<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________TO ___________
Commission file number 001-13187
--------------
CLEARVIEW CINEMA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3338356
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
97 Main Street
Chatham, New Jersey 07928
(Address of principal executive offices)
(973) 377-4646
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,304,802 shares of common
stock were outstanding as of August 14, 1998
Transitional Small Business Disclosure Format (check one): Yes ___ No X
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,647,176 $ 21,239,630
Inventories 116,655 187,087
Other current assets 341,273 559,211
------------ ------------
Total current assets 2,105,104 21,985,928
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 34,488,714 41,282,655
Intangible assets, net 19,931,555 33,199,903
Other non-current assets 827,019 804,712
------------ ------------
$ 57,352,392 $ 97,273,198
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,876,607 $ --
Accounts payable and accrued expenses 4,562,633 6,283,167
------------ ------------
Total current liabilities 7,439,240 6,283,167
Long-term debt, less current maturities 32,234,955 80,000,000
Subordinated notes payable - long term 6,000,000 --
COMMITMENTS AND CONTINGENCIES (NOTE 7)
CLASS B REDEEMABLE PREFERRED STOCK 1,350,000 750,000
STOCKHOLDERS' EQUITY:
Undesignated preferred stock:
2,475,697 shares authorized -- --
Class A Preferred Stock, par value $.01, 1,303 shares
authorized; 779 shares issued and outstanding 8 8
Class C Preferred Stock, par value $.01, 3,000 shares
authorized; 3,000 shares issued and outstanding -- 30
Common Stock, par value $.01, 10,000,000 shares
authorized; 2,213,097 and 2,304,802 shares issued
and outstanding 22,131 23,048
Additional paid-in capital 12,214,515 18,230,563
Accumulated deficit (1,908,457) (8,013,618)
------------ ------------
Total stockholders' equity 10,328,197 10,240,031
------------ ------------
$ 57,352,392 $ 97,273,198
============ ============
</TABLE>
See accompanying notes to consolidated financial information.
<PAGE> 3
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ----------------------------------
JUNE 30, JUNE 30,
------------------------------- ----------------------------------
1997 1998 1997 1998
----------- ----------- ------------ -------------
THEATER REVENUES:
<S> <C> <C> <C> <C>
Box office $ 1,996,644 $ 6,567,730 $ 4,708,854 $ 13,644,849
Concession 593,835 2,307,209 1,337,821 4,591,268
Other 91,396 269,889 141,135 589,520
----------- ----------- ------------ ------------
2,681,875 9,144,828 6,187,810 18,825,637
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Film rental 992,574 3,469,187 2,188,700 6,529,384
Cost of concession sales 106,029 302,683 221,278 660,148
Theater operating expenses 1,228,805 3,685,008 2,448,960 7,140,267
General and administrative expenses 212,912 659,720 404,718 1,669,519
Depreciation and amortization 384,696 1,619,943 797,707 2,882,568
----------- ----------- ------------ ------------
2,925,016 9,736,541 6,061,363 18,881,886
----------- ----------- ------------ ------------
OPERATING (LOSS) INCOME (243,141) (591,713) 126,447 (56,249)
Interest expense, net 365,180 1,465,601 724,146 2,626,348
----------- ----------- ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (608,321) (2,057,314) (597,699) (2,682,597)
Extraordinary item - loss on -- (2,029,649) -- (2,029,649)
redemption of debt ----------- ----------- ------------ ------------
NET LOSS (608,321) (4,086,963) (597,699) (4,712,246)
----------- ----------- ------------ ------------
Preferred Stock Dividends -- (1,362,990) -- (1,392,915)
----------- ----------- ------------ ------------
LOSS AVAILABLE FOR COMMON STOCK $ (608,321) $(5,449,953) $ (597,699) $ (6,105,161)
=========== =========== ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.34) $ (2.39) $ (0.33) $ (2.71)
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial information.
<PAGE> 4
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS C
ClASS A PREFERRED STOCK COMMON STOCK PREFERRED STOCK
----------------------- ------------ --------------- ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------ ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997: 779 $ 8 2,213,097 $22,131 -- -- $ 12,214,515 $ (1,908,457) $10,328,197
Issuance of common stock
For assets acquired -- -- 91,705 917 -- -- 1,747,083 -- 1,748,000
Issuance of preferred -- -- 3,000 $ 30 2,973,727 -- 2,973,757
stock
Preferred stock dividend -- -- -- -- -- -- 1,295,238 (1,392,915) (97,677)
Net loss -- -- -- -- -- -- -- (4,712,246) (4,712,246)
--- --- --------- ------- ------ ---- ------------ ------------ -----------
BALANCE, JUNE 30, 1998 779 $ 8 2,304,802 23,048 $3,000 $ 30 $ 18,230,563 $ (8,013,618) $10,240,031
=== === ========= ======= ====== ==== ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial information.
<PAGE> 5
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30,
-----------------------------
1997 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (597,699) $ (4,712,246)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of property, equipment 705,071 1,945,546
and leaseholds
Amortization of intangible assets 92,636 937,022
Amortization of debt discount and issuance costs 87,649 179,607
Extraordinary loss from early extinguishment of debt -- 2,029,649
Changes in operating assets and liabilities:
Inventories (3,908) (70,432)
Other current assets (125,005) (217,938)
Other non-current assets 769 (46,821)
Accounts payable and accrued expenses 378,013 1,671,097
----------- ------------
Net cash provided by operating activities 537,526 1,715,484
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and construction of property, equipment (1,392,692) (2,871,487)
and leaseholds
Acquisitions of theaters -- (15,025,000)
Acquisition costs (101,036) (231,171)
----------- ------------
Net cash used in investing activities (1,493,728) (18,127,658)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt 1,550,000 85,800,000
Payments on long term debt (423,621) (47,154,291)
Prepayment premium on long term debt repaid -- (410,000)
Debt issuance costs -- (4,556,598)
Deferred offering costs (163,285) --
Redemption of class B preferred stock -- (600,000)
Proceeds from issuance of class C preferred stock -- 3,000,000
Preferred stock issuance costs -- (26,243)
Preferred stock dividends paid -- (48,240)
----------- ------------
Net cash provided by financing activities 963,094 36,004,628
----------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,892 19,592,454
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 751,345 1,647,176
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 758,237 $ 21,239,630
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 577,080 $ 2,432,164
=========== ============
Non-cash investing and financing activities:
Issuance of common stock as consideration for theater
and assets acquired $ -- $ 1,748,000
=========== ============
Warrants repurchased through issuance of debt $ 1,000,000 $ --
=========== ============
</TABLE>
See accompanying notes to consolidated financial information.
<PAGE> 6
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
Note 1--Basis of Presentation:
The balance sheet as of December 31, 1997 has been derived from the audited
balance sheet contained in the Form 10-KSB of Clearview Cinema Group, Inc. (the
"Company"), and is presented for comparative purposes. All other financial
information is unaudited. In the opinion of management, all adjustments, which
include only normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows for all periods
presented, have been made. Results of operations for interim periods are not
necessarily indicative of the operating results for a full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. The financial information presented in this report should
be read in conjunction with the annual financial statements included in the
Annual Report on Form 10-KSB.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 128, Earnings Per Share ("SFAS 128") which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The Company adopted SFAS 128 in the fourth quarter of
1997. SFAS 128 replaces the presentation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Basic earnings per share is
calculated based on the weighted average number of common shares outstanding
during the period and excludes all dilution. Diluted earnings per share is
calculated by using the weighted average number of common shares outstanding,
while also giving effect to all dilutive potential common shares that were
outstanding during the period. Prior period amounts have been restated to
conform to the requirements of SFAS 128.
For the three and six months ended June 30, 1998, the net loss available to
common stockholders was $5,449,953 and $6,105,161, respectively after giving
effect to the preferred stock dividend. For the three and six months ended June
30, 1997, the net loss available to common stockholders (no preferred dividend
was applicable for the 1997 periods) was $608,321 and $597,699, respectively.
For the three and six months ended June 30, 1998 the weighted average number of
shares outstanding used in the computation of basic and diluted loss per share
was 2,280,288 and 2,250,717, respectively. For the three and six months ended
June 30, 1997, the weighted average number of shares outstanding used in the
computation of basic and diluted loss per share was 1,797,000.
Reclassification - Certain amounts previously reported have been
reclassified to conform to current period presentation.
Note 2--Stock Based Compensation:
At the June 11, 1998 Annual Meeting of Stockholders, the shares of Common
Stock that are authorized to be issued under the 1997 Stock Incentive Plan, as
amended and restated on April 28, 1998 (the "Plan") was increased from 200,000
to 450,000. During the three and six months ended June 30, 1998 the Company
granted stock options to purchase 101,000 and 162,000 shares of common stock,
respectively, under the 1997 Stock Incentive Plan with exercise prices equal to
the closing quoted market price of the Company's common stock on the date of
grant. In accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", no compensation costs have been
recognized as the options had no intrinsic value (exercise price equaled fair
value of common stock) on the dates of issuance. Awards granted under the Plan
become fully vested upon a change in control of the Company (see Note 8).
Note 3--Long-Term Debt and Subordinated Notes Payable:
In February 1998, the Company amended and restated its then-existing Credit
Facility (the "Old Credit Facility") by obtaining a third term note ("Term Note
C") totaling $5.8 million which was used to acquire four additional theaters.
In June 1998, the Company completed an offering of Senior Notes (the
"Notes") for $80.0 million (approximately $76.1 million after issuance costs and
related fees). The Notes mature on June 1, 2008 and bear interest at a fixed
rate of 10.875%, payable semiannually on June 1 and December 1, commencing on
December 1, 1998. At any time prior to June 1, 2001, the Company may on any one
or more occasions redeem up to 33% of the aggregate principal amount of Notes at
a redemption price of 110.875% of the principal amount thereof, with the net
cash proceeds of a public offering of common stock of the Company or the net
cash proceeds
<PAGE> 7
from a strategic equity investment in the Company, provided that, among other
things, at least $53.3 million in the aggregate principal amount of the Notes
remains outstanding immediately after such redemption. After June 1, 2003 the
Notes are subject to redemption at any time at the option of the Company, at
specified redemption prices. Upon a change of control of the Company, each
holder of the Notes shall have the right to require the Company to repurchase
all or any part of such holder's Notes at an offer price equal to 101% of the
aggregate principal amount thereof (see Note 8). The Notes also stipulate that
the holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes due and payable immediately upon the occurrence of
certain events of default, such as default in payment of principal and interest
when due, default under other agreements relating to indebtedness individually
or in the aggregate exceeding $5 million and failure to comply with the
covenants and other provisions of the Notes agreement. The Notes further provide
that if any event of default occurs prior to June 1, 2003 and is due to any
willful action or inaction taken or not taken by the Company with the intention
of avoiding the prohibition on redemption of certain portions of the Notes prior
to June 1, 2003, then the Notes shall become immediately due and payable at a
specified premium, ranging from 107.25% to 110.875% of the principal amount
depending on the date the event of default occurs. The Notes impose various
restrictive covenants, including restrictions on the payment of dividends, the
incurrence of additional indebtedness, the entering into of certain transactions
and the issuance of preferred stock in certain circumstances.
Concurrent with the closing of the Notes offering, the Company repaid the
borrowings under the Old Credit Facility ($41.1 million, including accrued
interest and a prepayment premium) and entered into a New Credit Facility with
the same institution, which provides for a secured revolving line of credit in
the aggregate principal amount of $15.0 million. The New Credit Facility bears
interest at the prime rate (8.50% at June 30, 1998) with all outstanding
indebtedness repayable on the fifth anniversary of the closing of the New Credit
Facility. The New Credit Facility is collateralized by substantially all of the
assets of the Company and contains various restrictive covenants including
minimum interest and debt service coverage ratios, restrictions on the payment
of dividends (except on the Class B Preferred Stock and Class C Preferred Stock
now outstanding), restrictions on payments to purchase, redeem or otherwise
acquire or retire for value any shares or rights to acquire shares of the
Company's capital stock and subordinated indebtedness (except the Class B
Preferred Stock, Class C Preferred Stock and any subordinated indebtedness
outstanding at the time of the agreement), the incurrence of additional
indebtedness and the entering into of certain transactions. The New Credit
Facility agreement further stipulates that the lender may terminate the credit
commitment and declare all of the amounts outstanding under the agreement to be
immediately due and payable upon the occurrence of certain events including
default on payment of principal and interest when due, noncompliance with
covenants, default under other agreements relating to indebtedness individually
or in the aggregate exceeding $5 million, and change of control of the Company
(see Note 8). There were no amounts outstanding under the New Credit Facility as
of the date hereof.
In June 1998 the Company repaid the $6.0 million of Subordinated Notes
Payable, issued in 1997 to the seller in connection with the Nelson Ferman
Acquisition, from the proceeds of the Notes and Class C Preferred Stock
offerings (see Note 4 to the Consolidated Financial Information).
Note 4 -- Preferred Stock:
In April 1998 the Company designated a new series, consisting of 3,000
shares of its preferred stock, $.01 par value, as Class C Convertible Preferred
Stock (the "Class C Preferred Stock"). Concurrently, the Company entered into a
Securities Purchase Agreement and issued the 3,000 shares of its Class C
Preferred Stock for $2.97 million in cash, net of offering costs.
The conversion feature grants the holder of the Class C Preferred Stock the
right to convert to common stock based on a formula any time after July 20, 1998
at a conversion price equal to the lesser of (a) $21.95 and (b) 87 1/2 % of the
average of the 4th, 5th, and 6th lowest closing trade price of the Company's
common stock during the 20 trading days preceding the conversion date. As more
fully described in Note 8, on August 13, 1998 an announcement was made of a
definitive agreement for Cablevision Systems Corporation to acquire all
outstanding shares of the Company's common stock. The Class C Preferred Stock
Agreement provides that upon any public announcement by the Company regarding
such a change of control transaction or by any person, group or entity regarding
any transaction to purchase 50% or more of the Company's common stock, the
conversion price of the Class C Preferred Stock adjusts to the lower of (a) the
average closing trade price of the Company's common stock for the five trading
days immediately preceding the announcement date ($22.11), and (b) the
conversion price as determined by the conversion formula discussed above and
will remain in effect for a specified period of time. The holder of the Class C
Preferred Stock is subject to certain conversion limitations which restricts
conversion of the preferred shares if (a) the aggregate number of shares of the
Company's common stock already issued and to be issued on conversion would
exceed 19.99% of the number of the Company's common stock outstanding, and (b)
the number of shares of the Company's common stock beneficially owned by the
holder plus the number of shares of the Company's common stock issuable upon
conversion would equal or exceed 4.99% of the number of shares of the Company's
common stock then issued and outstanding. The Class C Preferred Stock will be
automatically converted two years following the issue date.
<PAGE> 8
The Class C Preferred Stock agreement also provides the holders the right to
redeem their preferred shares at a price based on a formula upon the occurrence
of certain events involving voluntary actions or failure to take action by the
Company, such as change in control transactions, failure to deliver shares of
common stock upon conversion of the Class C Preferred Stock, delisting of the
Company's common stock on a national exchange and material breach of covenants
and other terms of the agreements surrounding the issuance of the Class C
Preferred Stock.
In accordance with the Registration Rights agreement included in the
Securities Purchase Agreement, the Company filed with the Securities and
Exchange Commission a registration statement covering 257,143 shares of the
Company's common stock representing at least 150% of the number of shares of
common stock then issuable upon conversion of the Class C Preferred Stock.
In accordance with Emerging Issues Task Force Abstract D-60 ("EITF Abstract
D-60"), "Accounting for the Issuance of Convertible Preferred Stock with a
Nondetachable Conversion Feature", the intrinsic value of the beneficial
conversion feature of the Class C Preferred Stock, which is measured as the
difference between the conversion price and fair value of the common stock on
the date of issuance, is recognized as a non-cash preferred stock dividend over
the period from issuance to earliest conversion (90 days) in the statement of
changes in stockholders' equity. Based on the Company's stock price on April 23,
1998 (date of issuance), the fair value of the conversion feature is $1,714,286,
which will be recorded as a preferred stock dividend on a straight line basis
over the period from issuance through July 20, 1998, the earliest conversion
date. The amount recorded from issuance through June 30, 1998 was $1,295,238,
with the remainder to be recorded in July 1998.
In June 1998, the Company redeemed 600 shares of its Class B Preferred Stock
for $600,000 from the proceeds of the Notes (see Note 3) to the and the Class C
Preferred Stock offerings. The holder to the remaining 750 shares of Class B
Preferred Stock acquired the right to require the Company to redeem the shares
for $750,000 at any time upon the consummation of the Notes offering on June 12,
1998.
Note 5-- Theater Acquisitions:
During the first quarter of 1998, the Company acquired a total of four
theaters and acquired the right to operate two theaters, totaling twenty one
screens, and during the second quarter of 1998 the Company acquired a total of
three theaters and 23 screens, located in New Jersey and New York. The
acquisitions have been accounted for under the purchase method of accounting.
Under the purchase method of accounting, the purchase price for each transaction
has been allocated based on the estimated fair value of identifiable tangible
and intangible assets (principally property, equipment and leasehold interest)
of the respective theaters with the excess purchase price, together with
acquisition costs, being allocated to goodwill. The results of operations of the
acquired theaters are included in the accompanying consolidated financial
information from the respective acquisition dates.
Clairidge Acquisition - In February 1998, the Company acquired substantially
all the assets, including the leasehold interest, equipment and various
operating contracts, of one theater from Clairidge Cinemas, Inc. (the "Clairidge
Acquisition") for a total purchase price of $2.3 million. The Company paid $2.1
million in cash from borrowings under the Old Credit Facility and issued 14,782
shares of Company common stock with an aggregate market value of $200,000 based
on the closing price of the Company's stock on the ten trading days preceding
the acquisition. The leasehold interest acquired is to be amortized over the
theater lease, which has a remaining lease term through December 31, 2016. The
purchase price has been allocated as follows:
Leasehold interest $ 104,500
Equipment 345,000
Goodwill 1,850,500
----------
$2,300,000
==========
<PAGE> 9
UA II Acquisition - In March 1998, the Company acquired substantially all
the assets, including land, building, equipment and various operating contracts,
of two theaters from United Artists Theater Circuit, Inc. (the "UA II
Acquisition") for a total purchase price of $1.5 million paid in cash from
borrowings under the Old Credit Facility. The purchase price has been allocated
as follows:
Land $ 252,000
Building 1,008,000
Equipment 240,000
------------
$ 1,500,000
============
Cobble Hill Acquisition - In March 1998, the Company acquired substantially
all the assets, including equipment and various operating contracts of one
theater from Cobble Hill Cinemas, Inc. (the "Cobble Hill Acquisition") for a
total purchase price of $2.15 million, paid in cash from borrowings under the
Old Credit Facility. The purchase price has been allocated as follows:
Equipment $ 188,500
Non-compete 14,000
Goodwill 1,947,500
------------
$ 2,150,000
============
Great Neck/Franklin Square Acquisition - In June 1998, the Company
acquired substantially all the assets, including the leasehold interests,
equipment and various operating contracts of two theaters from Great Neck
Theater Associates, Inc. and WSA Theater Corp. (the "Great Neck / Franklin
Square Acquisition") for a total purchase price of $6.5 million, paid in cash
from the proceeds of the Notes and Class C Preferred Stock offerings. The
purchase price has been allocated as follows:
Leasehold Interest $ 458,000
Equipment 1,022,000
Non-compete 23,000
Goodwill 4,997,000
------------
$ 6,500,000
============
AMC Acquisition - In June 1998, the Company acquired substantially all the
assets, including the leasehold interest, equipment and various operating
contracts of one theatre from American Multi-Cinema, Inc. (the "AMC
Acquisition") for a total purchase price of $2.775 million, paid in cash from
the proceeds of the Notes and Class C Preferred Stock offerings. The purchase
price has been allocated as follows:
Leasehold Interest $ 242,000
Equipment 460,000
Goodwill 2,073,000
------------
$ 2,775,000
============
Note 6--Extraordinary Charge:
In connection with the early extinguishment of the debt under the Old Credit
Facility (see Note 3 to the Consolidated Financial Information), the Company
recognized an extraordinary charge of $2,029,649 or $.89 and $.90 per share for
the three and six months ended June 30, 1998, respectively. The extraordinary
charge consisted of a prepayment premium of $410,000 and the write-off of
unamortized debt discount and debt issuance costs of $242,729 and $1,376,920,
respectively.
<PAGE> 10
Note 7--Commitments and Contingencies:
In June 1998, the Company entered into an agreement, subject to obtaining
certain approvals, to develop a new multiplex theater in Wayne, PA. Construction
is expected to be completed by December 1998 and is estimated to cost $750,000.
In addition, monthly rental payments of $4,500 will be due on the earlier of 120
days after all permits have been obtained or the date that the Company begins
operating the theater.
In June 1998, the Company entered into agreements to purchase the Colony
Cinemas in Livingston, NJ (3 screens) and the West Milford Cinemas in West
Milford, NJ (4 screens) for an aggregate of $1.5 million in cash. The Company
will purchase the land, building and other assets of the Colony Cinemas, and the
leasehold interest underlying the West Milford Cinemas. These acquisitions are
expected to be completed by the end of August 1998.
In March 1998, the Company entered into an agreement to develop a new
multiplex theater in Putnam County, NY. The agreement provides that after the
theater is constructed the Company will add the seats and other theater
equipment at an estimated cost of approximately $1.1 million. Monthly rental
payments of approximately $22,500 are payable beginning on the earlier of 120
days after the landlord completes construction and the date that Clearview
begins operating the theater. Construction is expected to be completed by the
end of 1998.
In February 1998, the Company entered into a lease agreement to operate a
theater facility in Montclair, N.J. for ten years with four 5- year renewal
options. The lease provides for a monthly base rent of $3,125 and is adjusted
upward each year based on a formula.
In connection with the CJM Acquisition consummated in 1997, the Company
agreed to pay to the seller additional consideration of 750 shares of Class B
redeemable preferred stock valued at $750,000 if another competing theater is
not opened in the operating vicinity of the purchased theaters within two years
of the date of the agreement, or December 12, 1999. However, such consideration
is deemed to be contingent and, as such, will only be recorded when it becomes
probable that no competing theater will be opened by December 12, 1999.
On April 30, 1998 the Company issued 76,923 shares of common stock having a
market value of $1,548,000 in order to acquire the leasehold interest and
related construction permit from Warren County Cinemas, for a 15-screen
multiplex theater in Mansfield, NJ. The shareholders of Warren County Cinemas
have the right to receive additional consideration, dependent upon future
earnings of the theater for the next two years, of up to $500,000. The shares of
common stock issued are unregistered shares and are subject to a Voting Trust
Agreement whereby the Chairman of the Company has the right to exercise all
rights as an owner of the shares, including the right to vote, until the shares
are sold or registered. The shares may be sold at any time subject to certain
restrictions on the amount and holding period of the shares as stipulated under
Rule 144 the Securities Act of 1933 (the "Securities Act"). The shareholders
also have the right to participate in certain registered offerings undertaken by
the Company under the Securities Act that could result in the sale of the shares
held. Construction began in May 1998 and is expected to be completed by the end
of October 1998. The estimated cost of development is $3.1 million. The Company
began paying 50% of the monthly rental payments of $29,167 and will become
liable for the full monthly rent on the earlier of the opening of the theater
and January 1, 1999.
In February 1997, the Company entered into an agreement to lease a new
multiplex theater to be constructed in Bayonne, N.J. The landlord has agreed to
install all seats and other theater equipment according to the Company's
specifications, and therefore the Company does not expect to incur any capital
costs for the project. Construction is expected to be completed in early 1999,
at which time the Company would be obligated to begin monthly rental payments of
$41,667.
During September 1995, the Company entered into an agreement providing for
the lease of three New York theater locations with annual combined rent of
approximately $300,000 and the option to purchase certain assets of the three
theaters through September 2000. Until the exercise of this option, the Company
is required to make annual payments which are recorded as interest expense. It
is the Company's intention to exercise this option.
<PAGE> 11
Note 8--Subsequent Events:
On August 13, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger among Cablevision Systems Corporation
("Cablevision"), CCG Holdings Inc., a subsidiary of Cablevision, and the
Company, pursuant to which the Company would be acquired by Cablevision. Each
issued and outstanding share of common stock of the Company would be acquired
at $24.25 per share, payable in a combination of cash and Cablevision common
stock on the basis of 55% cash and 45% Cablevision common stock. The gross
value of the transaction is estimated at approximately $160 million, based on
the acquisition of approximately 3.3 million shares of the Company's common
stock on a fully diluted basis and the assumption of the $80 million of Notes
outstanding as of August 13, 1998.
The consummation of the transaction, expected to be completed in the fourth
quarter of 1998, is subject to the satisfaction of certain closing conditions
including, among others, receipt of certain governmental approvals and approval
of the transaction by the stockholders of the Company. Certain stockholders of
the Company have entered into agreements with Cablevision pursuant to which such
stockholders have agreed to vote their securities in favor of the adoption of
the Merger Agreement.
The acquisition of the Company by Cablevision would be considered a change
in control transaction which would trigger certain provisional rights as
stipulated in various security and debt agreements of the Company. Specifically,
a change in control would (a) entitle the holders of the Notes the right to
require the Company to repurchase all or any portion of the Notes at 101% of the
aggregate principal amount outstanding (see Note 3), (b) grant the lender under
the New Credit Facility the right to terminate the credit commitment and declare
all amounts outstanding immediately due and payable (see Note 3), (c) result in
an adjustment of the conversion price of the Class C Preferred Stock and also
give the holders the right to redeem the shares held (see Note 4), (d) result in
all stock options outstanding to purchase 284,500 shares of the Company's common
stock to become fully exercisable, and (e) result in the automatic conversion of
the Class A Preferred Stock into 467,400 shares of the Company's common stock.
Cablevision intends to make a tender offer to repurchase the Company's 10-7/8%
Senior Notes and would relieve the Company of its obligation to fund such
repurchase.
In January 1998, the Company entered into an agreement providing for the
lease of a theater in Millburn, N.J. with the option to purchase certain assets
of the theater for $1.15 million in cash. The initial lease period was for three
months, with an option to extend for an additional three months, at $9,000 per
month, which the Company exercised. In August 1998, the Company exercised its
option to purchase the theater, using a portion of the proceeds from the Notes
offering.
In August 1998, the Company purchased substantially all the assets,
including equipment and leasehold interests of one theater located in Bala
Cynwyd, Pennsylvania from Constantine Sotolidis (the "Bala Cynwyd Acquisition"),
for $700,000 in cash, using a portion of the proceeds from the Notes offering.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the Company's results of operations
and financial condition should be read in conjunction with the information set
forth in the unaudited financial information and notes thereto included
elsewhere herein and the audited financial information and the notes thereto
included in the Annual Report on Form 10-KSB.
Overview
The Company has achieved significant growth in theaters and screens since
its formation in November 1994. Since the inception of its business in December
1994, when the Company acquired the right to operate four theaters with eight
screens, the Company has acquired the right through June 30, 1998, to operate an
additional 35 theaters with 173 screens, has added seven screens to three
existing theaters and has constructed a new 5-screen theater in an existing
building, resulting in a total of 40 theaters and 193 screens operated by the
Company at June 30, 1998. The Company operated 16 theaters with 64 screens as of
June 30, 1997. The Company expects that its future revenue growth will be
derived primarily from the acquisition of additional theaters, the addition of
screens to existing theaters and the development of new theaters. In order to
fund its plans for continued growth, the Company may require additional debt and
equity financing. Failure to obtain any such financing could require the Company
to significantly curtail its acquisition activities. The Company has had no
theater closings since inception.
On August 13, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger among Cablevision, CCG Holdings Inc., a subsidiary
of Cablevision, and the Company, pursuant to which the Company would be
acquired by Cablevision (see Note 8 to the Consolidated Financial Information).
The Company's revenues are predominantly generated from box office receipts,
concession sales and on-screen advertising. Direct theater costs include film
rental and the cost of concessions. Other theater operating expenses consist
primarily of theater labor and related fringe benefit costs and occupancy costs
(including rent and/or real estate taxes, utilities, repairs and maintenance,
cleaning costs and supplies). Film rental costs are directly related to the
popularity of a film and the number of weeks the film has run. Film rental costs
generally decline as a percentage of box office receipts the longer a film has
been showing. Because certain concession items, such as fountain drinks and
popcorn, are purchased in bulk and not prepackaged for individual servings, the
Company has significant gross profit margins on those items.
General and administrative expenses consist primarily of corporate overhead
costs, such as management and office salaries and related fringe benefits costs,
professional fees, insurance costs and general office expenses. The Company
believes that its current internal controls and management information system
will allow the Company to expand its number of screens without incurring
proportionate increases in general and administrative expenses. The Company's
management information system has on-line capabilities to collect information
concerning box office receipts, ticketing, concession sales, inventory control
and booking. This system allows the Company to closely track and manage box
office and concession revenues.
In the quarter ended June 30, 1998, the Company acquired the Great Neck
Squire Cinemas in Nassau, NY (7 screens); the Franklin Square Cinemas in
Suffolk, NY (6 screens); and the Headquarters 10 Cinemas in Morristown, NJ (10
screens). The purchase of these additional theaters increased the Company's
total number of theaters to 40 and its screen count to 193.
Comparison of Three and Six Months Ended June 30, 1998 and June 30, 1997
Total Revenues. Total revenues for the three and six months ended June 30,
1998 were $9,144,828 and $18,825,637, respectively, as compared to $2,681,875
and $6,187,810 for the three and six months ended June 30, 1997, respectively.
The increases in revenues of 241.0% and 204.2% for the three and six months
ended June 30, 1998, respectively, are primarily due to increased box office
receipts and concession sales. Box office receipts for the three and six months
ended June 30, 1998 were $6,567,730 and $13,644,849, respectively as compared to
$1,996,644 and $4,708,854, for the three and six months ended June 30, 1997,
respectively.
<PAGE> 12
The increases in box office receipts for the three months ended June 30, 1998 of
228.9% resulted primarily from an increase in attendance of 243.5% to
approximately 1,209,000 from 352,000 attendees in the comparable 1997 period.
The increases in box office receipts for the six months ended June 30, 1998 of
189.8% resulted primarily from an increase in attendance of 178.8% to
approximately 2,487,000 from 892,000 attendees in the comparable 1997 period.
The increases in attendance were attributable primarily to the operation of the
theaters acquired in the third and fourth quarters of 1997 and in the first two
quarters of 1998. Total concession sales for the three and six months ended June
30, 1998 were $2,307,209 and $4,591,268, respectively as compared to $593,835
and $1,337,821 for the three and six months ended June 30, 1997, respectively.
The increases in concession sales of 288.5% and 243.2% for the three and six
months ended June 30, 1998, respectively, were primarily due to the increase in
the number of theaters operated. Other revenues, which consist primarily of
advertising revenue and rental income on fee-owned properties, were $269,889 and
$589,520 for the three and six months ended June 30, 1998, respectively, as
compared to $91,396 and $141,135 for the three and six months ended June 30,
1997, respectively. The increase in other revenues of 195.3% and 317.7% for the
three and six months ended June 30, 1998, respectively, is the result of
operating additional theaters during 1998, and an increase in the Company's
on-screen advertising which provided for increased commission rates in 1998.
Film Rental Fees. Film rental fees increased by 249.5% and 198.3% to
$3,469,187 and $6,529,384 for the three and six months ended June 30, 1998,
respectively, from $992,574 and $2,188,700 for the three and six months ended
June 30, 1997, respectively. The increases were principally due to the operation
of additional theaters as previously discussed. Film rental fees as a percentage
of box office receipts were 52.8% for the three months ended June 30, 1998,
compared to 49.7% for the three months ended June 30, 1997. Such costs were
47.9% of box office receipts for the six months ended June 30, 1998, as compared
to 46.5% for the same 1997 period. The increases, as a percentage of box office
receipts, were due to weak film product in the second quarter, along with high
rental costs for that product and unusually high film settlements in the second
quarter.
Cost of Concession Sales. Cost of concession sales increased by 185.5% and
198.3% to $302,683 and $660,148 for the three and six months ended June 30,
1998, respectively, from $106,029 and $221,278 for the three and six months
ended June 30, 1997, respectively. This increase was attributable primarily to
the operation of the theaters acquired in the third and fourth quarters of 1997
and in the first two quarters of 1998. As a percentage of concession revenues,
the cost of concession sales were 13.1% and 14.4 % for the three and six months
ended June 30, 1998, respectively, compared to 17.9% and 16.5% for the three and
six months ended June 30, 1997, respectively. The decrease for the six month
period was primarily attributable to the concession purchasing efficiencies made
as a result of achieving greater economies of scale from the Company's growth.
In addition, the concession costs in the three month period were further reduced
due to a vendor rebate program.
Theater Operating Expenses. Theater operating expenses increased by 199.9%
and 191.6% to $3,685,008 and $7,140,267 for the three and six months ended June
30, 1998, respectively, from $1,228,805 and $2,448,960 for the three and six
months ended June 30, 1997, respectively. This increase was attributable
primarily to the operation of the theaters acquired as previously discussed.
Theater operating expenses as a percentage of total revenues decreased to 40.3%
and 37.9% for the three and six months ended June 30, 1998, respectively, as
compared to 45.8% and 39.6% for the three and six months ended June 30, 1997,
respectively. This decrease was attributable to the Company's efficient
management of its controllable operating costs, and in particular, direct
theater labor costs.
General and Administrative Expenses. General and administrative expenses
increased by 209.9% and 312.5% to $659,720 and $1,669,519 for the three and six
months ended June 30, 1998, respectively, from $212,912 and $404,718 for the
three and six months ended June 30, 1997, respectively. The increase was due
principally to the hiring of personnel and related increases in salaries to
support the Company's growth. As a percentage of total revenues, general and
administrative expenses decreased to 7.2% and increased to 8.9% for the three
and six months ended June 30, 1998, respectively, compared to 7.9% and 6.5% for
the three and six months ended June 30, 1997, respectively. The decrease for the
three month period, as a percentage of total revenues, was primarily due to the
Company's internal controls and management information system which allowed the
Company to expand its number of screens without incurring proportionate
increases in general and administrative expenses. The increase for the six month
period was due to the increased expenses attributable to the establishment of
in-house film buying and legal departments in the first quarter of 1998 to
support the Company's growth and future expansion plans, and the incurrence of
outside professional costs in connection with the Company's first fiscal
year-end since becoming a publicly traded company. The decrease for the three
month period, as a percentage of total revenues, is attributable to the
Company's strict overhead cost controls.
Depreciation and Amortization. Depreciation and amortization expense
increased by 321.1% and 261.4% to $1,619,943 and $2,882,568 for the three and
six months ended June 30, 1998, respectively, from $384,696 and $797,707 for the
three and six months ended June 30, 1997, respectively. The increase is a direct
result of the addition of 24 theaters through acquisition or build-out in the
second half of 1997 and first half of 1998, which significantly increased the
Company's depreciable and amortizable assets.
<PAGE> 13
Operating Income (Loss). Operating loss increased by 143.4% to $591,713 for
the three months ended June 30, 1998, from $243,141 for the three months ended
June 30, 1997. Operating income decreased by 144.5% to an operating loss of
$56,249 for the six months ended June 30, 1998, from $126,447 for the six months
ended June 30, 1997. As a percentage of total revenues, operating income (loss)
was (6.5%) and (0.3%) for the three and six months ended June 30, 1998,
respectively, and (9.1%) and 2.0% for the three and six months ended June 30,
1997, respectively. The increase in operating loss as a percentage of total
revenues is due to the increase in depreciation and amortization, as a direct
result of the increase in theaters, the aforementioned increase in film rental
fees, and the first quarter 1998 increase in general and administrative expenses
as explained above.
Interest Expense. Interest expense increased by 301.3% and 262.7% to
$1,465,601 and $2,626,348 for the three and six months ended June 30, 1998,
respectively, from $365,180 and $724,146 for the three and six months ended June
30, 1997, respectively. The increase is due to the significant increase in total
debt outstanding during the first half of 1998 as compared to the corresponding
1997 period, primarily to fund acquisitions. The increase in outstanding debt
was partially offset by a decrease in the interest rate under the Company's Old
Credit Facility, from Prime + 2% to Prime + 1.5% in September 1997. All of the
Company's debt was retired and replaced in June 1998 by the issuance of Senior
Notes bearing interest at 10.875% (see Note 3 to the Consolidated Financial
Information).
Extraordinary Item. The extraordinary item of $2,029,649 relates to the
early extinguishment of the debt under the Old Credit Facility in June 1998 (see
Notes 3 and 6 to the Consolidated Financial Information).
Net Loss. Net loss increased to $4,086,963 and $4,712,246 for the three and
six months ended June 30, 1998, respectively, from $608,321 and $597,699 for the
three and six months ended June 30, 1997. The increase in net loss was
attributable primarily to substantial increases in both depreciation and
amortization expense and interest expense, resulting from the Company's growth
through acquisitions and related borrowings, and the above-mentioned
extraordinary item.
Loss Available for Common Stock. Loss Available for Common Stock reflects
the net loss, the components of which are explained above, and preferred stock
dividends of $1,362,990 and $1,392,915 for the three and six months ended June
30, 1998, respectively. The preferred stock dividend is primarily a result of
the April 1998 issuance of 3,000 shares Class C Preferred Stock, and the
resulting non-cash dividend recorded through June 30, 1998. In accordance with
Emerging Issues Task Force Abstract D-60 ("EITF Abstract D-60"), "Accounting for
the Issuance of Convertible Preferred Stock with a Nondetachable Conversion
Feature", the intrinsic value of the beneficial conversion feature of the Class
C Preferred Stock, which is measured as the difference between the conversion
price and fair value of the common stock on the date of issuance, is recognized
as a non-cash preferred stock dividend over the period from issuance to earliest
conversion (90 days) in the statement of changes in stockholders' equity. Based
on the Company's stock price on April 23, 1998 (issuance date), the fair value
of the conversion feature is $1,714,286, which will be recorded as a preferred
stock dividend on a straight line basis over the period from issuance through
July 20, 1998, the earliest conversion date. The amount recorded from issuance
through June 30, 1998 was $1,295,238, with the remainder to be recorded in July
1998. See Note 4 to the Consolidated Financial Information for additional
information.
Other Financial Data. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") is a financial measure commonly used in the Company's
industry, although it is not a measure of performance calculated in accordance
with generally accepted accounting principles. It should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of the Company's operating
performance or as an alternative to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of the Company's liquidity. EBITDA increased by 626.4% and 205.8% to
$1,028,230 and $2,826,319 for the three and six months ended June 30, 1998,
respectively, from $141,555 and $924,154 for the comparable 1997 periods. As a
percentage of total revenues, EBITDA was 11.2% and 15.0% for the three and six
months ended June 30, 1998, respectively, and was 5.3% and 14.9% for the
comparable 1997 periods.
Liquidity and Capital Resources
The Company receives substantially all of its revenues in cash from box
office receipts and concession sales and, therefore, benefits from minimal
accounts receivable and inventory requirements. One of the Company's most
significant operating expenses, film rental fees, continues to be paid to
distributors 30 to 45 days following the receipt of the applicable cash ticket
payments. In addition, nearly all of the Company's other operating expenses,
such as concession purchases, theater payroll and theater rent, are paid
bi-weekly or monthly, respectively. The period between the receipt of cash from
operations and the use of that cash to pay the related expenses provides certain
operating capital to the Company.
On August 13, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger among Cablevision Systems Corporation
("Cablevision"), CCG Holdings Inc., a wholly-owned subsidiary of Cablevision,
and the Company, (the "Merger Agreement") pursuant to which the Company would be
merged with and into CCG Holdings, Inc. Each issued and outstanding share of
common stock of the Company would be acquired at $24.25 per share, payable in a
combination of cash and Cablevision common stock on the basis of 55% cash and
45% Cablevision common stock. The gross value of the transaction is estimated at
approximately $160 million, based on the acquisition of approximately 3.3
million shares of the Company's common stock on a fully diluted basis and the
assumption of the $80 million of Notes outstanding as of August 13, 1998.
Cablevision intends to make a tender offer to repurchase the Company's 10-7/8%
Senior Notes and would relieve the Company of its obligation to fund such
repurchase.
<PAGE> 14
Since the Company is in an industry which is capital intensive,
substantially all of its assets are typically non-current. The Company's primary
current asset is cash, while inventories are relatively insignificant throughout
the fiscal year. The Company had positive working capital of $15,702,761 at June
30, 1998 and negative working capital of ($1,766,222) at June 30, 1997. The
increase in working capital was attributable to an increase in cash due to the
proceeds from the Notes and Class C Preferred Stock offerings, partially offset
by an increase in accounts payable and film rent payable to support the
Company's additional theaters.
The Company has financed its day-to-day operations principally from the cash
flow generated by its operating activities. Such cash flow totaled $1,715,484
for the six months ended June 30, 1998, as compared to $537,526 for the
comparable 1997 period. The difference between the Company's net loss and its
cash flow from operating activities in both periods was principally due to
non-cash depreciation and amortization expenses and increases in accounts
payable and accrued expenses. In addition, the 1998 period was impacted by the
extraordinary item related to the early extinguishment of debt.
The Company's primary capital requirements are to fund additional theater
acquisitions and for remodeling, expansion and maintenance of existing theaters.
While the Company has acquired fee-owned theaters from time to time, the Company
prefers to acquire theaters as leasehold properties in order to preserve
capital. The Company has historically developed, and plans to continue
developing, new theaters principally by entering into long-term leases, which
provide an opportunity to share construction and development costs with the
lessor.
Capital expenditures, exclusive of theater acquisitions, totaled $2,871,487
in the first six months of 1998 and $1,392,692 in the first six months of 1997.
The 1998 amount includes $700,000 related to the purchase of the underlying real
estate of a theater previously leased, and $445,117 of construction costs
related to the Mansfield theater (see Note 7 to the Consolidated Financial
Information). During 1998 the Company funded its capital expenditures, other
than theater acquisitions, through a combination of cash flow from operations
and from borrowings.
In February 1998, the Company amended and restated its Old Credit Facility
by obtaining a third term note ("Term Note C") totaling $5.8 million, which was
used to acquire four additional theaters. The aggregate availability under the
Old Credit Facility was $41.8 million, of which $40.2 million was outstanding at
the date of repayment. The Old Credit Facility included a revolving credit line
of $1 million, which could have been used for refinancing existing debt,
financing working capital, financing acquisitions and for general corporate
purposes. There were no amounts outstanding under the revolving credit line as
of the date the Old Credit Facility was repaid.
In April 1998, the Company designated a new series, consisting of 3,000
shares of its preferred stock, $.01 par value, as Class C Convertible Preferred
Stock (the "Class C Preferred Stock"). Concurrently, the Company entered into a
Securities Purchase Agreement and issued the 3,000 shares of its Class C
Preferred Stock for $2.97 million in cash, net of offering costs (See Note 4 to
the Consolidated Financial Information).
In June 1998, the Company completed an offering of Notes ("the Notes") for
$80.0 million (approximately $76.1 million after issuance costs and related
fees). The Notes bear interest at a fixed rate of 10.875% and are due on June 1,
2008. Concurrent with the closing of the Notes offering, the Company repaid the
Old Credit Facility and entered into a New Credit Facility with the same
institution, which provides for a secured revolving line of credit in the
aggregate principal amount of $15.0 million. The New Credit Facility bears
interest at the prime rate. There were no amounts outstanding under the New
Credit Facility as of the date hereof (See Note 3 to the Consolidated Financial
Information).
The Company's future capital expenditures for planned maintenance will be
funded through cash flow from operations. In accordance with the Company's
strategic plan, Clearview intends to continue to acquire theaters and is
pursuing the acquisition of additional locations. However, in order to fund its
plan for continued growth, the Company may need to seek additional debt and
equity financing. Failure to obtain any such financing would require the Company
to significantly curtail its acquisition activities and reduce its planned
capital expenditures and could have a material adverse effect on the Company's
ability to achieve its business strategy. In the absence of additional
financing, the Company believes that it is capable of funding its current
operations (including principal and interest payments as they come due) through
internally-generated cash flow from operations and existing debt financing.
Quarterly Results and Seasonality
Historically, the most successful films have been released during the summer
months (July and August) and Thanksgiving through
<PAGE> 15
the year-end holiday season. Consequently, motion picture exhibitors generally
have had proportionality higher revenues during such periods, although
seasonality of motion picture exhibition revenues has become less pronounced in
recent years as studios have begun to release major motion pictures more evenly
throughout the year. The Company believes that its regular exhibition of art
films has contributed to a moderation in the seasonality of its own revenues as
compared to the seasonality of the revenues of some of its competitors.
Nevertheless the Company's revenues and income in any particular quarter will be
substantially the result of the commercial success of the particular films being
exhibited during such quarter.
Year 2000
The year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. This issue creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on transactions. The Company is currently evaluating the
potential impact of the year 2000 on the electronic data processing and other
information systems relevant to the Company's business and is developing a plan
to resolve this issue. The Company is also in the process of discussing the year
2000 issue with its major suppliers and financial institutions to ensure that
their systems are year 2000 compliant, so that no disruption of the Company's
operations will occur from their noncompliance. It is currently unknown what
potential adverse consequences could result from failure to properly mitigate
the year 2000 problem. Based on preliminary information, the costs of addressing
potential year 2000 problems are not currently expected to have a material
adverse impact on the Company's results of operations, financial position or
cash flows. The Company plans to hire an outside consulting firm to ensure that
the Company's systems are year 2000 compliant and to develop a related
contingency plan. The Company's preliminary timetable for addressing the year
2000 is to complete its own risk assessment activities in the third quarter of
1998, hire a year 2000 consultant at that time, and have all year 2000
remediation efforts complete, including contingency plans, by the end of the
first quarter 1999.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
During the quarter ended March 31, 1998, the Company issued a total of
14,782 shares of its common stock and 750 shares of its Class B Nonvoting
Cumulative Redeemable Preferred Stock ("Class B Preferred Stock"). During the
quarter ended June 30, 1998, the Company issued a total of 76,923 shares of its
common stock and 3,000 shares of its Class C Preferred Stock. On February 13,
1998, the Company issued 14,782 shares of its common stock, which represented
the number of shares with an aggregate average market value of $200,000 for the
ten trading days prior to February 13, 1998, to Clairidge Cinemas, Inc.
("Clairidge") as a portion of the purchase price under an Asset Purchase
Agreement dated as of February 13, 1998, by and among the Company, its
wholly-owned subsidiary CCC Clairidge Cinema Corp., and Clairidge, pursuant to
which CCC Claridge Cinema Corp. acquired a leasehold interest and certain
furniture, fixtures, equipment and personal property related to the operation of
six-screen theater in Montclair, New Jersey.
On March 31, 1998, the Company issued 540 shares of its Class B Preferred
Stock to Middlebrook Galleria Cinemas, Inc. ("Middlebrook"), as a portion of the
purchase price under an Asset Purchase Agreement dated November 14, 1997, by and
among the Company, its wholly-owned subsidiary CCC Middlebrook Cinema Corp., and
Middlebrook and Jessey Sayegh, as amended by an Amendment No. 1 dated as of
December 12, 1997 (the "Middlebrook Amendment No. 1"), pursuant to which CCC
Middlebrook Cinema Corp. acquired a leasehold interest and certain furniture,
fixtures, equipment and personal property related to the operation of a
ten-screen theater in Middlebrook, New Jersey. Under the Middlebrook Amendment
No. 1, the Company and Middlebrook agreed to issue the 540 shares of the
Company's Class B Preferred Stock to replace a promissory note made by the
Company in favor of Middlebrook in the amount of $540,000. It is the Company's
intention to redeem the Class B Preferred Stock with a portion of the proceeds
from the Notes and Class C Preferred Stock Offerings.
On March 31, 1998, the Company issued 210 shares of its Class B Preferred
Stock to C.J.M. Enterprises, Inc. ("CJM"), as a portion of the purchase price
under an Asset Purchase Agreement dated November 14, 1997, by and among the
Company, its wholly-owned subsidiary CCC Cedar Grove Cinema Corp., and CJM and
Jessey Sayegh, as amended by an Amendment No. 1 dated December 12, 1997 (the
"Cedar Grove Amendment No. 1"); pursuant to which CCC Cedar Grove Cinema Corp.
acquired a leasehold interest and certain furniture, fixtures, equipment and
personal property related to the operation of a five-screen theater in Cedar
Grove, New Jersey. Under the Cedar Grove Amendment No. 1, the Company and CJM
agreed to issue the 210 shares of the Company's Class B Preferred Stock to
replace a promissory note made by the Company in favor of CJM in the amount of
$210,000. It is the Company's intention to redeem the Class B Preferred Stock
with a portion of the proceeds from the Notes and Class C Preferred Stock
Offerings.
<PAGE> 16
On April 23, 1998 the Company designated a new series, consisting of 3,000
shares of its preferred stock, $.01 par value, as Class C Preferred Stock
pursuant to, and in accordance with the terms of, a Certificate of Designation
of Class C Convertible Preferred Stock of Clearview Cinema Group, Inc., dated as
of April 23, 1998 (the "Certificate of Designation"). Concurrently, the Company
entered into a Securities Purchase Agreement with Proprietary Convertible
Investments Group, Inc. (a/k/a Marshall Capital Management, Inc.) and issued the
3,000 shares of its Class C Preferred Stock for $2.97 million in cash, net of
offering costs. The Certificate of Designation and Securities Purchase Agreement
are included as Exhibit 3.01 (a) and Exhibit 10.01, respectively and are
incorporated by reference herein in their entirety.
On April 30, 1998, the Company issued 76,923 shares of its common stock in
connection with an Agreement and Plan of Merger dated April 30, 1998, by and
between the Company's subsidiary, CCC Mansfield Cinema Corp., and Warren County
Cinemas, Inc., a Delaware Corporation ("Warren Cinemas"), pursuant to which
Warren Cinemas was merged into CCC Mansfield Cinema Corp.
All of the shares of the Company's common stock, Class B Preferred Stock and
Class C Preferred Stock were issued in reliance on the exemption under Section
4(2) of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Date and Type of Meeting: On June 11, 1998 the Company held its Annual
Meeting of stockholders.
(b) Information concerning the election of directors: for this item, the
proxy statement filed on May 8, 1998 is incorporated by reference.
(c) Items voted on at the June 11, 1998 annual meeting:
- Election of Brett E. Mark as a Class I director for a three-year
term expiring in 2001. Votes for: 2,022,439; Votes
against/withheld: 3,800
- Approval of the 1997 Stock Incentive Plan, as amended and
restated. Votes for: 1,697,525; Votes against/withheld: 63,440;
Votes abstained: 21,700; Broker non-votes: 710,974.
- Retention of Price Waterhouse LLP as independent public
accountants (Price Waterhouse LLP became PricewaterhouseCoopers
LLP on July 1, 1998). Votes for: 2,470,579; Votes
against/withheld: 4,060; Votes abstained 19,000.
(d) Not applicable.
Item 5. Other Information
On August 13, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger among Cablevision, CCG Holdings Inc., a subsidiary
of Cablevision, and the Company, pursuant to which the Company would be
acquired by Cablevision. A copy of the press release describing the transaction
is attached hereto as Exhibit 99.01 and is incorporated by reference herein in
its entirety.
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are attached hereto or incorporated by
reference as part of this report.
<TABLE>
<CAPTION>
Exhibit Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
3.01 (a) Certificate of Designation of Class C Convertible Preferred Exhibit 4.01 to the current Report on Form
Stock of Clearview Cinema Group, Inc. 8-K filed April 23, 1998.
10.01 Securities Purchase Agreement dated as of April 23, 1998 by Exhibit 10.01 to the Current Report on Form
and between Clearview Cinema Group, Inc. and Proprietary 8-K filed April 23, 1998.
Convertible Investments Group, Inc. (a/k/a Marshall Capital
Management, Inc.)
27.01 Financial Data Schedule Filed herewith
99.01 Press Release dated August 13, 1998. Filed herewith
</TABLE>
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K under Items 5 and 7 thereof on
July 9, 1998, related to the Company's issuance of $80 million of its 10.875%
Senior Notes due 2008, the related Registration Rights Agreement, and the New
Credit Facility. The Company filed a report on Form 8-K under Items 5 and 7
thereof on June 15, 1998, which related to the Company's press release
announcing the issuance of $80 million of its 10.875% Senior Notes due 2008, and
the planned use of proceeds therefrom. The Company filed a report on Form 8-K
under Items 5 and 7 thereof on May 8, 1998, which related to the Company's April
23, 1998 designation, issuance and sale of 3,000 shares of its Class C Preferred
Stock. The Company entered into a Securities Purchase Agreement dated April 23,
1998, whereby the Company issued 3,000 shares of its Class C Preferred Shares to
the purchaser for an aggregate purchase price of $3,000,000 paid in cash on
April 24, 1998.
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CLEARVIEW CINEMA GROUP, INC.
August 14, 1998 /s/ A. DALE MAYO
----------------------------------------
Name: A. Dale Mayo
Title: Chairman of the Board, President
and Chief Executive Officer
August 14, 1998 /s/ JOAN M. ROMINE
----------------------------------------
Name: Joan M. Romine
Title: Treasurer and Chief Financial
Officer (Chief Accounting Officer)
<PAGE> 19
EXHIBIT INDEX
Exhibit Description Method of Filing
- ------- ----------- ----------------
27.01 Financial Data Schedule Filed herewith
99.01 Press Release dated
August 13, 1998 Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CLEARVIEW CINEMA GROUP, INC. JUNE 30, 1998 CONSOLIDATED FINANCIAL STATEMENTS IS
QUANTIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001038754
<NAME> CLEARVIEW CINEMA GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 21,240
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 187
<CURRENT-ASSETS> 21,986
<PP&E> 45,636
<DEPRECIATION> (4,353)
<TOTAL-ASSETS> 97,273
<CURRENT-LIABILITIES> 6,283
<BONDS> 80,000
750
0
<COMMON> 23
<OTHER-SE> 10,217
<TOTAL-LIABILITY-AND-EQUITY> 97,273
<SALES> 18,826
<TOTAL-REVENUES> 18,826
<CGS> 660
<TOTAL-COSTS> 18,882
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,626
<INCOME-PRETAX> (2,683)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,683)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,030)
<CHANGES> 0
<NET-INCOME> (4,712)
<EPS-PRIMARY> (2.71)
<EPS-DILUTED> (2.71)
</TABLE>
<PAGE> 1
Exhibit 99.1
FOR IMMEDIATE RELEASE
CABELVISION SYSTEMS CORPORATION TO ACQUIRE
CLEARVIEW CINEMA GROUP, INC.
NEW YORK REGION'S PREMIER THEATRE CIRCUIT
JOINS RADIO CITY MUSIC HALL, THE THEATER AT MADISON SQUARE GARDEN,
THE INDEPENDENT FILM CHANNEL, AMERICAN MOVIE CLASSICS AND BRAVO
IN CABLEVISION FAMILY OF ENTERTAINMENT PROPERTIES
CHATHAM, NJ AUGUST 13, 1998 - The Boards of Directors of Cablevision Systems
Corp. (ASE:CVC) and Clearview Cinema Group, Inc. (ASE:CLV) today announced that
they have approved a definitive agreement for Cablevision to acquire all
outstanding shares of Clearview for $24.25 per share, payable in a combination
of cash and Cablevision common stock on the basis of 55 percent cash and 45
percent Cablevision common stock. The gross value of the transaction, including
the assumption of Clearview debt, is $160 million.
Clearview is an operator and consolidator of community-based movie theatres that
screen a mix of first-run commercial, art and independent, and family-oriented
films. With 45 theatres and 254 screens owned and in development, Clearview
operates primarily in suburban communities in New York and New Jersey, matching
Cablevision's telecommunications service territories.
For Cablevision, the transaction expands its position in the New York area
entertainment marketplace, with a niche-market approach to motion picture
exhibition that complements its existing programming services and also provides
marketing, cross-promotion, and co-branding opportunities. For Clearview, the
acquisition delivers value for its shareholders and enhances its financial and
organizational resources.
"The acquisition of Clearview extends Cablevision's ability to deliver a unique
combination of live, film and televised entertainment to the New York market,"
said James L. Dolan, president and CEO of Cablevision. "We recognize the
potential of Clearview's business strategy and welcome Bud Mayo and his strong
entrepreneurial management team to the Cablevision family of companies."
Mr. Dolan continued, "With millions of patron visits each year to Clearview's
theatres, there is an opportunity to reach customers in the New York market who
purchase everything from telecommunications and programming services to live
sports, theatre and consumer electronics. And the best time to reach customers
is when they are making the decision to select a high-quality entertainment
option."
<PAGE> 2
"Cablevision is the perfect partner for Clearview," said Clearview Founder and
Chairman Bud Mayo. "Cablevision's array of entertainment properties and
telecommunications services will enhance both our growth strategy and our
ability to offer consumers superior entertainment value," Mr. Mayo continued.
The companies expect to complete the transaction during the fourth quarter of
1998. Following that, Clearview will operate as a wholly-owned subsidiary of
Cablevision Systems Corp. reporting to Madison Square Garden President and CEO
Dave Checketts, together with Radio City Entertainment and Cablevision's other
theatrical properties.
"This transaction dramatically expands our position in the retail entertainment
industry - doubting the current patron visits to Radio City Music Hall and
Madison Square Garden combined," said Mr. Checketts. "13 million customer
interactions per year will provide valuable co-branding and marketing
opportunities for Cablevision's wide range of telecommunications and
entertainment properties."
The acquisition of Clearview follows a series of strategic transactions over the
past 18 months which have created for Cablevision a wide-ranging family of
entertainment and telecommunications properties based in and around the New York
area. The properties include: Madison Square Garden, its facilities and teams;
the "Nobody Beats the Wiz" consumer electronics store; and Radio City
Entertainment, which holds a long term lease on New York's famed Radio City
Music Hall and produces A Christmas Carol, The Wizard of Oz (both at The Theater
at Madison Square Garden), The Radio City Christmas Spectacular (in New York and
five other cities) and co-produces Broadway's Scarlet Pimpernel and the upcoming
musical Footloose. These join Cablevision's new and exciting programming
services - including American Movie Classics, Bravo, The Independent Film
Channel and the MSG Metro Channels.
Credit Suisse First Boston acted as financial advisor to Clearview Cinema Group,
Inc. and provided a fairness opinion to its Board of Directors.
Company officials outlined the transaction's anticipated benefits for area
consumers and the two companies:
BENEFITS TO NEW YORK METRO-AREA CONSUMERS:
* Continued support for and access to superior-quality filmed entertainment,
offered in an environment that is an attractive alternative to the
mass-market "multiplex" approach.
* Preservation of Clearview's community-theatre concept and patron amenities
for New York Metro area. Clearview has been recognized by numerous
communities for its successful efforts at restoring class theatre buildings
and revitalizing family entertainment options in the areas it serves.
* Increased opportunities to enjoy discounted and bundled packages that
enhance entertainment and service values across the range of Cablevision
offerings.
<PAGE> 3
BENEFITS TO CABLEVISION:
* Entree into a unique market niche in the film exhibition business that
combines a successful business model and a highly-talented management team.
* Access to a customer base that matches Cablevision's core geographic
territory and the profile of its most desired customers. Next year,
Clearview expects as many as 6.5 million annual New York area customer
visits to its theatres and lobbies providing Cablevision the opportunity to
showcase its full family of offerings and interact with customers.
* A presence in community theatres that strengthens the relationship between
Cablevision and a key cable customer constituency - movie lovers -
reinforcing the Cablevision commitment to superior quality entertainment.
* A community-based showcase for offerings from Cablevision networks
including American Movie Classics, Bravo, The Independent Film Channel and
Romance Classics.
* The addition of an experienced and entrepreneurial management team.
BENEFITS TO CLEARVIEW:
* Access to integrated and strategic marketing platforms including
television, local advertising and direct consumer contact at New York's
leading venues.
* Inclusion in a family of companies with a demonstrated history and
appreciation of entrepreneurial and innovative niche marketing approaches.
* Increased attention from Cablevision's strong New York Metro area customer
base.
* Opportunities to provide the distributors of theatrical releases with
expanded customer contact and marketing exposure opportunities through
Cablevision's full roster of communications channels and live venues.
Cablevision Systems Corporation is one of the nation's leading
telecommunications and entertainment companies, and one of the largest operators
of cable television systems in the United States. Cablevision serves more than
3.4 million cable customers with major operations in the New York, Boston, and
Cleveland metropolitan areas. Its subsidiary, Rainbow Media Holdings, Inc.,
manages entertainment, news and sports programming, and is a 50-percent partner
in Fox Sports Net. The Company owns a majority interest in Madison Square Garden
L.P., which includes the arena complex, the New York Knicks, the New York
Rangers, as well as the MSG Network. Its Radio City Entertainment manages the
operations of New York's famed Radio City Music Hall, an holds a long-term lease
on the property.
Cablevision Lightpath, a wholly owned subsidiary, provides telephone service to
more than 1,000 businesses on Long Island and in Connecticut, while Optimum
Online offers high-speed online and Internet access via cable modems to
customers in the New York metro area. Cablevision also owns and operates the
Nobody Beats The Wiz stores.
Clearview Cinema Group, Inc. is a consolidator and operator of community-based
movie theatres. Clearview operates and has plans to develop 254 screens at 45
theatres, primarily in affluent suburban communities in the New York / New
Jersey metropolitan area. Clearview theatres offer a unique mix of first-run
commercial, art and family-oriented films targeted at sophisticated moviegoers
and families with young children.
<PAGE> 4
This news release contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results or developments may differ materially from those in the
forward-looking statements as a result of various factors. Factors which may
cause such differences to occur include but are not limited to (i) whether
expenses continue to increase or increase at a different rate than expected,
(ii) the level of growth in the companies', (iii) customer demand, competition,
the cost of programming and industry conditions, (iv) whether the transactions
described herein are consummated on the terms and at the times set forth (v) new
companies entering the companies' areas of operations, and (vi) the other risks
and uncertainties in the companies' business.
Contact:
Charles Schueler
Cablevision Systems Corp.
(516) 393-1399
Susan Pelcher
Cablevision Systems Corp.
(516) 393-1961
John Halecky
Clearview Cinema Group, Inc.
(973) 377-4646
