<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 April 30, 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 [ ]
As of June 12, 1998, there were outstanding 7,709,664 shares of the issuer's
common stock, $.01 par value.
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GC COMPANIES, INC.
I N D E X
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Part I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Condensed Consolidated Balance Sheets as of
April 30, 1998 and October 31, 1997 1
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended April 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended April 30, 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 27.1
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
April 30, October 31,
1998 1997
(Unaudited)
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,250 $ 30,038
Short-term investments -- 20,014
Marketable equity securities 92,698 --
Receivable from financial institution 5,675 3,754
Other current assets 15,867 5,619
Deferred income taxes -- 2,981
-------- --------
Total current assets 135,490 62,406
Property and equipment, net 156,278 154,576
Portfolio investments 62,137 87,078
Other assets 42,913 35,540
-------- --------
Total assets $396,818 $339,600
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 668 $ 697
Trade payables 37,723 32,671
Other current liabilities 86,229 79,163
Current deferred taxes 16,592 --
-------- --------
Total current liabilities 141,212 112,531
Long-term liabilities:
Capital lease obligations 1,988 2,254
Other long-term liabilities 32,057 31,912
-------- --------
Total long-term liabilities 34,045 34,166
Deferred income taxes 6,183 6,183
Shareholders' equity:
Common stock 77 77
Additional paid-in capital 136,883 136,646
Retained earnings 49,057 49,997
Unrealized gain on marketable securities, net of tax 29,361 --
-------- --------
Total shareholders' equity 215,378 186,720
-------- --------
Total liabilities and shareholders' equity $396,818 $339,600
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, Six Months Three Months
except for per share amounts) Ended April 30, Ended April 30,
------------------------- ------------------------
1998 1997 1998 1997
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues:
Admissions $141,939 $159,013 $59,719 $ 73,744
Concessions 63,882 69,112 26,908 32,544
Other 6,020 5,845 2,404 1,976
-------- -------- ------- --------
211,841 233,970 89,031 108,264
Costs of theatre operations:
Film rentals 70,745 81,599 26,730 35,155
Concessions 10,861 11,186 4,240 5,157
Theatre operations and
administrative expenses 118,630 118,595 58,698 59,343
Depreciation and amortization 10,203 9,252 5,157 4,627
-------- -------- ------- --------
210,439 220,632 94,825 104,282
Loss (gain) on disposition of
theatre assets 1,210 (360) 1,022 33
Corporate expenses 2,692 2,302 1,420 1,144
-------- -------- ------- --------
Operating (loss) earnings (2,500) 11,396 (8,236) 2,805
Investment income, net 304 2,151 618 1,125
Interest expense (237) (251) (120) (117)
Gain (loss) on disposition of
non-operating assets 866 (1,144) 996 (1,136)
-------- -------- ------- --------
(Loss) earnings before income taxes (1,567) 12,152 (6,742) 2,677
Income tax benefit (expense) 627 (4,982) 2,697 (1,098)
-------- -------- ------- --------
Net (loss) earnings $ (940) $ 7,170 $(4,045) $ 1,579
======== ======== ======= ========
Earnings per share
Basic $ (0.12) $ 0.93 $ (0.52) $ 0.21
======== ======== ======= ========
Diluted $ (0.12) $ 0.92 $ (0.52) $ 0.20
======== ======== ======= ========
Weighted average shares outstanding
Basic 7,709 7,750 7,710 7,707
======== ======== ======= ========
Diluted 7,709 7,786 7,710 7,746
======== ======== ======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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GC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
Six Months
Ended April 30,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $ (940) $ 7,170
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Loss on disposition of theatre assets 344 784
Gain on marketable equity securities
designated trading (8,619) --
Depreciation and amortization 10,203 9,252
Other non-cash activities 373 --
Changes in current assets and liabilities:
Other current assets (12,169) 6,183
Trade payables 5,052 9,349
Other current liabilities 7,066 7,987
-------- --------
Net cash provided by operating activities 1,310 40,725
-------- --------
Cash flows from investing activities:
Capital expenditures (17,292) (7,935)
Proceeds from the disposition of theatre assets 6,097 781
Proceeds from (purchase of) short-term investments 20,014 (41,867)
Purchase of portfolio investments (11,042) (7,073)
Incremental investments in theatre ventures (3,913) --
Advances of Argentine lease commitments (3,192) --
Other investing activities (663) (121)
-------- --------
Net cash used by investing activities (9,991) (56,215)
-------- --------
Cash flows from financing activities:
Repurchase of common stock -- (4,306)
Other financing activities (107) 209
-------- --------
Net cash used by financing activities (107) (4,097)
-------- --------
Net change in cash and cash equivalents (8,788) (19,587)
Cash and cash equivalents at beginning of period 30,038 71,745
-------- --------
Cash and cash equivalents at end of period $ 21,250 $ 52,158
======== ========
</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 April 30, 1998, were $81.8
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, and $10.9 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.
On February 5, 1998, GTS successfully completed an initial public
offering of its common stock, and as a result, under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", the
Company reclassified this investment from portfolio investments to
marketable securities and recorded it at its fair value as of April 30,
1998. Within the category of marketable equity securities, the GTS
shares have been split into two separate classifications: $69.6 million
have been classified as available-for-sale securities, while $12.2
million have been classified as trading securities. As of April 30,
1998, this resulted in a pre-tax unrealized holding gain of $48.0
million on the shares classified as available-for-sale securities that
has been recorded on the balance sheet net of tax but has not been
reflected in the statement of operations, and a pre-tax gain of $8.6
million on the shares classified as trading securities that has been
recognized in the second quarter statement of operations, for a total
gain of $56.6 million. The $8.6 million pre-tax gain has been fully
offset in the statement of operations in the second quarter by the
estimated incentive compensation on the total $56.6 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 realization, as defined in the GCC Investments, Inc. Incentive
Pool Plan. The Company's 1.8 million shares in GTS are restricted from
sale under an underwriter's lock-up agreement until August, 1998, after
which time certain other legal trading restrictions may apply.
On April 15, 1998, $5.45 million of GrandVision shares became
unrestricted and a further $5.45 million of GrandVision shares have the
current restrictions lapse within the next twelve months. As a result,
$10.9 million of the GrandVision investment was reclassified from
portfolio investments into marketable equity securities (which are
classified as available-for-sale securities within this 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. As of April 30, 1998, this resulted
in a pre-tax unrealized holding gain of $911,000 on the GrandVision
shares classified as available-for-sale that has been recorded on the
Company's balance sheet net of tax but has not been reflected in the
statement of operations.
4
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GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
<TABLE>
<CAPTION>
The portfolio investments include the following:
(In thousands) at April 30, 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 $13,330 $13,368
Wireless location and two-way messaging company $ 7,000 $ 7,000
GrandVision (restricted shares) $ 1,565 $11,515
Fleet management services company $11,042 --
------- -------
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 held by the Company, and classified as
long term, in GrandVision are restricted from sale for a period in
excess of twelve months.
4. OTHER ASSETS
Other assets at April 30, 1998, primarily included a $16.2 million
equity investment in a Mexican theatre company, $12.4 million of
Argentine lease commitments, $7.2 million of goodwill, net of
accumulated amortization of $444,005, and a $5.0 pension asset
originating from excess funding of the pension plan.
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 six months ended April 30, 1998.
5
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GC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 Six For the Three
Months Ended Months Ended
(In thousands except per share data)
4/30/98 4/30/97 4/30/98 4/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
I. Net (loss) earnings(A) $ (940) $7,170 $(4,045) $1,579
II. Determination of shares:
Weighted average number of common
shares outstanding (B) 7,709 7,750 7,710 7,707
Shares issuable on exercise of
stock options, net of shares
assumed to be purchased out of
proceeds at market price -- 36 -- 39
------ ------ ------- ------
Average common shares outstanding
for diluted computation (C) 7,709 7,786 7,710 7,746
====== ====== ======= ======
III. (Loss) earnings per share:
Basic EPS (A/B) $(0.12) $ 0.93 $ 0.52) $ 0.21
====== ====== ======= ======
Diluted EPS (A/C) $(0.12) $ 0.92 $ 0.52) $ 0.20
====== ====== ======= ======
</TABLE>
6
<PAGE> 9
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 COMPARED WITH SIX MONTHS ENDED APRIL 30, 1997
THEATRE REVENUES - Total revenues decreased 9.5% to $211.8 million in 1998 from
$234.0 million in 1997. Lower domestic revenues of $27.4 million were primarily
attributable to a 15.4% decrease in patronage partially offset by a 7.5%
increase in concession sales per patron and a 2.3% increase in average ticket
price. The decrease in patronage was mainly attributable to a lack of strong
film product in the second quarter and competitor impacts in certain markets.
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 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 $5.3 million
of 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 4.6% for the six months ended
April 30, 1998 to $210.4 million from $220.6 million in the same 1997 period. As
a percentage of revenues, costs of theatre operations were 99.3% for the six
month period in April 30, 1998 compared to 94.3% for the same period in 1997.
Domestic costs of theatre operations decreased 7.4% for the six months ended
April 30, 1998 to $204,2 million from $220.6 million in the same 1997 period. As
a percentage of revenues, costs of domestic theatre operations were 98.9% for
the six-month period ended April 30, 1998 compared to 94.3% 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
lower film costs primarily due to the strong performance of "Titanic" throughout
the second quarter. International costs of operations for the six months ended
April 30, 1998 were $6.2 million.
INVESTMENT INCOME, NET - The Company recorded net investment income of $0.3
million for the six months ended April 30, 1998 compared to net investment
income of $2.2 million in the same 1997 period. Net investment income for the
six months ended April 30, 1998 included $0.9 million of dividend and interest
income partially offset by a $0.8 million pre-tax charge to record the Company's
share of losses from its equity method investments. A pre-tax trading gain of
$8.6 million on certain GTS securities was substantially offset by the accrual
of performance-based compensation of $8.6 million estimated to be earned under
the GCC Investments, Inc. Incentive Pool Plan as a result of the $56.6 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 realization as defined in the GCC Investments, Inc.
Incentive Pool Plan. During the first six months of 1997, the Company recorded
$2.2 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 balance in the first six 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
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GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED APRIL 30, 1998 VERSUS THREE MONTHS ENDED APRIL 30, 1997
THEATRE REVENUES - Total revenues decreased 17.8% to $89.0 million in 1998 from
$108.3 million in 1997. Lower domestic revenues of $22.8 million were primarily
attributable to a 24.5% decrease in patronage partially offset by a 6.6%
increase in concession sales per patron and a 2.1% increase in average ticket
price. The decrease in patronage was mainly attributable to lack of strong film
product during the quarter and competitor impacts in certain of our markets.
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 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 of $3.6 million 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 9.1% for the three months ended
April 30, 1998 to $94.8 million from $104.3 million in the same 1997 period. As
a percentage of revenues, costs of theatre operations were 106.5% for the 1998
quarter compared to 96.3% for the 1997 quarter. Domestic costs of theatre
operations decreased 12.6% for the quarter ended April 30, 1998 to $91.2 million
from $104.3 million in the same 1997 quarter. As a percentage of revenues, costs
of domestic theatre operations were 106.7% for the quarter ended April 30, 1998
compared to 96.3% for the same quarter in 1997. 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 lower film
costs primarily due to the strong performance of "Titanic" throughout the second
quarter. International costs of operations for the quarter ended April 30, 1998
were $3.7 million.
INVESTMENT INCOME (LOSS), NET - The Company recorded net investment income of
$0.6 million in the second quarter of 1998 compared to net investment income of
$1.1 million in the same 1997 period. Net investment income for the three months
ended April 30, 1998 included $0.3 million of dividend and interest income and
$0.2 million in investment income relating to the Company's equity method
investments. A pre-tax trading gain of $8.6 million on certain GTS securities,
was substantially offset by an accrual for performance-based compensation of
$8.6 million estimated to be earned under the GCC Investments, Inc. Incentive
Pool Plan as a result of the $56.6 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
realization as defined in the GCC Investments, Inc. Incentive Pool Plan. During
the same three months of 1997, the Company recorded $1.1 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 second
quarter of 1998.
8
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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 six months ended April 30, 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 six months ended April 30, 1998, three smaller
units were disposed of with a total screen count of 16 screens. As of April 30,
1998, GCT operated 1,150 screens at 173 locations in 24 states compared to 1,113
screens in 175 locations as of October 31, 1997. GCT plans to build or occupy an
additional 70 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 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 six months ended April 30, 1998, GCT made expenditures of $11.5 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, 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 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 expects to contribute cash and properties to
this venture in the second half of 1998.
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. GCC expects to contribute cash and properties to the venture
in the second half of 1998.
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 six months ended April 30,1998, General Cinema International, Inc.
(GCI) opened a 10-screen theatre in Mexico and a 12-screen theatre in Argentina.
As of April 30, 1998, GCI operated 75 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 19 screens in Latin America by the end of
calendar 1998. As a result of this international theatre expansion program,
capital expenditures during the six months ended April 30, 1998 amounted to $5.8
million. In addition, GCC invested an additional $3.2 million in its equity
investment in Mexico and advanced $3.2 million for Argentine lease commitments.
International capital expenditures and advances are expected to approximate
$31.0 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 six month period ended April 30, 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.
OTHER
The Company has significant lease commitments. Lease payments totaled $66.5
million in fiscal 1997 and minimum lease payments from existing obligations are
expected to approximate $61.6 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 six
months ended April 30, 1998.
The Company believes that cash generated from operations, cash and marketable
securities of $117.6 million, the $50 million available under the Company's
revolving credit agreement, which expires in June 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.
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.
10
<PAGE> 13
GC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 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.
11
<PAGE> 14
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on March 3, 1998. The
following matters were voted upon at the meeting:
1. Election of the following individuals as Class I Directors for
a term of three years:
<TABLE>
<CAPTION>
Francis E. Sutherby Leonard A. Schlesinger
------------------- ----------------------
<S> <C> <C> <C>
For 6,752,069 For 6,752,783
Withheld 37,558 Withheld 36,844
</TABLE>
2. Ratification of the appointment of Deloitte & Touche LLP as
the Company's independent auditors for the 1998 fiscal year.
For 6,782,854
Against 4,340
Abstain 2,333
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS.
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 April 30, 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: June 15, 1998 /s/ Richard A. Smith
----------------------------------
Richard A. Smith
Chairman of the Board of
Directors and Chief Executive
Officer
Date: June 15, 1998 /s/ G. Gail Edwards
----------------------------------
G. Gail Edwards
Vice President, Chief Financial
Officer and Treasurer
Principal Accounting Officer
13
<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
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<CASH> 21,250
<SECURITIES> 92,698
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 135,490
<PP&E> 334,357
<DEPRECIATION> 178,079
<TOTAL-ASSETS> 396,818
<CURRENT-LIABILITIES> 141,212
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 215,301
<TOTAL-LIABILITY-AND-EQUITY> 396,818
<SALES> 211,841
<TOTAL-REVENUES> 211,841
<CGS> 81,606
<TOTAL-COSTS> 214,341
<OTHER-EXPENSES> (1,170)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> (1,567)
<INCOME-TAX> 627
<INCOME-CONTINUING> (940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (940)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
