<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, 2000
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)
NEVADA 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 3,436,808 shares
of Common Stock, $0.25 par value per share, and 7,058,408 shares of Class A
Common Preference Stock, $0.01 par value per share, as of April 5, 2000.
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<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
INDEX
-----
Page
----
PART 1. Financial Information
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999 ......................................... 1
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) ..................... 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) ..................... 4
Notes to Consolidated Financial Statements ......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 18
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
-i-
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ----------------
ASSETS (In thousands of dollars)
- ---------------------------------------------------- --------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 6,313 $ 15,077
Restricted cash 1,643 948
Receivables 941 695
Inventories 344 316
Prepayments and other current assets 1,519 1,389
Due from affiliate 1,000 1,000
------- -------
Total current assets 11,760 19,425
------- -------
Equity investment in Citadel 17,322 17,246
Equity investments in foreign affiliates 1,841 2,140
Note receivable from joint venture partners 1,002 1,549
Assets held for sale 5,384 5,740
Property held for development 29,825 31,623
Property and equipment, net 60,365 58,501
Other assets 3,222 1,807
Excess of cost over net assets acquired, net 9,816 9,975
------- -------
Total assets $140,537 $148,006
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------
Current Liabilities:
Accounts payable $ 2,364 $ 3,340
Film rental payable 1,486 1,718
Accrued property costs 3,471 4,355
Accrued taxes 808 708
Accrued restructuring charges 679 846
Note payable 9,658 8,618
Note payable to Citadel 1,998 1,998
Other accrued expenses and liabilities 748 703
------- -------
Total current liabilities 21,212 22,286
------- -------
Note payable 2,977 1,035
Other liabilities 6,185 5,917
Deferred tax liabilities 8,368 8,368
------- -------
Total long term liabilities 17,530 15,320
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ----------------
(In thousands of dollars)
-------------------------------
<S> <C> <C>
Minority interest in equity of subsidiaries 22,100 22,797
Redeemable Preferred stock of Reading 7,000 7,000
Commitments and Contingencies (Note 8)
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 7,058,408 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, 5,444,061 shares issued and 3,436,808
and 3,512,308 outstanding at March 31, 2000 and 1,361 1,361
December 31, 1999, respectively
Additional paid-in capital 31,111 31,111
Retained earnings 71,423 73,449
Accumulated other comprehensive loss (9,570) (4,052)
Cost of treasury shares, 3,682,906 and 3,607,406
shares at March 31, 2000 and December 31, 1999,
respectively (21,717) (21,353)
-------- --------
Total shareholders' equity 72,695 80,603
-------- --------
Total liabilities and shareholders' equity $140,537 $148,006
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------------------------------
(In thousands of dollars,
except for share amounts)
<S> <C> <C>
Revenues:
Theater admissions $ 7,897 $ 5,529
Theater concessions 2,496 1,627
Theater advertising and other 639 313
Real estate 189 49
------- -------
11,221 7,518
------- -------
Expenses:
Theater costs 9,216 5,803
Theater concession costs 538 367
Depreciation and amortization 804 708
General and administrative expenses 2,893 2,826
------- -------
13,451 9,704
------- -------
Loss from operations (2,230) (2,186)
(Loss) earnings from equity investments (79) 149
Other income 35 19
Interest and dividend income 187 788
Interest expense (251) (56)
------- -------
Loss before taxes and minority interest (2,338) (1,286)
Minority interest 644 416
------- -------
Loss before taxes (1,694) (870)
Provision for taxes (218) (222)
------- -------
Net loss (1,912) (1,092)
Dividends paid on subsidiary redeemable
preferred stock (114) (114)
------- -------
Net loss applicable to Craig common shareholders $(2,026) $(1,206)
======= =======
Basic and diluted loss per share $ (0.19) $ (0.11)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
---------------- -----------
Operating Activities (In thousands of dollars)
<S> <C> <C>
Net loss $(1,912) $(1,092)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 448 561
Amortization 356 147
Deferred rent expense 112 81
Equity (earnings) loss of affiliates 79 (149)
Write off of capitalized development costs 5 142
Minority interest (644) (416)
Changes in operating assets and liabilities:
(Increase) decrease in receivables (246) (84)
(Increase) decrease in other assets (487) (348)
Decrease in payables (1,618) (1,799)
Decrease in accrued film rental (201) (38)
Increase in other liabilities 31 526
------- -------
Net cash used in operating activities (4,077) (2,469)
------- -------
Investing activities
Purchase of property held for development (11) (117)
Purchase of property and equipment (5,639) (4,631)
Purchase of Citadel Class B common stock (31) --
Acquisition of Royal George -- (37)
Decrease in purchase commitment -- 56
Distributions from joint ventures 224 --
Investments in joint ventures -- (94)
Decrease in note receivable from joint venture 488 --
Increase in restricted cash (2,016) --
------- -------
Net cash used in investing activities (6,985) (4,823)
------- -------
Financing activities
Treasury stock repurchases (364) (351)
Distributions to minority partner (42) (107)
Payment of Reading preferred dividends (114) (114)
Note receivable from New Zealand joint venture (274) (55)
Increase (decrease) in note payable 3,569 (61)
------- -------
Net cash from (used in) financing activities 2,775 (688)
------- -------
Effect of foreign exchange rate changes (477) 36
------- -------
Decrease in cash and cash equivalents (8,764) (7,944)
Cash and cash equivalents at beginning of the period 15,077 63,314
------- -------
Cash and cash equivalents at end of period $ 6,313 $55,370
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(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 March 31, 2000 and December 31,
1999 consisted of (i) common and preferred stock representing approximately 78%
of the voting power of Reading Entertainment, Inc. ("REI") (ii) common shares
representing approximately 16.6% and 16.4% of the outstanding Class B and Class
A common shares of Citadel Holding Corporation ("CHC" and collectively with its
consolidated subsidiaries "Citadel"), respectively, 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,
respectively, and (iv) cash and cash equivalents. The Consolidated Company holds
a 48% interest in Citadel and 49% interest in Big 4 Ranch, Inc.
REI, its majority owned subsidiary, is principally in the business of
developing and operating multi-plex cinemas in Australia and New Zealand. REI
also operates cinemas in Puerto Rico and the United States. Reading's cinemas
are owned through various subsidiaries and operates 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 Entertainment
Australia Pty Limited (collectively with its subsidiaries referred to herein as
"Reading Australia") under the Reading Cinemas name in Australia (the "Australia
Circuit") and through the participation of Reading New Zealand Limited ("Reading
New Zealand") in a cinema joint venture operating under the Berkley Cinemas name
in New Zealand. REI's entertainment center development activities in Australia
are also conducted through Reading Australia under the Reading name and in New
Zealand through Reading New Zealand. REI operates in two business segments,
cinema operations and real estate development. In addition, REI is also a
participant in two real estate joint ventures in Philadelphia, Pennsylvania, and
holds certain property for sale located in Pennsylvania and Australia and owns
certain lease equipment that it leases to third parties.
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 in the United States of America for
interim information and in accordance with the rules of the Securities and
Exchange Commission and therefore, do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial information
5
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
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, 1999 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, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. Certain amounts in previously issued financial statements
have been reclassified to conform to the current period presentation.
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE: Basic loss per
--------------------------------------------------
share is calculated by dividing net 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 March 31, 2000 and 1999
were 10,495,216 and 10,667,144, respectively. Basic and diluted loss per share
for the three months ended March 31, 2000 and 1999 was calculated based on net
earnings available to common stock shareholders, which includes a reduction for
dividends declared on the redeemable preferred stock in REI held by Citadel
amounting to approximately $114,000.
Diluted loss per share is calculated by dividing net loss applicable to
common shareholders by the weighted average common shares outstanding plus the
dilutive effect of stock options. During the first quarter of 2000 and 1999, the
Company recorded a net loss and therefore, the stock options were anti-dilutive.
At March 31, 2000, stock options to purchase 659,940 shares of Common Stock and
65,000 shares of Class A Common Preference Stock at average exercise prices of
$6.04 and $6.65 per share, respectively, were outstanding.
NOTE 2 -- COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes rules for
the reporting and presentation of comprehensive income and its components. SFAS
130 requires foreign currency translation adjustments, which were reported
separately in shareholders' equity prior to adoption of SFAS 130, to be included
in other comprehensive income (loss). The following sets forth the company's
comprehensive (loss) or income, comprised entirely of foreign currency
adjustments, for the periods shown:
Three Months Ended
March 31,
--------------------------------------
2000 1999
---- ----
Net loss $(2,026) $(1,206)
Other comprehensive (loss) income (5,518) 1,083
------ ------
Comprehensive (loss) income $(7,544) $ (123)
====== =======
6
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
NOTE 3 -- EQUITY INVESTMENT IN CITADEL HOLDING CORPORATION
("CITADEL") AND BIG 4 RANCH, INC. ("BRI")
At March 31, 2000, the Consolidated Company's owned 2,567,823 shares of
Class A Nonvoting Common Stock (the "Class A Shares") and 653,255 shares of
Class B Voting Common Stock (the "Class B Shares") of Citadel representing an
ownership interest of approximately 48.29%. The Company accounts for its
investment in the Citadel by the equity method. Citadel's net earnings for the
three months ended March 31, 2000 were approximately $231,000 and the
Consolidated Company's share of such earnings was approximately $44,000, which
amount is included in the Condensed Consolidated Statement of Operations for the
three months ended March 31, 2000 as "Earnings in equity investments." Citadel's
assets and liabilities totaled $47,371,000 and $13,744,000, respectively, at
March 31, 2000. The closing price of Citadel's Class A Shares and Class B Shares
on the American Stock Exchange was $2.875 and $3.0625, respectively, at March
31, 2000. Management believes that the March 31, 2000 carrying value of the
Citadel investment amounting to approximately $17,322,000 approximates the
underlying financial statement equity in the net assets of Citadel.
In 1997, Craig acquired 666,000 of the CHC shares 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
9.0% at March 31, 2000. Interest expense paid pursuant to this note amounted to
approximately $44,000 and $39,000 for the three months ended March 31, 2000 and
1999, 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 three months ended March 31, 2000 totaled
$140,000; the Company did not record its share of such loss as the carrying
value of its investment in BRI had previously been reduced to $0. The Company
has no obligation to fund BRI's operating losses. BRI had deficit equity of
approximately $337,000 at March 31, 2000.
7
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
NOTE 4 -- EQUITY INVESTMENTS IN FOREIGN AFFILIATES
At March 31, 2000 and December 31, 1999, the Company's equity
investments in foreign affiliates is comprised of Reading New Zealand's 50%
ownership interest in a joint venture (the "NZ JV"), which owns two cinemas and
leases a third cinema. The equity investment in the NZ JV earnings does not
include a loan to the joint venture partner of approximately $1,002,000 and
$1,222,000 at March 31, 2000. The equity investment in the NZ JV earnings for
the three months ended March 31, 2000 was $32,000 and is included in "Equity
earnings of affiliate" in the Consolidated Statement of Operations for the three
months ended March 31, 2000.
The carrying value of Reading New Zealand's assets fluctuates due to
changes in the exchange rate between the U. S. dollar and New Zealand dollar
($.4960 and $.5215 were the respective exchange rates of U.S. dollar per New
Zealand dollar at March 31, 2000 and December 31, 1999).
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- ----------------
<S> <C> <C>
Land1 $ 2,865 $ 3,015
Buildings 12,611 13,258
Leasehold improvements 27,608 28,138
Equipment 24,288 24,717
Construction-in-progress and property development costs 15,205 11,137
------- -------
82,577 80,265
Less: Accumulated depreciation (7,556) (7,108)
Less: Provision for asset impairment of CineVista (14,656) (14,656)
------- --------
$ 60,365 $58,501
====== ======
</TABLE>
1 Does not include certain land held for development, which is included
in the Consolidated Balance Sheet as "Property held for development".
The carrying value of Reading Australia's assets will fluctuate due to
changes in the exchange rate between the Australian and U.S. dollars. At March
31, 2000 and December 31, 1999, the exchange rates for the U. S. dollar per
Australian dollar were $.6062 and $.6543, respectively, and the exchange rates
for the U.S. dollar per New Zealand dollar were $.4960 and $.5215, respectively.
8
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
NOTE 6 -- ASSETS HELD FOR SALE
Reading Australia owns a 50% interest in the Whitehorse Property Group
Unit Trust ("WPG"). WPG owns a shopping center located near Melbourne,
Australia. In early 2000, Reading Australia and the joint venture partner agreed
to attempt to sell the property and commenced marketing the property. No
assurance can be made that such efforts will be successful.
WPG's net loss for the quarter ended March 31, 2000 totaled $156,000
and Reading recognized 100% of such loss has been included in the Consolidated
Statements of Operations for the three months ended March 31, 2000 as "Equity in
earnings of an affiliate". WPG's assets and liabilities totaled $10,174,000 and
$7,632,000, respectively, at March 31, 2000. The carrying amount of Reading's
interest is $2,483,000, inclusive of a loan to the joint venture partner, and is
classified as "Asset held for sale" in the Consolidated Balance Sheet. Reading
Australia has guaranteed 50% of WPG's bank debt and 100% of certain ground lease
payments, which amounts totaled approximately $3,962,000 at March 31, 2000.
During 2000, the bank loan has been renewed by the lender on a month-to-month
basis.
Reading determined that it would sell the Royal George Theatre (the
"RGT"). Accordingly, $2,902,000, the net carrying value of the RGT, which
management believes is less than the estimated net realizable value (based upon
an appraisal of the property), has been classified as property held for sale in
the Consolidated Balance Sheet at March 31, 2000 and December 31, 1999. The
Consolidated Company recognized revenues of $236,000 and income before taxes and
interest of $53,000 from RGT in the three months ended March 31, 2000.
Reading has an agreement with a third party to sell a 3/4-acre parcel
of land located in Philadelphia, Pennsylvania, for net proceeds to the Company
of approximately $1,400,000. The sale is expected to close during second quarter
of 2000.
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 amounted to approximately $218,000 during the three months ended
March 31, 2000 including $207,000 of foreign withholding taxes which will be
paid if certain intercompany loans are repaid.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
At March 31, 2000, the Consolidated Company had cash balances amounting
to approximately $6,313,000 and current liabilities exceeding current assets of
approximately $9,453,000. REI is majority owned by the Company and accordingly,
is included in the Consolidated financial statements of the Company. However,
Craig and REI are separate public companies and each entity's capital resources
9
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
and liquidity is legally independent of the other and any intercompany loans,
receivables or dividends would require approval of each separate company's Board
of Directors. At March 31, 2000, Craig had cash balances of approximately
$703,000, a management fee receivable from Reading and Citadel of approximately
$941,000, and current liabilities of approximately 2,439,000 inclusive of a
demand note payable due to Citadel amounting to $1,998,000.
Since October 1996, liquidity of Craig has been principally dependent
on Reading's ability to pay dividends in accordance with the terms of the
Reading Preferred Stock held by the Company amounting to $3,575,000 annually. As
of March 31, 2000, Reading was $4,469,000 in arrears with respect to such
dividends. As discussed below, Reading does not currently have the resources or
a plan to pay such dividends in the near future. Accordingly, Craig's future
liquidity is dependent on Craig obtaining financing, Reading obtaining financing
which will permit it to pay dividends on its Series B Preferred Stock and/or
selling Citadel or Reading securities held by Craig. Craig has no present plan
or intention to sell Citadel or Reading securities. Annual operating costs of
Craig after consideration of intercompany allocation of general and
administrative costs approximate $1,200,000 annually.
At March 31, 2000, Reading had commitments for major capital
expenditures, property purchase commitments, and purchase money debt commitments
for 2000 and thereafter which totaled approximately $10,900,000 inclusive of
bank debt due within one year of approximately $8,046,000. Also, Reading had
commitments to build cinemas and entertainment centers aggregating to
approximately $43,500,000, or which approximately $20,500,000 is anticipated to
be funded in 2000. In addition, Citadel holds all of the outstanding shares of
Reading's Series A Voting Convertible Preferred Stock and has the option to
require Reading to repurchase such shares at its stated value of $7,000,000 at
any time during a ninety-day period commencing October 16, 2001.
Reading Australia has obtained a bank loan which provides for initial
borrowings of up to $13,940,000 and if additional bank participants are secured,
aggregate borrowings of up to $44,625,000 and an extension of the loan maturity
from December 31, 2000 to December 31, 2003. The existing line-of-credit should
provide Reading Australia with adequate funding to complete an entertainment
center presently under development in Sydney, and if additional lenders are
secured, with adequate funding for a second entertainment center located in the
Melbourne area in 2001. At March 31, 2000, $2,246,000 had been borrowed under
Reading Australia's line-of-credit.
At the present time, Reading has substantial assets invested in land,
in entertainment center projects which are currently under construction or which
have not been fully leased, and in cinemas which have been opened for less than
six months and which, as a result, have higher operating costs than matured
cinema operations. Accordingly, Reading is currently recording losses. In order
to improve its liquidity, Reading is in the process of selling a number of
assets, including a) certain property located in the Philadelphia metropolitan
area, b) the Royal George Theatre in Chicago, c) WPG and d) all or substantially
all of its domestic cinema assets. In the event that such sources prove
insufficient for such purposes, Reading will consider postponing or delaying
development projects or bringing in joint venture partners and/or selling
additional assets.
10
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
In April 2000, as a result of the write-downs taken with respect to the
Company's cinema assets in Puerto Rico, CineVista's bank lender demanded
repayment of the then outstanding line-of-credit loan balance, $4,350,000.
CineVista has repaid $550,000 of the outstanding bank debt and has agreed to
repay the outstanding balance of $3,800,000 by monthly amounts of $400,000
during the May through September 2000 period, $150,000 for October and November
2000, and the balance of $1,500,000 in December 2000. Management believes that
proposed asset sales of certain Philadelphia properties, a sale of the Royal
George Theatre and the possible sale of the domestic cinemas, if consummated,
would provide sufficient funds to repay CineVista's bank debt.
Reading also has $3,858,000 in seller provided financing which is due
in 2000. Of this amount, $1,180,000 was due to the former owner of the RGT on
May 15, 2000. Reading does not presently have adequate liquid resources to meet
the debt obligation and is currently in discussions with the former owner of the
RGT to defer repayment until the RGT is sold. Reading has a signed letter of
intent with respect to the sale of RGT at a price in excess of the carrying
value of the asset. The balance of the seller debt amounting to approximately
$2,678,000 relates to a mortgage on property owned by Reading New Zealand, which
was also due in May 2000. In May 2000, the property owner agreed to extend the
mortgage until May 2001. Reading has received proposals from several banks
relating to refinancing the $1,389,000 of Reading New Zealand bank debt which is
due in December 2000.
Under the terms of the joint venture agreement with WPG, Reading has
guaranteed approximately $3,962,000 of WPG's debt and other obligations. The
bank debt matured in 1999 and has been extended on a month-to-month basis
subsequent to that time. WPG is currently endeavoring to sell the property
secured by this debt.
The City of Philadelphia (the "City") has asserted that Reading's North
Viaduct property requires environmental decontamination and that Reading's share
of any such remediation cost will aggregate to approximately $3,500,000. Reading
is presently in discussions with the City involving a possible conveyance of the
property and believes that reserves related to the North Viaduct are adequate.
Reading's 1996 tax return is under review by the Internal Revenue
Service (the "Service"). While Reading believes its reporting position in such
periods to be reasonable and the Service has not alleged any deficiencies, no
assurances can be made that Reading's tax reporting position will be upheld.
The Company has not utilized forward contracts to hedge or offset
exposure to market risks arising from changes to foreign exchange rates,
principally that of U.S. dollar to Australian and New Zealand dollar.
Accordingly, actual costs of construction projects and amounts reflected as
commitments may fluctuate based upon foreign exchange rates at the time of
payments.
11
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(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
months ended March 31, 2000 and 1999:
Real Corporate
Estate Cinema and
Development Operations Eliminations Consolidated
----------- ---------- ------------ ------------
2000
- ----
Revenues $ 139 $11,032 $ 50 $11,221
Operating (loss) income (637) 1 (1,594) (2,230)
1999
- ----
Revenues $ 0 $ 7,469 $ 49 $7,518
Operating (loss) income (748) 104 (1,542) (2,186)
The following table indicates the relative amounts of revenues from
cinemas operations by geographic area during the three-months period ended March
31, 2000 and 1999. The Company has no export revenues.
2000 1999
---- ----
Revenues:
- ---------
Puerto Rico $ 3,203 $ 2,721
Mainland United States 3,474 2,954
Australia 4,355 1,794
------ ------
$11,032 $ 7,469
====== ======
NOTE 10 -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
As described in Note 1 and Note 8, 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 Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed Balance Sheet: March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Assets:
- -------
Cash and cash equivalents $ 703 $ 1,801
Other current assets 986 743
------- -------
Total current assets 1,689 2,544
Investment in Common Stock of Reading 43,608 49,040
Investment in Preferred Stock of Reading 55,000 55,000
Investment in Citadel 6,339 6,288
Property and equipment, net 690 689
Other assets 99 117
Excess of cost over net assets acquired 1,054 1,065
------- -------
Total assets $108,479 $114,743
======= =======
Liabilities and stockholders' equity:
- -------------------------------------
Accounts payable and accrued expenses $ 441 $ 493
Note payable to Citadel, current 1,998 1,998
Deferred tax liabilities 30,410 30,410
Stockholders' equity 75,630 81,842
------- -------
Total liabilities and stockholders' equity $108,479 $114,743
======= =======
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
Condensed Statement of Operations: 2000 1999
------------- -------------
<S> <C> <C>
Revenues:
- ---------
Earnings (losses) from Reading investment $(1,608) $ (767)
Equity in earnings of Citadel 20 59
Interest income 21 50
------ ------
(1,567) (658)
------ ------
Expenses:
- ---------
General and administrative 328 464
Depreciation and amortization 45 44
Interest expense 86 39
------ ------
459 547
------ ------
Loss before income taxes (2,026) (1,205)
Income taxes -- --
------ ------
Net loss $(2,026) $(1,205)
====== ======
</TABLE>
13
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 31,
Condensed Statement of Cash Flows: 2000 1999
------------- ------------
<S> <C> <C>
Operating Activities:
- ---------------------
Net loss $(2,026) $(1,205)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Undistributed earnings of equity affiliates 1,589 767
Other (243) (62)
------ -----
Net cash used in operating activities (680) (500)
------ -----
Investing Activities:
- ---------------------
Purchase of Citadel stock (31) --
Purchase of equipment (24) (26)
------ -----
Net cash used in investing activities (55) (26)
------ -----
Financing Activities:
- ---------------------
Repurchase of common stock (363) (351)
------ -----
Decrease in cash and cash equivalents (1,098) (877)
Cash and cash equivalents at beginning of period 1,801 4,721
------ -----
Cash and cash equivalents at end of period $ 703 $3,844
====== =====
</TABLE>
NOTE 11 -- SUBSEQUENT EVENTS
NAC Transaction
- ---------------
On April 5, 2000, Reading sold a 50% interest in the Angelika Film
Centers LLC ("AFC") to National Auto Credit, Inc. ("NAC"). AFC is the owner of
the NY Angelika. The 50% membership interest ("Angelika Interest") was conveyed
in exchange for 8,999,900 shares of the common stock of NAC, representing
approximately 26% of the outstanding common stock of that company (calculated
after the issuance of such shares), and 100 shares of the Series A Preferred
Stock of NAC, representing 100% of such class. The Series A Preferred Stock has
a liquidation preference of $1.50 per share, is convertible into the common
stock of NAC on a share for shares basis, is entitled to a dividend preference
equal to any dividends declared on the NAC common stock (determined on a per
share basis), and enjoys certain special voting rights. As a consequence of that
transfer, (a) AFC is now owned 50% by NAC, 33.3% by the Company and 16.7% by
Sutton Hill (a company owned equally by the Chairman of the Company's Board of
Directors and a major shareholder of Company) and (b) the Company and its
affiliates own approximately 29% of the outstanding common stock of NAC. NAC
common stock closed on May 19, 2000 at $.86 per share. NAC is a publicly traded
company whose shares are traded in the over-the-counter market. Historically,
NAC has been in the business of originating, purchasing and servicing sub-prime
loans secured by second-hand automobiles. However, in recent periods, NAC has
sold substantially its
14
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
entire inventory of loans, substantially reduced its work force, and in essence,
reduced its assets to cash and real estate. The Company is advised by NAC that
it is considering investments in several industries, one of them being domestic
cinema exhibition, and that the acquisition of the AFC Interest constituted a
possible first step in what may be a substantially large commitment to that
industry. Accordingly, the Company has also granted to NAC two separate and
independent options to acquire additional U. S cinema assets of the Company.
Under the first option, ("AFC Option"), NAC has the right to acquire
the remaining 33.3% ownership interest in AFC currently owned by the Company in
exchange for an additional six million shares of NAC common stock, to the extent
that authorized but unissued shares of NAC common stock are available for such
purpose. To the extent that NAC has less than six million shares available for
such purpose, NAC has the right to substitute cash for such shares (at the rate
of $1.50 per share) to the extent necessary to make up for any such shortfall.
The AFC Option can be exercised through June 5, 2000. Following the exercise of
the AFC Option, the remaining 16.7% membership interest in AFC would continue to
be owned by Sutton Hill, and the cinema would continue to be managed as a part
of the City Cinemas chain.
Under the second option ("Domestic Cinemas Option"), NAC has the right
to acquire the remainder of Reading's domestic assets for cash (including the
Company's rights to the City Cinemas Transactions and if NAC has not previously
exercised the AFC Option, the Company's remaining interest in AFC). The Domestic
Cinemas Option can be exercised through June 5, 2000. The Company has received
$500,000 in consideration of the grant of the City Cinemas Option. NAC has the
right to extend the option for two thirty-day periods, by payment of an
additional $100,000 for each such thirty-day extension period.
If NAC exercises the Domestic Cinemas Option, it is required to give to
Citadel a right to participate in the transaction on a 50/50 basis. The decision
whether or not to proceed with either of the options described above rests with
NAC and not with the Company or Citadel. Such transactions are also subject to
Hart Scott Rodino review and clearance. Accordingly, no assurances can be given
that any further transactions will be effected between the companies.
On April 7, 2000, Sam J. Frankino, who prior to the issuance of shares
to the Company on April 5, 2000 had been the majority stockholder of NAC, filed
a written consent with NAC in which he purported, in effect, to undo all of the
actions taken by the Board of Directors subsequent to March 1, 2000, to
declassify the Board of Directors of NAC and to remove all of those directors
who had voted in favor of the issuance of shares of NAC to the Company. On April
12, 2000, Mr. Frankino filed an action in the Delaware Court of Chancery under
Section 225 of the Delaware Corporation Laws, seeking a determination by the
Court that he had effectively undone the action taken by the prior board and
removed all of such directors. The Company is advised that the management and
the directors who are the subject of Mr. Frankino's removal effort intend to
vigorously oppose Mr. Frankino's lawsuit. The Company is further advised that
NAC has filed a lawsuit against Mr. Frankino seeking damages in the amount of
$100 million for harm allegedly caused to NAC as a result of Mr. Frankino's
control and dominance of that company, and that the Delaware Chancery Court has
combined the Frankino lawsuit and the NAC lawsuit for trial in September 2000.
While the Company believes that its transaction with NAC was bona fide and
should be
15
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
upheld by the Court, no assurances can be given as to the results of either Mr.
Frankino's lawsuit against NAC or NAC's lawsuit against Mr. Frankino.
City Cinemas Transaction
- ------------------------
On May 12, 2000, Reading reached agreement in principle with respect to
an assignment, assumption and modification agreement ("AAM Agreement") with
Citadel and Messrs. James J. Cotter and Michael Forman (Messrs. Cotter and
Forman executing and delivering the AAM Agreement on behalf of themselves and
certain of their affiliates; Messrs. Cotter and Forman and such affiliates being
referred to herein collectively as "Sutton Hill") pursuant to which Citadel will
assume the rights and obligations of Reading under its agreement in principle
with Sutton Hill pursuant to which Reading had certain rights and obligations to
acquire the City Cinemas circuit and Off Broadway Investments, Inc. ("OBI")
("Agreement in Principle"), as modified by the AAM Agreement.
Under the terms of the AAM Agreement, the rights and obligations being
assumed by Citadel will be modified in certain respects from those which
previously existed between Reading and Sutton Hill under the Agreement in
Principle. In essence, Citadel and Sutton Hill will be entering into an
agreement in principle ("Amended Agreement in Principle") pursuant to which:
a) Citadel will acquire from Sutton Hill the 1/6th membership
interest held by Sutton Hill in Angelika Film Center LLC
("AFC") in consideration of the issuance by Citadel of a
two-year promissory note in the amount of $4.5 million,
bearing interest at the rate of 8.25% per year, payable
quarterly. AFC is the owner of the Angelika Film Center
located in the Soho district of New York.
b) Citadel will lease from Sutton Hill, with option to purchase,
the Cinemas I, II, and III, the Murray Hill Cinema, the Sutton
Cinema and the Village East Cinema. Rent is calculated to
produce an initial return of 8.25% per annum to Sutton Hill,
with provision after the second year for certain mandatory
increases in rent, subject to an annual cap of 4.3%. An option
fee in the amount of $5 million to be paid at the closing,
which may be applied in full against the option exercise price
of $44 million.
c) Citadel will acquire from Sutton Hill certain rights to manage
the remainder of the Cinemas currently constituting the City
Cinemas circuit, including the management agreement applicable
to the Angelika Film Center located in the Soho District of
Manhattan. No separate consideration is being paid with
respect to these management rights.
16
<PAGE>
Craig Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
- --------------------------------------------------------------------------------
d) In the merger with OBI, Sutton Hill will receive shares of the
Citadel's Class A Common Stock and Class B Common Stock
valued, in the aggregate, at $10 million. The Class A Common
Stock and Class B Common Stock will be issued in a ratio of
eight shares of Class A Common Stock for every two shares of
Class B Common Stock. The shares will be valued by reference
to the average trading price of such securities over the ten
trading days immediately preceding the closing transaction.
e) Citadel will provide to Sutton Hill a credit facility in the
amount of $28 million. This credit facility may not be drawn
upon by Sutton Hill earlier than the seventh anniversary of
the closing the transactions described in subparagraphs a)
through c) immediately above ("Closing"). However, Citadel
will have the right to fund the credit facility earlier,
should it so elect. If Citadel elects to fund the credit
facility on or before the second anniversary of the Closing,
then Messrs. Cotter and Forman are obligated to personally
guarantee that portion of any borrowings made by Citadel to
fund the funding of the credit facility, up to the amount
actually disbursed by Citadel from such borrowings to Sutton
Hill. The credit facility accrue interest, payable monthly, at
the rate of 8.25% for the first two years following the
Closing, with provision after the second year for certain
mandatory increases in interest rate, subject to an annual cap
of 6% of such interest rate as adjusted from time to time.
Interest is payable monthly in arrears, and all principal and
accrued interest is due on the tenth anniversary of the
Closing.
In addition, Reading will grant to Citadel a right of first negotiation
to acquire the remainder of Reading's domestic cinema assets, and Sutton Hill
releases Reading from liability under the Agreement in Principle.
Citadel has reimbursed to Reading, in consideration of the assignment,
the $1 million deposit previously paid by Reading to Sutton Hill under the
Agreement in Principle. As a consequence of the AAM Agreement, Citadel will also
receive an assignment of the Company's rights with respect to that deposit.
The rights of Citadel with respect to the City Cinemas Assets and with
respect to its right of first negotiation to acquire the remainder of the
Company's domestic cinemas assets are subject to the prior rights of NAC under
the AFC Option and the Domestic Cinemas Option. Under the terms of the Domestic
Cinemas Option, NAC is obligated to provide to Citadel the right to participate
in such transaction on a 50/50 basis with NAC. To date, NAC has not advised
Reading as to whether it intends to exercise the AFC Option and/or the Domestic
Cinemas Option. NAC has no rights with respect to the OBI Assets.
The closing of the Amended Agreement in Principle is subject to the
receipt of a fairness opinion from Citadel's financial advisor, the completion
of definitive documentation, and the satisfaction of other usual closing
conditions. The merger with OBI is subject to approval of the stockholders of
Citadel. However, if that approval is not obtained by September 30, 2000, the
Amended Agreement in Principle provides that Citadel will acquire the stock of
OBI for $10 million in cash. The definitive documentation constituting the AAM
Agreement is currently being finalized.
17
<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, 2000, 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 876,885 and 230,521 shares of Class A
Nonvoting and Class B Voting (approximately 16.4% and 17.3%) shares of Citadel
Holding Corporation ("CHC" and collectively with its wholly owned subsidiaries,
"Citadel") Common Stock, respectively, and 1,107,406 (approximately 16.6%)
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 48.12% of the Class A Nonvoting Common Stock of
Citadel, 48.97% of the Class B Voting Common Stock of Citadel and approximately
49% of the Common Stock of BRI.
REI has elected to focus in the business of developing and operating
multiplex cinemas in Australia; New Zealand, the United States and Puerto Rico,
and in developing and eventually operating cinema based entertainment centers in
Australia and New Zealand.
Results of Operations
The following is a comparison of the results of operations for the
three months ended March 31, 2000 ("2000 Quarter") with the three months ended
March 31, 1999 ("1999 Quarter"). 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 ten new cinemas (86
screens) opened since January 1, 1999 (including four cinemas with 44-screens
which opened in the fourth quarter of 1999 and an 8-screen cinema which opened
in March 2000), 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 have not
yet commenced operation, although the cinema portion of one entertainment center
commenced operation in December 1999. Reading Australia anticipates completion
of two entertainment centers, one of which includes a 10-screen cinema in 2000.
As such, the entertainment center developments have not produced significant
income or cash flow for the three months ended March 31, 2000.
The Consolidated Company's net loss applicable to common shareholders
for the 2000 Quarter approximated $2,026,000 or $.19 per basic share as compared
to the 1999 Quarter net loss applicable to common shareholder of approximately
$1,206,000 or $.11 per basic share. The increased loss applicable to common
shareholders is principally attributable to a decrease in "Interest and dividend
income", an increase in "Interest expense", and a decrease in "Earnings from
equity investments" as discussed below. In each of the three month periods ended
March 31, "Net loss applicable to common shareholders" has been increased for
the 6.5% per annum dividend ($114,000 quarterly) on the $7,000,000 stated value
of Reading Convertible Preferred Stock held by Citadel.
Theater Revenues, Theater Operating Expenses, and General and
Administrative expenses for each of the three month periods ended March 31, were
as follows:
18
<PAGE>
<TABLE>
<CAPTION>
Domestic
2000 Cine Vista Cinemas1 Australia Corporate Total
---------- -------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Theater Revenue $3,203,000 $3,474,000 $4,355,000 $11,032,000
0
Theater Operating Expense 3,137,000 2,961,000 3,656,000 0 9,754,000
Depreciation and
Amortization2 33,000 347,000 337,000 87,000 804,000
General & Administrative 209,000 82,000 901,000 1,701,000 2,893,000
--------------------------------------------------------------------------
$ (176,000) $ 84,000 $ (539,000) $(1,788,000) $(2,419,000)
==========================================================================
<CAPTION>
Domestic
1999 Cine Vista Cinemas Australia Corporate3 Total
---------- ------- --------- ---------- -----
<S> <C> <C> <C> <C> <C>
Theater Revenue $2,721,000 $2,954,000 $1,794,000 $7,469,000
0
Theater Operating Expense 2,518,000 2,233,000 1,419,000 0 6,170,000
Depreciation and
Amortization 219,000 271,000 182,000 36,000 708,000
General & Administrative 185,000 133,000 824,000 1,684,000 2,826,000
--------------------------------------------------------------------------
($201,000) $317,000 ($631,000) ($1,702,000) ($2,235,000)
==========================================================================
</TABLE>
CineVista
- ---------
CineVista's Theater Revenues increased approximately 17.7% or $482,000
to $3,203,000 in the three months ended March 31, 2000 from $2,721,000 in the
corresponding prior year period. The increase was due to the contribution of a
12-screen cinema which opened in December 1999. The new cinema contributed
$645,000 in Theater Revenues, offset by a reduction of approximately $163,000 in
Cinema Revenues from those cinemas which were in operation in both the 1999 and
2000 Quarters. At March 31, 2000 and 1999, CineVista operated 56 screens at
eight locations and 44 screens at seven locations, respectively.
CineVista's Theater Operating Expenses increased approximately 24.6% or
$619,000 to $3,137,000 for the three months ended March 31, 2000 from $2,518,000
in the corresponding prior year period. The increase from the prior year period
is attributable to a 1.36% increase in film and concession costs as a percentage
of Theater Revenues and an increase in occupancy costs associated with the
additional location and to expense items which vary directly with the increased
Theater Revenue.
CineVista's General and administrative expenses increased approximately
13% or $24,000 to $209,000 for the three months ended March 31, 2000 from
$185,000 in the corresponding prior year period due primarily to increased
professional fees.
1 Domestic theater operations in 2000 include theater revenues and theater
operating expenses amounting to $4,235,000 and $205,000, respectively.
2 During 1999, the Company determined that it would exit the Puerto Rico cinema
market and wrote down the value of CineVista to its estimated net realizable
value. Accordingly, the fixed assets of CineVista are no longer being
depreciated for financial reporting purposes.
3 Corporate operations include the non-joint venture operations of Reading New
Zealand and corporate expenses. For the three months ended March 31, 2000 and
1999, New Zealand expenses totaled $109,000 and $82,000, respectively.
19
<PAGE>
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater Revenues increased approximately 17.6% or
$520,000 to $3,474,000 for the three months ended March 31, 2000 from $2,954,000
in the corresponding prior year period. New screens accounted for $1,237,000 in
increased Theater Revenues and included the contribution of the Reading Cinemas
in Manville, the Angelika in Buffalo, and the Royal George Theatre in Chicago,
which commenced operations in May 1999, July 1999, and March 1999, respectively.
The contribution of the new locations was offset in part by decreased Theater
Revenues at locations in operation throughout both the 2000 and 1999 Quarters.
At March 31, 2000 and 1999, the Domestic Cinemas included 42 screens and 4
stages at seven locations and 22 screens at four locations, respectively.
Theater Operating Expenses increased approximately 32.6% or $728,000 to
$2,961,000 for the three months ended March 31, 2000 from $2,233,000 in the
corresponding prior year period, primarily as a result of the increased costs
associated with the new locations and a 1.6% increase in film and concession
costs as a percentage of Theatre Revenues.
The Domestic Cinemas' General and Administrative expenses decreased
38.4% or $51,000 to $82,000 for the three months ended March 31, 2000 from
$133,000 in the corresponding prior year period due to reduced management fees
paid to City Cinemas as a result of the decreased Theater Revenue in managed
cinemas which were in operation in both 1999 and 2000.
Australia
- ---------
Theater Revenues for Australian operations increased approximately
142.8% or $2,561,000 to $4,355,000 for the three months ended March 31, 2000
from $1,794,000 in the corresponding prior year period. Substantially all of the
increase is due to the contribution of five new cinemas with 42 screens which
were not in operation in the three months ended March 31, 1999. Reading
Australia commenced operation of one new 8 screen cinema in the first quarter of
2000 and is also constructing 10 screens at an entertainment center location
expected to commence operations in the third quarter of 2000. At March 31, 2000
and 1999, Reading Australia operated 63 screens at nine locations and 21 screens
at four locations, respectively.
Theater Operating Expenses for Australian operations increased
approximately 157.7% or $2,237,000 to $3,656,000 for the three months ended
March 31, 2000 from $1,419,000 in the corresponding prior year period. The
Operating Margin (Theatre Operating Expense as a percentage of the Theatre
Revenue) decreased from 21% to 16.1% due primarily to increased occupancy costs
and initial start-up costs of the new cinemas.
General and Administrative costs increased approximately 9.3% or
$77,000 to $901,000 for the three months ended March 31, 2000 from $824,000 in
the corresponding prior year period. The increase primarily related to increased
payroll costs, office expenses and carrying costs of land held for development
associated with continued expansion of operations and development activities in
Australia.
Corporate
- ---------
Corporate General and administrative expenses remained relatively flat
for the three months ended March 31, 2000 as compared to the corresponding prior
year period.
20
<PAGE>
Real Estate
- -----------
Real estate revenues include rental income and the net proceeds 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. Reading has an agreement to sell one Philadelphia property for $1,500,000
and anticipates concluding the transaction in the second quarter of 2000.
Equity in Earnings of Affiliate
- -------------------------------
"(Loss) earnings from equity investments" include earnings from the
Company's investment in Citadel, BRI, WPG and the NZ JVs. "(Loss) earnings from
equity investments" decreased $228,000 to $(79,000) in the three months ended
March 31, 2000 as compared to $149,000 in the 1999 Quarter. The decrease in the
2000 Quarter as compared to the 1999 Quarter is principally the result of (i) a
$156,000 loss incurred by WPG in the 2000 Quarter as compared to the earnings of
$2,000 in the 1999 Quarter and (ii) a decrease in net equity earnings from the
Consolidated Company's investment in Citadel which earnings amounted to $44,000
in the 2000 Quarter as compared to $147,000 in the 1999 Quarter. The 2000
Quarter also includes $32,000 of equity earnings from the NZ JV.
Other Income (Expense)
- ----------------------
"Other income" totaled $35,000 in the 2000 Quarter as compared to
$19,000 in the 1999 Quarter.
Interest Income
- ---------------
Interest income totaled $187,000 in the 2000 Quarter as compared to
$732,000 in the 1999 Quarter. The decrease in interest income is primarily a
result of a reduction in average cash fund balances during the three months
ended March 31, 2000 as compared to the corresponding prior year period due to
increasing investments in Reading's development projects.
Minority Interest
- -----------------
The components of "Minority Interest" in the 2000 and 1999 Quarters is
as follows:
2000 1999
---- ----
(in thousands)
---------------------------
REI $ 711 $ 481
Angelika New York (41) (61)
Australian cinema (26) (4)
---- -----
Minority interest income (expense) $ 644 $ 416
==== ====
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 2000 and 1999 Quarters
reflect the 30.7% minority interests share of REI losses. The 16.67% minority
interest in income of Angelika NY amounted to $41,000 and $61,000 in the 2000
Quarter and 1999 Quarter, respectively. Minority interest in income of the
Australian Country Cinemas represents the 25% minority interests ownership in
the company.
21
<PAGE>
Income Tax Provision
- --------------------
Income tax expense in the current three month period include an accrual
for foreign withholding taxes of approximately $210,000 (which will be paid if
certain intercompany loans are repaid) and state and local taxes of $8,000.
Income tax expense in the prior year's first quarter includes a $207,000
provision for foreign withholding taxes and $15,000 for state and local taxes.
Liquidity and Capital Resources
At March 31, 2000, the Consolidated Company had cash balances amounting
to approximately $6,313,000 and current liabilities exceeding current assets of
approximately $9,453,000. REI is majority owned by the Company and accordingly,
is included in the Consolidated financial statements of the Company. However,
Craig and REI are separate public companies and each entity's capital resources
and liquidity is legally independent of the other and any intercompany loans,
receivables or dividends would require approval of each separate company's Board
of Directors. At March 31, 2000, Craig had cash balances of approximately
$703,000 and current liabilities of approximately $2,439,000 inclusive of a
demand note payable due to the Consolidated Company's affiliate, Citadel,
amounting to $1,998,000.
Since October 1996, liquidity of Craig has been principally dependent
on Reading's ability to pay dividends in accordance with the terms of the
Reading Preferred Stock held by the Company amounting to $3,575,000 annually. As
of March 31, 2000, Reading was $4,469,000 in arrears with respect to such
dividends. As discussed below, Reading does not currently have the resources or
a plan to pay such dividends in the near future. Accordingly, Craig's future
liquidity is dependent on Craig obtaining financing, Reading obtaining financing
which will permit it to pay dividends on its Series B Preferred Stock and/or
selling Citadel or Reading securities held by Craig. Craig has no present plan
or intention to sell Citadel or Reading securities. Based on the current work
allocation, the annual operating costs of Craig after consideration of
intercompany allocation of general and administrative costs approximate
$1,200,000 annually. After the completion of the move of the finance and
administrative functions of Reading from Philadelphia to Los Angeles during the
second quarter, it is expected that the amounts allocated to Craig will decrease
significantly.
At March 31, 2000, Reading had total commitments of approximately
$43,500,000. Of this amount, it is currently anticipated that approximately
$20,500,000 will be funded in 2000. Reading Australia has obtained a bank loan
which provides for initial borrowings of up to $13,940,000 and if additional
bank participants are secured, aggregate borrowings of up to $44,625,000 and an
extension of the loan maturity from December 31, 2000 to December 31, 2003. The
existing line of credit should provide Reading Australia with adequate funding
to complete an entertainment center currently under development in Sydney, and
if additional lender are secured, with adequate funding for a second
entertainment center located in Melbourne area in 2001. At March 31, 2000,
$2,246,000 had been borrowed under the Reading Australia's line-of-credit. In
addition, the Company's affiliate, Citadel, holds all of the outstanding shares
of Reading's Series A Voting Convertible Preferred Stock and has the option to
require Reading to repurchase such shares at their stated value of $7,000,000 at
any time during a ninety-day period commencing October 16, 2001.
Management believes that Reading has sufficient funds or access to
funds to complete the projects and acquisitions currently scheduled for
completion in 2000. In the event that further debt financing cannot be obtained
on terms acceptable to Reading, consideration will be given to seeking joint
venture partners, issuing debt or equity securities, and delaying development of
certain projects. In addition, Reading has commenced efforts to sell a number of
assets, including a) certain property located in
22
<PAGE>
the Philadelphia metropolitan area, b) the Royal George Theater located in
Chicago, c) WPG and d) all or substantially all of its domestic cinema assets,
in order to improve its liquidity.
The following summarizes the major sources and uses of cash funds in
the three months ended March 31, 2000 and 1999:
2000:
- -----
"Unrestricted cash and cash equivalents" decreased $8,764,000 from
$15,077,000 at December 31, 1999 to $6,313,000 at March 31, 2000. Working
capital deficit increased $(6,592,000) from $(2,861,000) at December 31, 1999 to
$(9,453,000) at March 31, 2000.
The Consolidated Company used approximately $4,077,000 and $6,985,000
in cash for operating and investing purposes, respectively, during the 2000
Quarter. The main source of funds was the $3,569,000 increase in borrowed funds.
In addition to the payment of operating and general and administrative
expenses, the principal use of cash funds during the 2000 Quarter included
$364,000 used to repurchase Craig common stock, and $5,639,000 in purchases
and/or development of property, and payment of preferred stock dividends by
Reading to Citadel of $114,000.
1999:
- -----
"Unrestricted cash and cash equivalents" decreased $7,944,000 from
$63,314,000 at December 31, 1998 to $55,370,000 at March 31, 1999. Working
capital decreased $9,640,000 from $47,445,000 at December 31, 1998 to
$37,805,000 at March 31, 1999.
The Consolidated Company used approximately $1,527,000 in cash for
operating purposes during the 1999 Quarter. This operating use of funds was
offset somewhat by $732,000 in "Interest and Dividend" income and an increase in
other liabilities of approximately $526,000.
In addition to the payment of operating and general and administrative
expenses, the principal use of cash funds during the 1999 Quarter included
$351,000 used to repurchase Craig common stock, $4,631,000 in purchases of
property and equipment, $117,000 for purchases of property held for development,
and payment of preferred stock dividends by Reading to Citadel of $114,000.
Forward-Looking Statements
From time to time, the Company or its representatives have made or may
make forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
23
<PAGE>
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, 1999.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holder.
Not applicable.
Item 5. Other Information
Not applicable.
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.
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: May 18, 2000 By: /s/ S. Craig Tompkins
----------------------------------- -----------------------
S. Craig Tompkins
President
Date: May 18, 2000 By: /s/ Andrzej J. Matyczynski
----------------------------------- ------------------------------
Andrzej J. Matyczynski
Chief Financial Officer
26
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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0
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