<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended January 31, 1998
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Commission File Number 1-12360
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GC COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3200876
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02167
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(Address of principal executive offices) (Zip Code)
(617)278-5600
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(Registrant's telephone number, including area code)
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
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As of March 12, 1998, there were outstanding 7,709,644 shares of the issuer's
common stock, $.01 par value.
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GC COMPANIES, INC.
I N D E X
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page Number
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<S> <C>
Item 1. Condensed Consolidated Balance Sheets as of
January 31, 1998 and October 31, 1997 1
Condensed Consolidated Statements of Earnings for
the Three Months Ended January 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended January 31, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 27.1 11
</TABLE>
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 54,893 $ 30,038
Short-term investments 5,198 20,014
Receivable from financial institution 3,647 3,754
Other current assets 11,351 5,619
Deferred income taxes 2,981 2,981
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Total current assets 78,070 62,406
Property and equipment, net 157,538 154,576
Portfolio investments 86,340 87,078
Other assets 37,006 35,540
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Total assets $ 358,954 $ 339,600
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 683 $ 697
Trade payables 47,250 32,671
Other current liabilities 80,801 79,163
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Total current liabilities 128,734 112,531
Long-term liabilities:
Capital lease obligations 2,121 2,254
Other long-term liabilities 31,842 31,912
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Total long-term liabilities 33,963 34,166
Deferred income taxes 6,183 6,183
Shareholders' equity:
Common stock 77 77
Additional paid-in capital 136,895 136,646
Retained earnings 53,102 49,997
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Total shareholders' equity 190,074 186,720
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Total liabilities and shareholders' equity $ 358,954 $ 339,600
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except for per share amounts)
<TABLE>
<CAPTION>
For the three months
ended January 31,
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1998 1997
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<S> <C> <C>
Revenues:
Admissions $ 82,220 $ 85,269
Concessions 36,974 36,568
Other 3,616 3,869
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122,810 125,706
Costs of theatre operations:
Film rentals 44,015 46,444
Concessions 6,621 6,029
Theatre operations and administrative expenses 59,932 59,251
Depreciation and amortization 5,046 4,625
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115,614 116,349
Loss (gain) on disposition of theatre assets 188 (393)
Corporate expenses 1,272 1,159
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Operating earnings 5,736 8,591
Investment (loss) income, net (314) 1,026
Interest expense (117) (134)
Loss on disposition of non-operating assets (130) (8)
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Earnings before income taxes 5,175 9,475
Income tax expense (2,070) (3,885)
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Net earnings $ 3,105 $ 5,590
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Earnings per share
Basic $ 0.40 $ 0.72
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Diluted $ 0.40 $ 0.71
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Weighted average shares outstanding
Basic 7,709 7,793
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Diluted 7,756 7,825
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the three months
ended January 31,
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,105 $ 5,590
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Loss (gain) on disposition of theatre assets 318 (385)
Loss from equity-method minority investments 855 -
Depreciation and amortization 5,046 4,625
Other non-cash activities (22) 32
Changes in current assets and liabilities:
Other current assets (5,625) 11,085
Trade payables 14,579 13,552
Other current liabilities 1,638 3,631
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Net cash provided by operating activities 19,894 38,130
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Cash flows from investing activities:
Capital expenditures (13,037) (2,474)
Proceeds from the disposition of assets 5,073 765
Proceeds from the (purchase of) or liquidation of
short-term investments 14,816 (34,234)
Purchase of investments - (7,000)
Other investing activities (1,969) (168)
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Net cash provided (used) by investing activities 4,883 (43,111)
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Cash flows from financing activities:
Repurchase of common stock - (4,040)
Other financing activities 78 70
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Net cash provided (used) by financing activities 78 (3,970)
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Net change in cash and cash equivalents 24,855 (8,951)
Cash and cash equivalents at beginning of period 30,038 71,745
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Cash and cash equivalents at end of period $54,893 $62,794
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of GC Companies, Inc.
(GCC or the Company) are submitted in response to the requirements of
Form 10-Q and should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form
10-K. In the opinion of management, these financial statements contain
all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the results for the interim periods presented.
Certain prior year amounts have been reclassified to conform to the
current year presentation. The Company's business is seasonal in nature,
and historically the results of operations for these periods have not
been indicative of the results for the full year.
2. PORTFOLIO INVESTMENTS
Included in portfolio investments at January 31, 1998 were a
$29.3 million investment in a financial guaranty insurer, a $25.2 million
investment in an international telecommunications service provider, an
$11.5 million investment in an optical and photo service provider, a
$13.3 million investment in a German cable television systems operator,
and a $7.0 million investment in a wireless location and two-way
messaging company. All investments, with the exception of the investments
in the financial guaranty insurer and the optical and photo service
provider, are carried at cost less impairment, if any. The Company
accounts for its investment in the financial guaranty insurer on the
equity basis. The optical investment is accounted for based on the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". A
portion of the shares held by the Company in the optical and photo
service provider are restricted from sale for a period of up to
21 months.
3. STOCK REPURCHASE
In December 1997, the Company's Board of Directors authorized the renewal
of the Company's program to purchase up to one million shares of its
common stock in the open market over the next twelve months. No shares
were repurchased during the quarter ended January 31, 1998.
4. SUBSEQUENT EVENTS
On February 5, 1998, GC Companies' international telecommunications
portfolio company, Global TeleSystems Group, Inc. ("GTS"), successfully
completed an initial public offering of its common stock. The Company's
1.8 million shares in GTS are restricted from sale until August 1998. GTS
stock is currently traded on NASDAQ under the symbol, "GTSG."
On February 9, 1998, GC Companies invested $11.0 million in a leading
provider of fleet management information services. This investment will
be accounted for under the equity method. Through its proprietary systems
and network, the company currently provides services to commercial
vehicle operators throughout the United States.
5. EARNINGS PER SHARE
In the first quarter of 1998, the Company adopted SFAS No. 128 "Earnings
per Share". The following table reconciles the numerators and
denominators in the earnings per share calculations. Prior period figures
have been restated under the new standard.
4
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GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EARNINGS PER SHARE (continued)
<TABLE>
<CAPTION>
For the quarters ended
January 31, 1998 and 1997
Earnings Shares Per Share Amount
(Numerator) (Denominator)
1/31/98 1/31/97 1/31/98 1/31/97 1/31/98 1/31/97
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<S> <C> <C> <C> <C> <C> <C>
Net Earnings $3,105 $5,590 - - - -
Basic EPS
Earnings per share $3,105 $5,590 7,709 7,793 $.40 $.72
==== ====
Effect of dilutive securities
Options - - 47 32
- - -- --
Diluted EPS
Earnings per share $3,105 $5,590 7,756 7,825 $.40 $.71
====== ====== ===== ===== ==== ====
</TABLE>
5
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GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998 VERSUS THREE MONTHS ENDED JANUARY 31, 1997
THEATRE REVENUES - Total revenues decreased 2.3% to $122.8 million in 1998 from
$125.7 million in 1997. Lower domestic revenues of $4.6 million were primarily
attributable to a 7.6% decrease in patronage partially offset by an 8.6%
increase in concession sales per patron and a 2.6% increase in average ticket
price. The decrease in patronage was mainly attributable to a reduction in the
number of screens, primarily as a result of dispositions of theatres in the
fourth quarter of 1997. The growth in concession sales per patron was
principally due to the continued roll out of new products, increased consumption
and limited price increases. Lower domestic revenues were partially offset by
revenues from certain of our international theatres acquired in September 1997.
COSTS OF THEATRE OPERATIONS - Costs of theatre operations, including theatre
general and administrative expenses, decreased slightly for the three months
ended January 31, 1998 to $115.6 million from $116.3 million in the same 1997
period. As a percentage of revenues, costs of theatre operations were 94.1% for
the 1998 quarter compared to 92.6% for the 1997 quarter. The cost of domestic
theatre operations decreased $3.3 million as a result of lower film cost and
fewer screens. The Company operated 1,148 screens at 175 domestic locations at
January 31, 1998 compared to 1,181 screens at 189 locations at January 31, 1997.
The cost reductions at our domestic theatres were partially offset by operating
costs from certain of our international theatres acquired in September 1997.
INVESTMENT INCOME (LOSS), NET - The Company recorded a net investment loss of
$0.3 million in the first quarter of 1998 compared to net investment income of
$1.0 million in the same 1997 period. Net investment loss for the three months
ended January 31, 1998 included $0.5 million of dividend and interest income
partially offset by a $0.8 million pretax charge to record the Company's equity
method share of losses incurred by its portfolio investment in a financial
guaranty insurer and its investment in a Mexican theatre entity. During the
first three months of 1997, the Company recorded $1.0 million of dividend and
interest income from its short-term investment portfolio. The decline in
dividend and interest income was due to a lower portfolio balance in the first
quarter of 1998.
INCOME TAX EXPENSE - The Company's effective tax rate is expected to be 40.0% in
fiscal 1998. The Company's effective tax rate in fiscal 1997 was 41.0%. The
lower effective tax rate occurred primarily because of lower projected state
taxes.
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.
DOMESTIC THEATRES
Over the past quarter, General Cinema Theatres, Inc. ("GCT") opened a 16-screen
theatre in Redondo Beach, California, and a 14-screen theatre in Philadelphia,
Pennsylvania, which replaced three older units having a total of 13 screens. In
addition, GCT opened a new 14-screen theatre in Columbia, South Carolina, and
6
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GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
added four screens to an existing location in Massachusetts to bring that
theatre to a total of 12 screens. As of January 31, 1998, GCT operated 1,148
screens at 175 locations in 24 states compared to 1,113 screens in 175 locations
as of October 31, 1997. GCT plans to build or add an additional 57 screens by
the end of fiscal 1998.
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 for its theatre expansion
program. This agreement expires in November 2001. 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.
For the three months ended January 31, 1998, GCT made expenditures of
$7.3 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 $23.0 million during fiscal 1998.
As previously announced, GCC 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.
FOREIGN THEATRES
During the first quarter, General Cinema International, Inc. (GCI) opened a
9-screen theatre in Mexico and a 12-screen theatre in Argentina. As of
January 31, 1998, GCI operated 74 screens at seven locations in Mexico and
Argentina compared to 53 screens in five locations as of October 31, 1997. GCI
plans to build or add an additional 30 screens in Latin America by the end of
fiscal 1998. As a result of this international theatre expansion program,
capital expenditures during the three months ended January 31, 1998 amounted to
$5.7 million. In addition, GCC advanced an additional $1.1 million to its equity
investment in Mexico. International capital expenditures and advances are
expected to approximate $29.6 million during fiscal 1998.
PORTFOLIO ACTIVITIES
The Company received proceeds of $14.8 million from the liquidation of certain
short-term investments during the three month period ended January 31, 1998.
Following the close of the first quarter, on February 9, 1998, GC Companies
invested $11.0 million in a leading provider of fleet management information
services. Through its proprietary systems and network, the company currently
provides services to commercial vehicle operators throughout the United States.
The Company believes that cash generated from operations, cash and short-term
investments on hand of $60.1 million, the $50 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.
7
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GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
OTHER
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 $62.6 million in 1998.
In December 1997, the Company's Board of Directors authorized the renewal of the
Company's program to repurchase up to one million shares of the Company's common
stock over the next twelve months. No shares were repurchased during the quarter
ended January 31, 1998.
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
either modifying existing software or 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted SFAS No. 128, "Earnings per
Share". Prior period amounts have been restated under the new standard. The
Financial Accounting Standards Board recently issued SFAS No. 130, "Reporting
Comprehensive Income", No. 131, "Disclosures about Segments of an Enterprise and
Related Information", and No. 132, "Employees' Disclosures about Pensions and
Other Post-Retirement Benefits." SFAS No. 130 and 132 are effective for
the Company's fiscal 1999 financial statements while SFAS No. 131 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 all 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 and in the Company's
Annual Report included in its Form 10-K.
8
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PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBIT.
27.1 Financial data schedule.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended January 31, 1998.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GC COMPANIES, INC.
Date: March 13, 1998 /s/ Richard A. Smith
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Richard A. Smith
Chairman of the Board of
Directors and Chief Executive
Officer
Date: March 13, 1998 /s/ G. Gail Edwards
-------------------------------
G. Gail Edwards
Vice President, Chief Financial
Officer and Treasurer
Principal Accounting Officer
10
<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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 54,893
<SECURITIES> 5,198
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,070
<PP&E> 332,313
<DEPRECIATION> 174,775
<TOTAL-ASSETS> 358,954
<CURRENT-LIABILITIES> 128,734
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 189,997
<TOTAL-LIABILITY-AND-EQUITY> 358,954
<SALES> 122,810
<TOTAL-REVENUES> 122,810
<CGS> 50,636
<TOTAL-COSTS> 117,074
<OTHER-EXPENSES> 444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 5,175
<INCOME-TAX> 2,070
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,105
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
