<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition from __________________ to ___________________
COMMISSION FILE NUMBER 33-55400
ACT III THEATRES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4211629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
919 SW TAYLOR STREET, SUITE 900, PORTLAND, OREGON 97205
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (503) 221-0213.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes xx No
---- ----
At July 31, 1996, there were 100 shares of the registrant's common stock
outstanding.
<PAGE>
ACT III THEATRES, INC.
INDEX
Page
Number
------
PART I. Financial Information (Unaudited)
Item 1. Financial Statements . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three Months Ended June 30, 1996 and 1995 . . . . . . . . . 3
Consolidated Statement of Operations -
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . 4
Consolidated Balance Sheet -
At June 30, 1996 and December 31, 1995 . . . . . . . . . . . 5
Consolidated Statement of Changes in Common
Shareholder's Equity (Deficit) for the six months
ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Condensed Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Results of Operation and Financial Condition . . . . . . . 9
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 13
2
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
ACT III THEATRES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
1996 1995
---- ----
REVENUES:
Admissions $36,616 $31,694
Concessions 16,705 14,289
Other 462 490
------- -------
53,783 46,473
------- -------
EXPENSES
Costs of operations
Film Rental 20,342 17,067
Cost of concessions 2,664 2,218
Other theatre operating expenses 16,391 13,129
------- -------
Total 39,397 32,414
General and administrative expenses 1,625 1,613
Depreciation and amortization 4,820 5,131
------- -------
45,842 39,158
------- -------
Income from operations 7,941 7,315
OTHER EXPENSES:
Interest Expense, net 5,793 6,081
Loss on sale of assets 0 22
------- -------
5,793 6,103
Income before income taxes 2,148 1,212
PROVISION FOR INCOME TAXES 877 316
------- -------
Net Income 1,271 896
ACCRETION OF MANDATORILY REDEEMABLE
SECURITIES 6 5
PREFERRED DIVIDENDS 413 360
------- -------
Net income applicable to common stock $852 $531
------- -------
------- -------
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
1996 1995
---- ----
REVENUES:
Admissions $71,650 $57,513
Concessions 32,390 25,882
Other 952 1,041
------- -------
104,992 84,436
------- -------
EXPENSES
Costs of operations
Film Rental 37,448 29,219
Cost of concessions 5,147 4,032
Other theatre operating expenses 31,487 25,392
------- -------
Total 74,082 58,643
General and administrative expenses 3,309 3,149
Depreciation and amortization 10,468 10,212
------- -------
87,850 72,004
------- -------
Income from operations 17,133 12,432
OTHER EXPENSES:
Interest Expense, net 11,477 12,025
Loss on sale of assets 0 22
------- -------
11,477 12,047
------- -------
Income before income taxes 5,656 385
PROVISION FOR INCOME TAXES 2,221 195
------- -------
Net Income 3,435 190
ACCRETION OF MANDATORILY REDEEMABLE
SECURITIES 11 11
PREFERRED DIVIDENDS 826 720
------- -------
Net (loss) income applicable to common
stock. $2,598 $(541)
------- -------
------- -------
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
June 30, December 31,
1996 1995
---------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 8,575 $ 19,002
Accounts receivable 988 866
Prepaid and other receivables 656 711
Inventories 2,187 1,854
---------- ----------
Total Current Assets 12,406 22,433
CONTRACTS RECEIVABLE 1,708 2,037
PROPERTY AND EQUIPMENT, net 196,396 177,585
INTANGIBLES, net 33,372 36,884
OTHER ASSETS, net 3,652 4,065
---------- ----------
Total Assets $247,534 $243,004
---------- ----------
---------- ----------
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND COMMON SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term
debt and capital lease obligations $ 1,679 $ 1,408
Accounts payable 6,203 4,424
Accrued film rentals 8,029 8,932
Taxes other than income taxes 2,082 3,157
Other current liabilities 14,245 13,294
---------- ----------
Total current liabilities 32,238 31,215
DEFERRED INCOME TAXES 8,218 7,670
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 229,675 230,151
---------- ----------
270,131 269,036
---------- ----------
MANDATORILY REDEEMABLE SECURITIES OF
ACT III CINEMAS, INC. 12,233 11,396
---------- ----------
COMMON SHAREHOLDER'S EQUITY (DEFICIT)
Common stock, $.01 par value, 1,000
shares authorized, 100 shares issued
and outstanding 1 1
Additional paid-in capital 4,979 4,979
Accumulated deficit (39,810) (42,408)
---------- ----------
(34,830) (37,428)
---------- ----------
Total Liabilities and Equity
(Deficit) $247,534 $243,004
---------- ----------
---------- ----------
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
COMMON SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
Common Stock Additional
---------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 100 $1 $4,979 $(42,408) $(37,428)
Accretion of mandatorily
redeemable Senior Subordinated
convertible preferred stock (11) (11)
Preferred dividends (826) (826)
Net Income 3,435 3,435
-----------------------------------------------------
BALANCE, June 30, 1996 100 $1 $4,979 $(39,810) $(34,830)
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: $ 3,435 $ 180
Net income
Adjustments to reconcile net income
to cash provided by operating
activities -
Depreciation and amortization 10,465 10,212
Loss on sale of assets 0 10,212
Amortization of debt discount 480 519
Deferred income taxes 548 173
Change in certain working capital items 352 (1,184)
-------- --------
Net cash provided by oeprating
activities 15,272 9,932
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (25,354) (8,990)
Net change in contracts receivable 329 357
Proceeds from sale of assets 0 327
-------- --------
Net cash used for investing activities (25,025) (8,306)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt (674) (8,850)
-------- --------
Net cash used for financing activities (674) (8,850)
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,427) (7,224)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,002 27,431
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,578 $ 20,207
-------- --------
-------- --------
The accompanying notes are an integral part of this consolidated statement.
7
<PAGE>
ACT III THEATRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results of operations
for the interim periods. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The interim financial
information and notes thereto should be read in conjunction with the Company's
1995 annual report on Form 10-K.
The results of operations for the six (6) months ended June 30, 1996 and
the three (3) months ended June 30, 1996, are not necessarily indicative of
results to be expected for the year ending December 3l, l996.
NOTE 2: NET INCOME PER SHARE
Earnings per share information is not presented as Act III Theatres, Inc.
(the "Company") is a wholly owned subsidiary of Act III Cinemas, Inc.,
(Cinemas).
NOTE 3: COMMITMENTS AND CONTINGENCIES
See Note 11 of the Notes to Consolidated Financial Statements in the
Company's Form 10-K for the year ended December 31, 1995 for a description of
Commitments and Contingencies.
NOTE 4: STOCK OPTIONS
During the quarter ended March 31, 1996 the Board of Directors of Cinemas
increased the number of options available for grant of Cinemas Common Stock from
65 to 100 shares.
NOTE 5: RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statement to
conform with June 30, 1996 presentation. These reclassifications had no impact
on previously reported results of operations or common shareholder's equity
(deficit).
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW:
On a quarter to quarter basis, the Company's financial results vary due
to seasonal fluctuations which affect all motion picture exhibitors. These
fluctuations are the result of distribution practices of the major motion
picture studios which have historically concentrated the release of films
during the summer and holiday seasons. The seasonality of picture
exhibition, however, has begun to become less prominent as studios have begun
to release major motion pictures in periods other than the summer and holiday
seasons in an effort to reduce seasonal fluctuation.
The Company's revenues are derived principally from box office admissions
and theatre concession sales. Additional sources of revenue include auditorium
rentals and video games. The Company's principal costs of operations are film
rentals, concessions costs and other expenses (such as payroll, advertising,
rents, maintenance, supplies, insurance and utilities). In general, costs of
operations are variable and general and administrative costs are fixed in
relation to changes in revenues.
RESULTS OF OPERATIONS:
The following table presents a summary of certain income statement items
as a percentage of total revenues and other key ratios:
<TABLE>
<CAPTION>
Results of Operations Results of Operations
--------------------- ---------------------
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Admissions . . . . . . . . . 68.1% 68.2% 68.2% 68.1%
Concessions and other . . . . 31.9% 31.8% 31.8% 31.9%
------- ------- ------- -------
TOTAL REVENUES. . . . . . . . . 100.00% 100.00% 100.00% 100.00%
Costs of operations . . . . . . 73.3% 69.7% 70.6% 69.5%
General and adminis-
trative expenses. . . . . . . 3.0% 3.5% 3.2% 3.7%
Depreciation and
amortization. . . . . . . . . 9.0% 11.0% 10.0% 12.1%
Income from operations. . . . . 14.8% 15.8% 16.3% 14.7%
Interest expense (net). . . . . 10.8% 13.0% 10.9% 14.2%
</TABLE>
9
<PAGE>
REVENUES:
Revenue for the quarter ended June 30, l996, increased 15.7% to $53.8
million from $46.5 million for the quarter ended June 30, l995. Revenue for
the six months ended June 30, 1996 increased 24.3% to $105 million from $84.4
million for the six months ended June 30, 1995. The increase for both the
quarter ended June 30, 1996 and six months ended June 30, 1996 as compared to
the same periods in 1995 was attributable to an increase in attendance and
concession sales resulting primarily from a net addition of 58 screens in
operation along with the release of films that had greater public appeal.
COSTS OF OPERATIONS:
Cost of operations for the quarter ended June 30, 1996 increased 21.5%
to $39.4 million from $32.4 million for the quarter ended June 30, l995.
Costs of operations for the six months ended June 30, 1996 increased 26.3% to
$74.1 million from $58.6 million for the six months ended June 30, 1995. The
increase for the quarter ended June 30, 1996 was due primarily to an increase
in attendance and concession sales as compared to the same quarter in l995.
The overall increase for the six months ended June 30, 1996 as compared to
the six months ended June 30, 1995 is attributable to increased attendance
and operating costs associated with the additional screens operated by the
Company. Cost of operations as a percentage of revenues increased for the
three months and six months ended June 30, 1996 as compared to the same
periods in 1995, due primarily to higher film rental, concession costs and
rent expense at the new facilities.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses increased slightly for both the quarter
ended June 30, 1996 and six months ended June 30, 1995 as compared to the same
periods in l995. The increase in the dollar amount is attributable to higher
compensation expenses related to the granting of stock options to certain
officers of the Company.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense, which includes amortization of
intangibles and other assets, decreased slightly for the quarter ended June
30, 1996 to $4.8 million from $5.1 million for the quarter ended June 30,
1995. For the six months ended June 30, 1996 depreciation and amortization
increased slightly to $10.5 million from $10.2 million for the same period in
1995 The decrease for the quarter ended June 30, 1996 is due to certain
intangibles being fully amortized during the quarter. The slight increase
for the six months ended June 30, 1996 reflects lower amortization of
intangibles offset by higher depreciation expense due to opening and
acquiring of new theatres and the renovation of existing theatres.
10
<PAGE>
INTEREST EXPENSE (NET):
Interest expense decreased slightly for both the quarter ended June 30,
1996 and the six months ended June 30, 1996 as compared to the same periods in
1995. The decrease was primarily due to the lower applicable margin rate added
to the LIBOR during the period, pursuant to the terms of the Company's loan
agreement (the "Loan Agreement") with General Electric Credit Corporation
("GECC").
LIQUIDITY AND CAPITAL RESOURCES:
The Company's revenues are collected in cash, principally through box
office admissions and theatre concessions 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 admissions are received in cash, while exhibition costs
(primarily film rentals) are ordinarily paid to distributors within 15 to 45
days following receipt of admission revenues.
The Company's primary capital requirements are for new theatre
construction, acquisitions, remodeling and expansion of existing theatres. The
Company prefers to develop theatres on a fee-owned (or ground lease) basis
rather than on a leasehold basis, notwithstanding that the capital requirements
associated with developing a theatre on a fee-owned (or ground lease) basis are
significantly higher than developing a theatre on a leasehold basis. The
Company historically has financed primary capital requirements with funds
generated from its operations and through financing activities.
For the period ended June 30, 1996, the Company's principal investing
activities have been for new theatre openings, acquisitions, remodeling and
expansion which totaled approximately $25.3 million, all of which was paid for
with cash on hand.
Net cash provided by operating activities was insufficient to meet cash
used for investing and financing activities for the period ended June 30, 1996.
The insufficiency of cash provided by operating activities for the six months
ended June 30, 1996 was met by using cash on hand at the beginning of the
period.
Under the Loan Agreement with GECC the Company has a revolving credit
availability of $130 million (the "Revolving Credit Facility") with a
termination date of June 30, 2001. The amount available under the Revolving
Credit Facility will reduce in amounts varying from $1.0 million to $13 million
on a semi-annual basis. At June 30, 1996, there was $110 million outstanding
under the Revolving Credit Facility. Interest under the Loan Agreement is
payable monthly at a rate based on either prime or LIBOR, at the Company's
option, and determined based upon certain financial ratios of the Company. At
June 30, 1996, the interest rate on borrowing was 6.70%.
11
<PAGE>
Additionally, the Company has $85 million of senior subordinated notes
outstanding which mature in 2003 and bear interest at 11-7/8%. The senior
subordinated notes contains restrictive covenants that, among other things,
restrict the amount and type of debt that the Company may incur and impose
limitations on the creation of liens, changes in control , transactions with
affiliates, mergers and investments. Similar limitations exist in the Loan
Agreement. The Company does not anticipate that these covenants will materially
impede the operations of the Company.
The Company believes its existing cash, cash generated from operations and
available credit facilities will be sufficient to meet its cash requirements for
at least the next 12 months.
12
<PAGE>
ACT III THEATRES, INC.
PART II -- OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
*3.1 Certificate of Incorporation
*3.2 Bylaws, as amended and restated on November 24, 1992
+27.l Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
_____________________
* Incorporated herein by reference from the Company's registration
statement on Form S-l dated as of January 26, 1993
+ Filed herewith
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Report to be signed on its behalf by the undersigned,
thereunder duly authorized.
DATED: This 14th day of August, 1996
ACT III THEATRES, INC.
(REGISTRANT)
BY /s/ Walter S. Aman
-------------------------------
WALTER S. AMAN
President and Principal
Financial Officer
BY /s/ Wade L. Canning
-------------------------------
WADE L. CANNING
Vice President of Finance
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,575
<SECURITIES> 0
<RECEIVABLES> 988
<ALLOWANCES> 0
<INVENTORY> 2,187
<CURRENT-ASSETS> 656
<PP&E> 265,360
<DEPRECIATION> 68,964
<TOTAL-ASSETS> 247,534
<CURRENT-LIABILITIES> 32,238
<BONDS> 229,675
12,233
0
<COMMON> 1
<OTHER-SE> 4,979
<TOTAL-LIABILITY-AND-EQUITY> 247,534
<SALES> 104,992
<TOTAL-REVENUES> 104,992
<CGS> 74,082
<TOTAL-COSTS> 74,082
<OTHER-EXPENSES> 13,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,477
<INCOME-PRETAX> 5,656
<INCOME-TAX> 2,221
<INCOME-CONTINUING> 3,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,435
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
