<PAGE> 1
UNITED STATES
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 July 31, 1998
----------------------------------------------------------
Commission File Number 1-12360
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GC COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3200876
- ---------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 BOYLSTON STREET, CHESTNUT HILL, MA 02467
- ---------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 278-5600
- --------------------------------------------------------------------------------
(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
----- -----
As of September 10, 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
Part I. FINANCIAL INFORMATION PAGE NUMBER
--------------------- -----------
Item 1. Condensed Consolidated Balance Sheets as of
July 31, 1998 and October 31, 1997 1
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended July 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended July 31, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 10.23
Exhibit 27.1
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
(UNAUDITED)
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 21,632 $ 30,038
Short-term investments ................................. -- 20,014
Marketable equity securities ........................... 102,420 --
Receivable from financial institution .................. 10,008 3,754
Other current assets ................................... 11,288 5,619
Deferred income taxes .................................. -- 2,981
-------- --------
Total current assets ................................. 145,348 62,406
Property and equipment, net .............................. 142,839 154,576
Portfolio investments .................................... 62,137 87,078
Investment in international theatre affiliates ........... 54,088 13,000
Other assets ............................................. 8,187 22,540
-------- --------
Total assets ......................................... $412,599 $339,600
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations .......................................... $ 653 $ 697
Trade payables ......................................... 44,504 32,671
Other current liabilities .............................. 84,520 79,163
Current deferred taxes ................................. 19,805 --
-------- --------
Total current liabilities ............................ 149,482 112,531
Long-term liabilities:
Capital lease obligations .............................. 1,855 2,254
Other long-term liabilities ............................ 32,843 31,912
-------- --------
Total long-term liabilities .......................... 34,698 34,166
Deferred income taxes .................................... 6,183 6,183
Shareholders' equity:
Common stock ........................................... 77 77
Additional paid-in capital ............................. 136,903 136,646
Retained earnings ...................................... 51,076 49,997
Unrealized gain on marketable securities, net of tax ... 34,180 --
-------- --------
Total shareholders' equity ........................... 222,236 186,720
-------- --------
Total liabilities and shareholders' equity ........... $412,599 $339,600
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands,
except for per share amounts)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended July 31, Ended July 31,
--------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Admissions ....................................... $ 213,776 $ 241,145 $ 76,108 $ 82,132
Concessions ...................................... 98,354 106,738 35,484 37,626
Other ............................................ 9,060 8,729 3,041 2,884
--------- --------- --------- ---------
321,190 356,612 114,633 122,642
Costs of theatre operations:
Film rentals ..................................... 110,974 126,958 42,279 45,359
Concessions ...................................... 17,047 18,125 6,502 6,939
Theatre operations and
administrative expenses ........................ 171,717 177,419 56,181 58,825
Depreciation and amortization .................... 14,225 14,301 4,778 5,049
--------- --------- --------- ---------
313,963 336,803 109,740 116,172
Loss (gain) on disposition of
theatre assets ................................... 1,183 (290) (27) 70
Corporate expenses ................................. 4,166 3,150 1,474 847
--------- --------- --------- ---------
Operating earnings ................................. 1,878 16,949 3,446 5,553
Investment income (loss), net ...................... (522) 3,345 106 1,194
Interest expense ................................... (343) (449) (106) (198)
Gain (loss) on disposition of
non-operating assets ............................. 786 (1,152) (80) (8)
--------- --------- --------- ---------
Earnings before income taxes ....................... 1,799 18,693 3,366 6,541
Income tax expense ................................. (720) (7,664) (1,347) (2,682)
--------- --------- --------- ---------
Net earnings ....................................... $ 1,079 $ 11,029 $ 2,019 $ 3,859
========= ========= ========= =========
Earnings per share
Basic ............................................ $ 0.14 $ 1.43 $ 0.26 $ 0.50
========= ========= ========= =========
Diluted .......................................... $ 0.14 $ 1.42 $ 0.26 $ 0.50
========= ========= ========= =========
Weighted average shares
outstanding
Basic ............................................ 7,709 7,735 7,710 7,705
========= ========= ========= =========
Diluted .......................................... 7,760 7,775 7,761 7,754
========= ========= ========= =========
</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>
Nine Months
Ended July 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings .......................................................... $ 1,079 $ 11,029
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Loss on disposition of theatre assets ........................... 397 862
Gain on marketable equity securities
designated as trading ......................................... (10,309) --
Depreciation and amortization ................................... 14,225 14,301
Other non-cash activities ....................................... 2,035 --
Changes in current assets and liabilities:
Other current assets .......................................... (12,179) 8,583
Trade payables ................................................ 11,833 16,174
Other current liabilities ..................................... 5,668 9,597
-------- --------
Net cash provided by operating activities ................................. 12,749 60,546
-------- --------
Cash flows from investing activities:
Capital expenditures .................................................. (14,790) (11,579)
Proceeds from the disposition of theatre assets ....................... 6,097 810
Proceeds from (purchase of) short-term investments .................... 20,014 (28,551)
Purchase of portfolio investments ..................................... (11,042) (7,073)
Incremental investments in international theatre affiliates ........... (19,063) --
Incremental investments in domestic theatre ventures .................. (1,478) --
Other investing activities ............................................ (630) 513
-------- --------
Net cash used by investing activities ..................................... (20,892) (45,880)
-------- --------
Cash flows from financing activities:
Repurchase of common stock ............................................ -- (4,306)
Other financing activities ............................................ (263) 1,553
-------- --------
Net cash used by financing activities ..................................... (263) (2,753)
-------- --------
Net change in cash and cash equivalents ................................... (8,406) 11,913
Cash and cash equivalents at beginning of period .......................... 30,038 71,745
-------- --------
Cash and cash equivalents at end of period ................................ $ 21,632 $ 83,658
======== ========
</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. MARKETABLE EQUITY SECURITIES
Included in marketable equity securities at July 31, 1998, were $93.2
million in publicly traded shares of an international telecommunications
service provider, Global Telesystems Group, Inc. ("GTS"), previously
included in portfolio investments at its original cost of $25.2 million
at October 31, 1997, and $9.3 million in the shares of an optical and
photo service retailer, GrandVision (formerly named GrandOptical
Photoservice), previously included in portfolio investments at its
original cost of $10.0 million at October 31, 1997. See Note 7
Subsequent Event for changes in the market value of GTS subsequent to
July 31, 1998.
On February 5, 1998, GTS successfully completed an initial public
offering of its common stock, and as a result, under Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", the Company reclassified this
investment from portfolio investments to marketable equity securities and
recorded it at its fair value. The GTS shares have been split into two
separate classifications within marketable equity securities: $79.24
million (at current value) have been classified as available-for-sale
securities, and $13.91 million (at current value) have been classified as
trading securities. On the shares classified as available-for sale, a
pre-tax unrealized gain for the nine months ended July 31, 1998 of $57.6
million has been recorded in the balance sheet net of tax, but has not
been reflected in the statement of operations. The shares classified as
trading securities have generated a pre-tax gain for the nine months
ended July 31, 1998 of $10.3 million and a pre-tax gain for the third
quarter of $1.7 million that has been recognized in the statements of
operations within the caption "Investment income (loss), net." The
combined gain on the total GTS shares for the nine months ended July 31,
1998 was $68.0 million. The pre-tax gain on the trading securities has
been offset in the statements of operations by the estimated incentive
compensation on the total $68.0 million gain related to GTS. As described
in Note 15 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K, performance based compensation is
earned by certain employees based on certain investment events. During
the second quarter, the GTS initial public offering gave rise to an
accrual for incentive compensation that may increase or decrease
depending on the share price of GTS at the time of a sale event, as
defined in the GCC Investments, Inc. Incentive Pool Plan (Incentive Pool
Plan). The Company's 1.8 million shares in GTS were restricted from sale
under an underwriter's lock-up agreement until August, 1998, and are
subject to certain other trading restrictions under applicable law.
On April 15, 1998, $5.3 million of GrandVision shares became unrestricted
and a further $4.7 million of GrandVision shares have the current
restrictions lapse within the next twelve months. As a result, $10.0
million of the GrandVision investment was reclassified from portfolio
investments into marketable equity securities (which are classified as
available-for-sale securities within this
4
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GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
category). The remaining $1.6 million of GrandVision shares that continue
to be restricted for a period that exceeds twelve months are included in
the category of portfolio investments. On the GrandVision shares
classified as available-for-sale, a pre-tax unrealized holding loss for
the nine months ended July 31, 1998 of $0.7 million has been recorded on
the Company's balance sheet net of tax, but has not been reflected in the
statements of operations.
3. PORTFOLIO INVESTMENTS
On February 9, 1998, the Company completed the $11.0 million investment,
representing 45.2% of the equity, in a leading provider of fleet
management services. Through its proprietary systems and network, the
company currently provides services to commercial vehicle operators
throughout the United States.
The portfolio investments include the following:
<TABLE>
<CAPTION>
(In thousands) at July 31, 1998 at October 31, 1997
---------------- -------------------
<S> <C> <C>
Global TeleSystems Group, Inc. ............... $ -- $25,195
Financial guaranty insurer ................... 29,200 30,000
German cable television
systems operator ............................. 13,368 13,368
Wireless location and two-way
messaging company ............................ 7,000 7,000
GrandVision (restricted
shares) ...................................... 1,565 11,515
Fleet management services
company ...................................... 11,004 --
------- -------
Total portfolio investments .................. $62,137 $87,078
======= =======
</TABLE>
All investments, with the exception of the investments in the financial
guaranty insurer, the fleet management services company, and GrandVision,
are carried at cost less impairment, if any. The Company accounts for its
investment in the financial guaranty insurer and the fleet management
service provider on the equity basis. A portion of the GrandVision
investment is accounted for based on the provisions of SFAS No. 115,
since these shares are freely tradeable within the next twelve months.
The remaining shares in GrandVision held by the Company, and classified
as long term, are restricted from sale for a period in excess of twelve
months.
4. INTERNATIONAL INVESTMENTS
On July 29, 1998 the Company entered into an agreement to form a 50/50
joint venture with Hoyts Cinema Group creating Hoyts General Cinema
South America, a stand-alone theatre circuit which will pursue theatre
opportunities in South and Central America. The joint venture will be
accounted for by the Company under the equity method. As a result of
this venture, assets and liabilities previously presented individually
on the consolidated balance sheet have been condensed into the caption
"Investments in international theatre affiliates" and previous quarters'
results of operations have been condensed into the caption "Investment
income (loss), net."
5
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GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. 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 nine months ended July 31, 1998.
6. 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.
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
(In thousands except per share data) ---------------------- -----------------------
7/31/98 7/31/97 7/31/98 7/31/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
I. Net earnings(A) $1,079 $11,029 $2,019 $3,859
II. Determination of shares:
Weighted average number of common
shares outstanding (B) 7,709 7,735 7,710 7,705
Shares issuable on exercise of
stock options, net of shares
assumed to be purchased out of
proceeds at market price 51 40 51 49
------ ------ ------ ------
Average common shares outstanding
for diluted computation (C) 7,760 7,775 7,761 7,754
====== ====== ====== ======
III. Earnings per share:
Basic EPS (A/B) $ 0.14 $ 1.43 $ 0.26 $ 0.50
====== ====== ====== ======
Diluted EPS (A/C) $ 0.14 $ 1.42 $ 0.26 $ 0.50
====== ====== ====== ======
</TABLE>
7. SUBSEQUENT EVENT
On September 8, 1998, the market value of the GTS shares was $54.2
million, $39.0 million less than the market value at July 31, 1998.
6
<PAGE> 9
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1998 COMPARED WITH NINE MONTHS ENDED JULY 31, 1997
THEATRE REVENUES - Total revenues decreased 9.9% to $321.2 million in 1998 from
$356.6 million in 1997. Lower revenues of $35.4 million were primarily
attributable to a 13.9% decrease in patronage partially offset by a 7.1%
increase in concession sales per patron and a 3.0% increase in average ticket
price. The decrease in patronage was mainly attributable to competitor impacts
in certain markets and a reduction in screens, primarily the result of the
disposition of theatres in the fourth quarter of 1997. The opening of megaplexes
by the Company's competitors have tended to, and are projected to, draw
audiences away from certain of the Company's older multiplex theatre locations.
The Company operated 1,141 screens at 169 domestic locations at July 31, 1998
compared to 1,168 screens at 185 locations at July 31, 1997. The growth in
concession sales per patron was principally due to the continued roll out of new
products, increased consumption and certain price increases.
COSTS OF THEATRE OPERATIONS - Costs of theatre operations, including theatre
general and administrative expenses, decreased 6.8% for the nine months ended
July 31, 1998 to $314.0 million from $336.8 million in the same 1997 period. As
a percentage of revenues, costs of theatre operations were 97.7% for the nine
month period ended July 31, 1998 compared to 94.4% for the same period in 1997.
The percentage increase was principally the result of higher occupancy costs,
higher variable labor costs due to an increase in the average hourly rate and
lower concession margins due to product mix. These were partially offset by the
settlement of certain litigation, which had previously been accrued for,
resulting in a credit to the cost of theatre operations of $1.6 million in the
third quarter of 1998.
INVESTMENT INCOME (LOSS), NET - The Company recorded a net investment loss of
$(0.5) million for the nine months ended July 31, 1998 compared to net
investment income of $3.3 million in the same 1997 period. Net investment income
for the nine months ended July 31, 1998 included $1.2 million of dividend and
interest income offset by a $0.8 million in investment losses relating to the
Company's equity method portfolio investments and $1.1 million in losses
relating to the Company's proportionate share of losses from its international
theatre affiliates. A pre-tax trading gain of $10.3 million on certain GTS
securities was substantially offset by the accrual of performance-based
compensation of $10.4 million estimated to be earned under the Incentive Pool
Plan as a result of the $68.0 million gain created by the GTS initial public
offering in February, 1998. The actual amount of performance-based incentive
compensation earned with respect to the GTS investment may increase or decrease
depending on the share price of this investment at the time of a sale event as
defined in the Incentive Pool Plan. During the first nine months of 1997, the
Company recorded $3.5 million of dividend and interest income from its
short-term investment portfolio. The decline in dividend and interest income was
due to a lower cash and short-term investment balance in the first nine months
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 is primarily because of lower projected state taxes.
7
<PAGE> 10
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED JULY 31, 1998 VERSUS THREE MONTHS ENDED JULY 31, 1997
THEATRE REVENUES - Total revenues decreased 6.5% to $114.6 million in 1998 from
$122.6 million in 1997. Lower revenues of $8.0 million were primarily
attributable to an 11.1% decrease in patronage partially offset by a 6.1%
increase in concession sales per patron and a 4.3% increase in average ticket
price. The decrease in patronage was mainly attributable to competitor impacts
in certain of our markets and a reduction in screens, primarily the result of
the disposition of theatres in the fourth quarter of 1997. The opening of
megaplexes by the Company's competitors have tended to, and are projected to,
draw audiences away from certain of the Company's older multiplex theatre
locations. The Company operated 1,141 screens at 169 domestic locations at July
31, 1998 compared to 1,168 screens at 185 locations at July 31, 1997. The growth
in concession sales per patron was principally due to the continued roll out of
new products, increased consumption and certain price increases.
COSTS OF THEATRE OPERATIONS - Costs of theatre operations, including theatre
general and administrative expenses, decreased 5.5% for the three months ended
July 31, 1998 to $109.7 million from $116.2 million in the same 1997 period. As
a percentage of revenues, costs of theatre operations were 95.7% for the 1998
quarter compared to 94.7% for the 1997 quarter. The percentage increase was
principally the result of lower patronage on a per screen basis mitigating the
leverage of theatre fixed operating costs and higher labor costs due to an
increase in the average hourly rate. These were partially offset by the
settlement of certain litigation, which had previously been accrued for,
resulting in a credit to the cost of theatre operations of $1.6 million in the
third quarter of 1998.
INVESTMENT INCOME (LOSS), NET - The Company recorded a net investment income of
$0.1 million in the third quarter of 1998 compared to net investment income of
$1.2 million in the same 1997 period. Net investment income for the three
months ended July 31, 1998 included $0.3 million of dividend and interest
income and $0.2 million in losses relating to the Company's proportionate share
of losses from its international theatre affiliates. A pre-tax trading gain of
$1.7 million on certain GTS securities, was substantially offset by an accrual
for performance-based compensation of $1.8 million estimated to be earned under
the Incentive Pool Plan as a result of the $68.0 million gain created by the
GTS initial public offering in February, 1998. The actual amount of
performance-based incentive compensation earned with respect to the GTS
investment may increase or decrease depending on the share price of this
investment at the time of a sale event as defined in the Incentive Pool Plan.
During the same three months of 1997, the Company recorded $1.2 million of
dividend and interest income from its short-term investment portfolio. The
decline in dividend and interest income was due to a lower cash and short-term
investment balances in the third quarter of 1998.
8
<PAGE> 11
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
For the nine months ended July 31, 1998, General Cinema Theatres, Inc. ("GCT")
opened an 18-screen megaplex near Chicago, Illinois which included the first
Premium Cinema offering first-class amenities and state-of-the-art technology.
In addition, a 16- screen theatre in Redondo Beach, California was opened as
well as a 14-screen theatre in Philadelphia, Pennsylvania; these two new
theatres replaced three older units having a total of 13 screens. Also, GCT
opened a new 14-screen theatre in Columbia, South Carolina, and added four
screens to an existing location in Massachusetts to bring that theatre to a
total of 12 screens. During the nine months ended July 31, 1998, seven smaller
units were disposed of with a total screen count of 25 screens. As of July 31,
1998, GCT operated 1,141 screens at 169 locations in 24 states compared to 1,168
screens in 185 locations as of July 31, 1997. GCT plans to build an additional
69 screens by the end of calendar 1998.
Capital outflows have been minimized on these projects as a result of an
agreement consummated in November 1996 with a major financial institution to
provide operating leases for up to $250 million of assets for the Company's
domestic 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 GCT 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 nine months ended July 31, 1998, GCT made expenditures of $14.8 million
for leasehold improvements, furniture and equipment purchases, and information
service related projects including new point-of-sale systems and financial
reporting systems. Domestic capital expenditures are expected to approximate
$17.0 million during fiscal 1998.
As previously announced, GCT 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 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. GCT expects to contribute cash to this venture in
the fourth quarter of 1998 and anticipates opening its first Sundance theatre in
1999.
On March 11, 1998, the Company announced a joint venture with Cinema Grill to
convert several of General Cinema's older theatres into new cinemas offering
sit-down dining during the movies. Under this agreement, the joint venture will
convert up to three existing General Cinema locations before expanding to
further theatres. GCT expects to contribute cash and properties to the venture
in the fourth quarter of 1998. The Company anticipates opening its first Cinema
Grill theatre in Seattle, Washington by the end of the calendar year.
9
<PAGE> 12
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
INTERNATIONAL THEATRES
During the nine months ended July 31, 1998, General Cinema International, Inc.
(GCI) opened a 10-screen theatre in Mexico and a 12-screen theatre in Argentina.
As of July 31, 1998, GCI operated 75 screens at seven locations in Mexico and
Argentina compared to 53 screens in five locations as of October 31, 1997. As a
result of this international theatre expansion program, advances during the nine
months ended July 31, 1998 amounted to $19.1 million. On July 29, 1998, the
Company reached an agreement to form a 50/50 joint venture through GCI with
Hoyts Cinema Group creating Hoyts General Cinema South America (HGCSA), a
stand-alone theatre circuit, which will pursue theatre opportunities in South
and Central America. HGCSA plans to build or add an additional 14 screens in
Latin America by the end of calendar 1998 and anticipates to have 35 theatres
with over 250 screens opened by the end of 1999. International advances are
expected to approximate $27.3 million during fiscal 1998.
SHORT-TERM INVESTMENTS ACTIVITY
The Company received proceeds of $20.0 million from the liquidation of certain
short-term investments during the nine months ended July 31, 1998.
PORTFOLIO ACTIVITIES
The Company 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.
SUBSEQUENT EVENT
On September 8, 1998, the market value of the GTS shares was $54.2 million,
$39.0 million less than the value at July 31, 1998.
OTHER
The Company has significant lease commitments. Lease payments totaled $66.5
million in fiscal 1997 and lease payments from existing obligations are expected
to approximate $70.9 million in fiscal 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 nine
months ended July 31, 1998.
The Company believes that cash generated from operations, cash and marketable
securities of $124.1 million, the $50 million available under the Company's
revolving credit agreement, which expires in December 1998 (the Company is
currently negotiating an extension to this 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.
10
<PAGE> 13
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 anticipated to
require additional expenditures of $1.5 million in fiscal 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted SFAS No. 128, "Earnings per
Share". Prior period amounts have been restated in accordance with 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 PostRetirement 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 and Cinema Grill, 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.
11
<PAGE> 14
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters to a vote of security
holders during the quarter ended July 31, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS.
10.23 Amendment No. 1 to Deferred Compensation Plan
for Non-Employee Directors.
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 July 31, 1998.
12
<PAGE> 15
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: September 14, 1998 /s/ Richard A. Smith
-------------------------------------
Richard A. Smith
Chairman of the Board of
Directors and Chief Executive
Officer
Date: September 14, 1998 /s/ G. Gail Edwards
-------------------------------------
G. Gail Edwards
Vice President, Chief Financial
Officer and Treasurer
Principal Accounting Officer
13
<PAGE> 1
Exhibit 10.23
AMENDMENT NO. 1
TO
GC COMPANIES, INC.
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
Effective as of May 1, 1998, the GC Companies, Inc. Deferred
Compensation Plan for Non-Employee Directors (the "Plan") is amended to add the
following additional provisions:
"SECTION 4.8 CREDITING OF ADDITIONAL STOCK-BASED UNITS. It is
contemplated that Board compensation after the Effective Date may
include credits to the Accounts of Participants consisting of Common
Stock equivalent units, and that the value thereof shall be determined
under the stock-based option described in Section 4.3(b). Any amounts
so credited shall remain in each Participant's Account until
termination of his or her service as a member of the Board and payments
from such Account shall be made to such Participant as set forth in
Section 4.9."
"SECTION 4.9 USE OF ACCOUNTS FOR NON-ELECTIVE DEFERRALS. For
each Director who has not elected to defer Compensation pursuant to
Section 4.1 thereof, an Account shall be established and such Director
shall be a Participant herein with respect to any additional
stock-based units credited under Section 4.8. Payment of the amount
credited to such Participant's Account pursuant to Section 4.8 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. At such
Participant's election, made within 120 days of the Effective Date, on
a form approved or prescribed by the Committee, such amount shall be
paid in a lump sum or in annual installments (not to exceed 10), and,
if the latter, installments (other than the first) shall accrue
interest as described in Section 4.5."
"SECTION 4.10 MODIFICATION OF FORM OR TIME OF PAYMENT. Each
election under Section 4.9 as to form of payment may be modified,
effective for amounts credited under Section 5.4 for service on or
after any November 1, by an election filed before that November 1.
Moreover, disinterested members of the committee may, at their
discretion, at the request or consent of a Participant, change the form
of payment elected by such Participant with respect to amounts
previously credited to his or her Account pursuant to Article 4
provided that (a) the revised form of payment be one of the forms
permitted by Sections 4.5 and 4.9, and (b) no such change shall be
effective unless made at least 24 months prior to the date such amounts
would otherwise have been paid.
Except as modified above, the Plan shall remain in full force and
effect.
GC COMPANIES, INC.
By: /s/ Philip J. Szabla
----------------------------------
Philip J. Szabla
Vice President and General Counsel
<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
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> $21,632
<SECURITIES> 102,420
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 145,348
<PP&E> 323,971
<DEPRECIATION> (181,132)
<TOTAL-ASSETS> 412,599
<CURRENT-LIABILITIES> 149,482
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 222,159
<TOTAL-LIABILITY-AND-EQUITY> 412,599
<SALES> 321,190
<TOTAL-REVENUES> 321,190
<CGS> 128,021
<TOTAL-COSTS> 319,312
<OTHER-EXPENSES> (264)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> 1,799
<INCOME-TAX> (720)
<INCOME-CONTINUING> 1,079
<DISCONTINUED> 0
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<NET-INCOME> 1,079
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
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