<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended : November 30, 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 _____________
--------------
<PAGE>
COBB THEATRES L.L.C.
FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 1996
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
COBB THEATRES, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED NOVEMBER 30,
1996 1995
-------- --------
Revenues:
Theatre admissions $ 15,702 $ 14,887
Concessions 6,569 6,107
Other 584 690
-------- --------
Total revenues 22,855 21,684
Costs of revenues:
Film rental 8,100 7,259
Concession 1,066 930
-------- --------
Total cost of revenues 9,166 8,189
-------- --------
Gross profit 13,689 13,495
Operating expenses:
Advertising 747 699
Payroll and related costs 3,324 2,899
Occupancy 6,616 6,161
Repairs and maintenance 412 256
General and administrative 1,638 1,758
Depreciation and amortization 2,352 2,111
Other 982 1,016
-------- --------
Total operating expenses 16,071 14,900
-------- --------
Operating income (loss) (2,382) (1,405)
-------- --------
Other income (deductions):
Interest expense (2,205) (1,866)
Interest Income 17 84
Other - (4)
-------- --------
(2,188) (1,786)
-------- --------
Income (loss) before income taxes (4,570) (3,191)
Income tax expense (benefit) (1,668) (1,165)
-------- --------
Net income (loss) $ (2,902) $ (2,026)
======== ========
See accompanying notes to financial statements.
3
<PAGE>
COBB THEATRES, L.L.C.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
NOVEMBER 30, AUGUST 31,
1996 1996
------------ -------------
ASSETS (unaudited)
Current assets:
Cash and equivalents $ 1,442 $ 8,073
Receivables 750 1,236
Other assets 5,784 4,343
-------- --------
Total current assets 7,976 13,652
Property and equipment, net 83,797 79,683
Intangible assets, net 15,737 16,187
Other assets 4,640 3,973
======== ========
Total assets $112,150 $113,495
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 5,527 $ 4,276
Accrued film rentals 5,212 4,833
Accrued interest payable 2,428 4,759
Accrued expenses and other liabilities 4,887 4,836
Revolving line of credit 2,195 -
Obligations under capital leases,
current installments 275 275
-------- --------
Total current liabilities 20,524 18,979
Long-term debt 85,000 85,000
Obligations under capital leases 1,465 1,532
Other long-term liabilites 5,006 4,927
-------- --------
Total liabilites 111,995 110,438
Commitments and contingencies
Members' equity 155 3,057
-------- --------
Total liabilities and members' equity $112,150 $113,495
======== ========
See accompanying notes to financial statements.
4
<PAGE>
COBB THEATRES, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED NOVEMBER 30,
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,902) $ (2,026)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 2,352 2,111
(Gain) loss on asset dispositions - 4
Provision for deferred income taxes (622) 805
(Increase) decrease in assets:
Receivables 486 148
Other current assets (1,441) (1,851)
Increase (decrease) in liabilities:
Accounts payable 1,251 (2,120)
Accrued film rental 379 814
Accrued interest payable (2,331) 27
Accrued expenses and other liabilities 51 (770)
------- ---------
Total adjustments 125 (832)
------- ---------
Net cash used for operating
activities (2,777) (2,858)
------- ---------
CASH FLOWS FROM INVESTING ACTIVITES:
Additions to property and equipment (5,944) (3,854)
Other (38) 6
------- ---------
Net cash used in investing activities (5,982) (3,848)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated notes -- 10,000
Proceeds (payments) on long-term bank debt, net -- (131)
Proceeds (payments) on revolving line of credit 2,195 (4,000)
Principal payments under capital lease (67) (61)
------- ---------
Net cash provided by financing
activities 2,128 5,808
------- ---------
Net decrease in cash and equivalents (6,631) (898)
Cash and equivalents - beginning of period 8,073 1,241
======= =========
Cash and equivalents - end of period $ 1,442 $ 343
======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for: Interest $ 4,661 $ 1,782
======= =========
Income Taxes $ -- $ --
======= =========
See accompanying notes to financial statements.
5
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Cobb Theatres, L.L.C. (the "Company") is an Alabama limited liability company
engaged in the operation and management of multi-screen motion picture theatres.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Due to the seasonal nature of the Company's business, operating results for the
three months ended November 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending August 31, 1997. For further
information, refer to the audited consolidated financial statements and
footnotes thereto included in the Form 10-K for the year ended August 31, 1996.
NOTE 2 - EARNINGS PER SHARE
Earnings per share information is not presented as the Company is a limited
liability company consisting of members' interests rather than shareholders'
interests.
NOTE 3 - LONG TERM DEBT
On March 6, 1996, the Company issued $85 million of 10 5/8% Senior Secured Notes
due March 1, 2003. Concurrent with the issuance of the Senior Secured Notes,
the Company entered into a $25 million New Credit Facility, led by one of its
existing banks. Cobb Finance Corp. and the Company are joint and several
obligors with respect to the Senior Secured Notes and the New Credit Facility.
The Senior Secured Notes and the New Credit Facility are fully and
unconditionally guaranteed on a joint and several basis by a first pledge of the
equity interests of the guarantor 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.
6
<PAGE>
NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION FOR
GUARANTOR SUBSIDIARIES
R.C. Cobb, Inc. and Cobb Theatres II, Inc. (the guarantor subsidiaries) along
with Cobb Finance Corp. are wholly-owned subsidiaries of the Company and
comprise all of the direct subsidiaries of the Company. There are no indirect
subsidiaries. Cobb Finance Corp. does not have any substantial operations or
assets of any kind.
Summarized income statement information for the Company's guarantor subsidiaries
is as follows:
THREE MONTHS
ENDED NOVEMBER 30, 1996
------------------------------------
R.C. Cobb
Cobb, Inc. Theatres II, Inc.
---------- ------------------
(in thousands)
Total revenues $ 17,038 $ 6,095
Cost of revenues 6,459 2,707
Operating expenses 9,216 3,143
General and administrative expenses 1,582 55
Depreciation and amortization 1,481 872
Operating income (loss) (1,700) (681)
Interest expense, net 1,165 1,024
Net income (loss) (1,819) (1,083)
Separate financial statements and other disclosures concerning Cobb Finance
Corp. and the guarantor subsidiaries are not presented because management has
determined that separate disclosures for each of the two operating subsidiaries
would not provide any additional information that would be material to investors
that is not already presented in the consolidated financial statements.
7
<PAGE>
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 expansions into new markets,
competition and population growth in the geographic markets. Although the
Company's ticket pricing in a particular market may change in response to
competition and other factors, the Company's average ticket price has remained
relatively stable throughout the periods presented. The Company's principal
costs of operations are film rentals, costs of concessions, payroll, occupancy
costs, such as theatre rentals, ad valorem taxes and utilities, advertising
costs and other expenses, such as insurance.
The following table sets forth, for the fiscal periods indicated, the percentage
of total revenues represented by certain items reflected in the Company's
consolidated statements of operations:
Percentage of Total
Revenues
-----------------------
Three Months
Ended November 30,
1996 1995
Revenues:
Theatre Admissions 68.7% 68.7%
Concessions 28.7% 28.2%
Other 2.6% 3.2%
---------------------------
Total Revenues 100.0% 100.0%
Cost of Revenues 40.1% 37.8%
---------------------------
Gross Profit 59.9% 62.2%
Other theatre operating costs 52.9% 50.9%
General and administrative expenses 7.2% 8.1%
Depreciation and amortization 10.3% 9.7%
---------------------------
Operating income (loss) -10.4% -6.5%
Interest expense, net -9.6% -8.2%
Net income (loss) -12.7% -9.3%
Other key ratios:
Film rental costs as a percentage of
admission revenues 51.6% 48.8%
Cost of concessions as a percentage of
concession revenues 16.2% 15.2%
8
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
REVENUES. Revenues increased 5.4% in the three months ended November 30, 1996
(first quarter of fiscal 1997) to $22.9 million from $21.7 million in the three
months ended November 30, 1995 (first quarter of fiscal 1996). The increase in
revenues is attributable to a 6.4% increase in attendance in the first quarter
of fiscal 1997 from the first quarter of fiscal 1996. The increase in attendance
resulted from the popularity of films released during the period and from a 3.5%
increase in the average screen count. The average ticket price for first-run
films decreased 1.1% to $3.54 in the first quarter of fiscal 1997 compared to
$3.58 in the first quarter of fiscal 1996. The average first-run concession
revenue per patron decreased to $1.56 in the first quarter of fiscal 1997
compared to $1.57 in the first quarter of fiscal 1996. The 5.4% increase in
revenues was achieved while 26 screens were closed during the quarter for
renovation and expansion.
GROSS PROFIT. Gross profit (consisting of revenues less film rental costs and
cost of concessions) increased 1.5% in the first quarter of fiscal 1997 to
$13.7 million from $13.5 million in the first quarter of fiscal 1996. This
increase is primarily attributable to the 5.4% increase in revenues, partially
offset by the increase of 11.6% in film rental expense. Gross profit as a
percentage of total revenues (the "gross profit percentage") decreased to 59.9%
in the first quarter of fiscal 1997 from 62.2% in the first quarter of fiscal
1996. The decrease in gross profit as a percentage of revenues resulted
primarily from an increase in film rental costs as a percentage of theatre
admissions from 48.8% to 51.6% and an increase in the cost of concessions as a
percentage of concession revenues from 15.2% to 16.2% due to an increased
variety of products.
OTHER THEATRE OPERATING COSTS. Other theatre operating costs increased 9.5% in
the first quarter of fiscal 1997 to $12.1 million from $11.0 million in the
first quarter of fiscal 1996, primarily resulting from the addition of 36 new
screens over the past year, an increase in payroll costs per patron and an
increase in repairs and maintenance costs during the quarter. Other theatre
operating costs as a percentage of revenues increased to 52.9% in the first
quarter of fiscal 1997 from 50.9% in the first quarter of fiscal 1996 primarily
due to the reasons stated above plus the fact that facility and other costs were
incurred on 26 screens which were closed during the quarter for renovation and
expansion.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 6.8% in the first quarter of fiscal 1997 compared to the first quarter
of fiscal 1996. General and administrative expenses as a percentage of revenues
decreased to 7.2% in the first quarter of fiscal 1997 from 8.1% in the first
quarter of fiscal 1996 due to the increase in revenues combined with the
decrease in expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
11.4% in the first quarter of fiscal 1997 to $2.4 million from $2.1 million in
the first quarter of fiscal 1996. This increase was primarily the result of
theatre property additions over the past twelve months.
INTEREST EXPENSE. Interest expense increased 18.2% in the first quarter of
fiscal 1997 to $2.2 million from $1.9 million in the first quarter of fiscal
1996. 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 the
first quarter of fiscal 1997 versus the first quarter of fiscal 1996.
NET LOSS. The Company's net loss increased 43.2% in the first quarter of
fiscal 1997 to $2.9 million from $2.0 million in the first quarter of fiscal
1996, primarily resulting from the decrease in the gross profit percentage and
the increase in other theatre operating costs and interest expense.
9
<PAGE>
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 and entered into a $25 million 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.
Under the terms of the New Credit Facility, $12.5 million was available under
the Seasonal Revolver at November 30, 1996 with an outstanding balance of
approximately $2.2 million. 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. The Company historically has funded its
capital expansion needs through financing activities and with excess funds
generated from its operations.
During the three months ended November 30, 1996, the Company made capital
expenditures of approximately $5.9 million primarily for developing new theatres
and adding new screens to existing theatres. During this period the Company
opened one leased theatre with 18 screens. The Company closed two leased
theatres with 12 screens resulting in a circuit total of 599 screens in 69
theatres as of November 30, 1996.
10
<PAGE>
In December 1996, the Company added 18 new screens and reopened 14 screens which
were temporarily closed during the first quarter. Construction has begun in the
development of one new theatre with a total of 20 screens scheduled to open in
June 1997. In addition, construction has begun on the addition of fourteen new
screens to an existing theatre scheduled to open in May 1997. 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 the next twelve months.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Registrant filed no Current Reports on Form 8-K during the period covered by
this Quarterly Report on Form 10-Q.
No other Items of Form 10-Q are applicable to the Registrant for the period
covered by this Quarterly Report on Form 10-Q.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COBB THEATRES, L.L.C.
---------------------
(Registrant)
Date: January 14, 1997 /s/ Robert M. Cobb
---------------- -------------------------------------
Robert M. Cobb
President and Chief Executive Officer
Date: January 14, 1997 /s/ Ricky W. Thomas
---------------- -------------------------------------
Ricky W. Thomas
Senior Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE CONSOLIDATED STATEMENTS OF INCOME OF COBB THEATRES, L.L.C. FOR THE THREE
MONTHS ENDED NOVEMBER 30, 1996 AND THE CONSOLIDATED BALANCE SHEET OF COBB
THEATRES, L.L.C. AT NOVEMBER 30, 1996.
</LEGEND>
<CIK> 0001011152
<NAME> COBB THEATRES, L.L.C.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 1,442
<SECURITIES> 0
<RECEIVABLES> 750
<ALLOWANCES> 0
<INVENTORY> 682
<CURRENT-ASSETS> 7,976
<PP&E> 118,111
<DEPRECIATION> 34,314
<TOTAL-ASSETS> 112,150
<CURRENT-LIABILITIES> 20,524
<BONDS> 85,000
0
0
<COMMON> 0
<OTHER-SE> 155
<TOTAL-LIABILITY-AND-EQUITY> 112,150
<SALES> 22,271
<TOTAL-REVENUES> 22,855
<CGS> 9,166
<TOTAL-COSTS> 16,071
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,188
<INCOME-PRETAX> (4,570)
<INCOME-TAX> (1,668)
<INCOME-CONTINUING> (2,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,902)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
