<PAGE>
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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, 1997
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 (IRS Employer Identification No.)
of 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 3,762,912 shares of
Common Stock, $0.25 par value per share, and 1,622,000 shares of Class A Common
Preference Stock, $0.01 par value per share, as of August 13, 1997.
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<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
----
PART 1. Financial Information
- ------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (Unaudited)
and December 31, 1996............................................... 3
Consolidated Statements of Operations for the Three Months
and Six Months Ended June 30, 1997 and 1996 (Unaudited)............. 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 (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................................................. 21
Item 2. Changes in Securities............................................. 21
Item 3. Defaults Upon Senior Securities................................... 21
Item 4. Submission of Matters to a Vote of Security Holders............... 21
Item 5. Other Information................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................. 22
Signatures..................................................................... 23
</TABLE>
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------------------- --------------------
ASSETS (In thousands of dollars)
- ---------------------------------------------- ------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 43,324 $ 52,172
Receivables 1,144 3,117
Restricted cash 2,586 3,683
Receivables from affiliates 3,863 244
Investment in Stater Preferred Stock 67,978 --
Prepayments and other current assets 1,178 1,007
------- -------
Total current assets 120,073 60,223
Investment in Stater Preferred Stock -- 67,978
Equity investment in Citadel 6,768 4,625
Net investment in leased equipment 2,125 2,125
Property and equipment, net 17,552 16,376
Other assets 3,173 2,519
Excess of cost over net assets acquired, net 11,316 12,122
------- -------
Total assets $161,007 $165,968
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,820 $ 5,143
Film rental payable 1,454 1,102
Accrued property costs 907 1,240
Accrued taxes 1,542 3,580
Note payable 500 1,500
Note payable to Citadel 1,998 --
Other accrued expenses and liabilities 1,383 1,871
------- -------
Total current liabilities 9,604 14,436
Capitalized lease, less current portion 513 516
Note payable -- 500
Other long-term liabilities 2,457 1,972
Deferred tax liabilities 8,208 8,208
Minority interests in equity of subsidiaries 32,711 33,511
Redeemable Preferred stock of Reading 7,000 7,000
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 authorized, 1,645,000 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 30,828 30,828
Foreign currency translation adjustment (1,269) 114
Retained earnings 89,332 87,260
Cost of treasury shares, 1,704,153 (19,754) (19,754)
------- -------
Total shareholders' equity 100,514 99,825
------- -------
Total liabilities and shareholders' equity $161,007 $165,968
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1996 1997 1996
------------ ---------- ----------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Theater admissions $4,807 $ 2,781 $ 9,059 $ 5,557
Theater concessions 1,542 1,043 2,852 2,064
Theater advertising and other 224 174 433 388
Real estate 63 70 100 144
Equity in earnings of Stater -- -- -- 1,608
Dividend income from Stater 1,816 1,816 3,612 2,295
Service income from Stater 375 375 750 750
------ ------- ------- -------
8,827 6,259 16,806 12,806
------ ------- ------- -------
Expenses:
Theater costs 4,769 3,141 9,145 6,111
Theater concession costs 328 179 626 347
Depreciation and amortization 355 415 711 844
Loss from joint venture 120 100 120 175
General and administrative
expenses 3,089 1,772 5,090 3,909
------ ------- ------- -------
8,661 5,607 15,692 11,386
------ ------- ------- -------
Earnings before minority interest,
other income and taxes 166 652 1,114 1,420
Earnings from investment in Citadel 101 1,472 166 1,512
Other income 8 9 238 24
Interest income 615 896 1,290 1,702
Gain from conversion of common stock
interest in Stater -- 8,325 -- 58,286
------ ------- ------- -------
Earnings before taxes and minority
interest 890 11,354 2,808 62,944
Minority interest (70) 630 104 492
------ ------- ------- -------
Earnings before taxes 960 10,724 2,704 62,452
Provision for taxes (principally
deferred) 162 3,450 406 23,885
------ ------- ------- -------
Net earnings $ 798 $ 7,274 $ 2,298 $38,567
====== ======= ======= =======
Earnings per common and common
equivalent share $ 0.13 $ 1.25 $ 0.38 $ 6.64
====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------------
1997 1996
---------- --------
(In thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 2,298 $38,567
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Gain on conversion of common stock investment in Stater -- (58,286)
Depreciation and amortization 711 844
Deferred rent 484 82
Undistributed earnings of affiliates (166) (3,041)
Increase (decrease) in deferred taxes -- 23,725
Minority interest 104 492
Changes in operating assets and liabilities:
(Increase) decrease in receivables 1,973 --
Increase (decrease) in affiliate receivables (3,619) (2,462)
(Increase) decrease in other current assets (171) 26
Increase (decrease) in payables (5,784) (565)
Increase (decrease) in film rental 352 484
Increase (decrease) in other liabilities (3) 156
Other, net (398) 196
------ -------
Net cash provided by (used in) operating activities (4,219) 218
INVESTING ACTIVITIES
Purchase of stock of subsidiary--minority interest (819) --
Purchase of Citadel Stock (1,998) --
Angelika acquisition costs -- (231)
Purchase of property, plant and equipment (2,314) (3,330)
Cash acquired as a result of consolidation of Reading
($44,189), net of acquisition costs -- 43,082
Decrease in restricted cash 1,596 (442)
Other investments (145) (410)
------ -------
Net cash provided by (used in) investing activities (3,680) 38,669
FINANCING ACTIVITIES
Distributions to minority partner (181) --
Decrease in note payable (1,500) --
Note payable to Citadel 1,998 --
Payment of dividend to Citadel (227) --
Payment of debt financing costs -- (254)
Treasury stock repurchases -- (634)
------ -------
Net cash provided by (used in) financing activities 90 (888)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES (1,039) (94)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,848) 37,905
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 52,172 $18,645
------- =======
CASH AND CASH EQUIVALENTS AT END OF PERIOD $43,324 $56,550
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1997
(amounts in tables in thousands)
NOTE 1 -- BASIS OF PRESENTATION
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Craig Corporation ("Craig") and its wholly owned subsidiaries
(collectively, the "Company") and its majority owned subsidiaries (collectively,
the "Consolidated Company"). Such majority owned subsidiaries include the
accounts of Reading Entertainment, Inc. ("REI" and together with its
consolidated subsidiaries, "Reading"). Through its subsidiaries, Reading
operates motion picture exhibition theaters in Puerto Rico, Australia and New
York, New York and is developing multiplex cinemas in Puerto Rico, cinema based
entertainment centers and multiplex centers in Australia and multiplex art and
specialty cinemas in the United States. Investments in which the Consolidated
Company holds a 20 to 50 percent interest are accounted for using the equity
method. All significant intercompany transactions and accounts have been
eliminated in consolidation. Minority interest in equity of subsidiaries
reflects the minority stockholders' proportionate share of REI and the
Consolidated Company's other joint ventures. During the six months ended June
30, 1997, the Company increased its ownership in REI through the purchase of
78,500 common shares (approximately 1%) for a purchase price of $819,000. Such
purchase resulted in a decrease to "Minority interest in equity of subsidiaries"
of approximately $819,000. As of June 30, 1997, the Company held approximately
78% of the outstanding voting securities of REI.
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim information and, therefore, do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. 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
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1996 and for the year then ended. In the opinion
of management, all adjustments of a recurring nature considered necessary for a
fair presentation of the results for the interim periods presented have been
included. Operating results for the three months and six months ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
Certain amounts in previously issued financial statements have been
reclassified to conform with the current period presentation.
NET EARNINGS PER COMMON SHARE: Net earnings per common share is calculated
by dividing net earnings available to common shareholders by the weighted
average shares outstanding during the period and the dilutive effect, if any, of
common stock equivalents that are outstanding. The weighted average number of
shares outstanding for the three months ended June 30, 1997 and 1996 were
5,384,912 and 5,818,630, respectively and 5,384,912 and 5,808,622 during the six
months ended June 30, 1997 and 1996, respectively. Net earnings per share for
the three months and six months ended June 30, 1997 was calculated based on net
earnings available to common stock shareholders, which includes a reduction for
dividends declared on the redeemable preferred stock in REI held by Citadel
amounting to $113,750 and $227,500 for the three and six months ended June 30,
1997, respectively.
NOTE 2 -- ACQUISITION AND INVESTMENT ACTIVITIES
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares
of Citadel Common Stock increasing the Consolidated Company holdings in Citadel
from 26.1% at December 31, 1996 to
Page 6
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1997
(amounts in tables in thousands)
approximately 33.4% at June 30, 1997. Such exercise was consummated pursuant to
delivery by Craig of its secured promissory note in the amount of $1.998
million, secured by 500,000 shares of REI Common Stock. Interest is payable
quarterly in arrears at the prime rate, which amounted to 8.5% at June 30, 1997.
Principal and accrued but unpaid interest is due upon the earlier of April 11,
2002 or 120 days following Citadel's written demand for payment and has been
included in the accompanying Balance Sheet as "Note Payable to Citadel."
The Company accounts for its investment in the Citadel Common Stock by the
equity method. Citadel's net earnings for the three months ended June 30, 1997
and 1996 were $413,000 and $5,541,000, respectively, and the Company's share of
such earnings adjusted for preferred stock dividends was $101,000 and
$1,433,000, respectively. Citadel's net earnings for the six months ended June
30, 1997 and 1996 were $659,000 and $5,784,000, respectively, and the Company's
share of such earnings was $166,000 and $1,433,000, respectively. Included in
Citadel's net earnings for the 1996 periods is (i) approximately $1,473,000 from
the sale of an apartment building and (ii) non-recurring income amounting to $4
million from the 1996 recognition of previously deferred proceeds from the bulk
sale of loans and properties by Citadel's previously-owned subsidiary, Fidelity
Federal Bank. Such amounts are included, together with dividends earned on the
Company's previously owned interest in Citadel Preferred Stock, in the Condensed
Consolidated Statement of Operations for the three and six months ended June 30,
1997 and 1996, as "Earnings from investment in Citadel." Citadel's assets and
liabilities totaled $29,133,000 and $10,750,000, respectively, as of June 30,
1997 inclusive of a $7,000,000 investment in REI.
Reading acquired an 83.3% interest in the Angelika Film Center LLC ("AFC")
in August 1996, which Company owns the Angelika Film Center, located in the Soho
area of New York City (the "Angelika"). The AFC acquired the Angelika, in part,
by issuing a promissory note to the sellers of such cinema in the amount of
$2,000,000. The note is fully collateralized by escrowed funds classified as
"Restricted cash". Principal of $1,500,000 was paid in full in April 1997. The
$500,000 remaining portion of this Note bears interest at 9% per annum and is
due in February 1998.
In April 1997, Reading Australia Pty Limited (together with its
subsidiaries "Reading Australia") entered into an agreement with an officer of a
subsidiary whereby the officer may borrow up to approximately $800,000 from
Reading Australia to invest in certain country cinema developments. In
accordance with the agreement (which agreement was effective as of January 2,
1997), the officer has borrowed approximately $400,000 from Reading Australia
and utilized the proceeds of the borrowing to acquire a 25% ownership interest
(computed after consideration of certain management fees payable to Reading
Australia) in Reading Australia's theater in Townsville, Queensland.
NOTE 3 -- INVESTMENT IN STATER BROS. HOLDINGS, INC. ("SBH")
Effective March 8, 1996, SBH exercised its right to convert all of the
Company's common stock in SBH into 693,650 shares of SBH Preferred Stock. The
SBH Preferred Stock has a liquidation preference and redemption value of $69.365
million and a cumulative dividend preference beginning at 10.5%. Upon the
conversion by SBH in March 1996 of the Company's common stock interest to
preferred stock, the Company discontinued the use of the equity method of
accounting for its investment in Stater. Included in the six months ended June
30, 1996 as "Equity in Earnings of Stater" is approximately $1.608 million
reflecting the Company's 50% interest in such SBH earnings from January 1, 1996
until the conversion of the Company's common stock interest to preferred stock
on March 8, 1996. Included as "Dividend income from Stater" is approximately
$1.816 million and $3.612 million for the three and six months ended June 30,
1997 and $1.816 million and $2.295 million for the three
Page 7
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1997
(amounts in tables in thousands)
and six months ended June 30, 1996 reflecting dividends from the date of
issuance of the SBH Preferred Stock on March 8, 1996.
In July 1997, REI was advised by SBH that Stater intends to exercise its
option to acquire the SBH Preferred Stock owned by Reading Australia. In
addition, SBH has also notified the Company, pursuant to its contractual rights,
that it was terminating the Consulting Agreement between the Company and Stater
upon the repurchase of the SBH Preferred Stock. The Consulting Agreement
provided for annual payments of $1.5 million, payable quarterly. Included in the
Statement of Operations for both the three months ended June 30, 1997 and 1996
and for both the six months ended June 30, 1997 and 1996 is service income from
Stater amounting to $375,000 and $750,000, respectively, earned and paid
pursuant to the Consulting Agreement prior to its termination. The exercise
price to be paid at the closing is $69.365 million plus accumulated dividends.
As of June 30, 1997, dividends have accumulated in the amount of approximately
$3.9 million, and continue to accumulate at the rate of approximately $20,000
per day through the closing. It is anticipated that closing on the purchase will
occur within the next 45 days.
Prior to the preferred stock conversion, the net carrying value of the
Company's 50% common stock interest amounted to approximately $9 million. In
Fiscal 1996, the Company recorded approximately $58.978 million (inclusive of
the $8.325 million recorded in the 1996 Quarter) of the difference between
$67.978 million (98% of the stated value of the SBH Preferred Stock) and the
Company's net carrying value of its previous common stock investment ($9
million) at the time of the conversion as "Gain from conversion of common
stock interest in Stater. The SBH Preferred Stock is included in the
accompanying Consolidated Balance Sheet as "Investment in Stater Preferred
Stock" and valued at $67.978 million, 98% of stated value. The Consolidated
Company expects to account for the deferred gain of approximately $1.387 million
(difference between the stated value and the Company's carrying value) upon the
repurchase of the SBH Preferred Stock by SBH in the third quarter.
The pro forma effect on "Dividend Income from Stater", "Service Income from
Stater" and "Net Earnings" resulting from the repurchase of the Stater Preferred
Stock and termination of the Consulting Agreement would have been to reduce such
net earnings by $2.141 million (or $.40 per share) and $4.353 million (or $.77
per share) for the six months ended June 30, 1997 and the twelve months ended
December 31, 1996, respectively, exclusive of the non-recurring $1.387 million
gain associated with the writeup to stated value. Accordingly, the pro forma net
loss for the six months ended June 30, 1997 and proforma net earnings for the
twelve months ended December 31, 1996 would have been a loss of $157,000 ($0.03
per share) and net earnings of $38.294 million ($6.80 per share), respectively.
Such pro forma results assume the proceeds received of $69.365 million would
have been invested at rates of not less than 5.5%. Had the sale of the Stater
Preferred Stock been recorded on the Company's Consolidated Balance Sheet as of
June 30, 1997, "Cash and cash equivalents" would have totaled $116.580 million
and the Company would have no "Investment in Stater Preferred Stock" or
"Receivable from affiliate."
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Land $6,988 $7,332
Buildings, leaseholds and improvements 3,525 1,718
Capitalized premises lease 538 538
Equipment 6,985 6,450
Construction-in-progress and property
development costs 2,128 2,562
------- -------
20,164 18,600
Less: Accumulated depreciation (2,612) (2,224)
------- -------
$17,552 $16,376
======= =======
</TABLE>
On July 30, 1997, Reading Australia acquired an existing four screen
theater located in Bundaberg, Victoria for approximately $1.6 million. The
operation of the theater commenced in the third quarter.
Page 8
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1997
(amounts in tables in thousands)
NOTE 5 -- INCOME TAXES
Craig and Reading file separate consolidated federal and state income tax
returns. One company's net operating loss and capital loss carryforwards,
therefore, cannot be used to offset the other company's tax liabilities. Income
tax expense for the six months ended June 30, 1997 reflects current estimated
tax liabilities amounting to approximately $406,000, including federal and state
income tax expense of $184,000 and $222,000 of foreign withholding taxes, which
will be paid if certain intercompany loans are repaid. Income tax expense for
the three months ended June 30, 1996 amounted to approximately $23,885,000 and
was principally comprised of deferred tax liabilities resulting from the gain
reported upon the conversion of the Company's SBH Common Stock to SBH Preferred
Stock.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Leases
------
At June 30, 1997, the Consolidated Company had lease agreements for three
theater facilities with a total of 22 screens which were then under construction
or for which construction is anticipated to commence in 1997. The aggregate
anticipated contribution for construction costs for such facilities was
approximately $12.4 million at June 30, 1997. The aggregate minimum annual
rental commitment for such leases is approximately $550,000, which rentals
commence upon the opening of the theaters.
Reading has entered into purchase agreements and other lease agreements
which are subject to satisfaction of certain contingencies, which contingencies
were not satisfied as of August 13, 1997. In conjunction with lease and
purchase agreements, the Company escrowed and/or made deposits totaling
$2,625,000 at June 30, 1997, which amount has been classified as "Restricted
cash" in the Consolidated Company's Condensed Consolidated Balance Sheet.
NOTE 7 -- LONG-TERM DEBT
In December 1995, Cine Vista entered into a $15 million, eight-year
revolving credit agreement (the "Credit Agreement") with a bank. Under terms of
the Credit Agreement, Cine Vista may borrow up to $15 million to repay Cine
Vista acquisition loans, which loans are payable to a wholly-owned subsidiary of
Reading and fund certain new theater development expenditures. At June 30, 1997
and December 31, 1996, no amounts were outstanding under this agreement.
The provisions of the Credit Agreement require Cine Vista to maintain a
minimum level of net worth and other financial ratios, restrict the payment of
dividends, and limit additional borrowing and capital expenditures. Cine Vista
failed to maintain compliance with certain of the financial covenants contained
in the Credit Agreement during 1996 and the six months ended June 30, 1997.
Reading is currently working with the lender to revise certain of the Credit
Agreement's financial coverage to ensure its continuing availability. The
lender has waived compliance with the covenants during 1996 and Reading has
requested a waiver for the covenant violations during the three months ended
June 30, 1997.
Page 9
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1997
(amounts in tables in thousands)
NOTE 8 -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
As described in Note 1, the accompanying consolidated financial statements,
include the accounts of Craig and its majority owned subsidiaries. The
following information reflects only the accounts of Craig and its wholly owned
subsidiaries. Craig and Reading are separate public companies and each entity's
capital resources and liquidity is legally independent of the other and any
intercompany loans or receivables would require approval of each separate
company's Board of Directors. As more fully described in Note 3, SBH has
elected to terminate the Consulting Agreement upon its redemption, in full, of
the SBH Preferred Stock. Accordingly, the future working capital of Craig will
be primarily dependent on Reading's ability to pay dividends in accordance with
the terms of the Series B Preferred Stock.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET: JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Assets:
- -------
Cash $ 4,347 $ 3,492
Other current assets 78 146
------- -------
Total current assets 4,425 3,638
Investment in Common Stock of Reading 70,261 69,736
Investment in Preferred Stock of Reading 55,000 55,000
Investment in Citadel 2,028 --
Property and equipment, net 865 943
Other assets 246 252
Excess of cost over net assets acquired 1,175 1,196
------- -------
Total assets $134,000 $130,765
======= =======
Liabilities and stockholders equity:
- ------------------------------------
Accounts payable and accrued expenses $ 849 $ 803
Note Payable to Citadel 1,998 --
Deferred tax liabilities 30,250 30,250
Stockholders' equity 100,903 99,712
------- -------
Total liabilities and stockholders' equity $134,000 $130,765
======= =======
</TABLE>
Page 10
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1997
(amounts in tables in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
CONDENSED STATEMENT OF OPERATIONS: JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
- ---------
Equity in earnings of Stater $ -- $ -- $ -- $ 1,608
Equity in earnings of Reading (13) 691 588 554
Equity in earnings of Citadel 30 -- 30 --
Dividend income from Reading 894 -- 1,788 --
Dividend income from affiliates -- 1,854 -- 2,373
Service income from Stater 375 375 750 750
Interest income 42 122 76 329
------ ------- ------ -------
1,328 3,042 3,232 5,614
------ ------- ------ -------
Expenses:
- ---------
General and administrative 433 453 818 910
Depreciation expense 50 34 100 63
Interest expense 38 -- 38 --
Equity loss from Australian
theatre developments -- 56 -- 310
Loss from joint venture 120 100 120 175
------ ------- ------ -------
641 643 1,076 1,458
------ ------- ------ -------
Earnings before other income and
income taxes 687 2,399 2,156 4,156
Gain from conversion of common
stock interest in Stater -- 8,325 -- 58,286
------ ------- ------ -------
Earnings before income taxes 687 10,724 2,156 62,442
Income taxes -- 3,450 85 23,875
------ ------- ------ -------
Net earnings $ 687 $ 7,274 $2,071 $38,567
====== ======= ====== =======
</TABLE>
Page 11
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1997
(amounts in tables in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JUNE 30, JUNE 30,
CONDENSED STATEMENT OF CASH FLOWS: 1997 1996
------------ -------------
<S> <C> <C>
Operating Activities:
- ---------------------
Net earnings $ 2,071 $ 38,567
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on conversion of Stater common stock -- (58,286)
Undistributed earnings of equity affiliates (618) (2,162)
Increase in deferred taxes -- 23,725
Other 221 (1,714)
------ -------
Net cash provided by (used in) operating activities 1,674 130
Investing Activities:
- ---------------------
Acquisition of Reading Stock (819) (1,107)
Investment in Reading Australia -- (12,888)
Acquisition of Citadel Stock (1,998) --
Other investments -- (410)
Purchase of equipment -- (115)
------ -------
Net cash provided by (used in) investing activities (2,817) (14,520)
Financing Activities:
- ---------------------
Note payable to Citadel for Stock 1,998 --
Payment of affiliate advances -- (1,040)
Treasury stock repurchases -- (634)
------ -------
Net cash (used in) financing activities 1,998 (1,674)
Increase (Decrease) in cash and cash equivalents 855 (16,064)
Cash and cash equivalents at beginning of period 3,492 18,549
------ -------
Cash and cash equivalents at end of period $ 4,347 $ 2,485
====== =======
</TABLE>
NOTE 9 -- IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted on December 31,
1997. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of the Company's primary and fully diluted earnings per
share is not expected to be material.
Page 12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Craig Corporation (Craig and collectively with its wholly owned subsidiary,
the "Company") is in the business of identifying, acquiring, owning and
strategically managing controlling interests in other operating companies. At
June 30, 1997, the Company owned common stock of Reading Entertainment, Inc.
("REI" and collectively with its consolidated subsidiaries, "Reading") and REI
Series B Preferred Stock representing approximately 78% of the voting power of
that company, and 666,000 shares of Citadel Holding Corporation ("CHC" and
collectively with its wholly owned subsidiaries, "Citadel") Common Stock as well
as a 50% membership interest in a developmental chain restaurant operation, Hope
Street Hospitality ("HSH"). As used herein, the term the "Consolidated Company"
is used to describe, for accounting purposes, the Company reporting on a
consolidated basis its ownership interest in REI.
REI has elected to focus its theater development and related real estate
development activities in three principal areas: (i) the management and
development of multiplex cinemas and entertainment centers featuring multiplex
cinemas in Australia; (ii) the domestic management and development and
acquisition of specialty multiplex motion pictures theaters which feature
foreign and limited release art films similar to the Angelika Film Center in New
York; and (iii) the management and development of multiplex cinemas in Puerto
Rico.
RESULTS OF OPERATIONS
The following is a comparison of the results of operations for the three
months ended June 30, 1997 ("1997 Quarter") with the three months ended June 30,
1996 ("1996 Quarter") and a comparison of the results of operations for the six
months ended June 30, 1997 ("1997 Six Months") with the six months ended June
30, 1996 ("1996 Six Months").
Due to the nature of the Consolidated Company's development and acquisition
activities and the timing associated with the results of such activities coupled
with the change in the Consolidated Company's ownership interest in Stater Bros.
Holdings, Inc. ("SBH"), described below, the Consolidated Company's financial
position, results of operations and cash flows have varied significantly and
management believes that such past results are not necessarily indicative of
future operating results.
The Consolidated Company's net earnings for the 1997 Quarter approximated
$.798 million or $.13 per share and earnings before income taxes approximated
$.960 million as compared to 1996 Quarter net earnings of approximately $7.274
million or $1.25 per share and earnings before income taxes of approximately
$10.724 million. The 1996 Quarter net earnings included a gain on the conversion
of the Company's common stock interest in Stater to preferred stock amounting to
approximately $8.325 million and a provision for income taxes amounting to
approximately $3.450 million.
The Consolidated Company's net earnings for the 1997 Six Months
approximated $2.298 million or $.38 per share and earnings before income taxes
approximated $2.704 million as compared to the 1996 Six Months net earnings of
approximately $38.567 million or $6.64 per share and earnings before income
taxes of approximately $62.452 million. The 1996 Six Months net earnings include
a gain on the conversion of the Company's common stock interest in Stater to
preferred stock amounting to approximately $58.286 million and a provision for
income taxes amounting to approximately $23.885 million.
Page 13
<PAGE>
Earnings from investment in Stater
- ----------------------------------
Effective March 8, 1996, SBH exercised its right to convert all of the
Company's common stock in SBH into 693,650 shares of SBH Preferred Stock. The
SBH Preferred Stock had a liquidation preference and redemption value of $69.365
million and a cumulative dividend preference beginning at 10.5%. Upon the
conversion by SBH in March 1996 of the Company's common stock interest to
preferred stock, the Company discontinued the use of the equity method of
accounting for its investment in Stater. Included in the 1996 Quarter is
approximately $1.608 million reflecting the Company's 50% interest in such SBH
earnings from January 1, 1996 until the conversion of the Company's common stock
interest to preferred stock on March 8, 1996. Included as "Dividend income from
Stater" is approximately $1.816 million and $3.612 million earned in the 1997
Quarter and 1997 Six Months, respectively, as compared to $1.816 million and
$2.295 million in the 1996 Quarter and the 1996 Six Months, respectively,
reflecting dividends from the date of issuance of the SBH Preferred Stock on
March 8, 1996.
In July 1997, REI was advised by SBH that Stater intends to exercise its
option to acquire the SBH Preferred Stock owned by Reading Australia. In
addition, SBH has also notified the Company, pursuant to its contractual rights,
that it was terminating the Consulting Agreement between the Company and Stater
upon the repurchase of the SBH Preferred Stock. The Consulting Agreement
provided for annual payments of $1.5 million, payable quarterly. Included in the
Statement of Operations for both the three months ended June 30, 1997 and 1996
and for both the six months ended June 30, 1997 and 1996 is service income from
Stater amounting to $375,000 and $750,000, respectively, earned and paid
pursuant to the Consulting Agreement prior to its termination. The exercise
price to be paid at the closing is $69.365 million plus accumulated dividends.
As of June 30, 1997, dividends have accumulated in the amount of approximately
$3.9 million, and continue to accumulate at the rate of approximately $20,000
per day through the closing. It is anticipated that closing on the purchase will
occur within the next 45 days.
Prior to the preferred stock conversion on March 8, 1996, the net carrying
value of the Company's 50% common stock interest amounted to approximately $9
million. In Fiscal 1996, the Company recorded approximately $58.978 million
(inclusive of $8.325 million in the 1996 Quarter) of the difference between
$67.978 million (98% of the stated value of the SBH Preferred Stock) and the
Company's net carrying value of its previous common stock investment ($9
million) at the time of the conversation as "Gain from conversion of common
stock interest in Stater." The SBH Preferred Stock is included in the
accompanying Consolidated Balance Sheet as "Investment in Stater Preferred
Stock" and is valued at $67.978 million, 98% of stated value. The Consolidated
Company expects to account for the deferred gain of approximately $1.387 million
(difference between the stated value and the Company's carrying value) upon the
repurchase by Stater of the SBH Preferred Stock in the quarter ended September
30, 1997.
Theater Revenue
- ---------------
Theater Revenue is comprised of Admissions, Concessions and Advertising and
other revenues and totaled the amounts set forth below in each of the three and
six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Three Months Ended $ 6,573,000 $3,998,000
Six Months Ended $12,344,000 $8,009,000
</TABLE>
Cine Vista's Theater Revenues decreased approximately 10% between the
current and prior year six months primarily as a result of the opening by a
competitor of three new multiplex theaters in the San Juan metropolitan market.
Cine Vista's theater revenues increased approximately 3% in the current three
Page 14
<PAGE>
month period due to the opening of a new 6-plex in March 1997. In May 1997, Cine
Vista closed four of six screens at another location to initiate construction of
a new 8-plex at the location, which construction is anticipated to be completed
in mid-1998. Accordingly, Cine Vista will have a net increase of two screens for
the remainder of 1997 and anticipates the addition of six more screens in mid-
1998. However, the increased competition in the San Juan metropolitan market is
expected to decrease theater revenues in subsequent quarters in 1997, relative
to 1996 levels, if overall box office revenues on the island remain equal to the
prior year.
Theater Revenue for the three months and six months ended June 30, 1997
includes revenues of $1,644,000 and $3,569,000, respectively, from the Angelika
which was acquired on August 28, 1996. Revenues from admissions at the Angelika
decreased approximately 10% in the 1997 Quarter and increased approximately 6%
in the 1997 Six Months from the admission revenues recorded by the Angelika in
the same quarter and same six months of the prior year, respectively, (such
revenues which were recorded prior to the Company's acquisition of the Angelika
are therefore not included the Consolidated Company's condensed consolidated
financial results).
The Consolidated Company opened its first theater in Australia, a six-plex
located in Townsville, Queensland, at the end of December 1996. Revenues from
the new theater totaled $800,000 and $1,602,000 for the three months and six
months ended June 30, 1997, respectively. In addition, in July 1997, Reading
Australia purchased an operating four screen theater in Bundaberg, Australia for
approximately $1.6 million. The operating results of this theater will be
included in the Consolidated Statement of Operations from the settlement date
forward. In addition, a six plex currently under construction by Reading
Australia is expected to commence operations in late 1997.
In the first quarter of 1997, the Consolidated Company entered into a lease
for the first new theater based upon the Angelika concept to be located in
Houston, Texas and anticipates opening this eight-screen facility in late 1997.
Real Estate
- -----------
Real Estate revenues include rental income and the net proceeds of sales of
Reading's real estate. Real estate revenues in the current year quarter and six
months remained consistent with the prior year quarter and six months. Reading
has 28 parcels and rights-of-way remaining, many of which are of limited
marketability. Future real estate revenues may increase as larger properties are
sold. However, management believes that most of the properties held for sale
will be liquidated within the next three years.
Service Income from Stater
- --------------------------
Effective March 8, 1994, the Company entered into a consulting agreement
with Stater pursuant to which the Company has agreed, among other things, to
render consulting services for a five year period, for an annual fee of $1.5
million payable quarterly. Included in service income for the 1997 and 1996
Quarter and the 1997 and 1996 Six Months is $.375 million and $.750 million,
respectively, earned and paid pursuant to this agreement. In July 1997, Stater
notified the Company of its intention to terminate the consulting agreement upon
its repurchase of the SBH Preferred Stock, and accordingly, service income from
Stater subsequent to the closing of that repurchase will no longer be reported.
Expenses
- --------
"Theater costs," "Theater concession costs" and "Depreciation and
amortization" reflect the direct theater costs of Cine Vista, the Angelika and
Reading Australia's theater operations. Theater and theater concession costs
increased $3,313,000 from $6,458,000 in the 1996 Six Months to $9,771,000 in the
1997 Six Months due primarily to the inclusion of $2,295,000 of theater costs
and theater concession costs associated with the Angelika's operations
subsequent to the August 1996 acquisition and $1,399,000 in costs associated
with
Page 15
<PAGE>
the new six-plex theater which opened in Australia in December 1996 (which costs
include approximately $100,000 of start-up costs associated with the
initialization of activities at the theater). An increase of $1,777,000 in such
theater costs and theater concession costs from the prior year quarter to the
current year quarter resulted from the inclusion of $1,012,000 and $670,000 from
the Angelika and Townsville operations, respectively. During the fourth quarter
of 1996, the minimum wage for Puerto Rico was increased by approximately 15%.
Since most of Cine Vista's theater employees are paid minimum wage, the increase
will have a negative effect on its operating results in future periods.
"General and administrative" expenses for the three and six months ended
June 30, 1997 and 1996 listed below include the following components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CineVista $ 161 $ 282 $ 385 $ 576
Angelika 125 --- 251 ---
Australia 1,192 402 1,484 912
Craig 433 453 818 910
Reading, general 1,178 635 2,152 1,511
------ ------ ------ ------
Total $3,089 $1,772 $5,090 $3,909
====== ====== ====== ======
</TABLE>
The decrease in Cine Vista's "General and administrative" expenses from the
1996 periods is largely due to the inclusion of $100,000 of salary expenses in
1996, which has been included in "Reading, general - General and administrative"
in 1997 and a decrease in certain professional fees. "Reading, general - General
and administrative" expenses category increased from the prior year periods due
to an increase in professional fees and other expenses associated with theater
acquisition and development activities and an increase in salaries and bonus
expense resulting, in part, from the inclusion of certain salary expense (which
was included in Cine Vista's "General and administrative" expenses in the prior
year.)
General and administrative expenses in the 1997 and 1996 Six Months include
general, administrative and development expenses incurred with respect to the
foreign operations of Reading Australia amounting to approximately $1,484,000
and $912,000, respectively, and amounted to $1,192,000 in the 1997 Quarter as
compared to $402,000 in the 1996 Quarter. Reading Australia is actively seeking
properties to develop state-of-the-art multiplex cinemas facilities and
entertainment centers in Australia and has acquired a property and has made
deposits and entered into agreements for several other real property purchases
or leases. The 1997 Quarter and Six Months expenses include $555,000 of
previously capitalized property development costs which were expensed due to
management's determination in the second quarter that development of the related
theater locations would not be pursued to completion. Reading Australia
anticipates continuing development expense during the next several years until
theaters and entertainment centers are developed and operations increased. No
assurances can be given that Reading Australia will successfully develop such
cinemas and entertainment centers, nor that if developed, such operations will
be successful.
In 1996, Craig entered into a 50/50 corporate joint venture in the form of
a newly formed limited liability company, Hope Street Hospitality LLC ("HSH").
HSH was established to develop the concept for a chain retail store/restaurant
specializing in woodfire baked goods. Craig has contributed approximately
$900,000 to this development project. Included in the Statement of Operations as
"Loss from joint venture" for the three months and six months ended June 30,
1997 is approximately $120,000 and $120,000 as compared to $100,000 and $175,000
for the respective 1996 Quarter and 1996 Six Months. The store has had
continuing losses, and, accordingly, the Company has expensed its cumulative
contributions to date reflecting both the development expenses and operating
losses of this venture.
Page 16
<PAGE>
Earnings from investment in Citadel
- -----------------------------------
At December 31, 1996, the Consolidated Company's holdings in Citadel
included a 26.1% common stock interest. On April 11, 1997, Craig exercised its
warrant to purchase 666,000 shares of Citadel Common Stock increasing the
Consolidated Company's holdings in Citadel to approximately 33.4%. Such exercise
was consummated pursuant to delivery by Craig of its secured promissory note in
the amount of $1.998 million, secured by 500,000 shares of REI Common Stock.
Interest is payable quarterly in arrears at the prime rate. Principal and
accrued but unpaid interest is due upon the earlier of April 11, 2002 or 120
days following Citadel's written demand for payment and, accordingly, the note
is included in current liabilities in the Balance Sheet as of June 30, 1997.
"Earnings from investment in Citadel" includes the Company's ownership
share of Citadel's net earnings and decreased $1,267,000 from $1,433,000 in the
six months ended June 30, 1996 to $166,000 in the six months ended June 30, 1997
and decreased $1,332,000 from $1,433,000 in the three months ended June 30, 1996
to $101,000 in the three months ended June 30, 1997. Citadel's net earnings for
the three and six months ended June 30, 1996 amounted to $5,541,000 and
$5,784,000, respectively, and included a nonrecurring gain on sale of real
estate of $1,473,000 and nonrecurring income of $4,000,000 from the recognition
for financial statement purposes of previously deferred proceeds from the bulk
sale of loans by a previously owned subsidiary of Citadel. The 1997 Quarter and
Six Months included approximately $114,000 and $228,000, respectively, from
dividends earned related to Citadel's $7 million investment in Reading.
Other Income
- ------------
"Other income" totaled $238,000 and $24,000 in the 1997 and 1996 Six
Months, respectively, and is comprised in the 1997 Six Months primarily
of amounts received from a third party as reimbursement of certain acquisition
related expenditures which were expensed in prior periods. "Other income"
remained consistent between the 1997 and 1996 Quarter.
Minority Interest
- -----------------
"Minority interest" amounted to approximately $104,000 for the 1997 Six
Months and includes Sutton Hill Associates' minority share of the AFC income
amounting to $111,000 and $7,000 which reflects the minority share of the
Townsville operating losses (See Note 2). The "minority interest" of $492,000
for the 1996 Six Months reflects the minority interests shares of Reading's net
earnings for the period. During the 1997 Six Months, the Company purchased an
additional 78,500 shares (approximately 1% of the outstanding shares) of REI
Common Stock, which purchase price of approximately $819,000 resulted in a
decrease to "Minority interest in equity of subsidiaries" included on the
Consolidated Balance Sheet.
Income Tax Provision
- --------------------
Income tax expense in the 1997 Quarter was $162,000 as compared to
$3,450,000 in the 1996 Quarter and amounted to $406,000 in the 1997 Six Months
as compared to $23,885,000 in the 1996 Six Months. The 1997 Six Months includes
a current tax provision for foreign withholding taxes of $222,000 which will be
paid if certain intercompany loans are repaid and estimated federal and state
taxes of $184,000. Income tax expense in the 1996 Quarter and 1996 Six Months
principally related to deferred tax liabilities associated with the gain
recognized in the conversion of the Company's SBH Common Stock to SBH Preferred
Stock. As a result of the Stock Transactions in October 1996, the SBH Preferred
Stock was transferred to Reading and a portion of Reading's reserve against the
tax asset valuation allowance related to its deferred federal tax assets was
reversed. The Company accounted for its Fiscal 1996 Reading Stock purchases and
the Stock Transactions as a purchase. The fair value of the assets and
liabilities received were considered after reversal by Reading of the previously
reserved tax assets.
Page 17
<PAGE>
Accordingly, the Company reduced its deferred tax liabilities in Fiscal 1996 in
the amount of approximately $22 million with a corresponding decrease to the
allocated fair value of Reading assets purchased.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Consolidated Company had cash and cash equivalents
totaling approximately $43.324 million which includes approximately $38.977
million held by Reading. At June 30, 1997, Craig had cash and cash equivalents
of approximately $4.347 million. REI is majority owned by the Company and,
accordingly, is included in the consolidated financial statements of the
Company. However, Craig and REI are separate public companies and each entity's
capital resources and liquidity is legally independent of the other and any
intercompany loans or receivables would require approval of each separate
company's Board of Directors. As a result of the termination by Stater of the
Consulting Agreement between the Company and Stater described above, the future
liquidity of Craig will be principally dependent on Reading's ability to pay
dividends in accordance with the terms of the Reading Preferred Stock issued in
the October 1996 Stock Transactions, amounting to approximately $3.575 million
annually.
To provide Reading Australia with funding needed to pursue its theater
development plans without requiring REI to guarantee the indebtedness of Reading
Australia and to demonstrate commitment to the Australian market, REI
contributed its SBH Preferred Stock to Reading Australia. In July 1997, Reading
was advised that Stater was exercising its right to repurchase the SBH Preferred
Stock from Reading Australia at its stated value of $69,365,000 plus accrued
dividends. As of June 30, 1997, accumulated dividends totaled $3.9 million.
The redemption of the Stater Preferred Stock will increase the Consolidated
Company's cash and cash equivalents to more than $100 million. It is anticipated
that the proceeds from the redemption will be deployed into the motion picture
exhibition and entertainment center development business over the next 24
months.
If the Consolidated Company is successful in its efforts to develop all of
the projects which it is presently considering in Australia, Puerto Rico and the
domestic market, its capital requirements over the next three years will exceed
its existing cash balances, the proceeds received upon the redemption of the SBH
Preferred Stock and existing borrowing arrangements. However, the Consolidated
Company believes that additional funding could be realized through, among other
things, bank borrowings, sale-leaseback transactions and the issuance/sale of
additional equity either of REI, Reading Australia or at the project level. The
Consolidated Company does not currently have property purchase or development
commitments which exceed its liquid fund.
During the 1997 Six Months, the U.S. dollar strengthened materially
relative to the Australian dollar. Accordingly, the value of Reading Australia's
"Cash and cash equivalents" which funds are denominated in Australian dollars,
decreased approximately $1,039,000 when converted to U.S. dollars in the
Company's consolidated financial statements. As of June 30, 1997, Reading
Australia had Australian dollar unrestricted and restricted cash balances
amounting to approximately $(U.S.)12.236 million. Such devaluation did not
affect the Company's development plans or its ability to execute such plans
since Reading Australia's anticipated development expenditures are in excess of
Australian dollar denominated liquid assets held by Reading Australia.
Therefore, Reading Australia has not sustained any loss in purchasing power.
Prior to Reading's 1981 quasi-reorganization, Reading had extensive
railroad and related operations. Such operations may have contributed to
environmental contamination of properties now owned by Reading, previously sold
by Reading, or to which Reading, prior to its reorganization, sent waste. The
ultimate extent of liabilities, if any, with respect to such matters, as well as
the timing of cash disbursements, if any, cannot be determined. However,
management is of the opinion, based on the
Page 18
<PAGE>
information currently known, that while the ultimate liability resulting from
such matters could have a material effect upon the results of operations in a
given year, they will not have a material adverse effect upon Reading's
financial position or liquidity.
The following summarizes the major sources and uses of cash funds in each
of 1997 and 1996 Six Months, respectively:
1997:
- -----
"Unrestricted cash and cash equivalents" decreased $8,848,000 from
$52,172,000 at December 31, 1996 to $43,324,000 at June 30, 1997. Working
capital increased $64,682,000 from $45,787,000 at December 31, 1996 to
$110,469,000 at June 30, 1997 largely as a result of the reclassification of the
$67,978,000 Stater Preferred Stock investment from non-current assets to current
assets at June 30, 1997. Net cash used in operating activities amounted to
$219,000 in the 1997 Quarter.
Net cash used in investing activities amounted to approximately $3,680,000
in the 1997 Six Months including $2,314,000 in the purchase of property and
equipment, $1,998,000 to purchase Citadel Common Stock and $819,000 used to
purchase an additional 78,500 shares (approximately 1% of the outstanding stock)
of REI.
Net cash used in financing activities amounted to $90,000 in the 1997
Quarter and was comprised of a distribution to the AFC minority shareholder, a
$1,500,000 note payable payment, offset by a $1,998,000 borrowing from Citadel
to purchase Citadel Common Stock.
1996:
- -----
"Unrestricted cash and cash equivalents" increased $37,905,000 from
$18,645,000 at December 31, 1995 to $56,550,000 at June 30, 1996 due primarily
to the effect of accounting for the purchase of REI in Fiscal 1996 on a
consolidated basis. During Fiscal 1996, the Company increased its ownership of
Reading to greater than 50% which resulted in the Company including the assets
and liabilities of Reading on a consolidated basis in the financial statements,
which had the effect of increasing cash and cash equivalents after acquisition
costs by approximately $43,082,000 as of January 1, 1996. The increase resulting
from the consolidation of Reading in the 1996 Quarter was offset by the purchase
of property, plant and equipment amounting to $3,330,000, and other investments
of $410,000.
Net cash used in financing activities amounted to $888,000 in the 1996
Quarter as a result of Craig's repurchasing 64,100 shares of its common stock
for approximately $634,000 and payment of Reading debt financing costs of
$254,000.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements are
subject to certain risks, trends, and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases and permits for new multiplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and other risks associated with the Company's investment
activities and other factors described herein. The Company undertakes no
obligation to update any forward-looking statements to reflect events or
circumstances that may arise after the date of this report.
Page 19
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted on December 31,
1997. Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement 128
on the calculation of the Company's primary and fully diluted earnings per share
is not expected to be material.
Page 20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 24, 1997, a shareholder owning 50 shares of Reading
Entertainment, Inc. ("REI") common stock commenced a purported derivative action
(the "Action") on behalf of REI and its wholly owned subsidiary, Reading Company
entitled Walter Alphin v. James J. Cotter, et. al. in the Philadelphia County
----------------------------------------
Court of Common Pleas. The complaint in the Action named Craig Corporation
("Craig"), former directors of Reading Company, Gerard P. Laheney and Ralph B.
Perry III and all of the current directors of REI as defendants. The Action
alleges that the defendants breached their fiduciary duty to Reading Company by
failing to utilize certain tax assets of Reading Company over the years and that
such failure resulted in the defendants causing Reading Company to use certain
of the tax assets for the ultimate benefit of Craig. No monetary claims have
been asserted against Craig, REI or Reading Company in the Action and the
plaintiff seeks unspecified monetary damages from the defendants. Management is
reviewing the Action and believes that the suit has no merit and that it will
not have a material adverse effect upon the companies. Reading has directors and
officers liability insurance and believes that the claims set forth in the
Action are covered by such insurance, if Reading is ultimately deemed to have
any monetary responsibility through its indemnification of REI's and/or Reading
Company's directors.
On June 17, 1997, the United States Court of Appeals for the Third Circuit
(the "Appeals Court"), upheld the 1995 decision of a federal district judge in
the matter of Reading Company, Debtor v. United States of America and
----------------------------------------------------------
Consolidated Rail Corporation. The lower court had ruled that Reading Company's
- -----------------------------
("Reading") bankruptcy reorganization had discharged Reading from liability
asserts against Reading as a potentially responsible party for the Douglassville
Disposal Site (located in Berks County, Pennsylvania) on December 31, 1980. The
plaintiffs submitted a request for a rehearing of the matter to the Appeals
Court, which request was denied on August 2, 1997.
For a further description of legal proceedings, please refer to Item 3
entitled "Legal Proceedings" contained in the Company's Form 10-K for the fiscal
year ended December 31, 1996.
ITEM. 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
Page 21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the reporting period.
Page 22
<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 REGISTRANT
Date: August 14, 1997 By: /s/ S. Craig Tompkins
------------------------- -----------------------
S. Craig Tompkins
President
Date: August 14, 1997 By: /s/ Robin W. Skophammer
------------------------- ------------------------
Robin W. Skophammer
Chief Financial Officer
Page 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 43,324
<SECURITIES> 67,978
<RECEIVABLES> 5,000
<ALLOWANCES> 0
<INVENTORY> 156
<CURRENT-ASSETS> 120,073
<PP&E> 20,251
<DEPRECIATION> (2,612)
<TOTAL-ASSETS> 161,007
<CURRENT-LIABILITIES> 9,604
<BONDS> 0
0
0
<COMMON> 1,377
<OTHER-SE> 99,137
<TOTAL-LIABILITY-AND-EQUITY> 161,007
<SALES> 13,197
<TOTAL-REVENUES> 16,806
<CGS> 9,771
<TOTAL-COSTS> 15,692
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<INCOME-TAX> 406
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</TABLE>
