<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, 2000
----------------------------------
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. 142,046 shares of common stock
as of May 14, 2000
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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, 2000 (unaudited)
and December 31, 1999 3
Condensed Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
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 16
Signatures 17
</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 2000 1999
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,846,049 $ --
Inventories 526,470 543,656
Receivables 694,421 1,025,754
Prepaid rent and other 2,161,780 2,080,460
------------- --------------
Total current assets 6,228,720 3,649,870
THEATER PROPERTIES AND EQUIPMENT, Net 65,090,026 67,088,707
GOODWILL - Net 45,767,541 46,930,594
OTHER ASSETS - Net 13,720,831 16,592,799
------------- --------------
TOTAL $ 130,807,118 $ 134,261,970
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 125,504,906 $ 119,465,800
Current portion of capital lease obligations 261,827 384,398
Net overdrafts of cash accounts 1,243,160
Accounts payable 3,013,695 2,393,909
Accrued film rentals 2,619,680 2,602,415
Accrued payrolls 1,054,807 1,443,154
Accrued property taxes and other liabilities 4,431,848 4,023,284
Accrued interest 4,815,250 2,198,500
------------- --------------
Total current liabilities 141,702,013 133,754,620
CAPITAL LEASE OBLIGATIONS, less current obligations 4,072,516 4,029,900
OTHER LONG-TERM OBLIGATIONS 1,445,415 1,469,019
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Series preferred stock, 100,000 shares authorized, no shares issued
Series A preferred stock, $.01 par value, 400,000 shares authorized,
358,050 and 358,470 shares issued and outstanding at March 31, 2000
and December 31, 1999 35,805,036 35,847,036
Convertible preferred stock, $.01 par value, 5,000 shares authorized, 3,000 shares
issued and outstanding 300,000 300,000
Common stock, $.01 par value; 500,000 shares authorized, 142,046 and
145,144 shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 1,420 1,451
Additional paid-in capital 142,162 142,162
Stockholder notes receivable (51,780) (51,780)
Deferred compensation (224,940) (262,470)
Accumulated deficit (52,384,724) (40,967,968)
------------- --------------
Total stockholders' deficiency (16,412,826) (4,991,569)
------------- --------------
TOTAL $ 130,807,118 $ 134,261,970
============= ==============
</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,
----------------------------
2000 1999
<S> <C> <C>
REVENUES:
Admissions $ 17,570,955 $ 20,388,269
Concessions 6,749,922 7,793,550
Other 430,637 413,262
------------ ------------
Total 24,751,514 28,595,081
COSTS AND EXPENSES:
Costs of operations:
Film rentals 7,516,965 8,387,981
Concessions supplies 1,291,999 1,404,944
Salaries and wages 3,956,664 4,210,896
Occupancy costs 4,398,281 4,413,847
Advertising 833,140 1,016,731
Utilities and other 3,405,746 3,634,412
General and administrative expenses 1,978,359 1,880,607
Depreciation and amortization 2,126,003 2,084,607
Asset impairment and restructuring charges 6,500,000
------------ ------------
Total 32,007,157 27,034,025
------------ ------------
OPERATING INCOME (LOSS) (7,255,643) 1,561,056
OTHER INCOME (EXPENSE):
Interest expense (3,635,807) (2,753,621)
Amortization of debt issue costs (541,031) (165,747)
Interest income and other expense, net 53,225 358,232
------------ ------------
Total (4,123,613) (2,561,136)
------------ ------------
NET LOSS (11,379,256) (1,000,080)
PREFERRED STOCK DIVIDENDS (690,773) (581,455)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(12,070,029) $ (1,581,535)
============ ============
</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,
----------------------------
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(11,379,256) $ (1,000,080)
Noncash items in net loss:
Depreciation and amortization 2,667,034 2,250,354
Straight-line rent adjustment 57,171 61,242
Gain on sale of theater (265,165)
Asset impairment and restructuring charges 6,500,000
Amortization of long-term liabilities (68,870)
Cash from (used for) working capital:
Receivables and other 267,199 556,752
Accounts payable 619,786 257,547
Accrued liabilities 2,803,338 3,349,521
------------ ------------
Net cash from operating activities 1,535,272 5,141,301
------------ ------------
INVESTING ACTIVITIES:
Acquisitions of theater properties and equipment (802,816)
Sale of theater 1,552,395
Additions to theater properties and equipment (4,422,484) (1,537,882)
Decrease (increase) in other assets 2,185,423 (740,783)
------------ ------------
Net cash used for investing activities (2,237,061) (1,529,086)
------------ ------------
FINANCING ACTIVITIES:
Decrease in bank overdraft (1,243,160)
Proceeds from the issuance of debt 6,000,000
Payments of debt and capital leases (189,955) (183,738)
Increase in debt issue costs (977,016) (94,614)
Issuance (repurchase) of capital stock (42,031) (650)
------------ ------------
Net cash from (used for) financing activities 3,547,838 (279,002)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,846,049 3,333,213
CASH AND CASH EQUIVALENTS:
Beginning of period -- 2,880,955
------------ ------------
End of period $ 2,846,049 $ 6,214,168
============ ============
SUPPLEMENTAL INFORMATION -
Cash paid for interest $ 738,642 $ 147,870
============ ============
</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, 2000.
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, 1999 included in the Annual Report filed on Form 10-K
by the Company under the Securities Exchange Act of 1934 on April 15,
2000.
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.
GOING CONCERN - The Company has experienced significant operating losses
since inception, has a working capital deficiency, expects that it will
continue to incur net losses, and is not in compliance with certain
requirements of its financing arrangements (see Note 4). The Company's
operations are subject to certain risks and uncertainties including, among
others: (i) limited operating history; (ii) dependence on motion picture
production and performance; (iii) relationships with film distributors;
and (iv) competition by entities with greater financial and other
resources. There can be no assurance that the Company will be successful
in achieving or sustaining profitability and positive cash flow in the
future.
The Company will be required to restructure its current financing
arrangements and/or seek additional financing sufficient to meet its
working capital needs for fiscal 2000. Given that no assurance can be made
that the Company could restructure its current financing arrangements
and/or obtain additional financing, substantial doubt exists about the
Company's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on
the recoverability and classifications of assets or liabilities that may
result from the outcome of these uncertainties.
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.
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<PAGE> 7
2. THEATER PROPERTIES AND EQUIPMENT
The following is a summary of theater properties and equipment:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
Land $ 1,810,062 $ 1,513,200
Buildings 10,685,601 9,744,723
Leasehold interests and improvements 35,072,712 32,356,325
Theater furniture and equipment 26,743,849 26,415,686
Theaters under construction 5,500,176 6,311,538
------------ ------------
Total 79,812,400 76,341,472
Less accumulated depreciation and amortization (14,722,374) (9,252,765)
------------ ------------
Theater properties and equipment - net $ 65,090,026 $ 67,088,707
============ ============
</TABLE>
3. OTHER ASSETS
The following is a summary of other assets:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
Noncompete agreements $ 2,026,400 $ 2,026,400
Debt issue costs 12,729,823 11,752,807
------------ ------------
Total 14,756,223 13,779,207
Less accumulated amortization (4,429,044) (2,765,483)
------------ ------------
Net 10,327,179 11,013,724
Employee notes receivable 128,189 128,189
Equipment, lease and other deposits 3,265,463 5,450,886
------------ ------------
Total $ 13,720,831 $ 16,592,799
============ ============
</TABLE>
4. DEBT
The following is a summary of debt:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
10 1/2% Senior subordinated notes $ 99,580,000 $ 99,580,000
Term A 17,216,828 17,104,335
Term B 169,302 168,184
Revolver 8,538,776 2,503,281
Other 110,000
------------ ------------
Total long-term debt 125,504,906 119,465,800
Less current portion 125,504,906 119,465,800
------------ ------------
Long-term debt, less current portion $ -- $ --
============ ============
</TABLE>
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<PAGE> 8
The senior subordinated notes (the "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.
The Company did not make a scheduled interest payment for the Notes when
due on April 15, 2000 and is not currently in compliance with certain
requirements of its senior secured credit agreement. Accordingly, the
Notes have been included in the current portion of long-term debt on the
Company's consolidated balance sheet at March 31, 2000 and December 31,
1999.
CREDIT AGREEMENTS - On October 6, 1999, Farallon Capital Funding, LLC
("Farallon"), as agent, an affiliate thereof, as initial lender and the
Company and its subsidiaries entered into a four year, senior secured
credit facility with aggregate availability of $50 million, subject to a
defined real estate collateralbased borrowing base (the "Credit
Facility"). The $50.0 million facility is comprised of a revolving credit
facility of up to $15.0 million (the "Revolver"), term loans of up to
$17.0 million ("Term A Loan") and term loans of up to $18.0 million ("Term
B Loans"). The Term A Loan was funded in its entirety on October 8, 1999.
Under the Term A Loan and the Revolver, the Company will utilize
borrowings to fund working capital requirements, and for other general
corporate purposes, including, subject to certain conditions, the
acquisition and construction of theaters. The Term B Loans may be used
only for repurchasing the Notes, and the amount of Term B Loans will be
limited to the lesser of (i) $18.0 and (ii) the amount by which the real
estate collateral-based borrowing base exceeds the sum of the outstanding
principal balance (including accrued interest) of the Term A Loan and the
$15.0 million revolving loan commitment). Borrowings under the Credit
Facility rank senior in right of payment to the Notes and are secured by a
perfected first priority security interest in substantially all existing
and future assets of the Company including:(i) fee interests and certain
leasehold interests in real property; (ii) accounts receivable, equipment,
inventory, and intangibles; and (iii) the capital stock of the Company and
its subsidiaries. Borrowings bear total annual interest at 15.5% with
annual interest at 12.875% due monthly and the remaining interest due with
the borrowings. The Company pays an annual unused commitment fee of 0.50%.
Farallon's obligations under the Credit Facility to advance funds at any
time during the four-year term are subject to certain conditions customary
in secured credit facilities, including the absence of a default under the
Credit Facility. The Credit Facility contains a number of covenants that,
among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness or
guarantees, prepay other indebtedness, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments,
loans, or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, change the business conducted
by the Company or its subsidiaries or engage in certain corporate
activities. The Company is not currently in compliance with certain
requirements, including its failure to make a scheduled interest payment
for the Company's Notes when due on April 15, 2000. Accordingly, the total
borrowings and deferred interest of approximately $25.9 million and $19.8
million under the Credit Facility have been included in the current
portion of long-term debt on the Company's consolidated balance sheet at
March 31, 2000 and December 31, 1999, respectively.
On April 28, 2000, Farallon made an additional $3.9 million advance under
the revolving loan commitment. Commencing April 29, 2000, loans under the
Credit Facility bear annual interest at 17.5%.
5. CAPITAL STOCK
As of March 31, 2000 and December 31, 1999, aggregate Series A Preferred
Stock dividends of $5,763,430 and $5,148,497, respectively, are in
arrears. The Company also has Convertible Preferred Stock dividends in
arrears of $155,040 and $79,200 as of March 31, 2000 and December 31,
1999, respectively.
-8-
<PAGE> 9
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). Information on segments and a reconciliation to net loss for
the three months ended March 31, 2000 and 1999 follows (in thousands):
<TABLE>
<CAPTION>
SILVER
LANDMARK CINEMAS
(SPECIALTY (SECOND AND
2000 FILM) FIRST-RUN) CONSOLIDATED
- ------------------------------------------- ---------- ----------- ------------
<S> <C> <C> <C>
Revenues $ 15,673 $ 9,079 $ 24,752
Depreciation and amortization (1,199) (927) (2,126)
Asset impairment and restructuring charges (500) (6,000) (6,500)
Operating income (loss) 988 (8,244) $ (7,256)
Interest expense and debt issue costs (4,177)
Interest income and other expense 54
-----------
Net loss $ (11,379)
===========
</TABLE>
<TABLE>
<CAPTION>
SILVER
LANDMARK CINEMAS
(SPECIALTY (SECOND AND
1999 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 358
------------
Net loss $ (1,000)
============
</TABLE>
7. ASSET IMPAIRMENT AND RESTRUCTURING CHARGES
Long-lived assets and certain identifiable intangibles are reviewed by the
Company for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the future undiscounted cash flows
without interest costs expected to be generated by the asset. If the
carrying value of the assets exceeds the expected future cash flows, an
impairment exists and is measured by the amount by which the carrying
amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell. Considerable management judgment is
necessary to estimate cash flows and expected fair values. Accordingly, it
is reasonably possible that actual results could vary significantly from
such estimates.
Based on its continuing evaluation of recoverability of long-lived theater
assets, the Company recorded a $6.5 million impairment of long-lived asset
expense representing the value of assets abandoned or impaired as a result
of the closing of three second run theaters (20 screens) and one specialty
theater (3 screens) during the three months ended March 31, 2000 and
certain similar transactions planned for future periods including the
closing of 17 second run theaters (124 screens) on May 1, 2000. Impairment
costs of $500,000, $1,000,000 and $5,000,000 reduced goodwill, other
assets and theater properties and equipment, respectively.
8. 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, 2000 and
1999.
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<PAGE> 10
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.
In the three months ended through March 31, 2000, the Company opened one
specialty theater with 7 screens and closed three second run theaters (20
screens) and one specialty theater (3 screens) as a result of unfavorable base
renewals or individual theater performance In April 2000 the Company opened one
second run theater (6 screens). In May 2000, the Company closed 15 second run
and 2 first run theaters (134 screens). As of May 12, 2000, the Company's total
theater and screen count is 92 and 395, respectively.
Revenues for the three months ended March 31, 2000 declined $3.8 million, or
13.4%, to $24.8 million, as a result of decreased attendance. In the three
months ended March 31, 2000, the Company incurred a net loss of $11.4 million
compared with a net loss for the same period of 1999 of $1.0 million.
The consolidated operating loss for the first three months of 2000 was $7.3
million, compared with an operating income of $1.6 million for the three months
ended March 31, 1999. The loss in 2000 included noncash charges totaling $6.5
million for the impairment of value of certain theaters.
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).
-10-
<PAGE> 11
RESULTS OF OPERATIONS OF LANDMARK
The following table sets forth information for the three months ended March
31, 2000 and 1999.
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Admissions $12,609 80.5% $14,942 81.5%
Concessions 2,774 17.7 3,203 17.5
Other 290 1.8 188 1.0
------- ------ ------- ------
Total 15,673 100.0 18,333 100.0
Costs and expenses:
Cost of operations:
Film rentals 5,751 36.7 6,370 34.7
Cost of concessions 448 2.9 560 3.1
Payroll and related expenses 2,131 13.6 2,199 12.0
Occupancy costs 1,884 12.0 1,710 9.3
Advertising 498 3.2 545 3.0
Other theater operating costs 1,562 9.9 1,574 8.6
------- ------ ------- ------
Total 12,274 78.3 12,958 70.7
General and administrative 712 4.5 836 4.6
Depreciation and amortization 1,199 7.7 1,156 6.3
Asset impairment and restructuring charges 500 3.2
------- ------ ------- ------
Operating income $ 988 6.3% $ 3,383 18.4%
======= ====== ======= ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999
Admissions Revenues. Admissions revenues decreased $2.3 million or 15.6% to
$12.6 million during the three months ended March 31, 2000 compared to the three
months ended March 31, 1999. The decreased admissions revenue was primarily the
result of a 21.2% decrease in attendance from 2,516,487 to 1,983,216 partially
offset by an increase in the average ticket price from $5.94 to $6.36. 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 decreased $0.4 million or 13.4%
to $2.8 million during the three months ended March 31, 2000 compared to the
three months ended March 31, 1999. The decrease in concession revenue was
primarily the result of a decrease in attendance.
Film Rental Expenses. Film rental expenses as a percentage of admissions
revenue increased from 42.6% to 45.6% as a result of graduated rate film mix.
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, 2000 compared to the three months
ended March 31, 1999 from 17.5% to 16.1%. The reduction is primarily
attributable to concession item mix.
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<PAGE> 12
Payroll and Related Expense. Payroll expense decreased from $2.2 million for
the three months ended March 31, 1999 to $2.1 million for the three months ended
March 31, 2000. Payroll per attendee, a key measure for staff efficiency,
increased from $0.87 per attendee to $1.07 per attendee. The increase is
primarily attributable to a decline in attendance and wage increases.
Occupancy Costs. Occupancy costs increased from $1.7 million for the three
months ended March 31, 1999 to $1.8 million for the three months ending March
31, 2000.
Advertising Expenses. Advertising expenses remained flat at $0.5 million for
the three months ending March 31, 2000 compared to the three months ending March
31, 1999.
General and Administrative Expenses. General and administrative expenses
decreased from $0.8 million for the three months ended March 31, 1999 to $0.7
million for the three months ended March 31, 2000.
RESULTS OF OPERATIONS OF SILVER CINEMAS
The following table sets forth information for the three months ended March
31, 2000 and 1999.
<TABLE>
<CAPTION>
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Admissions $ 4,962 54.7% $ 5,446 53.1%
Concessions 3,975 43.8 4,591 44.7
Other 142 1.5 225 2.2
-------- ------ ------- ------
Total 9,079 100.0 10,262 100.0
Costs and expenses:
Cost of operations:
Film rentals 1,766 19.5 2,018 19.7
Cost of concessions 844 9.3 845 8.3
Payroll and related expenses 1,825 20.1 2,012 19.6
Occupancy costs 2,515 27.7 2,704 26.3
Advertising 335 3.7 472 4.6
Other theater operating costs 1,844 20.3 2,060 20.0
-------- ------ ------- ------
Total 9,129 100.6 10,111 98.5
General and administrative 1,274 14.0 1,044 10.2
Depreciation and amortization 920 10.1 929 9.1
Asset impairment and restructuring charges 6,000 66.1 0 0.0
-------- ------ ------- ------
Operating income (loss) $ (8,244) (90.8)% $(1,822) (17.8)%
======== ====== ======= ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999
Admissions Revenues. Admissions revenue decreased $0.5 million or 8.9% to
$5.0 million during the three months ending March 31, 2000 compared to the three
months ending March 31, 1999. The decreased admission revenue was primarily the
result of a 15.4% decrease in attendance from 3,372,055 to 2,853,334 partially
offset by an increase in the average ticket price from $1.62 to $1.74.
-12-
<PAGE> 13
Concession Revenues. Concession revenue decreased $0.6 million or 13.4% to
$4.0 million during the three months ended March 31, 2000 compared to the three
months ended March 31, 1999. The decreased concession revenue was primarily the
result of a decrease in attendance.
Film Rental Expenses. Film rental expenses as a percentage of admissions
revenues declined from 37.1% for the three months ended March 31, 1999 compared
to 35.6% for the three months ended March 31, 2000. The decrease was primarily
attributable to graduated rate film mix.
Cost of Concessions. Concession costs as a percentage of concession revenue
for the period to period comparison increased from 18.4% of concession sales to
21.2% primarily due to implementation of the Company's reduced price concession
menu at additional locations.
Payroll and Related Expenses. Payroll expense decreased from $2.0 million
for the three months ended March 31, 1999 to $1.8 million for the three months
ended March 31, 2000. Payroll per attendee, a key measure for staff efficiency,
increased from $0.60 per attendee to $0.64 per attendee. The increase is
primarily attributable to a decline in attendance.
Occupancy Costs. Occupancy costs decreased $0.2 million to $2.5 million or
7.0% for the three months ended March 31, 2000 from $2.7 million for the three
months ended March 31, 1999. The decrease in occupancy costs is primarily
attributable to lower percentage rents.
Advertising Expenses. Advertising expenses decreased $0.1 million or 29.0%
from the three months ended March 31, 1999 to $0.3 million for the three months
ended March 31, 2000. Advertising expenses comprised 3.7% and 4.6% of total
revenues for the three months ended March 31, 2000 and 1999, respectively.
General and Administrative Expenses. General and administrative expenses
increased from $1.0 million to $1.2 million or 22.0% for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999.
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 2000, the Company's capital requirements were
the result of the continued construction of one theater in Chicago. Such capital
expenditures were financed with bank borrowings, and internally generated cash.
The Company's operating activities provided net cash of approximately $1.5
million during the three months ended March 31, 2000. Net cash provided in
operations resulted primarily from a net loss of $11.4 million, adjusted for
depreciation and amortization expense of $2.7 million, asset impairment charges
of $6.5 million, and an increase in accounts payable and accrued liabilities of
$3.4 million.
Cash used by investing activities was approximately $2.2 million, which
consisted primarily of $4.4 million used for construction of new theaters offset
by a reduction of other assets of $2.2 million.
Cash provided by financing activities was approximately $3.5 million during
the three months ended
-13-
<PAGE> 14
March 31, 2000. Additional debt financing of approximately $6.0 million was
offset by an increase in debt issue costs of approximately $1.0 million and a
decrease in net bank overdrafts of $1.2 million.
"Same Theater" attendance at the Company's Landmark and Silver theaters has
declined by approximately 21.0% and 16.2% for the three months ending March 31,
2000 compared to the three months ended March 31, 1999. 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 will continue to 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.
CREDIT AGREEMENT - On October 6, 1999, Farallon Capital Funding, LLC
("Farallon"), as agent, an affiliate thereof, as initial lender and the Company
and its subsidiaries entered into a four year, senior secured credit facility
with aggregate availability of $50 million, subject to a defined real estate
collateral borrowing base (the "Credit Facility"). The $50.0 million facility is
comprised of a revolving credit facility of up to $15.0 million (the
"Revolver"), term loans of up to $17.0 million ("Term A Loan") and term loans of
up to $18.0 million ("Term B Loans"). The Term A Loan was funded in its entirety
on October 8, 1999. Under the Term A Loan and the Revolver, the Company will
utilize borrowings to fund working capital requirements, and for other general
corporate purposes, including, subject to certain conditions, the acquisition
and construction of theaters. The Term B Loans may be used only for repurchasing
the Company's senior subordinated notes, and the amount of Term B Loans will be
limited to the lesser of (i) $18.0 and (ii) the amount by which the real estate
collateral-based borrowing base exceeds the sum of the outstanding principal
balance (including accrued interest) of the Term A Loan and the $15.0 million
revolving loan commitment). At May 12, 2000, the Company's borrowings under the
Revolver totaled $12.4 million. Borrowings under the Credit Facility rank senior
in right of payment to the Notes and is secured by a perfected first priority
security interest in substantially all existing and future assets of the Company
including:(i) fee interests and certain leasehold interests in real property;
(ii) accounts receivable, equipment, inventory, and intangibles; and (iii) the
capital stock of the Company and its subsidiaries.
Farallon's obligations under the Credit Facility to advance funds at any
time during the four-year term are subject to certain conditions customary in
secured credit facilities, including the absence of a default under the Credit
Facility. The Credit Facility contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness or guarantees, prepay other indebtedness,
pay dividends, create liens on assets, enter into sale and leaseback
transactions, make investments, loans, or advances, make acquisitions, engage in
mergers or consolidations, make capital expenditures, change the business
conducted by the Company or its subsidiaries or engage in certain corporate
activities. The Company is not currently in compliance with certain
requirements, including its failure to make a scheduled interest payment for the
Company's senior subordinated notes when due on April 15, 2000 and its receipt
of a report from its independent auditors for the year ended December 31, 1999
containing an explanatory paragraph that explains an uncertainty as to the
Company's ability to continue as a going concern and has not obtained a waiver
from Farallon.
On April 28, 2000, Farallon made an additional $3.9 million advance under
the revolving loan commitment. Commencing April 29, 2000, loans under the Credit
Facility bear annual interest at 17.5%.
-14-
<PAGE> 15
The Company will be required to restructure its current financing
arrangements and/or seek additional financing sufficient to meet its working
capital needs for fiscal 2000. The Company will utilize the thirty day grace
period allowed under the senior subordinated note indenture to evaluate
restructuring alternatives and has hired professionals in that regard. Failure
to make the scheduled interest payment does not constitute a default under the
senior subordinated note indenture for thirty days. Given that no assurance can
be made that the Company could restructure its current financing arrangements
and/or obtain additional financing, substantial doubt exists about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classifications of assets or liabilities that may result from the outcome of
these uncertainties.
As of March 31, 2000, the Company had $5,763,430 and $155,040 of Series A
Preferred Stock and Convertible Preferred Stock dividends in arrears.
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.
-15-
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any derivative financial instruments in
place as of March 31, 2000.
The following table presents the carrying and fair value at March 31,
2000 of the Company's senior subordinated debt along with its
interest rates. Fair value is determined as the quoted price of the
financial instrument.
<TABLE>
<CAPTION>
EXPECTED
MATURITY
DATE 2005 TOTAL FAIR VALUE
<S> <C> <C> <C> <C>
Fixed Rate Debt $99,580,000 $99,580,000 25,392,900
Interest Rate 10.5%
</TABLE>
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 Company did not make scheduled senior subordinated notes interest
payments of approximately $5.0 million when due on April 15, 2000 and
is not currently in compliance with certain requirements of its
senior secured credit agreement.
The senior subordinated notes include a restrictive covenant relative
to the payment of dividends. As of March 31, 2000, aggregate Series A
Preferred Stock and convertible preferred stock dividends of
$5,763,430 and $155,040 are in arrears.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There have been no matters submitted 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.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
None.
-16-
<PAGE> 17
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/ LARRY D. HOHL
------------------------------
Larry D. Hohl
Chief Executive Officer
and President
-17-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. 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, 2000, AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,846,049
<SECURITIES> 0
<RECEIVABLES> 2,856,201
<ALLOWANCES> 0
<INVENTORY> 526,470
<CURRENT-ASSETS> 6,228,720
<PP&E> 79,812,400
<DEPRECIATION> (14,722,374)
<TOTAL-ASSETS> 130,807,118
<CURRENT-LIABILITIES> 141,702,013
<BONDS> 0
0
36,105,036
<COMMON> 1,420
<OTHER-SE> (16,414,246)
<TOTAL-LIABILITY-AND-EQUITY> 130,807,118
<SALES> 24,751,514
<TOTAL-REVENUES> 24,751,514
<CGS> 21,402,795
<TOTAL-COSTS> 32,007,157
<OTHER-EXPENSES> 487,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,635,807
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,379,256)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,379,256)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
