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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
COMMISSION FILE NUMBER 1-12360
GC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3200876
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
27 BOYLSTON STREET, CHESTNUT HILL, MASSACHUSETTS 02167
(Address of principal executive offices) (Zip Code)
Registrant's telephone number and area code: 617-264-8000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock,$.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $ 243,058,000 on January 14, 1998.
There were 7,710,698 shares of Common Stock outstanding as of January 14,
1998.
----------------------
Documents Incorporated by Reference
Portions of the Company's 1997 Annual Report to Stockholders are
incorporated by reference into Parts I, II and IV of this Report. Portions of
the Proxy Statement for the Company's Annual Meeting of Stockholders to be held
on March 3, 1998 are incorporated by reference into Part III of this Report.
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GC COMPANIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
TABLE OF CONTENTS
PART I Page No.
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Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
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Item 5. Market for the Registrant's Common Equity and Related 6
Stockholder Matters
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on 6
Accounting and Financial Disclosure
PART III
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Item 10. Directors and Executive Officers of the Registrant 7
Item 11. Executive Compensation 8
Item 12. Security Ownership of Certain Beneficial Owners and 8
Management
Item 13. Certain Relationships and Related Transactions 8
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports 8
on Form 8-K
Signatures 10
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PART I
ITEM 1. BUSINESS
GENERAL
GC Companies, Inc. (the "Company") operates a leading motion picture
exhibition circuit in the United States under the name "General Cinema
Theatres," operates motion picture theatres in Argentina and Mexico and also
manages a pool of the Company's capital for investments. Through its investment
operations, the Company invests in businesses which have been, and which may
continue to be, unrelated to the Company's theatre business and the broader
entertainment industry. INVESTMENTS MADE BY THE COMPANY MAY BE HIGHLY ILLIQUID
AND MAY INVOLVE CONSIDERABLE RISK. SEE "GCC INVESTMENTS, INC." BELOW.
The Company was incorporated under the laws of the State of Delaware in
September 1993.
GENERAL CINEMA THEATRES, INC.
The Company's theatre operations are the outgrowth of a motion picture
exhibition business which originated in 1922. The predecessors of the Company
are credited with opening two of the first drive-in movie theatres in 1938 and
one of the first indoor shopping center theatres in 1951.
As of October 31, 1997, the Company operated 175 theatres with a total of
1,113 screens in 24 states. The Company provides convenient and comfortable
theatres offering a popular selection of films. Substantially all of the
Company's theatres are state-of-the-art facilities, equipped with high quality
sound and projection equipment, and exhibit films on a "first run" basis.
Approximately 83% of the Company's theatres, and approximately 88% of the
Company's screens, are located in 30 of the 50 largest Areas of Dominant
Influence (television market areas as defined by Arbitron Company) in the United
States, with approximately 36% of the Company's theatres and approximately 33%
of the Company's screens located in California, Florida and Texas.
From the beginning of fiscal 1987 through the end of fiscal 1997, the
Company increased its average number of screens per theatre from 3.7 to 6.4. All
of the Company's theatres (except one) are multi-screen theatres, and
approximately 80% of the Company's screens are located in theatres having 6 to
16 screens. The Company expects to continue to increase the average number of
screens per theatre in its circuit by selectively closing or selling less
productive theatres which generally have fewer screens, by building theatres
with more screens per theatre, and by adding screens to existing theatres. Since
November 1, 1991, the Company has opened 22 new theatres with an average of 8.2
screens each. Key factors which the Company considers in selecting new theatre
sites are demographic trends derived from statistical sources, distance from
competitive theatres, and accessibility and proximity to retail and other
entertainment and dining areas.
Multi-screen theatres enable the Company to present a variety of films
appealing to diverse segments of the movie-going public while serving patrons
from common support facilities such as concession stands, box offices and sales
outlets. The Company believes that this strategy enhances attendance, increases
the utilization of theatre capacity and promotes operating efficiencies.
Staggered scheduling of movie starting times minimizes staffing requirements for
auditorium entry and exit and box office and concession stand services, and
reduces congestion throughout the theatre and its parking areas. Multi-screen
theatres also provide increased flexibility in determining the length of time
that a film will run and the size of the auditorium in which it will be shown.
The Company continually seeks to maximize cash flows through adherence to
cost containment practices. In addition, the Company provides incentive
compensation to its theatre managers on the basis of performance, customer
service responsiveness and quality of theatre operations.
Marketing and Advertising
The Company relies principally upon television, radio and newspaper
display advertisements (substantially paid for by distributors) and newspaper
directory film schedules (generally paid for by the Company) to inform its
patrons of film titles and exhibition times. The
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Company also shows previews of coming attractions and films presently playing on
the other screens operated by the Company in the same theatre or geographic
area. The Company also benefits from promotional programs involving various
products and merchants.
Film Licensing
Consistent with industry practice, and in part required by consent
decrees to which certain film distributors are parties, distributors generally
license films to exhibitors on a screen-by-screen basis. Film licenses are
obtained either by negotiating directly with, or by submitting bids to, film
distributors.
Fees payable to distributors are based upon several factors, including
theatre location, film supply, competition, season and film content. Film
licensing (termed "film buying" in the industry) typically requires payment of a
fee based on the higher of a gross receipts formula or a theatre admissions
revenue sharing formula. Under a gross receipts formula, the distributor
receives a specified percentage of box office receipts, with the percentage
declining over the term of the run. Under a theatre admissions revenue sharing
formula, the distributor receives a specified percentage of the excess of box
office receipts over a negotiated allowance for theatre expenses. The Company
may agree to guarantee minimum license fees or make recoupable advance payments
on licensing fees, or both, in order to obtain a license for a film that is in
high demand.
The Company's film buyers evaluate the prospects for upcoming films prior
to the time that distributors solicit interest. Criteria considered for each
film include all of the factors which affect box office potential, including
cast, director, plot, performance of similar films, the production cost and
marketing budget for the film, estimated film licensing costs, estimated impact
on concession sales, and the expected Motion Picture Association of America
rating. The Company maintains records of attendance by film title and theatre
location so as to enable its film buyers to evaluate a prospective film's
suitability and likelihood of success with respect to each theatre location.
The Company's business is dependent upon the availability of motion
pictures that have substantial popular appeal. There are fewer than ten major
distributors which provide a substantial portion of quality first run movies to
the exhibition industry. Historically, and during fiscal 1997, less than 25% of
the Company's total annual box office receipts have been attributable to the
films of any single distributor. From year to year, however, the Company's
revenues attributable to individual distributors may vary significantly
depending upon the commercial success of each distributor's films. The Company
believes that its relationships with each of the major distributors generally
are good.
The failure to maintain good relationships with, or the poor performance
by, one or more of the major distributors, or the disruption in the production
of motion pictures for any reason (such as labor unrest, the increased cost of
production or distribution of films, or the diversion of funds from production
and distribution to other ventures by the major studios or independent
producers) might have a materially adverse effect upon the Company's business
and its results of operations.
Concessions
The Company owns and operates the concession stands in all of its
theatres. Concession sales are the second largest source of revenue for the
Company after box office receipts and contribute significantly to the Company's
earnings. Concession items consist primarily of popcorn, soft drinks and candy.
The Company is continuing its efforts to increase concession sales through
optimizing product mix, introducing new products such as brand name fast foods,
coffee and other beverages, novelty items and film-related merchandise, offering
bulk candy snacks, training staff to cross- sell products, and making efficient
use of concession facilities and staff. The Company's strategy emphasizes
prominent and appealing concession counters designed for rapid service,
efficiency, and optimal merchandising of concession items.
Competition
The Company's theatres are subject to varying degrees of competition in
the geographic areas in which they operate. Competition is often intense with
respect to licensing films, attracting patrons and finding new theatre sites.
The Company believes that the principal competitive factors with respect
to film licensing include licensing terms, box office grossing histories,
seating capacity, location of theatres, the quality of projection and sound
equipment and the exhibitors' ability and willingness
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to promote films. The Company believes that the principal competitive factors
with respect to attracting patrons include the availability and licensing of
popular films, the location and comfort of theatres, the quality of the
projection and sound equipment, and ticket prices.
Industry participants vary substantially in size, from small independent
operators of a single theatre with a single screen to large national chains of
multi-screen theatres. All compete aggressively with the Company for films,
patrons and theatre locations. The Company competes directly with its largest
competitors in most of the geographic areas in which it operates.
The Company's theatres compete with other forms of entertainment for the
public's leisure time and disposable income. For example, the Company's theatres
face competition from a number of alternative motion picture exhibition delivery
systems, such as video cassettes and cable television, including pay-per-view,
and satellite entertainment technology. While the future impact of such delivery
systems on the motion picture exhibition industry cannot be determined
precisely, such delivery systems may have had, and in the future may have, an
adverse impact on attendance at the Company's theatres.
Seasonality
The major film distributors generally release most of the films which
they anticipate will be the most successful during the summer (Memorial Day
weekend through Labor Day weekend) and holiday (Thanksgiving weekend through New
Year's Day) seasons. Consequently, the Company historically has generated higher
revenues, and substantially all of its earnings, during these periods.
INTERNATIONAL
On September 26, 1997, the Company purchased one hundred percent of the
common stock of a company operating one theatre with eight screens in Argentina,
and fifty percent of the common stock of a company operating four theatres with
45 screens in Mexico. In 1998, the Company anticipates opening two additional
theatres with a total of 26 screens in Argentina and one theatre with nine
screens in Mexico. The Company is actively pursuing additional theatre
developments throughout Latin America. Key factors that the Company considers in
selecting new theatre sites are demographic trends, distance from competitive
theatres, and accessibility and proximity to other retail and other
entertainment and dining areas.
GENERAL
Employees
At October 31, 1997, the Company had approximately 1,100 full-time and
6,100 part-time theatre employees. The number of part-time employees generally
increases during the summer and holiday seasons in keeping with the seasonal
nature of the motion picture exhibition business.
Approximately 7.5% of the Company's employees are represented by the
International Alliance of Theatrical Stage Employees and Motion Picture Machine
Operators. The Company believes that its relationships with this union and with
its employees generally are good.
GCC INVESTMENTS, INC.
Through GCC Investments, Inc., the Company invests in companies which
have been, and which may continue to be, engaged in businesses which are
unrelated to the Company's theatre business and the broader entertainment
industry. These investment operations are conducted by a team of investment
professionals who evaluate investment opportunities, negotiate and structure the
terms of each investment, monitor the Company's investments and, as designees of
the Company, may serve as members of the boards of directors of such companies.
To date, the Company has financed its investments with existing cash balances.
The Company may use cash generated by theatre operations, sales of existing
investments or borrowings under its line of credit, in addition to cash then on
hand, to finance future investments.
The investments of the Company to date have been, and are expected to
continue to be, minority positions in businesses which the Company believes will
provide substantial returns on the invested cash balances. Although the Company
does not seek to provide day-to-day managerial support to the companies in which
it holds investments, the Company may provide such companies assistance with
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strategic, financial and operational matters. It also is possible that the
Company may, by reason of investment, acquisition, conversion of securities, or
otherwise, obtain control of a portfolio company.
INVESTMENTS MADE BY THE COMPANY MAY BE HIGHLY ILLIQUID AND MAY INVOLVE
CONSIDERABLE RISK. BECAUSE OF THE COMPANY'S DESIRE TO MAXIMIZE RETURNS FROM ITS
INVESTMENT OPERATIONS, CURRENT INCOME CONSTITUTES A LOW STRATEGIC PRIORITY.
THERE CAN BE NO ASSURANCE THAT THE COMPANY'S INVESTMENT OPERATIONS WILL MAKE A
CONTRIBUTION TO THE COMPANY'S EARNINGS IN THE FORESEEABLE FUTURE. THE COMPANY'S
INVESTMENT OPERATIONS MAY REDUCE THE COMPANY'S EARNINGS OR CAUSE THE COMPANY TO
INCUR LOSSES. FOR INFORMATION CONCERNING THE INVESTMENTS MADE BY THE COMPANY,
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND NOTES 2, 3 AND 12 TO THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS, BOTH OF WHICH ARE CONTAINED IN THE COMPANY'S 1997 ANNUAL REPORT TO
STOCKHOLDERS AND INCORPORATED HEREIN BY REFERENCE.
RELATIONSHIP WITH HARCOURT GENERAL, INC.
Under an Intercompany Services Agreement entered into between the Company
and Harcourt General, Inc. ("Harcourt General") at the time of the Spinoff,
Harcourt General provided comprehensive management, accounting, financial,
legal, tax, personnel, and other corporate services to the Company in
consideration of a fee based on Harcourt General's costs. The Company and
Harcourt General amended the Intercompany Services Agreement in November 1995 to
reduce the level of services to be provided by Harcourt General. As amended, the
Intercompany Service Agreement provides for Harcourt's Chairman and Chief
Executive Officer to serve as Chairman and Chief Executive Officer of the
Company, and one of Harcourt's Presidents and Co-Chief Operating Officers to
serve as President and Chief Operating Officer of the Company, and such
additional corporate services as the Company and Harcourt General may mutually
determine from time to time. The fees payable to Harcourt General under the
Intercompany Services Agreement have been, and will continue to be, subject to
the approval of the Company's Special Review Committee, a committee of the Board
of Directors consisting solely of directors who are not affiliated with Harcourt
General. The fees paid or accrued by the Company under the Intercompany Services
Agreement were $0.5 million, $1.1 million, and $3.1 million, respectively, for
fiscal years 1997, 1996, and 1995.
In addition, substantially all of the theatre leases to which the Company
is a party are guaranteed by Harcourt General. Pursuant to a Reimbursement and
Security Agreement entered into between the Company and Harcourt General at the
time of the Spinoff, the Company has agreed to reimburse Harcourt General for
all liabilities, if any, which may be incurred by Harcourt General after the
Spinoff in connection with the theatre leases, and has pledged all of the stock
of its theatre subsidiaries to Harcourt General as security for such agreement.
The Company also agreed to maintain certain financial and operating covenants
designed to minimize Harcourt General's exposure with respect to the theatre
leases. In consideration of Harcourt General's continuing guarantees of the
theatre leases, the Company pays Harcourt General a guarantor's fee measured as
a percentage of the present value of all amounts owing under the theatre leases
for which Harcourt General has potential liability. The guarantor's fees paid by
the Company to Harcourt General for fiscal years 1997, 1996 and 1995 were
approximately $250,000, $271,000 and $266,000, respectively. Harcourt General
has not guaranteed any theatre leases entered into by the Company following the
Spinoff.
Although Harcourt General has no equity ownership in the Company, Richard
A. Smith and certain members of his family (the "Smith Family Group")
beneficially own approximately 28.8% of the outstanding shares of Common Stock
of the Company and approximately 27.7% of the outstanding equity securities of
Harcourt General. In addition, Richard A. Smith, the Chairman and Chief
Executive Officer of Harcourt General, serves as the Chairman and Chief
Executive Officer of the Company. Robert A. Smith, one of the Presidents and
Co-Chief Operating Officers of Harcourt General, serves as the President and
Chief Operating Officer of the Company. For additional information concerning
the stock ownership by the Smith Family Group, reference may be made to the
Proxy Statement for the Company's 1998 Annual Meeting (the "Proxy Statement").
ITEM 2. PROPERTIES
As of October 31, 1997, the Company operated 175 domestic theatres in 24
states, with approximately 36% of the Company's domestic theatres and
approximately 33% of the Company's domestic screens located in California,
Florida and Texas. As of such date, internationally, the Company operated one
theatre located in the suburbs of Buenos Aires, Argentina. As of such date,
virtually all of the Company's theatres were operated
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pursuant to leases. The Company's theatre leases are generally entered into on a
long-term basis with terms (including options) ranging from 15 to 40 years.
Theatre leases typically provide for rent based on box office receipts subject
to an annual minimum rental. The Company also is usually obligated to pay taxes,
utilities, common area maintenance costs and certain other expenses related to
its leased theatres.
The Company's corporate, theatre and investment headquarters are located
in Chestnut Hill, Massachusetts, a suburb of Boston. The Company also has
regional theatre offices in Boston, Chicago, Los Angeles and Buenos Aires,
Argentina. Corporate headquarters' functions include overall administration,
accounting and management of the Company and all investment operations. Theatre
headquarters' functions include administration with respect to theatre
operations, finance, human resources, information services, marketing, real
estate development and strategic planning. Regional office functions include
film licensing and theatre management with respect to particular geographic
areas. The Buenos Aires, Argentina regional office functions also include
accounting, administration with respect to theatre operations, film licensing
and marketing. The Company subleases its corporate and theatre headquarters from
Harcourt General and leases its regional offices.
For additional information regarding the Company's lease obligations, see
Notes 6 and 11 to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the
ordinary course of its business operations. The Company does not believe that
the disposition of any such proceedings will have a material adverse effect on
the financial position or continuing operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the New York Stock Exchange under
the symbol "GCX." The high and low sales prices for the Common Stock on the New
York Stock Exchange for the past two fiscal years were as follows:
<TABLE>
<CAPTION>
FISCAL 1997:
HIGH LOW
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<S> <C> <C>
First Quarter $37.13 $33.50
Second Quarter $40.38 $35.50
Third Quarter $46.00 $39.88
Fourth Quarter $44.00 $39.00
FISCAL 1996:
HIGH LOW
---- ---
First Quarter $35.25 $32.00
Second Quarter $38.00 $32.75
Third Quarter $37.75 $33.50
Fourth Quarter $37.88 $33.25
</TABLE>
At January 14, 1998, there were 7,710,698 record holders of Common Stock.
DIVIDEND POLICY
The Company has not paid and has no current plans to pay cash dividends
on its Common Stock. The Company currently intends to retain earnings for use in
its theatre business and investment operations.
ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is contained in the Company's 1997 Annual
Report to Stockholders under the caption "Selected Financial Data" on page 3 and
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The response to this Item is contained in the Company's 1997 Annual
Report to Stockholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 4 through 7 and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data incorporated
by reference into Item 14 below are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The response to this Item regarding the directors of the Company and
compliance with Section 16(a) of the Securities Exchange Act of 1934 by the
Company's officers and directors is contained in the Proxy Statement under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" and is incorporated herein by reference.
EXECUTIVE OFFICERS
Below are the name, age and principal occupations for the last five years
of each current executive officer of the Company. All such persons have been
elected to serve until the next annual election of officers and their successors
are elected or until their earlier resignation or removal.
Richard A. Smith - 73
Chairman and Chief Executive Officer of the Company since 1993; President of the
Company from 1993 until November 1995; Chairman of Harcourt General, Inc.
("Harcourt General") and of The Neiman Marcus Group, Inc., a majority owned
subsidiary of Harcourt General ("Neiman Marcus"); Chief Executive Officer of
Harcourt General and of Neiman Marcus since January 15, 1997 and prior to
December 1991; Director of Neiman Marcus. Mr. Smith is the father of Robert A.
Smith, President and Chief Operating Officer of the Company, and the
father-in-law of John G. Berylson, Senior Vice President and Chief Investment
Officer of the Company.
Robert A. Smith - 38
President and Chief Operating Officer of the Company since November 1995;
President and Co-Chief Operating Officer of Harcourt General and President and
Chief Operating Officer of Neiman Marcus since January 15, 1997; Group Vice
President of Harcourt General and of Neiman Marcus prior thereto; Director of
Harcourt General and Neiman Marcus Group. Mr. Smith is the son of Richard A.
Smith, Chairman and Chief Executive Officer of the Company, and the
brother-in-law of John G. Berylson, Senior Vice President and Chief Investment
Officer of the Company.
Paul R. Del Rossi - 55
Chairman of General Cinema Theatres, Inc. since November 1997; President and
Chief Executive Officer of General Cinema Theatres, Inc. from 1993 to November
1997; President of General Cinema Theatres, Inc., a subsidiary of Harcourt
General, prior to the Spinoff since 1983; Director of The DeWolfe Companies,
Inc.
John G. Berylson - 44
Senior Vice President and Chief Investment Officer of the Company since 1993;
Managing Director of Advent International Financial Services, a venture capital
and financial services firm, prior thereto. Mr. Berylson is the son-in-law of
Richard A. Smith, Chairman and Chief Executive Officer of the Company, and the
brother-in-law of Robert A. Smith, President and Chief Operating Officer of the
Company.
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William B. Doeren - 51
President of General Cinema Theatres, Inc. since November 1997; Executive Vice
President and Chief Operating Officer of General Cinema Theatres, Inc. from
October 1995 to November 1997; Chief Executive Officer of MGM International
Cinemas from January 1993 until August 1995; Senior Vice President and Chief
Operating Officer of AMC Entertainment Inc. prior thereto.
G. Gail Edwards - 42
Vice President and Chief Financial Officer of the Company since July 1996; Vice
President and Chief Financial Officer of Delaware North Companies, Incorporated,
a private holding company, prior thereto.
Philip J. Szabla - 43
Vice President, General Counsel and Secretary of the Company since December
1996; Member of the law firm of Albrecht, Maguire, Heffern & Gregg, P.C. prior
thereto.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement under the
captions "Directors' Compensation," "Executive Compensation" and "Transactions
Involving Management" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is contained in the Proxy Statement under the
caption "Stock Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Proxy Statement under the
captions "Executive Compensation" and "Transactions Involving Management" and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(A)(1) FINANCIAL STATEMENTS
The documents listed below which are contained in the Company's 1997
Annual Report to Stockholders are incorporated by reference into this
Item 14 and into Item 8 hereof:
Consolidated Balance Sheets - October 31, 1997 and 1996.
Consolidated Statements of Earnings for the fiscal years ended
October 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the fiscal
years ended October 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements. Independent Auditors'
Report.
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14(A)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable regulations
of the Securities and Exchange Commission have been omitted because the
information is disclosed in the Consolidated Financial Statements or
because such schedules are not required or are not applicable.
14(A)(3) EXHIBITS
The exhibits filed as part of this Annual Report on Form 10-K are listed
in the Exhibit Index immediately preceding the exhibits. The Company has
identified with an asterisk (*) in the Exhibit Index each management
contract and compensation plan filed as an exhibit to this Annual Report
on Form 10-K in response to Item 14(c) of Form 10-K.
14(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on September 30, 1997, which is
incorporated herein by reference.
14(C) EXHIBITS
See Item 14(a)(3) above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: January 26, 1998 GC COMPANIES, INC.
By: /s/ Richard A. Smith
-------------------------------
Richard A. Smith, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the following capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ Richard A. Smith Chairman and Chief January 26, 1998
- ------------------------------- Executive Officer
Richard A. Smith
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER
/s/ G. Gail Edwards Vice President, Chief January 26, 1998
- ------------------------------- Financial Officer and
G. Gail Edwards Treasurer
DIRECTORS:
/s/ William L. Brown January 26, 1998
- -------------------------------
William L. Brown
/s/ Peter C. Read January 26, 1998
- -------------------------------
Peter C. Read
/s/ Richard A. Smith January 26, 1998
- -------------------------------
Richard A. Smith
/s/ Leonard A. Schlesinger January 26, 1998
- -------------------------------
Leonard A. Schlesinger
/s/ Francis E. Sutherby January 26, 1998
- -------------------------------
Francis E. Sutherby
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EXHIBIT INDEX
Document
3.1 Restated Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995.
3.2 Amended and Restated By-Laws of the Company, incorporated herein by
reference to Exhibit 3.2 to the Company's Annual Report of Form 10-K
for the fiscal year ended October 31, 1996.
4.1 Form of Stock Certificate of the Company's Common Stock, incorporated
herein by reference to Exhibit 4 to the Company's Registration
Statement on Form 10, as amended.
4.2 Smith-Lurie/Marks Stockholders' Agreement Re GC Companies, Inc., dated
as of December 15, 1993, incorporated herein by reference to Exhibit
4.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994.
10.1 Distribution Agreement, dated as of December 14, 1993, between
Harcourt General, Inc. and the Company, incorporated herein by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1994.
10.2 Reimbursement and Security Agreement ("Reimbursement and Security
Agreement"), dated as of December 14, 1993, between Harcourt General,
Inc. and the Company, incorporated herein by reference to Exhibit 10.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994.
10.3 First Amendment to Reimbursement and Security Agreement, dated as of
September 29, 1994, between Harcourt General, Inc. and the Company,
incorporated herein by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1994.
10.4 Intercompany Services Agreement, dated as of December 14,1993, between
Harcourt General, Inc. and the Company, incorporated herein by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1994.
10.5 Amended and Restated Intercompany Services Agreement, dated as of
November 1, 1995, between Harcourt General, Inc. and the Company,
incorporated herein by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1995.
10.6 Tax Agreement, dated as of December 14, 1993, between Harcourt
General, Inc. and the Company, incorporated herein by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994.
10.7* GC Companies, Inc. 1993 Equity Incentive Plan, incorporated herein by
reference to Exhibit 10.8 to the Company's Registration Statement on
Form 10, as amended.
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10.8* GC Companies, Inc. Retirement Plan, effective December 2, 1993,
incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form 10, as amended.
10.9* GC Companies, Inc, Supplemental Executive Retirement Plan, effective
December 1, 1993, incorporated herein by reference to Exhibit 10.10 to
the Company's Registration Statement on Form 10, as amended.
10.10* GC Companies, Inc, Key Employee Deferred Compensation Plan, effective
December 1, 1993, incorporated herein by reference to Exhibit 10.11 to
the Company's Registration Statement on Form 10, as amended.
10.11* GC Companies, Inc. Key Executive Stock Purchase Loan Plan,
incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form 10, as amended.
10.12* Agreement, dated as of December 14, 1993, between Paul R. Del Rossi
and the Company, incorporated herein by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10- K for the fiscal year ended
October 31, 1994.
10.13* Termination Agreement dated as of August 17, 1995 between William B.
Doeren and the Company, "incorporated herein by reference to Exhibit
10.13 (or .14, respectively) to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996."
10.14* Master Lease Agreement dated as of November 21, 1996 between General
Electric Capital Corporation, for itself and as agent for certain
participants and General Cinema Theatres, Inc., "incorporated herein
by reference to Exhibit 10.13 (or .14, respectively) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1996."
10.15* GC Companies, Inc. 1993 Incentive Plan First Amendment incorporated
herein by reference to Exhibit 10.15 to the Company's Quarterly Report
on Form 10-Q for the Quarter ended April 30, 1997.
10.16* GC Companies, Inc. Key Executive Stock Purchase Loan Plan First
Amendment, incorporated herein by reference to Exhibit 10.16 to the
Company's Quarterly Report or Form 10-Q for the Quarter ended April
30, 1997.
10.17* GCC Investments, Inc. Incentive Pool Plan, incorporated herein by
reference to Exhibit 10.17 to the Company's Quarterly Report on form
10-Q for the quarter ended April 30, 1997.
10.18 Stock Purchase Agreement, dated as of July 25, 1997, by and among
General Cinema International, Inc., United Artists Theatre Circuit,
Inc., UA Mexico Holdings, S.A. de C.V., UATC Europe B.V. and Fond
Optima, S.A. de C.V., incorporated herein by reference to Exhibit
10.18 to the Company's Form 8-K filed September 30, 1997.
10.19 Amendment No. 1, dated as of September 24, 1997, by and among General
Cinema International, Inc., United Artists Theatre Circuit, Inc., UA
Mexico Holdings, S.A. de C.V., UATC Europe B.V. and Fondo Optima, S.A.
de C.V., incorporated herein by reference to Exhibit 10.19 to the
Company's Form 8-K filed September 30, 1997.
10.20* Amended and Restated Employment Agreement between Paul R. Del Rossi
and the Company, dated as of November 1, 1997.
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10.21* GC Companies, Inc. Deferred Compensation Plan for Non-Employee
Directors, Effective May 1, 1997.
10.22* First Amendment to GCC Investments, Inc. Incentive Pool Plan
11.1 Statement regarding computation of per share earnings.
13.1 1997 Annual Report to Stockholders (which is not deemed to be filed
except to the extent that portions thereof are expressly incorporated
by reference into this Annual Report on Form 10- K).
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule
- ----------
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
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<PAGE> 1
EXHIBIT 10.20
AMENDED AND RESTATED AGREEMENT
This Agreement is made as of the 1st day of November, 1997, by and
between GC COMPANIES, INC. (the "Company") and PAUL R. DEL ROSSI (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Executive is employed by the Company as President and Chief
Executive Officer of its wholly owned subsidiary, General Cinema Theatres, Inc.
("General Cinema"); and
WHEREAS, the Executive and the Company are parties to an Agreement dated
as of December 14, 1993, pursuant to which the Executive is continuing his
employment with the Company (the "Original Agreement"); and
WHEREAS, the Company wishes to provide for the continued employment of
the Executive and to provide for him an incentive to stay with the Company; and
WHEREAS, the parties have agreed to renegotiate the terms of the
Executive's employment and to set forth those terms in this Agreement, which
amends and restates in its entirety the original Agreement between the parties
with respect thereto.
NOW, THEREFORE, in consideration of the parties, and for other good and
lawful consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive, as Chairman
of General Cinema Theatres, Inc. through October 31, 1998, and in
such capacity as the President of the Company may determine
throughout the remainder of the term hereof. The Executive shall
report directly to the Company's President, shall participate in
the management of the Company's affairs as directed by the
President of the Company, it being intended that the Executive
participate in or manage General Cinema's international
activities, specialty film ventures, the Corporate Real Estate
Committee, and shall have such other and additional duties of an
executive nature as may be specified from time to time by the
President of the Company.
2. TERM. The Executive's employment under this Agreement shall
commence on November 1, 1997, and shall continue until October 31,
2002. This Agreement may otherwise be terminated only in
accordance with the provisions of Section 7 of this Agreement.
3. DUTIES. The Executive shall devote all of his work time to the
business of the Company (other than incidental non-competing
activities which do not materially detract from the Executive's
ability to perform his duties hereunder, as approved by the
President of the Company), and shall
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<PAGE> 2
serve the Company and act in all respects as a "good employee" and
representative of the affairs of the Company. The Executive agrees
to use his best efforts to promote and advance the interests of
the Company, and, in particular, to increase the profits thereof.
4. COMPENSATION.
a. For services rendered under this Agreement, the Executive's
salary shall be $330,000 per annum through October 31,
1998. From November 1, 1998 through the end of the term
hereof, the Executive's salary shall be $300 per hour based
upon such hours as may be accounted for and documented to
the reasonable satisfaction of the Company's President, but
in no event will the Executive's salary be less than
$237,500 per year from November 1, 1998 through the end of
the term hereof. All salary shall be payable in equal
installments paid not less than twice monthly during the
term of this Agreement, with any additional amounts owed
based upon work in excess of 792 hours per year to be paid
at the end of the fiscal quarter in which such excess hours
were incurred.
b. The Executive shall not be eligible for any further
benefits under General Cinema's EVA Incentive Plan (the
"EVA Plan"). At the time of payment of the fiscal year 1998
EVA Plan bonus, the Executive shall receive all outstanding
bonus awards due under the EVA Plan relating to fiscal year
1997 that would otherwise be deferred thereunder.
c. During the term hereof, the Executive may be eligible for
an annual bonus for extraordinary performance, the
determination of which shall be made in the sole discretion
of the President of the Company.
5. ADDITIONAL ARRANGEMENTS; FRINGE BENEFITS. In addition to the
salary and bonus referred to under Section 4 hereof, the Company
will provide the following for and on behalf of the Executive:
a. All stock options previously granted to the Executive by
the Company shall vest in full as of October 31, 1998. The
Executive shall be eligible for stock option grants for
fiscal years 1997 and 1998 as determined by the
Compensation Committee of the Board of Directors of the
Company, and shall not be eligible for such awards
thereafter;
b. Upon the Executive's retirement, the Executive shall be
entitled to retirement benefits under the Company's
Retirement Plan in a lump sum or monthly benefit amounts,
at the Executive's option based upon the Executive's age at
retirement in accordance with the provisions of such plan;
c. In lieu of benefits that the Executive is now entitled to
or would become entitled to through the term hereof under
the Company's Supplemental Executive Retirement Plan, on
October 31, 1998 and on each October 31 thereafter through
October 31, 2002, the Company shall pay $181,500 per year
(less any applicable withholding taxes that the
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<PAGE> 3
Company is required by law to withhold) to an irrevocable
trust created by the Executive for the benefit of such
beneficiaries as he shall determine;
d. Up to age 65, the Executive will receive family health
insurance coverage pursuant to the Company's Executive
Medical insurance plan or plans maintained by the Company.
Through October 31, 2002, the Executive shall receive Group
Term Life Insurance coverage in accordance with the
Company's basic plan (which currently provides a death
benefit equal to one and one-half times base salary).
Throughout the term hereof, the Executive may participate
in the Company's Key Executive Deferred Compensation Plan
in accordance with its terms, and the Executive shall be
entitled to all other employee fringe benefits afforded to
a Vice President of the Company.
6. EXPENSE REIMBURSEMENT. The Executive shall be reimbursed by the
Company for all reasonable travel and other expenses actually and
properly incurred by him with respect to his duties hereunder and
in accordance with any policies adopted by the Company's Board of
Directors, and for all such expense he shall furnish receipts,
statements or vouchers to the President of the Company, as
required by Company policy.
7. TERMINATION.
a. The Executive's employment shall be terminated by the
Company prior to the expiration of the term of this
Agreement, only upon the occurrence of one of the following
events:
i. the death of the Executive;
ii. the Total Disability of the Executive; or
iii. for Cause.
b. The Executive's employment shall be terminated by the
Executive prior to the expiration of the term of this
Agreement, only upon the occurrence of one of the following
events:
i. the voluntary retirement, resignation or termination
of this Agreement by the Executive, upon thirty (30)
days written notice to the Company; or
ii. Upon a Change in Control of the Company.
c. The following definitions shall apply to this Agreement:
i. "Total Disability" means that as of the date of
termination, the Executive was unable to perform his
duties in the normal and regular manner for either
(a) 80% or more of the normal working days during
the six full consecutive calendar
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<PAGE> 4
months most recently ended; or (b) 50% or more of
the normal working days during the 12 full
consecutive calendar months most recently ended.
ii. "Change in Control" means the occurrence of any of
the events described in (1) or (2) below, if, as a
result thereof, persons who, as of the effective
date hereof, constituted the Company's Board of
Directors (the "Incumbent Board") cease for any
reason, including without limitation as a result of
a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of
the Board of Directors, provided that any persons
becoming a director of the Company subsequent to the
Effective Date whose nomination or election was
approved by at least a majority of the directors
then comprising the Incumbent Board shall, for
purposes of this Agreement, be considered a member
of the Incumbent Board:
(1) Any "person" as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended, (the "Act")) becomes
a "beneficial owner" (as such terms is
defined in Rule 13d-3 promulgated under the
Act) (other than the Smith Family Group (as
described in the most recent proxy statement
filed by the Company with the Securities and
Exchange Commission)) directly or indirectly,
of securities of the Company representing
more than the greater of (a) twenty percent
(20%) of the combined voting power of the
Company's then outstanding securities; or (b)
the percentage of the combined voting power
of the Company's then outstanding securities
as to which the Smith Family Group is the
beneficial owner; or
(2) The Smith Family Group becomes the beneficial
owner of less than twenty percent (20%) of
the combined voting power of the Company's
then outstanding securities.
8. EFFECT OF TERMINATION.
a. i. In the event the Executive's employment is
terminated prior to the end of the term by the
Company due to Total Disability or by the Executive
due to a Change in Control, the Executive shall
receive a lump sum payment equal to all unpaid
amounts payable hereunder for salary and bonus under
paragraph 4 and continuation of all benefits
provided under paragraph 5 in accordance with the
terms thereof.
ii. In the event the Executive's employment is
terminated prior to the end of the term by the
Executive under paragraph 7.b.i., or in the event
that the Executive's employment is terminated by the
Company for Cause, the Executive shall receive no
continuing salary or bonus under paragraph 4, and
all amounts payable and benefits hereunder shall
terminate, except for pension benefits provided
under
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<PAGE> 5
paragraph 5.b. and payments to the trust described
under paragraph 5.c. hereof, which shall continue in
accordance with the terms thereof.
iii. In the event the Executive' employment is terminated
prior to the end of the term due to death, the
Executive shall receive no continuing salary or
bonus under paragraph 4, and all amounts payable and
benefits hereunder shall terminate, except for
pension benefits provided under paragraph 5.b.,
payments to the trust described under paragraph 5.c.
hereof, and family health insurance coverage
described in the first sentence of paragraph 5.d.
hereof, which shall continue in accordance with the
terms thereof.
b. In the event the parties dispute the Executive's
entitlement to the compensation provided under this
Section, the parties agree that the issue shall be
submitted to binding arbitration under the auspices of the
American Arbitration Association in Boston, Massachusetts.
Costs of the arbitration shall be borne by the
non-prevailing party. The parties agree to be bound by the
outcome of such arbitration, and that the final award of
arbitration shall be final, binding and nonappealable.
9. NON-COMPETITION; NON-SOLICITATION.
a. During the course of the Executive's employment with the
Company, and solely by reason of his employment
relationship with the Company, he will have access to and
have and will continue to gain knowledge of financial and
statistical information, business plans and programs,
processes, pricing, costs, expansion plans, methods,
techniques, marketing and other data relating to customers
and suppliers, designs, know-how and business practices of
the Company, its subsidiaries and affiliates, and other
information which is not generally available to the public
(collectively, "Confidential Information"). The Executive
acknowledges that the Confidential Information has been
developed by the Company at considerable expense. The
Executive realizes that the unauthorized disclosure or
misuse of Confidential Information could cause irreparable
damage to the Company, including the loss of valuable
customers. Therefore, the Executive agrees that except in
the furtherance of the performance of his duties as an
employee of the Company, the Executive will not at any time
disclose or communicate to any third party other than
employees of the Company authorized to use such
information, or use to the detriment of the Company, or for
his personal benefit or the benefit of any third party
outside of the scope of his employment with the Company,
any Confidential Information. The Executive further agrees
that he will not remove from the offices of the Company or
retain without the written consent of the Company any
document, record or any other materials constituting or
containing Confidential Information, except as may be
reasonably necessary for the performance of his duties as
an employee of the Company. Upon the voluntary or
involuntary termination of his employment with the Company,
he shall return to the Company all documents, records and
other materials constituting or containing Confidential
Information which he has in his possession.
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<PAGE> 6
b. Throughout the term hereof and during the eighteen (18)
month period immediately following termination of the
Executive's employment with the Company, he shall not
directly solicit any employee of the Company.
c. (i) Throughout the term hereof, and through October 31,
2002 in the case of termination of the Executive's
employment with the Company prior to the end of the term
for Cause or due to the voluntary termination of this
Agreement by Executive, the Executive shall not, directly
or indirectly, within the United States and any country in
which the Company or any of its subsidiaries or affiliates
then engages directly or indirectly in such a business,
engage in or own, manage, operate, join, control, be
employed by, or participate in the management, operation or
control of, or be connected in any manner with any motion
picture exhibition business
(ii)(A)For eighteen (18) months after the termination
hereof unless subparagraph (i) applies due to
termination for cause or the voluntary termination
by the Executive, the Executive shall not, directly
or indirectly within the United States engage in or
own, manage, operate, join, control, be employed by,
or participate in the management, operation or
control of, or be connected in any manner with any
motion picture exhibition business.
(B) For eighteen (18) months after the termination
hereof unless subparagraph (i) applies due to
termination for cause or the voluntary termination
by the Executive, the Executive shall not directly
or indirectly within any market area outside of the
United States in which the Company or any of its
subsidiaries or affiliates engages directly or
indirectly in such business, engage in or own,
manage, operate, join, control, be employed by, or
participate in the management, operation or control
of, or be connected in any manner with any motion
picture exhibition business. For purposes of this
subparagraph, "market area" means any city outside
the United States in which the Company or any of its
subsidiaries or affiliates engages in the motion
picture exhibition business, plus a ten (10) mile
radius from any theatre location of the Company or
any of its subsidiaries or affiliates located
outside of the United States at which operations
have commenced, or which commence within eighteen
months from such termination.
(iii) The foregoing provisions shall not prohibit the
Executive from owning a minority interest of not
more than one percent (1%), including stock options,
in such a corporation whose stock is publicly
traded.
d. The Executive acknowledges that in the event of a breach of
the foregoing provisions by the Executive, the Company is
not able to be adequately compensated at law and that the
provisions hereof shall be specifically enforceable by
court order in addition to all other
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rights and remedies at law or in equity available to the
Company for the breach or threatened breach hereof.
e. The Executive acknowledges that he has carefully considered
the foregoing provisions and having done so, agrees that
the restrictions set forth hereinabove, including, but not
limited to the time restrictions and the restrictions on
his activities, are reasonably required for the protection
of the interests of the Company. Notwithstanding the
foregoing, if any of the foregoing provisions would be
enforceable except for the fact that it is too broad to
protect the reasonable interests of the Company, such
provisions shall be enforceable only to the extent deemed
reasonable by a court of competent jurisdiction to protect
the interests of the Company. In the event any of the
foregoing provisions shall be modified or reformed, or held
to be invalid or unenforceable by a court of competent
jurisdiction, the remaining provisions hereof shall
nevertheless continue to be valid and enforceable as though
the invalid or unenforceable parts had not been included
therein.
10. NOTICES. All notices by any party to any other party shall be in
writing and shall be deemed to be properly given and delivered if
served personally or sent by registered mail addressed to the
parties at such place or to such other party or person as may from
time to time be designated by written notice.
11. MISCELLANEOUS. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. This Agreement shall be binding
upon and shall inure to the benefit of the legal representative,
successors, heirs and assigns of the parties hereto (provided,
however, that the Executive shall not have the right to assign
this Agreement in view of its personal nature). All headings and
subtitles contained in this Agreement are for the convenience of
reference only and are not of substantive effect. This Agreement
constitutes the entire agreement among the parties with respect to
the subject matter of this Agreement and supersedes all prior
negotiations and understandings (or any part thereof), written or
oral, with respect to the subject matter of this Agreement,
including the Original Agreement. There are no oral agreements in
connection with this Agreement. Neither this Agreement nor any
provision of this Agreement may be waived, terminated, modified or
amended orally or by any course of conduct but only by an
agreement in writing duly executed by all of the parties. If any
article, section, portion, subsection or subportion of this
Agreement shall be determined to be unenforceable or invalid, then
such article, section, portion, subsection or subportion shall be
modified in the letter and spirit of this Agreement to the extent
permitted by applicable law so as to be rendered valid, and any
such determination shall not affect the remainder of this
Agreement, which shall be and shall remain binding and effective
as against all parties. The word "Agreement" as used in this
Agreement shall be deemed to include any and all renewals of this
Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
GC COMPANIES, INC.
By:
-------------------------------------
Robert A. Smith
President and Chief Operating Officer
-------------------------------------
Paul R. Del Rossi
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<PAGE> 1
EXHIBIT 10.21
GC COMPANIES, INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
Effective May 1, 1997
<PAGE> 2
GC COMPANIES, INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
TABLE OF CONTENTS
ARTICLE PAGE
- --------------------------------------------------------------------------------
Article 1 Introduction 3
1.1 Adoption 3
1.2 Status of Plan 3
Article 2 Definitions 3
2.1 "Account" 3
2.2 "Board" 3
2.3 "Committee" 3
2.4 "Common Stock 3
2.5 "Company" 3
2.6 "Compensation" 3
2.7 "Effective Date" 3
2.8 "Market Price" 4
2.9 "Non-Employee Director" 4
2.10 "Participant" 4
2.11 "Plan" 4
2.12 "Plan Year" 4
2.13 "Unforeseen Emergency" 4
Article 3 Participation 4
3.1 Commencement of Participation 4
3.2 Continuation of Participation 4
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Article 4 Elective Deferrals 4
4.1 Elective Deferrals 4
4.2 Accounts 5
4.3 Investment Equivalent Alternatives 5
4.4 Time of Payment 6
4.5 Form of Payment 6
4.6 Death Prior to Payment 7
4.7 Unforeseen Emergency 7
Article 5 Administration 8
5.1 Plan Administration and Interpretation 8
5.2 Powers, Duties, Procedures, etc. 8
5.3 Information 8
Article 6 Amendment and Termination 8
6.1 Amendments 8
6.2 Termination of Plan 8
6.3 Existing Rights 9
Article 7 Miscellaneous 9
7.1 No Funding 9
7.2 Grantor Trust 9
7.3 Nonassignability 9
7.4 Limitation of Participants' Rights 9
7.5 Participants Bound 10
7.6 Receipt and Release 10
7.7 Notices 10
7.8 Governing Law 10
7.9 Headings and Subheadings 10
2
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GC COMPANIES, INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE 1
Introduction
1.1. ADOPTION. The Company adopted the Plan effective May 1, 1997 to
provide a means by which members of the Board who are not employees of the
Company may elect to defer receipt of designated amounts of Compensation earned
in that capacity.
1.2. STATUS OF PLAN. The Plan is intended neither to be a qualified
plan within the meaning of I.R.C. ss. 401(a) nor to constitute a "pension
benefit plan" or a "welfare benefit plan" subject to the requirements of the
Employee Retirement Income Security Act of 1974. The Plan shall be administered
and interpreted to the extent possible in a manner consistent with that intent.
ARTICLE 2
Definitions
Whenever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
2.1. "Account" means, for each Participant, the account maintained for
his or her benefit under Section 4.2.
2.2. "Board" means the Board of Directors of the Company.
2.3. "Committee" means the Compensation Committee of the Board.
2.4. "Common Stock" means the Common Stock, $.01 par value, of the
Company.
2.5. "Company" means GC Companies, Inc., a Delaware corporation, and
any successor to all or substantially all of the Company's assets or business
which assumes the obligations of the Company under the Plan.
2.6. "Compensation" means the amount of retainer payable for service on
the Board, plus any fees payable for attendance at or participation in a
meeting, for service as Chair or Vice Chair of the Board, or for service on or
as a Chair of any committee of the Board, determined without reduction for any
elective deferrals under Article 4.
2.7. "Effective Date" means May 1, 1997.
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2.8. "Market Price" means, as of any date, the mean of the highest and
lowest sales prices of the Common Stock on such date (or, if no trading shall
have occurred on such date, on the next previous date on which trading shall
have occurred), as reported on the New York Stock Exchange Composite Tape.
2.9. "Non-Employee Director" means a member of the Board who is not an
officer or employee of the Company or any of the subsidiaries of the Company.
2.10. "Participant" means any Non-Employee Director who participates in
the Plan as set forth in Article 3.
2.11. "Plan" means GC Companies, Inc. Deferred Compensation Plan for
Non-Employee Directors as set forth herein and all subsequent amendments hereto.
2.12. "Plan Year" means the calendar year.
2.13. "Unforeseen Emergency" means a severe financial hardship to a
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in I.R.C. ss.152(a)) of the
Participant, loss of property due to casualty, or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond the control
of the Participant.
ARTICLE 3
PARTICIPATION
3.1. COMMENCEMENT OF PARTICIPATION. Each Non-Employee Director shall
become a Participant in this Plan upon the later of (a) the Effective Date or
(b) the day on which he or she becomes a Non-Employee Director.
3.2. CONTINUATION OF PARTICIPATION. An individual who has become a
Participant in the Plan shall continue to be a Participant so long as he or she
remains a Non-Employee Director, and so long thereafter as any amount is payable
to him or her in accordance with Article 4.
ARTICLE 4
ELECTIVE DEFERRALS
4.1. ELECTIVE DEFERRALS. An individual who is a Non-Employee Director
on May 1, 1997 may elect, by filing a written election with the Committee prior
to May 1, 1997, to defer all or a specified portion of his or her Compensation
for services to be performed on or after such deferral election. An individual
who is a Non-Employee Director on the first day of any fiscal year of the
Company after the Effective Date may elect to defer all or a specified portion
of his or her Compensation for services to be performed
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on or after that date by filing a written election with the Committee before
such date. An individual who has been nominated or elected to serve as a
Non-Employee Director, and who was not a Non-Employee Director immediately prior
to such election, may elect within thirty (30) days after becoming a
Non-Employee Director to defer all or a specified portion of his or her
Compensation for services to be performed after such deferral election.
Each deferral election under this Section 4.1 shall be made on a form
approved or prescribed by the Committee and shall also specify the time and form
of distribution of the amounts deferred and the investment equivalent
alternative described in Section 4.3 to be applied to such amounts.
An election to defer Compensation and to specify the time and form of
distribution may be revoked or modified, effective for amounts earned on and
after the first day of any fiscal year of the Company, by an election filed
before that date, but may not be revoked or modified at any other time unless
the Participant has an Unforeseen Emergency.
4.2. ACCOUNTS. The Committee shall maintain a bookkeeping account for
each Participant reflecting elective deferrals made for the Participant's
benefit under Section 4.1, together with any adjustments hereunder. Elective
deferrals shall be credited to the Account as of the day such amounts become
payable to the Participant. As of each February 15th, the Committee shall
provide the Participant with a statement of his or her Account as of the end of
the preceding Plan Year.
4.3. INVESTMENT EQUIVALENT ALTERNATIVES. When a Participant elects to
make elective deferrals in accordance with Section 4.1, he or she shall also
elect whether interest shall be credited to the elective deferrals under the
cash-based option or the stock-based option described below.
(a) CASH-BASED OPTION:
Under the cash-based option, elective deferrals shall accrue interest,
to be compounded at the end of each fiscal quarter of the Company, at a rate
equal to the three-month average of the top rates paid by major New York banks
on primary new issues of negotiable certificates of deposit (usually on amounts
of $1,000,000 or more) as quoted in the WALL STREET JOURNAL on the last business
day of the fiscal quarter.
(b) STOCK-BASED OPTION:
Under the stock-based option, elective deferrals will be converted
hypothetically into Common Stock equivalent units. The number of such units
shall be determined by dividing the amount of elective deferrals in each fiscal
quarter by the average of the Market Prices of the Common Stock during the last
five (5) trading days of such fiscal quarter. Units will be calculated to the
nearest
5
<PAGE> 7
thousandth. On each dividend payment date for the Common Stock, if any, dividend
equivalents in the form of additional units representing Common Stock will be
credited to the Participant's Account equal to (i) the per-share cash dividend
divided by the Market Price of Common Stock on the payment date, multiplied by
(ii) the number of such units reflected in such Account on the day before the
dividend payment date.
At the end of the period of deferral elected by the Participant, the
Common Stock equivalent units will be valued for payment by multiplying the
applicable number of units by the average of the Market Prices of Common Stock
during the last ten (10) trading days before the first date on which the
elective deferrals are to be paid or on which such payments are to commence.
If the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities through merger,
consolidation, sale of all or substantially all the property of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect to such shares of Common
Stock or other securities, appropriate adjustments will be made by the Company
in the number of Common Stock equivalent units credited to a Participant's
Account.
4.4. TIME OF PAYMENT. When a Participant elects to make elective
deferrals in accordance with Section 4.1, the Participant shall also elect
whether the elective deferrals (including investment equivalents attributable
thereto) shall be paid, or begin to be paid, (a) at a specified date at least
twenty-four months in the future (which date shall be the last day of a fiscal
quarter) or (b) upon termination of his or her service as a member of the Board.
If alternative (a) under this Section 4.4 is elected, payment will be made or
will commence on the date specified. If alternative (b) under this Section 4.4
is elected, payment will be made or will commence at the end of the fiscal
quarter in which the Participant's service as a member of the Board terminates.
The foregoing election shall be made on a form approved or prescribed by the
Committee.
Payment of a Participant's Account shall be made in accordance with the
Participant's elections under this Section 4.4 and Section 4.5. Each
Participant's Account shall be reduced by the amount of any payment made to or
on behalf of the Participant (including interest paid with respect to such
payment) as of the date such payment is made.
4.5. FORM OF PAYMENT. When a Participant elects to make elective
deferrals in accordance with Section 4.1, the Participant shall also elect
whether such elective deferrals (including investment equivalents attributable
thereto) shall be paid in (a) a lump sum, or (b) a specified number of annual
installments (not to exceed 10). Each installment (other than the first) shall
accrue
6
<PAGE> 8
interest from the date of the first installment to the date on which such
installment is paid, compounded quarterly at a rate equal to the three-month
average of the top rates paid by major New York banks on primary new issues of
negotiable certificates of deposit (usually on amounts of $1,000,000 or more) as
quoted in the WALL STREET JOURNAL on the last business day of the fiscal
quarter. The foregoing election shall be made on a form approved or prescribed
by the Committee.
4.6. DEATH PRIOR TO PAYMENT. In the event that a Participant dies prior
to complete distribution of his or her Account, the balance of his or her
Account shall be paid in a single lump sum to the beneficiary or beneficiaries
designated by the Participant. If no such beneficiary has been designated or if
no designated beneficiary survives the Participant, the balance of such Account
shall be paid to the Participant's estate. Payment of such amount shall be made
within sixty (60) days from the date of receipt by the office of the Secretary
of the Company of notice of the Participant's death. Such designation or
designations of beneficiary must be in writing, dated, signed by the Participant
and acknowledged before a notary public, and no such designation shall require
Company consent. No beneficiary designation shall be deemed effective unless the
same is on file in the office of the Secretary of the Company prior to the death
of the Participant. The Company may rely in all cases on the genuineness,
accuracy and date of any such beneficiary designation and shall be fully
protected in making payment in accordance therewith. Any beneficiary designation
filed in the office of the Secretary of the Company prior to the death of the
Participant shall be deemed to have revoked all earlier designations, and no
beneficiary designation filed after the date of a Participant's death shall be
deemed effective.
4.7. UNFORESEEN EMERGENCY. A Participant who has an Unforeseen
Emergency may, with the consent of a majority of the disinterested members of
the Committee, receive a distribution of that portion of his or her Account
which the Committee determines is necessary to satisfy the emergency need,
including any amounts necessary to pay any federal, state or local income taxes
reasonably anticipated to result from the distribution, but only to the extent
such need is not covered by insurance and cannot reasonably be relieved by the
liquidation of the Participant's assets (to the extent that such liquidation
would not in itself cause a severe financial hardship) or by cessation of
elective deferrals under the Plan. A Participant requesting a distribution on
account of an Unforeseen Emergency shall apply for the payment in writing in a
letter submitted to the Committee and shall provide such information as the
Committee may require.
7
<PAGE> 9
ARTICLE 5
ADMINISTRATION
5.1. PLAN ADMINISTRATION AND INTERPRETATION. The Plan shall be
administered by the Committee which may appoint persons to assist in the
administration of the Plan. The Committee shall have complete control and
authority to determine the rights and benefits and all claims, demands and
actions arising out of the provisions of the Plan of any Participant or other
person having or claiming to have any interest under the Plan. The Committee
shall have the exclusive power to interpret the Plan and to decide all matters
under the Plan. Such interpretation and decision shall be final, conclusive and
binding on all Participants and any person claiming under or through any
Participant, in the absence of clear and convincing evidence that the Committee
acted arbitrarily and capriciously. Any individual serving on the Committee who
is a Participant will not vote or act on any matter relating solely to himself
or herself. When making a determination or calculation, the Committee shall be
entitled to rely on information furnished by a Participant or the Company.
5.2. POWERS, DUTIES, PROCEDURES, ETC. The Committee shall have such
powers and duties, may adopt such rules and tables, may act in accordance with
such procedures, may appoint such officers or agents, and may delegate such
powers and duties as it deems necessary or advisable for the administration of
the Plan.
5.3. INFORMATION. To enable the Committee to perform its functions, the
Company shall supply full and timely information to the Committee on all matters
relating to the service of Participants as a member of the Board and such other
pertinent facts as the Committee may require.
ARTICLE 6
AMENDMENT AND TERMINATION
6.1. AMENDMENTS. The Board shall have the right to amend this Plan from
time to time, subject to Section 6.3, by an instrument in writing approved by
the Board and executed on the Company's behalf by a duly authorized officer.
6.2. TERMINATION OF PLAN. The Plan is strictly a voluntary undertaking
on the part of the Company and shall not be deemed to constitute a contract
between the Company and any Participant or a consideration for, or an inducement
or condition of, the performance of services by any Participant as a member of
the Board. The Board reserves the right to terminate this Plan at any time,
subject to Section 6.3, by an instrument in writing approved by the Board and
executed on the Company's behalf by a duly authorized officer. Upon termination
of the Plan, no further benefits shall accrue on behalf of any individual then a
Participant, nor shall any individual not a Participant as of the date of
termination be eligible to become a Participant thereafter.
8
<PAGE> 10
6.3 EXISTING RIGHTS. No amendment or termination of the Plan shall
reduce:
(a) any benefits payable to (or in respect of) a Participant who has
ceased to be a member of the Board, or
(b) any benefits to which a current Board member would have been
entitled, currently or in the future, in the event his or her service as a Board
member had terminated on the date of such amendment or termination.
ARTICLE 7
MISCELLANEOUS
7.1. NO FUNDING. Nothing in the Plan will be construed to create a
trust or to obligate the Company or any other person to segregate a fund,
purchase an insurance contract, or in any other way currently to fund the future
payment of any benefits hereunder, nor will anything herein be construed to give
any Participant or any other person rights to any specific assets of the Company
or of any other person. The Plan constitutes a mere promise by the Company to
make benefit payments in the future, and is intended to be unfunded for tax
purposes. Any benefits which become payable hereunder shall be paid from the
general assets of the Company, and the rights of any Participant or of his or
her estate or beneficiary shall be those of an unsecured general creditor.
7.2. GRANTOR TRUST. The Company in its sole discretion may establish a
trust (a "grantor trust") of which it is treated as the owner under Subpart E of
Subchapter J, Chapter 1 of the I.R.C. to provide for the payment of benefits
hereunder, subject to the claims of the Company's general creditors in the event
of insolvency, and subject to such other terms and conditions as the Company may
deem necessary or advisable to ensure that benefits are not includable, by
reason of the trust, in the income of trust beneficiaries prior to their actual
distribution.
7.3. NONASSIGNABILITY. None of the benefits, payments, proceeds or
claims of any Participant shall be subject to any claim of any creditor and, in
particular, the same shall not be subject to attachment or garnishment or other
legal process by any creditor of the Participant or his or her beneficiary, nor
shall any Participant or beneficiary have any right to alienate, anticipate,
commute, pledge, sell, transfer, encumber or assign any of the benefits or
payments or proceeds which he or she may expect to receive, contingently or
otherwise, under the Plan.
7.4. LIMITATION OF PARTICIPANTS' RIGHTS. Participation in the Plan
shall not give any Participant the right to be retained as a member of the Board
or any right or interest in the Plan other than as herein provided.
9
<PAGE> 11
7.5. PARTICIPANTS BOUND. Any action with respect to this Plan taken by
the Committee, the Board or the Company or any action authorized by or taken at
the direction of the Committee, the Board or the Company shall be conclusive
upon all Participants entitled to benefits under the Plan.
7.6. RECEIPT AND RELEASE. Any payment to any Participant in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Company, the Board and the Committee
under the Plan, and the Committee may require such Participant, as a condition
precedent to such payment, to execute a receipt and release to such effect. If
any Participant is determined by the Committee to be incompetent by reason of
physical or mental disability to give a valid receipt and release, the Committee
may cause the payment or payments becoming due to such person to be made to
another person for his or her benefit without responsibility on the part of the
Committee, the Board or the Company to follow the application of such funds.
7.7. NOTICES. All notices and elections to be delivered hereunder shall
be delivered to the attention of the Secretary of the Company.
7.8. GOVERNING LAW. The Plan shall be construed, administered, and
governed in all respects under and by the laws of the Commonwealth of
Massachusetts. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
7.9. HEADINGS AND SUBHEADINGS. Headings and subheadings in this Plan are
inserted for convenience only and are not to be considered in the construction
of the provisions hereof.
IN WITNESS WHEREOF, GC Companies, Inc. has caused this Plan to be
executed by its duly authorized officer this first day of May, 1997.
GC COMPANIES, INC.
By:
-------------------------------------
Philip J. Szabla
Vice President and General Counsel
10
<PAGE> 1
EXHIBIT 10.22
GCC INVESTMENTS, INC.
INCENTIVE POOL PLAN
FIRST AMENDMENT
WHEREAS, THE GCC INVESTMENTS, INC. INCENTIVE POOL PLAN (THE "PLAN")
PROVIDES THAT "SECONDARY INVESTMENTS" SHALL MEAN A SECOND TRANCHE OR LATER
INVESTMENT MADE TO INCREASE CURRENT HOLDINGS IN A PREEXISTING INVESTMENT OR TO
SECURE OR SUPPLEMENT CONTROL POSITIONS IN A PRE-EXISTING INVESTMENT WHICH THE
COMMITTEE DETERMINES TO BE A CORE INVESTMENT; AND
WHEREAS, IT IS NECESSARY TO CLARIFY WHEN CERTAIN POOL ALLOCATIONS WILL BE
PAID WITH RESPECT TO SECONDARY INVESTMENTS;
NOW, THEREFORE, pursuant to the powers reserved to it in Section 14 of
the GCC Investments, Inc. Incentive Pool Plan (the "Plan"), GCC Investments,
Inc. (the "Company") hereby amends the Plan as follows:
1. Section 8(a) of the Plan is hereby amended, effective as of
November 1, 1996, to read as follows:
"(a) Upon the consummation of any Secondary Investment, an amount
equal to the sum of (a) three percent (3%) of the first $50
million invested as part of such Secondary Investment and (b) one
and one-half percent (1.5%) of any amount in excess of $50 million
invested as part of such Secondary Investment will be credited to
a Secondary Pool ("Secondary Pool"). Amounts allocated to a
Secondary Pool shall be allocated among Participants on the same
basis as allocations are made to the Pre-Effective Date Pool or
Post-Effective Date Pool, whichever is applicable, to which the
original Investment relates. Amounts allocated to a Secondary Pool
shall be paid in cash in three substantially equal installments,
with the first installment MADE WITHIN THIRTY (30) DAYS FOLLOWING
THE END OF THE FISCAL QUARTER IN WHICH THE CLOSING OF THE RELEVANT
SECONDARY INVESTMENT TAKES PLACE (THE "SECONDARY POOL PAYMENT
DATE"), and the second and third installments shall be paid on the
FIRST and SECOND anniversary of such Secondary Pool Payment Date;
provided, however, that in each case the Participant is employed
on the date a payment is to be made hereunder. Secondary Pool
allocations to be paid in installments after the first installment
shall be credited with interest until paid at an annual rate
specified by the Committee from time to time."
2. Except as herein amended, the provisions of the Plan shall remain
in full force and effect.
1
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this First Amendment to the
Plan to be executed on this ___ day of __________, 1997.
GCC INVESTMENTS, INC.
By:
-------------------------------------
2
<PAGE> 1
EXHIBIT 11.1
GC COMPANIES, INC.
OCTOBER 31, 1997
EXHIBIT TO FORM 10-K
Computation of average number of shares outstanding used in determining primary
and fully diluted earnings per share
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
PRIMARY
1. Weighted average number of
Common shares outstanding 7,728 7,816 7,812
2. Assumed exercise of certain stock
options based on average
market value 40 35 43
----- ----- -----
3. Weighted average number of shares
used in primary per share
computations 7,768 7,851 7,855
===== ===== =====
FULLY DILUTED (A)
1. Weighted average number of
Common shares outstanding 7,728 7,816 7,812
2. Assumed exercise of all dilutive
options based on higher of
average or closing market value 43 36 46
----- ----- -----
3. Weighted average number of shares
used in fully diluted per share
computations 7,771 7,852 7,858
===== ===== =====
</TABLE>
(A) This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083 although not required by Footnote 2 to
Paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
<PAGE> 1
EXHIBIT 13.1
DEAR SHAREHOLDER:
We are pleased to report on the progress of your Company. In fiscal 1997, we
initiated a number of growth-oriented strategies for our theatre business, and
our investment portfolio realized another significant gain. Our progress
included the continuing implementation of our long-term theatre strategy, which
is to expand our theatre circuit profitably and prudently. We also entered into
several new ventures, which we believe will be key drivers for General Cinema
Theatres' future growth.
Revenues for the year ended October 31, 1997 were $447.2 million compared
with $446.0 million for fiscal 1996. Net earnings were $14.8 million, or $1.90
per share, compared to $17.2 million, or $2.20 per share, in 1996. Fiscal 1997
results include a $10.3 million pre-tax gain on the sale of theatre assets in
Oklahoma and a $9.0 million pre-tax gain related to the sale of one of our
investment assets. Fiscal 1996 results included a pre-tax gain of $9.5 million
on the sale of a minority investment.
General Cinema Theatres, Inc.
We are pursuing a disciplined growth strategy in the domestic theatre business.
Our approach focuses on regional demand and careful pursuit of transactions to
ensure a long-term return on the capital employed in each new megaplex. The
focus of our long-term theatre strategy is to build high-impact,
state-of-the-art megaplexes in densely populated urban and suburban areas, while
closing or selling older, less profitable units. These initiatives are
consistent with our objective of improving operating margins, earnings and
return on capital employed. At the end of fiscal 1997, General Cinema Theatres
operated 1,113 screens in 175 locations in 24 states, as well as 53 screens at
five locations in Mexico and Argentina, compared to 1,159 screens in 189
domestic locations at the end of fiscal 1996.
During the year, we began an exciting new phase in our theatre business,
international operations. As the first step in our international plans, we
purchased theatre assets in Mexico and Argentina. These attractive and
relatively under-developed marketplaces will serve as the springboard of our
international strategy. This year, we will concentrate on building the operating
infrastructure pipeline of locations and the appropriate local relationships to
ensure future success. We believe that international expansion will be a key
contributor to the long-term growth and profitability of your Company and we
will focus significant efforts in the next several years to capitalize on the
opportunity in this area.
Another new initiative is to seek desirable niche opportunities to profitably
grow our Company through alliances and partnerships. Our joint venture with The
Sundance Group is one example of this strategy. It will create theatres
dedicated specifically to independent films. We believe that the unique
strengths of each partner will produce a quality experience which will set
Sundance Cinemas apart from its competitors.
To provide the leadership necessary to implement our domestic and
international theatre strategies and other initiatives, we promoted two key
members of our management team. Paul Del Rossi, formerly president and chief
executive officer of General Cinema Theatres, Inc., was named to the newly
created position of chairman. Paul's new responsibilities will include
overseeing the Company's international expansion as well as developing strategic
initiatives. William Doeren, formerly executive vice president and chief
operating officer of the theatre subsidiary, was promoted to president and chief
executive officer. In his new role, Bill will oversee General Cinema Theatres'
entire domestic operation. We are proud of the quality and depth of our
management team, which allows us to have strong leadership guiding each of our
critical strategic efforts.
1
<PAGE> 2
GCC Investments, Inc.
Our investment activity is beginning to deliver significant value to the
Company. During fiscal 1997, we realized a $9.0 million pre-tax gain resulting
from the sale of our investment in Vision Express, an optical superstore
retailer. During the first quarter, we made a $7.0 million investment in a
wireless location and two-way messaging company. In the fourth quarter, we made
a $30.0 million investment in a provider of financial guaranty insurance to the
municipal bond and asset-backed securities markets as well as a $5.0 million
additional investment in an international telecommunications service provider
bringing the total invested in that company to $25.2 million. GC Companies'
investment portfolio, at a cost of $87.1 million at the end of fiscal 1997, also
includes a $13.4 million investment in a German cable television system operator
and an $11.5 million investment in an optical and photo service retailer. We
believe that our investment business has the potential to create significant
value and that our existing portfolio and pipeline of opportunities gives us
confidence in our abilities to achieve that goal.
GC Companies, Inc.
During the year, we also expanded our Board of Directors to five members with
the appointment of Dr. Leonard A. Schlesinger, a professor at the Harvard
Business School. We welcome Len to the Board with the knowledge that his
experience will be a valuable asset to our Company.
In the coming years, there will be significant additions to the nationwide
screen count as our industry continues in the development of megaplexes
nationwide. Since these screens are added at a faster rate than the increase in
demand, we believe that enhanced industry competition for domestic box office
receipts will continue. Thus, we believe our careful approach to domestic
megaplex development, our new growth-oriented niche ventures, the international
expansion of our theatre circuit combined with our value-building investment
activity will form a strong foundation for enhancing shareholder value in 1998
and beyond. Our success continues to be possible thanks to you, our
shareholders, and our 7,200 employees whose dedication and commitment make our
achievement possible.
Sincerely,
/s/ Richard A. Smith /s/ Robert A. smith
- -----------------------------------------------------------------------
Richard A. Smith Robert A. Smith
Chairman and President and
Chief Executive Officer Chief Operating Officer
January 14, 1998
2
<PAGE> 3
GC Companies, Inc.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Unaudited) Fiscal Years (1)
----------------------------------------------------------------
(Dollar amounts in thousands except for per share amounts) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 447,152 $ 446,003 $ 451,308 $ 452,563 $ 495,031
Operating earnings 11,822 20,373 18,001 22,066 18,623
Investment income (loss), net 13,880 10,107 (2,316) 1,640 96
Interest expense (586) (639) (631) (648) (605)
Loss on disposition of
non-operating assets (100) (617) (300) (12) (873)
----------------------------------------------------------------
Earnings before taxes 25,016 29,224 14,754 23,046 17,241
Income tax expense (10,257) (11,982) (6,049) (9,449) (6,738)
----------------------------------------------------------------
Net earnings $ 14,759 $ 17,242 $ 8,705 $ 13,597 $ 10,503
================================================================
Weighted average number
of common and common
equivalent shares outstanding 7,768 7,851 7,855 7,841 --
Net earnings per common share(2) $ 1.90 $ 2.20 $ 1.11 $ 1.73 $ --
================================================================
Depreciation and amortization $ 19,229 $ 19,369 $ 19,367 $ 19,649 $ 21,985
Total assets $ 339,600 $ 314,303 $ 300,067 $ 296,658 $ 210,535
Long-term capital lease
obligations $ 2,254 $ 3,059 $ 3,623 $ 4,179 $ 4,756
Other long-term liabilities $ 31,912 $ 29,029 $ 28,156 $ 28,016 $ 27,551
Number of movie screens
Domestic 1,113 1,159 1,180 1,211 1,344
International 53 -- -- -- --
Number of locations
Domestic 175 189 196 208 245
International 5 -- -- -- --
</TABLE>
(1) The selected financial data are derived from the financial statements of the
Company and its predecessor. The historical financial statements of the
Company for 1993 do not necessarily reflect the results of operations or the
financial position that would have been obtained had the Company been an
independent company.
(2) Net earnings per common share have not been presented for the year ended
October 31, 1993 as the Company was not an independent entity.
3
<PAGE> 4
GC Companies, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 COMPARED WITH YEAR ENDED OCTOBER 31, 1996
Net earnings decreased 14.4% to $14.8 million in 1997 from $17.2 million in
1996. Net earnings in 1997 included a pre-tax gain of $9.0 million from a
share-for-share exchange of GC Companies' (GCC or the Company) minority
investment in Vision Express into GrandOptical-PhotoService and a subsequent
sale of a portion of those shares. GCC's 1997 net earnings also included a $10.3
million pre-tax gain on the sale of seven theatre units in Oklahoma, a $7.4
million pre-tax impairment loss relating to the Company's theatre circuit and
$4.3 million of dividend and interest income from short-term investments. Net
earnings in 1996 included a pre-tax gain of $9.5 million from the sale of GCC's
radio group investment, a pre-tax charge of $2.5 million related to the
write-down of the Company's remaining investment in a children's clothing
retailer, and $3.8 million of dividend and interest income from short-term
investments. Theatre operating earnings decreased to $20.9 million in 1997 from
$26.2 million in 1996. Operating earnings after corporate expenses for 1997 were
$11.8 million, a decrease of 42.0% from $20.4 million in 1996.
Theatre revenues
Revenues of $447.2 million were slightly above 1996 revenues of $446.0 million.
This increase was principally due to a 1.9% increase in average ticket price, a
3.3% increase in concession sales per person and a 13.0% increase in ancillary
revenues substantially offset by a 2.4% decline in patronage. The increase in
concession sales per patron was due to price increases on select products, new
product offerings and increased consumption. The decrease in patronage from 1996
was the result of increased competition in the marketplace. Screens in the
United States are increasing at a faster rate than patrons. As a result, the
industry's screen utilization is declining. At October 31, 1997, the Company
operated domestically 1,113 screens compared to 1,159 screens at October 31,
1996.
Cost of theatre operations
Cost of theatre operations, including theatre general and administrative
expenses, increased 2.4% to $429.9 million in 1997 from $419.9 million in the
previous year. As a percentage of revenues, the cost of theatre operations was
96.1% in 1997 compared to 94.1% in 1996. The percentage increase was principally
a result of lower concession margins, higher variable labor costs primarily due
to the impact of the minimum wage increase in 1997, higher occupancy costs due
to the Company's operating lease financing arrangement for new assets and
increased costs associated with the new units opened in 1997, and increased
information technology expenses.
Gain (loss) on disposition or impairment of theatre assets
The 1997 gain on disposition of theatre assets is primarily attributable to a
$10.3 million pre-tax gain recognized on the sale of seven theatre units in
Oklahoma in August 1997. This gain was partially offset by a $7.4 million
pre-tax impairment loss recorded in the fourth quarter of 1997 relating to the
Company's theatre circuit. GCC reassessed the value of a number of its theatre
locations as a result of the emergence of new competition in the marketplace.
The opening of megaplexes by the Company's competitors have tended to, and are
projected to, continue to draw audiences away from certain older multiplex
theatre locations that the Company owns. As a result, the Company recognized a
loss on this impairment.
Corporate expenses
Corporate expenses increased 55.3% to $9.0 million in 1997 from $5.8 million in
the previous year. The increase is primarily attributable to costs associated
with the Company's acquisition of five theatres with 53 screens in Mexico and
Argentina. In addition, growth of the Company's venture capital group resulted
in increased personnel and travel costs.
Investment income (loss), net
The Company recorded investment income of $13.9 million in 1997 compared to
$10.1 million in 1996. The investment income in 1997 included a pre-tax gain of
$9.0 million from a fourth-quarter share-for-share exchange of GCC's minority
investment in Vision Express into GrandOptical-PhotoService and a subsequent
sale of a portion of those shares, a fourth-quarter pre-tax gain of $0.6 million
resulting from the release of escrow related to the sale of its radio group
investment in
4
<PAGE> 5
1996 and $4.3 million of dividend and interest income earned on the Company's
short-term investment portfolio. The Company's investment income in 1996
included a pre-tax net gain of $9.5 million recorded in the fourth quarter
relating to the sale of the Company's radio group investment, a second-quarter
pre-tax charge of $2.5 million related to the write-off of the Company's
remaining investment in a children's clothing retailer, a $0.6 million pre-tax
charge recorded in the first quarter representing the Company's share of losses
incurred by its radio group investment when such investment was accounted for
under the equity method, and $3.8 million of dividend and interest income. The
realized portion of the Vision Express investment produced a time-weighted
pre-tax cash on cash return of 25% in 1997 with the radio group investment
providing a return of 92% in 1996.
Income tax expense
The Company's effective tax rate was 41.0% in 1997, unchanged from 1996.
YEAR ENDED OCTOBER 31, 1996 COMPARED WITH YEAR ENDED OCTOBER 31, 1995
Net earnings increased 98.1% to $17.2 million in 1996 from $8.7 million in 1995.
Net earnings in 1996 included a pre-tax gain of $9.5 million from the sale of
GCC's radio group investment, a pre-tax charge of $2.5 million related to the
write-down of the Company's remaining investment in a children's clothing
retailer, and $3.8 million of dividend and interest income from short-term
investments. Net earnings in 1995 included pre-tax charges totaling $7.9 million
related to write-downs of two minority investments, $1.3 million of dividend
income received from another minority investment and $4.3 million of dividend
and interest income from short-term investments. Theatre operating earnings
increased to $26.2 million in 1996 from $25.8 million in 1995. Operating
earnings after corporate expenses for 1996 were $20.4 million, an increase of
13.2% from $18.0 million in 1995.
Theatre revenues
Revenues of $446.0 million were slightly below 1995 revenues of $451.3 million.
The decrease was principally due to a 3.6% decline in patronage, partially
offset by a 1.5% increase in the average ticket price and a 3.2% increase in
concession sales per patron. The increase in concession sales per patron was
attributable to both higher consumption and higher prices. The decrease in
patronage from 1995 was due to the lack of strong film product in the latter
half of the fiscal year as well as the sale or closing of 20 theatres with 86
screens during 1996 and late 1995. These dispositions were consistent with the
Company's strategy to sell or close theatres that are less productive and have
fewer screens per location. At October 31, 1996 the Company operated 1,159
screens compared to 1,180 screens at October 31, 1995.
Cost of theatre operations
Cost of theatre operations, including theatre general and administrative
expenses, of $419.9 million in 1996 decreased 1.3% from $425.4 million in the
previous year. As a percentage of revenues, the cost of theatre operations was
94.1% in 1996 compared to 94.3% in 1995. The improvement was primarily
attributable to cost containment efforts both at home office and the field,
partially offset by a lower film gross margin.
Corporate expenses
Corporate expenses decreased 25.0% to $5.8 million in 1996 from $7.8 million in
1995. The cost savings primarily resulted from a reduction in corporate and
administrative services provided to the Company by Harcourt General, Inc.
Investment income (loss), net
The Company recorded net investment income of $10.1 million in 1996 compared to
a net investment loss of $2.3 million in 1995. The Company's investment income
in 1996 included a pre-tax net gain of $9.5 million recorded in the fourth
quarter relating to the sale of the Company's radio group investment, a
second-quarter pre-tax charge of $2.5 million related to the write-off of the
Company's remaining investment in a children's clothing retailer, a $0.6 million
pre-tax charge recorded in the first quarter representing the Company's share of
losses incurred by its radio group investment when such investment was accounted
for under the equity method, and $3.8 million of dividend and interest income.
The Company determined that the write-off of its remaining investment in the
children's clothing retailer was necessary due to that company's continued
operating losses and cash flow problems.
The Company's net investment loss in 1995 included a $5.0 million pre-tax
charge recorded in the fourth quarter of 1995 to write down a substantial
portion of the Company's investment in a
5
<PAGE> 6
children's clothing retailer, a $2.9 million pre-tax charge recorded in the
first quarter of 1995 to write off the Company's remaining investment in a food
service company, $1.3 million of dividend income received from another minority
investment and $4.3 million of dividend and interest income. The decrease in
dividend and interest income in 1996 was due to a lower rate of return on
portfolio assets.
Income tax expense
GCC's effective tax rate was 41.0% in 1996, unchanged from 1995.
LIQUIDITY AND CAPITAL RESOURCES
Virtually all of GCC's revenues are collected in cash, principally through
theatre admissions and concession sales. Because revenues are received in cash
prior to the payment of related expenses, the Company has historically not
required working capital to finance its growth or to meet its operating
requirements. Cash generated by the business in excess of that needed for
operations and capital expenditures will be available for investment.
Over the past fiscal year, we added three screens to an existing location as
well as opened two new units with a combined 30 screens in the Chicago area and
one new unit with nine screens in West Orange, New Jersey. In the first fiscal
quarter of 1998, the Company opened a 16 screen theatre in Redondo Beach,
California, a 14 screen theatre in Philadelphia, Pennsylvania, a 14 screen
theater in Columbia, South Carolina, and added four screens to an existing
location in Massachusetts. By the end of fiscal 1998, we plan to open three
additional domestic theatres with a total of fifty-one screens and add six
screens to an existing location. During the subsequent two years, the company
has commitments to open 12 new megaplex theatres with approximately 181 screens
in the United States.
Capital outflows have been minimized on these projects owing to an agreement
consummated in November 1996 with a major financial institution to provide
operating leases for up to $250 million of assets over five years for its
theatre expansion program. In addition, certain maintenance capital expenditures
were financed via this vehicle in 1997. A receivable due from this financial
institution may arise from time to time throughout the year from GCC initially
advancing monies for leased assets as the financial institution's agent. On a
periodic basis, these advances are reimbursed by the financial institution.
The Company has significant lease commitments. Lease payments totaled $66.5
million in 1997 and minimum lease payments from existing obligations are
expected to approximate $58.9 million in 1998.
During 1997, GCC made expenditures of $18.7 million for information service
related projects including new point-of-sale systems and financial reporting
systems, leasehold improvements, and furniture and equipment purchases. Domestic
capital expenditures are expected to approximate $18.0 million during fiscal
1998.
In August 1997, the Company sold seven theatre units with a total of 50
screens for $15.8 million and a non-operating drive-in location in Cleveland for
$1.7 million. In November 1996, GCC sold two theatre units with a total of eight
screens for $0.8 million. During the year, the Company closed eight theatre
units with a total of 30 screens.
On August 20, 1997, GCC announced that it agreed to form a joint venture with
The Sundance Group to create Sundance Cinemas, a stand-alone theatre circuit
dedicated to the exhibition of the growing number of independent films. The
joint venture plans to open a significant number of state-of-the-art Sundance
Cinemas across the country in urban, suburban and college locations, aiming to
add substantially to the number of screens dedicated to specialty films. GCC
intends to contribute cash and properties to this venture in 1998.
On September 26, 1997, the Company purchased theatre operations in Mexico and
Argentina for a cash purchase price of $36.3 million. One hundred percent of the
Argentine common stock and fifty percent of the Mexican common stock were
purchased pursuant to this transaction. As of October 31, 1997, GCC owned and
operated one unit with eight screens in Argentina and four units with 45 screens
in Mexico. The Company plans to open two additional units with 26 screens in
Argentina and one new unit with nine screens in Mexico by October 31, 1998.
International capital expenditures are expected to approximate $18.0 million
during fiscal 1998.
The Company invested $18.4 million of cash in certain short-term securities
during 1997. These securities are highly liquid and consist of high quality
commercial paper, certificates of deposit, corporate debt securities and
securities of U.S. government agencies.
On October 16, 1997, GCC received 193,715 shares of GrandOptical-PhotoService
("GPS") common stock, a publicly traded optical and photo service company listed
on the Paris stock exchange, in exchange for its shares in Vision Express, an
optical superstore retailer. Of the GPS
6
<PAGE> 7
shares received, 92,220 shares were sold on October 21, 1997 for approximately
$15.8 million, and 101,495 shares are restricted from sale for periods ranging
from six months to two years.
During 1997, the Company's venture capital group, GCC Investments, Inc.,
invested $42.1 million. On September 24, 1997, $30.0 million was invested in a
newly formed financial guaranty insurance company. On August 14, 1997, an
additional $5.0 million was invested in an international telecommunications
service provider, bringing the total invested in that company to $25.2 million.
On December 6, 1996, $7.0 million was invested in a wireless location and
two-way messaging company.
In December 1996, the Company's Board of Directors authorized the repurchase
of up to one million shares of the Company's common stock over the next twelve
months. Through October 31, 1997, the Company repurchased 118,700 shares at a
cost of $4.3 million. In December 1997, this program was renewed for one more
year.
The Company believes that cash generated from operations, cash and short-term
investments on hand of $50.1 million, the $50.0 million available under the
Company's revolving credit agreement, which expires in June 1998 (the Company is
currently negotiating a new multi-year agreement), and the operating lease
arrangement will be sufficient to fund operating requirements, capital
expenditures and the Company's investment activities for the foreseeable future.
YEAR 2000
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the Year 2000 issue and is developing an
implementation plan to resolve the issue. The Company presently believes, by
modifying existing software and converting to new software, the Year 2000 issue
will not pose significant operational problems and is not anticipated to require
additional expenditures that would materially impact its financial position or
results of operations in any given year.
SEASONALITY
GCC's revenues and operating earnings are significantly affected by the
commercial success of the films that are exhibited. Major film distributors
release most of the films that they anticipate will be the most commercially
successful during GCC's first and third fiscal quarters. Accordingly, a
significant portion of GCC's revenues and operating earnings from theatre
operations occur in those periods.
IMPACT OF INFLATION
GCC adjusts its prices to maintain profit levels, and will continue to do so as
competitive conditions permit. In general, management believes that the impact
of inflation is not material to the financial condition or results of operations
of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income," and No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The former standard is effective for the
Company's fiscal 1999 financial statements while the latter will be adopted in
fiscal 1998. The effect of adopting these standards is not expected to be
material to the Company's financial position or results of operations; however,
they both may require additional disclosure.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements are
subject to certain risks, trends and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases for new megaplex locations, construction
risks and delays, the lack of strong film product, the impact of competition,
risks associated with international operations, construction risks and delays
associated with Sundance Cinemas, market and other risks associated with the
Company's investment activities and other factors described herein.
7
<PAGE> 8
GC Companies, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
--------------------------
(In thousands) 1997 1996
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 30,038 $ 71,745
Short-term investments 20,014 1,566
Receivable due from financing institution 3,754 17,599
Other current assets 5,619 3,602
Deferred income taxes 2,981 2,552
--------------------------
Total current assets 62,406 97,064
Land 4,581 4,607
Buildings and improvements 26,146 27,777
Leasehold improvements 141,652 146,738
Equipment and fixtures 153,639 147,705
--------------------------
326,018 326,827
Less accumulated depreciation and amortization (171,442) (163,980)
--------------------------
154,576 162,847
Portfolio investments 87,078 50,187
Other assets 35,540 4,205
--------------------------
$ 339,600 $ 314,303
==========================
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term obligations $ 697 $ 721
Trade payables 32,671 30,514
Other current liabilities 79,163 62,428
--------------------------
Total current liabilities 112,531 93,663
Long-term liabilities
Capital lease obligations 2,254 3,059
Other long-term liabilities 31,912 29,029
--------------------------
Total long-term liabilities 34,166 32,088
Deferred income taxes 6,183 12,571
Commitments and contingencies
Shareholders' equity
Common stock - $.01 par value
Authorized - 25,000 shares
Issued and outstanding - 7,705 and 7,816 shares 77 78
Additional paid-in capital 136,646 136,359
Retained earnings 49,997 39,544
--------------------------
Total shareholders' equity 186,720 175,981
--------------------------
$ 339,600 $ 314,303
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE> 9
GC Companies, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------
(In thousands except for per share amounts) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C>
Admissions $ 301,349 $ 302,852 $ 309,562
Concessions 132,633 131,500 132,159
Other 13,170 11,651 9,587
-------------------------------------------
447,152 446,003 451,308
Costs of theatre operations
Film rentals 155,316 155,441 156,626
Concessions 25,884 24,522 27,547
Theatre operations and administrative expenses 229,436 220,561 221,848
Depreciation and amortization 19,229 19,369 19,367
-------------------------------------------
429,865 419,893 425,388
Gain (loss) on disposition or impairment of theatre assets 3,566 77 (163)
Corporate expenses 9,031 5,814 7,756
-------------------------------------------
Operating earnings 11,822 20,373 18,001
Investment income (loss), net 13,880 10,107 (2,316)
Interest expense (586) (639) (631)
Loss on disposition of non-operating assets (100) (617) (300)
-------------------------------------------
Earnings before income taxes 25,016 29,224 14,754
Income tax expense (10,257) (11,982) (6,049)
-------------------------------------------
Net earnings $ 14,759 $ 17,242 $ 8,705
===========================================
Weighted average number of common and
common equivalent shares outstanding 7,768 7,851 7,855
===========================================
Net earnings per common share $ 1.90 $ 2.20 $ 1.11
===========================================
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE> 10
GC Companies, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended October 31,
-----------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
Cash flows from operating activities
<S> <C> <C> <C>
Net earnings $ 14,759 $ 17,242 $ 8,705
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 19,229 19,369 19,367
Deferred income taxes (6,817) (1,192) (1,880)
(Gain) loss from portfolio investments (9,585) (6,307) 7,877
(Gain) loss on disposition or impairment
of theatre assets (3,466) 540 463
Other non-cash activities (1,170) (1,311) 1,525
Changes in assets and liabilities
Trade payables 2,157 (2,580) (5,971)
Other current assets and liabilities 28,563 (14,822) 1,799
----------------------------------------
Net cash provided by operating activities 43,670 10,939 31,885
----------------------------------------
Cash flows from investing activities
Capital expenditures (18,742) (10,750) (17,326)
Proceeds from the disposition of theatre assets 18,824 758 3,263
Proceeds from the (purchase of) or liquidation
of short-term investments (18,448) 33,747 (35,313)
Proceeds from the sale of portfolio investments 15,825 22,825 --
Purchase of portfolio investments (42,073) (20,195) (29,385)
Purchase of other investments (36,598) -- --
Other investing activities 815 (897) (2,060)
----------------------------------------
Net cash (used) provided by investing activities (80,397) 25,488 (80,821)
----------------------------------------
Cash flows from financing activities
Repurchase of common stock (4,307) -- --
Other financing activities (673) (681) (86)
----------------------------------------
Net cash used by financing activities (4,980) (681) (86)
----------------------------------------
Net change in cash and cash equivalents (41,707) 35,746 (49,022)
Cash and cash equivalents at beginning of year 71,745 35,999 85,021
----------------------------------------
Cash and cash equivalents at end of year $ 30,038 $ 71,745 $ 35,999
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
10
<PAGE> 11
GC Companies, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Retained
(In thousands) Shares Amount Capital Earnings Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1994 7,802 $ 78 $135,848 $ 13,597 $ 149,523
Net earnings -- -- -- 8,705 8,705
Other equity transactions 10 -- 476 -- 476
-----------------------------------------------------------------
Balance at October 31, 1995 7,812 78 136,324 22,302 158,704
Net earnings -- -- -- 17,242 17,242
Other equity transactions 4 -- 35 -- 35
-----------------------------------------------------------------
Balance at October 31, 1996 7,816 78 136,359 39,544 175,981
Net earnings -- -- -- 14,759 14,759
Repurchase of common stock (119) (1) -- (4,306) (4,307)
Other equity transactions 8 -- 287 -- 287
-----------------------------------------------------------------
Balance at October 31, 1997 7,705 $ 77 $136,646 $ 49,997 $ 186,720
=================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE> 12
GC Companies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
GC Companies, Inc. (GCC or the Company) operates a motion picture exhibition
business and manages a pool of the Company's capital for investments. It
operates its motion picture business in the United States, Mexico and Argentina.
Its investment portfolio includes both domestic and European holdings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Presentation
The consolidated financial statements include the accounts of GCC and all of its
majority-owned subsidiaries. Where GCC has the ability to exercise significant
influence over the operating and financial policies of companies in which GCC
has invested, those investments are accounted for under the equity method, and
GCC's share of the net earnings or losses of those companies is included in
consolidated net earnings; other investments are carried at the lower of cost
less impairment, if applicable. All significant intercompany accounts and
transactions have been eliminated.
Foreign Currency Translation
The financial statements of the Company's Argentine subsidiary are measured
using the peso as the functional currency. Assets, including goodwill, and
liabilities of this subsidiary are translated at the rates of exchange at the
designated balance sheet date. Income and expense items are translated at the
average monthly exchange rate. The resulting impact of these differences is not
material in 1997. In calculating the Company's interest in earnings or losses of
its Mexican equity-based investment, which resides in a hyper-inflationary
economy, gains or losses on translation are included in net earnings. This
amount is not material in 1997.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three
months or less from the date of purchase. Cash equivalents are stated at cost
plus accrued interest, which approximates market value. The Company's policy is
to invest cash with financial institutions or in instruments that have
acceptable credit ratings and to limit the amount of credit exposure to any one
financial institution or issuer.
Short-Term Investments
Short-term investments consist primarily of commercial paper, certificates of
deposit, corporate debt securities and U.S. Government securities, and are
carried at cost plus accrued interest, which approximates fair value.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization except impaired assets, which are stated at fair market value.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of 20 to 30 years for buildings and improvements and
3 to 20 years for equipment and fixtures. Leasehold improvements are amortized
using the straight-line method over the lesser of the lease period or the
estimated useful lives of the leasehold improvements. When property and
equipment are retired or have been fully depreciated, the cost and the related
accumulated depreciation are eliminated from the respective accounts. Gains or
losses arising from dispositions of property and equipment are reported as
income or expense.
12
<PAGE> 13
Stock-Based Compensation
The Company follows the precepts set forth in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting
for its Common Stock incentive plan. In compliance with Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
the Company has disclosed the required pro-forma effect on net earnings and
earnings per share in Note 9.
Long-Lived Assets
On an ongoing basis, the Company evaluates the carrying value of its long-lived
assets relying on a number of factors, including operating results, future
anticipated cash flows, business plans and certain economic projections. In
addition, the Company's evaluation considers nonfinancial data such as changes
in the operating environment, competitive information, market trends and
business relationships.
Income Taxes
Income taxes are calculated in accordance with SFAS No. 109, "Accounting for
Income Taxes," which requires the asset and liability method of accounting for
income taxes.
Revenues
Revenues are recognized when admission and concession proceeds are received at
the theatres. Revenues for other services are recognized at the time those
services are rendered.
Film Rental Costs
Film rental costs are recognized as a percentage of admission revenue and in
accordance with the terms of the film licenses.
Net Earnings Per Common and Common Equivalent Share
Net earnings per common share are based upon the weighted average number of
common and, when dilutive, common equivalent shares outstanding during the year.
Net earnings per common and common equivalent share, assuming full dilution,
have not been presented because the dilutive effect is not material. In December
1997, the Company will be required to adopt the provisions of SFAS No. 128,
"Earnings per Share." This will change the calculation and nomenclature of
earnings per share (EPS). Had this standard been adopted in 1997, EPS would not
have been materially impacted.
Significant Estimates
In the process of preparing its consolidated financial statements, the Company
estimates the appropriate carrying value of certain assets and liabilities,
which are not readily apparent from other sources. The primary estimates
underlying the Company's consolidated financial statements include goodwill,
deferred taxes, accruals for pension and postretirement benefits, self insurance
and other matters. Actual results could differ from these estimates. Management
bases its estimates on historical experience and on various assumptions that are
believed to be reasonable under the circumstances.
Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income," and No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The former standard is effective for the
Company's fiscal 1999 financial statements while the latter will be adopted in
fiscal 1998. The effect of adopting these standards is not expected to be
material to the Company's financial position or results of operations; however,
they both will require additional disclosure.
13
<PAGE> 14
Changes in Presentation
Certain prior year amounts have been reclassified to conform to the current year
presentation.
3. PURCHASES
On September 26, 1997, the Company purchased theatre operations in Mexico and
Argentina for a cash purchase price of $36.3 million. One hundred percent of the
Argentine common stock and fifty percent of the Mexican common stock were
purchased pursuant to this transaction. The purchase price has been allocated to
assets acquired (primarily fixed assets) and liabilities assumed based on their
fair market value at the date of acquisition and in accordance with the purchase
method of accounting. The excess of purchase over net assets acquired
("goodwill") will be amortized by the Company over a 10-year period. Goodwill
and the equity investment in the Mexican entity are included in other assets.
Pro-forma results of operations have not been presented as they are not material
to the consolidated financial statements.
4. PORTFOLIO INVESTMENTS
Included in portfolio investments at October 31 were the following investments
in other companies. All are accounted for under the cost method at October 31,
1997 except for the investment in the financial guaranty insurer, which is
accounted for under the equity method:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Financial guaranty insurer $30,000 $ --
International telecommunications service provider 25,195 20,195
Optical and photo service retailer 11,515 --
Optical superstore retailer -- 16,624
German cable television systems operator 13,368 13,368
Wireless location and two-way messaging company 7,000 --
Children's apparel retailer -- --
---------------------
Total $87,078 $50,187
=====================
</TABLE>
On December 6, 1996, the Company invested $7.0 million in a wireless location
and two-way messaging company.
On September 24, 1997, GCC invested $30.0 million in a newly-formed financial
guaranty insurance company. This company received a claims-paying ability rating
of "A" from three national credit rating agencies. The results of operations for
the period since the date of investment through October 31, 1997 are not
material to the consolidated financial statements.
On August 14, 1997, the Company invested an additional $5.0 million in the
international telecommunications service provider, bringing the total invested
in that company to $25.2 million.
On October 16, 1997, GCC received 193,715 shares of GrandOptical-PhotoService
(GPS) common stock, a publicly traded optical and photo service retailer listed
on the Paris stock exchange, in exchange for its shares in the optical
superstore retailer, pursuant to a September 1, 1997 merger agreement. Of the
GPS shares received, 92,220 shares were sold on October 21, 1997 for
approximately $15.8 million, and 101,495 shares are restricted from sale for
periods ranging from six months to two years. The GPS shares held on October 31,
1997 were recorded at approximately $11.5 million. Those shares with a six-month
restriction are considered "available for sale" securities under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Their cost
basis approximated their fair value at year end.
It was not practicable to estimate a fair value for investments in companies
carried on the cost basis due to a lack of quoted market prices.
14
<PAGE> 15
Gains or losses recognized on these investments and others that were
previously held are discussed in Note 15.
5. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at October 31:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Rent and related charges $12,541 $11,035
Payroll and related benefits 7,614 5,827
Self insurance 13,710 14,198
Deferred income 18,971 15,668
Other 26,327 15,700
---------------------
$79,163 $62,428
=====================
</TABLE>
6. LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at October 31:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred lease obligations $20,412 $18,651
Postretirement health care benefits (see Note 12) 6,222 6,270
Other 5,278 4,108
---------------------
$31,912 $29,029
=====================
</TABLE>
The present value of the future minimum lease payments due under capital lease
obligations are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended October 31, Capital Leases
- ---------------------------------------------------------------------------
<S> <C>
1998 $ 566
1999 533
2000 588
2001 619
2002 406
Thereafter 108
------
$2,820
======
</TABLE>
The net book value of property under capital leases was $1.2 million at October
31, 1997 and $1.7 million at October 31, 1996.
7. RELATED-PARTY TRANSACTIONS
GCC was previously a 100%-owned subsidiary of Harcourt General, Inc. (Harcourt
General). Certain shareholders also function as officers of both companies and
have significant interests in both companies.
As a result of the 1993 spin-off of GCC, certain leases were transferred from
Harcourt General to GCC. Under a Reimbursement and Security Agreement that was
entered into at the time of the
15
<PAGE> 16
spin-off, GCC has agreed to indemnify Harcourt General from losses Harcourt
General could incur due to its secondary liability on theatre leases that were
transferred to GCC as part of the spin-off. In order to secure its obligations
under the Reimbursement and Security Agreement, GCC pledged all of the stock of
its theatre subsidiaries to Harcourt General. In addition, GCC has agreed to
certain financial covenants for the benefit of Harcourt General.
Under an Intercompany Services Agreement entered into at the time of the
spin-off, Harcourt General provided certain management, accounting, financial,
legal, tax and other corporate services to GCC. The fees for these services,
which totaled $0.5 million in 1997, $1.1 million in 1996 and $3.1 million in
1995, were based on Harcourt General's costs. The Intercompany Services
Agreement provides for the services of Harcourt General's Chairman and Chief
Executive Officer to serve as the Chairman and Chief Executive Officer of the
Company, and one of Harcourt General's Presidents and Co-Chief Operating
Officers to serve as President and Chief Operating Officer of GCC, and such
additional corporate services as GCC and Harcourt General may mutually determine
from time to time. The fees payable to Harcourt General under the Intercompany
Services Agreement have been, and will continue to be, subject to the approval
of a committee of independent directors of GCC who are not affiliated with
Harcourt General.
8. REVOLVING CREDIT AGREEMENT
The Company has a revolving credit agreement with two banks pursuant to which
the Company may borrow up to $50.0 million. The rate of interest payable varies
according to one of two options selected by the Company. The Company is required
to pay a facility fee on the total amount of the revolving credit facility and a
commitment fee on the unused portion of the facility. This agreement expires in
June 1998, and the Company is currently negotiating a new multi-year agreement.
This agreement contains provisions requiring, among other restrictions, the
maintenance of a minimum net worth, restrictions on the payment of dividends and
limitations on the issuance of additional debt. There have not been any
borrowings under this agreement in any of the last three years.
9. SHAREHOLDERS' EQUITY
Common Stock
Common Stock is entitled to dividends if declared by the Board of Directors, and
each share carries one vote. Holders of Common Stock have no cumulative voting,
redemption or preemptive rights.
Common Stock Incentive Plan
The Company has a Common Stock incentive plan that provides for the granting of
stock options, stock appreciation rights, restricted stock or other stock-based
awards. Options outstanding at October 31, 1997, were granted at prices not less
than 100% of the fair market value on the date of original grant. These options
generally vest over five years and have maximum terms of ten years. Options for
69,183 shares, 70,211 shares and 78,659 shares were exercisable under all option
arrangements at October 31, 1997, 1996 and 1995, respectively. Under the
existing stock option plans, there were 484,873 and 515,310 shares available for
future grants at October 31, 1997 and 1996, respectively.
16
<PAGE> 17
The following summarizes transactions under all stock option arrangements for
the years ended October 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Weighted-Average
Number of Shares Per Share Option Price Exercise Price
------------------------------------------------------------
<S> <C> <C> <C>
October 31, 1994 189,574 $13.46 - $51.25 $24.46
Granted 25,350 25.50 22.50
Exercised (50,812) 13.46 - 28.99 18.18
Canceled (19,486) 15.81 - 35.00 30.85
---------------------------------------------------
October 31, 1995 144,626 15.81 - 51.25 25.99
Granted 30,675 33.75 33.75
Exercised (20,130) 15.81 - 35.00 21.14
Canceled (16,951) 15.81 - 35.00 31.90
---------------------------------------------------
October 31, 1996 138,220 15.81 - 51.25 27.69
Granted 38,990 34.62 34.62
Exercised (22,396) 15.81 - 35.00 21.25
Canceled (8,533) 22.34 - 35.00 31.99
---------------------------------------------------
October 31, 1997 146,281 $15.81 -$51.25 $30.28
===================================================
</TABLE>
The following summarizes information about all stock options outstanding at
October 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------------------
Weighted-Average
------------------------------
Number Remaining Number
Outstanding at Contractual Exercisable at Weighted-Average
Range of Exercise Prices 10/31/97 Life (years) Exercise Price 10/31/97 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$15.01- $20.00 12,252 3.9 $15.85 12,252 $15.85
20.01- 25.00 22,032 1.7 22.70 22,032 22.70
25.01- 30.00 27,095 6.3 26.91 15,051 27.52
30.01- 35.00 76,902 8.1 34.44 15,848 34.62
35.01- 51.25 8,000 6.2 44.17 4,000 39.43
------- ------
Total 146,281 69,183
------- ------
</TABLE>
Had compensation cost for stock option grants issued during 1997 and 1996 been
determined under the provisions of SFAS No. 123, the Company's net earnings and
EPS would have been $14.6 million and $1.88, respectively, in 1997, and $17.2
million and $2.18, respectively, in 1996. The pro-forma effect on net earnings
and EPS for 1997 and 1996 is not representative of the pro-forma effect on net
income in future years, because it does not take into consideration pro-forma
compensation expense related to grants made prior to 1995.
The fair value of each stock option granted in 1997 and 1996 under the
Company's plans was estimated on the date of grant using the Black-Scholes
option-pricing model. The following weighted-average assumptions were used to
value grants issued under the plans in 1997 and 1996, respectively: expected
volatility of 18.2% and 19.1%; risk-free interest rates of 5.75% each year;
expected life of seven years each; and no dividend payments. The
weighted-average fair values per share of stock options granted during 1997 and
1996 were $12.98 and $12.84, respectively.
17
<PAGE> 18
10. RETIREMENT PLANS
GCC has a non-contributory defined benefit pension plan covering substantially
all full-time employees. GCC also sponsors an unfunded supplemental executive
retirement plan, which provides certain employees additional pension benefits.
Benefits under the plans are based on years of service and compensation prior to
retirement. When funding is required for the defined benefit plans, the policy
is to contribute amounts that are deductible for federal income tax purposes.
Pension plan assets consist primarily of equity and fixed income securities.
Net pension income included the following components:
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 451 $ 426 $ 595
Interest cost on projected benefit obligation 1,191 1,104 1,388
Actual return on plan assets (5,179) (3,952) (1,826)
Net amortization and deferral 2,524 1,423 (275)
-------------------------------------
Net pension income $(1,013) $ (999) $ (118)
=====================================
</TABLE>
The significant actuarial assumptions as of the year-end measurement dates were
as follows:
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------
1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5%
Rate of compensation increases 5.0% 5.0% 5.0%
Rate of return on plan assets 9.0% 9.0% 9.0%
</TABLE>
The plans' funded status and amounts recognized in the consolidated balance
sheets at October 31, were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------
Funded Unfunded Funded Unfunded
(In thousands) Plan Plan Plan Plan
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation $10,614 $ 1,268 $10,864 $ 1,133
===================================================
Accumulated benefit obligation $11,393 $ 1,492 $11,532 $ 1,300
===================================================
Projected benefit obligation $14,472 $ 1,825 $14,328 $ 1,572
Pension plan assets at fair value 27,639 - 25,431 -
---------------------------------------------------
Overfunded (unfunded) projected obligations 13,167 (1,825) 11,103 (1,572)
Unrecognized net asset at transition (861) - (1,412) -
Unrecognized net (gain) loss (8,010) 305 (7,333) 235
---------------------------------------------------
Pension asset (liability) recognized in
the consolidated balance sheets $ 4,296 $(1,520) $ 2,358 $(1,337)
====================================================
</TABLE>
During the year ended October 31, 1997, GCC offered a special early retirement
package to employees over age 55. As a result, the Company incurred additional
pension costs of $1.1 million. These costs were offset by a $1.7 million
settlement gain, which was computed using the provisions of SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits."
18
<PAGE> 19
In addition to the defined benefit plans, GCC has two defined contribution
plans for certain employees. The GCC Savings Plan permits employee contributions
and provides for certain matching contributions by the Company. Contributions in
fiscal years 1997, 1996 and 1995 were $431,218, $492,621 and $451,932,
respectively. The GCC Employee Stock Ownership Plan (ESOP) is non-contributory.
11. COMMITMENTS AND CONTINGENCIES
Leases
GCC conducts a significant part of its operations in leased premises under
noncancelable leases, the majority with terms of 20 years. These leases
generally provide for the payment of fixed monthly rentals, contingent rentals
based on a percentage of revenue over a specified amount and the payment of
property taxes, common area maintenance, insurance and repairs. At its option,
GCC can renew a substantial portion of such leases for various periods up to 20
years. Certain of GCC's leases require periodic increased rentals. The rental
costs on these leases have been recognized on a straight-line basis and are
included in deferred lease obligations. On theatre locations assigned to third
parties, GCC is secondarily liable for certain lease commitments that extend
through 2017 and totaled approximately $73.2 million at October 31, 1997.
Assuming renewal options are not exercised, the future minimum payments under
noncancelable operating leases as of October 31, 1997 were as follows:
<TABLE>
<CAPTION>
(In thousands) Operating Leases
- ---------------------------------------------------------------------------
<S> <C>
1998 $ 58,876
1999 58,397
2000 57,700
2001 57,272
2002 55,893
Thereafter 366,651
--------
$654,789
========
</TABLE>
Rent expense under noncancelable leases was as follows:
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $62,710 $57,683 $57,218
Percentage rentals based on revenues 3,750 3,913 4,744
------------------------------------
$66,460 $61,596 $61,962
====================================
</TABLE>
The Company has an agreement with a major financial institution to provide
operating leases for up to $250 million of assets for its theatre circuit
expansion program. This agreement expires in November 2001. The Company
currently has entered into $34.5 million of operating leases with this financial
institution. At October 31, 1997 and 1996, current assets included a receivable
due from this institution related to advances provided by the Company as the
lessor's agent on certain projects of $3.8 million and $17.6 million,
respectively.
Litigation
GCC is involved in various suits and claims in the ordinary course of business.
Management does not believe that the disposition of such suits and claims will
have a material adverse effect upon the consolidated financial position or
continuing operations of the Company.
19
<PAGE> 20
12. POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits for retired employees that are funded
as claims are incurred. Retirees and active employees hired prior to March 1,
1989 are eligible for these benefits if they meet certain service and minimum
age requirements. The Company paid $208,000, $233,000 and $251,000 during fiscal
1997, 1996 and 1995, respectively, for postretirement health care benefit
claims.
The actuarial present value of accumulated postretirement benefit obligations
and the amounts recognized in GCC's consolidated balance sheets as of October 31
were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retirees $3,063 $3,014
Fully eligible active plan participants 468 525
Other active plan participants 638 653
Unrecognized net gain 2,053 2,078
---------------------
Accrued postretirement benefit obligation $6,222 $6,270
=====================
</TABLE>
The postretirement benefit cost relating to GCC's employees was as follows:
<TABLE>
<CAPTION>
Years ended October 31,
----------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 30 $ 34 $ 51
Interest cost on accumulated postretirement
benefit obligation 298 299 367
Net amortization (168) (171) (130)
---------------------------------
Net postretirement benefit cost $160 $162 $288
=================================
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 14.0% in fiscal 1996 and 13.0% in fiscal
1997, gradually declining to 5.0% in fiscal 2005. Measurement of the accumulated
postretirement benefit obligation was based on an assumed 7.5% discount rate in
each of the last three years.
If the health care cost trend rate assumptions were increased by 1.0%, the
accumulated postretirement obligation as of October 31, 1997 would be increased
by $449,000. The effect of this change on the service cost and interest cost
would be an aggregate increase of $36,000.
13. DISPOSITION OR IMPAIRMENT OF THEATRE ASSETS
On August 14, 1997, the Company sold seven theatres it operated in Oklahoma for
$15.8 million, realizing a gain of $10.3 million. This is included in the gain
(loss) on disposition or impairment of theatre assets in the consolidated
statements of earnings.
In the fourth quarter of 1997, significant industry developments caused the
Company to undertake a reassessment of the value of a number of its theatre
locations. Over the last three to six months, there has been an increase in
competition in certain markets as a result of the opening of megaplexes by
competitors. These locations have tended to, and are projected to, continue to
draw audiences away from certain older multiplex theatre locations that the
Company owns.
20
<PAGE> 21
As a result of this review, the Company evaluated its theatre assets for
impairment in accordance with its stated accounting policy. The expected future
cash flows of certain theatres were less than the carrying value of the theatre
assets. Accordingly, these assets were revalued based on the present value of
estimated expected future cash flows. This led to a non-cash impairment loss of
approximately $7.4 million being recorded. This is included in the gain (loss)
on disposition or impairment of theatre assets in the consolidated statements of
earnings.
14. INCOME TAXES
Income tax expense was as follows:
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $14,875 $10,379 $ 6,108
State 2,199 2,795 1,821
------------------------------------
17,074 13,174 7,929
Deferred
Federal (6,933) (1,017) (1,383)
State 116 (175) (497)
------------------------------------
(6,817) (1,192) (1,880)
------------------------------------
$10,257 $11,982 $ 6,049
====================================
</TABLE>
GCC's effective income tax rate was 41.0% in 1997, 1996 and 1995. The
differences between the statutory federal tax rate and the effective tax rate
are due primarily to state income taxes. The Company paid approximately $13.7
million, $11.3 million and $9.0 million in income taxes during the years ended
October 31, 1997, 1996 and 1995, respectively.
Significant components of the Company's net deferred income tax liability
stated on a gross basis at October 31, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------
Gross deferred income tax assets
<S> <C> <C>
Financial accruals and reserves $ 8,824 $ 2,504
Postretirement health care benefits 2,616 2,631
Self insurance accruals 1,428 2,004
-----------------------
Total deferred tax assets 12,868 7,139
Gross deferred income tax liabilities
Valuation of assets 16,070 17,158
-----------------------
Net deferred tax liability $ 3,202 $10,019
=======================
</TABLE>
15. NET INVESTMENT INCOME (LOSS)
As mentioned in Note 4, on October 16, 1997 GCC received 193,715 shares of GPS
common stock in exchange for its shares in the optical superstore retailer. As a
result of the exchange, GCC recorded a $9.0 million pre-tax gain in its fourth
quarter of fiscal 1997. During the fourth quarter of fiscal 1997, the Company
recognized a $0.6 million pre-tax gain resulting from the release of escrow
related to the sale of its radio group investment in 1996.
21
<PAGE> 22
In October 1996, GCC realized a $9.5 million net pre-tax gain upon the
liquidation of its investment in a radio group that operated radio stations in
the San Francisco, Las Vegas and Albuquerque markets. GCC received aggregate
proceeds of $22.8 million relating to these sales transactions.
In April 1996, the Company recorded a $2.5 million pre-tax charge to write
off its remaining investment in a children's clothing retailer as a result of
that company's continued cash flow problems and operating losses. Loss from
minority investments in 1996 also included a $0.6 million pre-tax charge
recorded in the first quarter, representing the Company's share of losses
incurred by its radio group investment, when such investment was accounted for
under the equity method.
Net loss from portfolio investments in 1995 consisted of a fourth-quarter
$5.0 million write-down of the investment in a children's clothing retailer and
a first-quarter $2.9 million write-off of the remaining investment in a food
service company, reduced by dividend income of approximately $1.3 million from
the Company's eyeglass retailer portfolio investment.
Investment income (loss) consisted of the following:
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 3,418 $ 2,593 $ 2,894
Dividend income 877 1,207 1,413
Gain on sale of portfolio investments 9,585 9,452 -
Loss from portfolio investments - (3,145) (6,623)
------------------------------------
Net investment income (loss) $13,880 $10,107 $(2,316)
====================================
</TABLE>
Net investment income (loss) includes certain deal-related incentive
compensation paid or payable to selected investment group employees. This
compensation calculation is determined according to a plan adopted in 1997 and
factors in a variety of financial measurements. The amounts are paid in either
cash or restricted shares, which vest over a period of time.
16. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997
First Second Third Fourth Full
(In thousands except for per share amounts) Quarter Quarter Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $126,234 $108,761 $123,139 $89,018 $447,152
Gross profit 19,997 16,262 17,678 5,226 59,163
Net earnings 5,590 1,579 3,859 3,731 14,759
Net earnings
per common share $ 0.71 $ 0.20 $ 0.50 $ 0.48 $ 1.90
===================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
First Second Third Fourth Full
(In thousands except for per share amounts) Quarter Quarter Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $126,482 $ 95,567 $137,301 $86,653 $446,003
Gross profit 21,363 11,736 25,676 7,681 66,456
Net earnings (loss) 5,668 (1,392) 8,428 4,538 17,242
Net earnings (loss)
per common share $ 0.72 $ (0.18) $ 1.07 $ 0.58 $ 2.20
===================================================================
</TABLE>
22
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
GC Companies, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated balance sheets of GC Companies, Inc. and
subsidiaries ("the Company") as of October 31, 1997 and 1996 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended October 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of GC Companies, Inc. as of October
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended October 31, 1997 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
December 9, 1997
23
<PAGE> 24
DIRECTORS AND OFFICERS
Directors Corporate Officers
Richard A. Smith Richard A. Smith
Chairman and Chairman and
Chief Executive Officer; Chief Executive Officer
Chairman and Chief Executive Officer of
Harcourt General, Inc. and Robert A. Smith
The Neiman Marcus Group, Inc. President and
Chief Operating Officer
William L. Brown *
Former Chairman Paul R. Del Rossi
Bank of Boston Corporation Chairman
General Cinema Theatres, Inc.
Peter C. Read *
Former Executive Vice President William B. Doeren
Bank of Boston Corporation President and
Chief Executive Officer
Francis E. Sutherby * General Cinema Theatres, Inc.
Former Partner
Deloitte & Touche LLP John G. Berylson
Senior Vice President and
Dr. Leonard A. Schlesinger* Chief Investment Officer
George Fisher Baker, Jr.
Professor of Business Administration G. Gail Edwards
Harvard University Business School Vice President,
Chief Financial Officer
and Treasurer
Philip J. Szabla
Vice President, General Counsel
and Secretary
*Audit Committee
Compensation Committee
Special Review Committee
24
<PAGE> 1
GC COMPANIES, INC.
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
<S> <C>
GC COMPANIES, INC. GENERAL CINEMA THEATRES, INC.
G.C. Theatre Corp. of California
GENERAL CINEMA INTERNATIONAL, INC. GCT Management, Inc.
General Cinema de Argentina, S.A. General Cinema Corp. of New York, Inc.
General Cinema, S.A. de C.V. General Cinema Corp. of North Carolina
Operdora de Cinemas, S.A. de C.V. General Cinema Corp. of Oklahoma, Inc.
Servicios Cinematograficos Especializados, General Cinema Corp. of Pennsylvania
S.A. de C.V. General Cinema Corp. of Georgia
General Cinema Corp. of Indiana
GCC INVESTMENTS, INC. General Cinema Corp. of Louisiana
Chestnut Hill Clothes, Inc. General Cinema Corp. of Maryland, Inc.
Chestnut Hill Foods, Inc. General Cinema Corp. of Massachusetts
Chestnut Hill Media, Inc. General Cinema Corp. of Michigan
Chestnut Hill Re, Inc. General Cinema Corp. of Minnesota, Inc.
Chestnut Hill Telecommunications, Inc. General Cinema Corp. of New York, Inc.
Chestnut Hill Vision, Inc. General Cinema Corp. of North Carolina
Chestnut Hill Wireless, Inc. General Cinema Corp. of Oklahoma, Inc.
GCC Radio, Inc. General Cinema Corp. of Parkway Pointe
General Cinema Corp. of Pennsylvania
General Cinema Corp. of Rhode Island
General Cinema Corp. of South Carolina
General Cinema Corp. of Tennessee
GC Security Corp. General Cinema Corp. of Texas
General Cinema Corp. of Virginia
General Cinema Corp. of Washington
General Cinema of Arizona, Inc.
General Cinema of Framingham, Inc.
General Cinema of New Mexico, Inc.
General Cinema Theatre of Columbia, Inc.
General Cinema Theatres of Delaware, Inc.
General Cinema Theatres of Florida, Inc.
General Cinema Theatres of Illinois, Inc.
General Cinema Theatres of New Jersey, Inc.
General Cinema Theatres of Ohio, Inc.
General Cinema Tickets, Inc.
General Cinema Specialty Film, Inc.
Sundance Cinema Circuit, LLC
Premium Theatre of Framingham, Inc.
Cinema Ad-Ventures, Inc.
Global Cinema Network, Inc.
Joliet Cinema, Inc.
Knights Holding Corp.
Knights Realty Corp.
Knights Theatre Corp.
Louis Joliet Cinema, Inc.
</TABLE>
<PAGE> 1
GC COMPANIES, INC.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-76196 of GC Companies, Inc. on Form S-8 of our report dated December 9, 1997,
appearing in and incorporated by reference in this Annual Report on Form 10-K of
GC Companies, Inc. for the year ended October 31, 1997.
Deloitte & Touche LLP
Boston, Massachusetts
January 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Earnings and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 30,038
<SECURITIES> 20,014
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 62,406
<PP&E> 326,018
<DEPRECIATION> 171,442
<TOTAL-ASSETS> 339,600
<CURRENT-LIABILITIES> 112,531
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 186,643
<TOTAL-LIABILITY-AND-EQUITY> 339,600
<SALES> 447,152
<TOTAL-REVENUES> 447,152
<CGS> 181,200
<TOTAL-COSTS> 438,896
<OTHER-EXPENSES> (17,346)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 586
<INCOME-PRETAX> 25,016
<INCOME-TAX> 10,257
<INCOME-CONTINUING> 14,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,759
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.90
</TABLE>
