<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 September 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 95-42ll629
- ------------------------------- ------------------
(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) 22l-02l3
--------------
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 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 October 31, 1996, there were l00 shares of the registrant's common stock
outstanding.
<PAGE>
ACT III THEATRES, INC.
INDEX
PAGE
NUMBER
------
PART I. Financial Information (Unaudited)
Item l. Financial Statements . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations -
For The Three Months Ended September 30, 1996 and 1995 . . . . 3
Consolidated Statement of Operations -
For The Nine Months Ended September 30, 1996 and 1995. . . . . 4
Consolidated Balance Sheet -
At September 30, 1996 and December 31, 1995. . . . . . . . . . 5
Consolidated Statement of Changes in Common
Shareholder's Equity (Deficit) for the nine months
ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Condensed Statement of Cash Flows -
For The Nine Months Ended September 30, 1996 and 1995. . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . . . . 9
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 13
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
1996 1995
---- ----
REVENUES:
Admissions $42,782 $39,409
Concessions 19,605 18,229
Other 682 596
------- -------
63,069 58,234
------- -------
EXPENSES
Costs of operations
Film rental 23,145 20,924
Cost of concessions 3,241 2,480
Other theatre operating expenses 17,145 14,936
------- -------
Total 43,531 38,340
General and administrative expenses 1,870 1,720
Depreciation and amortization 5,008 5,504
------- -------
50,409 45,564
------- -------
Income from operations 12,660 12,670
INTEREST EXPENSE, net 5,999 5,900
------- -------
Income before income taxes 6,661 6,770
PROVISION FOR INCOME TAXES 2,764 3,112
------- -------
Net Income 3,897 3,658
ACCRETION OF MANDATORILY REEDEEMABLE
SECURITIES 4 6
PREFERRED DIVIDENDS 414 360
------- -------
Net income applicable to common stock $3,479 $3,292
------- -------
------- -------
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
1996 1995
---- ----
REVENUES:
Admissions $114,432 $96,922
Concessions 51,995 44,111
Other 1,634 1,637
-------- -------
168,061 142,670
-------- -------
EXPENSES:
Costs of operations
Film rental 60,593 50,143
Cost of concessions 8,388 6,512
Other theatre operating expenses 48,632 40,328
-------- -------
Total 117,613 96,983
General and administrative expenses 5,179 4,869
Depreciation and amortization 15,476 15,716
-------- -------
138,268 117,568
-------- -------
Income from operations 29,793 25,102
OTHER EXPENSE (INCOME)
Interest expense, net 17,476 17,925
Loss on sale of assets 0 22
-------- -------
Income before income tax 12,317 7,155
PROVISION FOR INCOME TAXES 4,985 3,307
-------- -------
Net income 7,332 3,848
ACCRETION OF MANDATORILY REEDEEMABLE
SECURITIES 15 17
PREFERRED DIVIDENDS 1,240 1,080
-------- -------
Net income applicable to common stock $6,077 $2,751
-------- -------
-------- -------
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
September 30, December 31,
1996 1995
------------- -----------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $1,653 $19,002
Accounts receivable 1,552 866
Prepaid expenses and other receivables 472 711
Inventories 1,976 1,854
------------ -----------
Total current assets 5,653 22,433
CONTRACTS RECEIVABLE 1,684 2,037
PROPERTY AND EQUIPMENT, net 210,817 177,585
INTANGIBLES, net 32,563 36,884
OTHER ASSETS, net 3,445 4,065
----------- -----------
Total assets $254,162 $243,004
----------- -----------
----------- -----------
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND COMMON SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and capital
lease obligations $1,837 $1,408
Accounts payable 7,505 4,424
Accrued film rentals 5,965 8,932
Taxes other than income taxes 2,331 3,157
Other current liabilities 11,846 13,294
---------- -----------
Total current liabilities 29,484 31,215
DEFERRED INCOME TAXES 8,973 7,670
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 234,405 230,151
---------- -----------
272,862 269,036
---------- -----------
MANDATORILY REDEEMABLE SECURITIES OF
ACT III CINEMAS, INC. 12,651 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 (36,331) (42,408)
---------- -----------
(31,351) (37,428)
---------- -----------
Total Liabilities and Shareholders'
Equity (Deficit) $254,162 $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 NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
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 (15) (15)
Preferred dividends (1,240) (1,240)
Net Income 7,332 7,332
----------------------------------------------------
BALANCE, September 30, 1996 100 $1 $4,979 $(36,331) $(31,351)
----------------------------------------------------
----------------------------------------------------
</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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $7,332 $3,848
Adjustments to reconcile net income to
cash provided by operating activities-
Depreciation and amortization 15,476 15,716
Loss on sale of assets 0 22
Amortization of debt discount 703 779
Deferred income taxes 1,303 3,802
Change in certain working capital items (3,017) (6,536)
---------- -----------
Net cash provided by operating activities 21,797 17,631
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (43,479) (26,581)
Net change in contracts receiviable 353 379
Proceeds from sale of assets 0 327
---------- -----------
Net cash used for investing activities (43,126) (25,875)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt (1,020) (9,163)
Borrowings on long-term debt 5,000 0
---------- -----------
Net cash used for financing activities 3,980 (9,163)
---------- -----------
DECREASE IN CASH AND CASH
EQUIVALENTS (17,349) (17,407)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 19,002 27,431
---------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $1,653 $10,024
---------- -----------
---------- -----------
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
ACT III THEATRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
disclosures 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 nine (9) months ended September 30, 1996
and the three (3) months ended September 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: RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements
to conform with September 30, 1996 presentation. These reclassifications had
no impact on previously reported results of operations or common
shareholder's equity (deficit).
NOTE 4: COMMITMENTS AND CONTINGENCIES
See Note 11 of the Notes to Consolidated Financial Statement in the
Company's Form 10-K for the fiscal year ended December 3l, l995 for a
description of Commitments and Contingencies.
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 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
exhibitions, 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 concessions 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, theatre rentals, property taxes, 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 Sept 30 Nine Months Ended Sept 30
-------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Admissions . . . . . . . . . 67.8% 67.7% 68.0% 67.9%
Concessions and other . . . . 32.2% 32.3% 32.0% 32.1%
------- ------- ------- -------
TOTAL REVENUES. . . . . . . . . 100.00% 100.00% 100.00% 100.00%
Costs of operations . . . . . . 69.0% 65.8% 69.9% 68.0%
General and adminis-
trative expenses. . . . . . . 2.9% 3.0% 3.0% 3.4%
Depreciation and
amortization. . . . . . . . . 7.9% 9.4% 9.2% 11.0%
Income from operations. . . . . 20.1% 21.8% 17.7% 17.6%
Interest expense (net). . . . . 9.5% 10.1% 10.4% 12.6%
</TABLE>
9
<PAGE>
REVENUES:
Revenues for the quarter ended September 30, 1996, increased 8.3% to $63.1
million from $58.2 million for the quarter ended September 30, l995.
Revenues for the nine months ended September 30, 1996 increased 17.8% to
$168.1 million from $142.7 million for the nine months ended September 30,
1995. The increase for both the quarter and the nine months ended September
30, 1996 as compared to the same periods in 1995 was attributable to an
increase in attendance and concession sales resulting from the operation of
25 additional screens and the release of films that had a greater public
appeal.
COSTS OF OPERATIONS:
Cost of operations for the quarter ended September 30, 1996 increased
13.5% to $43.5 million from $38.3 million for the quarter ended September 30,
l995. Costs of operations for the nine months ended September 30, 1996
increased 21.3% to $117.6 million from $97.0 million for the nine months
ended September 30, 1995. These increases were primarily attributable to the
increase in total revenues for the periods which resulted in an increase in
various costs tied to revenues, including sales tax, admission tax and
concessions, and an increase in operating costs associated with the
additional 25 screens operated by the Company during the period.
Cost of operations as a percentage of revenues increased for the three
months and nine months ended September 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 for the quarter ended September 30,
1996 increased 8.7% to $1.9 million from $l.7 million for the quarter ended
September 30, 1995. General and administrative expenses for the nine months
ended September 30, 1996 increased 6.4% to $5.2 million from $4.9 million for
the nine months ended September 30, 1995. These increases in the dollar
amounts are primarily attributable to higher compensation expenses related to
the granting of stock options to certain officers of the Company.
10
<PAGE>
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense, which includes amortization of
intangibles and other assets, decreased 9% for the quarter ended September
30, 1996 to $5.0 million from $5.5 million for the quarter ended September
30, 1995. For the nine months ended September 30, 1996 depreciation and
amortization decreased 1.5% to $15.5 million from $15.7 million for the same
period in 1995. The decrease for the quarter ended and nine months ended
September 30, 1996 reflects lower amortization of intangibles partially
offset by higher depreciation expense due to opening and acquiring new
theatres and the renovation of existing theatres.
INTEREST EXPENSE (NET):
Interest expense remained relatively stable for both the quarter and nine
months ended September 30, 1996 as compared to the same period in 1995.
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. This
"float" exists because admissions are received in cash, while exhibition
costs (primarily film rentals) are ordinarily paid to distributors within l5
to 45 days following receipt of admissions 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 its primary capital
requirements with funds generated from its operations and through financing
activities.
For the nine month period ended September 30, l996, the Company's
principal investing activities were for new theatre openings, acquisitions,
remodeling and expansion which totaled approximately $43.4 million, of which
$5.0 million was paid for with a draw on the Revolving Credit Facility (as
hereinafter defined) and the remainder with cash on hand.
11
<PAGE>
Net cash provided by operating activities was insufficient to meet cash
used for investing and financing activities for the period ended September
30, 1996. The insufficiency of cash provided by operating activities for the
nine months ended September 30, 1996 was met by using cash on hand at the
beginning of the period plus a $5.0 million draw on the Revolving Credit
Facility.
Under the Company's Loan Agreement with General Electric Capital
Corporation ("GECC"), the Company has a revolving credit availability of $155
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 $10 million to $15 million on a semi-annual
basis commencing on June 30, 1998. At September 30, 1996, there was $115
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, plus an applicable margin determined by certain
financial ratios of the Company. At September 30, 1996, the interest rate
on borrowing was 6.67%.
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 contain 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.
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
* 27.1 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 11th day of November, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,653
<SECURITIES> 0
<RECEIVABLES> 2,024
<ALLOWANCES> 0
<INVENTORY> 1,976
<CURRENT-ASSETS> 5,653
<PP&E> 283,486
<DEPRECIATION> 72,669
<TOTAL-ASSETS> 254,162
<CURRENT-LIABILITIES> 29,484
<BONDS> 234,405
12,651
0
<COMMON> 1
<OTHER-SE> 4,979
<TOTAL-LIABILITY-AND-EQUITY> 254,162
<SALES> 168,061
<TOTAL-REVENUES> 168,061
<CGS> 117,613
<TOTAL-COSTS> 117,613
<OTHER-EXPENSES> 20,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,476
<INCOME-PRETAX> 12,317
<INCOME-TAX> 4,985
<INCOME-CONTINUING> 7,332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,332
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
