<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, 1997
---------------------
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.
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(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) 221-02l3
------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required 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 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, 1997, there were 100 shares of the registrant's common
stock outstanding.
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ACT III THEATRES, INC.
INDEX
PAGE
NUMBER
------
PART I. Financial Information (Unaudited)
Item l. Financial Statements . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three Months Ended June 30, 1997 and 1996. . . . . . . . . . . 3
Consolidated Statement of Operations -
Six Months Ended June 30, 1997 and 1996. . . . . . . . . . . . 4
Consolidated Balance Sheet -
At June 30, 1997 and December 31, 1996 . . . . . . . . . . . . 5
Consolidated Statement of Changes in Common
Shareholder's Equity (Deficit) for the six months
ended June 30, 1997. . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Condensed Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996. . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Results of Operation and Financial Condition. . . . . . 8
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, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
1997 1996
------------ ------------
REVENUES:
Admissions $ 39,415 $ 36,616
Concessions 17,952 16,705
Other 481 462
------------ ------------
57,848 53,783
------------ ------------
EXPENSES
Costs of operations
Film Rental 21,581 20,342
Cost of concessions 3,187 2,664
Other theatre operating expenses 18,974 16,391
------------ ------------
Total 43,742 39,397
General and administrative expenses 2,264 1,625
Depreciation and amortization 6,265 4,820
------------ ------------
52,271 45,842
------------ ------------
Income from operations 5,577 7,941
OTEHR EXPENSES:
Interest Expense, net 6,321 5,793
Loss on sale of assets 174 0
------------ ------------
6,495 5,793
Loss Income before income taxes (918) 2,148
BENEFIT (PROVISION) FOR INCOME TAXES 228 (877)
------------ ------------
Net (Loss) Income (690) 1,271
ACCRETION OF MANDATORILY REEDEEMABLE
SECURITIES 4 6
PREFERRED DIVIDENDS 475 413
------------ ------------
Net (Loss) income applicable to common stock $ (1,169) $ 852
------------ ------------
------------ ------------
The accompanying notes are an integral part of this consolidated financial
statement.
3
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ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
1997 1996
------------ ------------
REVENUES:
Admissions $ 82,168 $ 71,650
Concessions 37,117 32,390
Other 1,104 952
------------ ------------
120,389 104,992
------------ ------------
EXPENSES:
Costs of operations
Film Rental 43,416 37,448
Cost of concessions 6,440 5,147
Other theatre operating expenses 37,717 31,487
------------ ------------
Total 87,573 74,082
General and administrative expenses 4,255 3,309
Depreciation and amortization 12,342 10,468
------------ ------------
104,170 87,859
------------ ------------
Income from operations 16,219 17,133
OTHER EXPENSES:
Interest expense, net 11,972 11,477
Loss on sale of assets 289 0
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12,261 11,477
------------ ------------
Income before income taxes 3,958 5,656
PROVISION FOR INCOME TAXES 1,659 2,221
------------ ------------
Net Income 2,299 3,435
ACCRETION OF MANDATORILY REDEEMABLE
SECURITIES 8 11
PREFERRED DIVIDENDS 950 826
------------ ------------
Net income applicable to common
stock. $ 1,341 $ 2,598
------------ ------------
------------ ------------
The accompanying notes are part of this consolidated financial statement.
4
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ACT III THEATRES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
June 30, December 31,
1997 1996
------------ ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 21,325 $ 8,720
Accounts receivable 1,245 1,324
Prepaid expenses and other receivables 689 641
Inventories 2,322 2,122
------------ ------------
Total current assets 25,581 12,807
CONTRACTS RECEIVABLE 2,282 2,007
PROPERTY AND EQUIPMENT, net 265,244 231,621
INTANGIBLES, net 30,350 31,753
OTHER ASSETS, net 4,270 3,239
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Total assets $ 327,727 $ 281,427
------------ ------------
------------ ------------
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND COMMON SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and capital
lease obligations $ 2,112 $ 1,978
Accounts payable 12,194 10,042
Accrued film rentals 10,155 10,063
Taxes other than income taxes 2,656 2,839
Other current liabilities 15,202 13,349
------------ ------------
Total current liabilities 42,319 38,271
DEFERRED INCOME TAXES 9,830 9,173
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 293,426 254,130
------------ ------------
345,575 301,574
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MANDATORILY REDEEMABLE SECURITIES OF
ACT III CINEMAS, INC. 14,090 13,132
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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 (36,918) (38,259)
------------ ------------
(31,938) (33,279)
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Total Liabilities and Shareholder's
Equity (Deficit) $ 327,727 $ 281,427
------------ ------------
------------ ------------
The accompanying notes are an integral part of this consolidated financial
statement.
5
<PAGE>
ACT III THEATRES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,299 $ 3,435
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 12,342 10,468
Loss on sale of assets 289 0
Amortization of debt discount 412 469
Deferred income taxes 657 548
Change in certain working capital items 3,745 352
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Net cash provided by operating
activities 19,744 15,272
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (44,457) (25,354)
Net change in contracts receiviable (275) 329
Proceeds from sale of assets 150 0
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Net cash used for investing
activities (44,582) (25,025)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt (957) (674)
Borrowings on long-term debt 39,975 0
Deferred financing costs (1,575) 0
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Net cash provided by (used for)
financing activities 37,443 (674)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 12,605 (10,427)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 8,720 19,002
------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 21,325 $ 8,575
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------------ ------------
The accompanying notes are an integral part of this consolidated financial
statement.
6
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ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(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, 1996 100 $1 $4,979 $(38,259) $(33,279)
Accretion of mandatorily redeemable senior
subordinated convertible preferred stock (8) (8)
Preferred dividends (950) (950)
Net income 2,299 2,299
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BALANCE, June 30, 1997 100 $1 $4,979 $(36,918) $(31,938)
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</TABLE>
The accompanying notes are an integral part of this consoldiated financial
statement.
7
<PAGE>
ACT III THEATRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(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 1996 annual report on Form 10-K.
The results of operations for the six (6) months ended June 30, 1997 and
the three (3) months ended June 30, 1997, are not necessarily indicative of
results to be expected for the year ending December 3l, l997.
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 9 and 10 of the Notes to Consolidated Financial Statements in
the Company's Form 10-K for the year ended December 31, 1996 for a
description of Commitments and Contingencies.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
8
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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, concession 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
-------------------------- ------------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Admissions . . . . . . . . . 68.1% 68.1% 68.3% 68.2%
Concessions and other. . . . 31.9% 31.9% 31.7% 31.8%
------- ------- ------- -------
TOTAL REVENUES . . . . . . . . 100.00% 100.00% 100.00% 100.00%
Costs of operations. . . . . . 75.6% 73.3% 72.7% 70.6%
General and adminis-
trative expenses . . . . . . 3.9% 3.0% 3.5% 3.2%
Depreciation and
amortization . . . . . . . . 10.8% 9.0% 10.3% 10.0%
Income from operations . . . . 9.7% 14.8% 13.5% 16.3%
Interest expense (net) . . . . 10.9% 10.8% 9.9% 10.9%
</TABLE>
9
<PAGE>
REVENUES:
Revenue for the quarter ended June 30, l997, increased 7.6% to $57.8
million from $53.8 million for the quarter ended June 30, l996. Revenue for
the six months ended June 30, 1997 increased 14.7% to $120.4 million from
$105.0 million for the six months ended June 30, 1996. The increase for the
quarter and six months ended June 30, 1997, was primarily the result of an
increase of 4% in average ticket price and an increase in attendance and
concession sales resulting from a net addition of 76 screens in operation at
June 30, 1997 as compared to the number of screens in operation at June 30,
1996.
COSTS OF OPERATIONS:
Cost of operations for the quarter ended June 30, 1997 increased 11.0.%
to $43.7 million from $39.4 million for the quarter ended June 30, l996.
Costs of operations for the six months ended June 30, 1997 increased 18.2% to
$87.6 million from $74.1 million for the six months ended June 30, 1996. The
increase for the quarter and the six months ended June 30, 1997 as compared
to 1996 is attributable to increased attendance and operating costs
associated with the additional screens operated by the Company as well as
$565,000 of pre-opening costs relating to three new theatres (one of which
will open in the third quarter) and one theatre expansion. Cost of
operations as a percentage of revenues increased for the three months and six
months ended June 30, 1997 as compared to the same periods in 1996, due to
higher concession costs and higher rent expense at the new facilities and
during the six month period, higher film rental.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses increased for the quarter ended
June 30, 1997 to $2.3 million from $1.6 million for the quarter ended June
30,1996. General and administrative expenses increased for the six months
ended June 30, 1997 to $4.3 million from $3.3 million for the six months
ended June 30, 1996. The increase in the dollar amount is attributable to
higher salaries, management fee, compensation expenses related to the
granting of stock options to certain officers of the Company and professional
fees.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense, which includes amortization of
intangibles and other assets, increased for the quarter ended June 30, 1997
to $6.3 million
10
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from $4.8 million for the quarter ended June 30, 1996. For the six months ended
June 30, 1997 depreciation and amortization increased to $12.3 million from
$10.5 million for the same period in 1996. The increase for the quarter and
six months ended June 30, 1997 was primarily the result of the opening of new
theatres and the renovation of existing theatres.
INTEREST EXPENSE (NET):
Interest expense increased for both the quarter ended June 30, 1997 and
the six months ended June 30, 1997 as compared to the same periods in 1996.
The increase was due to higher average borrowing levels and higher applicable
rates.
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 six months ended June 30, 1997, the Company's principal
investing activities have been for new theatre openings, acquisitions,
remodeling and expansion, totalling approximately $44.5 million, which was
funded partially with borrowings under the Revolving Credit Agreement (as
hereafter defined) and partially 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 June 30,
1997. The insufficiency was met by using cash on hand at the beginning of the
quarter, plus draws on the Revolving Credit Agreement..
Under the revolving credit agreement (the "Revolving Credit Agreement")
between General Electric Capital Corporation ("GECC"), CIBC, Inc., Bank of
America National Trust & Savings Association and Morgan GUA, as lenders, and
the Company, the Company has credit availability of $250 million. The amount
available under the Revolving Credit Agreement will reduce in amounts varying
from $5 million to 10 million on a quarterly basis commencing December 31,
1998 and the Revolving Credit Agreement terminates on September 20, 2001. At
June 30, 1997 there was $175 million outstanding under the Revolving Credit
Agreement. Interest under the Revolving Credit 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,
1997, the interest rate on borrowings was 7.1875%.
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
Revolving Credit 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.
The Company's major shareholder has engaged an investment banking firm
to provide advice regarding various strategic alternatives, which could
include sale 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.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, 1997
ACT III THEATRES, INC.
(REGISTRANT)
BY /s/ Wade L. Canning
------------------------------
WADE L. CANNING
Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,325
<SECURITIES> 0
<RECEIVABLES> 1,245
<ALLOWANCES> 0
<INVENTORY> 2,322
<CURRENT-ASSETS> 689
<PP&E> 347,095
<DEPRECIATION> 81,851
<TOTAL-ASSETS> 327,727
<CURRENT-LIABILITIES> 42,319
<BONDS> 293,426
14,090
0
<COMMON> 1
<OTHER-SE> 4,979
<TOTAL-LIABILITY-AND-EQUITY> 327,727
<SALES> 120,389
<TOTAL-REVENUES> 120,389
<CGS> 87,573
<TOTAL-COSTS> 87,573
<OTHER-EXPENSES> 16,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,972
<INCOME-PRETAX> 3,958
<INCOME-TAX> 1,659
<INCOME-CONTINUING> 2,299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,299
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
