<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: March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number 1-6123
CRAIG CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-1620188
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 South Hope Street 90071
Suite 1825 Los Angeles CA (Zip Code)
(Address of principal executive offices)
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 7,058,412 shares of Class A Common
Preference Stock, $0.01 par value per share, as of May 13, 1998.
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<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1. Financial Information
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (Unaudited)
and December 31, 1997......................................... 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)..................... 4
Consolidated Statements of Cash Flows for Three Months
Ended March 31, 1998 and 1997 (Unaudited)..................... 5
Notes to Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of the Consolidated
Statements of Operations........................................... 12
PART 2. Other Information
- ------
Item 1. Legal Proceedings.................................................. 17
Item 2. Changes in Securities.............................................. 17
Item 3. Defaults Upon Senior Securities.................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................ 17
Item 5. Other Information.................................................. 17
Item 6. Exhibits and Reports on Form 8-K................................... 17
Signatures.................................................................. 18
</TABLE>
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
--------------------- -------------------------
(In thousands of dollars)
-----------------------------------------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 92,319 $ 98,202
Restricted cash 1,236 4,755
Receivables, net 824 1,206
Note receivable -- 720
Inventories 197 194
Prepayments and other current assets 867 589
-------- --------
Total current assets 95,443 105,666
Investment in and advances to joint venture 3,189 3,053
Equity investments 7,041 6,995
Net investment in leased equipment 2,125 2,125
Property and equipment, net 38,908 35,658
Other assets 2,405 2,393
Excess of cost over net assets acquired 11,088 11,235
-------- --------
Total assets $160,199 $167,125
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,299 $ 2,513
Film rental payable 1,885 1,637
Accrued property costs 1,857 3,319
Property purchase commitment -- 3,516
Accrued taxes 651 987
Note payable, including $1,998 to affiliate 2,143 2,643
Other accrued expenses and liabilities 1,108 1,286
-------- --------
Total current liabilities 8,943 15,901
Capitalized lease, less current portion 509 509
Note payable 1,057 1,100
Other long-term liabilities 3,856 3,735
Deferred tax liabilities 8,368 8,368
Minority interests in equity of subsidiaries 31,906 32,273
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 shares authorized, 10,791,824 issued and
7,006,912 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 and 3,762,912
outstanding 1,361 1,361
Additional paid-in capital 30,828 30,828
Accumulated other comprehensive income (3,829) (4,323)
Retained earnings 89,938 90,111
Cost of treasury shares, 3,408,306 shares including
1,727,153 Class A Shares (19,754) (19,754)
-------- --------
Total shareholders' equity 98,560 98,239
-------- --------
Total liabilities and shareholders' equity $160,199 $167,125
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------------------------------------------------------
(In thousands of dollars,
except for share amounts)
<S> <C> <C>
Revenues:
Theater admissions $6,410 $4,252
Theater concessions 2,056 1,310
Theater advertising and other 237 209
Real estate 42 37
Dividend income from Stater -- 1,796
Service income from Stater -- 375
------- ------
8,745 7,979
------- ------
Expenses:
Theater costs 6,227 4,429
Theater concession costs 437 298
Depreciation and amortization 587 356
General and administrative expenses 2,535 1,948
------- ------
9,786 7,031
------- ------
Earnings (loss) before minority interest, other
income items and taxes (1,041) 948
Equity in earnings of affiliates 131 65
Other income (632) 230
Interest income 1,352 675
------- ------
Earnings (loss) before taxes and minority interest (190) 1,918
Minority interest 324 (174)
------- ------
Earnings (loss) before taxes 134 1,744
Provision for taxes (193) (244)
------- ------
Net earnings (loss) (59) 1,500
Dividends paid on subsidiary redeemable preferred
stock (114) (114)
------- ------
Net earnings (loss) available to Craig common
shareholders $ (173) $1,386
======= ======
Basic and diluted earnings (loss) per share: $(0.02) $0.13
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------------
1998 1997
-------------------- -----------------
(In thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (59) $ 1,500
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation 419 188
Amortization 168 168
Deferred rent expense (51) 396
Undistributed earnings of affiliates (131) (65)
Loss on disposal of assets 395 --
Minority interest (324) 174
Changes in operating assets and liabilities:
(Increase) decrease in receivables 382 188
(Increase) decrease in other current assets 950 (306)
Increase (decrease) in payables (3,005) (2,688)
Increase (decrease) in accrued film rental 246 217
Increase (decrease) in other liabilities (46) (4)
Other, net -- (164)
------- -------
Net cash provided by (used in) operating activities (1,056) (396)
INVESTING ACTIVITIES
Purchase of stock of subsidiary--minority interest -- (819)
Purchase of property and equipment (7,311) (2,445)
Decrease in restricted cash 3,093 31
------- -------
Net cash provided by (used in) investing activities (4,218) (3,233)
FINANCING ACTIVITIES
Distributions to minority partner (56) (87)
Payment of Reading preferred dividends (114) --
Decrease in note payable (537) --
------- -------
Net cash provided by (used in) financing activities (707) (87)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES 98 (230)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,883) (3,946)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 98,202 52,172
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $92,319 $48,226
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
March 31, 1998
(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"). Reading is in the business of developing
and operating multi-plex cinemas in the United States, Puerto Rico and Australia
and of developing, and eventually operating, entertainment centers in Australia.
Reading operates its cinemas through various subsidiaries under the Angelika
Film Centers and Reading Cinemas names in the mainland United States (the
"Domestic Cinemas"); through Reading Cinemas of Puerto Rico, Inc., a wholly
owned subsidiary, under the CineVista name in Puerto Rico ("CineVista" or the
"Puerto Rico Circuit"); and through Reading Australia Pty., Limited
(collectively with its subsidiaries referred to herein as "Reading Australia")
under the Reading Cinemas name in Australia (the "Australia Circuit").
Reading's entertainment center development activities in Australia are also
conducted through Reading Australia, under the Reading Station name.
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.
As of March 31, 1998, 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, 1997 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 ended March 31, 1998 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.
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE: Basic earnings per
share is calculated by dividing net earnings (loss) available to common
shareholders by the weighted average shares outstanding during the period. The
weighted average number of shares outstanding for both the three months ended
March 31, 1998 and 1997 were 10,769,824. Basic and diluted earnings per share
for the three months ended March 31, 1998 and 1997 was calculated based on net
earnings available
6
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
March 31, 1998
(amounts in tables in thousands)
to common stock shareholders, which includes a reduction for dividends declared
on the redeemable preferred stock in REI held by Citadel amounting to
approximately $114,000.
Diluted earnings per share is calculated by dividing net earnings (loss)
available to common shareholders by the weighted average common shares
outstanding plus the dilutive effect of stock options. During the first quarter
of 1998, the Company recorded a net loss and, therefore, the stock options were
anti-dilutive. At March 31, 1998, stock options to purchase 654,940 shares of
Common Stock and 60,000 shares of Class A Common Stock at average exercise
prices of $6.20 and $7.20 per share, respectively, were outstanding. The
weighted average number of shares used in calculating diluted earnings per share
was 10,930,918 for the three months ended March 31, 1997.
NOTE 2 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes rules for the reporting and presentation of comprehensive
income and its components. SFAS 130 requires foreign currency translation
adjustments, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income. The accumulated foreign
currency translation adjustment as of December 31, 1997 has been reclassified to
conform to the requirements of SFAS 130 and has been reflected as "Accumulated
other comprehensive income" in the Consolidated Balance Sheets. The adoption of
SFAS 130 did not impact the Company's net loss or total stockholders' equity.
The following sets forth the company's comprehensive (loss) income for the
periods shown:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net (loss) income $(59) $1,500
Other comprehensive income (loss) net of tax 494 (325)
---- ------
Comprehensive (loss) income $435 $1,175
==== ======
</TABLE>
NOTE 3 -- EQUITY INVESTMENTS
At March 31, 1998, the Consolidated Company's interest in Citadel was
approximately 33.4%. On April 21, 1998, Craig purchased 430,106 shares of
Citadel Common Stock in a private transaction increasing the Consolidated
Company's holdings in Citadel to approximately 39.9%.
In addition to the 430,106 shares of Citadel securities purchased, Craig
also purchased as part of the transaction,430,106 shares of Big 4 Ranch, Inc.
("BRI"). The purchase price of the Citadel securities and Big 4 Ranch, Inc.
securities were $4.625 per share and $0.125 per share, respectively. The
purchase of such shares was consummated pursuant to the delivery by Craig of
$1,425,000 and the issuance of 51,500 treasury shares of Craig Corporation Class
A Common Preference Stock.
7
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
March 31, 1998
(amounts in tables in thousands)
In December 1997 Citadel distributed 100% of the stock in BRI to its
shareholders. The Consolidated Company received 2,230,473 shares of BRI
representing an ownership interest of approximately 33.4%. As described above,
in April 1998, the Company increased its ownership in BRI to approximately
39.9%. BRI owns a 40% interest in three agricultural partnerships which own
agricultural land located in California. Citadel also owns a 40% interest in the
partnerships. The Company accounts for its investment in the Citadel and BRI
common stock by the equity method. Citadel's net earnings for the three months
ended March 31, 1998 were $371,000 and the Company's share of such earnings was
$86,000, which amount is included in the Condensed Consolidated Statement of
Operations for the three months ended March 31, 1998 as "Equity in earnings of
affiliates." Citadel's assets and liabilities totaled $29,417,000 and
$10,992,000, respectively, at March 31, 1998. BRI's net loss for the quarter
ended March 31, 1998 totaled approximately $127,000 and the Company's share of
the loss, $40,000, has been included in the Condensed Consolidated Statement of
Operations for the three months ended March 31, 1998 as "Equity in earnings of
affiliates." BRI's assets and liabilities totaled $1,079,000 and $6,000,
respectively, at March 31, 1998. The closing price of Citadel's common stock on
the American Stock Exchange at March 31, 1998 was $4.56 per share, approximately
$3,473,000 in excess of the carrying value at March 31, 1998. Management
believes that the March 31, 1998 carrying value of the BRI investment amounting
to approximately $343,000 approximates its fair value.
NOTE 4 -- INVESTMENT IN AND ADVANCES TO JOINT VENTURE
Reading Australia owns a 50% interest in the Whitehorse Property Group Unit
Trust ("WPG"). In conjunction with the acquisition of WPG, Reading Australia
loaned approximately $1,400,000 to that joint venture partner. WPG owns a
shopping center located near Melbourne, Australia. WPG's net income for the
quarter ended March 31, 1998 totaled approximately $171,000 and the Company's
$85,000 share of the net income has been included in the Condensed Consolidated
Statement of Operations for the three months ended March 31, 1998 as "Equity in
earnings of affiliate." WPG's assets and liabilities totaled $11,568,000 and
$8,429,000, respectively, at March 31, 1998. The carrying amount of the
Company's 50% interest at March 31, 1998 amounted to approximately $1,729,000
and together with the advance made to the joint venture partner in the amount of
approximately $1,460,000 is included in the accompanying Balance Sheet as
"Investment and advances to joint venture." The carrying value of the Investment
and advances to joint venture will fluctuate due to changes between the
Australian dollar and U.S. dollar.
8
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
March 31, 1998
(amounts in tables in thousands)
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------ ------------------
<S> <C> <C>
Land held for development* $15,488 $14,714
Land-cinemas 408 401
Property development costs* 1,694 1,440
Buildings 1,981 1,959
Capitalized premises lease 538 538
Leasehold improvements 9,039 9,007
Equipment 8,047 8,074
Construction-in-progress 5,743 3,159
------- -------
42,938 39,292
Less: Accumulated depreciation (4,030) (3,634)
------- -------
$38,908 $35,658
======= =======
</TABLE>
___________________________
* Represents land held for development and property development costs
capitalized with respect to potential Reading Australia projects. The
carrying value of Reading Australia's assets will fluctuate due to changes
in the exchange rate between the Australian and U.S. dollars.
NOTE 6 -- 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 amounted to approximately $194,000 during the three months ended
March 31, 1998 including $179,000 of foreign withholding taxes which will be
paid if certain intercompany loans are repaid. Income tax expense for the three
months ended March 31, 1997 reflects current estimated tax liabilities amounting
to approximately $244,000, including federal and state income tax expense of
$135,000 and $109,000 of foreign withholding taxes.
NOTE 7 -- PURCHASE COMMITMENTS
In April 1998, Reading Australia made an initial payment of approximately
$750,000 to acquire a property which the Company had previously had a right to
acquire under an option agreement. Pursuant to the provisions of the property
purchase agreement, the Company is required to pay an additional $6,675,000 in
September 1998. In addition, at May 12, 1998 the Company had agreements related
to the possible purchase of two parcels of land and the purchase or development
of three cinemas in a joint venture and a separate property purchase agreement
which, if certain contingencies are satisfied, will require the payment by the
Company of approximately $4,200,000 prior to the end of the year.
9
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
March 31, 1998
(amounts in tables in thousands)
At March 31, 1998, Reading had four committed lease agreements for theater
facilities with a total of 46 screens which were then under construction or for
which construction is anticipated to be completed in 1998 and 1999. At March
31, 1998 the aggregate anticipated costs remaining to complete construction for
such facilities totaled approximately $23,000,000.
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. 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: MARCH 31, DEC. 31,
1998 1997
------------- ------------
<S> <C> <C>
Assets:
- -------
Cash and cash equivalents $ 5,680 $ 5,332
Other current assets 23 31
-------- --------
Total current assets 5,703 5,363
Investment in Common Stock of Reading 67,774 68,055
Investment in Preferred Stock of Reading 55,000 55,000
Investment in Citadel 1,998 1,972
Investment in BRI 107 120
Property and equipment, net 754 788
Other assets 192 203
Excess of cost over net assets acquired 1,142 1,153
-------- --------
Total assets $132,670 $132,654
======== ========
Liabilities and stockholders equity:
- ------------------------------------
Accounts payable and accrued expenses $ 569 $ 723
Note payable to Citadel, current 1,998 1,998
Deferred tax liabilities 30,410 30,410
Stockholders' equity 99,693 99,523
-------- --------
Total liabilities and stockholders' $132,670 $132,654
equity ======== ========
</TABLE>
10
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
March 31, 1998
(amounts in tables in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH 31, MARCH 31,
1998 1997
---------------- -----------------
<S> <C> <C>
CONDENSED STATEMENT OF OPERATIONS:
Revenues:
- --------
Earnings from Reading investment 269 1,184
Equity in losses of BRI (13) --
Equity in earnings of Citadel 26 --
Service income from Stater -- 375
Interest income 67 34
----- ------
349 $1,593
----- ------
Expenses:
- --------
General and administrative 418 435
Depreciation and amortization 61 49
Interest expense 43 --
----- ------
522 435
----- ------
Earnings before income taxes (173) 1,158
-----
Income taxes -- (85)
Net earnings (loss) ----- ------
$(173) $1,073
===== ======
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31, MARCH 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Operating Activities:
- --------------------
Net earnings (173) $1,073
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Undistributed earnings of equity affiliates (256) (290)
Other (112) (865)
------ ------
Net cash provided by (used in) operating activities (541) (82)
------ ------
Investing Activities:
- --------------------
Dividends received from Reading 894 --
Acquisition of Reading Stock -- (819)
Purchase of equipment (5) --
------ ------
Net cash provided by (used in) investing activities 889 (819)
------ ------
Increase (decrease) in cash and cash equivalents 348 (901)
Cash and cash equivalents at beginning of period 5,332 3,492
------ ------
Cash and cash equivalents at end of period $5,680 $2,591
====== ======
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Craig Corporation (Craig and collectively with its wholly owned
subsidiaries, the "Company") is in the business of identifying, acquiring,
owning and strategically managing controlling interests in other operating
companies. At March 31, 1998, 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 (approximately 10%) shares of
Citadel Holding Corporation ("CHC" and collectively with its wholly owned
subsidiaries, "Citadel") Common Stock and 666,000 (approximately 10%) shares of
Big 4 Ranch, Inc. ("BRI"). In April 1998, the Company purchased an additional
430,106 shares (6%) of Citadel Common Stock, as well as 430,106 shares of BRI in
exchange for $1,425,000 and the issuance of 51,500 shares of the Company's Class
A Common Preference Stock. 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 two principal areas, the development and operation of
multiplex motion picture theaters in Puerto Rico, the United States and
Australia; development in Australia of entertainment centers typically existing
of a multiplex cinema, complimentary restaurant and retail uses, and sell
contained parking.
RESULTS OF OPERATIONS
The following is a comparison of the results of operations for the three
months ended March 31, 1998 ("1998 Quarter") with the three months ended March
31, 1997 ("1997 Quarter"). Due to the nature of the Consolidated Company's
development and acquisition activities and the timing associated with the
results of such activities, the effect of earnings recorded with respect to the
Consolidated Company's previous investment in Stater, the effect of litigation
awards and settlements, and the results of operations of five new cinemas opened
during 1997, the Consolidated Company's financial position, results of
operations and cash flows have varied significantly and management believes are
not indicative of future operating results. The Consolidated Company's
entertainment center developments are in the early stage of development and
generally will not produce income or cash flow for at least eighteen to twenty-
four months from the time that all development approvals have been secured.
The Consolidated Company's net loss attributable to common shareholders for
the 1998 Quarter approximated $173,000 or $.02 per basic share as compared to
1997 Quarter net earnings of approximately $1,386,000 or $.13 per basic share.
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
months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C>
$8,703,000 $5,771,000
</TABLE>
Cine Vista's Theater Revenues increased approximately 44% between the
current and prior year quarters primarily as a result of more favorable film
product in the first quarter of 1998. During the quarter ended March 31, 1998,
CineVista closed a total of four screens at two locations. In one such location
CineVista will commence operation of a new eight screen facility in mid-1998.
CineVista is presently in negotiations to build an additional 10 screens at the
other location. At March 31, 1998 and 1997, CineVista operated 44 screens at 7
locations and 50 screens at 8 locations, respectively.
12
<PAGE>
Domestic Cinemas' (the Angelika Film Center in New York, New York, the
Angelika Film Center in Houston, Texas and the Reading Cinemas in Minneapolis,
Minnesota) Theater Revenues for the three months ended March 31, 1998 and 1997
were $2,664,000 and $1,926,000 respectively. Two of the Domestic Cinemas
commenced operations in December 1997 and provided additional Theater Revenues
of $714,000 in the three months ended March 31, 1998.
Theater Revenues for Australian operations for the three months ended March
31, 1998 and 1997 were $1,667,000 and $801,000 respectively, Reading Australia
Pty. Limited ("Reading Australia") acquired a cinema in July 1997 and opened a
cinema in December 1997 and the two theaters contributed $934,000 to Theater
Revenues in the current quarter.
Real Estate
- -----------
Real Estate revenues include rental income and the net proceed of sales of
Reading's real estate in the United States which Reading is liquidating. Future
real estate revenues may increase as larger properties are sold.
Dividend Income and Service Income from Stater
- ----------------------------------------------
In August 1997, Stater Bros Holdings Inc. ("SBH") repurchased the
Consolidated Company's investment in SBH Preferred Stock and terminated its
consulting agreement with the Company, and accordingly, the Company has no
Dividend income or Service income from Stater in the 1998 Quarter as compared to
$2,171,000 recorded in the 1997 Quarter.
Interest income
- ---------------
The SBH Preferred Stock accumulated dividends at a rate of 10.5% on the par
value of $69,365,000. Upon redemption of the SBH Preferred Stock at par plus
accumulated dividends, the proceeds were invested in money market instruments
which provided an average yield of approximately 5.5% during the three months
ended March 31, 1998. Such reinvestment of the SBH proceeds was the principal
reason for the increase in interest income from $675,000 in the 1997 Quarter to
$1,352,000 in the 1998 Quarter.
Expenses
- --------
"Theater costs," "Theater concession costs" and "Depreciation and
amortization" reflect the direct theater costs of Cine Vista, the Domestic
Cinemas and Reading Australia's theater operations. Theater Operating Expense
costs increased $2,168,000 from $5,083,000 in the 1997 Quarter to $7,251,000 in
the 1998 Quarter due primarily to the inclusion of $1,725,000 of Theater
Operating Expenses associated with two Domestic Cinemas opened in December 1997
and the new theaters which opened in Australia in July 1997 and December 1997.
The remaining increase of $443,000 is attributable to expense items which vary
directly with increased Theater Revenues of CineVista.
13
<PAGE>
"General and administrative" expenses for the three months ended March 31,
1998 and 1997 listed below include the following components:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Cine Vista $ 392,000 $ 221,000
Angelika 134,000 126,000
Australia 662,000 292,000
Craig 418,000 383,000
Reading, general 929,000 926,000
---------- ----------
Total $2,535,000 $1,948,000
========== ==========
</TABLE>
CineVista's "General and administrative" expense in the quarter ended March
31, 1998 including a $165,000 charge relating to the closing of four screens
during the period. The charge is comprised of a $395,000 loss on leasehold
improvements net of the reversal of a $230,000 provision for deferred rent.
In the current three-month period, Australia's "General and administrative"
expenses increased $370,000 as a result of the expansion of operations and
development activities in Australia. Components of the increase are comprised of
payroll, office expenses and carrying costs of land held for development.
Craig's "General and administrative" expenses increased $35,000 in the
1998 Quarter as compared to the 1997 Quarter principally as a result of
increased outside professional and printing costs.
"General and administrative" expenses for Domestic Cinemas and Reading in
the 1998 Quarter remained consistent with the 1997 Quarter.
Equity in Earnings of Affiliate
- -------------------------------
"Equity in earnings of affiliates" include earnings from the Company's
investment in Citadel, BRI and the Whitehorse Property Group ("WPG").
"Equity in earnings of affiliates" increased $66,000 to $131,000 from $65,000 in
the three months ended March 31, 1998 as compared to the 1997 Quarter. In the
first quarter of 1998 "Equity in earnings of affiliates" included equity
earnings of $86,000 from the Company's investment in Citadel, $85,000 from WPG
and loss of $40,000 from BRI. "Equity in earnings of affiliates" in the first
quarter of 1997 was comprised of Citadel equity earnings of $65,000.
Other Income (Expense)
- -----------------------
"Other (expense)" totaled $632,000 in the 1998 Quarter in comparison to
"Other income" of $230,000 in the 1997 Quarter. The 1998 Quarter expense is
primarily a result of losses on foreign currency derivative positions. The
Consolidated Company does not currently have any foreign currency derivative
positions. The 1997 Quarter income is comprised primarily of amounts received
from a third party as reimbursement of certain acquisition related expenditures
which were expensed in prior periods.
Minority Interest
- -----------------
"Minority interest" amounted to $324,000 in the 1998 Quarter and is
comprised of the Reading minority interests share of Reading's losses and
dividend payments amounting to $418,000, $59,000 from Sutton Hills minority
interests share of the NY Angelika and $35,000 from an Australian theater
minority partner.
"Minority interest" amounted to approximately $174,000 for the three months
ended March 31, 1998 and includes the minority interest's share of the Company's
consolidated net earnings of Reading
14
<PAGE>
amounting to $129,000, Sutton Hill's minority share of the NY Angelika income
amounting to $52,000 and $7,000 which reflects the minority share of the
Australian theater operating losses.
Income Tax Provision
- --------------------
Income tax expense in the 1998 Quarter was $194,000 representing foreign
withholding taxes, and state and local taxes as compared to $244,000 in the 1997
Quarter. The 1997 Quarter includes a current tax provision for foreign
withholding taxes of $109,000 which will be paid if certain intercompany loans
are repaid and estimated federal and state taxes of $135.000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Consolidated Company had cash and cash equivalents
totaling approximately $92,319,000 which includes approximately $86,639,000 held
by Reading. At March 31, 1998, Craig had cash and cash equivalents of
approximately $5,680,000. REI is majority owned by the Company and,
accordingly, is included in the consolidated financial statements. 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. Accordingly, 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 amounting to approximately $3.575 million annually.
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
United States, its capital requirements over the next two years will exceed its
existing cash balances 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 following summarizes the major sources and uses of cash funds in each
of 1998 and 1997 Quarters, respectively:
1998:
- ----
"Unrestricted cash and cash equivalents" decreased $5,883,000 from
$98,202,000 at December 31, 1997 to $92,319,000 at March 31, 1998. Working
capital decreased $3,265,000 from $89,765,000 at December 31, 1997 to
$86,500,000 at March 31, 1998.
Net cash used in investing activities amounted to $4,218,000 in the 1998
Quarter as a result of property purchases of $7,311,000, offset by cash provided
through a decrease in restricted cash amounting to $3,093,000.
Cash used in financing activities amounted to approximately $707,000 and
included a $56,000 distribution to a minority interest, $114,000 dividend paid
to Citadel in connection with their investment in Reading redeemable stock and a
$537,000 decrease in note payables.
1997:
- ----
"Unrestricted cash and cash equivalents" decreased $3,946,000 from
$52,172,000 at December 31, 1996 to $48,226,000 at March 31, 1997. Working
capital decreased $1,615,000 from $45,787,000 at
15
<PAGE>
December 31, 1996 to $44,172,000 at March 31, 1997. Net cash used in
operating activities amounted to $396,000 in the 1997 Quarter.
Net cash used in investing activities amounted to approximately $3,233,000
in the 1997 Quarter including $2,445,000 in the purchase of property and
equipment 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 $87,000 in the 1997
Quarter and was comprised of a distribution to the Angelika NY minority partner.
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.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a 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, 1997.
ITEM 2. CHANGES IN SECURITIES
In connection with a purchase of 430,106 shares of Citadel Holding
Corporation Common Stock, the Company issued 51,500 treasury shares of
Class A Common Preference Stock on April 21, 1998 increasing the
number of outstanding Class A Common Preference Shares to 7,058,412.
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.
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.
17
<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: May 15, 1998 By: /s/ S. Craig Tompkins
--------------------- -------------------------------
S. Craig Tompkins
President
Date: May 15, 1998 By: /s/ Robin W. Skophammer
---------------------- -------------------------------
Robin W. Skophammer
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 92,319
<SECURITIES> 1,236
<RECEIVABLES> 824
<ALLOWANCES> 0
<INVENTORY> 197
<CURRENT-ASSETS> 95,443
<PP&E> 42,938
<DEPRECIATION> (4,030)
<TOTAL-ASSETS> 160,199
<CURRENT-LIABILITIES> 8,934
<BONDS> 7,000
0
0
<COMMON> 1,377
<OTHER-SE> 97,183
<TOTAL-LIABILITY-AND-EQUITY> 160,199
<SALES> 8,703
<TOTAL-REVENUES> 8,745
<CGS> 6,664
<TOTAL-COSTS> 9,786
<OTHER-EXPENSES> (1,218)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 134
<INCOME-TAX> (193)
<INCOME-CONTINUING> (59)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
