive Officer by Robert M. Cobb, and serves as Chairman of the Board
of the Company. Mr. Cobb began working in the theatre business started by his
grandfather. After graduating from the University of Alabama in 1943 with a
Bachelor of Arts degree and serving as an officer in the Navy from 1943 to 1946,
Mr. Cobb served as the film buyer and manager for Richards Theatres, a family
owned theatre business. In 1947, Mr. Cobb assumed control of his family's
business, and in 1957, he formed R.C. Cobb, Inc. He has held virtually every
operational and managerial position within R.C. Cobb, Inc. or its predecessors
and continues to oversee Cobb's operations.
ROBERT M. COBB has served as Director, President and Chief Operating
Officer of R.C. Cobb, Inc. since 1992, and of Cobb Theatres II, Inc. from its
inception in 1994. He has served as President, Chief Executive Officer and
Director of the Company since December 1, 1995. He began working in R.C. Cobb,
Inc.'s theatres in the late 1950's. After graduating from the University of
Alabama in 1972 with a Bachelor of Science degree in Business, he joined the
Company and has held positions as usher, theatre manager, division manager, film
buyer and executive vice president.
JEFFERSON R. COBB has served as Director, Executive Vice President and
Secretary/Treasurer of R.C. Cobb, Inc. since 1992, and Cobb Theatres II, Inc.
from its inception in 1994. He serves as Director, Executive Vice President and
Secretary/Treasurer of the Company. Mr. Cobb is responsible for the development
of all theatre properties and is involved in the administration of all other
aspects of the business. He began working in the Company's theatres in the
mid-1960's and graduated from the University of Mississippi in 1976 with a
Bachelor of Science degree in Business and a minor in Marketing. Mr. Cobb held
several positions in theatre operations, later moving into the financial and
real estate procurement areas.
RICKY W. THOMAS has served as Senior Vice President and Chief Financial
Officer of the Company since December 1, 1995. From August 1993 to November
1995, Mr. Thomas was employed by AmSouth Bancorporation, a $17 billion bank
holding company located in Birmingham, Alabama, most recently as Senior Vice
President and Controller. From November 1991 to July 1992, he served as
Treasurer of Brice Building Company, Inc. Prior thereto, he served as Chief
Financial Officer of Tricare Rehabilitation Systems, Inc. Mr. Thomas also has
nine years of public accounting experience with Coopers & Lybrand and is a
Certified Public Accountant. Mr. Thomas has a Bachelor of Science degree in
Accounting from Auburn University and a Masters degree from the University of
Alabama.
13
<PAGE>
STEPHEN L. COLSON has served as Senior Vice President -- Operations of
the Company since November 29, 1995. Mr. Colson is responsible for the
theatre operations, concessions, advertising and technical services. From
1992 to 1994, Mr. Colson served as President, Chief Operating Officer and
Director of Litchfield Theatres, a theatre chain which operated approximately
24 theatres (172 screens) in six states. Prior to serving as a theatre
industry consultant during 1991 and 1992, he served as Vice President --
Southwest Operations with General Cinema for eight years and was responsible
for the operations of 92 theatres (over 400 screens) with revenues exceeding
$100 million. Mr. Colson has a Masters degree in Business from Armstrong
College. Mr. Colson served six years in the U.S. Army, graduated from the
Army Officers Advanced Course and served in the U.S. Army's Special Forces.
GARY GOLDEN is Senior Vice President - -Film Buying and Booking of the
Company, a position he has held since March 1996, and serves the Company in this
capacity managing Cobb's booking department. On a daily basis he maintains
communications and negotiations with all film distribution companies relating to
film rentals and bookings. Mr. Golden's film industry experience dates from 1968
when he began working in the booking department of United Artists. He later held
Head Booker/Film Buyer positions with Cinerama, Pacific Theatres, Commonwealth
Theatres, General Cinema and AMC. He was Vice President -- Head Film Buyer for
Gulf States Theatres for six years. In 1988 he became the Regional Vice
President -- Film for General Cinema and most recently became associated with
the Cobb Theatres, L.L.C.
A. FOX DEFUNIAK has served as Director of the Company since September 30,
1996. He has served as Managing Director of Sterne, Agee & Leach, Inc. in
Birmingham, Alabama since October 1, 1995. Prior to his current position, Mr.
deFuniak was employed by AmSouth Bank, most recently as Senior Executive Vice
President in Birmingham, Alabama from 1963 until retiring in 1995.
CLAUDE NIELSEN has served as Director of the Company since September 30,
1996. He has served as President and Chief Executive Officer of Coca-Cola
Bottling Company United, Inc. in Birmingham, Alabama since May 1, 1991. Prior to
his current position, Mr. Nielsen was employed by Birmingham Coca-Cola Bottling
Company, most recently as President.
Rowland C. Cobb, Jr. is the father of Robert M. Cobb and Jefferson R. Cobb.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF DIRECTORS
Mr. A. Fox deFuniak and Mr. Claude Nielsen will receive annual compensation
of $5,000 as members of the Board of Directors of Cobb Theatres, L.L.C. They
will also receive $750 for each quarterly board meeting attended.
14
<PAGE>
COMPENSATION OF EXECUTIVES
The following table sets forth the annual salary, bonuses and all other
compensation awards and payouts to the Chief Executive Officer and the named
executive officers of the Company for the fiscal years ended August 31, 1996,
1995 and 1994.
SUMMARY COMPENSATION TABLE
Annual Compensation
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other Annual
Salary Bonus Compensation(e)
Name and Position Year ($) ($) ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rowland C. Cobb, Jr. 1996 498,045 8,751 17,390
Chairman of the Board 1995 423,544 -- 17,157
1994 342,321 496,000 (a) 16,965
---------------------------------------------
Robert M. Cobb 1996 407,562 5,346 35,927
President and Chief Executive Officer 1995 328,015 -- 37,567
1994 193,481 461,091 (b) 30,848
---------------------------------------------
Jefferson R. Cobb 1996 407,562 5,346 28,311
Executive Vice President and Secretary/Treasurer 1995 328,015 -- 34,297
1994 193,481 461,091 (b) 22,425
---------------------------------------------
Ricky W. Thomas (c) 1996 113,154 -- 81
Senior Vice President and Chief Financial Officer 1995 -- -- --
1994 -- -- --
---------------------------------------------
Stephen Colson (d) 1996 111,346 -- 73
Senior Vice President Operations 1995 -- -- --
1994 -- -- --
</TABLE>
- ---------------------------------
(a) Executive bonus in 1994 was non-cash and related to the forgiveness of debt
owed by Rowland C. Cobb, Jr. to R.C. Cobb, Inc.
(b) Executive bonuses in 1994 enabled the recipients initially to capitalize
Cobb Theatres II, Inc. for the purpose of the Wometco Acquisition.
(c) Mr. Thomas was hired December 1, 1995.
(d) Mr. Colson was hired November 29, 1995.
(e) Other Annual Compensation primarily consists of compensatory split-dollar
life insurance premiums, company automobiles and country club memberships.
401(K) PLAN
The Company maintains a 401(k) Employee Capital Accumulation Plan to
which its eligible employees may make discretionary tax-deductible annual
contributions in amounts not exceeding the lesser of 15% of the employee's
compensation or the limit specified annually under the applicable tax
regulations in light of cost of living adjustments. The Company may make
discretionary matching contributions to the Plan for the benefit of its
employees in any year. National Bank of Commerce of Birmingham serves as Trustee
of the Plan's assets.
The Company also maintains a Flexible Benefit Plan (Cafeteria Plan) under
which eligible employees may select various health and accident insurance
benefit options which are funded by employee payroll deductions.
MANAGEMENT MATTERS
There are no arrangements or undertakings known to the Company between any
of the Directors, nominees for Director or executive officers of the Company and
any other person pursuant to which any such person was or is to be elected as a
Director or an executive officer.
Directors are elected annually at the Annual Meeting of Equityholders of
the Company and hold office until the next Annual Meeting and until their
successors are elected and qualified. Officers are elected annually by the
Board of Directors and serve at the discretion of the Board of Directors.
15
<PAGE>
Employment Agreement
The Company has entered into an employment agreement with Stephen L.
Colson, Senior Vice President - Operations.
Under this agreement, in the event of Mr. Colson's termination
without cause he will receive (i) a cash payment equal to one year's salary paid
at the time of termination; (ii) cash payment of any earned and undistributed
bonus or incentives; and (iii) continuation of certain other employee benefits
for a period not to exceed one year.
ITEM 12. PRINCIPAL EQUITYHOLDERS
The Company owns all of the issued and outstanding shares of the capital
stock of R.C. Cobb, Inc., Cobb Theatres II, Inc. and Cobb Finance Corp. In the
Formation Transactions, each of Rowland C. Cobb, Jr., Robert M. Cobb and
Jefferson R. Cobb contributed to the capital of the Company all the shares of
the capital stock of R.C. Cobb, Inc. and Cobb Theaters II, Inc. in the following
percentages:
Percentage of
Percentage of Cobb Theatres II,
R.C. Cobb, Inc. Inc.
Equityholders Contributed Contributed
------------- ----------- -----------
Rowland C. Cobb, Jr. ........... 46% --
Robert M. Cobb ................. 27% 50%
Jefferson R. Cobb .............. 27% 50%
One percent of the ownership interests of each of Robert M. Cobb
and Jefferson R. Cobb in the Company is held by each of two revocable trusts,
one naming Robert M. Cobb as trustee and one naming Jefferson R. Cobb as
trustee, for the benefit of their respective spouses and children. Each
equityholder's interest in the Company, including capital, profits, losses and
distributions initially shall be identified specifically with the shares of
capital stock contributed by such equityholder to the Company. Each equityholder
shall be credited with the capital associated with such shares and shall be
credited and/or charged with the profits, losses and distributions made with
respect to those shares of stock for so long as such shares are owned by the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
R.C. Cobb, Inc. leases three locations from Tricob, a general partnership
in which Cobb family members are partners or beneficiaries. The related rent
expense for these leases amounted to approximately $1.4 million, $1.0 million,
and $0.9 million in fiscal years 1996, 1995 and 1994, respectively. Amounts
payable by R.C. Cobb, Inc. at August 31, 1996 under these leases amounted to
approximately $103,000. R.C. Cobb, Inc. has a loan to Tricob with a balance of
approximately $326,000 as of August 31, 1996. The loan currently has an interest
rate of 6.35% and matures in October 2003.
R.C. Cobb, Inc. is a guarantor for aggregate indebtedness of Tricob of
approximately $3.3 million as of August 31, 1996. The indebtedness has a
final maturity of March 16, 1999 and is secured by a theatre location in Port
Charlotte, Florida owned by Tricob and leased to R.C. Cobb, Inc. The Company
has not succeeded to the obligations of R.C. Cobb, Inc. as guarantor with
respect to such indebtedness. Tricob and R.C. Cobb, Inc. also had
cross-default provisions with respect to indebtedness of R.C. Cobb, Inc.
relating to the Hollywood 16 Theatre in Huntsville, Alabama owned by R.C.
Cobb, Inc. and indebtedness of Tricob relating to the Madison Square 12 and
the Cinema Center 8 theatres, each located in Huntsville, Alabama and owned
by Tricob. The mortgage relating to the Company's Hollywood 16 Theatres in
Huntsville, Alabama and the cross-default provisions related to the mortgage
were terminated in connection with the issuance of the Senior Secured Notes.
However, the personal property of R.C. Cobb, Inc. located at the Madison
Square 12 and Cinema Center 8 theatres in Huntsville continues to be subject
to a prior perfected security interest in favor of AmSouth Bank, N.A.
16
<PAGE>
R.C. Cobb, Inc. leases office and warehouse facilities from Rowland C.
Cobb, Jr. an owner of R.C. Cobb, Inc. and its Chairman. The related rent expense
amounted to approximately $274,000, $233,000 and $509,000 in fiscal years 1996,
1995 and 1994, respectively. The rental rates under these leases, which expire
in 2006 and 1999, are $15.00 per square foot for the office space and $7.20 per
square foot for the warehouse space. The amount payable by R.C. Cobb, Inc. at
August 31, 1996 under these leases amounted to approximately $23,000.
R.C. Cobb, Inc. has an agreement with Sipsey River, Inc., a corporation
owned by Rowland C. Cobb, Jr., to provide aircraft services, i.e. the use of a
private aircraft with pilots and related services. The fees for such services
amounted to approximately $440,000, $335,000 and $238,000 in fiscal years 1996,
1995 and 1994, respectively.
The amount prepaid by R.C. Cobb, Inc. under this agreement amounted to
approximately $37,000 at August 31, 1996. The Company intends to continue using
these services.
Management believes that each of the transactions described above was
entered into on similar terms to those that would have resulted if such
transaction had been entered into on an arms-length basis with an unaffiliated
third party. See Note 2 of the Notes to the Consolidated Financial Statements of
the Company included elsewhere herein.
17
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Financial Statements listed in the accompanying Index on page F-1 are
filed as a part of this report.
(a) 2. Financial Statement Schedules
There are no required Financial Statement Schedules that are applicable to
the Company.
(a) 3. Exhibits
The exhibits in the accompanying exhibit index beginning on pare 20 are
filed as part of this report.
(b) Reports on form 8-K
None.
18
<PAGE>
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: November 26, 1996 Cobb Theatres, L.L.C.
By:/s/Robert M. Cobb
----------------------
Robert M. Cobb
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Acto of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/R.C. Cobb, Jr. Chairman of the Board November 26, 1996
- ---------------- --
R.C. Cobb, Jr.
/s/Robert M. Cobb Director, President and November 26, 1996
- ----------------- Chief Executive Officer --
Robert M. Cobb
/s/Jefferson R. Cobb Director, Executive Vice November 26, 1996
- -------------------- President, Secretary/Treasurer --
Jefferson R. Cobb
/s/A. Fox deFuniak Director November 26, 1996
- ------------------ --
A. Fox deFuniak
/s/Claude Nielsen Director November 26, 1996
- ----------------- --
Claude Nielsen
19
<PAGE>
EXHIBIT INDEX FOR 10-K OF COBB THEATRES, L.L.C.
Exhibit
No. Description
- ------- -----------
(2)-1 R&J Stock Purchase Agreement, dated March 6, 1996
between R.C. Cobb, Inc., and the shareholders of
R&J Concessions, Inc., filed as Exhibit No. (2)-1
to the Company's Registration Statement on Form
S-4 (Registration Statement No. 333-2724) is hereby
incorporated herein by reference.
(2)-2 Agreement and Articles of Merger, dated March 6, 1996,
between R&J Concessions, and R.C. Cobb, Inc. filed as
Exhibit No. (2)-2 to the Company's Registration Statement
on Form S-4 (Registration Statement No. 333-2724) is
hereby incorporated herein by reference.
(3)-1 Article of Organization, dated January 15, 1996, of Cobb
Theatres, L.L.C. Operating Agreement, dated March 4, 1996,
of Cobb Theatres, L.L.C. filed as Exhibit No. (3)-1 to
the Company's Registration Statement on Form S-4
(Registration Statement No. 333-2724) is hereby
incorporated herein by reference.
(3)-2 Articles of Incorporation of Cobb Finance Corp. filed as
Exhibit No. (3)-2 to the Company's Registration Statement
on Form S-4 (Registration Statement No. 333-2724) is hereby
incorporated herein by reference.
(3)-3 By-laws of Cobb Finance Corp. filed as Exhibit No. (3)-3 to
the Company's Registration Statement on Form S-4 (Registration
Statement No. 333-2724) is hereby incorporated herein by
reference.
(4)-1 Indenture, dated as of March 6, 1996, among Cobb Theatres
L.L.C., Cobb Finance Corp., and IBJ Schroder Bank & Trust
Company filed as Exhibit No. (4)-1 to the Company's
Registration Statement on Form S-4 (Registration Statement
No. 333-2724) is hereby incorporated herein by reference.
(4)-2 Pledge Agreement, dated as of March 6, 1996, among Cobb
Theatres L.L.C. and IBJ Schroder Bank & Trust Company, as
Collateral Agent filed as Exhibit No. (4)-2 to the Company's
Registration Statement on Form S-4 (Registration Statement No.
333-2724) is hereby incorporated herein by reference.
(4)-3 Security Agreement, dated as of March 6, 1996, among Cobb
Theatres L.L.C., R.C. Cobb, Inc., Cobb Theatres II, Inc. and IBJ
20
<PAGE>
Schroder Bank & Trust Company as Collateral Agent filed as
Exhibit No (4)-3 to the Company's Registration Statement on
Form S-4 (Registration Statement No. 333-2724) is hereby
incorporated herein by reference.
(4)-4 Global 10-5/8% Senior Notes Due 2003, including Subsidiary
Guarantees filed as Exhibit No. (4)-4 to the Company's
Registration Statement on Form S-4 (Registration Statement
No. 333-2724) is hereby incorporated herein by reference.
(4)-5 Registration Rights Agreement, dated as of March 6, 1996,
by and among Cobb Theatres L.L.C., Cobb Finance Corp., R.C. Cobb,
Inc., Cobb Theatres II, Inc., Lehman Brothers Inc. and First
Union Capital Markets Corp. filed as Exhibit No. (4)-5 to the
Company's Registration Statement on Form S-4 (Registration
Statement No. 333-2724) is hereby incorporated herein by
reference.
(10)-1 Credit Agreement, dated as of March 6, 1996, among Cobb
Theatres L.L.C., Cobb Finance Corp. and First Union
National Bank of North Carolina, as Agent, filed as
Exhibit No. (10)-1 to the Company's Registration
Statement on Form S-4 (Registration Statement No. 333-2724)
is hereby incorporated herein by reference.
(10)-2 Unconditional Guaranty Agreement, dated as of March 6, 1996,
executed by R.C. Cobb, Inc. and Cobb Theatres II, Inc., in
favor of First Union National Bank of North Carolina, as Agent,
filed as Exhibit No. (10)-2 to the Company's Registration
Statement on Form S-4 (Registration Statement No. 333-2724) is
hereby incorporated herein by reference.
(10)-3 Facility A Revolving Credit Note, dated March 6, 1996, of Cobb
Theatres L.L.C. and Cobb Finance Corp. in the principal amount
of $7,500,000 drawn to the order of First Union Bank of North
Carolina filed as Exhibit No. (10)-3 to the Company's Registration
Statement on Form S-4 (Registration Statement No. 333-2724) is
hereby incorporated herein by reference.
(10)-4 Facility B Revolving Credit Note, dated March 6, 1996, of Cobb
Theatres L.L.C. and Cobb Finance Corp. in the principal amount
of $7,500,000 drawn to the order of First Union Bank of North
Carolina filed as Exhibit No. (10)-4 to the Company's
Registration Statement on Form S-4 (Registration Statement No.
333-2724) is hereby incorporated herein by reference.
(10)-5 Aircraft Service Agreement, dated as of January 1, 1996, between
21
<PAGE>
R.C. Cobb, Inc. and Sipsey River, Inc., filed as Exhibit No.
(10)-5 to the Company's Registration Statement on Form S-4
(Registration Statement No. 333-2724) is hereby incorporated
herein by reference.
(10)-6 Lease, dated January 21, 1986, between Tricob and R.C. Cobb,
Inc., as amended, related to the Port Charlotte Theatre filed
as Exhibit No. (10)-6 to the Company's Registration Statement
on Form S-4 (Registration Statement No. 333-2724) is hereby
incorporated herein by reference.
(10)-7 Agreement of Lease, dated February 8, 1983, between Tricob
Realty and R.C. Cobb, Inc., as amended, related to the
Huntsville Theatre, filed as Exhibit No. (10)-7 to the
Company's Registration Statement on Form S-4 (Registration
Statement No. 333-2724) is hereby incorporated herein by
reference.
(10)-8 Lease, dated August 13, 1985, between Tricob and R.C. Cobb,
Inc., as amended, related to the Madison Square Theatre
filed as Exhibit No. (10)-8 to the Company's Registration
Statement on Form S-4 (Registration Statement No. 333-2724)
is hereby incorporated herein by reference.
(10)-9 Lease Agreement, dated September 11, 1979, between Rowland C.
Cobb, Jr. and R.C. Cobb, Inc., as amended, related to the
headquarters building located in Birmingham, Alabama, filed
as Exhibit No. (10)-9 to the Company's Registration Statement
on Form S-4 (Registration Statement No. 333-2724) is hereby
incorporated herein by reference.
(10)-10 Purchase Agreement, dated February 29, 1996, among Cobb
Theatres, L.L.C., Cobb Finance Corp., R.C. Cobb, Inc., Cobb
Theatres II, Inc. and Lehman Brothers Inc. and First Union
Capital Markets Corp., filed as Exhibit No. (10)-10 to
the Company's Registration Statement on Form S-4 (Registration
Statement No. 333-2724) is hereby incorporated herein by
reference.
(12) Statement re: Computation of Ratio on Earnings to Fixed Charges,
filed as Exhibit No. (12) to the Company's Registration
Statement on Form S-4 (Registration Statement No. 333-2724) is
hereby incorporated herein by reference.
(21) Subsidiaries of the Registrants, filed as Exhibit No. (21) to
the Company's Registration Statement on Form S-4 (Registration
Statement No. 333-2724) is hereby incorporated herein by
reference.
(27) Financial Data Schedule
22
<PAGE>
COBB THEATRES, L.L.C.
INDEX TO FINANCIAL STATEMENTS
COBB THEATRES, L.L.C. Page
----
Reports of Independent
Auditors.............................................................. F-2
Consolidated Balance Sheets as of August 31, 1996 and 1995............... F-4
Consolidated Statements of Operations for the years ended
August 31, 1996, 1995 and 1994........................................ F-5
Consolidated Statements of Changes in Members' Equity for the
years ended August 31, 1996, 1995 and 1994............................ F-6
Consolidated Statements of Cash Flows for the years ended
August 31, 1996, 1995 and 1994........................................ F-7
Notes to Consolidated Financial Statements............................... F-8
R.C. COBB, INC.
Reports of Independent Auditors.......................................... F-17
Balance Sheets as of August 31, 1996 and 1995............................ F-19
Statements of Operations for the years ended
August 31, 1996, 1995 and 1994........................................ F-20
Statements of Stockholders' Equity for the
years ended August 31, 1996, 1995 and 1994............................ F-21
Statements of Cash Flows for the years ended
August 31, 1996, 1995 and 1994........................................ F-22
Notes to Financial Statements............................................ F-23
COBB THEATRES II, INC.
Reports of Independent Auditors.......................................... F-31
Balance Sheets as of August 31, 1996 and 1995............................ F-33
Statements of Operations for the years ended August 31, 1996, 1995 and
1994.................................................................. F-34
Statements of Stockholders' Equity for the years
ended August 31, 1996, 1995 and 1994.................................. F-35
Statements of Cash Flows for the years ended
August 31, 1996, 1995 and 1994........................................ F-36
Notes to Financial Statements............................................ F-37
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Cobb Theatres, L.L.C.
We have audited the accompanying consolidated balance sheets of Cobb
Theatres, L.L.C. as of August 31, 1996 and 1995, and the related consolidated
statements of operations, changes in members' equity and cash flows for the
years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
October 23, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres, L.L.C.
We have audited the accompanying consolidated statements of operations,
members' equity and cash flows of Cobb Theatres, L.L.C. for the fiscal year
ended August 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations of Cobb Theatres, L.L.C. and its cash flows for the fiscal year
ended August 31, 1994 in conformity with generally accepted accounting
principles.
LaRocca & Co., P.C.
Birmingham, Alabama
November 15, 1994
F-3
<PAGE>
COBB THEATRES, L.L.C.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AUGUST 31,
---------------------------
1996 1995
---- ----
ASSETS
Current assets:
Cash and equivalents $8,073 $1,241
Receivables 1,236 863
Other current assets 4,343 3,557
---------- ---------
Total current assets 13,652 5,661
Property and equipment, net 79,683 75,427
Intangible assets, net 16,187 14,323
Other assets 3,973 2,729
---------- ---------
Total assets $113,495 $98,140
---------- ---------
---------- ---------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $4,276 $5,397
Accrued film rentals 4,833 5,545
Accrued interest payable 4,759 13
Accrued expenses and other liabilities 4,836 5,755
Revolving line of credit - 9,700
Long-term debt, current installments - 2,069
Obligations under capital leases,
current installments 275 248
---------- ---------
Total current liabilities 18,979 28,727
Long-term debt 85,000 58,966
Obligations under capital leases 1,532 1,771
Other long-term liabilites 4,927 4,468
---------- ---------
Total liabilites 110,438 93,932
Commitments and contingencies
Members' equity 3,057 4,208
---------- ---------
Total liabilities and
members' equity $113,495 $98,140
---------- ---------
---------- ---------
See accompanying notes to financial statements.
F-4
<PAGE>
COBB THEATRES, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED AUGUST 31,
--------------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Theatre admissions $81,662 $73,190 $65,951
Concessions 33,917 29,432 26,113
Other 3,566 2,986 2,033
--------- --------- ---------
Total revenues 119,145 105,608 94,097
Costs of revenues:
Film rental 40,381 35,896 32,255
Concession 5,319 4,216 3,608
--------- --------- ---------
Total cost of revenues 45,700 40,112 35,863
--------- --------- ---------
Gross profit 73,445 65,496 58,234
Operating expenses:
Advertising 3,236 2,914 2,425
Payroll and related costs 14,137 12,364 10,959
Occupancy 25,576 23,891 20,424
Equipment rental - - 755
Repairs and maintenance 1,548 1,291 1,238
General and administrative 7,548 7,088 6,739
Depreciation and amortization 9,121 8,062 5,374
Other 4,604 3,483 3,261
--------- --------- ---------
Total operating expenses 65,770 59,093 51,175
--------- --------- ---------
Operating income 7,675 6,403 7,059
--------- --------- ---------
Other income (deductions):
Interest expense (8,200) (5,067) (2,804)
Interest income 142 75 68
Loss from disposition of assets (251) (130) (342)
Non-recurring charge (Note 8) - (1,181) -
Other - (6) (19)
--------- --------- ---------
(8,309) (6,309) (3,097)
--------- --------- ---------
Income before income taxes and
extraordinary item (634) 94 3,962
Income tax expense (benefit) (234) (122) 1,506
--------- --------- ---------
Income (loss) before
extraordinary item (400) 216 2,456
Extraordinary item - Loss on
extinguishment of debt (net of
income tax of $440) (751) - -
--------- --------- ---------
Net income (loss) $(1,151) $216 $2,456
========= ========= =========
See accompanying notes to financial statements.
F-5
<PAGE>
COBB THEATRES, L.L.C.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(IN THOUSANDS)
Balance as of September 1, 1993 $ 535
Contributions of capital 1,001
Net income 2,456
--------
Balance as of August 31, 1994 3,992
Net income 216
--------
Balance as of August 31, 1995 4,208
Net loss (1,151)
--------
Balance as of August 31, 1996 $3,057
========
See accompanying notes to financial statements.
F-6
<PAGE>
COBB THEATRES, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED AUGUST 31,
1996 1995 1994
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,151) $ 216 $ 2,456
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 9,121 8,062 5,374
Loss on asset dispositions 251 130 342
Provision for deferred income taxes (611) (700) (81)
Extraordinary loss on debt extinguishment 751 - -
(Increase) decrease in assets:
Receivables (373) (400) 178
Other current assets (525) (482) (2,074)
Increase (decrease) in liabilities:
Accounts payable (1,121) 1,775 713
Accrued film rental (712) (1,628) 2,138
Accrued interest payable 4,746 (859) 846
Accrued expenses and other liabilities (919) 1,309 1,540
-------- -------- --------
Total adjustments
10,608 7,207 8,976
-------- -------- --------
Net cash provided by
operating activities 9,457 7,423 11,432
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITES:
Business acquisition - - (22,000)
Additions to property and equipment (13,886) (21,403) (21,838)
Proceeds from asset dispositions 46 6 1,010
Construction in progress 2,314 (3,127) (1,671)
Other (198) (206) (168)
------- ------- -------
Net cash used in investing activities (11,724) (24,730) (44,667)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured notes 85,000 - -
Proceeds from senior subordinated notes 10,000 - -
Payments on senior subordinated notes (10,000) - -
Proceeds (payments) on long-term
bank debt, net (61,035) 8,148 33,157
Proceeds (payments) on revolving
line of credit (9,700) 8,700 -
Equity contribution - - 1,001
Principal payments from related parties - 15 -
Principal payments under capital lease (212) (220) (1,557)
Capitalized debt issue costs (4,339) - -
Debt prepayment fees
(615) - -
-------- -------- --------
Net cash provided by financing activities 9,099 16,643 32,601
-------- -------- --------
Net increase (decrease) in cash
and equivalents 6,832 (664) (634)
Cash and equivalents - beginning of year 1,241 1,905 2,539
--------- -------- --------
Cash and equivalents - end of year $8,073 $1,241 $1,905
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for: Interest $4,179 $5,471 $1,935
======== ======== ========
Income Taxes $1,634 $162 $2,013
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligation incurred
to lease equipment $ - $850 $1,386
======== ======== =========
See accompanying notes to financial statements.
F-7
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Cobb Theatres, L.L.C. (the "Company") is an Alabama limited liability
company formed to acquire and operate the business of Cobb Theatres Group, a
privately-held group of companies based in Birmingham, Alabama. The Company was
formed to create a consolidated entity to facilitate the offering of $85 million
of Senior Secured Notes (the "Debt Offering") and the establishment of the New
Credit Facility (as discussed in Note 6). The existence of the Company shall
terminate no later than December 31, 2046. Prior to the completion of certain
Formation Transactions on March 6, 1996 (as discussed below) the Company
consisted of R.C. Cobb, Inc., Cobb Theatres II, Inc. and R & J Concessions, Inc.
Cobb Finance Corp., a wholly-owned subsidiary of the Company, was
incorporated for the purpose of serving as a co-issuer of the Senior Secured
Notes in order to facilitate the Debt Offering. Cobb Finance Corp.
does not have any substantial operations or assets of any kind.
Concurrently with the closing of the Debt Offering on March 6, 1996 (i)
R.C. Cobb, Inc. acquired the outstanding equity of R & J Concessions, Inc., (ii)
R & J Concessions, Inc. was merged into its sole shareholder, R.C. Cobb, Inc.
and (iii) Cobb Theatres, L.L.C. acquired the outstanding equity of R.C. Cobb,
Inc. and Cobb Theatres II, Inc. which had previously been held by members of the
Cobb family (the "Formation Transactions") in exchange for an interest in Cobb
Theatres, L.L.C. As a result of the foregoing Formation Transactions, R.C. Cobb,
Inc. and Cobb Theatres II, Inc. became, together with Cobb Finance Corp.,
subsidiaries of the Company. All assets and liabilities are stated at the
amounts at which they were stated in the financial statements of the predecessor
entities in a manner similar to a pooling of interests. The Cobb family as
members own all of the equity interest of Cobb Theatres, L.L.C.
The term "Company" used herein shall mean the Cobb Theatres Group prior
to the Formation Transactions and shall mean Cobb Theatres, L.L.C. and its
consolidated subsidiaries after the completion of the Debt Offering.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the two operating subsidiaries, R.C. Cobb, Inc. and Cobb Theatres II, Inc.
("Cobb II"). All significant intercompany balances and transactions have been
eliminated in consolidation.
NATURE OF BUSINESS
The Company is engaged in the operation and management of multi-screen
motion picture theatres. The Company currently operates in Florida, Alabama,
Mississippi and Arkansas.
In March 1994, Cobb II purchased certain assets, consisting of 8 multiplex
theatres, and assumed the Florida theatre facility operating lease obligations
of Theatre Acquisitions, L. P. d/b/a Wometco Theatres. Cobb II paid $22 million
in cash which was financed through bank debt.
The acquisition has been recorded using the purchase method of
accounting and the results of operations of the purchased theatres have been
included in the Company's consolidated results of operations since the date of
acquisition. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $8.1 million is amortized over the
term (including all renewal options) of the underlying facility leases.
The following summarizes the unaudited pro forma results of operations
assuming the acquisition of the purchased theatres occurred at the beginning of
fiscal 1994. This pro forma summary does not necessarily reflect what the
results of operations would have been had the acquisition occurred on September
1, 1993.
F-8
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year Ended
AUGUST 31, 1994
---------------
(In thousands)
Revenues .............................................. $103,663
Net income ............................................ 1,847
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUES AND FILM RENTAL COSTS
Revenues are recognized when admission and concession sales are
received at the theatres. Film rental costs are accrued based on the applicable
box office receipts and the terms of the film licenses.
CASH AND EQUIVALENTS
The Company considers all temporary cash investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for additions
(including interest during construction), major renewals and betterments are
capitalized, and expenditures for maintenance and repairs are charged to expense
as incurred. Property and equipment under capital leases are stated at the lower
of the present value of minimum lease payments at the beginning of the lease
term or fair value at the inception of the lease.
The Company uses the straight-line method in computing depreciation and
amortization over the estimated useful lives of assets as follows:
Buildings and improvements...................... 20 to 30 years
Fixtures and equipment.......................... 5 to 15 years
Leasehold improvements.......................... 10 to 20 years
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over the estimated
useful lives of the assets. A noncompete agreement is amortized over its five
year term. Concession rights were amortized over an estimated useful life of six
years. Excess of purchase price over the fair value of net assets acquired is
amortized over the term (including all renewal options) of the underlying
facility leases for periods of 19 to 35 years. Favorable lease terms are
amortized over the term (excluding renewal options) of the underlying facility
leases for periods of 4 to 19 years. Debt issue costs are those costs associated
with the issuance of the Senior Secured Notes that will be amortized over the
term of the notes which are due March 1, 2003. The carrying values of intangible
assets are reviewed if the facts and circumstances suggest that they may be
impaired. If this review is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow is
required.
F-9
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INCOME TAXES
The subsidiaries of the Company file separate federal income tax returns.
For financial statement purposes, income taxes are calculated in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), ACCOUNTING FOR
INCOME TAXES. The statement requires that deferred income taxes reflect the
impact of temporary differences between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At August 31, 1996 and 1995, the carrying value of financial instruments
approximate their fair value unless otherwise indicated.
FINANCIAL INSTRUMENTS AND HEDGING
The Company used interest rate swap agreements to manage interest costs and
risks associated with changing interest rates. The Company designated interest
rate swaps as hedges of specific debt instruments and the differential to be
paid or received was accrued as interest rates changed and was recognized over
the life of the agreements as an adjustment to interest expense. Counterparties
to the interest rate swap contracts were major financial institutions and credit
loss from counterparty nonperformance was not anticipated. The Company does not
enter into financial instruments for trading purposes.
EARNINGS PER SHARE
Earnings per share information is not presented as the Company is a
limited liability company consisting of member interests rather than shareholder
interests.
PRESENTATION
Certain amounts have been reclassified in prior period financial statements
to conform with the current year presentation.
NOTE 2- RELATED PARTY TRANSACTIONS
TRICOB PARTNERSHIP
The Company leases three locations from Tricob, a partnership
engaged in the ownership and leasing of real property in which the Company's
members are partners. The related rent expense for these leases amounted to
approximately $1.4 million, $1.0 million and $0.9 million in 1996, 1995 and
1994, respectively. Amounts payable at August 31, 1996 and 1995 under these
leases amounted to approximately $103,000 and $115,000, respectively.
The Company has a loan to Tricob with a balance of approximately
$326,000 and $407,000 as of August 31, 1996 and 1995, respectively. Interest on
the loan accrues at 6.35% and amounted to approximately $25,000, $27,000 and
$29,000 in 1996, 1995 and 1994, respectively. The loan matures in October 2003.
R.C. Cobb, Inc. is a guarantor for debts of Tricob amounting to
approximately $3.3 million at August 31, 1996 with final maturity in March 1999
and secured by real property. Tricob and R.C. Cobb, Inc. have cross-default
commitments.
F-10
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MEMBERS
The Company leases office and warehouse facilities from a member. The
related rent expense amounted to approximately $274,000, $233,000 and $509,000
in 1996, 1995 and 1994, respectively. The amount payable at August 31, 1996 and
1995 under these leases amounted to approximately $23,000 and $22,000,
respectively.
SIPSEY RIVER, INC.
The Company has an agreement with Sipsey River, Inc., a corporation
owned by a member, to provide aircraft services. The fees for such services
amounted to approximately $440,000, $335,000 and $238,000 for 1996, 1995 and
1994, respectively. The amount prepaid under this agreement amounted to
approximately $37,000 and $12,000 at August 31, 1996 and 1995, respectively.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
1996 1995
---- ----
(In thousands)
Land................................................ $ 11,687 $ 11,670
Buildings and leasehold improvements ............... 38,918 30,428
Fixtures and equipment ............................. 56,571 52,625
Construction in progress ........................... 2,833 5,147
Capital leases ..................................... 2,169 2,083
Other assets ....................................... 428 379
--------- ---------
112,606 102,332
Less accumulated depreciation ...................... 32,923 26,905
--------- ---------
$ 79,683 $75,427
========= =========
Interest of approximately $725,000 and $347,000 has been capitalized in
1996 and 1995, respectively.
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of:
1996 1995
---- ----
(In thousands)
Excess of purchase price over the fair value
of net assets acquired .......................... $ 8,103 $ 8,103
Noncompete agreement ............................... 1,800 1,800
Favorable lease terms .............................. 5,300 5,300
Concession rights .................................. -- 3,571
Debt issue costs ................................... 4,339 734
---------- ---------
19,542 19,508
Less accumulated amortization ...................... 3,355 5,185
---------- ----------
$16,187 $ 14,323
========== ==========
Amortization expense totaled $2.1 million, $1.9 million and $1.3 million
for 1996, 1995 and 1994, respectively. The increase in debt issue costs relates
to the issuance of the Senior Secured Notes on March 6, 1996.
F-11
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 - OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following:
1996 1995
---- ----
(In thousands)
Other current assets:
Due from related parties ............................ $ 42 $ 39
Inventory ........................................... 877 854
Refundable income taxes ............................. 1,222 530
Prepaid and other assets ............................ 2,202 2,134
-------- -------
$4,343 $3,557
======== =======
Other assets:
Deferred income tax benefit ......................... $2,285 $ 1,263
Due from related parties, non-current ............... 326 356
Cash value of life insurance, net ................... 1,120 915
Other assets ........................................ 242 195
-------- -------
$3,973 $2,729
======== =======
Accrued expenses and other liabilities:
Due to related parties .............................. $ 18 $ 127
Accrued liabilities ................................. 3,978 3,542
Income taxes payable ................................ -- 821
Deferred income ..................................... 840 1,265
-------- -------
$ 4,836 $ 5,755
======== =======
Other long-term liabilities:
Deferred rent ....................................... $ 2,809 $ 2,582
Deferred income tax liabilities ..................... 2,118 1,886
-------- -------
$ 4,927 $ 4,468
======== =======
NOTE 6 - LONG TERM DEBT
CURRENT FINANCING
On March 6, 1996, the Company issued $85 million of 10 5/8% Senior Secured
Notes due March 1, 2003 (the "Senior Secured Notes"). Interest on the Senior
Secured Notes is due semiannually on September 1 and March 1. The proceeds from
the Debt Offering were primarily used to repay $76.6 million of existing debt
and pay approximately $4.3 million of commission and other expenses associated
with the Debt Offering, with the remaining proceeds of approximately $4.1
million available for general corporate purposes, including interest and fees,
funding working capital and the development of additional theatres. Prepayment
fees and the write off of deferred loan costs associated with the previous debt
resulted in an extraordinary loss of $751,000, net of income tax benefit of
$440,000.
Concurrently with the issuance of the Senior Secured Notes, the Company
entered into a new $25 million bank credit facility (the "New Credit Facility").
The New Credit Facility is comprised of a $12.5 million senior secured seasonal
revolver available for working capital purposes and a $12.5 million senior
secured reducing revolver available for future capital expenditures. The New
Credit Facility has a final maturity date of November 30, 2000. However,
availability under the reducing revolver will be permanently reduced by set
amounts beginning February 28, 1998. Access to the availability under the New
Credit Facility will be dependent upon the achievement by the Company of certain
financial ratios. As of August 31, 1996, the Company had $12.5 million of credit
available under the New Credit Facility with no balance outstanding.
At the Company's option, the interest rates per annum applicable to the New
Credit Facility will be a fluctuating rate of interest measured by reference to
either: (a) an adjusted London inter-bank offered rate ("LIBOR") plus borrowing
margin or (b) the base rate of the Agent for the New Credit Facility (the "Base
Rate")
F-12
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(which is based on the higher of the Agent's published prime rate or
overnight federal funds rate plus 0.50%) plus a borrowing margin. The
applicable borrowing margin for such loans will vary, based on the Company's
ratio of net debt to EBITDA from 1.625% to 3.125% with respect to LIBOR
borrowings and from 0.375% to 1.875% with respect to Base Rate borrowings.
In connection with the New Credit Facility, the Company has agreed to pay
commitment fees in respect of the facilities based on the unused portion of the
New Credit Facility.
The Senior Secured Notes and the New Credit Facility are secured on an
equal and ratable basis by a first pledge of the equity interests of the
subsidiaries of the Company, all intercompany notes and a security interest in
all of the assets (other than real property) of the Company's subsidiaries.
The New Credit Facility contains covenants that, among other things,
restrict the ability of the Company to incur additional debt, create certain
liens, make certain investments (including certain capital expenditures), pay
dividends or make other distributions, sell assets of the Company or its
subsidiaries, issue or sell equity interests of the Company's subsidiaries or
enter into certain mergers or consolidations. Under the New Credit Facility, the
Company will be required to comply with specified financial ratios, including
maximum net debt to EBITDA and minimum interest coverage and fixed charge
coverage ratios.
The Company was in compliance with all financial covenants as of August 31,
1996.
The fair value of the Company's Senior Secured Notes as of August 31, 1996
was $87,975,000 based on the quoted market price of the bonds as of that date.
PREVIOUS FINANCING
Under the Company's previous revolving credit agreement R.C. Cobb, Inc. and
Cobb II had credit facilities that included senior term loans and an $11.0
million seasonal working capital revolver. As of August 31, 1995, $9.7 million
was outstanding under the seasonal working capital revolver and the borrowing
rate was 10.25% on both the senior term loans and the seasonal working capital
revolver.
Long term debt, all of which has been paid as a result of the Company's new
financing, consisted of the following as of August 31, 1995 (in thousands):
Senior term loans payable...............$ 52,700
Various other bank debt ................ 8,335
--------
Less current installments............... 61,035
2,069
--------
$ 58,966
========
R.C. Cobb, Inc. had a two year interest rate swap agreement with a notional
principal amount of $10.0 million which matured in June 1995. The agreement
effectively fixed the interest rate on a portion of the variable rate senior
term loan at 4.38%. R.C. Cobb, Inc. received approximately $109,000 of income
related to the interest rate swap to offset interest expense in 1995. R.C. Cobb,
Inc. incurred approximately $60,000 of additional expenses in 1994 related to
the interest rate swap.
Cobb II had a two year interest rate swap agreement with a notional
principal amount of $12.0 million which matured in May 1996. The agreement
effectively fixed the interest rate on a portion of the variable rate senior
term
F-13
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
loan starting at 5.3% at May 9, 1994 and incrementally increased by .3075% per
quarter to 7.45% on May 9, 1996. The rate at August 31, 1995 was 6.84%. Cobb II
incurred an additional $134,000, $45,000 and $45,000 of expenses in 1996, 1995
and 1994, respectively, related to the interest rate swap.
The Company has had no involvement with other derivatives in the past, with
the exception of basic swaps to convert variable rate debt to fixed rate debt,
and has no specific plans to use derivative products in the foreseeable future.
NOTE 7 - LEASES
CAPITAL LEASES
The Company is obligated under various capital leases that expire during
the next four years for equipment with a net book value of approximately $ 1.9
million.
Future minimum lease payments and the present value of future minimum lease
payments under equipment capital leases as of August 31, 1996 are as follows (in
thousands):
1997 ......................................... $ 401
1998 ......................................... 401
1999 ......................................... 399
2000 ......................................... 909
-------
Total ................................... 2,110
Less amount representing interest
(approximating 8.01%) ..................... 303
-------
Present value of future minimum
capital lease payments ................. 1,807
Less current portion ......................... 275
-------
Obligation under capital leases,
excluding current portion .............. $ 1,532
=======
OPERATING LEASES
The majority of the Company's operations are conducted in premises occupied
under operating lease agreements with base terms ranging generally from 15 to 20
years, with certain leases containing options, primarily in 5 year increments,
to extend up to an additional 30 years. The leases provide for fixed rentals
and/or contingent rentals based on revenues. R.C. Cobb, Inc. guarantees all of
the operating leases of Cobb II. The majority of the leases provide that the
Company will pay substantially all taxes, maintenance, insurance and certain
other operating expenses.
Future minimum lease payments under these operating leases are as follows
(in thousands):
Fiscal Year:
1997 ............................ $ 19,096
1998 ............................ 19,377
1999 ............................ 18,770
2000 ............................ 18,394
2001 ............................ 17,616
Thereafter ...................... 125,628
--------
$218,881
========
Total rent expense for theatre facility operating leases for 1996, 1995 and
1994 was approximately $16.0 million, $15.8 million and $14.8 million,
respectively. Contingent rentals were approximately $121,000 and
F-14
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$52,000 in 1996 and 1995, respectively. Sublease payments received were
approximately $159,000, $164,000 and $201,000 in 1996, 1995 and 1994,
respectively. The Company has entered into a lease agreement for a location to
open within three months subsequent to August 31, 1996 which has total minimum
lease payments amounting to approximately $22.7 million which are included in
the future minimum lease payments schedule above.
The Company records rent expense on a straight-line basis over the term of
the lease. Long term liabilities include deferred rent of $2,809,000 and
$2,582,000 as of August 31, 1996 and 1995, respectively.
NOTE 8 - NON-RECURRING CHARGE
In 1995, approximately $1.2 million of non-recurring expenses were incurred
due to an unconsummated financing transaction.
NOTE 9 - INCOME TAXES
Income tax expense (benefit) in the consolidated statement of operations
for the years ended August 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994
---- ---- ----
(In thousands)
Current
Federal ............................. $ 99 $ 503 $ 1,351
State 17 75 236
------- ------- -------
116 578 1,587
------- ------- -------
Deferred
Federal ............................ (741) (644) (66)
State .............................. (49) (56) (15)
------- ------- -------
(790) (700) (81)
------- ------- -------
Total income tax expense (benefit) ..... (674) (122) 1,506
Tax benefit of extraordinary loss .. (440) -- --
------- ------- -------
Income tax expense (benefit) before
extraordinary loss .............. $ (234) $ (122) $ 1,506
======= ======= =======
The difference between the effective rate and the U.S. federal income tax
statutory rate is as follows:
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Tax - at statutory rate $ (621) 34% $32 34 % $1,347 34 %
Add (subtract) tax effect of:
State income tax, net of
federal benefit (38) 2 (6) (7) 142 4
Utilization of tax (1) credits - - - - (24) (1)
Effect of amended returns - - (41) (44) - -
Other (15) 1 (107)(113) 41 1
------ --- ----- ------ ------ -----
$(674) 37% $(122)(130)% $1,506 38 %
====== === ====== ===== ====== =====
F-15
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The significant components of deferred income tax assets (liabilities) at
August 31, 1996 and 1995 are as follows:
1996 1995
-------- ------
(In thousands)
Accrued liabilities $ 1,030 $ 955
Amortization 397 716
Depreciation (5,149) (4,520)
Tax operating lease 653 744
Net operating loss carryforward 2,937 1,482
AMT credit carryforward 299 -
-------- ------
Non-current deferred income
tax asset (liability) $ 167 $ (623)
========== ========
Cobb II has a net operating loss carryforward of approximately $7.9 million
that may be offset against future taxable income. Substantially all of the
carryforward expires in 2009 through 2011. The Company has not recorded a
valuation allowance related to its deferred tax assets as management considers
it more likely than not that available tax strategies and future taxable income
will allow the deferred tax assets to be realized.
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) plan covering all
full-time employees who have six months of service and are age 21 or older. The
Company may elect to match a portion of the participant's elective deferral. The
Company contributions amounted to $163,000, $0 and $133,000 in 1996, 1995 and
1994, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, the ultimate liability with respect to
these actions will not materially affect the consolidated financial position or
results of operations of the Company.
F-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
R.C. Cobb, Inc.
We have audited the accompanying balance sheets of R.C. Cobb, Inc. as of
August 31, 1996 and 1995, and the related statements of operations,
stockholder's equity and cash flows for the years then ended. 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 generally accpeted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of R.C. Cobb, Inc. at August
31, 1996 and 1995, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/Ernst & Young LLP
Birmingham, Alabama
October 23, 1996
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
R. C. Cobb, Inc.
We have audited the accompanying statements of operations, stockholder's
equity and cash flows of R.C. Cobb, Inc. for the fiscal year ended August 31,
1994. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance whether the financial statements are free of
material misstatements. 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 financial statements referred to above present
fairly, in all material respects, the results of operations of R.C. Cobb,
Inc. and its cash flows for the fiscal year ended August 31, 1994 in
conformity with generally accepted accounting principles.
LaRocca & Co., P.C.
Birmingham, Alabama
November 15, 1994
F-18
<PAGE>
R.C. COBB, INC.
BALANCE SHEETS
(In thousands)
August 31,
--------------------------
1996 1995
---- ----
ASSETS
Current assets:
Cash and equivalents $ 7,704 $ 976
Receivables 1,105 778
Other current assets 3,693 5,285
------- -------
Total current assets 12,502 7,039
Property and equipment, net 51,304 53,922
Intangible assets, net 2,409 1,058
Other assets 1,539 1,484
------- -------
Total assets $ 67,754 $ 63,503
------- -------
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,997 $ 3,487
Accrued film rentals 3,365 4,475
Accrued interest payable 2,338 -
Accrued, expenses and other liabilities 4,052 5,139
Revolving line of credit - 6,700
Long-term debt, current installments - 2,069
Obligations under capital leases,
current installments 275 248
------- -------
Total current liabilities 13,027 22,118
Long-term debt 42,297 30,016
Obligations under capital leases 1,532 1,771
Other long-term liabilities 4,900 4,442
------- -------
Total liabilities 61,756 58,347
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value; authorized 30,000
shares, issued and outstanding 3,000 shares 3 3
Retained earnings 5,995 5,153
------- -------
Total stockholder's equity 5,998 5,156
------- -------
Total liabilities and stockholder's equity $ 67,754 $ 63,503
------- -------
------- -------
See accompanying notes to financial statements.
F-19
<PAGE>
R.C. COBB, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Year Ended August 31,
---------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Theatre admissions $ 63,273 $ 60,537 $ 60,204
Concessions 26,852 25,065 24,115
Other 3,687 3,095 1,964
--------- --------- ---------
Total revenues 93,812 88,697 86,283
Costs of revenues:
Film rental 30,917 29,224 29,148
Concession 4,147 3,525 3,305
--------- --------- ---------
Total cost of revenues 35,064 32,749 32,453
--------- --------- ---------
Gross profit 58,748 55,948 53,830
Operating expenses:
Advertising 2,424 2,257 2,236
Payroll and related costs 11,161 10,419 11,127
Occupancy 20,426 20,225 19,180
Equipment rental - - 706
Repairs and maintenance 1,297 1,133 1,168
General and administrative 7,462 7,087 6,011
Depreciation and amortization 6,116 5,843 4,532
Other 3,625 2,849 2,551
--------- --------- ---------
Total operating expenses 52,511 49,813 47,511
--------- --------- ---------
Operating income 6,237 6,135 6,319
--------- --------- ---------
Other income (deductions):
Interest expense (4,698) (3,149) (2,133)
Interest income 330 62 57
Loss from disposition of assets (197) (130) (342)
Non-recurring charge (Note 8) - (305) -
Loan guarantee income 347 236 420
Other - (6) (20)
--------- --------- ---------
(4,218) (3,292) (2,018)
--------- --------- ---------
Income before income taxes and
extraordinary item 2,019 2,843 4,301
Income tax expense 732 892 1,631
--------- --------- ---------
Income before extraordinary item 1,287 1,951 2,670
Extraordinary item - Loss on
extinguishment of debt (net of
income tax of $261) (445) - -
--------- --------- ---------
Net income $ 842 $ 1,951 $ 2,670
--------- --------- ---------
--------- --------- ---------
See accompanying notes to financial statements.
F-20
<PAGE>
R.C. COBB, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands)
Additional Total
Common Paid-in Retained Stockholder's
Stock Capital Earnings Equity
----- ------- -------- ------
Balance as of September 1, 1993 $ 3 $ - $ 532 $ 535
Net income - - 2,670 2,670
----- ----- ------ -------
Balance as of August 31, 1994 3 - 3,202 3,205
Net income - - 1,951 1,951
----- ----- ------ -------
Balance as of August 31, 1995 3 - 5,153 5,156
Net income - - 842 842
----- ----- ------ -------
Balance as of August 31, 1996 $ 3 $ - $ 5,995 $ 5,998
----- ----- ------ -------
----- ----- ------ -------
See accompanying notes to financial statements.
F-21
<PAGE>
R.C. COBB, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended August 31,
---------------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 842 $ 1,951 $ 2,670
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,116 5,843 4,532
Loss on asset dispositions 197 130 342
Provision for deferred income taxes 355 314 44
Extraordinary loss on debt extinguishment 445 - -
(Increase) decrease in assets:
Receivables (327) (347) 210
Other current assets 1,853 (2,307) ( 1,514)
Increase (decrease) in liabilities:
Accounts payable (490) 498 81
Accrued film rental (1,110) (1,411) 2,404
Accrued interest payable 2,338 (478) 452
Accrued expenses and other liabilities ( 1,087) 1,015 (471)
------- ------- ------
Total adjustments 8,290 3,257 6,080
------- ------- ------
Net cash provided by
operating activities 9,132 5,208 8,750
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properly and equipment (2,633) (10,879) (21,596)
Proceeds from asset dispositions 46 7 1,011
Construction in progress (443) 1,076 (1,059)
Other (29) (206) (168)
------- ------- ------
Net cash used in investing activities (3,059) (10,002) (21,812)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured notes 44,997 - -
Payments on senior secured notes (2,700)
Proceeds from senior subordinated notes 5,000 - -
Payments on senior subordinated notes (5,000) - -
Proceeds (payments) on long-term
bank debt, net (32,074) 198 12,157
Proceeds (payments) on revolving
line of credit, net (6,700) 5,700 -
Principal payments from related parties - 15 -
Principal payments under capital leases (212) (220) (1,557)
Capitalized debt issue costs (2,303) - -
Debt prepayment fees (353) - -
------ ------ -------
Net cash provided (used) in
financing acivities 655 5,693 10,600
------ ------ -------
Net increase (decrease) in cash and
equivalents 6,728 899 (2,462)
Cash and equivalents - beginning of year 976 77 2,539
------ ------ -------
Cash and equivalents - end of year $ 7,704 $ 976 $ 77
------ ------ -------
------ ------ -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash Interest $ 2,380 $ 3,166 $ 1,658
------ ------ -------
------ ------ -------
Income Taxes $ 1,634 $ 162 $ 2,013
------ ------ -------
------ ------ -------
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation incurred to
lease equipment $ - $ 850 $ 1,386
------ ------ -------
------ ------ -------
See accompanying notes to financial statements.
F-22
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On March 6, 1996, R. C. Cobb, Inc. (the "Company") acquired the outstanding
equity of R & J Concessions, Inc. ("R & J") and R & J was merged into its sole
shareholder, the Company, in a manner similar to a pooling of interests. The
historical financial statements of the Company have been restated to include the
accounts of R & J for all periods presented.
NATURE OF BUSINESS
The Company is engaged in the operation and management of multi-screen
motion picture theatres. The Company currently operates in Florida, Alabama,
Mississippi and Arkansas.
On March 6, 1996, Cobb Theatres, L.L.C. acquired the outstanding equity of
the Company and Cobb Theatres II, Inc. ("Cobb II"), a corporation affiliated
through common ownership and management. The Cobb family, as members, own all
of the equity interest of Cobb Theatres, L.L.C.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUES AND FILM RENTAL COSTS
Revenues are recognized when admission and concession sales are received at
the theatres. Film rental costs are accrued based on the applicable box office
receipts and the terms of the film licenses.
CASH AND EQUIVALENTS
The Company considers all temporary cash investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for additions
(including interest during construction), major renewals and betterments are
capitalized, and expenditures for maintenance and repairs are charged to expense
as incurred. Property and equipment under capital leases are stated at the
lower of the present value of minimum lease payments at the beginning of the
lease term or fair value at the inception of the lease.
The Company uses the straight-line method in computing depreciation and
amortization over the estimated useful lives of assets as follows:
Buildings and improvements..................... 20 to 30 years
Fixtures and equipment......................... 5 to 15 years
Leasehold improvements......................... 10 to 20 years
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
INTANGIBLE ASSETS
Intangible assets are amortized on the straight-line basis over the
estimated useful lives of the assets. Concessions rights were amortized over an
estimated useful life of six years. Excess of purchase price over the fair
value of net assets acquired is amortized over the term (including all renewal
options) of the underlying facility leases for periods of 19 to 35 years. Debt
issue costs are those costs associated with the issuance of the Senior Secured
Notes that will be amortized over the term of the notes which are due March 1,
2003. The carrying values of intangible assets are reviewed if the facts and
circumstances suggest that they may be impaired. If this review is
F-23
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
required, the estimated future undiscounted cash flow associated with the asset
would be compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow is required.
INCOME TAXES
For financial statement purposes, income taxes are calculated in accordance
with Statement of Financial Accounting Standards No. 109 ("SFAS 109").
ACCOUNTING FOR INCOME TAXES. The statement requires that deferred income taxes
reflect the impact of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured by tax
laws and regulations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At August 31, 1996 and 1995, the carrying value of financial instruments
approximate their fair value unless otherwise indicated.
FINANCIAL INSTRUMENTS AND HEDGING
The Company used interest rate swap agreements to manage interest costs and
risks associated with changing interest rates. The Company designated interest
rate swaps as hedges of specific debt instruments and the differential to be
paid or received was accrued as interest rates changed and was recognized over
the life of the agreements as an adjustment to interest expense. Counterparties
to the interest rate swap contracts were major financial institutions and credit
loss from counterparty nonperformance was not anticipated. The Company does not
enter into financial instruments for trading purposes.
PRESENTATION
Certain amounts have been reclassified in prior period financial statements
to conform with the current year presentation.
NOTE 2 RELATED PARTY TRANSACTIONS
COBB THEATRES II, INC.
As of March 6, 1996, the Company and Cobb II are both operating
subsidiaries of Cobb Theatres, L.L.C. Prior to that date, both companies were
owned by members of the Cobb family. During 1994, the Company entered into an
agreement to provide supervisory and support services to Cobb II. Fees received
relating to this agreement, which are included in Other revenues, amounted to
approximately $736,000, $506,000 and $230,000 in 1996, 1995 and 1994,
respectively.
The Company guarantees and cross-collateralizes the long term debt of Cobb
II in the aggregate amount of $42.7 million and $32.0 million as of August 31,
1996 and 1995, respectively. Guarantee fees amounted to approximately $347,000,
$236,000 and $420,000 in 1996, 1995 and 1994, respectively. The debts of both
companies are subject to cross default provisions.
As of August 31, 1996 and 1995, Cobb II owed the Company approximately $0
and $2.2 million, respectively.
TRICOB PARTNERSHIP
The Company leases three locations from Tricob, a partnership engaged in
the ownership and leasing of real property in which the Cobb family are
partners. The related rent expense for these leases amounted to
approximately, $1.4 million, $1.0 million and $0.9 million in 1996, 1995 and
1994, respectively. Amounts payable at August 31, 1996 and 1995, under these
leases amounted to approximately $103,000 and $115,000, respectively.
F-24
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Company has a loan receivable from Tricob with a balance of
approximately $326,000 and $407,000 as of August 31, 1996 and 1995,
respectively. Interest on the loan accrues at 6.35% and amounted to
approximately $25,000, $27,000 and $29,000 in 1996, 1995 and 1994 respectively.
The loan matures in October 2003.
The Company is a guarantor for debts of Tricob amounting to approximately
$3.3 million at August 31, 1996 with final maturity in March 1999 and secured by
real property. Tricob and the Company have cross-default commitments.
STOCKHOLDERS
The Company leases office and warehouse facilities from a member of the
Cobb family. The related rent expense amounted to approximately $274,000,
$233,000 and $509,000 in 1996, 1995 and 1994, respectively. The amount payable
at August 31, 1996 and 1995, under these leases amounted to $23,000 and $22,000,
respectively.
SIPSEY RIVER, INC.
The Company has an agreement with Sipsey River, Inc., a corporation owned
by a member of the Cobb family, to provide aircraft services. The fee for such
services amounted to approximately $440,000, $335,000 and $238,000 in 1996, 1995
and 1994, respectively. The amount prepaid under this agreement amounted to
$37,000 at August 31, 1996 and $12,000 at August 31, 1995.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of: 1996 1995
---- ----
(In thousands)
Land ........................................... $ 5,161 $ 5,161
Buildings and leasehold improvements ........... 29,401 28,681
Fixtures and equipment ......................... 43,425 42,891
Construction in progress ....................... 774 331
Capital leases ................................. 2,169 2,083
Other assets ................................... 300 302
------- --------
81,230 79,449
Less accumulated depreciation .................. 29,926 25,527
------- --------
$ 51,304 $ 53,922
======= ========
Interest of approximately $20,000, $131,000 and $106,700 has been
capitalized in 1996, 1995 and 1994, respectively.
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of: 1996 1995
---- ----
(In thousands)
Excess of purchase price over the fair value
of net assets acquired..................... $ 503 $ 503
Concession rights ........................... -- 3,571
Debt issue costs ............................ 2,303 486
------- --------
2,806 4,560
Less accumulated amortization ............... 397 3,502
------- --------
$ 2,409 $ 1,058
======= ========
Amortization expense totaled approximately $686,000, $751,000 and $805,000
for 1996, 1995 and 1994, respectively.
F-25
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 5 OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following:
1996 1995
---- ----
(In thousands)
Other current assets:
Due from related parties .................... $ 42 $ 2,225
Inventory ................................... 742 744
Refundable income taxes ..................... 1,222 530
Prepaid and other assets .................... 1,687 1,786
------ ------
$ 3,693 $ 5,285
====== ======
Other assets:
Deferred income tax benefit ................. $ -- $ 124
Due from related parties, non-current ....... 326 356
Cash value of life insurance, net ........... 1,120 915
Other assets................................. 93 89
------ ------
$ 1,539 $ 1,484
====== ======
Accrued expenses and other liabilities:
Due to related parties ....................... $ 18 $ 126
Accrued liabilities .......................... 3,293 3,066
Income taxes payable ......................... -- 821
Deferred income .............................. 741 1,126
------ ------
$ 4,052 $ 5,139
====== ======
Other long term liabilities:
Deferred rent ................................ $ 2,782 $ 2,556
Deferred income tax liabilities .............. 2,118 1,886
------ ------
$ 4,900 $ 4,442
====== ======
NOTE 6 LONG TERM DEBT
NEW FINANCING
On March 6, 1996, the Company's parent, Cobb Theatres, L.L.C. issued $85
million of 10 5/8% Senior Secured Notes (the "Senior Secured Notes") due March
1, 2003. Interest on the Senior Secured Notes is due semi-annually on September
1 and March 1. At August 31, 1996, approximately $42.2 million of the proceeds
of the issuance was loaned by its parent to the Company to repay existing debt
as of that date, and to provide funds for general corporate purposes, including
funding working capital and development of additional theatres. The terms of
the loans to the Company correspond with the terms of the Senior Secured Notes.
Prepayment fees and the write off of deferred loan costs assocaited with the
previous debt resulted in an extraordinary loss of $445,000, net of income tax
benefit of $261,000.
Concurrently with the issuance of the Senior Secured Notes, Cobb Theatres,
L.L.C. entered into a $25 million bank credit facility ("the New Credit
Facility"). The New Credit Facility is comprised of a $12.5 million senior
secured seasonal revolver available for working capital purposes and a $12.5
million senior secured reducing revolver available for future capital
expenditures. The New Credit Facility has a final maturity date of November 30,
2000. However, availability under the reducing revolver will be permanently
reduced by set amounts beginning February 28, 1998. Access to the availability
under the New Credit Facility is dependent upon the achievement by Cobb
Theatres, L.L.C. of certain financial ratios. Cobb Theatres, L.L.C. will lend
funds obtained through the facility to the Company as such needs arise.
At the option of Cobb Theatres, L.L.C., the interest rates per annum
applicable to the New Credit Facility will be a fluctuating rate of interest
measured by reference to either: (a) an adjusted London inter-bank
F-26
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
offered rate ("LIBOR") plus borrowing margin or (b) the base rate of the Agent
for the New Credit Facility (the "Base Rate") (which is based on the higher of
the Agent's published prime rate or overnight federal funds rate plus 0.50%)
plus a borrowing margin. The applicable borrowing margin for such loans will
vary, based on Cobb Theatres, L.L.C.'s ratio of net debt to EBITDA from 1.625%
to 3.125% with respect to LIBOR borrowings and from 0.375% to 1.875% with
respect to Base Rate borrowings.
In connection with the New Credit Facility, the Company has agreed to pay
commitment fees in respect of the facilities based on the unused portion of the
New Credit Facility.
The Senior Secured Notes and the New Credit Facility are secured on an
equal and ratable basis by a first pledge of the equity interests of the Company
and Cobb II, all intercompany notes and a security interest in all of the assets
(other than real property) of the Company and Cobb II.
The New Credit Facility contains covenants that, among other things,
restrict the ability of Cobb Theatres, L.L.C. and the Company to incur
additional debt, create certain liens, make certain investments (including
certain capital expenditures), pay dividends or make other distributions, sell
assets of Cobb Theatres, L.L.C. or its subsidiaries, issue or sell equity
interests of Cobb Theatres, L.L.C.'s subsidiaries or enter into certain mergers
or consolidations. Under the New Credit Facility, Cobb Theatres, L.L.C. will be
required to comply with specified financial ratios, including maximum net debt
to EBITDA and minimum interest coverage and fixed charge coverage ratios.
Cobb Theatres, L.L.C. was in compliance with all financial covenants as of
August 31, 1996.
The fair value of the Company's long term debt as of August 31, 1996 was
$43,777,000 based on the quoted market price of the Senior Secured Notes.
PREVIOUS FINANCING
Long term debt, all of which has been paid as a result of the
Company's new financing, consisted of the following as of August 31, 1995 (in
thousands):
Senior term bank loan ................ $ 23,750
Various other bank notes............... 8,335
-------
32,085
Less current installments.............. 2,069
-------
$ 30,016
=======
In addition, the Company had an $8.0 million seasonal working capital
revolver of which the Company had $6.7 million outstanding at August 31, 1995.
As of August 31, 1995, the borrowing rate was approximately 10.25% on the senior
term loan and the seasonal working capital revolver.
The Company had a two year interest rate swap agreement having a notional
principal amount of $10.0 million which matured in June 1995. The agreement
effectively fixed the interest rate on a portion of the variable rate senior
term loan at 4.38%. The Company received approximately $109,000 of income
related to the interest rate swap to offset interest expense in 1995. The
Company incurred approximately $60,000 of additional expense in 1994 related to
the interest rate swap. The Company has had no involvement with other
derivatives in the past, with the exception of basic swaps to convert variable
rate debt to fixed rate debt, and has no specific plans to use derivative
products in the foreseeable future.
F-27
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 7 LEASES
CAPITAL LEASES
The Company is obligated under various capital leases that expire during
the next four years for equipment with a net book value of approximately $1.9
million.
Future minimum lease payments and the present value of future minimum lease
payments under equipment capital leases as of August 31, 1996 are as follows (in
thousands):
1997 .......................................................... $ 401
1998 .......................................................... 401
1999 .......................................................... 399
2000 .......................................................... 909
-----
Total ....................................................... 2,110
Less amount representing interest (approximating 8.01%) ..... 303
-----
Present value of future minimum capital lease payment ....... 1,807
Less current portion .......................................... 275
-----
Obligation under capital leases, excluding current portion .. $ 1,532
=====
OPERATING LEASES
The majority of the Company's operations are conducted in premises occupied
under operating lease agreements with base terms ranging generally from 15 to 20
years, with certain leases containing options, primarily in 5 year increments,
to extend up to an additional 30 years. The leases provide for fixed rentals
and/or contingent rentals based on revenues. The majority of the leases provide
that the Company will pay substantially all taxes, maintenance, insurance and
certain other operating expenses. The Company guarantees all of the operating
leases of Cobb II.
Future minimum lease payments under these operating leases are as follows
(in thousands):
Fiscal Year:
1997 ....................................................... $ 13,980
1998 ....................................................... 14,115
1999 ....................................................... 13,643
2000 ....................................................... 13,302
2001 ....................................................... 12,812
Thereafter ................................................. 68,169
-------
$136,021
=======
Total rent expense for theatre facility operating leases for 1996, 1995 and
1994 was approximately $12.9 million, $13.5 million and $13.9 million,
respectively. Sublease payments received were approximately $159,000, $164,000
and $201,000 in 1996, 1995 and 1994, respectively.
The Company records rent expense on a straight-line basis over the term of
the lease. Long term liabilities include deferred rent of $2,782,000 and
$2,556,000 as of August 31, 1996 and 1995, respectively, representing pro rata
future miminum rental payments for leases with scheduled rent increases.
F-28
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 8 NON-RECURRING CHARGES
In 1995, approximately $305,000 of expenses were incurred due to an
unconsummated financing transaction.
NOTE 9 INCOME TAXES
Income tax expense (benefit) in the statement of operations for the years
ending August 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994
---- ---- ----
(In thousands)
Current
Federal ................................. $ 99 $ 503 $ 1,351
State ................................... 17 75 236
----- ------ -------
116 578 1,587
----- ------ -------
Deferred
Federal ................................. 326 288 49
State ................................... 29 26 (5)
----- ------ -------
355 314 44
----- ------ -------
Total income tax expense ..................... 471 892 1,631
Tax benefit of extraordinary loss ....... (261) - -
----- ------ -------
Income tax expense before
extraordinary loss................... $ 732 $ 892 $1,631
----- ------ -------
----- ------ -------
The difference between the effective rate and the U.S. federal income tax
statutory rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate ........................... $ 446 34% $ 967 34% $ 1,463 34%
Add (subtract) tax effect of:
State income tax, net of federal benefit..... 40 3 75 3 152 4
Utilization of tax credits .................. -- -- -- -- (24) (1)
Effect of amended returns .................. -- -- (41) (2) -- --
Other ....................................... (15) (1) (109) (4) 40 1
----- ---- ----- ---- ------- ----
$ 471 36% $ 892 31% $ 1,631 38%
----- ---- ----- ---- ------- ----
----- ---- ----- ---- ------- ----
</TABLE>
The significant components of deferred income tax assets (liabilities) at
August 31, 1996 and 1995 are as follows:
1996 1995
---- ----
(In thousands)
Accrued liabilities ............................ $ 1,030 $ 945
Amortization ................................... 43 509
Depreciation ................................... (4,168) (3,960)
Tax operating lease............................. 653 744
Net operating loss.............................. 25 --
AMT credit carryforward ........................ 299 --
-------- ---------
Non-current deferred income tax liability .... $ (2,118) $ (1,762)
-------- ---------
-------- ---------
F-29
<PAGE>
R. C. COBB, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 10 EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) plan covering all
full-time employees who have six months of service and are age 21 or older. The
Company may elect to match a portion of the participant's elective deferral.
Company contributions amounted to approximately $155,000, $0 and $129,000 in
1996, 1995 and 1994, respectively.
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, the ultimate liability with respect to
these actions will not materially affect the financial position or results of
operation of the Company.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres II, Inc.
We have audited the accompanying balance sheets of Cobb Theatres II, Inc. as
of August 31, 1996 and 1995, and the related statements of operations,
stockholder's equity and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cobb Theatres II, Inc. at
August 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/Ernst & Young LLP
Birmingham, Alabama
October 23, 1996
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres II, Inc.
We have audited the accompanying statements of operations, stockholder's
equity and cash flows of Cobb Theatres II, Inc. for the 195 day period from
inception (February 18, 1994) to August 31, 1994. 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance whether the financial statements are free of
material misstatements. 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 financial statements referred to above present
fairly, in all material respects, the results of operations of Cobb Theatres
II, Inc. and its cash flows for the initial period ended August 31, 1994 in
conformity with generally accepted accounting principles.
LaRocca & Co., P.C.
Birmingham, Alabama
November 15, 1994
F-32
<PAGE>
COBB THEATRES II, INC.
BALANCE SHEETS
(IN THOUSANDS)
August 31,
---------------------
1996 1995
---- ----
ASSETS
Current assets:
Cash and equivalents $ 363 $ 264
Receivables 131 85
Other current assets 650 483
------- -------
Total current assets 1,144 832
Property and equipment, net 28,379 21,505
Intangible assets, net 13,778 13,265
Other assets 2,433 1,245
------- -------
Total assets $ 45,734 $ 36,847
------- -------
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 1,280 $ 1,910
Acc.rued film rentals 1,468 1,070
Accrued interest payable 2,421 7
Accrued expenses and other liabilities 783 2,832
Revolving line of credit - 3,000
------- -------
Total current liabilities 5,952 8,819
Long-term debt 42,696 28,950
Other long-term liabilities 26 26
------- -------
Total liabilities 48,674 37,795
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value; authorized 1 million shares;
issued and outstanding 1,000 shares. -
Additional paid-in capital 1,001 1,001
Retained eamings (deficit) (3,941) ( 1,949)
------- -------
Total stockholder's equity (deficit) (2,940) (948)
------- -------
Total liabilities and stockholder's equity $ 45,734 $ 36,847
------- -------
------- -------
See accompanying notes to financial statements.
F-33
<PAGE>
COBB THEATRES II, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Inception date
Year Ended Year Ended through
August 31, August 31, August 31,
1996 1995 1994
---------- ---------- --------------
Revenues:
Theatre admissions $18,388 $12,652 $5,746
Concessions 7,064 4,367 1,999
Other 616 397 70
Total Revenues ------- -------- -------
26,068 17,416 7,815
Costs of revenues:
Film rental 9,464 6,669 3,107
Concession 1,172 691 303
------- ------- -------
Total cost of revenues 10,636 7,360 3,410
------- ------- -------
Gross profit 15,432 10,056 4,405
Operating expenses:
Advertising 812 657 189
Payroll and related costs 2,976 1,945 802
Occupancy 5,151 3,666 1,244
Repairs and maintenance 251 159 69
General and administrative 823 506 230
Depreciation and amortization 3,004 2,219 842
Other 977 636 288
------- ------- -------
Total operating expenses 13,994 9,788 3,664
------- ------- -------
Operating income 1,438 268 741
------- ------- -------
Other income (deductions):
Interest expense (3,689) (1,918) (671)
Interest income - 13 11
Loss from disposition of assets (54) - -
Non-recurring charge (Note 8) - (876) -
Loan guarantee fee (347) (236) (420)
------- ------- -------
(4,090) (3,017) (1,080)
------- ------- -------
Loss before income taxes
and extraordinary item (2,652) (2,749) (339)
Income tax (benefit) (966) (1,014) (125)
------- ------- -------
Loss before extraordinary
item (1,686) (1,735) (214)
Extraordinary item - Loss on
extinguishment of debt
(net of income tax of $180) (306) - -
------- ------- -------
Net loss $(1,992) $(1,735) $(214)
------- ------- -------
------- ------- -------
See accompanying notes to financial statements.
F-34
<PAGE>
COBB THEATRES II, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-in Earnings Stockholder's
Stock Capital (Deficit) Equity
------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of 1,000 shares
of common stock $ - $ - $ - $ -
Contribution of additional
paid-in capital - 1,001 - 1,001
Net loss - - (214) (214)
------ ------- -------- -------
Balance as of
August 31, 1994 - 1,001 (214) 787
Net loss - - (1,735) (1,735)
------ ------- -------- -------
Balance as of
August 31, 1995 - 1,001 (1,949) (948)
Net loss - - (1,992) (1,992)
------ ------- -------- -------
Balance as of
August 31, 1996 $ - $ 1,001 $ (3,941) $ (2,940)
------ ------- -------- -------
------ ------- -------- -------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
<TABLE>
<CAPTION>
COBB THEATRES II, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Inception date
Year Ended Year Ended through
August 31, August 31, August 3l,
1996 1995 1994
-------------- ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Netloss $ (1,992) $ (1,735) $ (214)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,004 2,219 842
(Gain) loss on asset dispositions 54 - -
Provision for deferred income taxes (966) (1,014) (125)
Extraordinary loss on debt extinguishment 306 - -
(Increase) decrease in assets:
Receivables (46) (53) (33)
Other assets (167) (275) (561)
Increase (decrease) in liabilities:
Accounts payable (630) 1,277 633
Accrued film rental 398 (217) 2,073
Accrued interest payable 2,414 (387) 394
Accrued expenses and other liabilities (2,049) 2,400 (327)
------------ ----------- ----------
Total adjustments 2,318 3,950 2,896
------------ ----------- ----------
Net cash provided by operating activities 326 2,215 2,682
------------ ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition - - (22,000)
Additions to.property and equipment (11,253) (4,015) (243)
Purchase of land for construction of theatres - (6,509) -
Construction in progress 2,757 (4,205) (612)
Other (180) - -
------------ ----------- ----------
Net cash used in investing activities (8,676) (14,729) (22,855)
------------ ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured notes 42,697 - -
Proceeds from senior subordinated notes 5,000 - -
Payments on senior subordinated notes (5,000) - -
Con tibution of additional paid-in capital - - 1,001
Proceeds (payments) on long-term bank debt, net (28,950) 7,950 21,000
Proceeds (payments) on revolving line of credit (3,000) 3,000 -
Capitalized debt issue costs (2,036) - -
Debt prepayment fees (262) - -
------------ ----------- ----------
Net cash provided by financing activities 8,449 10,950 22,001
------------ ----------- ----------
Net increase (decrease) in cash and equivalents 99 (1,564) 1,828
Cash and equivalents - beginning of year 264 1,828 -
------------ ----------- ----------
Cash and equivalents - end of year $ 363 $ 264 $ 1,828
------------ ----------- ----------
------------ ----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for: Interest $ 1,980 $ 2,305 $ 277
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
COBB THEATRES II, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Cobb Theatres II, Inc. (the "Company") is engaged in the operation and
management of multi-screen motion picture theatres and currently operates in
Florida. The Company was incorporated on February 18, 1994 (the inception
date), therefore, the 1994 operating results are for the 195 day period ended
August 31, 1994.
On March 6, 1996, Cobb Theatres, L.L.C. acquired the outstanding equity of
the Company and of R.C. Cobb, Inc., a corporation affiliated through common
ownership and management. The Cobb family, as members, own all of the equity
interest of Cobb Theatres, L.L.C.
In March 1994, the Company purchased certain assets, consisting of 8
multiplex theatres, and assumed the Florida theatre facility operating lease
obligations of Theatre Acquisitions, L.P. d/b/a Wometco Theatres. The Company
paid $22 million in cash which was financed through bank debt.
The acquisition has been recorded using the purchase method of accounting
and the results of operations of the purchased theatres have been included in
the Company's results of operations since the date of acquisition. The excess
of the aggregate purchase price over the fair market value of net assets
acquired of approximately $7.6 million is amortized over the term (including all
renewal options) of the underlying facility leases.
The following summarizes the unaudited pro forma results of operations
assuming the acquisition of the purchased theatres occurred at the beginning of
fiscal 1994. This pro forma summary does not necessarily reflect what the
results of operations would have been had the acquisition occurred on September
1, 1993.
Year Ended
AUGUST 31, 1994
---------------
(In thousands)
Revenues........................................ $ 17,380
Net loss........................................ (823)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUES AND FILM RENTAL COSTS
Revenues are recognized when admission and concession sales are received at
the theatres. Film rental costs are accrued based on the applicable box office
receipts and the terms of the film licenses.
CASH AND EQUIVALENTS
The Company considers all temporary cash investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for additions
(including interest during construction), major renewals and betterments are
capitalized, and expenditures for maintenance and repairs are charged to expense
as incurred. Property and equipment under capital leases are stated at the
lower of the present value of minimum lease payments at the beginning of the
lease term or fair value at the inception of the lease.
F-37
<PAGE>
COBB THEATRES II, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Company uses the straight-line method in computing depreciation and
amortization over the estimated useful lives of assets as follows:
Buildings and improvements...................20 to 30 years
Fixtures and equipment....................... 5 to 15 years
Leasehold improvements.......................10 to 20 years
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over the estimated
useful lives of the assets. A noncompete agreement is amortized over its five
year term. Excess of purchase price over the fair value of net assets acquired
is amortized over the term (including all renewal options) of the underlying
facility leases for periods of 19 to 35 years. Favorable lease terms are
amortized over the term (excluding renewal options) of the underlying facility
leases for periods of 4 to 19 years. Debt issue costs are those costs associated
with the issuance of the Senior Secured Notes that will be amortized over the
term of the notes which are due March 1, 2003. The carrying values of
intangible assets are reviewed if the facts and circumstances suggest that they
may be impaired. If this review is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow is
required.
INCOME TAXES
For financial statement purposes, income taxes are calculated in accordance
with Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
ACCOUNTING FOR INCOME TAXES. The statement requires that deferred income taxes
reflect the impact of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured by tax
laws and regulations.
FINANCIAL INSTRUMENTS AND HEDGING
The Company uses interest rate swap agreements to manage interest costs and
risks associated with changing interest rates. The Company designates interest
rate swaps as hedges of specific debt instruments and the differential to be
paid or received is accrued as interest rates change and is recognized over the
life of the agreements as an adjustment to interest expense. Counterparties to
the interest rate swap contracts are major financial institutions and credit
loss from counterparty non-performance is not anticipated. The Company does not
enter into financial instruments for trading purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At August 31, 1996 and 1995, the carrying value of financial instruments
approximate their fair value unless otherwise indicated.
PRESENTATION
Certain amounts have been reclassified in prior period financial statements
to conform with the current year presentation.
F-38
<PAGE>
COBB THEATRES II, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 2 RELATED PARTY TRANSACTIONS
R.C. COBB, INC.
As of March 6, 1996 the Company and R.C. Cobb, Inc. are both operating
subsidiaries of Cobb Theatres, L.L.C. Prior to that date both companies were
owned by members of the Cobb family. During 1994, the Company entered into an
agreement to receive supervisory and support services from R.C. Cobb, Inc. Fees
incurred relating to this agreement amounted to approximately $736,000, $506,000
and $230,000 in 1996, 1995 and 1994, respectively.
R.C. Cobb, Inc. guarantees and cross-collateralizes the debt of the Company
which had an outstanding balance of $42.7 million and $32.0 million as of August
31, 1996 and 1995, respectively. Guarantee fees amounted to approximately
$347,000, $236,000 and $420,000 in 1996, 1995 and 1994, respectively. The debts
of both companies are subject to cross default provisions. As of August 31,
1996 and 1995, the Company owed R.C. Cobb, Inc. approximately $0 and $2.2
million, respectively.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of: 1996 1995
---- ----
(In thousands)
Land ............................................. $6,526 $6,509
Buildings and leasehold improvements ............. 9,516 1,747
Fixtures and equipment ........................... 13,145 9,734
Construction in progress ......................... 2,059 4,816
Other assets ..................................... 130 77
------- -------
31,376 22,883
Less accumulated depreciation .................... 2,997 1,378
------- -------
$28,379 $21,505
------- -------
------- -------
Interest of approximately $705,000, $216,000 and $6,300 has been capitalized
in 1996, 1995 and 1994, respectively.
NOTE 4 INTANGIBLE ASSETS
Intangible assets consist of:
1996 1995
---- ----
(In thousands)
Excess of purchase price over the fair value of
net assets acquired .............................. $ 7,600 $ 7,600
Noncompete agreement ............................. 1,800 1,800
Favorable lease terms ............................ 5,300 5,300
Debt issue costs ................................. 2,036 248
------- -------
16,736 14,948
Less accumulated amortization .................... 2,958 1,683
------- -------
$ 13,778 $ 13,265
------- -------
------- -------
Amortization expense totaled approximately $1.4 million, $1.2 million and
$0.5 million for 1996, 1995 and 1994, respectively.
F-39
<PAGE>
COBB THEATRES II, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 5 OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following:
1996 1995
---- ----
(In thousands)
Other current assets:
Due from related parties ......................... $ -- $ 25
Inventory ........................................ 135 73
Prepaid and other assets ......................... 515 385
------ ------
$ 650 $ 483
------ ------
------ ------
Other assets:
Deposits ......................................... $ 148 $ 105
Deferred income tax benefits ..................... 2,285 1,140
------ ------
$ 2,433 $ 1,245
------ ------
------ ------
Accrued expenses and other liabilities:
Due to related parties ........................... $ -- $ 2,211
Accrued liabilities .............................. 684 482
Deferred income .................................. 99 139
------ ------
$ 783 $ 2,832
------ ------
------ ------
NOTE 6 LONG TERM DEBT
NEW FINANCING
On March 6, 1996, the Company's parent, Cobb Theatres, L.L.C. issued $85
million of 10 5/8% Senior Secured Notes due March 1, 2003. Interest on the
Senior Secured Notes is due semi-annually on September 1 and March 1. At August
31, 1996, approximately $42.7 million of the proceeds of the issuance was loaned
by its parent to the Company to repay existing debt as of that date and to
provide funds for general corporate purposes, including funding working capital
and development of additional theatres. The terms of the loans to the Company
correspond with the terms of the Senior Secured Notes. Prepayment fees and the
write off of deferred loan costs associated with the previous debt resulted in
an extraordinary loss of $306,000, net of income tax benefit of $180,000.
Concurrent with the issuance of the Senior Secured Notes, Cobb Theatres,
L.L.C. entered into a new $25 million bank credit facility ("the New Credit
Facility"). The New Credit Facility is comprised of a $12.5 million senior
secured seasonal revolver available for working capital purposes and a $12.5
million senior secured reducing revolver available for future capital
expenditures. The New Credit Facility has a final maturity date of November 30,
2000. However, availability under the reducing revolver will be permanently
reduced by set amounts beginning February 28, 1998. Access to the availability
under the New Credit Facility will be dependent upon the achievement by Cobb
Theatres, L.L.C of certain financial ratios. Cobb Theatres, L.L.C. will lend
funds obtained through the facility to the Company as such needs arise.
At the option of Cobb Theatres, L.L.C., the interest rates per annum
applicable to the New Credit Facility will be a fluctuating rate of interest
measured by reference to either: (a) an adjusted London inter-bank offered
rate ("LIBOR") plus borrowing margin or (b) the base rate of the Agent for the
New Credit Facility (the "Base Rate") (which is based on the higher of the
Agent's published prime rate or overnight federal funds rate plus 0.50%) plus a
borrowing margin. The applicable borrowing margin for such loans will vary,
based on Cobb Theatres, L.L.C.'s ratio of net debt to EBITDA from 1.625% to
3.125% with respect to LIBOR borrowings and from 0.375% to 1.875% with respect
to Base Rate borrowings.
In connection with the New Credit Facility, the Company has agreed to pay
commitment fees in respect of the facilities based on the unused portion of the
New Credit Facility.
F-40
<PAGE>
COBB THEATRES II, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Senior Secured Notes and the New Credit Facility are secured on an
equal and ratable basis by a first pledge of the equity interests of the Company
and R.C. Cobb, Inc., all intercompany notes and a security interest in all of
the assets (other than real property) of the Company and R.C. Cobb, Inc.
The New Credit Facility contains covenants that, among other things,
restrict the ability of Cobb Theatres, L.L.C. and the Company to incur
additional debt, create certain liens, make certain investments (including
certain capital expenditures), pay dividends or make other distributions, sell
assets of Cobb Theatres, L.L.C. or its subsidiaries, issue or sell equity
interests of Cobb Theatres, L.L.C.'s subsidiaries or enter into certain mergers
or consolidations. Under the New Credit Facility, Cobb Theatres, L.L.C. will be
required to comply with specified financial ratios, including maximum net debt
to EBITDA and minimum interest coverage and fixed charge coverage ratios.
Cobb Theatres, L.L.C. was in compliance with all financial covenants as of
August 31, 1996.
The fair value of the Company's long term debt as of August 31, 1996
was $ 44,198,000 based on the quoted market price of the Senior Secured Notes.
PREVIOUS FINANCING
Long term debt as of August 31, 1995, all of which has been paid as a
result of the Company's new financing, consisted of senior term loans payable to
banks and amounted to approximately $29.0 million.
The Company also had a $3.0 million seasonal working capital revolver
outstanding at August 31, 1995. The borrowing rate was approximately 10.25% on
the senior term loans and the seasonal working capital revolver as of August 31,
1995.
.
The Company had one interest rate swap agreement with a $12.0 million
notional amount which matured in May 1996. The sole purpose of the swap was to
convert a portion of the Company's variable rate senior term debt to fixed rate.
This debt was repaid as of March 6, 1996 as a result of the issuance of the
Senior Secured Notes. The swap contract no longer qualified for hedge
accounting treatment for the two months prior to maturity at a cost of
approximately $20,000 per month. The Company has had no involvement with other
derivatives in the past, with the exception of basic swaps to convert variable
rate debt to fixed rate debt, and has no specific plans to use derivative
products in the foreseeable future.
NOTE 7 LEASES
The majority of the Company's operations are conducted in premises occupied
under operating lease agreements with base terms ranging generally from 15 to 20
years, with certain leases containing options, primarily in 5 year increments,
to extend up to an additional 30 years. The leases provide for fixed rentals
and/or contingent rentals based on revenues. The majority of the leases provide
that the Company will pay substantially all taxes, maintenance, insurance and
certain other operating expenses. R. C.Cobb, Inc. guarantees all of the
operating leases of the Company.
F-41
<PAGE>
COBB THEATRES II, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Future minimum lease payments under these operating leases are as follows (in
thousands):
1997 ..................................... $5,111
1998 ..................................... 5,263
1999 ..................................... 5,127
2000 ..................................... 5,092
2001 ..................................... 4,803
Thereafter ............................... 57,459
------
$82,855
-------
-------
Total rent expense for theatre facility operating leases for 1996, 1995 and
1994, was approximately $3.1 million, $2.3 million and $0.9 million,
respectively. Contingent rentals were approximately $118,000 and $52,000 in
1996 and 1995 respectively. The Company has entered into a lease agreement for
a location to open within three months subsequent to August 31, 1996 which has
total minimum lease payments amounting to approximately $22.7 million which are
included in the future minimum lease payments schedule above.
The Company records rent expense on a straight-line basis over the term of
the lease. Long term liabilities include deferred rent of $26,000 as of August
31, 1996 and 1995, representing pro rata future minimum rental payments for
leases with scheduled rent increases.
NOTE 8 NON-RECURRING CHARGES
In 1995, approximately $876,000 of non-recurring expenses were incurred due
to an unconsummated financing transaction.
NOTE 9 INCOME TAXES
Income tax expense (benefit) in the statement of operations for the years
ended August 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994
---- ---- ----
(In thousands)
Deferred
Federal ........................ $(1,067) $ (932) $ (115)
State .......................... (79) (82) (10)
-------- -------- --------
Total income tax expense (benefit).... (1,146) (1,014) (125)
Tax benefit of extraordinary loss. (180) -- --
-------- -------- --------
Income tax expense (benefit) before
extraordinary loss............ $ (966) $(1,014) $ (125)
-------- -------- --------
-------- -------- --------
The difference between the effective rate and the U. S. federal income tax
statutory rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ -------------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate.......................... $(1,067) 34% $ (935) (34)% $(116) (34)%
Add (subtract) tax effect of:
State income tax, net of federal benefit.. (79) 3 (81) (3) (10) (3)
Other..................................... - - 2 - 1 -
-------- --- -------- ----- ------ -----
$(1,146) 37% $(1,014) (37)% $(125) (37)%
-------- --- -------- ----- ------ -----
-------- --- -------- ----- ------ -----
</TABLE>
F-42
<PAGE>
COBB THEATRES II, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The significant components of deferred income tax assets at August 31, 1996
and 1995 are as follows:
1996 1995
---- ----
(In thousands)
Accrued liabilities..................... $ - $ 11
Amortization.............. ............. 354 207
Depreciation............................ (981) (560)
Net operating loss carryforward......... 2,912 1,482
------ ------
Non-current deferred income tax asset... $2,285 $1,140
====== ======
The Company has a net operating loss carryforward of approximately
$7.9 million that may be offset against future taxable income. Substantially
all of the carryforward expires in 2009 through 2011. The Company has not
recorded a valuation allowance related to their deferred tax assets as
management considers it more likely than not that available tax strategies and
future taxable income will allow the deferred tax assets to be realized.
NOTE 10 EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) plan covering all
full-time employees who have six months of service and are age 21 or older. The
Company may elect to match a portion of the participant's elective deferral.
Company contributions amounted to approximately $7,000, $0, and $4,000 in 1996,
1995 and 1994, respectively.
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, the ultimate liability with respect to
these actions will not materially affect the financial position or results of
operations of the Company.
F-43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME OF COBB THEATRES, L.L.C. FOR THE TWELVE
MONTHS ENDED AUGUST 31, 1996 AND THE CONSOLIDATED BALANCE SHEET OF COBB
THEATRES, L.L.C. AT AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001011152
<NAME> COBB THEATRES, L.L.C.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 8,073
<SECURITIES> 0
<RECEIVABLES> 1,236
<ALLOWANCES> 0
<INVENTORY> 877
<CURRENT-ASSETS> 13,652
<PP&E> 112,606
<DEPRECIATION> 32,923
<TOTAL-ASSETS> 113,495
<CURRENT-LIABILITIES> 18,979
<BONDS> 85,000
0
0
<COMMON> 0
<OTHER-SE> 3,057
<TOTAL-LIABILITY-AND-EQUITY> 113,495
<SALES> 115,579
<TOTAL-REVENUES> 119,145
<CGS> 45,700
<TOTAL-COSTS> 65,770
<OTHER-EXPENSES> 251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,058
<INCOME-PRETAX> (634)
<INCOME-TAX> (234)
<INCOME-CONTINUING> (400)
<DISCONTINUED> 0
<EXTRAORDINARY> (751)
<CHANGES> 0
<NET-INCOME> (1,151)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
