-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EdEKnCj3lvoDa2e5SPArr9XAdrEojhX+gxwWCjJVigoJnniN+Eb3tAOsWv1AJ3ty 1H0twlNb3odUr2bg76UVOw== 0000950135-99-004415.txt : 19990914 0000950135-99-004415.hdr.sgml : 19990914 ACCESSION NUMBER: 0000950135-99-004415 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GC COMPANIES INC CENTRAL INDEX KEY: 0000912295 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 043200876 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12360 FILM NUMBER: 99710731 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST CITY: CHESTNUT HILL STATE: MA ZIP: 02167 BUSINESS PHONE: 6172785600 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST CITY: CHESTNUT HILL STATE: MA ZIP: 02167 10-Q 1 GC COMPANIES, INC. 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 JULY 31, 1999 ------------------------------------------------- Commission File Number 12360 ------------------------------------------------ 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 9, 1999, there were outstanding 7,796,364 shares of the issuer's common stock, $.01 par value. 2 GC COMPANIES, INC. INDEX PAGE NUMBER Part I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of July 31, 1999 and October 31, 1998 1 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended July 31, 1999 and 1998 2 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 1999 and 1998 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 20 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Exhibit 10.27 Second Amended and Restated Agreement Executed May 27, 1999 effective as of November 1, 1999 between the Company and Paul R. Del Rossi 24 Exhibit 27.1 Financial Data Schedule 31 3 GC COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
July 31, 1999 October 31, (Unaudited) 1998 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 10,651 $ 2,479 Short-term investments -- 12,989 Marketable equity securities 134,103 78,162 Receivable due from financing institution 36,731 21,735 Other current assets 6,443 7,565 Income tax receivable -- 12,618 ------------------------ Total current assets 187,928 135,548 Property and equipment, net 112,005 112,599 Portfolio investments 54,792 61,769 Investment in international theatre affiliates 61,819 59,495 Other assets 9,839 6,590 Deferred income taxes 13,960 13,960 ------------------------ $440,343 $389,961 ------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term obligations $ 611 $ 639 Trade payables 38,016 32,907 Liability for early lease terminations 28,870 36,579 Other current liabilities 88,790 89,680 Deferred income taxes 25,559 11,793 ------------------------ Total current liabilities 181,846 171,598 Long-term liabilities: Capital lease obligations 1,281 1,722 Other long-term liabilities 39,518 33,523 Revolving credit facility 28,000 16,775 ------------------------ Total long-term liabilities 68,799 52,020 Shareholders' equity: Common stock 78 77 Additional paid-in capital 140,193 137,049 Accumulated other comprehensive income 41,133 20,782 Unearned compensation (2,425) -- Retained earnings 10,719 8,435 ------------------------ Total shareholders' equity 189,698 166,343 ------------------------ $440,343 $389,961 ------------------------
See Notes to Condensed Consolidated Financial Statements. 1 4 GC COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands except for per share amounts)
For The Three Months For The Nine Months Ended July 31, Ended July 31, ------------------------- ------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Revenues: Admissions $ 76,255 $ 76,108 $ 194,383 $213,776 Concessions 35,278 35,484 88,626 98,354 Other 3,549 3,041 10,687 9,060 ----------------------------------------------------------- 115,082 114,633 293,696 321,190 Costs and expenses: Film rentals 43,435 42,279 102,443 110,974 Concessions 6,621 6,502 16,376 17,047 Theatre operations and administrative expenses 59,218 56,181 170,996 171,717 Depreciation and amortization 3,956 4,778 11,975 14,225 Loss (gain) on disposition of theatre assets 111 (27) (2,021) 1,183 Loss on impairment of theatre assets 186 -- 686 -- Corporate expenses 1,465 1,474 4,585 4,166 ----------------------------------------------------------- Operating (loss)earnings 90 3,446 (11,344) 1,878 Equity losses in theatre affiliates (1,017) (78) (3,156) (874) Investment income, net 8,079 184 19,808 352 Interest expense (678) (106) (1,723) (343) Gain (loss) on disposition of non-operating assets (162) (80) 221 786 ----------------------------------------------------------- Earnings before income taxes 6,312 3,366 3,806 1,799 Income tax expense (2,524) (1,347) (1,522) (720) ----------------------------------------------------------- Net earnings $ 3,788 $ 2,019 $ 2,284 $ 1,079 ----------------------------------------------------------- Net earnings per share: Basic $ 0.49 $ 0.26 $ 0.30 $ 0.14 ----------------------------------------------------------- Diluted $ 0.49 $ 0.26 $ 0.30 $ 0.14 =========================================================== Weighted average shares outstanding: Basic 7,719 7,710 7,714 7,709 ----------------------------------------------------------- Diluted 7,739 7,761 7,731 7,760 -----------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements. 2 5 GC COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
For the Nine Months Ended July 31, ------------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net earnings $ 2,284 $ 1,079 Adjustments to reconcile net earnings to net cash (used) provided by operating activities: Depreciation and amortization 11,975 14,225 Equity in losses of theatre affiliates 3,156 874 Loss from portfolio investments 8,747 647 Gain on marketable equity securities designated as trading (24,233) (10,309) Gain on sale of investment securities (4,231) -- (Gain) loss on impairment or disposition of theatre assets (1,556) 397 Other non-cash activities 5,847 514 Changes in assets and liabilities: Liability for early lease terminations (7,709) -- Income tax receivable 12,618 -- Trade payables 5,109 11,833 Other current assets and liabilities (16,971) (6,511) ------------------------- Net cash (used) provided by operating activities (4,964) 12,749 ------------------------- Cash flows from investing activities: Capital expenditures (14,971) (14,790) Proceeds from the disposition of theatre assets 6,515 6,097 Proceeds from the liquidation of short-term investments 12,989 20,014 Proceeds from sale of marketable securities 21,457 -- Purchase of portfolio investments (15,554) (11,042) Advances to international theatre affiliates (5,213) (19,063) Other investing activities (3,599) (2,108) ------------------------- Net cash provided (used) by investing activities 1,624 (20,892) ------------------------- Cash flows from financing activities: Increase in revolving credit facility 11,225 -- Other financing activities 287 (263) ------------------------- Net cash provided (used) by financing activities 11,512 (263) ------------------------- Net increase (decrease) in cash and cash equivalents 8,172 (8,406) Cash and cash equivalents at beginning of period 2,479 30,038 ------------------------- Cash and cash equivalents at end of period $ 10,651 $ 21,632 -------------------------
See Notes to Condensed Consolidated Financial Statements. 3 6 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 years' presentation. The Company's theatre business is seasonal in nature and the results of its investment operation is subject to a high degree of volatility, accordingly, the results of operations for these periods historically have not been indicative of the results for the full year. 2. MARKETABLE EQUITY SECURITIES AND PORTFOLIO INVESTMENTS As of July 31, 1999, information concerning marketable equity securities and portfolio investments was as follows:
(In Thousands) Change in Net Pre-tax Unrealized Holding Gain/(Loss) Cumulative Gross --------------------------------- Aggregate Pre-tax Three Months Nine Months Accounting Carrying Unrealized Holding Ended Ended Investment Classification Value (a) Gains/(Losses) July 31, 1999 July 31, 1999 - ---------- -------------- --------- ------------------ ------------- ------------- MARKETABLE EQUITY SECURITIES: Global TeleSystems Group, Inc. Available-for-sale (c) $ 92,972 $ 71,617 $(4,733) $33,871 PrimaCom AG Trading (b) 32,179 -- -- -- GrandVision SA Available-for-sale (c) 8,952 (3,062) (512) 47 ------------------------------------------------------------------- Total Marketable Equity Securities 134,103 68,555 (5,245) 33,918 ------------------------------------------------------------------- PORTFOLIO INVESTMENTS: American Capital Access (d) 28,645 -- -- -- Fuelman (d) 11,047 -- -- -- Teletrac -- -- -- -- MotherNature.com (e) 10,000 -- -- -- El Sitio (e) 5,100 -- -- -- ------------------------------------------------------------------- Total Portfolio Investments 54,792 -- -- -- ------------------------------------------------------------------- Total Marketable Equity Securities and Portfolio Investments $188,895 $ 68,555 $(5,245) $33,918 ===================================================================
(a) Carrying values for marketable equity securities were determined based on the share price of the securities traded on public markets. The carrying values of the non-public portfolio investments were determined under the equity method of accounting or the cost method of accounting. (b) Unrealized gains or losses on securities classified as trading are recorded in the consolidated statement of operations within the caption "Investment income, net." (c) Unrealized gains or losses on securities classified as available-for-sale are recorded in the balance sheet net of tax within the shareholders' equity caption "Accumulated other comprehensive income." (d) These investments are in non-public companies and are accounted for on the equity basis because the Company has a greater than 4 7 20% equity interest in each. (e) These investments are in non-public companies and are accounted for under the cost method. On May 12, 1999, the Company invested $10.0 million in MotherNature.com, a leading Web-based retailer of vitamins, supplements and minerals. On July 6, 1999, the Company invested $5.1 million in El Sitio, a leading internet network providing global and country-specific content targeted to Spanish and Portuguese speakers in Latin America. Both of these investments are being accounted for under the cost method. In addition, on May 21, 1999, the Company exercised 26,000 GTS stock options at a cost of $0.5 million. These shares have been designated as available-for-sale securities. During the third quarter, the Company sold 120,000 shares of the Global TeleSystems Group, Inc. ("GTS") shares, of which 70,000 shares were designated as trading securities and 50,000 shares were designated as available-for-sale, generating net proceeds of $8.9 million and a related pre-tax gain of $3.6 million. The cumulative pre-tax gain recognized in the consolidated statement of operations on these 120,000 shares to the date of sale over the Company's original cost basis was $7.3 million. Through the first nine months of fiscal 1999, the Company has sold 310,000 of the GTS shares, of which 260,000 were designated as trading securities and 50,000 shares were designated as available-for-sale, generating net proceeds of $21.5 million and a related pre-tax gain of $4.2 million. The cumulative pre-tax gain recognized in the consolidated statement of operations on these 310,000 shares to the date of sale over the Company's original cost basis was $17.2 million. On July 21, 1999, GTS effected a 2 for 1 stock split. This split has increased the number of shares held in GTS as of July 31, 1999 to approximately 3.0 million shares. Equity in the gains of the investments accounted for on the equity basis are included in the consolidated statements of operations under the caption "Investment income, net" and for the current quarter of 1999 were $0.1 million, and there were no equity gains or losses for the three months ended July 31, 1998. Equity losses on these investments for the nine months ended July 31, 1999 and 1998 were $0.5 million and $0.8 million, respectively. During the second quarter of 1999, Teletrac, in which the Company has invested $8.3 million and which was carried on the cost basis, announced that it had retained the services of an investment banking firm in its efforts to raise additional capital and to assist in discussions with the holders of Teletrac's senior debt concerning a possible restructuring of that debt. In addition, Teletrac disclosed that if it failed to secure additional capital or alternative sources of liquidity, its ability to continue current operations would be in jeopardy. On June 9, 1999, Teletrac filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Code. Because Teletrac's fund-raising efforts were not expected to yield sufficient new capital at an acceptable valuation, GCC believed its investment had become impaired. As a result, during the second quarter of 1999, the Company recorded a charge of $8.3 million to the consolidated statements of operations under the caption "Investment income, net" to write-off its entire interest in Teletrac. 3. LIABILITY FOR EARLY LEASE TERMINATIONS In the fourth quarter of 1998, the Company recorded a charge totaling $39.6 million primarily related to the estimated liability of exiting certain leases for theatres closed in the fourth quarter of 1998 and for theatres that management intends on closing in the next twelve months. The Company's reserves established for its leases on properties it intends to close reflect management's best estimate of the potential costs associated with exiting these leases. While the estimates are based on analysis of the facilities, correspondence with the landlords, exploratory discussions with sublessees and market conditions, there has been limited experience to consider in preparing such estimates. The amounts the Company eventually spends could differ materially from the amounts assumed in arriving at the original reserve. 5 8 The activity during 1999 in the liability for early lease terminations was as follows: (In Thousands) Balance at October 31, 1998 $36,579 --------------------------- Activity During Q1: Payments made for lease terminations and rent (1,527) Payments made for other closing costs (301) ------- Balance at January 31, 1999 34,751 --------------------------- Activity During Q2: Payments made for lease terminations and rent (2,797) Payments made for other closing costs (103) Changes in estimate for lease terminations 395 Changes in estimate for other closing costs 73 ------- Balance at April 30, 1999 $32,319 ------------------------- ------- Activity During Q3: Payments made for lease terminations and rent (3,051) Payments made for other closing costs (580) Changes in estimate for lease terminations 182 ------- Balance at July 31, 1999 $28,870 ======= During the third quarter of 1999, the Company executed the termination of four leases resulting in cash payments of approximately $2.7 million and paid $0.4 million of rent payments from this reserve. These lease termination payments were $0.2 million in excess of the reserve established for these locations. The Company executed the termination of eleven leases resulting in payments of approximately $6.0 million and paid $1.8 million of rent payments for the nine months ended July 31, 1999. These lease termination payments included $1.3 million of payments for leases that had not been previously reserved, offset by $0.7 million of savings that were realized when payments for lease terminations were less than what had been reserved for in the fourth quarter of 1998. 4. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION The Company adopted SFAS No. 131 in 1998. Accordingly, it segmented its operations in a manner that reflects how its chief operating decision maker reviews the results of the businesses that make up the consolidated entity. The Company identified six reportable segments - four segments within what the Company considers its domestic theatre operation (which encompasses all theatres in the continental United States); one segment which includes the Company's joint ventures in South America and Mexico; and the final segment which includes all of the activity related to the investment portfolio business and corporate administration. This identification of segments emanates from management's recognition that (i) its domestic theatre locations are being operated in different manners given their ultimate strategic importance to the Company; (ii) its South American and Mexican operations are new theatre ventures in markets that are completely dissimilar to the United States market; and (iii) its investing activity in a variety of non-theatre related activities is wholly separate from theatre operations. The four operating segments within the domestic operations are core markets, other markets, impaired theatres and other expenses. The core segment represents those markets management defined as its strategic area of operations and includes theatres operating in the Northeast and Midwest. The other market segment includes those theatres outside of the core markets that are profitable and therefore are not defined as impaired. The impaired theatre segment includes all theatres that have been identified as impaired units in accordance with the analysis discussed in Note 3 of the Company's Annual Report. The other expenses column includes the regional and home office administration. The Company evaluates both domestic and international theatre performance and allocates resources based on current and projected earnings before interest, taxes, depreciation and amortization. Information concerning earnings (loss) before income taxes have also been provided so as to aid in the reconciliation to the consolidated totals. The international theatre segment has been reported in this 6 9 footnote as if it were a fully-consolidated subsidiary rather than under the equity method as it has been reported in the consolidated financial statements because the Company evaluates operations on this basis. The adjustment column is utilized to return the international theatre segment to the equity method, as the international joint ventures are 50% owned, and eliminate intercompany balances. TOTAL COMPANY (In thousands)
THREE MONTHS ENDED JULY 31, 1999: Domestic International Other Segment Consolidated Theatres Theatres Operations Totals Adjustments Totals -------- ------------- ---------- ------- ----------- ------------ Revenues: Admissions $ 76,255 $10,557 -- $ 86,812 $(10,557) $ 76,255 Concessions 35,278 3,392 -- 38,670 (3,392) 35,278 Other 3,549 691 -- 4,240 (691) 3,549 --------------------------------------------------------------------------------- Total revenues 115,082 14,640 -- 129,722 (14,640) 115,082 --------------------------------------------------------------------------------- Earnings (loss) before taxes, interest, depreciation and amortization 5,854 1,176 (1,511) 5,519 (1,176) 4,343 Net investment income -- 255 8,079 8,334 (255) 8,079 Earnings (loss) before income taxes 1,559 (2,105) 5,792 5,246 1,066 6,312
THREE MONTHS ENDED JULY 31, 1998: Domestic International Other Segment Consolidated Theatres Theatres Operations Totals Adjustments Totals -------- ------------- ---------- ------- ----------- ------------ Revenues: Admissions $ 76,108 $ 4,819 -- $ 80,927 $ (4,819) $ 76,108 Concessions 35,484 1,933 -- 37,417 (1,933) 35,484 Other 3,041 175 -- 3,216 (175) 3,041 --------------------------------------------------------------------------------- Total revenues 114,633 6,927 -- 121,560 (6,927) 114,633 --------------------------------------------------------------------------------- Earnings (loss) before taxes interest, depreciation and amortization 9,942 759 (1,745) 8,956 (759) 8,197 Net investment income 1 -- 183 184 -- 184 Earnings (loss) before income taxes 5,084 (132) (1,516) 3,436 (70) 3,366
DOMESTIC THEATRES
THREE MONTHS ENDED JULY 31, 1999: Total Core Other Impaired Other Domestic Markets Markets Theatres Expenses Theatres ------- ------- -------- -------- -------- Revenues: Admissions $44,725 $12,972 $ 18,558 -- $ 76,255 Concessions 20,159 6,545 8,574 -- 35,278 Other 1,676 623 1,250 -- 3,549 ---------------------------------------------------------------- Total revenues 66,560 20,140 28,382 -- 115,082 ---------------------------------------------------------------- Earnings (loss) before taxes, interest, depreciation and amortization 9,141 2,850 (634) (5,503) 5,854 Earnings (loss) before income taxes 6,038 1,913 (889) (5,503) 1,559
7 10
THREE MONTHS ENDED JULY 31, 1998: Total Core Other Impaired Other Domestic Markets Markets Theatres Expenses Theatres ------- ------- -------- -------- -------- Revenues: Admissions $39,589 $16,168 $ 20,351 -- $ 76,108 Concessions 17,707 7,598 10,179 -- 35,484 Other 1,274 881 886 -- 3,041 ---------------------------------------------------------------- Total revenues 58,570 24,647 31,416 -- 114,633 ---------------------------------------------------------------- Earnings (loss) before taxes, interest, depreciation and amortization 10,285 4,771 473 (5,587) 9,942 Earnings (loss) before income taxes 7,595 3,753 (677) (5,587) 5,084
TOTAL COMPANY
NINE MONTHS ENDED JULY 31, 1999: Domestic International Other Segment Consolidated Theatres Theatres Operations Totals Adjustments Totals -------- ------------- ---------- ------- ----------- ------------ Revenues: Admissions $194,383 $28,328 -- $222,711 $(28,328) $194,383 Concessions 88,626 8,992 -- 97,618 (8,992) 88,626 Other 10,687 1,629 -- 12,316 (1,629) 10,687 --------------------------------------------------------------------------------- Total revenues 293,696 38,949 -- 332,645 (38,949) 293,696 --------------------------------------------------------------------------------- Earnings (loss) before taxes, interest, depreciation and amortization 4,762 1,334 (5,466) 630 (1,334) (704) Net investment income 38 (300) 19,770 19,508 300 19,808 Earnings before income taxes (5,804) (5,578) 12,879 1,497 2,309 3,806
NINE MONTHS ENDED JULY 31, 1998: Domestic International Other Segment Consolidated Theatres Theatres Operations Totals Adjustments Totals -------- ------------- ---------- ------- ----------- ------------ Revenues: Admissions 213,776 14,336 - 228,112 (14,336) 213,776 Concessions 98,354 5,464 - 103,818 (5,464) 98,354 Other 9,060 368 - 9,428 (368) 9,060 -------------------------------------------------------------------------------- Total revenues 321,190 20,168 - 341,358 (20,168) 321,190 -------------------------------------------------------------------------------- Earnings (loss) before taxes interest, depreciation and amortization 22,086 1,134 (4,800) 18,420 (1,134) 17,286 Net investment income (loss) (74) 0 426 352 0 352 Earnings before income taxes 7,286 (1,562) (4,331) 1,393 406 1,799
8 11 DOMESTIC THEATRES
NINE MONTHS ENDED JULY 31, 1999: Total Core Other Impaired Other Domestic Markets Markets Theatres Expenses Theatres ------- ------- -------- -------- -------- Revenues: Admissions $110,439 $41,863 $42,081 -- $194,383 Concessions 49,255 19,694 19,677 -- 88,626 Other 5,144 2,559 2,984 -- 10,687 ---------------------------------------------------------------- Total revenues 164,838 64,116 64,742 -- 293,696 ---------------------------------------------------------------- Earnings (loss) before taxes, interest, depreciation and amortization 20,253 5,723 (4,690) (16,524) 4,762 Earnings (loss) before income taxes 13,504 2,675 (5,459) (16,524) (5,804)
NINE MONTHS ENDED JULY 31, 1998: Total Core Other Impaired Other Domestic Markets Markets Theatres Expenses Theatres ------- ------- -------- -------- -------- Revenues: Admissions 111,066 45,065 57,645 -- 213,776 Concessions 49,400 21,004 27,950 -- 98,354 Other 3,871 2,501 2,688 -- 9,060 ---------------------------------------------------------------- Total revenues 164,337 68,570 88,283 -- 321,190 ---------------------------------------------------------------- Earnings (loss) before taxes, interest, depreciation and amortization 28,869 12,425 (2,318) (16,890) 22,086 Earnings (loss) before income taxes 21,093 9,286 (6,203) (16,890) 7,286
The Company's South American joint venture, Hoyts General Cinema South America ("HGCSA") has entered into a $75 million debt financing arrangement with major financial institutions to fund its operations in Argentina, which is secured by the several guaranty of the joint venture's partners. Availability of this financing beyond $50 million is subject to syndication to third-party financial institutions. Under the several guaranty of the Argentina debt facility, the Company is liable for 50% of the outstanding borrowings. At July 31, 1999, the Company's portion of the outstanding borrowings under this facility that it guarantees was approximately $6.3 million. HGCSA has entered into an $19.0 million debt financing arrangement with a major financial institution to fund its operations in Chile, which is secured by the several guaranty of the partners. The Company is liable for 50% of the outstanding borrowings. At July 31, 1999, the Company's portion of the outstanding borrowings under this facility, that it guarantees or indemnifies, was approximately $8.4 million. 9 12 5. EARNINGS PER SHARE The computation of basic and diluted earnings per share is shown below. Basic earnings per share excludes any dilutive effect of options, warrants and convertible securities.
For The Nine For The Three Reference Months Ended Months Ended --------- ------------------ -------------------- (In thousands, except per share data) 7/31/99 7/31/98 7/31/99 7/31/989 ------- ------- ------- -------- Net earnings A $2,284 $1,079 $3,788 $2,019 Determination of shares: Weighted average number of common shares outstanding B 7,714 7,709 7,719 7,710 Diluted effect of contingently returnable shares and shares issuable on exercise of stock options, net of shares assumed to be purchased out of proceeds at market price 17 51 20 51 Weighted average common shares outstanding for diluted computation C 7,731 7,760 7,739 7,761 Net earnings per share: Basic A/B $0.30 $0.14 $0.49 $0.26 Diluted A/C $0.30 $0.14 $0.49 $0.26
6. ACCUMULATED OTHER COMPREHENSIVE INCOME The Company adopted SFAS 130 "Reporting Comprehensive Income," in the first quarter of 1999. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. The following reflects the activity in the accumulated other comprehensive income balance, which is comprised solely of the unrealized gain on the marketable equity securities:
(In thousands) For the Nine Months Ended For the Three Months Ended ------------------------- -------------------------- 7/31/99 7/31/98 7/31/99 7/31/98 ------- ------- ------- ------- Beginning balance $20,782 $ -- $44,279 $29,361 Gain realized on marketable equity securities sold during period (1,568) -- (1,568) -- Unrealized gain on securities acquired during the period 673 -- 673 -- Change in value of marketable equity securities held during period 21,246 34,180 (2,251) 4,819 ---------------------------------------------------- Ending balance $41,133 $34,180 $41,133 $34,180 ====================================================
7. UNEARNED COMPENSATION The Company's GCC Investments, Inc. Incentive Pool Plan provides for performance-based compensation for certain employees based on certain investment events. A portion of the performance-based compensation is paid in restricted shares, which vest over a period of time subsequent to the investment event. The balance in the unearned compensation represents the unvested portion. Compensation expense related to the restricted shares is charged to the consolidated statement of operations pro-ratably over the vesting period. Such expense totaled approximately $429,000 and $143,000 for the nine and three month periods ended July 31, 1999. 8. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board recently issued SFAS No. 132, "Employers' Disclosures about Pensions and Other PostRetirement Benefits." SFAS No. 132 will be adopted for the Company's fiscal 1999 year end financial statements. The effect of adopting this standard will not be material to the Company's financial position or results of operations; however, it will require additional disclosure. SFAS No. 133, "Accounting for Derivative Instruments in Hedging Activity" was also recently issued. The Company is not required to implement this standard until fiscal 2001. Its requirements are complex and its scope far-reaching. The 10 13 Company has not completed its evaluation of the impact of this standard on the financial statements. In addition, the Emerging Issues Task Force (EITF) released Issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction." Issue No. 97-10 is applicable to entities involved on behalf of an owner-lessor with the construction of an asset that will be leased to the lessee when construction of the asset is completed. The consensus reached in Issue No. 97-10 applies to construction projects committed to after May 21, 1998 and also to those projects that were committed to on May 21, 1998 if construction does not commence by December 31, 1999. Currently, the Company leases a majority of its new theatres through a leasing arrangement with a financial institution. The Company anticipates that changes will be made to certain elements of its current leasing arrangement to conform with the requirements of an operating lease under Issue No. 97-10. If the Company is unsuccessful in this endeavor, future operating leases under the current leasing arrangement will be recorded on its consolidated balance sheet as lease financing arrangements. The American Institute of Certified Public Accountants (AICPA) recently issued Statement of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activity" which must be adopted by the Company in fiscal 2000. The Company is currently evaluating this standard and anticipates that it will incur a cumulative pre-tax effect charge of between $4 million and $6 million relative to lease costs incurred prior to openings of theatres which were previously allowed to be capitalized and amortized under generally accepted accounting principles. 11 14 GC COMPANIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JULY 31, 1999 VERSUS THREE MONTHS ENDED JULY 31, 1998 THEATRE REVENUES - Total revenues of $115.1 million for the three months ended July 31, 1999 were comparable to revenues of $114.6 million for the same period in 1998 primarily attributable to a 5.8% decrease in patronage partially offset by a 6.3% increase in the average ticket price and a 5.0% increase in concession sales per patron. The decrease in patronage was mainly attributable to competitor impacts in certain markets and a reduction in screens, primarily the result of theatres closed in the last twelve months. 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 domestically 1,067 screens at 140 locations at July 31, 1999 compared to 1,141 screens at 169 locations at July 31, 1998. The increase in average ticket price was due to increases in certain markets during the quarter. The growth in concession sales per person was principally due to the roll-out of new products, increased consumption and certain price increases. COSTS OF THEATRE OPERATIONS - Cost of theatre operations (film rentals, concessions, theatre operating and administrative expenses as well as depreciation and amortization) increased in absolute value by $3.5 million to $113.2 million for the three months ended July 31, 1999 from $109.7 in the same 1998 period. As a percentage of total revenues, the cost of theatre operations increased to 98.4% for the quarter ended July 31, 1999 compared to 95.7% for the same 1998 quarter. This increased percentage of the cost of theatre operations to total revenues for the third quarter of 1999 compared to the same period in 1998 was primarily due to certain fixed operating costs, pre-opening expenses incurred in opening two new theatres during the quarter as well as film and concession margins, partially offset by a reduction in depreciation expense due to the impairment charge recorded in the fourth quarter of 1998. In addition, in the third quarter of fiscal 1998, the Company settled certain litigation which had previously been accrued for, thereby lowering the cost of theatre operations by $1.6 million. Occupancy costs have increased as a percentage of total revenues in 1999 compared to the same period in 1998 primarily as a result of the Company's operating lease arrangement associated with new theatres. Lower film margins were due to higher film rental charges on certain summer film product. Although the current quarter concession margin percentage is lower than the same period in 1998, the overall concession profitability was increased due to a change in the product mix that resulted in a higher concession spending per patron and improved concession margin dollars. GAIN ON DISPOSITION OF THEATRE ASSETS - During the third quarter of 1999, the Company sold miscellaneous assets realizing a pre-tax loss of $0.1 million. LOSS ON IMPAIRMENT OF THEATRE ASSETS - During the third quarter of 1999, the Company executed the termination of four leases resulting in cash payments of approximately $2.7 million and paid $0.4 million of rent payments from the early lease termination reserve. These lease termination payments were $0.2 million in excess of the reserve established for these locations. INVESTMENT INCOME, NET - The Company recorded investment income of $8.1 million in the third quarter of 1999 compared to $0.2 million in the same 1998 period. The Company's investment income for the quarter ended July 31, 1999 included the unrealized pre-tax gain on the PrimaCom trading securities of $4.4 million, the realized pre-tax gain on the GTS trading and available-for-sale securities sold during the quarter of approximately $3.6 million and miscellaneous investment income of $0.3 million, partially offset by additional performance-based compensation related to the investment portfolio of $0.2 million. During the third quarter of 1998, the Company recorded an unrealized gain on the GTS trading securities of $1.7 million, $0.3 million of dividend and interest income partially offset by the accrual of performance-based compensation related to the investment portfolio of $1.8 million. EQUITY LOSS IN THEATRE AFFILIATES - The Company recorded net equity losses in theatre affiliates of $1.0 million for the third quarter of 1999 compared to $0.1 million for the same period in 1998. The equity losses in 1999 primarily result from the Company's international theatre joint ventures and are primarily due to weak film product during the quarter, administrative expenses and start-up costs in opening a new theatre in Chile. 12 15 INTEREST EXPENSE - The Company's interest expense increased to $0.7 million in the third quarter of 1999 mainly due to borrowings outstanding during the quarter under the revolving credit facility. During the same period in 1998, there were no revolving credit balances outstanding. INCOME TAX EXPENSE - The Company's effective tax rate was 40.0% in 1999, unchanged from 1998. 13 16 GC COMPANIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS NINE MONTHS ENDED JULY 31, 1999 VERSUS NINE MONTHS ENDED JULY 31, 1998 THEATRE REVENUES - Total revenues decreased 8.6% to $293.7 million for the nine months ended July 31, 1999 from $321.2 million for the same period in 1998 primarily attributable to a 13.2% decrease in patronage partially offset by a 3.9% increase in concession sales per patron and a 4.7% increase in the 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 theatres closed in the last twelve months. 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 domestically 1,067 screens at 140 locations at July 31, 1999 compared to 1,141 screens at 169 locations at July 31, 1998. The growth in concession sales per person was principally due to the continued rollout of new products, increased consumption and certain price increases. The increase in average ticket price was due to increases in certain markets. COSTS OF THEATRE OPERATIONS - Cost of theatre operations (film rentals, concessions, theatre operating and administrative expenses as well as depreciation and amortization) decreased in absolute value by $12.2 million to $301.8 million for the nine months ended July 31, 1999 from $314.0 in the same 1998 period. However, as a percentage of total revenues, the cost of theatre operations was 102.8% for the nine months ended July 31, 1999 compared to 97.7% for the same period in 1998. This increased percentage of the cost of theatre operations to total revenues for the first nine months of the current year compared to the same period in 1998 was primarily due to certain fixed operating costs, pre-opening expenses incurred in the opening of nine new theatres in the first nine months of this year, and lower film and concession margins partially offset by a reduction in depreciation expense due to the impairment charge recorded in the fourth quarter of 1998. In addition, in the third quarter of fiscal 1998, the Company settled certain litigation, which had previously been accrued for, thereby lowering the cost of theatre operations by $1.6 million during the first nine months of 1998. Fixed expenses such as occupancy costs and administrative expenses are compared to a lower revenue amount generated in the current year than the previous year. Occupancy costs have increased as a percentage of total revenues in 1999 compared to the same period in 1998 primarily as a result of the Company's operating lease arrangement associated with new theatres. The average pre-opening costs associated with a new multiplex theatre range from $0.2 million to $0.5 million but may vary depending on several factors including, among other things, number of screens, location of the theatre and additional amenities which may be offered in the theatre such as premium auditoriums and cafes. Lower film margins were due to higher rental charges on certain film product. Although the current year-to-date concession margin percentage was lower than the same period in 1998, the overall concession profitability was increased due to a change in product mix that resulted in a higher concession spending per patron and improved concession margin dollars. GAIN ON DISPOSITION OF THEATRE ASSETS - During the nine months ended July 31, 1999, the Company sold three theatres in Michigan, two theatres in Texas, a theatre in New York , a theatre in Florida and miscellaneous assets generating net proceeds of $6.5 million and a pre-tax gain of $2.0 million. LOSS ON IMPAIRMENT OF THEATRE ASSETS - The Company executed the termination of eleven leases resulting in payments of approximately $6.0 million and paid $1.8 million of rent payments for the nine months ended July 31, 1999. These lease termination payments included $1.3 million of payments for leases that had not been previously reserved, offset by $0.7 million of savings that were realized when payments for lease terminations were less than what had been reserved for in the fourth quarter of 1998. INVESTMENT INCOME, NET - The Company recorded investment income of $19.8 million for the nine months ended July 31, 1999 compared to investment income of $0.4 million for the same period in 1998. The Company's investment income for the nine months ended July 31, 1999 included the unrealized pre-tax gain on the PrimaCom trading securities of approximately $18.8 million, the unrealized pre-tax gain on the GTS trading securities prior to sale of approximately $6.1 million, the realized pre-tax gain on the GTS trading and available-for-sale securities sold during fiscal 1999 of approximately $4.2 million and miscellaneous investment income of $0.3 million. This income was partially offset by the impairment charge on the Teletrac investment of $8.3 million and additional incentive performance-based compensation related to the investment portfolio of $1.3 million. During the first nine months of 1998, the Company 14 17 recorded an unrealized pre-tax gain on the GTS trading securities of $10.3 million, $1.3 million of dividend and interest income partially offset by the accrual of performance based compensation related to the investment portfolio of $10.4 million and an $0.8 million pre-tax charge to record the Company's share of losses from its equity method investments. EQUITY LOSS IN THEATRE AFFILIATES - The Company recorded net equity losses in theatre affiliates of $3.2 million for the first nine months of 1999 compared to $0.9 million for the same period in 1998. The equity losses primarily result from the Company's international theatre joint ventures and are primarily due to administrative and start-up costs in opening new theatres. In addition, operating results in the international joint ventures were negatively impacted by weak film product during the third quarter of 1999 and a soft economic environment in Chile. INTEREST EXPENSE - The Company's interest expense increased to $1.7 million in 1999 due to borrowings outstanding during the quarter under the revolving credit facility. During the same period in 1998, there were no revolving credit balances outstanding. INCOME TAX EXPENSE - The Company's effective tax rate was 40.0% in 1999, unchanged from 1998. 15 18 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. The Company has an operating "float" which partially finances its operations and allows the Company to operate on a negative working capital basis. This "float" exists because admissions and concessions revenues are typically received in cash, while film rentals and concessions costs are ordinarily paid to suppliers generally 30 to 60 days after the receipt of box office admissions and concessions revenues. Occasionally, the Company is required to make film advances to distributors. Significant changes to components of the Company's working capital will be discussed in the appropriate sections below. DOMESTIC THEATRES For the nine months ended July 31, 1999, General Cinema Theatres, Inc. (GCT) opened 9 new theatres: a 15 screen theatre in Atlanta, Georgia, a 14 screen theatre in Irving, Texas, a 16 screen theatre in Baltimore, Maryland, a 12 screen theatre in Plymouth Meeting, Pennsylvania, an 11 screen theatre in Seattle, Washington, a 16 screen theatre in Clifton, New Jersey, an 18 screen theatre in Wauwatosa, Wisconsin, a 14 screen theatre in Austin, Texas and a managed unit with a single screen. Aggregate costs, including construction and pre-opening costs paid by the Company in opening these theatres amounted to approximately $9.7 million. The aggregate construction costs paid by the Company for a theatre vary depending on the lease negotiated with the landlord, the number of auditoriums, additional amenities which may be offered at the theatre and the portion of the costs provided by the Company's agreement with a major financial institution to provide operating leases on leasehold improvements and equipment. Capital outflows have been minimized on these projects as a result of this operating lease agreement. The overall operating lease program was designed to provide up to $250 million of funding over five years for the Company's theatre expansion program. Since the inception of this leasing arrangement in 1996, the Company has entered into $85.5 million of operating leases with the financial institution as of July 31, 1999. Availability of this lease arrangement is, in part, dependent upon the ability of the financial institution to syndicate leases to third party financial institutions. The receivable due from a financial institution results from the Company initially advancing monies for leased assets related to new theatres as the financial institution's agent in accordance with its leasing arrangement. On a periodic basis, these advances are reimbursed by the financial institution. At July 31, 1999, the Company had an outstanding receivable of $36.7 million, an increase during the first nine months of fiscal 1999 of $17.4 million. This increase is primarily due to monies advanced by the Company for the two theatres opened in the third quarter of 1999 and the theatres currently being constructed. The Company has significant lease commitments. Lease payments totaled $71.2 million in 1998 and minimum lease payments are anticipated to approximate $60.3 million in 1999. Substantially all domestic leases of the Company are noncancellable. During the first nine months of 1999, the Company sold seven theatres; three theatres in Michigan, two in Texas, a theatre in New York, a theatre in Florida and miscellaneous assets realizing net proceeds of $6.5 million. During this period, the Company closed an additional thirteen theatres with 60 screens. Ten of these theatres had previously been identified as impaired, and the costs associated with the closing of these theatres were provided for in 1998. At July 31, 1999, the Company had an outstanding liability for early lease terminations of $28.9 million. The Company's reserve established for leases on properties it intends to close reflects management's best estimate of the potential cost associated with exiting the existing lease. While the estimates are based on analysis of the facilities, correspondence with the landlords, exploratory discussions with sublessees and market conditions, there has been limited experience to consider in preparing such estimates. The amounts the Company will eventually be obligated for could differ materially from the amounts assumed at arriving at the reserve. This process will continue, and the Company from time to time, may be required to make additional substantial one-time cash payments in connection with the closing of theatres in the future. The Company made cash payments of approximately $8.4 million for the cost of exiting certain leases and other related costs during the nine months ended July 31, 1999. For the nine months ended July 31, 1999, GCT made expenditures of $12.6 million for leasehold improvements, furniture and equipment purchases as well as information services related projects. Domestic capital expenditures are expected to approximate $22.3 million in 1999. In addition, the Company made expenditures of $2.4 million associated with its Sundance Cinema joint venture. GCC anticipates 16 19 contributing a total of $5.3 million of cash to this venture in 1999. The first Sundance theatre is anticipated to open in calendar year 2000. INTERNATIONAL THEATRES During the nine months ended July 31, 1999, the Company opened a six screen theatre in Cordoba, Argentina, a 12 screen theatre in Buenos Aires, Argentina, a 16 screen theatre in Chile and added two screens to a theatre in Uruguay through its South American joint venture as well as added four screens to a theatre in Mexico. Hoyts General Cinema South America ("HGCSA") anticipates opening an additional 27 screens and 3 units by the end of calendar year 1999. This theatre expansion program will be financed through debt facilities the joint venture negotiated in Chile and Argentina as well as capital contributed by the partners. During the first nine months of 1999, the Company advanced $5.3 million to the South American joint venture and anticipates advancing a total of $8.7 million during fiscal year 1999. The anticipated $8.7 million contribution is required under the joint venture agreement only if sufficient bank financing is not available. HGCSA has obtained debt financing through its local subsidiaries for its theatre expansion program in Chile and Argentina. HGCSA has entered into a $75 million debt financing arrangement with major financial institutions to fund its operations in Argentina, which is secured by the several guaranty of the joint venture's partners. Availability of this financing beyond $50 million is subject to syndication to third-party financial institutions. Under the several guaranty of the Argentina debt facility, the Company is liable for 50% of the outstanding borrowings. At July 31,1999, the Company's portion of the outstanding borrowings under this facility that it guarantees was approximately $6.3 million. HGCSA has entered into a $19.0 million debt financing arrangement with a major financial institution to fund its operations in Chile, which is secured by the several guaranty of the partners. The Company is liable for 50% of the outstanding borrowings. At July 31, 1999, the Company's portion of the outstanding borrowings under this facility that it guarantees or indemnifies was approximately $8.4 million. INVESTMENT PORTFOLIO At July 31, 1999, marketable equity securities were $134.1 million, an increase of $55.9 million from the balance at October 31, 1998 of $78.2 million. The increase in marketable equity securities during the first nine months of 1999 was primarily due to the appreciation in value of the Company's investment in GTS of $23.2 million, appreciation in its GrandVision investment of $0.5 million and the Company's PrimaCom AG ("PrimaCom") investment. PrimaCom, formerly named Kabelmedia, completed a successful initial public offering during the second quarter of 1999. As a result of the public offering, and in accordance with Statement of Financial Accounting Standard 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 its fair value on July 31, 1999 of $32.2 million. During the year, the Company sold 310,000 of its GTS shares, generating net proceeds of $21.5 million. On May 12, 1999, the Company invested $10.0 million in MotherNature.com, a leading Web-based retailer of vitamins, supplements and minerals. On July 6, 1999, the Company invested $5.1 million in El Sitio, a leading internet network providing global and country-specific content targeted to Spanish and Portuguese speakers in Latin America. These two investments will be accounted for under the cost method. OTHER The Company received proceeds of $13.0 million from the liquidation of certain short-term investments during the nine months ended July 31, 1999. The Company made net borrowings of $11.2 million on its outstanding revolving credit facility and paid interest of $1.3 million during the first nine months of 1999. The average interest rate for the first nine months of 1999 was 6.7%. The Company believes that cash generated from operations, asset sales under agreement, cash and cash equivalents of $10.7 million , marketable equity securities, amounts available under the Company's revolving credit facility, the operating lease arrangement and the South American joint venture debt agreements will be sufficient to fund operating requirements and capital expenditures for the forseeable future. 17 20 RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board recently issued and SFAS No. 132, "Employers' Disclosures about Pensions and Other PostRetirement Benefits." SFAS No. 132 will be adopted for the Company's fiscal 1999 year end financial statements. The effect of adopting this standard is not material to the Company's financial position or results of operations; however, it will require additional disclosure. SFAS No. 133, "Accounting for Derivative Instruments in Hedging Activity" was also recently issued. The Company is not required to implement this standard until fiscal 2001. Its requirements are complex and its scope far-reaching. The Company has not completed its evaluation of the impact of this standard on the financial statements. In addition, the Emerging Issues Task Force (EITF) released issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction." Issue No. 97-10 is applicable to entities involved on behalf of an owner-lessor with the construction of an asset that will be leased to the lessee when construction of the asset is completed. The consensus reached in Issue No. 97-10 applies to construction projects committed to after May 21, 1998 and also to those projects that were committed to on May 21, 1998 if construction does not commence by December 31, 1999. Currently, the Company finances a majority of its theatre construction through a leasing arrangement with a financial institution. The Company anticipates that changes will be made to certain elements of its current leasing arrangement to conform with the requirements of an operating lease under Issue No. 97-10. If the Company is unsuccessful in this endeavor, future operating leases under the current leasing arrangement will be recorded on its consolidated balance sheet as lease financing arrangements. The American Institute of Certified Public Accountants (AICPA) recently issued Statement of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activity" which must be adopted by the Company in fiscal 2000. The Company is currently evaluating this standard and anticipates that it will incur a cumulative pre-tax effect charge of between $4 million and $6 million relative to lease costs incurred prior to openings of theatres which were previously allowed to be capitalized and amortized by generally accepted accounting principles. YEAR 2000 The year 2000 issue is primarily the result of computer programs using a two-digit format, as opposed to four digits, to indicate the year. Such computer systems will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors leading to a disruption in the operation of such systems. In 1996, the Company developed a strategic plan to update its information systems in order to meet business needs, move away from a mainframe processing environment and create a new system infrastructure. As a result of this plan, several major processing systems were replaced or significantly upgraded during 1997 and 1998, and are, for the most part, Year 2000 compliant, including certain point of sale systems, theatre timekeeping and financial reporting systems. In 1998, the Company established a project team to coordinate existing Year 2000 activities and address remaining Year 2000 issues. During 1998, the Company developed a plan to devote the necessary resources to identify and modify systems potentially impacted by Year 2000, or implement new systems to become Year 2000 compliant in a timely manner. The Company has completed the identification and assessment portion of its plan and is completing the remediation, replacement and testing of non-compliant systems. The Company is on track to complete the remediation, testing and implementation of replacement systems by the end of fiscal year 1999. In addition, the Company is in the process of contacting suppliers and vendors seeking information about their internal compliance efforts. The Company is in the process of developing contingency plans for key operational areas which might be affected by the Year 2000 problem. Under a worst case scenario, the Company could experience a temporary delay in delivery of film product - in which case, the theatres would continue to exhibit films on hand. Since there are few, if any, new pictures released in January, the Company does not believe that this would have a substantial impact on its business. Additional areas of operation that might be impacted by Year 2000 problems include, but are not limited, to the following: loss of local or regional electric power, loss of telecommunication services, bank error, computer errors by vendors or our internal systems including the box office ticketing systems, and delays in concession deliveries. The Company has the ability to issue theatre tickets manually in the event of a system failure and is working with all its suppliers to ensure it has an adequate inventory of all supplies on hand before December 31, 1999. The total cost of executing this plan is estimated at $2.0 million. The Company's aggregate cost estimate does not include time and costs that may be incurred by the Company as a result of the failure of any third parties, including suppliers, to become Year 2000 compliant or costs to implement any contingency plans. This estimate is based on the Company's current assessment of its Year 2000 compliance needs and is subject to change as the Company proceeds with its compliance efforts. 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 18 21 those contained herein. Such forward-looking statements may be included in, without limitation, reports to shareholders, 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". The Company believes that its forward looking statements are within the meaning of the safe harbor provisions of the federal securities laws. 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. 19 22 GC COMPANIES, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK GC Companies operates in six major reported segments. The first four operate the domestic motion picture exhibition market. The fifth operates through equity method investees in the Mexican and South American motion picture exhibition markets. The sixth segment operates as a venture capital arm making investments in a variety of companies in several industries. Disclosures under this heading address risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk-sensitive instruments. The domestic motion picture segment is subject primarily to interest rate risks. It bears this risk in two specific ways. First, the Company borrows money under its revolving credit facility to fund its operating needs. At July 31, 1999, the Company had outstanding borrowings of $28.0 million, carrying a variable interest rate, which was 6.4% on that date. The Company's exposure related to variable interest resides in the earnings and cash flow implications caused by changes in interest rates. However, a 100 basis point change in the variable rate of interest paid by the Company on its outstanding borrowings under its revolving credit facility would not have a significant impact on either the earnings or cash flows of the Company. The second component of interest rate risk relates to amounts earned on the Company's short-term investments of excess cash. Such risk affects fair values, earnings and cash flows. Operations in Mexico and South America are undertaken through equity method investees. Fluctuations in the market value of the underlying equity are not reported for financial purposes nor can a sensitivity analysis be performed relative to the market risk of the underlying equity. Because these investments are in Mexico and South America and because the operations of each of these entities are conducted utilizing local currencies, the Company's earnings are exposed to foreign currency exchange rate changes. Recently, Mexico's economy was removed from the hyper-inflationary category, and, as a result, gains or losses attributable to net monetary assets or liabilities in the Mexican operations no longer directly impact equity earnings in Mexico. Market risk relative to exchange fluctuations does not exist in the Company's Mexican and South American locations since these currently operate in non hyper-inflationary environments. The Company does not consider its cash flows to be currently exposed to exchange rate risk because it has no current intention of repatriating earnings from these Mexican and South American locations. The Company's investment portfolio is primarily exposed to risks arising from changes in equity prices. Such portfolio has been segmented into three categories. The first category includes those securities that have been classified as trading. A portion of the Company's holding in Global TeleSystems Group, Inc. ("GTS") was included therein until the third quarter of 1999, when the Company disposed of its remaining investment in the GTS securities designated as trading. In addition, the Company's investment in PrimaCom recently completed a successful initial public offering during the second quarter of 1999. These securities have been designated as trading securities by the Company. PrimaCom's shares, since its initial public offering through July 31, 1999, have traded as high as 48.00 euros and as low as 29.50 euros. At July 31, 1999, the PrimaCom shares closed at 46.00 euros. Equity market fluctuations, without taking into account the impact of fluctuations in the euro vis-a-vis the US dollar, can impact fair values and earnings. A 20% fluctuation in the aggregate value of PrimaCom trading securities from the July 31, 1999 price would impact pre-tax earnings and total assets by $6.7 million. The second category of investments held in the portfolio relate to those marketable equity securities classified as "available-for-sale." Two holdings are classified herein: the Company's investment in GTS and its investment in an optical and photo service provider, GrandVision. The GTS shares are subject to considerable market risk due to its volatility, and during the first nine months of 1999, have traded as high as $45.75 and as low as $19.88. At July 31, 1999, The GTS shares closed at $31.88. GrandVision shares, during the first nine months of 1999, have traded as high as 28.50 euros and as low as 15.11 euros. As of July 31, 1999, the GrandVision shares closed at 25.73 euros. Equity market fluctuations, without taking into account the impact of fluctuations in the euro vis-a-vis the US dollar, can impact fair values (although not earnings, unless such equity positions are actually liquidated). A 20% fluctuation in the aggregate value of the GrandVision and GTS available-for-sale securities would either reduce or increase total assets by $22.5 million. In addition, the PrimaCom and GrandVision securities are traded in euros. A 10% fluctuation in the value of the euro vs. the US dollar (holding the value of the underlying equity securities constant) could impact pre-tax earnings and total assets by $3.9 million. The final category of securities in the Company's investment portfolio include a number of holdings in non-publicly traded companies. The Company values these at either cost less impairment (if any) or under the equity method of accounting. Equity method investees are specifically excluded from the scope of this disclosure. Non-public investees where the Company owns less than a 20% stake are also 20 23 subject to fluctuations in value, but their current illiquidity reduces their exposure to pure market risk. During the second quarter, the Company determined its investment in Teletrac, a wireless location and two-way messaging company, had become impaired and recorded a charge of $8.3 million to the consolidated statement of operations. 21 24 PART II Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS. 10.27 Second Amended and Restated Agreement Executed May 27, 1999 effective as of November 1, 1999 between the Company and Paul R. Del Rossi 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, 1999. 22 25 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 13, 1999 /s/ Richard A. Smith -------------------------------------------- Richard A. Smith Chairman of the Board of Directors and Chief Executive Officer Date: September 13, 1999 /s/ G. Gail Edwards -------------------------------------------- G. Gail Edwards Vice President, Chief Financial Officer and Treasurer Principal Accounting Officer 23 EX-10.27 2 SECOND AMENDED AND RESTATED AGREEMENT 1 EXHIBIT 10.27 SECOND AMENDED AND RESTATED AGREEMENT This Agreement is made as of the 1st day of November, 1998, executed the seventh day of May, 1999, by and between GC COMPANIES, INC. (the "Company") and PAUL R. DEL ROSSI (the "Executive"). WITNESSETH: WHEREAS, the Executive is employed by the Company as Chairman of its wholly owned subsidiary, General Cinema International, Inc. ("General Cinema"); and WHEREAS, the Executive and the Company were parties to an Agreement dated as of December 14, 1993, pursuant to which the Executive is continuing his employment with the Company, which was amended and restated as of November 1, 1997 (the "Original Agreement"); and WHEREAS, General Cinema and Hoyts Cinemas Limited have formed a joint venture in South America known as Hoyts General Cinema South America, Inc. ("HGCSA"); and WHEREAS, the Company and the Executive desire that the Executive be assigned to HGCSA as Chairman and to perform such other duties for the Company as contemplated herein; and WHEREAS, the Company wishes to provide for the continued employment of the Executive and to provide an incentive for him to stay with the Company; and WHEREAS, the parties have agreed to renegotiate the terms of the Executive's employment and to set forth those terms in this Agreement, which amends and restates in its entirety the Original Agreement between the parties with respect thereto. NOW, THEREFORE, in consideration of the parties, and for other good and lawful consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT. a. The Company hereby employs the Executive, as Chairman of General Cinema International, Inc., through October 31, 2003. The Executive shall be assigned to HGCSA as Chairman thereof, and shall spend at least 75% of his time on HGCSA business from the date hereof through October 31, 2003. With respect to all matters relating to HGCSA, the Executive shall report to the Board of Directors of HGCSA. b. In connection with matters not involving HGCSA, which shall not exceed 25% of the Executive's time through October 31, 2003, the Executive shall report directly to the Company's President, shall participate in the management of the Company's affairs as directed by the President of the Company, it being intended that the Executive participate in or manage General Cinema's other international activities, and shall have such other and additional duties of an executive nature as may be specified from time to time by the President of the Company. c. The Executive will be based in Boston, Massachusetts. However, until HGCSA employs a Chief Executive Officer in Buenos Aires, Argentina, the Executive will be required to spend a substantial portion of his time in South America and traveling within the United States and elsewhere on behalf of HGCSA. The Executive acknowledges that the time spent in South America and traveling on behalf of HGCSA will require a minimum of 80 days per contract year. 2. TERM. The Executive's employment under this Agreement shall commence on November 1, 1998, and shall continue until October 31, 2003. This Agreement may otherwise be terminated only in accordance with the 1 2 provisions of Section 7 of this Agreement. 3. DUTIES. The Executive shall serve the Company and HGCSA and act in all respects as a "good employee" and representative of the affairs of the Company and HGCSA. The Executive agrees to use his best efforts to promote and advance the interests of the Company and HGCSA, and, in particular, to increase the profits and value thereof. 4. COMPENSATION. a. For services rendered under this Agreement, the Executive's salary shall be $375,000 ("Base Salary") per annum through October 31, 2000. From November 1, 2000 through October 31, 2002, the Executive's salary shall be $237,500 ("Base Salary") per annum for 1,000 hours ("Base Hours") of work per year. If the Company requires the Executive to work in excess of 1,000 hours during either such year, the Executive shall perform additional hours of work as requested and the Company shall pay to the Executive additional salary for such year at a rate equal to $600 per hour for each hour worked for the first 208 hours in excess of the Base Hours, and then $300 per hour thereafter during such year. The Executive's salary shall be $150,000 per annum from November 1, 2002 through the end of the term hereof (the "Final Year"); provided, however, that the parties agree to negotiate in good faith a new base salary for such Final Year if the Company requests the Executive to work substantially more hours than in the prior year. All salary shall be payable in equal installments paid not less than twice monthly during the term of this Agreement with any additional compensation owed for work in excess of the Base Hours payable at the end of each fiscal quarter in which such excess hours were incurred. b. In addition to the above salary, the Executive shall be eligible in each year during the term of this Agreement, other than the Final Year, to receive annual bonuses in each year during the term of this Agreement, of up to fifty percent (50%) of Base Salary based on performance against specific assessment criteria established by the Board of Directors of HGCSA, with 50% of bonus potential tied to meeting specific financial objectives of HGCSA and 50% of bonus potential tied to specific individual goals and objectives established by the Board of Directors of HGCSA. A key goal of the initial individual portion of the bonus will be tied to identifying and hiring a Chief Executive Officer for HGCSA within the time frame established by the HGCSA Board of Directors. 5. LONG TERM INCENTIVE COMPENSATION. In addition to the above salary and bonus, the Executive shall participate in a Long Term Incentive Compensation Plan (the "LTIP") to be established by the Board of Directors of HGCSA outlined in Schedule 1, it being understood that the obligation with respect to this Long Term Incentive Compensation Plan is solely an obligation of HGCSA and not the Company, and that the terms and conditions thereof are solely governed by the terms of such Plan, notwithstanding any other provision of this Agreement. 6. ADDITIONAL ARRANGEMENTS; FRINGE BENEFITS. In addition to the salary and bonus referred to under Section 4 hereof, the Company will provide the following for and on behalf of the Executive: a. The Executive shall not be eligible for stock option grants by the Company; b. Upon the Executive's retirement, the Executive shall be entitled to retirement benefits under the Company's Retirement Plan in a lump sum or monthly benefit amounts, at the Executive's option based upon the Executive's age at retirement in accordance with the provisions of such plan; c. In lieu of benefits that the Executive is now entitled to or would become entitled to through the term hereof under the Company's Supplemental Executive Retirement Plan, as of November 1, 1998 and on each October 31 thereafter through October 31, 2002, the Company shall pay $181,500 per year (less any applicable withholding taxes that the Company is required by law to withhold) to an irrevocable trust created by the Executive for the benefit of such beneficiaries as he shall determine; d. Up to age 65, the Executive will receive family health insurance coverage pursuant to the Company's 2 3 Executive Medical insurance plan or plans maintained by the Company. Through October 31, 2003, the Executive shall receive Group Term Life Insurance coverage in accordance with the Company's basic plan (which currently provides a death benefit equal to one and one-half times base salary). Throughout the term hereof, the Executive may participate in the Company's Key Executive Deferred Compensation Plan in accordance with its terms, and the Executive shall be entitled to all other employee fringe benefits generally afforded to a Vice President of the Company. 7. EXPENSE REIMBURSEMENT. The Executive shall be reimbursed for all reasonable travel and other expenses actually and properly incurred by him with respect to his duties hereunder and in accordance with any policies adopted by the Company's or HGCSA's Board of Directors, as applicable, as required by such policy. 8. TERMINATION. a. The Executive's employment shall be terminated by the Company prior to the expiration of the term of this Agreement, only upon the occurrence of one of the following events: i. the death of the Executive; ii. the Total Disability of the Executive; or iii. for Cause. b. The Executive's employment shall be terminated by the Executive prior to the expiration of the term of this Agreement, only upon the occurrence of one of the following events: i. the voluntary retirement, resignation or termination of this Agreement by the Executive, upon thirty (30) days written notice to the Company; or ii. Upon a Change in Control of the Company. c. The following definitions shall apply to this Agreement: i. "Total Disability" means that as of the date of termination, the Executive was unable to perform his duties in the normal and regular manner for either (a) 80% or more of the normal working days during the six full consecutive calendar months most recently ended; or (b) 50% or more of the normal working days during the 12 full consecutive calendar months most recently ended. ii. "Change in Control" means the occurrence of any of the events described in (1) or (2) below, if, as a result thereof, persons who, as of the effective date hereof, constituted the Company's Board of Directors (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board of Directors, provided that any persons becoming a director of the Company subsequent to the Effective Date whose nomination or election was approved by at least a majority of the directors then comprising the Incumbent Board shall, for purposes of this Agreement, be considered a member of the Incumbent Board: (1) Any "person" as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, (the "Act")) becomes a "beneficial owner" (as such terms is defined in Rule 13d-3 promulgated under the Act) (other than the Smith Family Group (as described in the most recent proxy statement filed by the Company with the Securities and Exchange Commission)) directly or indirectly, of securities of the Company representing more than the greater of (a) twenty percent (20%) of the combined voting power of the Company's then outstanding securities; or (b) the 3 4 percentage of the combined voting power of the Company's then outstanding securities as to which the Smith Family Group is the beneficial owner; or (2) The Smith Family Group becomes the beneficial owner of less than twenty percent (20%) of the combined voting power of the Company's then outstanding securities. iii. "Cause" means in the good faith judgment of the Company or HGCSA, (1) the Executive failed to devote his time, loyalty, best efforts, skills, knowledge and ability to the performance of his duties as required hereunder; (2) committed an act of malfeasance or failed to render services exclusively to the Company and HGCSA as required hereunder; (3) engaged in the course of his employment in acts involving fraud, acts of dishonesty, acts of moral turpitude; or (4) repeated insubordination or failure to follow policies established by the Board of Directors of the Company or HGCSA, or otherwise detrimental to the interests of the Company or HGCSA; or (5) conviction of a felony. 9. EFFECT OF TERMINATION. a. i. In the event the Executive's employment is terminated prior to the end of the term by the Company due to Total Disability or by the Executive due to a Change in Control, the Executive shall receive a lump sum payment equal to all unpaid amounts payable hereunder for salary and bonus under paragraph 4(a) and (b) and continuation of all benefits provided under paragraph 6 in accordance with the terms thereof. ii. In the event the Executive's employment is terminated prior to the end of the term by the Executive under paragraph 8.b.i., or in the event that the Executive's employment is terminated by the Company or HGCSA for Cause, the Executive shall receive no continuing salary or bonus under paragraph 7, and all amounts payable and benefits hereunder shall terminate, except for pension benefits provided under paragraph 6.b. and payments to the trust described under paragraph 6.c. hereof, which shall continue in accordance with the terms thereof. iii. In the event the Executive' employment is terminated prior to the end of the term due to death, the Executive shall receive no continuing salary or bonus under paragraph 4, and all amounts payable and benefits hereunder shall terminate, except for pension benefits provided under paragraph 6.b., payments to the trust described under paragraph 6.c. hereof, and family health insurance coverage described in the first sentence of paragraph 6.d. hereof, which shall continue in accordance with the terms thereof. b. In the event the parties dispute the Executive's entitlement to the compensation provided under this Section, the parties agree that the issue shall be submitted to binding arbitration under the auspices of the American Arbitration Association in Boston, Massachusetts. Costs of the arbitration shall be borne by the non-prevailing party. The parties agree to be bound by the outcome of such arbitration, and that the final award of arbitration shall be final, binding and nonappealable. 4 5 10. NON-COMPETITION; NON-SOLICITATION. a. During the course of the Executive's employment with the Company and HGCSA, and solely by reason of his employment relationship with the Company, he will have access to and have and will continue to gain knowledge of financial and statistical information, business plans and programs, processes, pricing, costs, expansion plans, methods, techniques, marketing and other data relating to customers and suppliers, designs, know-how and business practices of the Company and HGCSA, its subsidiaries and affiliates, and other information which is not generally available to the public (collectively, "Confidential Information"). The Executive acknowledges that the Confidential Information has been developed by the Company and HGCSA at considerable expense. The Executive realizes that the unauthorized disclosure or misuse of Confidential Information could cause irreparable damage to the Company and HGCSA, including the loss of valuable customers. Therefore, the Executive agrees that except in the furtherance of the performance of his duties as an employee of the Company and HGCSA, the Executive will not at any time disclose or communicate to any third party other than employees of the Company and HGCSA authorized to use such information, or use to the detriment of the Company and HGCSA, or for his personal benefit or the benefit of any third party outside of the scope of his employment with the Company and HGCSA, any Confidential Information. The Executive further agrees that he will not remove from the offices of the Company and HGCSA or retain without the written consent of the Company and HGCSA any document, record or any other materials constituting or containing Confidential Information, except as may be reasonably necessary for the performance of his duties as an employee of the Company and HGCSA. Upon the voluntary or involuntary termination of his employment with the Company and HGCSA, he shall return to the Company and HGCSA all documents, records and other materials constituting or containing Confidential Information which he has in his possession. b. Throughout the term hereof and during the eighteen (18) month period immediately following termination of the Executive's employment with the Company or HGCSA , he shall not directly solicit any employee of the Company or HGCSA. c. (i) Throughout the term hereof, or in the case of termination of the Executive's employment with the Company prior to the end of the term for Cause or due to the voluntary termination of this Agreement by Executive, the Executive shall not, directly or indirectly, within the United States and any country in which the Company or HGCSA or any of their subsidiaries or affiliates then engages directly or indirectly in such a business, engage in or own, manage, operate, join, control, be employed by, or participate in the management, operation or control of, or be connected in any manner with any motion picture exhibition business (ii)(A) For eighteen (18) months after the termination hereof unless subparagraph (i) applies due to termination for Cause or the voluntary termination by the Executive, the Executive shall not, directly or indirectly within the United States engage in or own, manage, operate, join, control, be employed by, or participate in the management, operation or control of, or be connected in any manner with any motion picture exhibition business. (B) For eighteen (18) months after the termination hereof unless subparagraph (i) applies due to termination for Cause or the voluntary termination by the Executive, the Executive shall not directly or indirectly within any market area outside of the United States in which the Company, HGCSA or any of their subsidiaries or affiliates engages directly or indirectly in such business, engage in or own, manage, operate, join, control, be employed by, or participate in the management, operation or control of, or be connected in any manner with any motion picture exhibition business. For purposes of this subparagraph, "market area" means any city outside the United States in which the Company or HGCSA or any of their subsidiaries or affiliates engages in the motion picture exhibition business, plus a ten (10) mile radius from any theatre location of the Company or HGCSA or any of their subsidiaries or affiliates located outside of the United States at which operations have commenced, or which commence within eighteen months from 5 6 such termination. (iii) The foregoing provisions shall not prohibit the Executive from owning a minority interest of not more than one percent (1%), including stock options, in such a corporation whose stock is publicly traded. d. The Executive acknowledges that in the event of a breach of the foregoing provisions by the Executive, the Company or HGCSA is not able to be adequately compensated at law and that the provisions hereof shall be specifically enforceable by court order in addition to all other rights and remedies at law or in equity available to the Company or HGCSA for the breach or threatened breach hereof. e. The Executive acknowledges that he has carefully considered the foregoing provisions and having done so, agrees that the restrictions set forth hereinabove, including, but not limited to the time restrictions and the restrictions on his activities, are reasonably required for the protection of the interests of the Company and HGCSA. Notwithstanding the foregoing, if any of the foregoing provisions would be enforceable except for the fact that it is too broad to protect the reasonable interests of the Company and HGCSA, such provisions shall be enforceable only to the extent deemed reasonable by a court of competent jurisdiction to protect the interests of the Company and HGCSA. In the event any of the foregoing provisions shall be modified or reformed, or held to be invalid or unenforceable by a court of competent jurisdiction, the remaining provisions hereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included therein. 11. NOTICES. All notices by any party to any other party shall be in writing and shall be deemed to be properly given and delivered if served personally or sent by registered mail addressed to the parties at such place or to such other party or person as may from time to time be designated by written notice. 12. MISCELLANEOUS. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts. This Agreement shall be binding upon and shall inure to the benefit of the legal representative, successors, heirs and assigns of the parties hereto (provided, however, that the Executive shall not have the right to assign this Agreement in view of its personal nature). All headings and subtitles contained in this Agreement are for the convenience of reference only and are not of substantive effect. This Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Agreement and supersedes all prior negotiations and understandings (or any part thereof), written or oral, with respect to the subject matter of this Agreement, including the Original Agreement. There are no oral agreements in connection with this Agreement. Neither this Agreement nor any provision of this Agreement may be waived, terminated, modified or amended orally or by any course of conduct but only by an agreement in writing duly executed by all of the parties. If any article, section, portion, subsection or subportion of this Agreement shall be determined to be unenforceable or invalid, then such article, section, portion, subsection or subportion shall be modified in the letter and spirit of this Agreement to the extent permitted by applicable law so as to be rendered valid, and any such determination shall not affect the remainder of this Agreement, which shall be and shall remain binding and effective as against all parties. The word "Agreement" as used in this Agreement shall be deemed to include any and all renewals of this Agreement. HGCSA shall be deemed a third party beneficiary of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. GC COMPANIES, INC. By: Robert A. Smith President and Chief Operating Officer Paul R. Del Rossi 6 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS A SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-31-1999 JUL-31-1999 10,651 134,103 0 0 0 187,928 245,616 133,611 440,343 181,846 0 0 0 78 189,620 440,343 293,696 293,696 118,819 305,040 (16,873) 0 1,723 3,806 (1,522) 2,284 0 0 0 2,284 0.30 0.30
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