<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: September 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)
<TABLE>
<S> <C>
DELAWARE 95-1620188
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
550 South Hope Street 90071
Suite 1825 Los Angeles CA (Zip Code)
(Address of principal executive offices)
</TABLE>
<TABLE>
<S> <C>
Registrant's telephone number, including area code: (213) 239-0555
</TABLE>
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 November 13, 1997.
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
INDEX
-----
Page
----
PART 1. Financial Information
- ------
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets as of September 30, 1997 (Unaudited)
and December 31, 1996.................................................. 3
Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30, 1997 and 1996 (Unaudited).......................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------------- ----------------------
ASSETS (In thousands of dollars)
- ---------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $113,826 $ 52,172
Receivables 1,129 3,117
Restricted cash 2,164 3,683
Receivables from affiliates -- 244
Prepayments and other current assets 939 1,007
-------- --------
Total current assets 118,058 60,223
Investment in Stater Preferred Stock -- 67,978
Equity investment in Citadel 6,867 4,625
Net investment in leased equipment 2,125 2,125
Property and equipment, net 21,128 16,376
Other assets 3,027 2,519
Excess of cost over net assets acquired, net 11,169 12,122
-------- --------
Total assets $162,374 $165,968
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,287 $ 5,143
Film rental payable 974 1,102
Accrued property costs 982 1,240
Accrued taxes 645 3,580
Note payable 500 1,500
Note payable to Citadel 1,998 --
Other accrued expenses and liabilities 1,385 1,871
-------- --------
Total current liabilities 8,771 14,436
Capitalized lease, less current portion 512 516
Note payable -- 500
Other long-term liabilities 3,658 1,972
Deferred tax liabilities 8,208 8,208
Minority interests' equity of subsidiaries 32,920 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 (2,013) 114
Retained earnings 90,867 87,260
Cost of treasury shares, 1,704,153 shares (19,754) (19,754)
-------- --------
Total shareholders' equity 101,305 99,825
-------- --------
Total liabilities and shareholders' equity $162,374 $165,968
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
Page 3
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------- -----------------------------------
1997 1996 1997 1996
---------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
Revenues:
Theater admissions $5,644 $3,562 $14,703 $ 9,119
Theater concessions 1,688 1,226 4,540 3,290
Theater advertising and other 261 206 694 594
Real estate 40 68 140 212
Equity in earnings of Stater -- -- -- 1,608
Dividend income from Stater 698 1,836 4,310 4,131
Service income from Stater 222 375 972 1,125
------ ------ ------- -------
8,553 7,273 25,359 20,079
------ ------ ------- -------
Expenses:
Theater costs 5,420 3,548 14,565 9,659
Theater concession costs 342 241 968 588
Depreciation and amortization 399 475 1,110 1,319
Loss from joint venture 26 375 146 550
General and administrative
expenses 2,858 1,740 7,948 5,583
------ ------ ------- -------
9,045 6,379 24,737 17,699
------ ------ ------- -------
Earnings before minority interest,
other income and taxes (492) 894 622 2,380
Earnings from investment in Citadel 98 81 264 1,593
Other income (2) 1,133 236 1,091
Interest income 723 670 2,013 2,372
Gain from conversion/repurchase of
investment in Stater 2,002 -- 2,002 58,286
------ ------ ------- -------
Earnings before taxes and minority
interest 2,329 2,778 5,137 65,722
Minority interest 302 678 406 1,170
------ ------ ------- -------
Earnings before taxes 2,027 2,100 4,731 64,552
Provision for taxes (principally
deferred)
378 248 784 24,133
------ ------ ------- -------
Net earnings $1,649 $1,852 $ 3,947 $40,419
====== ====== ======= =======
Earnings per common and common
equivalent share $0.29 $0.33 $0.67 $7.07
====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
<TABLE>
<CAPTION>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------------
1997 1996
-------------------- -----------------
<S> <C> <C>
(In thousands of dollars)
OPERATING ACTIVITIES
Net earnings (loss) $ 3,947 $ 40,419
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Gain from investment in Stater (2,002) (58,286)
Depreciation and amortization 1,110 1,348
Deferred rent expense 305 130
Undistributed earnings of affiliates (264) (3,083)
Increase (decrease) in deferred taxes -- 24,745
Minority interest 406 1,175
Changes in operating assets and liabilities:
(Increase) decrease in receivables 1,988 --
(Increase) decrease in affiliate receivables 244 --
(Increase) decrease in other current assets 68 277
Increase (decrease) in payables (5,187) (284)
Increase (decrease) in film rental (128) 62
Increase (decrease) in other liabilities 795 (154)
Other, net (677) 843
-------- --------
Net cash provided by (used in) operating activities 605 7,192
INVESTING ACTIVITIES
Proceeds from redemption of Stater Preferred Stock/covenant 69,980 --
Purchase of stock of Reading--minority interest (819) --
Purchase of Citadel Stock (1,998) --
Purchase of Angelika -- (12,394)
Proceeds from Angelika judgment -- 1,293
Payment of property development costs -- (1,116)
Purchase of available-for-sale securities -- (3,887)
Purchase of property, equipment, and development costs (6,445) (5,776)
Cash acquired as a result of consolidation of Reading -- 43,082
($44,189), net of acquisition costs
Decrease (increase) in restricted cash 2,018 (1,462)
Other investments (171) (600)
-------- --------
Net cash provided by (used in) investing activities 62,565 19,140
FINANCING ACTIVITIES
Distributions to minority partner (271) --
Decrease in note payable (1,500) --
Note payable to Citadel 1,998 --
Payment of dividend to Citadel (341) --
Proceeds from minority partner for purchase of Angelika -- 2,069
Payment of debt financing costs -- (254)
Treasury stock repurchases -- (7,584)
-------- --------
Net cash provided by (used in) financing activities (114) (5,769)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES (1,402) 80
INCREASE IN CASH AND CASH EQUIVALENTS 61,654 20,643
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 52,172 18,645
-------- ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $113,826 $ 39,288
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
Page 5
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 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/retail 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 interests in equity of subsidiaries
reflects the minority stockholders' proportionate share of REI and the
Consolidated Company's other joint ventures. During the nine months ended
September 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 September 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 nine months ended September
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 September 30, 1997 and 1996 were
5,384,912 and 5,539,803, respectively and 5,384,912 and 5,721,015 during the
nine months ended September 30, 1997 and 1996, respectively. Net earnings per
share for the three months and nine months ended September 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 $341,250 for the three and nine
months ended September 30, 1997, respectively.
Page 6
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1997
(amounts in tables in thousands)
NOTE 2 -- 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 had a liquidation preference and redemption value of $69.365
million and a cumulative dividend preference beginning at 10.5%. 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 $.692 million
recorded in the fourth quarter of 1996) 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) upon
the March 8, 1996 conversion as "Gain from conversion/redemption of common
stock interest in Stater." The SBH Preferred Stock was subsequently transfered
to Reading Australia Pty. Limited, a wholly owned subsidiary of REI.
During the third quarter of 1997, SBH exercised its option to acquire the
SBH Preferred Stock owned by Reading Australia. Pursuant to the option exercise,
Stater paid Reading Australia $73,915,000, an amount equal to the stated value
of Stater Stock plus accrued dividends. A book gain of $1,387,000 was recorded
by the Company in the third quarter of 1997 related to the repurchase of the
Stater Stock as the Stater Stock was recorded on the Company's December 31, 1996
Consolidated Balance Sheet at $67,978,000 (98% of stated value). Stater also
paid $615,000 in return for REI's agreement not to provide consulting services
for, nor own a controlling interest in, a business which competes with Stater
(the retail sale of groceries in the "Inland Empire" region of Southern
California) for a period of one year. The covenant payment and the $1.387
million gain has been recorded as "Gain from conversion/repurchase of investment
in Stater" in the Condensed Consolidated Statement of Operations for the three
months and nine months ended September 30, 1997.
In addition to the notification by SBH of its repurchase of the SBH
Preferred Stock, SBH 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 September 30, 1997
and 1996 is service income earned and paid pursuant to the Consulting Agreement
prior to its termination from Stater amounting to approximately $222,000 and
$375,000, respectively, and approximately $972,000 and $1,250,000 for the nine
months ended September 30, 1997 and 1996, respectively.
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 nine months
ended September 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.
The pro forma effect on "Dividend Income from Stater", "Service Income from
Stater", "Gain from Conversion/repurchase of investment in 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 $4.423 million (or $.82 per share) and $39.608 million (or $7.03 per
share) for the nine months ended September 30, 1997 and the twelve months ended
December 31, 1996, respectively. Accordingly, the pro forma net loss for the
nine months ended September 30, 1997 and proforma net earnings for the twelve
months ended December 31, 1996 would have been a loss of $476,000 ($0.09 per
share) and net earnings of $3.039 million ($0.54 per share), respectively. Such
proforma results assume the proceeds received of $69.365 million would have been
invested at rates of not less than 5.5% as of the beginning of the
Page 7
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1997
(amounts in tables in thousands)
beginning of the periods being reported.
NOTE 3 -- EQUITY INVESTMENT IN CITADEL
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 approximately 33.4% at September 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 September 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 September 30,
1997 and 1996 were $407,000 (inclusive of $113,750 of dividend income paid to
Citadel by REI) and $197,000, respectively, and the Company's share of such
earnings adjusted for preferred stock dividends was $98,000 and $41,000,
respectively. Citadel's net earnings for the nine months ended September 30,
1997 and 1996 were $1,066,000 (inclusive of $341,250 of dividend income paid to
Citadel by REI) and $5,981,000, respectively, and the Company's share of such
earnings was $264,000 and $1,475,000, respectively. Included in Citadel's net
earnings for the 1996 nine months 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 nine months ended
September 30, 1997 and 1996 as "Earnings from investment in Citadel." Citadel's
assets and liabilities totaled $29,810,000 and $11,020,000, respectively, as of
September 30, 1997, inclusive of a $7,000,000 investment in REI.
<TABLE>
<CAPTION>
NOTE 4 - PROPERTY AND EQUIPMENT
<S> <C> <C>
Property and equipment consisted of the following:
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------ -----------------
<S> <C> <C>
Land $ 7,202 $ 7,332
Buildings, leaseholds and improvements 5,697 1,718
Capitalized premises lease 538 538
Equipment 7,636 6,450
Construction-in-progress and property
development costs 3,192 2,562
------- -------
24,265 18,600
Less: Accumulated depreciation (3,137) (2,224)
------- -------
$21,128 $16,376
======= =======
</TABLE>
On July 30, 1997, Reading Australia acquired an existing four screen
theater located in Bundaberg, Victoria for approximately $1,600,000. The
operation of the theater commenced in the third quarter of 1997.
Page 8
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1997
(amounts in tables in thousands)
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, which is included in the
balance sheet as "Other Assets" 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 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. In
addition, each Company is required to pay federal alternative minimum tax
("AMT"). AMT is calculated separately from the regular federal income tax and
is based on a flat rate applied to a broader tax base. Income tax expense for
the nine months ended September 30, 1997 reflects current estimated tax
liabilities amounting to approximately $784,000, including federal and state
income tax expense of $255,000 and $529,000 of foreign withholding taxes, which
will be paid if certain intercompany loans are repaid. Income tax expense for
the nine months ended September 30, 1996 amounted to approximately $24,133,000
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
At September 30, 1997, the Consolidated Company had lease agreements for an
additional 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 $12,100,000 at September 30, 1997. The aggregate
minimum annual rental commitment for such leases is approximately $550,000,
which rentals commence upon the opening of the theaters.
Subsequent to September 30, 1997, Reading Australia entered into an
agreement to lease a multiplex site in Queensland which includes an obligation
to fit out the theater building at an anticipated cost of approximately $3.2
million. In addition, Reading Australia is presently finalizing property
purchase agreements with respect to sites in Victoria, Queensland and Western
Australia which could require the payment of up to approximately $18 million as
the consideration for such acquisitions and to fund certain associated
development guarantees in the fourth quarter of 1997. Reading Australia also
anticipates entering into construction and development agreements in the fourth
quarter of 1997 pursuant to which Reading Australia will be obligated to expend
approximately an additional $30 million for the development of Entertainment
Centers located in Victoria and Western Australia. In conjunction with these
leases and purchase agreements, the Company escrowed and/or made deposits
totaling $2,004,000 at September 30, 1997, which amount has been classified as
"Restricted cash" in the Consolidated Company's Condensed Consolidated Balance
Sheet.
Page 9
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1997
(amounts in tables in thousands)
NOTE 7 -- 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 is
primarily dependent on Reading's ability to pay dividends in accordance with the
terms of the Series B Preferred Stock.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
CONDENSED BALANCE SHEET: ----------------------- -----------------------
Assets:
- -------
<S> <C> <C>
Cash $ 4,832 $ 3,492
Other current assets 96 146
-------- --------
Total current assets 4,928 3,638
Investment in Common Stock of Reading 70,593 69,736
Investment in Preferred Stock of Reading 55,000 55,000
Investment in Citadel 2,058 --
Property and equipment, net 825 943
Other assets 247 252
Excess of cost over net assets acquired 1,164 1,196
-------- --------
Total assets $134,815 $130,765
======== ========
Liabilities and stockholders equity:
- ------------------------------------
Accounts payable and accrued expenses $ 649 $ 803
Note Payable to Citadel 1,998 --
Deferred tax liabilities 30,250 30,250
Stockholders' equity 101,918 99,712
-------- --------
Total liabilities and stockholders' equity $134,815 $130,765
======== ========
</TABLE>
Page 10
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1997
(amounts in tables in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------ -------------------------------------
CONDENSED STATEMENT OF OPERATIONS: SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
- ---------
Equity in earnings of Stater $ -- $ -- $ -- $ 1,608
Equity in earnings of Reading 853 720 1,441 1,274
Equity in earnings of Citadel 30 -- 60 --
Dividend income from Reading 893 -- 2,681 --
Dividend income from affiliates -- 1,874 -- 4,247
Service income from Stater 222 375 972 1,125
Interest income 57 54 133 383
------ ------ ------ -------
2,055 3,023 5,287 8,637
------ ------ ------ -------
Expenses:
- ---------
General and administrative 401 443 1,219 1,353
Depreciation expense 50 32 150 95
Interest expense 43 -- 81 --
Equity loss from Australian
theatre developments -- 131 -- 441
Loss from joint venture 26 375 146 550
------ ------ ------ -------
520 981 1,596 2,439
------ ------ ------ -------
Earnings before other income
and income taxes 1,535 2,042 3,691 6,198
Gain from conversion of
common stock interest in
Stater -- -- -- 58,286
------ ------ ------ -------
Earnings before income taxes 1,535 2,042 3,691 64,484
Income taxes -- 189 85 24,065
------ ------ ------ -------
Net earnings $1,535 $1,853 $3,606 $40,419
====== ====== ====== =======
</TABLE>
Page 11
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1997
(amounts in tables in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
SEPT. 30, SEPT. 30,
CONDENSED STATEMENT OF CASH FLOWS: 1997 1996
-------------- --------------
<S> <C> <C>
Operating Activities:
- ---------------------
Net earnings $ 3,606 $ 40,419
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 (1,501) (2,441)
Increase in deferred taxes -- 24,745
Other 54 (93)
----- ------
Net cash provided by (used in) operating
activities 2,159 4,344
Investing Activities:
- ---------------------
Acquisition of Reading Stock (819) (1,107)
Investment in Reading Australia -- (12,888)
Proceeds from sale of Citadel Stock to Reading -- 3,325
Acquisition of Citadel Stock (1,998) --
Other investments -- (600)
Purchase of equipment -- (159)
------- --------
Net cash provided by (used in) investing activities (2,817) (11,429)
Financing Activities:
- ---------------------
Note payable to Citadel for Stock 1,998 --
Payment of affiliate advances -- (1,040)
Treasury stock repurchases -- (7,584)
------- --------
Net cash (used in) financing activities 1,998 (8,624)
Increase (decrease) in cash and cash equivalents 1,340 (15,709)
Cash and cash equivalents at beginning of period 3,492 18,549
------- --------
Cash and cash equivalents at end of period $ 4,832 $ 2,840
======= ========
</TABLE>
NOTE 8 -- IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") 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.
In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
Income" which is required to be adopted by the Company on January 1, 1998. The
Statement establishes new rules for the reporting and display of other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on available-for-sale securities and foreign currency translation
adjustments.
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
September 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"). Since Reading owns 1,564,473 shares of CHC Common
Stock the Consolidated Company owns 33.4% of the Common Stock of CHC. 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/retail centers featuring
multiplex cinemas in Australia under the Reading Cinemas name; (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 under the Angelika Film Center name; and
(iii) the management and development of multiplex cinemas in Puerto Rico under
the CineVista name.
RESULTS OF OPERATIONS
The following is a comparison of the results of operations for the three
months ended September 30, 1997 ("1997 Quarter") with the three months ended
September 30, 1996 ("1996 Quarter") and a comparison of the results of
operations for the nine months ended September 30, 1997 ("1997 Nine Months")
with the nine months ended September 30, 1996 ("1996 Nine 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
$1.649 million or $.29 per share as compared to the 1996 Quarter net earnings of
approximately $1.852 million or $.33 per share. The Consolidated Company's net
earnings for the 1997 Nine Months approximated $3.947 million or $.67 per share
and earnings before income taxes approximated $4.731 million as compared to the
1996 Nine Months net earnings of approximately $40.419 million or $7.07 per
share and earnings before income taxes of approximately $64.552 million. The
1996 Nine Months net earnings include a gain on the conversion of the Company's
stock interest in Stater, described below, amounting to approximately $58.286
million and a provision for income taxes amounting to approximately $24.133
million.
Earnings from investment in Stater
- ----------------------------------
In the 1997 Quarter, the SBH Preferred Stock was repurchased by SBH and the
Consulting Agreement between the Company and Stater was terminated. The SBH
Preferred Stock was included in the accompanying Consolidated Balance Sheet at
December 31, 1996, as "Investment in Stater Preferred Stock" at a value of
$67.978 million or 98% of stated value. Upon its repurchase in August 1997, the
Consolidated Company recognized income of approximately $2.002 million comprised
of (i)
Page 13
<PAGE>
$1.387 million (difference between the $69.365 million stated value of the SBH
Preferred Stock and the carrying value) and (ii) $.615 million received from
Stater at the time of the SBH Preferred Stock repurchase for REI's agreement to
enter into a covenant-not-to-compete for a one year period.
The following summarizes earnings from the Consolidated Company's
investment in Stater prior to the repurchase of such investment by Stater in the
1997 Quarter as included in the accompanying Consolidated Statement of
Operations for the three months and nine months ended September 30, 1997 and
1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- ------- ------- -------
000's 000's
<S> <C> <C> <C> <C>
Dividend income $ 698 $1,836 $4,310 $ 4,131
Service fee income 222 375 972 1,125
Gain on conversion/repurchase of
investment in Stater 2,002 -- 2,002 58,286
Equity in earnings of Stater -- -- -- 1,608
------ ------ ------ -------
$2,922 $2,211 $7,284 $65,150
====== ====== ====== =======
</TABLE>
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. 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 $.692 million in
the fourth quarter of Fiscal 1996) 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."
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. Such agreement was terminated in the 1997 Quarter
and, accordingly, service income from Stater will no longer be reported.
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
nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
<S> <C> <C>
Three Months Ended $ 7,594,000 $ 4,994,000
Nine Months Ended $19,937,000 $13,003,000
</TABLE>
Page 14
<PAGE>
Cine Vista's Theater Revenues decreased approximately 4% between the
current and prior year nine months primarily as a result of the opening by a
competitor of two new multiplex theaters in the San Juan metropolitan market.
Cine Vista's theater revenues increased approximately 8% in the current three
month period due primarily 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 for the remainder
of 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 nine months ended September 30,
1997 includes revenues of $2,177,000 and $5,747,000, respectively, from the
Angelika which was acquired on August 28, 1996. Angelika Theater revenue for
both the three months and nine months ended September 30, 1996 was approximately
$798,000. Revenues from admissions and concessions at the Angelika decreased
approximately 6% in the 1997 Quarter and increased approximately 1% in the 1997
Nine Months from the admission revenues recorded by the Angelika in the same
quarter and same nine 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 admissions decrease in the 1997 Quarter was consistent
with industry results in the art and specialty film exhibition market.
The Consolidated Company opened its first theater in Australia, a six-plex
located in Townsville, Queensland, at the end of December 1996 and purchased an
operating four screen theater in Bundaberg, Victoria for approximately
$1,600,000 in the third quarter of 1997. Revenues from these new theaters
totaled $872,000 and $2,473,000 for the three months and nine months ended
September 30, 1997, respectively. In addition, a six plex currently under
construction by Reading Australia is expected to commence operations in late
November 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 nine
months remained consistent with the prior year quarter and nine 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.
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 admissions and theater
concession costs increased $5,286,000 from $10,247,000 in the 1996 Nine Months
to $15,533,000 in the 1997 Nine Months due primarily to the inclusion of
$3,752,000 of theater costs and theater concession costs associated with the
Angelika's operations (versus $583,000 in the prior nine month period) and
$2,108,000 in costs associated with the new theaters which opened in Australia
in December 1996 and July 1997 (which costs include approximately $125,000 of
start-up costs associated with the initialization of activities at the theater).
An increase of $1,973,000 in such theater costs and theater concession costs
from the prior year quarter to the current year quarter resulted primarily from
the inclusion of $1,456,000 and $708,000 from the Angelika and Australian
operations, respectively.
Page 15
<PAGE>
"General and administrative" expenses for the three and nine months ended
September 30, 1997 and 1996 listed below include the following components:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CineVista $ 193 $ 206 $ 581 $ 782
Angelika 168 17 416 17
Australia 697 456 2,251 1,368
Craig 401 443 1,219 1,353
Reading, general 1,399 618 3,481 2,063
------ ------ ------ ------
Total $2,858 $1,740 $7,948 $5,583
====== ====== ====== ======
</TABLE>
The decrease in Cine Vista's "General and administrative" expenses from the
1996 periods is largely due to the inclusion of $150,000 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 calculated inclusure of certain salary expense which was included in
Cine Vista's "General and administrative" expenses in the prior year described
above.
General and administrative expenses in the 1997 and 1996 Nine Months
include general, administrative and development expenses incurred with respect
to the foreign operations of Reading Australia amounting to approximately
$2,251,000 and $1,368,000, respectively, and amounted to $697,000 in the 1997
Quarter as compared to $456,000 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 Nine Months expenses include $754,000 of
previously capitalized property development costs which were expensed due to
management's determination in the second and third 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.
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
$926,000 to this development project. Included in the Statement of Operations
as "Loss from joint venture" for the three months ended September 30, 1997 and
1996 is approximately $26,000 and $375,000, respectively, as compared to
$146,000 and $550,000 for the respective 1997 Quarter and 1996 Nine 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.
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
Page 16
<PAGE>
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 September 30, 1997.
"Earnings from investment in Citadel" includes the Company's ownership
share of Citadel's net earnings and decreased $1,211,000 from $1,475,000 in the
nine months ended September 30, 1996 to $264,000 in the nine months ended
September 30, 1997 and increased $57,000 from $41,000 in the three months ended
September 30, 1996 to $98,000 in the three months ended September 30, 1997.
Citadel's net earnings for the nine months ended September 30, 1996 amounted to
$5,784,000, 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
1997 Nine Months included approximately $114,000 and $342,000, respectively,
from dividends earned related to Citadel's $7 million investment in Reading.
Other Income
- ------------
"Other income (expense)" totaled $(2,000) and $1,133,000 in the 1997 and
1996 Quarter, respectively, and amounted to approximately $236,000 and
$1,091,000 in the 1997 and 1996 Nine Months, respectively. The 1997 Nine Months
consisted primarily of amounts received from a third party as reimbursement of
certain acquisition related expenditures which were expensed in prior periods.
"Other income "in the 1996 Nine Months included approximately $1.119 million for
the settlement of a legal claim.
Minority Interest
- -----------------
"Minority interest" amounted to approximately $406,000 for the 1997 Nine
Months and includes the minority interest's share of the Company's consolidated
net earnings of Reading amounting to $225,000, Sutton Hill Associates' minority
share of the AFC income amounting to $175,000 and $5,000 which reflects the
minority share of the Townsville operating losses (See Note 4). The "Minority
Interest" of $1,170,000 for the 1996 Nine Months principally reflects the
minority interests shares of Reading's net earnings for that period. During the
1997 Nine 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 $378,000 as compared to $247,000
in the 1996 Quarter and amounted to $784,000 in the 1997 Nine Months as compared
to $24,133,000 in the 1996 Nine Months. The 1997 Nine Months includes a current
tax provision for foreign withholding taxes of $529,000 which will be paid if
certain intercompany loans are repaid and estimated federal and state taxes of
$255,000. Income tax expense in the 1996 Nine 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.
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.
Page 17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Consolidated Company had cash and cash
equivalents totaling approximately $113.826 million which includes approximately
$108.994 million held by Reading. At September 30, 1997, Craig had cash and
cash equivalents of approximately $4.832 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 complete its theater
development plans without requiring REI to guarantee the indebtedness of Reading
Australia and as a means of minimizing the exposure to fluctuations in the value
of the Australian dollar and to demonstrate commitment to the Australian market,
REI contributed its SBH Preferred Stock to Reading Australia in 1996. In August
1997, SBH repurchased the SBH Preferred Stock from Reading Australia at its
stated value of $69.365 million plus accrued dividends amounting to $4.550
million. The repurchase of the Stater Preferred Stock in the third quarter was
the principal cause of the increase in the Consolidated Company's cash and cash
equivalents to more than $113 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.
In the fourth quarter of 1997, Reading Australia entered into an agreement
to lease a multiplex site in Queensland which includes an obligation to supply
machinery and equipment which is estimated to total approximately $3.2 million.
Reading Australia is presently finalizing property purchase agreements which it
is anticipated will require the payment of up to approximately $18 million as
consideration for such acquisitions and to fund certain associated development
guarantees in the fourth quarter of 1997. Reading Australia also anticipates
entering into construction and development agreements in the fourth quarter of
1997 pursuant to which Reading Australia will be obligated to expend
approximately $30 million for the development of Entertainment Centers located
in Victoria and Western Australia.
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 two years will exceed
its existing cash balances and existing borrowing arrangements. 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 funds.
During the 1997 Nine 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 $1.402 million when converted to
U.S. dollars in the Company's consolidated financial statements. As of September
30, 1997, Reading Australia had Australian dollar unrestricted and restricted
cash balances amounting to approximately $(U.S.)8.376 million. The devaluation
did not affect the Company's development plans or its ability to execute such
plans since Reading Australia's anticipated development expenditures are
currently invested in liquid assets denominated either in Australia or U.S.
dollars. Such Australian and U.S. dollar amounts totaled approximately $8.376
million and $73.077 million, respectively, at September 30, 1997.
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
Page 18
<PAGE>
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 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 Nine Months, respectively:
1997:
- ----
"Unrestricted cash and cash equivalents" increased $61.654 million from
$52.172 million at December 31, 1996 to $113.826 million at September 30, 1997.
Working capital increased $63.5 million from $45.787 million at December 31,
1996 to $109.287 million at September 30, 1997 largely as a result of cash
proceeds received from SBH's repurchase of the SBH Preferred Stock for $69.980
million plus accumulated dividends amounting to approximately $4.550 million
during the Nine Months ended September 30, 1997. Net cash provided by operating
activities amounted to $.605 million in the 1997 Nine Months.
Net cash provided by investing activities amounted to approximately $62.565
million in the 1997 Nine Months resulting primarily from the $69.980 million of
proceeds received from Stater upon their repurchase of the SBH Preferred Stock.
Such cash provided by investing activities was offset by investing expenditures
including $6.445 million in the purchase of property and equipment, $1.998
million to purchase Citadel Common Stock and $.819 million used to purchase an
additional 78,500 shares (approximately 1% of the outstanding stock) of REI.
Net cash used in financing activities amounted to $.114 million in the 1997
Nine Months and was comprised of a distribution to the Angelika minority
shareholder, a $1.5 million note payable payment, offset by a $1.998 million
borrowing from Citadel to purchase Citadel Common Stock.
1996:
- ----
"Unrestricted cash and cash equivalents" increased $20.643 million from
$18.645 million at December 31, 1995 to $39.288 million at September 30, 1996.
During Fiscal 1996, the Company increased its ownership of Reading to greater
than 50% which resulted in the Company accounting for 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 million as of January 1, 1996. The increase resulting from
the consolidation of Reading in the 1996 Nine Months was offset, in part, by the
purchase of the Angelika for a purchase price inclusive of acquisition costs of
approximately $11.101 million (net of $1.293 million received pursuant to a
judgement receivable), the purchase of property, plant and equipment amounting
to $5.776 million and other investments of $.6 million.
Net cash used in financing activities amounted to $5.769 million in the
1996 Nine Months as a result of Craig's repurchasing 539,100 shares of its
common stock for approximately $7.584 million and payment of Reading debt
financing costs of $.254 million offset by proceeds of approximately $2.069
million from the Consolidated Company's minority partner for the purchase of the
Angelika.
Page 19
<PAGE>
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.
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.
In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
Income" which is required to be adopted by the Company on January 1, 1998. The
Statement establishes new rules for the reporting and display of other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on available-for-sale securities and foreign currency translation
adjustments.
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 have submitted a request for a rehearing of the matter to the Appeals
Court, which request was denied on August 12, 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: November 14, 1997 By: /s/ S. Craig Tompkins
----------------------- ----------------------
S. Craig Tompkins
President
Date: November 14, 1997 By: /s/ Robin W.Skophammer
----------------------- ----------------------
Robin W. Skophammer
Chief Financial Officer
Page 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
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