<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 1999
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>
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 3,580,812 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 August 13, 1999.
================================================================================
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART 1. Financial Information
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998............................................ 1
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1999 and 1998 (Unaudited)......................... 3
Consolidated Statements of Cash Flows for Six Months
Ended June 30, 1999 and 1998 (Unaudited)......................... 4
Notes to Consolidated Financial Statements.......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 15
PART 2. Other Information
- ------
Item 1. Legal Proceedings................................................... 25
Item 2. Changes in Securities............................................... 25
Item 3. Defaults Upon Senior Securities..................................... 25
Item 4. Submission of Matters to a Vote of Security Holders................. 25
Item 5. Other Information................................................... 25
Item 6. Exhibits and Reports on Form 8-K.................................... 25
Signatures................................................................... 26
</TABLE>
-i-
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> (Unaudited)
June 30, December 31,
1999 1998
-------------------- ----------------------
ASSETS (In thousands of dollars)
- ------------------------------------------------------ -----------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 37,823 $ 63,314
Restricted cash 976 904
Receivables 552 582
Inventories 229 236
Prepayments and other current assets 863 543
-------- --------
Total current assets 40,443 65,579
Equity investment in Citadel 16,882 12,962
Equity investments in foreign affiliates 6,084 4,661
Note receivable from joint venture partners 3,191 2,883
Net investment in leased equipment 2,125 2,125
Property held for development 30,080 32,949
Property and equipment, net 52,728 28,063
Other assets 5,035 4,758
Excess of cost over net assets acquired, net of
accumulated amortization of $1,744 in 1999 and
$1,426 in 1998 11,725 10,611
-------- --------
Total assets $168,293 $164,591
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
-------------------- ------------------
(In thousands of dollars)
-------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $1,419 $3,155
Film rental payable 2,268 1,347
Accrued property costs 4,552 1,734
Property purchase commitments 4,234 8,066
Accrued taxes 431 495
Note payable, including $1,998 to affiliate 3,929 2,147
Short term debt -- 594
Other accrued expenses and liabilities 724 596
-------- --------
Total current liabilities 17,557 18,134
-------- --------
Note payable 2,392 920
Other liabilities 5,090 4,606
Deferred tax liabilities 8,368 8,368
-------- --------
Total long term liabilities 15,850 13,894
-------- --------
Minority interests in equity of subsidiaries 29,766 30,221
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, 8,734,065 issued and
7,058,412 outstanding 87 87
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 3,580,812
and 3,628,612 outstanding at June 30, 1999 and
December, 31, 1998, respectively 1,361 1,361
Additional paid-in capital 31,111 31,111
Accumulated other comprehensive loss (2,964) (6,000)
Retained earnings 89,365 89,257
Cost of treasury shares, 3,538,906 and 3,491,106
shares at June 30, 1999 and December 31, 1998,
respectively (20,840) (20,474)
-------- --------
Total shareholders' equity 98,120 95,342
-------- --------
Total liabilities and shareholders' equity $168,293 $164,591
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------------- -------------- ------------- ----------------
(In thousands of dollars, except for share amounts)
<S> <C> <C> <C> <C>
Revenues:
Theaters:
Theater admissions $ 6,716 $6,187 $12,245 $12,597
Theater concessions 2,085 1,874 3,712 3,930
Theater advertising and other 393 328 706 565
Real estate 80 170 129 212
------- ------- ------- -------
9,274 8,559 16,792 17,304
Expenses:
Theater costs 7,234 6,130 13,037 12,357
Theater concession costs 435 420 802 857
Depreciation and amortization 811 633 1,519 1,220
General and administrative expenses 3,329 2,843 6,155 5,378
------- ------- ------- -------
11,809 10,026 21,513 19,812
------- ------- ------- -------
Loss from operations (2,535) (1,467) (4,721) (2,508)
Earnings from equity investments 3,820 (1) 3,969 130
Other income (expense) (20) 215 (1) (417)
Interest expense (63) (59) (119) (117)
Interest income 651 1,197 1,439 2,607
------- ------- ------- -------
Earnings (loss) before taxes and
minority interest 1,853 (115) 567 (305)
Minority interest (159) 302 257 626
------- ------- ------- -------
Earnings before taxes 1,694 187 824 321
Provision for taxes (266) (214) (488) (407)
------- ------- ------- -------
Net earnings (loss) 1,428 (27) 336 (86)
Dividends paid on subsidiary
redeemable preferred stock (114) (114) (228) (228)
------- ------- ------- -------
Net earnings (loss) applicable to
common shareholders $ 1,314 $ (141) $ 108 $ (314)
======= ======= ======= =======
Basic and diluted earnings (loss)
per share: $ 0.12 $ (0.01) $ 0.01 $ (0.03)
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1999 1998
---------------- ------------
(In thousands of dollars)
<S> <C> <C>
Operating Activities
Net earnings (loss) $ 336 $ (86)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation 1,201 906
Amortization 318 314
Deferred rent expense 161 56
Equity earnings of affiliates (3,969) (130)
Write off of capitalized development costs 479 --
Loss on disposal of assets -- 423
Minority interest (257) (626)
Changes in operating assets and liabilities:
(Increase) decrease in receivables 39 (317)
(Increase) decrease in other current assets (251) 399
Increase (decrease) in payables (686) (1,899)
Increase (decrease) in accrued film rental 907 (40)
Increase (decrease) in other liabilities (283) 20
-------- --------
Net cash used in operating activities (2,005) (980)
-------- --------
Investing activities
Purchase of Citadel stock -- (1,425)
Purchase of G&L common stock and property (1,961) --
Purchase of property held for development (385) --
Purchase of property and equipment (15,862) (16,609)
Payments on property purchase commitments (6,665) --
Investment in New Zealand joint venture (650) (3,508)
Decrease in restricted cash 29 3,474
-------- --------
Net cash used in investing activities (25,494) (18,068)
-------- --------
Financing activities
Treasury stock repurchases (366) --
Distributions to minority partner (207) (161)
Payment of Reading preferred dividends (228) (228)
Purchase commitments -- 3,056
Note receivable to New Zealand joint venture (109) --
Proceeds from note payable 2,712 --
Decrease in note payable (133) (574)
-------- --------
Net cash provided by financing activities 1,669 2,093
-------- --------
Effect of foreign exchange rate changes on cash 339 (155)
-------- --------
Increase (decrease) in cash and cash equivalents (25,491) (17,110)
Cash and cash equivalents at beginning of the period 63,314 98,202
-------- --------
Cash and cash equivalents at end of period $ 37,823 $ 81,092
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(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").
The Company's principal holdings at June 30, 1999 and December 31, 1998
consisted of (i) common and preferred stock representing approximately 78% of
the voting power of Reading Entertainment, Inc. ("REI"), (ii) common shares
representing approximately 16.4% of the outstanding common shares of Citadel
Holding Corporation ("CHC" and collectively with its consolidated subsidiaries
"Citadel"), and, (iii) 16.4% of the outstanding common stock of Big 4 Ranch,
Inc., a company owing a 40% interest in certain agricultural properties located
in Kern County, California, and (iv) cash and cash equivalents. The
Consolidated Company holds a 48% interest in Citadel and 49% interest in Big 4
Ranch, Inc.
Through its majority owned subsidiaries, REI is principally in the business
of developing and operating multi-plex cinemas in the United States, Puerto
Rico, Australia and New Zealand and of developing, and eventually operating
cinema based entertainment centers in Australia and New Zealand. The Company
operates its cinemas through various subsidiaries under the Angelika Film
Centers and Reading Cinemas names in the United States (the "Domestic Cinemas");
through Reading Cinemas of Puerto Rico, Inc., under the CineVista name in Puerto
Rico ("CineVista" or the "Puerto Rico Circuit"); through Reading Australia
Entertainment Pty Limited (collectively with its subsidiaries referred to herein
as "Reading Australia") under the Reading Cinemas name in Australia (the
"Australia Circuit") and through Reading New Zealand Limited's ("Reading New
Zealand") participation in a cinema joint venture operating under the Berkley
Cinemas name in New Zealand. Reading's entertainment center development
activities in Australia are also conducted through Reading Australia, under the
Reading Station name and in New Zealand under the Reading New Zealand Limited
name. In addition, Reading has recently expanded into the live theater business
and currently owns one live theater consisting of four auditoriums in Chicago
and has licensed rights to operate a second live theater located in San
Francisco.
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 various joint
ventures. Investments in other companies are carried at cost.
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
5
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
and Analysis of Financial Condition and Results of Operations as of December 31,
1998 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 and six months ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
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 (loss)
per share is calculated by dividing net earnings (loss) applicable to common
shareholders by the weighted average shares outstanding during the period. The
weighted average number of shares outstanding for the three months ended June
30, 1999 and 1998 were 10,639,224 and 10,811,137, respectively. The weighted
average number of shares outstanding for the six months ended June 30, 1999 and
1998 were 10,646,204 and 10,790,595, respectively. Basic and diluted earnings
(loss) per share for the three and six months ended June 30, 1999 and 1998 was
calculated based on net earnings (loss) available 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 for each of the
three month periods and $228,000 for each of the six month periods,
respectively.
Diluted earnings (loss) per share is calculated by dividing net earnings
(loss) applicable to common shareholders by the weighted average common shares
outstanding plus the dilutive effect of stock options. During the three and six
months ended June 30, 1998, the Company recorded a net loss and, therefore, the
stock options were anti-dilutive. At June 30, 1999, stock options to purchase
659,940 shares of Common Stock and 60,000 shares of Class A Common Preference
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 for the three and six months ended June 30, 1999 were
10,738,667 and 10,756,154, respectively.
NOTE 2 -- COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "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 shareholders'
equity to be included in other comprehensive income (loss).
6
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
The following sets forth the company's comprehensive (loss) or income for
the periods shown:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) $1,428 $ (27) $ 336 $ (86)
Other comprehensive income (loss) 1,953 (2,088) 3,036 (1,594)
------ ------- ------ -------
Comprehensive income (loss) $3,381 $(2,115) $3,372 $(1,680)
====== ======= ====== =======
</TABLE>
NOTE 3 -- ACQUISITION ACTIVITIES
On March 18, 1999, Reading acquired a four auditorium live theater complex
in Chicago, which operates under the name "The Royal George Theatre" for
approximately $2,800,000 of which $1,182,000 was financed with a purchase money
mortgage due in May 2000. The purchase price was allocated based upon
appraisals to the fair value of the land, building and equipment acquired.
Also, in March 1999, Reading entered into an agreement to license the use of the
Marines Theater in San Francisco through May 2001.
In December 1998, Reading entered into an Agreement in Principle (the
"Agreement in Principle") to lease and operate four cinemas located in Manhattan
(herein as referred as the "Circuit") and to acquire three live "Off Broadway"
theaters also located in Manhattan. Pursuant to the Agreement in Principle,
Reading will also acquire the 16.7% interest in the Angelika Film Center in
Manhattan not already owned by it and certain management rights with respect to
three other cinemas located in Manhattan (the lease transaction, and the
acquisition of the management rights, the minority interest in the Angelika Film
Center and the "Off Broadway" theaters are collectively referred to as the "City
Cinema Transactions").
In connection with the City Cinemas Transactions, Reading made a deposit of
approximately $1,000,000, which amount is included as "Other assets" in the
Consolidated Balance Sheet at June 30, 1999. The assets to be leased or
acquired under the City Cinemas transactions are owned jointly by James J.
Cotter, a major shareholder and the Chairman of the Board of the Company and
Michael Forman, also a major shareholder of the Company. Responsibility for the
review and approval of the City Cinemas Transaction has been delegated to an
independent committee of the REI Board of Directors, and, as those transactions
continue to be under the review of that committee, no assurances can be given
that the transactions will be completed. Reading is continuing to work with City
Cinemas with the goal of consummating the transactions by the end of the year.
NOTE 4 -- EQUITY INVESTMENT IN CITADEL HOLDING CORPORATION
("CITADEL") AND BIG 4 RANCH, INC. ("BRI")
At June 30, 1999, the Consolidated Company owned 3,209,779 shares of common
stock of Citadel representing an ownership interest of approximately 48%. The
Company accounts for its investment in the Citadel by the equity method.
Citadel's net earnings for the three and six months ended June 30, 1999 were
approximately $8,004,000 and $8,474,000, respectively, and the Consolidated
7
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
Company's share of such earnings for the three and six months ended June 30,
1999 was $3,772,000 and $3,919,000, respectively, which amounts are included in
the Condensed Consolidated Statement of Operations as "Earnings from equity
investments." Citadel's net earnings for the 1999 three and six month periods
include a non-recurring pre-tax gain from the sale of a property amounting to
approximately $13,337,000. The Consolidated Company's share of Citadel's net
earnings for the three and six months ended June 30, 1998 were $43,000 and
$129,000, respectively. Citadel's assets and liabilities totaled $34,912,000
and $2,566,000, respectively, at June 30, 1999. The closing price of Citadel's
common stock on the American Stock Exchange was $4.75 per share at June 30,
1999. Management believes that the June 30, 1999 carrying value of the Citadel
investment amounting to approximately $16,882,000 approximates the underlying
financial statement equity in the net assets of Citadel.
During 1997, Craig acquired 666,000 of the Citadel shares it owns upon the
exercise of a warrant at a cost of approximately $3.00 per share, or $1,998,000.
Such exercise was consummated pursuant to delivery by Craig of its secured
promissory note in the amount of $1,998,000, secured by 500,000 shares of REI
Common Stock. Interest is payable quarterly in arrears at the prime rate, which
amounted to 7.75% at June 30, 1999. Interest expense paid pursuant to this note
amounted to approximately $78,000 and $87,000 for the six months ended June 30,
1999 and 1998, respectively. 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 Consolidated Company owns 3,322,279 shares of common stock of BRI
representing an ownership interest of approximately 49%. BRI owns a 40%
interest in three agricultural partnerships which own agricultural land located
in California. A company controlled and owned by the Chairman of the Board of
the Company and certain members of his family owns a 20% interest in the
partnerships and Citadel owns the remaining 40% interest in the partnerships.
The Company accounts for its investment in the BRI common stock by the equity
method. BRI's net loss for the six months ended June 30, 1999 and 1998 totaled
$113,000 and $147,000, respectively. The Company did not record its 49% share
of the 1999 loss, as the carrying value of its investment in BRI had previously
been reduced to $0 as of December 31, 1998. The Company has no obligation to
fund BRI's operating losses. BRI had deficit equity of approximately $13,000 at
June 30, 1999.
NOTE 5 -- EQUITY INVESTMENTS IN FOREIGN AFFILIATES
The carrying value of each of the Company's equity investments in foreign
affiliates is as follows:
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1999 December 31, 1998
- ---------------------------------------------------------------------- -----------------
<S> <C> <C>
Whitehorse Property Group ("WPG")1 $1,578 $1,484
New Zealand Joint Ventures ("NZ JVs")2 4,506 3,177
------ ------
Total $6,084 $4,661
====== ======
</TABLE>
8
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
1 Does not include a loan to the joint venture partner of approximately
$1,967,000 and $1,769,000 at June 30, 1999 and December 31, 1998,
respectively.
2 Does not include a loan to the joint venture partner of approximately
$1,224,000 and $1,114,000 at June 30, 1999 and December 31, 1998,
respectively.
Reading Australia owns a 50% interest in the Whitehorse Property Group Unit
Trust ("WPG"). WPG owns a shopping center located near Melbourne, Australia.
WPG's net loss for the six months ended June 30, 1999 totaled approximately
$46,000, and the Company's $23,000 share of the net loss has been included in
the Condensed Consolidated Statement of Operations as "Earnings from equity
investments." WPG's net earnings for the six months ended June 30, 1998 was
approximately $108,000 and the Company's 50% shares of the operating results for
the 1998 six month period was $54,000. WPG's assets and liabilities totaled
$11,225,000 and $8,209,000, respectively, at June 30, 1999. Reading Australia
has guaranteed one-half or $3,750,000 of WPG's $7,500,000 bank debt. The
carrying amount of the Consolidated Company's 50% interest approximates half of
the estimated value of WPG.
At June 30, 1999, Reading New Zealand owned a 50% interest in two joint
ventures, (the "NZ JVs"), one with a cinema operator and one with a property
developer in New Zealand. The assets of the NZ JVs consisted of two multiplex
cinemas (a five screen cinema on owned land and a four screen leased cinema), a
1.764 acre property located in Wellington, and a parcel on which a 4 screen
cinema is being constructed and is expected to open during the third quarter of
1999. The Wellington property was acquired as a potential entertainment center
location, and is subject to a $1,192,000 loan, one half of which was borrowed by
a wholly-owned subsidiary of Reading New Zealand. In July 1999, Reading New
Zealand acquired 100% ownership in the Wellington property by acquiring the
interest held by the joint venture partner for approximately $1,616,000. In
addition to the property interest, the Company's joint venture partner
relinquished rights to acquire a 50% interest in certain other properties owned
by Reading New Zealand in Wellington. The Consolidated Company's share of the
earnings of the NZ JV's totaled $73,000 for the six months ended June 30, 1999
and are included in the Consolidated Statement of Operations as "Equity earnings
from affiliate."
Reading New Zealand has entered into contracts to acquire a .215 acre site
adjacent to the Wellington property and a 16-acre site which the Company
acquired as a possible entertainment center site. The aggregate purchase
commitment of the Company under these agreements is $4,234,000, which amount is
included in the Consolidated Balance Sheet as "Property purchase commitments" at
June 30, 1999. In June 1999, Reading New Zealand completed the purchase of a
1,086 stall parking garage located adjacent to the Wellington property for
$7,261,000.
9
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
NOTE 6 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- ------------------
<S> <C> <C>
Land1 $ 2,623 $ 378
Buildings 8,306 1,858
Leasehold improvements 22,731 15,722
Equipment 11,954 9,205
Construction-in-progress and property development costs 13,192 5,714
------- -------
58,806 32,877
Less: Accumulated depreciation (6,078) (4,814)
------- -------
$52,728 $28,063
======= =======
</TABLE>
1 Does not include land held for development, which is included in the
Consolidated Balance Sheet as "Property held for development" in the amount of
$30,080,000 and $32,949,000 as of June 30, 1999 and December 31, 1998,
respectively.
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 7 -- INCOME TAXES
Craig and Reading file separate consolidated federal and state income tax
returns. One company's net operating loss and capital loss carryforwards,
therefore, cannot be used to offset the other company's tax liabilities. Income
tax expense for the three and six months ended June 30, 1999 and 1998 amounted
to approximately $488,000 (including alternative minimum tax of $23,000, $42,000
of state and local tax and $423,000 related to foreign withholding tax if
certain intercompany loans are repaid) and $407,000 (including $31,000 in state
and local tax and $376,000 for foreign withholding tax), respectively.
Reading's federal tax return for the year ended December 31, 1996 is currently
under examination by the Internal Revenue Service. In July 1999, the Company
was notified that its federal tax return for the tax year ended June 30, 1997
had been chosen for examination.
NOTE 8 -- PURCHASE COMMITMENTS
At June 30, 1999, Reading had commitments for major capital expenditures,
property purchase commitments, and purchase money debt commitments for 1999 and
thereafter which totaled approximately $62,000,000 inclusive of approximately
$55,200,000 related to Australia and New Zealand projects. Included in this
amount are expenditures of approximately $35,000,000 (inclusive of accrued
expenses of $3,600,000) to be made in 1999, consisting of $26,500,000 to
complete construction of 8 cinemas with a total of 77 screens which are
anticipated to commence operations in 1999 (inclusive
10
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
of a new domestic 12-screen cinema which commenced operations in May 1999 and a
5-screen cinema in Australia which commenced operation in June 1999), $1,700,000
for the construction of a 50% owned 4 screen cinema, $1,400,000 for property
purchase commitments and $5,400,000 for entertainment center site preparation
costs. With respect to periods subsequent to 1999, Reading has a development
commitment of approximately $21,100,000 relating to an entertainment center in
Australia, a $2,900,000 purchase commitment and a $1,200,000 purchase money
mortgage due in May 2000 and other projects anticipated to aggregate
approximately $1,800,000. Reading's commitments totaling $62,000,000 do not
include commitments related to the City Cinemas Transactions, which
transactions, if consummated in accordance with the initial letter of intent,
would increase the cash commitments of Reading by $36,500,000. Such commitments
would not be payable until eighteen months from the date of closing the City
Cinemas Transactions.
The U.S. dollar cost of such Australia and New Zealand projects was based
on a conversion rate of .6619 U.S. dollars to each Australian dollar and a
conversion rate of .5299 U.S. dollars to each New Zealand dollar. At June 30,
1999, the Consolidated Company has not utilized forward contracts to hedge or
offset exposure to market risks arising from changes to foreign exchange rates.
Accordingly, amounts reflected as commitments may fluctuate based upon foreign
exchange rates at the time of payments. Included in the Balance Sheet as "Cash
and cash equivalents" at June 30, 1999, is approximately $29,850,000
($49,100,000 Australian dollars) converted by the Company to Australian dollars
in 1999.
Under the terms of the joint venture agreement with WPG (see Note 5),
Reading Australia has guaranteed approximately $3,750,000 of WPG's $7,500,000
debt which matured in June 1999. The lender has extended the maturity date to
October 1999. WPG is presently seeking replacement financing, however, no
assurance can be given that such refinancing will be available from third party
sources.
In May 1999, Craig purchased a development property in Southern California
for $1,600,000 from G&L Realty Corp. ("G&L"), a real estate investment trust,
which the President of the Company is a director. Pursuant to the terms of a
management agreement with G&L, G&L has an option to repurchase the property in
December 1999 for $1,786,660. The Company has the option to put the property
back to G&L at the end of January 2000 for $1,900,000. The property is included
in the Balance Sheet as "Other assets" in the amount of $1,600,000 at June 30,
1999. Also, in May 1999, the Company entered into an agreement with G&L which
provided that the Company would purchase up to 36,000 shares of G&L Common
Stock, which is traded on the New York Stock Exchange, before June 18, 1999.
G&L has the right to purchase from the Company on or before December 3, 1999,
the G&L common stock purchased at a price equal to the Company's cost basis plus
a premium of 20% per year calculated from the date of purchase. The Company has
the right to put the G&L shares to G&L or G&L's two principal shareholders in
January 2000. Included in the Balance Sheet as "Other assets" at June 30, 1999
are 34,400 shares of G&L Common Stock purchased pursuant to this agreement at an
aggregate purchase price of approximately $361,000.
11
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
NOTE 9 -- SEGMENT INFORMATION
The following sets forth certain information concerning the Company's two
segments, real estate development and cinema operations, for the three and six
months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Real Estate Cinema Corporate and
Three months ended June 30: Development Operations Eliminations Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
- ----
Revenues $ 0 $ 9,194 $ 80 $ 9,274
Operating (loss) income (956) 277 (1,856) (2,535)
1998
- ----
Revenue $ 0 $ 8,389 $ 170 $ 8,559
Operating (loss) (535) (101) (831) (1,467)
<CAPTION>
Real Estate Cinema Corporate and
Six months ended June 30: Development Operations Eliminations Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
- ----
Revenues $ 0 $16,663 $ 129 $16,792
Operating (loss) income (1,704) 381 (3,398) (4,721)
1998
- ----
Revenues $ 0 $17,092 $ 212 $17,304
Operating (loss) income (1,106) 375 (1,777) (2,508)
</TABLE>
NOTE 10 -- 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.
12
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
<TABLE>
<CAPTION>
Condensed Balance Sheet: June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets:
- -------
Cash and cash equivalents $ 1,435 $ 4,721
Other current assets 15 18
-------- --------
Total current assets 1,450 4,739
Investment in Common Stock of Reading 65,524 63,761
Investment in Preferred Stock of Reading 55,000 55,000
Investment in Citadel 6,159 4,804
Property and equipment, net 701 694
Other assets 2,095 157
Excess of cost over net assets acquired 1,087 1,109
-------- --------
Total assets $132,016 $130,264
======== ========
Liabilities and stockholders equity:
- ------------------------------------
Accounts payable and accrued expenses $ 581 $ 674
Note payable to Citadel, current 1,998 1,998
Deferred tax liabilities 30,410 30,410
Stockholders' equity 99,027 97,182
------ ------
Total liabilities and stockholders' equity $132,016 $130,264
======== ========
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Condensed Statement of Operations: 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings (losses) from Reading investment $ 427 $ 427 $(340) $ 654
Equity in losses of BRI -- (6) --- (19)
Equity in earnings of Citadel 1,296 13 1,355 39
Interest income 28 58 78 125
------ ----- ----- ------
1,751 492 1,093 799
------ ----- ----- ------
General and administrative expense 356 486 821 905
Depreciation and amortization 42 61 86 122
Interest expense 39 86 78 86
------ ----- ----- ------
437 633 985 1,113
------ ----- ----- ------
Earnings (loss) before income taxes 1,314 (141) 108 (314)
Income taxes -- -- -- --
------ ----- ----- ------
Net earnings (loss) $1,314 $(141) 108 $ (314)
====== ===== ===== ======
</TABLE>
13
<PAGE>
Craig Corporation and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
June 30, June 30,
Condensed Statement of Cash Flows: 1999 1998
--------------- ----------------
<S> <C> <C>
Operating Activities:
- ---------------------
Net earnings (loss) $ 108 $ (314)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Undistributed losses of equity affiliates
(1,015) (20)
Increase in affiliate receivables -- (894)
Other (2) 249
------- -------
Net cash (used in) operating activities (909) (979)
------- -------
Investing Activities:
- ---------------------
Dividends received from Reading -- 894
Acquisition of Citadel stock -- (1,425)
Acquisition of G&L Common Stock (361) --
Acquisition of property from G&L (1,600) --
Purchase of equipment (50) (5)
------- -------
Net cash (used in) investing activities (2,011) (536)
------- -------
Financing Activities:
- ---------------------
Repurchase of common stock (366) --
------- -------
Increase (decrease) in cash and cash equivalents (3,286) (1,515)
Cash and cash equivalents at beginning of period 4,721 5,332
------- -------
Cash and cash equivalents at end of period $ 1,435 $ 3,817
======= =======
</TABLE>
14
<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
June 30, 1999, 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 1,096,106 (approximately 16.4%) shares of Citadel Holding
Corporation ("CHC" and collectively with its wholly owned subsidiaries,
"Citadel") Common Stock and 1,096,106 (approximately 16.4%) shares of Big 4
Ranch, Inc. ("BRI"). 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. The Consolidated Company
currently owns approximately 48% of the Common Stock of Citadel and
approximately 49% of the Common Stock of BRI.
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, Australia
and New Zealand; development in Australia of entertainment centers typically
existing of a multiplex cinema, complimentary restaurant and retail uses, and
self contained parking. In addition, Reading recently expanded into the live
theater business and owns one live theater in Chicago and has licensed rights to
operate a second theater in San Francisco.
Results of Operations
The following is a comparison of the results of operations for the three
months ended June 30, 1999 ("1999 Quarter") with the three months ended June 30,
1998 ("1998 Quarter") and a comparison of the results of operations for the six
months ended June 30, 1999 ("1999 Six Months") with the six months ended June
30, 1998 (the "1998 Six Months"). Due to the nature of the Consolidated
Company's development and acquisition activities and the timing associated with
the results of such activities, and the results of operations of eight new
cinemas opened since January 1, 1998, the Consolidated Company's financial
position, results of operations and cash flows have varied significantly and, in
the view of management are not necessarily 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 income applicable to common shareholders for
the 1999 Quarter and 1999 Six Months approximated $1,314,000 or $.12 per basic
share and $108,000 or $.01 per basic share, respectively, as compared to the
1998 Quarter and 1998 Six Month net loss applicable to common shareholders of
approximately $141,000 or $.01 per share and $314,000 or $.03 per basic share,
respectively. The increase in net earnings in the 1999 Quarter and 1999 Six
Months is principally attributable to equity earnings amounting to approximately
$3,772,000 and $3,919,000, respectively, from the Consolidated Company's 48%
investment in Citadel. Citadel reported a significant non-recurring gain from
the sale of property during the three and six months ended June 30, 1999. In
addition to the earnings recorded from the Consolidated Company's investment in
Citadel, the net earnings in the 1999 periods has been impacted by a decrease in
"Theater Operating Income", a reduction in "Interest income" and an increase in
"General and administrative expenses" as described below. In each of the three
and six month periods ended June 30, 1999 and 1998, "Net earnings (loss)
applicable to common shareholders" has been adjusted for the 6.5% per annum
dividend ($114,000 quarterly and $228,000 for the six month periods) on the
$7,000,000 stated value of Reading Convertible Preferred Stock held by Citadel.
15
<PAGE>
Theater Revenues are comprised of Admissions, Concessions and Advertising
and other revenues. "Theater costs" and "Theater concession costs"
(collectively "Theater Operating Expense") reflect the direct theater costs of
CineVista, the Domestic Cinemas and Reading Australia's cinemas. "General and
Administrative" expenses are presented without consideration of intercompany
management fees. Theater Revenues, Theater Operating Expenses, and General and
Administrative expenses for each of the six month periods ended June 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
Domestic
1999 Cine Vista Cinemas/1/ Australia Corporate Total
-------------- ------------ ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Theater Revenue $6,047,000 $6,682,000 $ 3,934,000 $ $16,663,000
Theater Operating Expense 5,531,000 5,259,000 3,049,000 13,839,000
Depreciation and
Amortization 436,000 627,000 388,000 68,000 1,519,000
General & Administrative 423,000 240,000 1,822,000/2/ 3,670,000/3/ 6,155,000
------------------------------------------------------------------------------------------
$ (343,000) $ 556,000 $(1,325,000) $(3,738,000) $(4,850,000)
==========================================================================================
Domestic
Cine Vista Cinemas Australia Corporate Total
1998 ------------- --------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Theater Revenue $8,275,000 $5,529,000 $ 3,288,000 $ $17,092,000
Theater Operating Expense 6,480,000 4,297,000 2,437,000 13,214,000
Depreciation and
Amortization 273,000 509,000 344,000 94,000 1,220,000
General & Administrative 608,000 288,000 1,383,000/2/ 3,099,000 5,378,000
------------------------------------------------------------------------------------------
$ 914,000 $ 435,000 $ (876,000) $(3,193,000) $(2,720,000)
==========================================================================================
</TABLE>
/1/Domestic Cinemas operations includes net revenue from the operation of the
Royal George Theatre (since March 13, 1999 only).
/2/Includes $1,473,000 and $1,106,000 of General and Administrative expenses
associated with Reading Australia's real estate development segment for the six
months ended June 30, 1999 and June 30, 1998, respectively.
/3/Includes $212,000 of expenses associated with New Zealand operations.
CineVista
- ---------
CineVista's Theater Revenues decreased approximately 26.9% or $2,228,000 to
$6,047,000 in the 1999 Six Months from $8,275,000 in the 1998 Six Months. The
decrease is due in part to more favorable film product in the first quarter of
1998 and an $800,000 reduction in the 1999 Quarter as a result of the net effect
of the closing of a six screen cinema at one location in 1998, the closing of
four screens at two locations in the first quarter of 1998, offset by the
opening of an eight screen cinema in the second quarter of 1998. The new
cinemas contributed an additional $529,000 in revenues in the 1999 Six Months as
compared to the 1998 Six Months. CineVista is constructing a twelve screen
cinema on a leased property in the San Juan metropolitan area which is expected
to open in the fourth quarter of 1999. CineVista is also currently in
negotiation to build an additional 10 screen cinema at an existing location. At
June 30, 1999, and 1998, CineVista operated 44 screens at seven locations and 50
screens at eight locations, respectively.
CineVista's Theater Operating Expenses decreased approximately 14.6% or
$949,000 to $5,531,000 for the six months ended June 30, 1999, from $6,480,000
in the corresponding prior year period. The decrease from the 1998 Six Months
period is attributable to expenses items which vary
16
<PAGE>
directly with the Theater Revenue of CineVista (cost of concession and film
rental as a percentage of revenues decreased approximately .9% in the 1999 Six
Months) and a reduction in fixed costs associated with the operation of one less
site.
CineVista's General and administrative expenses decreased approximately
30.4% or $185,000 to $423,000 for the six months ended June 30, 1999 from
$608,000 in the corresponding prior year period. The total for the 1998 Six
Months included a $165,000 charge relating to the closing of four screens during
the period. The charge was comprised of a $395,000 loss on leasehold
improvements net of a reversal of a $230,000 provision for deferred rent.
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater Revenues increased approximately 20.9% or
$1,153,000 to $6,682,000 for the 1999 Six Months from $5,529,000 in the 1999 Six
Months, in part, due to the inclusion in the current year period of the Tower
Theater in Sacramento, California which commenced operations in November 1998.
Reading has leased an additional eight screen cinema in Buffalo, New York which
cinema operations commenced in July 1999. At June 30, 1999 and 1998, the
Domestic Cinemas operated 34 screens at five locations and 19 screens at three
locations respectively.
Theater Operating Expenses increased approximately 22.4% or $962,000 to
$5,259,000 for the 1999 Six Months from $4,297,000 in the corresponding prior
year period, primarily as a result of the inclusion of the newly opened cinema
and theater in the current period.
The Domestic Cinemas' General and Administrative expenses were $48,000 less
in the 1999 Six Months as compared to the 1998 Six Months due primarily to
reduced management fees paid to operate certain domestic cinemas.
Australia
- ---------
Theater Revenues for Australian operations increased approximately 19.6% or
$646,000 to $3,934,000 for the 1999 Six Months from $3,288,000 in the 1998 Six
Months. Approximately $450,000 of the increase resulted from the contribution
of two new cinemas in the 1999 Six Months. a five screen cinema which opened in
November 1998 and a five screen cinemas which commenced operations in June 1999.
Reading Australia is currently constructing an entertainment center on land
owned by the Consolidated Company. The complex will include a 10 screen cinema
and entertainment related retail space with operations expected to commence in
the fourth quarter of 1999. Reading Australia is also constructing 35 screens
at four leased locations with a five screen cinema expected to commence
operations in the third quarter of 1999, and the remainder expected to commence
operations in the fourth quarter 1999. At June 30, 1999 and 1998, Reading
Australia operated 26 screens at five locations and 16 screens at three
locations, respectively.
Theater Operating Expenses for Australian operations increased
approximately 25.1% or $612,000 to $3,049,000 for the six months ended June 30,
1999 from $2,437,000 in the corresponding prior year period. Operating expense
categories which vary proportionately with revenues increased, as a percentage
of revenues by approximately 6.8% due primarily to increased film rent. Fixed
operating costs increased as a result of the addition of the two new cinemas in
the 1999 Six Months.
General and Administrative costs increased approximately 31.7% or $439,000
to $1,822,000 for the 1999 Six Months from $1,383,000 in the 1998 Six Months.
The increase primarily related to
17
<PAGE>
increased payroll costs of approximately $280,000 and an increase in development
write-off of $200,000, offset slightly by expense reductions in certain other
expense categories.
Corporate
- ---------
General and Administrative costs (net of $212,000 associated with the New
Zealand operations in the 1999 Six Months) increased approximately 11.6% or
$359,000 to $3,458,000 for the 1999 Six Months from $3,099,000 in the 1998 Six
Months, primarily as a result of the write-off of $479,000 in acquisition
expenses in 1999.
Real Estate Revenues
- --------------------
Real estate revenues include rental income and the net proceeds of sales of
Reading's real estate in the United States which Reading is in the process of
liquidating. Such revenues are not included in the results of the Consolidated
Company's real estate segment (See Note 9).
Equity in Earnings of Affiliate
- -------------------------------
"Earnings from equity investments" include earnings from the Consolidated
Company's investments in Citadel, BRI, WPG and the NZ JVs. "Earnings from
equity investments" increased $3,839,000 to $3,969,000 in 1999 Six Months as
compared to $130,000 in the 1998 Six Months. In the 1999 Six Months, "Earnings
from equity investments" included equity earnings of $3,919,000 from the
Consolidated Company's 48% equity investment in Citadel, a $23,000 equity loss
from WPG and equity earnings of $73,000 from the NZ JVs. Citadel reported net
earnings for the 1999 Six Months of approximately $8,447,000 inclusive of a non-
recurring pre-tax gain on the sale of property of approximately $13,337,000.
"Earnings from equity investments" in the 1998 Six Months was comprised of
Citadel equity earnings of $111,000, $54,000 from WPG and a loss of $35,000 from
BRI.
Other Income (Expense)
- ----------------------
"Other expense" totaled $1,000 in the 1999 Six Months as compared to $417,000
in the 1998 Six Months. The 1998 Six Months expense is comprised primarily of
losses on foreign currency derivative positions. The Consolidated Company does
not currently have any foreign currency derivative positions. During 1999, the
Company converted a significant portion of its June 30, 1999 cash balances to
Australian dollars. Approximately $29,850,000 (representing $49,100,000
Australian dollars) is included in the Balance Sheet as "Cash and cash
equivalents" at June 30, 1999.
Interest Income
- ---------------
Interest income totaled $1,439,000 in the 1999 Six Months as compared to
$2,607,000 in the 1998 Six Months. The decrease in interest income is primarily
a result of a reduction in average cash fund balances during the six months
ended June 30, 1999 as compared to the corresponding prior year period due to
increasing investments in Reading's development projects.
18
<PAGE>
Minority Interest
- -----------------
The components of "Minority Interest" in the 1999 and 1998 Six Months is as
follows:
<TABLE>
<CAPTION>
Six Months ended
June 30,
--------
1999 1998
---- ----
(in thousands)
--------------------------------------------
<S> <C> <C>
REI $ 434 $ 785
Angelika New York (112) (127)
Australian cinemas (65) (32)
----- -----
Minority interest income (expense) $ 257 $ 626
===== =====
</TABLE>
The principal component of minority interest is derived from the Company's
holdings in REI. The Company owns preferred stock in REI which earns an annual
dividend of approximately $3,575,000 and approximately 69% of the outstanding
REI common stock. REI minority income in the 1999 and 1998 Six Months reflects
the 30.7% minority interests share of REI losses and in the case of the 1998 Six
Months also preferred dividends paid to the Company. REI has reported losses in
the 1999 Six Months and has not declared or paid the dividends accumulating to
the Company since fiscal 1998 amounting to approximately $1,787,500, which
resulted in a decrease to the Minority interest share of REI losses in the 1999
Six Months as compared to the 1998 Quarter of approximately $550,000. The
16.67% minority interest in income of Angelika NY amounted to $112,000 and
$127,000 in the 1999 Quarter and 1998 Quarter, respectively. Minority interest
in the income of the Australian cinemas represents the 25% minority interests
ownership in two cinemas in the 1999 Six Months and one cinema in the 1998 Six
Months.
Income Tax Provision
- --------------------
Income tax expense amounted to $488,000 in the 1999 Six Months as compared to
$407,000 in the 1998 Six Months. The 1999 Six Months includes an accrual for
$423,000 which will be paid if certain intercompany loans are repaid and federal
and state taxes of $65,000. The 1998 Six Months includes a current tax
provision for foreign withholding taxes of $376,000, which will be paid when
certain intercompany loans are repaid, and estimated federal and state taxes of
$31,000.
19
<PAGE>
Three Months Ended June 30, 1999 and 1998
-----------------------------------------
Theater Revenues, Theater Operating Expenses, and General and Administrative
expenses for the three month periods ended June 30, 1999 and 1998, were as
follows:
<TABLE>
<CAPTION>
Three month period ended June 30:
Domestic
1999 Cine Vista Cinemas Australia Corporate Total
- ----
<S> <C> <C> <C> <C> <C>
Theater Revenue $3,326,000 $3,728,000 $2,140,000 $ $ 9,194,000
Theater Operating Expense 3,013,000 3,026,000 1,630,000 7,669,000
Depreciation and Amortization
217,000 355,000 206,000 33,000 811,000
General & Administrative 238,000 107,000 998,000 1,986,000 3,329,000
---------------------------------------------------------------------------------------
$ (142,000) $ 240,000 $ (694,000) $(2,019,000) $ (2,615,000)
=======================================================================================
<CAPTION>
Domestic
1998 Cine Vista Cinemas Australia Corporate Total
- ----
<S> <C> <C> <C> <C> <C>
Theater Revenue $3,903,000 $2,865,000 $1,621,000 $ $ 8,389,000
Theater Operating Expense 3,221,000 2,116,000 1,213,000 6,550,000
Depreciation and Amortization
154,000 258,000 174,000 47,000 633,000
General & Administrative 216,000 155,000 720,000 1,752,000 2,843,000
---------------------------------------------------------------------------------------
$ 312,000 $ 336,000 $ (486,000) $(1,799,000) $ (1,637,000)
=======================================================================================
</TABLE>
CineVista
- ---------
Theater revenues decreased 14.8% or $577,000 to $3,326,000 for the 1999
Quarter from $3,903,000 in the 1998 Quarter due to the decreased screen count
and the competitive effect of newly opened cinemas in certain CineVista market.
Theater Operating Expenses decreased approximately 6.5% or $208,000 to
$3,013,000 in the three months ended June 30, 1999 from $3,221,000 in the
corresponding prior year period. The decrease from the prior year period is
attributable to expense items which vary directly with the Theater Revenue (cost
of concession and film rental as a percentage of revenues decreased) and a
reduction in fixed costs associated with the operation of one less site.
General and administrative expenses increased approximately 10.2% or $22,000 to
$238,000 for the three months ended June 30, 1999 from $216,000 in the
corresponding prior year period.
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater Revenues increased approximately 30.1% or
$863,000 to $3,728,000 for 1999 Quarter from $2,865,000 in the 1998 Quarter in
part due to the inclusion in the current year period of the results of the Tower
Theater, the inclusion of the results of the Royal George live theater, the
inclusion of the results of the Manville cinema from May 16, 1999 and increased
revenues at the Company's cinema in Minneapolis. Theater Operating Expenses
increased approximately 43% or $910,000 to $3,026,000 for the three months ended
June 30, 1999 from $2,116,000 in the corresponding prior year period, primarily
as a result of the inclusion of the newly opened cinemas and live theater in the
current three month period. Domestic Cinemas' General and
20
<PAGE>
administrative expenses were $48,000 less in the 1999 Quarter than in the 1998
Quarter due primarily to reduced management fees paid to operate certain
domestic cinemas.
Australia
- ---------
Theater Revenues for Australian operations increased approximately 32% or
$519,000 to $2,140,000 for the 1999 Quarter from $1,621,000 in the 1998 Quarter
due to the contribution of two new cinemas in the current three month period.
Theater Operating Expenses increased approximately 34.4% or $417,000 to
$1,630,000 for the three months ended June 30, 1999 from $1,213,000 in the
corresponding prior year period due to increased film rent and additional fixed
operating costs as a result of the operations of the two new cinemas during the
1999 Quarter. General and administrative expense increased approximately 38.6%
or $278,000 to $998,000 for the 1999 Quarter from $720,000 in the 1998 Quarter.
The increase primarily related to increased development cost write-offs in the
1999 Quarter as compared to the 1998 Quarter.
Corporate
- ---------
General and administrative expenses (net of $130,000 associated with the
New Zealand operations in the three months ending June 30, 1999) increased
approximately 5.9% or $104,000 to $1,856,000 for the 1999 Quarter from
$1,752,000 in the 1998 Quarter as a result of the write-off of $466,000 in
acquisition expenses in 1999 offset, in part, by a reduction in consulting
and professional expenses.
Interest Income
- ---------------
Interest income amounted to $651,000 in the 1999 Quarter as compared to
interest income in the 1998 Quarter totaling $1,197,000. The decrease in
interest income is primarily a result of a reduction in average investable fund
balances for the three months ended June 30, 1999 as compared to the
corresponding prior year period due to increasing investment in the Company's
development projects.
Equity in Earnings of Affiliates
- --------------------------------
"Equity in earnings of affiliate" increased to $3,820,000 for the 1999
Quarter as compared to a loss of $1,000 in the 1998 Quarter. The 1999 Quarter
components include equity earnings of $3,772,000 from the Company's investment
in Citadel and $73,000 from the NZ JV's and a loss of $25,000 from WPG. Citadel
reported net earnings for the 1999 Quarter of $8,004,000, inclusive of a non-
recurring gain in the sale of property of approximately $13,337,000. The 1998
Quarter components include equity earnings of $44,000 from the Company's
investment in Citadel, offset by a loss of $30,000 from WPG and a loss of
$13,000 from BRI.
Other (Expense) Income
- ----------------------
"Other expense" totaled $20,000 in the three months ended June 30, 1999 as
compared to other income of $215,000 in the corresponding prior year period.
Minority Interest
- -----------------
The components of "Minority Interest" in the 1999 and 1998 Quarters are as
follows:
21
<PAGE>
<TABLE>
<CAPTION>
Three Months ended
June 30,
-------------------------------------------
1999 1998
--------------------- ---------------------
(in thousands)
---------------------------------------------
<S> <C> <C>
REI $ (47) $367
Angelika New York (51) (68)
Australian cinemas (61) 3
----- ----
Minority interest income (expense) $(159) $302
===== ====
</TABLE>
The principal component of minority interest is derived from the Company's
holdings in REI. The Company owns preferred stock in REI which earns an annual
dividend of approximately $3,575,000 and approximately 69% of the outstanding
REI common stock. REI minority income in the 1999 and 1998 Quarter reflects the
30.7% minority interests share of REI earnings or losses and in the case of the
1998 Quarter also preferred dividends paid to the Company. REI reported net
earnings in the 1999 Quarter before consideration of Preferred Stock dividends
accumulating to the Company. REI has not declared or paid the dividends
accumulating to the Company during the 1999 Quarter amounting to approximately
$893,750, which resulted in a decrease to the Minority interest share of REI
losses applicable to common shareholders in the 1999 Quarter of approximately
$275,000 as compared to the 1998 Quarter. "Minority interests" for the three
months ended June 30, 1999 and 1998 includes $51,000 and $68,000, respectively,
from the minority shares interest in the net earnings of a Domestic Cinema.
Minority interest in the income (loss) of the Australian cinemas represents the
25% minority interests ownership in two cinemas during the 1999 Quarter as
compared to one cinema in the 1998 Quarter.
Income Tax Provision
- --------------------
Income tax expense in the current three month period totaled $266,000 in
the three months ended June 30, 1999 as compared to $214,000 in the
corresponding period last year.
Liquidity and Capital Resources
At June 30, 1999, the Consolidated Company had cash and cash equivalents
totaling approximately $37,823,000 which includes approximately $36,388,000 held
by Reading. At June 30, 1999, Craig had cash and cash equivalents of
approximately $1,435,000. 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 liquidity of Craig is principally dependent on
Reading's ability to pay dividends in accordance with the terms of the Reading
Preferred Stock amounting to approximately $3,575,000 annually. After
consultation between the Company and REI, it was determined that REI would
defer, for the time being, payment of dividends to the Company with respect to
the Series B Preferred Stock. The Company has no current need for such funds,
since it has, in the view of management, sufficient funds on hand to meet its
cash needs for the immediate future. While not anticipated, further liquidity
could be achieved through the sale of shares of Citadel and/or REI.
At June 30, 1999, the cash and cash equivalents held by Reading are
anticipated to be fully deployed in furtherance of Reading's cinema and
entertainment center development programs. Reading's total commitments exceed
the available liquid funds. However, management believes that Reading has
sufficient cash on hand to complete the projects and acquisitions currently
scheduled for completion in 1999. This includes the anticipated addition of 45
screens in Australia (increasing the screen count in that market from 26 at June
30, 1999 to 71 screens), 8 screens in the United States (increasing the screen
count from 44 to 56 screens), 12 screens in Puerto Rico (increasing the screen
count from 44 to 56 screens) and four screens in New Zealand (increasing the
screen count from 9 to 13 screens). Reading
22
<PAGE>
plans to leverage these assets as they commence operations, and to use the
proceeds from such financings to continue the development program in the year
2000. Reading estimates that the total development cost of all of its currently
planned cinema and entertainment center projects will exceed $230,000,000. In
the event that debt financing cannot be obtained on terms acceptable to Reading,
consideration will be given to seeking joint venture partners, issuing debt or
equity securities, delaying development of certain projects and/or selling land
currently held for development, or other assets. Reading is also in discussions
with various lenders concerning the possibility of securing lines of credit to
finance construction and other development obligations. Reading does not
currently consider any of its development assets to be held for sale.
At June 30, 1999, Reading had total commitments of approximately
$62,000,000. Of this amount, it is currently anticipated that approximately
$35,000,000 will be funded in 1999. Post 1999 commitments include a contractual
obligation to construct an entertainment center in Australia, at an estimated
remaining cost of $21,100,000 (currently anticipated to be completed in late
2000 or early 2001), a $2,900,000 obligation to acquire additional land in New
Zealand, a $1,200,000 purchase money mortgage due in May 2000 and other projects
anticipated to aggregate approximately $1,800,000. Reading's commitments
totaling $62,000,000 do not include commitments related to the City Cinemas
Transactions, which transactions, if consummated in accordance with the initial
letter of intent, would increase the cash commitments of Reading by $36,500,000.
Such commitments would not be payable until eighteen months from the date of
closing the City Cinemas Transactions.
The following summarizes the major sources and uses of cash funds in the
six months ended June 30, 1999 and 1998:
1999:
- ----
"Unrestricted cash and cash equivalents" decreased $25,491,000 from
$63,314,000 at December 31, 1998 to $37,823,000 at June 30, 1999. Working
capital decreased $24,559,000 from $47,445,000 at December 31, 1998 to
$22,886,000 at June 30, 1999.
The Consolidated Company used approximately $2,005,000 in cash for
operating purposes during the 1999 Six Months. In addition to the payment of
operating and general and administrative expenses, the principal use of cash
funds during the 1999 Six Months included a use of $25,494,000 in investing
activities, including $15,862,000 in purchases of property and equipment,
$6,665,000 in property purchase commitment payments, $385,000 for purchases of
property held for development, and $1,961,000 for purchases of property and
Common Stock related to G&L Realty.
Net cash provided by financing activities totaled $1,669,000 in the 1999
Six Months and was comprised of $2,712,000 of note payable proceeds, offset by
$228,000 in payments of preferred stock dividends by Reading to Citadel,
$366,000 used to repurchase Craig Common stock, $207,000 of distributions to
minority shareholders and a $109,000 loan to the New Zealand joint venture.
1998:
- ----
"Unrestricted cash and cash equivalents" decreased $17,110,000 from
$98,202,000 at December 31, 1997 to $81,092,000 at June 30, 1998. Working
capital decreased $21,002,000 from $89,765,000 at December 31, 1997 to
$68,763,000 at June 30, 1998.
23
<PAGE>
Net cash used in investing activities amounted to $18,068,000 in the 1998
Six Months as a result of property purchases of $16,609,000, an investment in
joint venture (inclusive of loans to joint venture partners) of $3,508,000 and
the purchase of Citadel securities for cash of $1,425,000. Cash used in
investing activities was offset by cash provided through a decrease in
restricted cash amounting to $3,474,000.
Cash provided by financing activities in the 1998 Six Months amounted to
approximately $2,093,000 and included $3,056,000 of increased purchase
commitments, offset by a $161,000 distribution to a minority interest, $228,000
in dividends paid to Citadel in connection with their investment in Reading
redeemable stock and a $574,000 decrease in note payables.
Year 2000
As reasonably necessary and appropriate, the Company is conducting an audit
of the software and hardware components that it uses to assess whether such
components will properly recognize the dates beyond December 31, 1999 ("Year
2000 Compliance"). The Company is also conducting a review of its major
suppliers of goods and services ("service providers") to understand their level
of compliance with Year 2000 issues. Both of these reviews are expected to be
completed by September 30, 1999.
Based on its review to date, the Company does not believe that material
problems exist relative to the internal hardware and software utilized, as the
Company uses current versions of software provided by major software vendors,
and hardware that is less than a year old, for the most part. The Company has
adequate financial resources to replace any hardware and/or software that is
determined not to be Year 2000 compliant. The costs of addressing Year 2000
compliance has not been, nor is expected to be, material to the Company's
financial condition or results of operations.
Based on responses received to date, the Company believes that most of its
service providers will represent that they are Year 2000 compliant or that
formal programs are in place to ensure that they will be Year 2000 compliant.
If in its survey of significant service providers, the Company becomes concerned
that one or more providers is not Year 2000 compliant or has what the Company
believes to be inadequate programs to become Year 2000 compliant, the Company
will take action to reduce or eliminate its reliance upon such service providers
or suppliers.
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.
24
<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, 1998.
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 Holders.
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
The Company filed a Form 8-K on June 7, 1999 to report an event
under Item 4 (Changes in Registrant's Certifying Accountant).
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAIG CORPORATION REGISTRANT
Date: August 16, 1999 By: /s/ S. Craig Tompkins
-------------------------- ----------------------------
S. Craig Tompkins
President
Date: August 16, 1999 By: /s/ Robin W. Skophammer
-------------------------- ----------------------------
Robin W. Skophammer
Chief Financial Officer
26
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<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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