<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 March 31, 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 April 30, 1996, there were l00 shares of the registrant's common stock
outstanding.
<PAGE>
ACT III THEATRES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. Financial Information (Unaudited)
Item l. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet -
At March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Common
Shareholder's Equity (Deficit) for the three months
ended March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Condensed Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . . . . . . . . . . 8
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Admissions $35,034 $25,819
Concessions 15,685 11,593
Other 490 551
------- -------
51,209 37,963
------- -------
EXPENSES:
Costs of operations
Film rental 17,106 12,152
Cost of concessions 2,483 1,814
Other theatre operating expenses 15,096 12,263
------- -------
Total 34,685 26,229
General and administrative expenses 1,684 1,536
Depreciation and amortization 5,648 5,081
------- -------
42,017 32,846
------- -------
Income from operations 9,192 5,117
INTEREST EXPENSE, net 5,684 5,944
------- -------
Income (Loss) before income taxes 3,508 (827)
PROVISION (BENEFIT) FOR INCOME TAXES 1,344 (121)
------- -------
Net income (loss) 2,164 (706)
ACCRETION OF MANDATORILY REEDEEMABLE
SECURITIES 5 6
PREFERRED DIVIDENDS 413 360
------- -------
Net income (loss) applicable to
common stock. $ 1,746 $(1,072)
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
3
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $8,643 $19,002
Accounts receivable 818 866
Prepaids and other current assets 719 711
Inventories 1,916 1,854
------------- ------------
Total current assets 12,096 22,433
------------- ------------
CONTRACTS RECEIVABLE 1,734 2,037
PROPERTY AND EQUIPMENT, net 188,127 177,585
INTANGIBLES, net 34,654 36,884
OTHER ASSETS, net 3,859 4,065
------------- ------------
Total assets $240,470 $243,004
------------- ------------
------------- ------------
LIABILITIES,MANDATORILY REDEEMABLE SECURITIES
AND COMMONSHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and capital
lease obligations $1,538 $1,408
Accounts payable 5,351 4,424
Accrued film rentals 6,696 8,932
Taxes other than income taxes 2,089 3,157
Other current liabilities 10,729 13,294
------------- ------------
Total current liabilities 26,403 31,215
DEFERRED INCOME TAXES 8,023 7,670
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 229,912 230,151
------------- ------------
264,338 269,036
MANDATORILY REDEEMABLE SECURITIES OF
ACT III CINEMAS, INC. 11,814 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 (40,662) (42,408)
------------- ------------
(35,682) (37,428)
------------- ------------
Total liabilities and equity (deficit) $240,470 $243,004
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 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 (5) (5)
Preferred dividends (413) (413)
Net Income 2,164 2,164
-------------------------------------------------------------
BALANCE, March 31, 1996 100 $1 $4,979 $(40,662) $(35,682)
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $2,164 $(706)
Adjustments to reconcile net income (loss) to
cash used by operating activities-
Depreciation and amortization 5,648 5,081
Amortization of debt discount 234 260
Deferred income taxes 353 144
Changes in certain working capital items (4,964) (7,882)
----------- ----------
Net cash provided (used) by operating activities 3,435 (3,103)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (13,754) (3,936)
Net change in contracts receiviable 303 334
----------- ----------
Net cash used by investing activities (13,451) (3,602)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt (343) (4,422)
----------- ----------
Net cash used by financing activities (343) (4,422)
----------- ----------
DECREASE IN CASH AND
CASH EQUIVALENTS (10,359) (11,127)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 19,002 27,431
----------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $8,643 $16,304
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
ACT III THEATRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three (3) months ended March 31, 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 3l, l995 for a description of
Commitments and Contingencies.
NOTE 4: RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements
to conform with March 31, 1996 presentation. These reclassifications had no
impact on previously reported results of operations or common shareholder's
equity (deficit).
NOTE 5: 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.
7
<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 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, 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:
(First Quarter 1996 compared with First Quarter 1995)
The following table presents a summary of certain income statement items as
a percentage of total revenues:
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31
1996 1995
---- ----
REVENUES:
Admissions . . . . . . . . . 68.4% 68.0%
Concessions and other . . . . 31.6% 32.0%
----- -----
TOTAL REVENUES . . . . . . . . 100.0% 100.0%
Costs of operations . . . . . . 67.7% 69.1%
General and adminis-
trative expenses . . . . . . 3.3% 4.0%
Depreciation and
amortization . . . . . . . . 11.0% 13.4%
Income from operations . . . . 18.0% 13.5%
Interest expense (net) . . . . 11.1% 15.7%
8
<PAGE>
REVENUES:
Revenues for the quarter ended March 31, l996, increased 35% to $51.2
million from $37.9 million for the quarter ended March 31, l995. The increase
is the result of an increase in attendance and concession sales resulting
primarily from an additional 59 screens in operation for the quarter ended March
31, 1996 as compared to the same quarter in 1995.
COSTS OF OPERATIONS:
Cost of operations for the quarter ended March 31, 1996 increased 32% to
$34.7 million from $26.2 million for the quarter ended March 3l, l995, but as a
percentage of revenues, cost of operations decreased from 69.1% to 67.7% for the
same period. The increase in the dollar amount is attributable to increased
film rental expenses and the higher cost of concession sales as compared to
1995, due to increased attendance resulting from 59 additional screens being
operated for the quarter ended March 31, 1996. The decrease in cost of
operations as a percentage of revenue over the prior year's first quarter is the
result of certain costs of operations, which are generally fixed, e.g. rent,
utilities, payroll, being spread over a larger revenue base.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the quarter ended March 31, 1996,
increased 13.3% to $1.7 million from $l.5 million for the quarter ended March
31, 1995. 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. General and administrative expenses as a percentage of
sales decreased .7% to 3.3% for the quarter ended March 31, 1996 from 4.0% for
the quarter ended March 31, 1995.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense, which includes amortization of
intangibles and other assets, increased 11.1% to $5.6 million for the quarter
ended March 31, 1996 from $5.1 million for the quarter ended March 31, 1995. The
increase was primarily the result of the opening and acquisition of new theatres
and the renovation of existing theatres.
INTEREST EXPENSE (NET):
Interest expense decreased slightly for the quarter ended March 31, 1996 to
$5.7 million from $5.9 million for the quarter ended March 31, l995. The
decrease was primarily due to the lower applicable margin rate added to the
LIBOR during the quarter, pursuant to the terms of the Company's loan agreement
(the "Loan Agreement") with General Electric Credit Corporation ("GECC").
9
<PAGE>
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 period ended March 31, l996, the Company's principal investing
activities have been for new theatre openings, acquisitions, remodeling and
expansion which totaled approximately $13.7 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 March 31,
l996. The insufficiency of cash provided by operating activities for the
quarter ended March 31, 1996 was met by using cash on hand at the beginning
of the quarter.
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 semiannual basis. At March 31, 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
March 31, 1996, the interest rate on borrowings was 7.101%.
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, a change 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 l2 months.
10
<PAGE>
ACT III THEATRES, INC.
PART II -- OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
None
(B) REPORTS ON FORM 8-K
None
11
<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 14 day of May, 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
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,643
<SECURITIES> 0
<RECEIVABLES> 818
<ALLOWANCES> 0
<INVENTORY> 1,916
<CURRENT-ASSETS> 12,096
<PP&E> 253,760
<DEPRECIATION> 65,633
<TOTAL-ASSETS> 240,470
<CURRENT-LIABILITIES> 26,402
<BONDS> 229,912
11,815
0
<COMMON> 1
<OTHER-SE> 4,979
<TOTAL-LIABILITY-AND-EQUITY> 240,470
<SALES> 51,209
<TOTAL-REVENUES> 51,209
<CGS> 34,685
<TOTAL-COSTS> 34,685
<OTHER-EXPENSES> 7,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,684
<INCOME-PRETAX> 3,508
<INCOME-TAX> 1,344
<INCOME-CONTINUING> 2,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,164
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
