<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, 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 95-42ll629
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
919 SW Taylor Street, Suite 900, Portland, Oregon 97205
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(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, 1997, there were l00 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 March 31, 1997 and 1996 . . . . . . . . 3
Consolidated Balance Sheet -
At March 31, 1997 and December 31, 1996 . . . . . . . . . . . 4
Consolidated Statement of Changes in Common
Shareholder's Equity (Deficit) for the three months
ended March 31, 1997 . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Condensed Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996 . . . . . . . . . . 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
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
1997 1996
---------- ----------
REVENUES:
Admissions $42,753 $35,034
Concessions 19,165 15,685
Other 623 490
---------- ----------
62,541 51,209
---------- ----------
EXPENSES:
Costs of operations
Film rental 21,835 17,106
Cost of concessions 3,253 2,483
Other theatre operating expenses 18,743 15,096
---------- ----------
Total 43,831 34,685
General and administrative expenses 1,991 1,684
Depreciation and amortization 6,077 5,648
---------- ----------
51,899 42,017
---------- ----------
Income from operations 10,642 9,192
OTHER EXPENSES:
Interest expense, net 5,651 5,684
Loss on sale of assets 115
---------- ----------
Income before income taxes 4,876 3,508
PROVISION FOR INCOME TAXES 1,887 1,344
---------- ----------
Net Income 2,989 2,164
ACCRETION OF MANDATORILY REEDEEMABLE
SECURITIES 4 5
PREFERRED DIVIDENDS 475 413
---------- ----------
Net income applicable to common stock $2,510 $1,746
---------- ----------
---------- ----------
The accompanying notes are an integral part of this consolidated financial
statement.
3
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ACT III THEATRES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
March 31, December 31,
1997 1996
---------- ----------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $11,333 $8,720
Accounts receivable 1,293 1,324
Prepaid expenses and other receivables 770 641
Inventories 2,285 2,122
---------- ----------
Total current assets 15,681 12,807
CONTRACTS RECEIVABLE 2,185 2,007
PROPERTY AND EQUIPMENT, net 245,472 231,621
INTANGIBLES, net 31,052 31,753
OTHER ASSETS, net 4,555 3,239
---------- ----------
Total assets $298,945 $281,427
---------- ----------
---------- ----------
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND COMMON SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and capital
lease obligations $2,042 $1,978
Accounts payable 8,294 10,042
Accrued film rentals 8,109 10,063
Taxes other than income taxes 2,362 2,839
Other current liabilities 11,634 13,349
---------- ----------
Total current liabilities 32,441 38,271
DEFERRED INCOME TAXES 9,884 9,173
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 273,778 254,130
---------- ----------
316,103 301,574
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MANDATORILY REDEEMABLE SECURITIES OF
ACT III CINEMAS, INC. 13,611 13,132
---------- ----------
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 (35,749) (38,259)
---------- ----------
(30,769) (33,279)
---------- ----------
Total Liabilities and Shareholders'
Equity (Deficit) $298,945 $281,427
---------- ----------
---------- ----------
The accompanying notes are an integral part of this consolidated financial
statement.
4
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ACT III THEATRES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 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 (4) (4)
Preferred dividends (475) (475)
Net income 2,989 2,989
----------------------------------------------------------------------
BALANCE, March 31, 1997 100 $1 $4,979 $(35,749) $(30,769)
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
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 THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,989 $2,164
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 6,077 5,648
Loss on sale of assets 115 0
Amortization of debt discount 206 234
Deferred income taxes 711 353
Change in certain working capital items (6,155) (4,964)
---------- ----------
Net cash provided by operating activities 3,943 3,435
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (19,085) (13,754)
Net change in contracts receiviable (178) 303
Proceeds from sale of assets 2 0
---------- ----------
Net cash used for investing activities (19,261) (13,451)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt (470) (343)
Borrowings on long-term debt 19,976 0
Deferred financing costs (1,575) 0
---------- ----------
Net cash provided by (used for) financing
activities 17,931 (343)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,613 (10,359)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 8,720 19,002
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $11,333 $8,643
---------- ----------
---------- ----------
The accompanying notes are an integral part of this consolidated financial
statement.
6
<PAGE>
ACT III THEATRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three (3) months ended March 31, 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 Notes 9 and 10 of the Notes to Consolidated Financial Statements in the
Company's Form 10-K for the year ended December 3l, l996 for a description of
Commitments and Contingencies.
7
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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 1997 compared with First Quarter 1996)
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
---------------------------
1997 1996
------ ------
REVENUES:
Admissions . . . . . . . . . . . 68.4% 68.4%
Concessions and other . . . . . . 31.6% 31.6%
----- -----
TOTAL REVENUES . . . . . . . . . . 100.0% 100.0%
Costs of operations . . . . . . . . 70.1% 67.7%
General and administrative
expenses . . . . . . . . . . . . 3.2% 3.3%
Depreciation and
amortization . . . . . . . . . . 9.7% 11.0%
Income from operations . . . . . . 17.0% 18.0%
Interest expense (net) . . . . . . 9.0% 11.1%
8
<PAGE>
REVENUES:
Revenues for the quarter ended March 31, l997, increased 22.1% to $62.5
million from $51.2 million for the quarter ended March 31, l996. The increase
is the result of an increase in attendance and concession sales resulting
primarily from an additional 55 screens in operation for the quarter ended March
31, 1997 as compared to the same quarter in 1996, and an increase in the number
of films that were box office successes.
COSTS OF OPERATIONS:
Cost of operations for the quarter ended March 31, 1997 increased 26.2% to
$43.8 million from $34.7 million for the quarter ended March 3l, l996. The
increase is attributable to increased film rental expenses and higher concession
sales costs associated with increased attendance resulting from 55 additional
screens being operated for the quarter ended March 31, 1997. Cost of operation
as a percentage of revenues increased for the period ended March 31, 1997 as
compared to the same period in 1996, due primarily to higher film rental and
concession costs.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the quarter ended March 31, 1997,
increased 17.6% to $2.0 million from $l.7 million for the quarter ended March
31, 1996. The increase in the dollar amount is attributable to higher salaries,
compensation expense 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 8.9% to $6.1 million for the quarter
ended March 31, 1997 from $5.6 million for the quarter ended March 31, 1996. 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 remained relatively stable for the period ended March 31,
1997 as compared to the same period in 1996.
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, l997, the Company's principal investing
activities have been for new theatre openings, acquisitions, remodeling and
expansion which had totaled cost of approximately $19.1 million, which was
financed partially with the Revolving Credit Agreement (as hereinafter defined)
and partially with cash on hand.
Net cash provided by operating activities was insufficient to meet cash
used for investing activities for the period ended March 31, l997. This
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 a credit availability of $250 million. The amount
available under the Revolving Loan 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 March 31,
1997 there was $155 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 March 31, 1997, the interest rate
on borrowings was 6.625%.
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 Revolving
Credit Agreement. The Company does not anticipate that these covenants will
materially impede the operations of the Company.
10
<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
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* Incorporated herein by reference from the Company's registration
statement on Form S-1 dated as of January 26, 1993.
+ Filed herewith
11
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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 May, 1997
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1996
<CASH> 11,333
<SECURITIES> 0
<RECEIVABLES> 1,293
<ALLOWANCES> 0
<INVENTORY> 2,285
<CURRENT-ASSETS> 15,681
<PP&E> 322,126
<DEPRECIATION> 76,654
<TOTAL-ASSETS> 298,945
<CURRENT-LIABILITIES> 32,441
<BONDS> 273,778
13,611
0
<COMMON> 1
<OTHER-SE> 4,979
<TOTAL-LIABILITY-AND-EQUITY> 298,945
<SALES> 62,541
<TOTAL-REVENUES> 62,541
<CGS> 43,831
<TOTAL-COSTS> 43,831
<OTHER-EXPENSES> 8,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,651
<INCOME-PRETAX> 4,876
<INCOME-TAX> 1,887
<INCOME-CONTINUING> 2,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,989
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
