<PAGE>
===============================================================================
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: June 30, 1995
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 1-6123
CRAIG CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-1620188
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 South Hope Street
Suite 1825 Los Angeles CA 90071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 239-0555
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 twelve 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 4,289,970 shares of
Common Stock, $0.25 par value per share, and 1,645,000 shares of Class A Common
Preference Stock, $0.01 par value per share, as of August 11, 1995.
===============================================================================
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1. Financial Information
------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1995 (Unaudited)
and September 30, 1994....................................... 3
Consolidated Statements of Operations for the Three and Nine
Months Ended June 30, 1995 and 1994 (Unaudited).............. 4
Consolidated Statements of Cash Flows for Nine Months Ended
June 30, 1995 and 1994 (Unaudited)........................... 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of the Consolidated
Statements of Operations..................................... 13
PART 2. Other Information
------
Item 1. Legal Proceedings............................................. 20
Item 2. Changes in Securities......................................... 20
Item 3. Defaults Upon Senior Securities............................... 20
Item 4. Submission of Matters to a Vote of Security Holders........... 20
Item 5. Other Information............................................. 20
Item 6. Exhibits and Reports on Form 8-K.............................. 20
Signatures............................................................. 21
</TABLE>
2
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
--------- -------------
(in thousands)
<S> <C> <C>
ASSETS
-----------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 21,627 $ 21,205
Other current assets, including
192 and 94 from affiliates, respectively 304 150
-------- --------
Total current assets 21,931 21,355
Investments in affiliates 57,304 49,131
Note receivable from affiliate -- 6,200
Excess of cost over net assets acquired, net 2,297 2,347
Other assets 914 994
-------- --------
Total assets $ 82,446 $ 80,027
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 110 $ 77
Accrued expenses 178 326
-------- --------
Total current liabilities 288 403
Other long-term liabilities 68 104
Option to sell investment in affiliate 14,650 14,650
Deferred tax liabilities 5,155 3,785
SHAREHOLDERS' EQUITY
Preferred stock, par value $.25,
1,000,000 shares authorized, none issued -- --
Class A common preference stock, par value
$.01, 10,000,000 shares authorized,
1,645,000 issued and outstanding 16 16
Class B common stock, par value $.01,
20,000,000 shares authorized, none issued -- --
Common stock, par value $.25,
7,500,000 shares authorized, 5,444,065
shares issued 1,361 1,361
Additional paid-in capital 30,793 30,793
Affiliate's unrealized security losses (6) (171)
Retained earnings 42,258 40,400
Cost of treasury shares, 1,154,095 and 1,064,095 (12,137) (11,314)
-------- --------
Total shareholders' equity 62,285 61,085
-------- --------
Total liabilities and shareholders' equity $ 82,446 $ 80,027
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
--------------------- --------------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Service income from affiliate $ 375 $ 375 $1,125 $ 5,474
Equity in earnings of affiliates 1,353 1,152 2,471 5,664
Interest and dividend income 416 120 1,283 311
Other income -- -- -- 1,303
------ ------ ------ -------
2,144 1,647 4,879 12,752
------ ------ ------ -------
Costs and expenses:
Loss on long term investment -- 889 -- 7,384
Operating, general and
administrative expenses 439 929 1,651 1,968
Interest expense -- -- -- 355
------ ------ ------ -------
439 1,818 1,651 9,707
------ ------ ------ -------
Earnings before taxes
and extraordinary item 1,705 (171) 3,228 3,045
Provision for taxes 715 -- 1,370 750
------ ------ ------ -------
Net earnings before extraordinary item 990 (171) 1,858 2,295
Extraordinary item -
Equity losses from affiliate's debt
refinancing, net of $1,610 tax benefit -- -- -- (2,408)
------ ------ ------ -------
Net earnings (loss) $ 990 $ (171) $1,858 $ (113)
====== ====== ====== =======
Earnings per common and
common equivalent share
Continuing operations $ 0.17 $(0.03) $ 0.31 $ 0.36
Extraordinary items -- -- -- (0.38)
------ ------ ------ -------
$ 0.17 $(0.03) $ 0.31 $ 0.02
====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1995 1994
---------------------------
(In thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 1,858 $ (113)
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on long-term investment -- 7,384
Amortization of excess purchase price 50 250
Amortization of deferred finance costs -- 24
Undistributed earnings of affiliates (2,471) (1,646)
Depreciation 75 76
(Decrease) increase in deferred tax liability 1,370 (2,660)
Changes in operating assets and liabilities:
(Increase) decrease in other current assets (154) 103
(Increase) decrease in other assets (10) (94)
(Decrease) increase in accrued liabilities (151) 181
------- --------
Net cash provided by (used in) operating activities 567 3,505
INVESTING ACTIVITIES
Proceeds from payoff of note receivable 950 --
Acquisition of stock of affiliate (287) --
Redemption of long term investment -- 1,800
Purchase of stock investment (442) --
Sale of stock investment 457 --
------- --------
Net cash provided by (used in) investing activities 678 1,800
FINANCING ACTIVITIES
Treasury stock repurchase (823) --
Option payment received -- 2,650
Proceeds from issuance of long-term debt -- 600
Payments of long-term debt -- (14,000)
Dividend received from equity affiliate -- 20,000
------- --------
Net cash provided by financing activities (823) 9,250
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 422 14,555
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 21,205 727
------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $21,627 $ 15,282
======= ========
</TABLE>
SUPPLEMENTAL DISCLOSURES:
Interest paid and income taxes paid during the nine months ended June 30, 1994
was approximately $450,000 and 2,050,000, respectively. During the nine months
ended June 30, 1995, the Company acquired $5.25 million of Citadel 3%
Cumulative Convertible Preferred Stock in satisfaction of $5.25 million of
outstanding indebtedness.
See accompanying notes to consolidated financial statements.
5
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Craig Corporation
and its wholly-owned subsidiaries (the "Company"). In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments of a recurring nature considered necessary for a fair
presentation of its financial position as of June 30, 1995 and September 30,
1994, the results of operations for the three months and nine months ended June
30, 1995 and 1994, and its cash flows for the nine months ended June 30, 1995
and 1994. The results of operations for the three and nine month periods ended
June 30, 1995 and 1994 are not necessarily indicative of the results of
operations to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes required to be in conformity with generally
accepted accounting principles. The financial information provided herein,
including the information under the heading, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," is written with the
presumption that the users of the interim financial statements have read, or
have access to, the most recent Annual Report on Form 10-K which contains the
latest audited financial statements and notes thereto, together with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of September 30, 1994 and for the year then ended.
Investments in affiliates in which the Company holds a 20 to 50% percent voting
ownership interest are accounted for using the equity method (Note 2).
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value, and consists primarily of
federal agency securities. Included in cash and cash equivalents at June 30,
1995 is approximately $20 million which is invested in such government
securities.
Earnings Per Share
------------------
Earnings per share is based on 5,934,970 and 6,336,374 shares, the
weighted average number of shares of common stock outstanding during the three
months ended June 30, 1995 and 1994, and 5,974,970 and 6,336,374 shares during
the nine months ended June 30, 1995 and 1994, respectively. Common stock
equivalents (stock options) have been excluded from the computations because
their dilutive effect, if any, is not material.
6
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 2 - INVESTMENTS IN AFFILIATES
----------------------------------
The Company's investment in affiliates at June 30, 1995 and September 30, 1994
consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
-------- --------------
<S> <C> <C>
Stater Bros. Holdings Inc.("SBH") $19,372 $16,467
Reading Company ("Reading") 31,288 31,108
Citadel Holding Corporation ("CHC") 6,644 1,556
------- -------
$57,304 $49,131
------- -------
</TABLE>
Stater
------
Investments in affiliates include the Company's 50% interest (48% voting
interest) in Stater Bros. Holdings Inc. ("SBH" and collectively with its
operating subsidiaries, "Stater"). The remaining 50% interest (52% voting
interest) in Stater is owned by La Cadena Investments ("La Cadena"), a general
partnership consisting of key management executives of Stater.
In 1994, the Company received $14.65 million from SBH pursuant to an agreement
which pertains to an option granted by the Company to Stater, which in turn
provides the means by which the Company's continuing 50% economic interest in
Stater may, in the future, be acquired by Stater, at Stater's option. The
$14.65 million received is included in the balance sheet as a deferred credit
under the caption "Option to sell investment in affiliate". The option exercise
price at March 8, 1994 amounted to $60 million, which adjusts upward at an
annual rate of approximately 8.833%. The option has an initial term ending on
March 8, 1996, but may be extended for ten additional years, if Stater converts
the Company's common stock interest in SBH to preferred stock on or before March
8, 1996. The reciprocal option rights held by the Company and La Cadena
Investments under the existing Shareholder Agreement are suspended for the life
of the option. The preferred stock, if issued prior to the March 8, 1996, will
have a liquidation value of $69.4 million and a cumulative dividend preference
beginning at 10.5%, increasing to 12% after 78 months, and further increasing
every twelve months thereafter by an additional 1%, to a terminal cumulative
dividend rate of 15%. In the event dividends on the preferred stock for two or
more quarterly dividend periods remain unpaid by SBH, the Company will have the
right to elect a majority of the Board of Directors. The Company has the right
to have the preferred stock redeemed at any time following the fifteenth
anniversary of the granting of the option.
Effective March 8, 1994, the Company entered into a consulting agreement with
SBH pursuant to which the Company has agreed, among other things, to render
consulting services to SBH for a five year period. SBH has the right to
terminate the agreement without a refund of any amounts previously paid if it
exercises the option described above and acquires the Company's interest in SBH.
7
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
In accordance with this agreement, SBH paid the Company $5 million in March 1994
and committed to pay $1.5 million a year, payable quarterly, through the term of
the agreement. Included in service income from affiliate for the three months
ended June 30, 1995 and 1994 is $375,000 and $1,125,000 and $5,474,000 for the
nine months ended June 30, 1994, earned pursuant to this agreement.
Stater files periodic reports with the Securities and Exchange Commission (SEC).
Copies of these reports are available from the SEC. Summarized unaudited
financial information of Stater for the thirteen and thirty-nine week periods
ended June 25, 1995 and June 26, 1994 is as follows:
<TABLE>
<CAPTION>
June 25, September 30,
1995 1994
--------------------------
(in thousands)
<S> <C> <C>
CONDENSED BALANCE SHEET
Current assets $154,632 $151,108
Property, plant and equipment, net 114,440 111,645
Other assets 42,516 43,736
Current liabilities 110,338 109,686
Long-term debt 173,319 174,187
Other liabilities 15,765 15,765
Shareholders' common equity 12,166 6,851
</TABLE>
The payment of dividends by Stater to the Company is restricted subject to
various financial covenants in the Stater credit agreements.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
June 25, June 26, June 25, June 26,
1995 1994 1995 1994
--------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues $396,072 $384,360 $1,177,288 $1,152,777
Costs and Expenses 384,803 373,175 1,145,189 1,117,141
Standstill agreement -- -- -- 4,000
Depreciation and amortization 2,946 2,985 8,622 8,431
Interest expense, net 4,718 4,903 14,619 10,452
Income before taxes and
extraordinary items 3,605 3,297 8,858 12,753
Income taxes 1,443 1,384 3,543 5,355
Cumulative change in
accounting for income taxes -- -- -- 372
Extraordinary loss from early
debt extinguishment -- -- -- 8,036
Net income (loss) 2,162 1,913 5,315 (266)
</TABLE>
8
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Reading
-------
At June 30, 1995 and September 30, 1994, the Company held 2,334,957 shares of
Reading with a purchase price of $31,365,000. Based on the closing price per
share of Reading at June 30, 1995 of $10.25, the aggregate market value of the
Company's investment in Reading at that date was approximately $23,933,000.
Summarized financial information of Reading for the three and nine months ended
June 30, 1995 and 1994 are as follows (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------------------------------
<S> <C> <C>
Current assets $47,951 $47,111
Property and equipment,net 7,043 7,006
Intangible assets, net 15,998 16,453
Other assets 2,112 2,146
Current liabilities 3,562 3,728
Other long-term liabilities 2,861 2,902
Shareholders' common equity 66,681 66,086
</TABLE>
At June 30, 1995 and December 31, 1994, Reading included as a separate component
of shareholders' equity $13,000 and $286,000, respectively, reflecting the net
adjustment for unrealized holding losses on available for sale securities.
Accordingly, the Company has reflected its 47% ownership allocation of such
valuation reserve as a separate component of shareholder's equity, titled
affiliate's unrealized security losses.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
------------------ ------------------
<S> <C> <C> <C> <C>
Revenues
Theatre $3,427 $ -- $ 9,808 $ --
Other 1,134 945 2,415 2,757
------ ------- ------- ------
4,561 945 12,223 2,757
Theatre costs 3,075 -- 8,880 --
General and administrative 1,071 787 3,155 2,810
------ ------- ------- ------
4,146 787 12,035 2,810
Income (loss) before taxes 415 158 188 (53)
Net income (loss) 401 147 33 (52)
</TABLE>
Reading files periodic reports with the Securities and Exchange Commission
(SEC). Copies of these reports are available from Reading.
9
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Citadel
-------
CHC, whose common stock is traded on the American Stock Exchange, was prior to
the recapitalization of Fidelity Federal Bank, ("Fidelity"), the holding company
for Fidelity. CHC is referred to collectively with its wholly owned subsidiaries
as "Citadel". As a consequence of the refinancing in August 1994, Citadel's
equity interest in Fidelity was reduced to approximately 16%. During the three
months ended June 30, 1995, CHC sold for cash and a return of 666,000 shares of
its outstanding common stock substantially all of its investment in Fidelity. At
June 30, 1995 Citadel's assets amounted to approximately $39.9 million and
consisted of real estate and cash and cash equivalents. At June 30, 1995 and
September 30, 1994, the Company owned 667,012 (11%) and 592,712 (9%) shares of
the outstanding CHC Common Stock. Based on the closing price of CHC's common
stock of $2.19 at June 30, 1995, the aggregate market value of the Company's
common stock interest in CHC at that date was approximately $1,459,000.
In October 1994, the Company increased its common stock ownership in CHC through
the purchase of 74,200 shares from CHC for approximately $287,000. In addition,
in November 1994 the Company agreed to acquire, in satisfaction of $5.25 million
of a $6.2 million outstanding indebtedness of Citadel to the Company, 1,329,114
shares of a newly issued CHC 3% Cumulative Voting Convertible Preferred Stock.
The preferred shares represent approximately 18.1% of the voting power of CHC at
June 30, 1995, and together with the common shares owned by the Company
represent approximately 27.2% of the voting power of CHC at June 30, 1995.
At September 30, 1994, the carrying value, as adjusted for market declines
considered to be other than temporary, of CHC common stock amounted to $1.556
million or $2.625 per share. As described above, the Company increased its
voting interest in CHC to 27.2% through the purchase of common stock and
preferred stock. Based on the increase in voting ownership, the investment in
CHC common stock meets the criteria for using the equity method of accounting.
As a result of the Company's previous writedowns of the CHC common stock
investment below CHC book value, considered to be other than temporary, no
retroactive adjustment to the results of operations was reported. For financial
statement presentation, the Company continues to reflect writedowns considered
to be other than temporary, recorded prior to December 31, 1994 in the statement
as loss on long-term investments. In accordance with accounting for the
investment under the equity method, the Company has reclassified its investment
in CHC to investment in equity affiliates. Subsequent to the quarter ended
March 31, 1995, CHC reported a net loss for its fourth quarter ended December
31, 1994 amounting to $8,890,000 and net income amounting to $1,377,000 for its
six months ended June 30, 1995. Included in equity earnings from affiliates is
the Company's portion of such operating results less preferred dividends
amounting to a loss of $451,000 for the nine months ended June 30, 1995.
CHC's fiscal year end is December 31. Summarized financial information of CHC
for the three months ended June 30, 1995 is as follows (in thousands):
10
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
CONDENSED BALANCE SHEETS
Cash and cash equivalents $16,247 $ 4,805
Investment in Fidelity Federal 11 13,405
Rental properties 21,892 19,858
Other assets 1,727 1,844
Mortgage liabilities 16,252 13,896
Other liabilities 5,887 8,178
Stockholder's equity 17,738 17,838
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1995
----------------- ---------------
<S> <C> <C>
CONDENSED STATEMENT OF OPERATIONS
Rental and other income $1,432 $ 2,545
Real estate operating expenses (617) (1,162)
Depreciation (116) (216)
Interest expense (290) (528)
General and administrative expenses (378) (803)
Gain on sale of rental property -- 1,541
------ -------
Net earnings $ 31 $ 1,377
------ -------
</TABLE>
The Preferred stock was issued to the Company pursuant to a stock purchase
Agreement and Certificate of Designation which provides, among other things,
that (i) the preferred shares carry a liquidation preference equal to their
stated value and bear a cumulative (noncompounded) annual dividend equal to 3%
of the stated value, (ii) are convertible under certain circumstances into
shares of common stock of CHC, (iii) are redeemable at the option of CHC at any
time after November 1997 and (iv) are redeemable (subject to Delaware
limitations upon distributions to shareholders) at the option of the Company in
the event of a change of control of CHC. For financial statement purposes, the
Company carries its preferred stock investment at cost amounting to $5.25
million as of June 30, 1995. Dividends earned and included in other current
assets for the three months and nine months ended June 30, 1995 amounted to
approximately $39,000 and $101,000, respectively.
In November 1994, an action was filed against the Company, CHC and the directors
of CHC in the Delaware Court of Chancery claiming that the individual
defendants, directors of CHC (two of which are directors of the Company), in the
face of a purported proxy fight, breached their fiduciary duties by causing CHC
to issue shares of common stock and preferred stock to the Company for purposes
of perpetuating the individual defendants as directors of CHC. The Company was
alleged to knowingly have participated in the purported breaches of fiduciary
duty by the director defendants. As of April 12, 1995, the Company entered into
a Settlement Agreement with the plaintiff pursuant to which the Company agreed
not to exercise the conversion feature of its preferred stock prior to February
4, 1996, without the prior approval of the CHC common shareholders.
11
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
In consideration of this agreement by the Company, CHC granted the Company a two
year option to purchase 666,000 shares of CHC common stock at a purchase price
of $3.00 per share and agreed to reimburse the Company for its litigation costs
in an amount not to exceed $75,000.
NOTE 3 - NOTE RECEIVABLE FROM AFFILIATE
---------------------------------------
During May 1995, the Company was paid $950,000 owed pursuant to a credit
agreement between the Company and Citadel. Upon such payoff the credit
agreement was canceled.
NOTE 4 - TAXES ON INCOME
------------------------
At June 30, 1995 and September 30, 1994, the deferred tax liability components
consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1995 September 30, 1994
------------- ------------------
<S> <C> <C>
Deferred tax liabilities:
Undistributed earnings from
equity investments $13,225 $12,060
Other 230 --
------- -------
Total deferred tax liabilities 13,455 12,060
Deferred tax assets:
Unrealized capital loss from
writedown of securities (7,680) (7,680)
Federal benefit of state taxes (595) (545)
Other (25) (50)
------- -------
Total deferred tax assets (8,300) (8,275)
------- -------
Net deferred taxes $ 5,155 $ 3,785
------- -------
</TABLE>
As of June 30, 1995, the reported deferred tax assets are expected to be
realized as an offset against reversing temporary differences which create net
future tax liabilities.
NOTE 5 - COMMON AND CLASS A COMMON PREFERENCE STOCK
---------------------------------------------------
In December 1994, the Board of Directors provided authorization to the Company
to repurchase up to $3 million of the Company's outstanding Common and/or Class
A Common Preference stock. During the three months ended March 31, 1995, the
Company repurchased 90,000 shares of Common Stock at a purchase price of
approximately $823,000.
In June 1995, the Board approved the Company to enter into an agreement with the
Chairman of the Board to extend his consulting agreement for an additional year
until September 30, 1997. In addition, the Board approved a grant to the
Chairman of the Board of 300,000 shares of the Company's common stock at an
exercise price of $11.75 per share and canceled his current option to purchase
175,000 shares of the Company's Class A Common Preference Stock exercisable at
$10.50 per share.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's investments in Stater Bros. Holdings Inc. ("SBH" and,
collectively with its operating subsidiaries, "Stater"), Reading Company
(collectively with its operating subsidiaries, "Reading") and Citadel Holding
Corporation ("CHC" and, collectively with its operating subsidiaries "Citadel")
are included in the Company's Consolidated Financial Statements on the equity
method of accounting. See Notes 1 and 2 of Notes to the Consolidated Financial
Statements.
Results of Operations
---------------------
The following is a comparison of the results of operations for the three
months ended June 30, 1995 (1995 Quarter) with the three months ended June 30,
1994 (1994 Quarter) and a comparison of the results of operations for the nine
months ended June 30, 1995 (the "1995 Nine Months") with the nine months ended
June 30, 1994 (the "1994 Nine Months").
The Company's net earnings for the 1995 Quarter was $990,000 or $0.17 per
share, as compared with a net loss of $171,000 or $0.03 per share for the 1994
Quarter. The net earnings for the 1995 Nine Months was $1,858,000 or $0.31 per
share, as compared to a net loss of $113,000 or $0.02 per share for the 1994
Nine Months. The 1994 Nine Months includes an extraordinary charge amounting to
$2.4 million or $0.38 per share representing the Company's share of after tax
debt refinancing costs included in Stater's operating results.
The Company's operating results have varied significantly reflecting the
Company's share of the operating results of its equity affiliates, Stater,
Reading and Citadel. Comparisons between the Quarters and Nine Months is
difficult due to (i) the Stater restructuring that occurred in March 1994, (ii)
the acquisition by Reading of Cine Vista, its Puerto Rico based cinema chain,
and (iii) the increase by the Company of its voting interest in Citadel to the
position where it is appropriate to report such interest on the equity method of
accounting.
The Stater restructuring consisted of a series of transactions which resulted
in the Company receiving $30 million in proceeds during the 1994 Nine Months.
Subsequent to June 30, 1994, the Company received an additional $13 million with
respect to the Restructuring. The net income increase in the 1995 Quarter as
compared to the 1994 Quarter is principally a result of the 1994 Quarter
inclusion of an $889,000 writedown of the Company's investment in CHC. The net
income increase in the 1995 Nine Months is attributable to the inclusion in the
1994 Quarter of a writedown reported in the 1994 Nine Months of $7,384,000 of
the Company's investment in CHC. The impact of the 1994 Nine Month writedown was
reduced, in part, by $5 million of revenue reported with respect to proceeds
received from SBH pursuant to a consulting agreement executed in March 1994, and
a gain of approximately $1.3 million on the sale of property, offset in part by
the respective provision for income taxes.
Service Income
--------------
In connection with the SBH restructuring consummated in March 1994, the
Company entered into a consulting agreement with SBH pursuant to which the
Company has agreed, among other things, to render consulting services for a five
year period. In accordance with this agreement, SBH paid the Company $5 million
13
<PAGE>
in March 1994 and committed to remit $1.5 million a year, payable quarterly,
through the term of the agreement. SBH has the right to terminate the agreement
, without a refund of any amounts previously paid, if it exercises the option
discussed below and acquires the Company's interest in SBH. Included in service
income for both the 1995 and 1994 Quarter is $375,000 earned pursuant to that
agreement. Service income for the 1995 and 1994 Nine Months is $1,125,000 and
$5,474,000, respectively.
Equity in earnings of affiliates
--------------------------------
Equity in earnings of affiliates reflects the Company's share of net earnings
or losses of Stater, Reading and Citadel before extraordinary items reported by
the affiliate and after preferred dividends. The following table sets forth the
contribution by affiliate of the equity in earnings or losses of affiliates:
Equity in Earnings of Affiliates - Contribution by Affiliates
-------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
------------------ --------------------
<S> <C> <C> <C> <C>
SBH - reported as equity
earnings of affiliate $1,165 $1,083 $2,907 $ 5,688
CHC - reported as equity
earnings of affiliate -- -- (451) --
Reading - reported as equity
earnings of affiliate 188 69 15 (24)
------ ------ ------ -------
Equity earnings 1,353 1,152 2,471 5,664
SBH - reported as extra-
ordinary item -- -- -- (4,018)
------ ------ ------ -------
Contribution by affiliates $1,353 $1,152 $2,471 $ 1,646
------ ------ ------ -------
</TABLE>
Stater
------
On March 8, 1994, the Company and Stater consummated a series of
restructuring transactions. Concurrently with the closing of the restructuring
transactions, Stater obtained $165 million in new debt, the proceeds of which
were primarily used to retire certain outstanding indebtedness together with a
prepayment premium, pay a dividend to the holders of SBH Common Stock, and to
acquire an option from the Company to purchase the SBH Common Stock held by the
Company. The significant increase in debt resulted in Stater interest expense
increasing in the 1995 Nine Months as compared to the 1994 Nine Months. SBH
reported net income of $2.2 for the 1995 Quarter as compared to net income of
$1.9 million for the 1994 Quarter and reported net income of approximately $5.3
million for the 1995 Nine Months as compared to a net loss of $.3 million for
the 1994 Nine Months.
Stater sales amounted to $396.1 million for the 1995 Quarter, an increase of
3.05% when compared to $384.4 million for the 1994 Quarter. Sales for the
14
<PAGE>
1995 Nine Months increased 2.13% and amounted to $1,177.3 million compared to
$1,152.8 million for the 1994 Nine Months. Sales from like stores increased
1.31% for the 1995 Quarter and increased .23% for the 1995 Nine Months, compared
to the same periods in 1994. During April 1995, Stater closed one of its older
inefficient stores and sold its interest in the property for approximately book
value. Stater operated 110 stores as of the end of June 1995 and 1994.
Stater's gross profits for the 1995 Quarter amounted to $90 million or 22.72%
of sales compared to $84.6 million or 22.02% of sales in the 1994 Quarter. For
the 1995 Nine Month period, gross profit increased to $262.9 million or 22.33%
of sales compared to $254.3 million or 22.06% of sales in the 1994 Nine Months.
The increase in gross profits for the 1995 Nine Months is due to increased
efficiencies in Stater's warehousing and transportation departments and the
introduction of higher gross margin products, such as prepackaged gourmet
vegetables and fresh cut flowers, and a decrease in sustained competitive
activity in the current year when compared to the 1994 Nine Months.
Selling, general and administrative expenses for the 1995 Quarter increased
$5.2 million and amounted to $78.3 million or 19.77% of sales compared to $73.1
million or 19.02% of sales in the 1994 Quarter. Selling, general and
administrative expenses increased $11.6 million in the 1995 Nine Months to
$229.7 million or 19.52% of sales as compared to $218.1 million or 18.93% of
sales in the 1994 Nine Months. The 1995 Quarter and Nine Months were negatively
impacted by increased costs in paper and plastic bags and related store supplies
and the costs to operate two new stores opened in June and August of 1994. Such
increases were offset, in part, by improved efficiencies in labor and reductions
in worker's compensation and general liability insurance expenses. Selling,
general and administrative expenses in the 1994 periods reflect reductions in
employer contributions to collective bargaining expenses of $3.2 million for the
quarter and $10.3 million for the Nine Months. Stater reached a three year
agreement in October 1993 with the Retail Clerks collective bargaining unit. In
addition to wage increases, the agreement with the Retail Clerks collective
bargaining unit provided for a credit of $13 million against future employer
contributions for benefits for employees covered by such collective bargaining
unit. Such credit was recovered monthly through fiscal 1994 and the entire
credit was recovered by September 1994.
Stater interest expense amounted to approximately $5 million for each of the
1995 and 1994 Quarters, respectively. For the 1995 Nine months, interest expense
amounted to $15.2 million as compared to $10.7 million for the 1994 Nine Months.
The increase in interest expense is due to additional debt incurred to
facilitate the March 1994 recapitalization, in which the Company received
approximately $42 million in proceeds.
Stater's income before the cumulative effect of a change in accounting for
income taxes and extraordinary item for the 1995 and 1994 Quarters amounted to
$2.2 million and $1.9 million, respectively, and for the 1995 and 1994 Nine
Months amounted to $5.3 million and $7.4 million, respectively.
Stater's net income results in the 1994 Quarter includes a credit of
approximately $372,000 resulting from Stater's adoption of the Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes".
15
<PAGE>
In connection with the March 8, 1994 Restructuring, Stater entered into a
series of transactions that included the sale of $165 million of 11% Senior
Notes due 2001 and the early retirement of certain other financings. The net
proceeds from the debt refinancing were used to consummate the Restructuring and
replace outstanding Stater debt of $96.7 million. In connection with the early
redemption of Stater's outstanding debt securities, Stater recorded for the 1994
Nine Month period an extraordinary charge of $8 million, net of tax benefits
amounting to $5.9 million, for costs related to the redemption premium to
holders of the previous outstanding senior notes which were replaced.
Accordingly, the Company has reported its 50% share of Stater's debt retirement
costs as an extraordinary item for the 1994 Nine Months.
Stater's net income for the 1995 Quarter amounted to $2.2 million compared to
net income of $1.9 million for the 1994 Quarter. For the 1995 Nine Months,
Stater reported net income of $5.3 million, compared to a net loss of $.3
million in the 1994 Nine Months.
Reading
-------
On August 17, 1994, Reading acquired Theater Acquisitions of Puerto Rico,
Inc. ("Cine Vista") for an aggregate purchase price of approximately $22.7
million. Cine Vista operates motion picture exhibition theaters in six leased
locations with a total of 36 screens in the Commonwealth of Puerto Rico.
Accordingly, the operating results of Cine Vista are only included in the
operating results of Reading for the 1995 Quarter and Nine Months.
Additionally, Cine Vista's business is seasonal and the 1995 Quarter has
historically provided less than a proportionate share of annual revenues and
earnings. Therefore, the results of Cine Vista included in the 1995 Quarter and
Nine Months may not be indicative of Readings's annual operating results.
For the 1995 Quarter, Reading reported net income of approximately $401,000
(the Company's share amounting to approximately $188,000), as compared to a net
income of $147,000 in the 1994 Quarter (the Company's share amounting to
$69,000). The Company's share of net income from Reading amounted to 15,000 for
the 1995 Nine Months as compared to a net loss of $24,000 for the 1994 Nine
Months.
Revenues in the 1995 Quarter increased $3,616,000 to $4,561,000 from $945,000
in the 1994 Quarter. As discussed above, Reading's significant increase in
revenue in the 1995 Quarter reflects inclusion of the operating results of Cine
Vista which the Reading acquired in August 1994. In addition, the increase in
revenue was also due to the inclusion of $425,000 received in settlement of
certain litigation. These increases were offset, in part, by a decrease of
$230,000 in sales of real estate reported in the 1994 Quarter.
Reading's general and administrative expenses increased in the 1995 Quarter
$284,000 to $1,017,000 as compared to $787,000 in the 1994 Quarter. This was due
to the addition of approximately $230,000 associated with Cine Vista's general
and administrative expenses and the inclusion of certain expenses related to
diligence performed with respect to acquisition opportunities. These increases
in general and administrative expenses were offset partially by a $53,000
reduction in professional fees and a $31,000 decrease in development expenses
related to the Oz Resort included in the 1994 Quarter.
16
<PAGE>
At June 30, 1995, Reading has significant liquidity including $46.4 million
of cash and available for sale securities. In addition, Reading has no debt
outstanding. Reading intends to continue to expand its Cine Vista theater
exhibition business by developing new multiplex theaters in the Commonwealth of
Puerto Rico which will require the expenditure of additional funds during the
next several years. In addition to the completed acquisition of Cine Vista,
Reading continues to seek theater acquisition opportunities both internationally
and domestically. Reading is currently in discussions with a major bank for a
line of credit which will permit Reading to increase its liquid funds available
for acquisition and development activities and also provide sufficient liquidity
to fund Cine Vista's theater development plans. No assurances can be made that
Reading will be successful in obtaining financing for Cine Vista.
Citadel
-------
At September 30, 1994, the Company reported its common stock investment in
CHC at $2.625 per share or $1.556 million. The book value of CHC at such date
was $3.26. In October 1994, the Company increased the Company's common stock
ownership in CHC through the purchase from CHC of 74,200 common shares for
approximately $287,000. In addition, in November 1994, the Company agreed to
acquire in satisfaction for $5.25 million of a $6.2 million outstanding
indebtedness of Citadel to the Company, 1,329,114 shares of a newly issued CHC
3% Cumulative Voting Convertible Preferred Stock. The preferred shares
represent approximately 18.1% of the voting power of CHC and together with the
common shares owned by the Company represent approximately 27.2% of the voting
power of CHC as of June 30, 1995.
Based on the increase in voting ownership in November 1994, the investment in
CHC Common Stock meets the criteria for using the equity method of accounting
since December 1994. As a result of the Company's previous writedowns of the
CHC Common stock investment considered to be other than temporary, no
retroactive adjustment to the results of operations was required. For financial
statement presentation, the Company continues to reflect these writedowns in the
statement of operations as loss on long term investment. In accordance with
accounting for this investment under the equity method of accounting, the
Company has reclassified its investment in CHC to investment in equity
affiliates.
Subsequent to the quarter ended March 31, 1995, CHC reported a net loss for
its fourth quarter ended December 31, 1994 amounting to $8,890,000 and reported
net income of approximately $1,377,000 for the six months ended June 30, 1995
(the Company's share of such operating results after preferred dividends
amounted to a loss of approximately $451,000 for the 1995 nine months). These
earnings include gains from the sale of two properties amounting to $1,541,000.
At June 30, 1995, Citadel's assets consisted of principally real estate and
cash.
The preferred stock described above was issued to the Company pursuant to a
Stock Purchase Agreement and Certificate of Designation which provides, among
other things, that (i) the preferred shares carry a liquidation preference equal
to their stated value and bear a cumulative (noncompounded) annual dividend
equal to 3% of the stated value, (ii) are convertible under certain
circumstances into shares of common stock of Citadel, (iii) are redeemable at
the option of CHC at any time after November 1997 and (iv) are redeemable
(subject to Delaware limitations upon distributions to shareholders) at the
option of the Company in
17
<PAGE>
the event of a change of control of CHC. For financial statement purposes the
Company carries its preferred stock investment at cost amounting to $5.25
million as of December 31, 1994. Included in interest and dividends are
dividends earned on the preferred stock holdings amounting to $39,000 and
$101,000 for the 1995 Quarter and Nine Months, respectively. In connection with
the settlement of certain litigation against CHC, its directors and the Company,
the Company agreed not to exercise its option to convert the preferred stock
into CHC Common Stock until after February 4, 1996. In consideration of that
agreement CHC granted to the Company a two year option to purchase 666,000
shares of CHC common stock at a purchase price of $3.00 per share and agreed to
reimburse the Company for its litigation costs in an amount not to exceed
$75,000.
Operating, general and administrative expenses
----------------------------------------------
Operating, general and administrative expenses of the Company decreased to
$439,000 in the 1995 Quarter as compared to $929,000 in the 1994 Quarter.
Operating, general and administrative expenses decreased $317,000 in the 1995
Nine Months to $1,651,000 as compared to $1,968,000 in the 1994 Nine Months.
The decrease in the 1995 Quarter and 1995 Nine Months is a result of the
inclusion in the 1994 periods of a $500,000 bonus awarded by the Board of
Directors to the Chairman of the Board, based largely upon the contribution by
the Chairman to the success of the Stater Restructuring. This was offset in
part by an increase in wages and outside professional fees in the 1995 periods.
Interest income and expense
---------------------------
Interest and dividend income increased in the 1995 Quarter to $416,000 as
compared to $120,000 in the 1994 Quarter and increased in the 1995 Nine Months
to $1,283,000 as compared to $311,000 in the 1994 Nine Months. In the 1995
Quarter and Nine Months interest income was earned on the Company's cash and
cash equivalents, as well as, for a portion of the 1995 Nine Months, a $6.2
million loan accruing interest at prime plus 3% to Citadel. In November 1994,
the Company agreed to acquire $5.25 million of preferred stock in CHC in partial
satisfaction of $5.25 million of the $6.2 million loan to Citadel. The remaining
outstanding balance of $950,000 was paid in full in May 1995. Included in
interest and dividend income is approximately $80,000 and $301,000 earned
pursuant to this loan agreement in the 1995 Quarter and 1995 Nine Months,
respectively. Such amounts include $171,000 for the nine month period of loan
point amortization.
Interest expense was eliminated in the 1995 Quarter as a result of the
expiration of the Company's credit agreement upon the repayment of $14 million
in debt obligations in March 1994.
Liquidity
---------
At June 30, 1995 the Company has cash and cash equivalents totaling
approximately $21.6 million and no debt outstanding. Cash and cash equivalents
increased $422,000 from $21,205,000 to $21,627,000 at June 30, 1995. Principal
sources of funds during the nine month period ended June 30, 1995 included
service income from SBH of $1,125,000 and interest and dividend revenue of
$1,283,000. In addition, the Company received $950,000 from an affiliate in
repayment of an outstanding loan to such affiliate. In addition to operating
18
<PAGE>
expenses, principal uses of funds were the acquisition of an affiliates stock
amounting to $287,000 and the repurchase of 90,000 shares of the Company's stock
for approximately $823,000.
The Board of Directors in December 1994 provided authorization to the
management of the Company to spend up to $3 million to purchase from time to
time shares of the Company's Common and/or Class A Common Preference Stock. In
connection with this authorization, the Company repurchased 90,000 shares of
Common Stock in February 1995 at a purchase price of approximately $823,000.
The Company has significant liquidity and believes that the Company's
sources of funds will be sufficient to meet its cash flow requirements for the
foreseeable future. The Company is currently reviewing along with its 47%
affiliate, Reading,opportunities to redeploy its assets into one or more
operating companies.
19
<PAGE>
PART II
ITEM 1 THROUGH ITEM 4
----------------------
Not applicable.
ITEM 5. OTHER INFORMATION
--------------------------
Craig Corporation changed the address of its principal executive offices to
550 S. Hope Street, Suite 1825, Los Angeles, California 90071. The telephone
number at the new offices is (213) 239-0555.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
A. The following exhibit is filed as part of this report:
27. Financial Data Schedule, Article 5
B. No reports on Form 8-K were filed during the quarter ended June
30, 1995.
20
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAIG CORPORATION
-----------------
By: /s/ S. Craig Tompkins
------------------------
President
August 14, 1995
By: /s/ Robin W. Skophammer
------------------------
Chief Financial Officer
August 14, 1995
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 21,627
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,931
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,446
<CURRENT-LIABILITIES> 288
<BONDS> 0
<COMMON> 1,377
0
0
<OTHER-SE> 60,908
<TOTAL-LIABILITY-AND-EQUITY> 82,446
<SALES> 0
<TOTAL-REVENUES> 4,879
<CGS> 0
<TOTAL-COSTS> 1,651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,228
<INCOME-TAX> 1,370
<INCOME-CONTINUING> 1,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,858
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0
</TABLE>
