<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended....................................March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------------------ ---------------------
Commission file number 000-
-------------------------------------------------- ----
SILVER CINEMAS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 72-2656147
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4004 BELTLINE ROAD, SUITE 205, ADDISON, TEXAS 75001-4363
(Address of principal executive offices)
(Zip Code)
(972) 503-9851
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 139,808 shares of common stock
as of May 14, 1999
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balanced Sheets as of March 31, 1999 (unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SILVER CINEMAS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
<S> <C> <C>
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 6,214,168 $ 2,880,955
Inventories 564,911 560,886
Receivables 653,576 1,210,328
------------- -------------
Total current assets 7,432,655 4,652,169
THEATER PROPERTIES AND EQUIPMENT, Net 66,115,441 66,913,041
GOODWILL - Net 49,851,313 49,981,350
OTHER ASSETS - Net 11,392,979 10,845,858
------------- -------------
TOTAL $ 134,792,388 $ 132,392,418
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 110,000 $ 110,000
Current portion of capital lease obligations 313,861 306,284
Accounts payable 780,280 522,733
Accrued film rentals 2,763,822 2,098,791
Accrued payrolls 1,453,633 1,190,914
Accrued interest 4,815,250 2,209,500
Accrued property taxes and other liabilities 1,523,772 1,646,509
------------- -------------
Total current liabilities 11,760,618 8,084,731
LONG-TERM DEBT, less current portion 100,000,000 100,110,000
CAPITAL LEASE OBLIGATIONS, less current obligations 4,332,984 4,414,299
OTHER LONG-TERM OBLIGATIONS 2,114,510 2,198,380
------------- -------------
Total liabilities 118,208,112 114,807,410
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY: Series preferred stock, 100,000 shares authorized, no
shares issued Series A preferred stock, $.01 par value, 400,000 shares
authorized,
359,874 shares issued and outstanding at March 31, 1999
and December 31, 1998 35,987,442 35,987,442
Common stock, $.01 par value; 200,000 shares authorized, 139,808 and
140,458 shares issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 1,398 1,405
Additional paid-in capital 138,410 139,053
Stockholder notes receivable (201,780) (201,780)
Accumulated deficit (19,341,194) (18,341,112)
------------- -------------
Total stockholders' equity 16,584,276 17,585,008
------------- -------------
TOTAL $ 134,792,388 $ 132,392,418
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
SILVER CINEMAS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
<S> <C> <C>
REVENUES:
Admissions $ 20,388,269 $ 2,560,296
Concessions 7,793,550 2,129,201
Other 413,262 113,230
------------ ------------
Total 28,595,081 4,802,727
COSTS AND EXPENSES:
Costs of operations:
Film rentals 8,387,981 985,759
Concessions supplies 1,404,944 309,394
Salaries and wages 4,210,896 855,060
Occupancy costs 4,413,847 917,011
Advertising 1,016,731 144,303
Utilities and other 3,634,412 816,061
General and administrative expenses 1,880,607 613,322
Depreciation and amortization 2,084,607 475,850
------------ ------------
Total 27,034,025 5,116,760
------------ ------------
OPERATING INCOME (LOSS) 1,561,056 (314,033)
OTHER INCOME (EXPENSE):
Interest expense (2,753,621) (156,542)
Amortization of debt issue costs (165,747) (34,119)
Interest income and other expense, net 93,067 9,802
Gain on sale of theater 265,165
------------ ------------
Total (2,561,136) (180,859)
------------ ------------
NET LOSS (1,000,080) (494,892)
PREFERRED STOCK DIVIDENDS (581,455) (246,254)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (1,581,535) $ (741,146)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
SILVER CINEMAS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,000,080) $ (494,892)
Noncash items in net loss:
Depreciation and amortization 2,250,354 509,969
Straight-line rent adjustment 61,242
Gain on sale of theater (265,165)
Amortization of long-term liabilities (68,870)
Cash from (used for) working capital:
Receivables and other 556,752 53,519
Accounts payable 257,547 557,328
Accrued liabilities 3,349,521 (940,419)
------------ ------------
Net cash from (used for) operating activities 5,141,301 (314,495)
------------ ------------
INVESTING ACTIVITIES:
Acquisitions of theater properties and equipment (802,816) (4,904,605)
Sale of theater 1,552,395
Additions to theater properties and equipment (1,537,882) (627,786)
Increase in other assets (740,783) (302,223)
------------ ------------
Net cash used for investing activities (1,529,086) (5,834,614)
------------ ------------
FINANCING ACTIVITIES:
Payments of debt and capital leases (183,738) (3,876,847)
Increase in debt issue costs (94,614) (134,936)
Issuance (repurchase) of capital stock (650) 10,000,300
------------ ------------
Net cash from (used for) financing activities (279,002) 5,988,517
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,333,213 (160,592)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,880,955 276,497
------------ ------------
End of period $ 6,214,168 $ 115,905
============ ============
SUPPLEMENTAL INFORMATION -
Cash paid for interest $ 147,870 $ 230,214
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
SILVER CINEMAS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Silver Cinemas International, Inc. and its subsidiaries
(collectively referred to as the "Company") own or lease and operate
motion picture theaters.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - The
accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and
cash flows for the periods presented have been included. Results of
operations for the periods presented herein are not necessarily indicative
of results of operations for any subsequent quarter or the year ending
December 31, 1999.
The information included in this Form 10-Q should be read in conjunction
with the audited financial statements and the notes thereto for the year
ended December 31, 1998 included in the Annual Report filed on Form 10-K
by the Company under the Securities Exchange Act of 1934 on March 31,
1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those amounts.
2. THEATER PROPERTIES AND EQUIPMENT
The following is a summary of theater properties and equipment:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
Land $ 1,810,062 $ 1,810,062
Buildings 10,685,601 10,689,846
Leasehold interests and improvements 32,088,382 31,770,730
Theater furniture and equipment 25,744,468 26,295,904
Theaters under construction 1,428,897 897,181
------------ ------------
Total 71,757,410 71,463,723
Less accumulated depreciation and amortization (5,641,969) (4,550,682)
------------ ------------
Theater properties and equipment - net $ 66,115,441 $ 66,913,041
============ ============
</TABLE>
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<PAGE> 7
3. OTHER ASSETS
The following is a summary of other assets:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
Noncompete agreements $ 2,026,400 $ 2,026,400
Debt issue costs 4,650,273 4,555,659
Organization costs 52,431 52,431
----------- -----------
Total 6,729,104 6,634,490
Less accumulated amortization (1,562,538) (1,274,262)
----------- -----------
Net 5,166,566 5,360,228
Employee notes receivable 136,681 136,681
Equipment, lease and other deposits 6,089,732 5,348,949
----------- -----------
Total $11,392,979 $10,845,858
=========== ===========
</TABLE>
4. DEBT
The following is a summary of debt:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
Senior subordinated notes $ 100,000,000 $ 100,000,000
Other 110,000 220,000
------------- -------------
Total 100,110,000 100,220,000
Less current portion (110,000) 110,000
------------- -------------
Long-term debt, less current portion $ 100,000,000 $ 100,110,000
============= =============
</TABLE>
The senior subordinated notes bear interest at 10 1/2% and are due in
2005. The notes are redeemable, in whole or in part, at the option of the
Company at a redemption price of 107.875% in 2001, 105.250% in 2002,
102.625% in 2003 and 100% in 2004 and thereafter plus any accrued but
unpaid interest. In addition, on or before April 15, 2001, the Company
may, at its option and subject to certain requirements, use an amount
equal to the net cash proceeds from one or more public equity offerings,
as defined, to redeem up to an aggregate of 35% of the principal amount of
the notes originally issued at a redemption price of 110.5% plus any
accrued but unpaid interest. Upon a change in control of the Company, as
defined in the indenture, the Company will be required to make an offer to
repurchase all or any part of each holder's notes at a price equal to 101%
of the principal amount thereof plus interest. The notes also include
restrictive covenants relative to the incurrence of additional
indebtedness, the payment of dividends and other matters.
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<PAGE> 8
5. CAPITAL STOCK
As of March 31, 1999 and December 31, 1998, aggregate Series A Preferred
Stock dividends of $3,357,690 and $2,776,235, respectively, are in
arrears.
6. SEGMENTS
The Company identifies its segments based on type of films exhibited and
management responsibility. Segment profit (loss) is measured as operating
profit (loss), which is defined as profit (loss) before other income
(expense). During the three months ended March 31, 1998, the Company had
no operations in the Specialty Film segment. Information on segments and a
reconciliation to net loss for the three months ended March 31, 1999
follows (in thousands):
<TABLE>
<CAPTION>
SILVER
LANDMARK CINEMAS
(SPECIALTY (SECOND AND
FILM) FIRST-RUN) CONSOLIDATED
<S> <C> <C> <C>
Revenues $ 18,333 $ 10,262 $ 28,595
Depreciation and amortization 1,156 929 2,085
Operating income (loss) 3,383 (1,822) $ 1,561
Interest expense and debt issue costs (2,919)
Interest income and other expense 93
Gain on sale of theater 265
------------
Net loss $ (1,000)
============
</TABLE>
7. INCOME TAXES
As a result of net losses and the Company's inability to recognize a
benefit for its deferred tax assets, the Company did not record a
provision for income taxes in the three months ended March 31, 1999 and
1998.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
OVERVIEW
The following analysis of the financial condition and results of operations
of Silver Cinemas International ("Silver Cinemas") and its wholly owned
subsidiaries, Silver Cinemas, Inc. ("Silver") and Landmark Theatre Corp.
("Landmark") (collectively referred to as the "Company") should be read in
conjunction with the Condensed Consolidated Financial Statements and Notes
thereto included elsewhere herein.
Since inception in May 1996, the Company has experienced rapid revenue
growth through theater acquisition and the development of new theaters. During
fiscal year 1996, the Company acquired 18 theaters with 102 screens. During
fiscal year 1997, the Company acquired eight additional theaters with a total of
52 screens, constructed one theater with ten screens and added one screen to an
existing theater. During fiscal year 1998, the Company acquired 81 theaters with
372 screens, opened three newly constructed theaters with 18 screens, closed 4
theaters with 10 screens, and terminated the management agreement on 2 theaters
with 11 screens. In the current fiscal year through March 31, 1999, the Company
acquired 1 specialty film theatre with 4 screens and sold one specialty film
theater with 3 screens (the Company will continue to operate this theater
through May 1999 on a short term lease arrangement), bringing the Company's
total theater and screen count to 106 and 538, respectively. The Company expects
that its future revenue growth will be derived primarily from the operation of
its existing theaters, the acquisition and construction of specialty film
theaters and the addition of screens and seating to existing theaters.
In the three months ending March 31, 1999, the Company incurred a net loss
of $1.0 million compared with a net loss for the same period of 1998 of $0.5
million.
The consolidated operating income for the first three months of 1999 was
$1.6 million, compared with an operating loss of $0.3 million for the three
months ending March 31, 1998. Revenues for the three months ending March 31,
1999 grew $23.8 million, or 495%, to $28.6 million, as a result of the Company's
acquisitions during the 1998. Expenses increased $21.9 million, or 428%.
SEGMENT DATA
A summary of the results of operations for each of the Company's principal
business segments is displayed in Note 6 to the condensed consolidated financial
statements.
The Company's business operations are aligned into the following two
segments: Landmark (Specialty Film) and Silver Cinemas (primarily second-run).
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<PAGE> 10
RESULTS OF OPERATIONS OF LANDMARK
The following table sets forth information for certain predecessor and
successor fiscal periods used to present, without adjustment, information for
the three months ended March 31, 1999 and 1998. This information is provided
herein for the purpose of presenting comparisons for such periods; however, the
Company makes no representations as to its usefulness for such purpose.
<TABLE>
<CAPTION>
Unaudited Unaudited
---------------------- ----------------------
Three Months Ended Three Months Ended
March 31, March 31,
1998 1999
---------------------- ----------------------
<S> <C> <C> <C> <C>
(Predecessor) (Successor)
Revenues:
Admissions $ 12,643 80.7% $ 14,942 81.5%
Concessions 2,813 18.0 3,203 17.5
Other 204 1.3 188 1.0
---------------------- ----------------------
Total 15,660 100.0 18,333 100.0
Costs and expenses
Cost of operations:
Film rentals 5,924 37.8 6,370 34.7
Cost of concessions 581 3.7 560 3.1
Payroll and related expenses 2,470 15.8 2,199 12.0
Occupancy costs 1,646 10.5 1,710 9.3
Advertising 278 1.8 545 3.0
Other theater operating costs 1,295 8.3 1,574 8.6
---------------------- ----------------------
Total 12,194 77.9 12,958 70.7
General & administrative 1,357 8.7 836 4.6
Depreciation and amortization 1,290 8.2 1,156 6.3
---------------------- ----------------------
Operating income (loss) $ 819 5.2% $ 3,383 18.4%
====================== ======================
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998
Information for the three months ended March 31, 1998 represents results
generated under prior ownership.
Admissions Revenues. Admissions revenues increased $2.3 million or 18.2% to
$14.9 million during the three months ended March 31, 1999 compared to the three
months ended March 31, 1998. The increased admissions revenue was primarily the
result of a 19.7% increase in attendance from 2,102,726 to 2,516,497 partially
offset by a decrease in the average ticket price from $6.01 to $5.94. Landmark
benefits from having an average ticket price that is substantially higher than
the national average ticket and strong customer loyalty due to their dedication
to the specialty film market.
Concessions Revenues. Concessions revenues increased $0.4 million or 13.9%
to $3.2 million during the three months ended March 31, 1999 compared to the
three months ended March 31, 1998. The increase in concession revenue was
primarily the result of the increase in attendance, but was partially offset by
a decrease in the average concession sale per attendee from $1.34 to $1.27.
Film Expenses. Film rental expenses as a percentage of admissions revenue
decreased from 46.9% to 42.6% as a result of the extended play weeks of several
successful releases during the fourth quarter of 1998. Landmark's film rental
rates are typically below film rental rates of first-run theaters, which average
in the low to mid 50% range.
Cost of Concessions. Concession costs as a percentage of concession revenue
decreased for the three months ended March 31, 1999 compared to the three months
ended March 31, 1998 from 20.7% to 17.5%. The reduction is primarily
attributable the Company's negotiated volume discounts on the traditional
theater concession items including fountain drinks. The Company put most of the
volume discounts in place during the second and third quarters of 1998.
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<PAGE> 11
Payroll and Related Expense. Payroll expense decreased from $2.5 million for
the three months ended March 31, 1998 to $2.2 million for the three months ended
March 31, 1999. Payroll per attendee, a key measure for staff efficiency,
decreased from $1.17 per attendee to $0.87 per attendee. The decrease is
primarily attributable to the Company's efforts to train theater managers to
adjust their staffing levels to the level of business.
Occupancy Costs. Occupancy costs increased from $1.6 million for the three
months ended March 31, 1998 to $1.7 million for the three months ending March
31, 1999. This increase was primarily the result of two new theaters opened in
1998.
Advertising Expenses. Advertising expenses increased $0.3 million to $0.5
million for the three months ending March 31, 1999 compared to the three months
ending March 31, 1998. This increase was the result of increased print
advertising associated with promoting the film product.
General and Administrative Expenses. General and administrative expenses
decreased from $1.4 million for the three months ended March 31, 1998 to $0.8
million for the three months ended March 31, 1999. The decrease was primarily
the result of the elimination of duplicate staff positions following the
acquisition.
RESULTS OF OPERATIONS OF SILVER CINEMAS
The following table sets forth for the fiscal periods indicated the
percentage of total revenues represented by certain items:
<TABLE>
<CAPTION>
Unaudited Unaudited
-------------------- --------------------
Three Months Ended Three Months Ended
March 31, March 31,
1998 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenues:
Admissions $ 2,560 53.3% $ 5,446 53.1%
Concessions 2,129 44.3 4,591 44.7
Other 113 2.4 225 2.2
-------------------- --------------------
Total 4,802 100.0 10,262 100.0
Costs and expenses
Cost of operations:
Film rentals 986 20.5 2,018 19.7
Cost of concessions 309 6.4 845 8.3
Payroll and related expenses 855 17.8 2,012 19.6
Occupancy costs 917 19.1 2,704 26.3
Advertising 144 3.0 472 4.6
Other theater operating costs 816 17.0 2,060 20.0
-------------------- --------------------
Total 4,027 83.8 10,111 98.5
General & administrative 613 12.8 1,044 10.2
Depreciation and amortization 476 9.9 929 9.1
-------------------- --------------------
Operating income (loss) $ (314) (6.5)% $(1,822) (17.8)%
==================== ====================
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998
Admissions Revenues. Admissions revenue increased $2.9 million or 112.7% to
$5.4 million during the three months ending March 31, 1999 compared to the three
months ending March 31, 1998. The increased admission revenue was primarily the
result of the addition of 31 acquired or constructed theaters representing 228
screens. The average ticket price for the circuit decreased from $1.67 to $1.62
primarily as the result of market-related price adjustments.
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<PAGE> 12
Concession Revenues. Concession revenue increased $2.5 million or 115.6% to
$4.6 million during the three months ended March 31, 1999 compared to the three
months ended March 31, 1998. The increased concession revenue was primarily the
result of the newly acquired and constructed theaters but was partially offset
by 1.4% decrease in the average concession sale per attendee from $1.38 to $1.36
due primarily to the implementation of the Company's reduced price concession
menu aimed at stabilizing attendance at several locations.
Film Rental Expenses. Film rental expenses as a percentage of admissions
revenues declined from 38.5% for the three months ended March 31, 1998 compared
to 37.1% for the three months ended March 31, 1999. The decrease was primarily
attributable to the acquisition of 31 second-run theaters during 1998, which
increased the percentage of admission revenue that was contributed by second-run
theaters when compared to March 31, 1998.
Concession Supplies Expenses. Concession costs as a percentage of concession
revenue for the period to period comparison increased from 14.5% of concession
sales to 18.4% primarily due the implementation of the Company's reduced price
concession menu at several locations. Management believes this new pricing
policy has assisted in stabilizing attendance levels at most theaters where the
policy has been implemented.
Salaries and Wage Expenses. Payroll expense increased from $0.9 million for
the three months ended March 31, 1998 to $2.0 million for the three months ended
March 31, 1999 due primarily to the addition of the newly acquired and
constructed theaters. Payroll per attendee, a key measure for staff efficiency,
increased from $0.56 per attendee to $0.60 per attendee. The increase is
primarily attributable to the relative drop in attendance.
Facility Lease Expenses. Facility leases increased $1.8 million to $2.7
million or 194.9% for the three months ended March 31, 1999 from $0.9 million
for the three months ended March 31, 1998. The increase in facility lease
expense is primarily attributable to the additional theaters acquired and
constructed during 1998. Included in facility lease expense for the three months
ended March 31, 1999 is noncash rent expense of $0.1 million.
Advertising Expenses. Advertising expenses increased $0.3 million or 227.8%
from the three months ended March 31, 1998 to $0.5 million for the three months
ended March 31, 1999. Advertising expenses comprised 4.6% and 3.0% of total
revenues for the three months ended March 31, 1999 and 1998 respectively.
Utilities and Other Expenses. Utilities and other expenses increased from
$0.8 million to $2.1 million or 152.5% for the three months ended March 31, 1999
compared to the three months ended March 31, 1998. The increase was primarily
the result of the additional theaters operated at March 31, 1999 compared to
March 31, 1998.
General and Administrative Expenses. General and administrative expenses
increased from $0.6 million to $1.0 million or 70.3% for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998. The increase
was primarily the result of increased payroll costs associated with the
Company's expansion.
Depreciation and Amortization. Depreciation and amortization increased $0.5
million to $0.9 million or 95.2% for the year ended March 31, 1999 from $0.5
million for the three months ended March 31, 1998. The increase was primarily
the result of theater property additions associated with the Company's expansion
efforts.
Operating Loss. The operating loss for the three months ended March 31, 1999
increased by $1.5 million to $1.8 million or 17.8% of total revenues, compared
to an operating loss of $0.3 million, or 6.5% of total revenues, for the three
months ended March 31, 1998.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Revenues are collected in cash, primarily through box office receipts and
the sale of concession items. Because revenues are received in cash prior to the
payment of related expenses, there are, in effect, no accounts receivable. This,
in combination with minimal inventory requirements, creates a negative working
capital position, which provides certain operating capital.
During the first quarter of 1999, the Company's capital requirements were
the result of a theater acquisition, the renovation and upgrade of existing
theaters, and the continued construction of a discount theater in Joliet, IL.
Such capital expenditures were financed with a November 1998 equity sale, and
internally generated cash.
"Same Theater" attendance at the Company's Silver theaters has declined by
approximately 12% for the three months ending March 31, 1999 compared to the
three months ended March 31, 1998. Management believes this trend is the result
of several factors including the development of megaplexes in certain markets,
changes in film and video release patterns, and the overall strength of the US
economy. If this trend continues, the Company's ability to generate liquidity
could be negatively impacted.
The preceding statements concerning the attendance declines may constitute
forward-looking statements within the meaning of the federal securities laws.
The Company warns that many factors could, individually or in aggregate, lead to
further declines in theater attendance, including, without limitation, the
following: consumer spending trends and habits; increased competition in the
theater industry; adverse developments in economic factors influencing the
exhibition industry; and lack of demand for films by the general public. The
Company does not expect to update such forward-looking statements continually as
conditions change, and readers should consider that such statements pertain only
to the date hereof.
On January 15, 1999, a wholly owned subsidiary of Landmark purchased the
stock of Dinger Brothers, Inc. which operates a 4-screen specialty-film theater,
located in Texas, for approximately $0.8 million. The purchase was financed by a
November 1998 equity sale and internally generated cash.
On March 5, 1999, the Company sold its specialty theater in Sacramento, CA
to a non-theater entity for approximately $1.6 million. The Company will
continue to operate this theater on a month-to-month basis through May 1999 as
the new owner completes plans to redevelop the site. On April 2, 1999, the
Company sold its first-run theater in Burton, MI for approximately $2.0 million.
The net proceeds from both sales are being used to continue the Company's
new-build expansion program.
On April 6, 1999 the Company entered into a Letter of Credit and
Reimbursement Agreement between the Company and NationsBank, N.A. The agreement
allows the Company to enter into up to $5.3 million in letters of credit
associated with specific to-be-built theaters. Under certain circumstances,
including the failure of the Company to pay amounts drawn under the letters of
credit, Brentwood Associates Buyout Fund II, L.P has agreed to purchase a
participation from the bank in outstanding letters of credit and reimbursement
obligations. This agreement released approximately $3.4 million in cash that was
securing previously issued letters of credit.
In April 1998 the Company obtained a commitment for a $40.0 revolving line
of credit from DLJ Capital Funding, Inc. which expires on June 30, 1999. The
terms of the commitment were based on assumptions of the business prior to the
acquisitions of Landmark and StarTime in April 1998. Due to recent attendance
trends in the second-run segment, which have impacted the Company's performance,
the terms of the commitment are no longer economically beneficial. Therefore,
the Company does not anticipate entering into a revolving credit facility under
the existing terms. As such, Donaldson, Lufkin & Jenrette has been retained to
evaluate potential alternative sources of capital to complete the Company's
new-build program, pursue selected acquisitions and for general corporate
purposes.
As of March 31, 1999, the Company had $3.4 million of Series A Preferred
Stock dividends in arrears.
-13-
<PAGE> 14
INFLATION
Inflation has not had a significant impact on the Company's operations to
date.
SEASONALITY
The Company's quarterly results of operations tend to be affected by film
release patterns by producers and distributors, and the commercial success of
films. In the past the year-end holiday season and the summer resulted in
higher-than-average quarterly revenues for the Company.
YEAR 2000
The "Year 2000 Issue" is the result of computer programs that use two digits
instead of four to record the applicable year. Computer programs that have
date-sensitive software might recognize a date using "00" as the Year 1900
instead of the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other events,
a temporary inability to process transactions or engage in similar normal
business activities. The Year 2000 is a leap year, which may also lead to
incorrect calculations, functions or system failure. The Company has established
a committee, which is currently gathering, testing and producing information
about the Company's operations systems impacted by the Year 2000 transition. At
the present time, the Company has completed its assessment of the day-to-day
operating and reporting systems for all theaters and has contacted the various
vendors to ensure that all necessary modifications and upgrades will be
available for implementation by June 30, 1999. The Company's financial reporting
and operational databases associated with the corporate offices have been
tested, and modified as needed to ensure compliance with the Year 2000. All
projects to modify the existing systems to ensure Year 2000 compliance are
expected to be completed by September 30, 1999. Related costs are not
anticipated to exceed $0.1 million at the completion of the project, and will be
funded through internally generated cash flow.
Under the "most reasonably likely worst case scenario" the Company's point
of sale equipment will fail to operate at the theater level. In this event, the
Company could return to a manual system of recording daily admission and
concession revenues, which are primarily received in cash. Given the Company's
daily reliance on point of sale equipment, theaters are currently trained in
operating within a manual system when the point of sale equipment is
occasionally inoperable. The impact from a system failure at the corporate
office would only effect financial reporting and analysis of operating results.
The Company is still in the assessment phase with respect to its significant
suppliers and critical business partners to determine the extent to which the
Company may be vulnerable in the event that those parties fail to properly
remediate their own Year 2000 issues. The major third party vendors include
financial institutions, utility suppliers, providers of communication services
and parties that provide goods or services that are essential to the Company's
operations. While the Company is not presently aware of any such significant
exposure, there can be no guarantees that the systems of third-parties on which
the Company relies will be converted in a timely manner, or that failure to
properly convert by another company would not have a material adverse effect on
the Company. The Company will develop appropriate contingency plans in the event
that a significant exposure is identified relative to the dependence on
third-party systems.
Although the Year 2000 assessment has not been completed, management
currently believes, based on available information, that resolving these matters
will not have a material adverse impact on the Company's financial position,
results of operations or cash flows.
The preceding statements concerning the Company's efforts and management's
expectations, relating to year 2000 compliance and the incremental costs
associated therewith may constitute forward-looking statements within the
meaning of the federal securities laws. The Company warns that many factors
could, individually or in aggregate, adversely impact the company's ability to
achieve year 2000 compliance including without limitation, the availability and
costs of programming and testing resources, vendors' ability to modify
proprietary software and unanticipated problems identified in the ongoing
compliance review. The Company does not expect to update such forward-looking
statements continually as conditions change, and readers should consider that
such statements pertain only to the date hereof.
-14-
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable to the Registrant.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time a party to legal proceedings that
arise in the ordinary course of business. Management does not believe
that the resolution of any threatened or pending legal proceedings
will have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The senior subordinated notes include a restrictive covenant relative
to the payment of dividends. As of March 31, 1999, aggregate Series A
Preferred Stock dividends of $3.4 million are in arrears.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There have been no matters to a vote of the holders of securities of
the Company since the Company became subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT
NO. DESCRIPTION
------- -----------
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
On January 15, 1999, the Company filed a report on Form 8-K
dated January 12, 1999, announcing the resignation of Thomas
J. Owens from the positions of President and Director of
Silver Cinemas International.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILVER CINEMAS INTERNATIONAL, INC.
By /s/ STEVEN L. HOLMES
---------------------------------
Steven L. Holmes
Chief Executive Officer and
Chief Financial Officer
-16-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET OF SILVER CINEMAS, INTERNATIONAL,
INC. AS OF MARCH 31, 1999, AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,214,168
<SECURITIES> 0
<RECEIVABLES> 653,576
<ALLOWANCES> 0
<INVENTORY> 564,911
<CURRENT-ASSETS> 7,432,655
<PP&E> 71,757,410
<DEPRECIATION> 5,641,969
<TOTAL-ASSETS> 134,792,388
<CURRENT-LIABILITIES> 11,760,618
<BONDS> 100,000,000
0
35,987,442
<COMMON> 1,398
<OTHER-SE> 19,404,564
<TOTAL-LIABILITY-AND-EQUITY> 134,792,388
<SALES> 0
<TOTAL-REVENUES> 28,595,081
<CGS> 0
<TOTAL-COSTS> 25,153,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,919,368
<INCOME-PRETAX> (1,000,080)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,000,080)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,000,080)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
