<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ___________
Commission file number 1-8625
CITADEL HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-3885184
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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) 239-0540
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. As of May 14, 1998, there were
6,669,924 shares of Common Stock, $0.01 par value per share outstanding.
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<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1. Financial Information
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (Unaudited)
and December 31, 1997........................................... 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 (Unaudited)............................. 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 (Unaudited)............................. 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of the Consolidated
Statements of Operations........................................ 13
PART 2. Other Information
- ------
Item 1. Legal Proceedings............................................... 16
Item 2. Changes in Securities........................................... 16
Item 3. Defaults Upon Senior Securities................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............. 16
Item 5. Other Information............................................... 16
Item 6. Exhibits and Reports on Form 8-K................................ 16
Signatures ................................................................ 17
</TABLE>
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<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
---------------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,683 $ 4,364
Rental Properties, less accumulated depreciation 13,625 13,652
Investment in shareholder affiliate 7,000 7,000
Equity investment in Agriculture Partnerships 1,004 1,129
Note receivable from Agriculture Partnerships 1,073 831
Capitalized leasing costs, net 1,334 1,384
Other receivables 152 94
Other assets 546 406
-------- --------
Total assets $ 29,417 $ 28,860
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Security deposits payable $ 97 $ 90
Accounts payable and accrued liabilities 1,073 1,009
Deferred rental revenue 445 312
Mortgage notes payable 9,355 9,395
Minority interest 22 --
-------- --------
Total liabilities 10,992 10,806
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Serial preferred stock, par value $.01, 5,000,000 shares
authorized, 3% Cumulative Voting Convertible, none
outstanding -- --
Serial preferred stock, par value $.01, 5,000,000 shares
authorized, Series B 3% Cumulative Voting Convertible,
none outstanding -- --
Common Stock, par value $.01, 20,000,000 shares
authorized, 6,669,924 issued and outstanding 67 67
Additional paid-in capital 59,603 59,603
Accumulated (deficit) (39,247) (39,618)
Note receivable from stockholder upon common stock
issuance (1,998) (1,998)
-------- --------
Total stockholders' equity 18,425 18,054
-------- --------
Total and stockholders' equity $ 29,417 $ 28,860
======== ========
</TABLE>
See Accompanying notes to consolidated financial statements.
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<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
---------------------------------------------------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues:
Rental income $1,366 $1,124
Consulting fees from shareholder 100 42
------ ------
$1,466 $1,166
------ ------
Expenses:
Real estate operating expenses 519 491
Depreciation and amortization 86 89
Interest expense 249 263
General and administrative expenses 281 239
------ ------
Total expenses 1,135 1,082
------ ------
Dividends from investment in Reading 114 114
Interest income 52 94
Interest income from shareholder 43 --
Earnings (loss) from investment in and advances to
Agriculture Partnerships (95) --
Minority interest 6 --
Gain (loss) on sale of properties -- (16)
------ ------
Earnings before income taxes 451 276
Provision for income taxes (80) (30)
------ ------
Net earnings $ 371 $ 246
====== ======
Basic earnings per share $0.06 $0.04
------ ------
Diluted earnings per share $0.06 $0.04
------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-----------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 371 $ 246
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 86 89
Loss on sale of rental property -- 16
Equity loss from Agriculture Partnerships 115 --
Amortization of deferred leasing costs 63 29
Amortization of deferred loan costs 9 22
Minority interest (6) --
Changes in operating assets and liabilities:
Decrease (increase) in other receivables (58) (174)
Decrease (increase in other assets (156) 195
Increase (decrease) in security deposits 7 11
Increase (decrease) in liabilities and deferred rent 201 (820)
------ ------
Net cash provided by (used in) operating activities 632 (386)
INVESTING ACTIVITIES
Proceeds from sale of property -- 1,128
Purchase of and additions to real estate (59) (163)
------ ------
Net cash provided by (used in)investing activities (59) 965
FINANCING ACTIVITIES
Short-term loans to Agriculture Partnerships (242) --
Capital contribution by Visalia of Big 4 Farming LLC 28 --
Repayments of long-term borrowings (40) (793)
------ ------
Net cash (used in) financing activities (254) (793)
Increase (decrease) in cash and cash equivalents 319 (214)
Cash and cash equivalents at beginning of period 4,364 6,356
------ ------
Cash and cash equivalents at end of period $4,683 $6,142
====== ======
SUPPLEMENTAL DISCLOSURES:
Interest paid during the three months ended March 31, 1998 and 1997 was $241,000 and $243,000, respectively.
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of Citadel
Holding Corporation ("Citadel") and its consolidated subsidiaries (collectively,
the "Company"). All significant intercompany balances and transactions have
been eliminated in consolidation.
On December 31, 1997, the Company acquired, through its interest in three
general partnerships (the "Partnerships"), a 40% interest in approximately 1,580
acres of agricultural land and related improvements, located in Kern County,
California, commonly known as the Big 4 Ranch (the "Property"). The other two
partners in the Partnerships are Visalia LLC ("Visalia," a limited liability
company controlled by Mr. James J. Cotter, the Chairman of the Board of the
Company, and owned by Mr. Cotter and certain members of his family) which has a
20% interest and Big 4 Ranch, Inc., a publicly held corporation, which has the
remaining 40% interest. Immediately prior to the Acquisition, the Company
capitalized Big 4 Ranch, Inc. with a cash capital contribution of $1.2 million
and then distributed 100% of the share of Big 4 Ranch, Inc., to the shareholders
of record of the Company's common stock as of the close of business on December
23, 1997, as a spin-off dividend. The Company accounts for its 40% investment in
the Partnership utilizing the equity method of accounting.
In October 1996, the Company contributed cash in the amount of $7 million
to Reading Entertainment, Inc. ("REI" and collectively with its consolidated
affiliates, "Reading") in exchange for 70,000 shares of Reading Series A Voting
Cumulative Convertible Preferred Stock (the "REI Preferred Stock") and an option
to transfer all or substantially all (subject to certain limitations) of its
assets to Reading for Reading Common Stock (the "Asset Put Option"). The Company
accounts for its investment in Reading at cost.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments of a recurring nature considered
necessary for a fair presentation of its financial position as of March 31, 1998
and December 31, 1997, the results of operations and its cash flows for the
three months ended March 31, 1998 and 1997. The results of operations for the
three month period ended March 31, 1998 are not necessarily indicative of the
results of operations to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes required to be in conformity with
generally accepted accounting principles. 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 the
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1997 and for the year then ended.
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<PAGE>
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Included in cash
and cash equivalents at March 31, 1998 is approximately $3.7 million which is
being held in institutional money market mutual funds.
Basic Earnings Per Share
- ------------------------
Basic earnings per share is based on 6,669,924 and 6,003,924 shares, the
weighted average number of shares outstanding during the three months ended
March 31, 1998 and 1997, respectively. Diluted earnings per share is based on
6,686,951 and 6,003,924 , the weighted average number of shares of common stock
and potential common shares outstanding during the three months ended March 31,
1998 and 1997, respectively. Stock options to purchase 53,000 shares of Common
Stock were outstanding during 1998 and 1997 at a weighted average exercise price
of $2.81 per share and a Warrant to purchase 666,000 shares of Common Stock at
$3.00 per share was outstanding during the three months ended March 31, 1997.
The 1998 calculation of the diluted weighted average number of shares
outstanding include the effect of such stock options amounting to 17,027 shares.
The Warrants and Stock options were anti-dilutive during the 1997 period.
NOTE 2 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE
- -------------------------------------------------------
The Company's rental properties at March 31, 1998 and December 31, 1997
consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
---------------------------------------------------
<S> <C> <C>
Land $ 4,439 $ 4,439
Building and improvements 10,155 10,096
------- -------
Total 14,594 14,535
Less accumulated depreciation (969) (883)
------- -------
Rental properties, net $13,625 $13,652
------- -------
</TABLE>
At March 31, 1998 and December 31, 1997, rental properties consisted of two
office buildings located in Glendale, California and Phoenix, Arizona.
NOTE 3 - INVESTMENT IN SHAREHOLDER AFFILIATE
- --------------------------------------------
At March 31, 1998 and December 31, 1997, the Company owned 70,000 shares of
REI Preferred Stock and the Asset Put Option. The REI Preferred Stock has (i) a
liquidation preference of $100 per share or $7 million ("Stated Value"), (ii)
bears a cumulative dividend of 6.5%, payable quarterly, and (iii) is convertible
any time after April 1998 into shares of REI Common Stock at a conversion price
of $11.50 per share. The closing price of REI stock on March 31, 1998 was
approximately $13.25 per share. REI, may at its option, redeem the Series A
Preferred Stock at any time after October 15, 2001, in whole or in part, at a
redemption price equal to a percentage of the Stated Value (initially 108% and
decreasing 2% per annum until the percentage equals 100%). The Company has the
right for a 90-day
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<PAGE>
period beginning October 15, 2001 (provided the Company has not exercised the
Asset Put Option), or in the event of change of control of REI to require REI to
repurchase the REI Series A Preferred Stock for their aggregate Stated Value
plus accumulated dividends. In addition, if REI fails to pay dividends for four
quarters, the Company has the option to require REI to repurchase such shares at
their aggregate liquidation value plus accumulated dividends.
The Asset Put Option is exercisable any time through a date thirty days
after Reading's Form 10-K is filed with respect to its year ended December 31,
1999, and gives the Company the right to exchange, for shares of Reading Common
Stock, all or substantially all of the Company's assets, as defined, together
with any debt encumbering such assets (the "Asset Put"). In exchange for up to
$20 million in aggregate appraised value of the Company's assets on the exercise
of the Asset Put Option, Reading is obligated to deliver to the Company that
number of shares of Reading Common Stock determined by dividing the value of the
Company's assets by $12.25 per share. If the appraised value of the Company's
assets is in excess of $20 million, Reading is obligated to pay for the excess
by issuing Common Stock at the then fair market value up to a maximum of $30
million of assets. If the average trading price of Reading Common Stock exceeds
130% of the then applicable exchange price for more than 60 days, then the
exchange price will thereafter be the fair market of the Reading Common Stock
from time to time, unless the Company exercises the Asset Put within 120 days of
receipt of notice from Reading of the occurrence of such average trading price
over such 60 day period.
The Company accounts for its investment in REI at cost. Included in the
Statements of Operations for the three months ended March 31, 1998 and 1997 is
"Dividends from Investment in Reading" of approximately $114,000 earned pursuant
to the terms of the REI Series A Preferred Stock.
As of April 13, 1998, the Company and Craig Corporation ("Craig"), a
shareholder affiliate of the Company, hold in the aggregate approximately 83% of
the voting power of Reading, with Craig's holdings representing approximately
78% of the voting power of Reading and the Company's holdings representing
approximately 5% of such voting power. At April 13, 1998, Reading holds
1,564,973 shares or approximately 23% of the Company's outstanding common stock
and Craig holds 1,096,106 shares or approximately 16% of the Company's Common
Stock.
-8-
<PAGE>
Summarized financial information of REI and subsidiaries as of March 31,
1998 and December 31, 1997 and for the three months ended March 31, 1998 and
1997 follows:
CONDENSED BALANCE SHEETS:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(IN THOUSANDS)
--------------
<S> <C> <C>
Cash and cash equivalents $ 86,639 $ 92,870
Other current assets 3,100 7,433
Equity investment in Citadel 4,936 4,903
Property and equipment, net 43,524 40,312
Intangible assets 24,570 24,957
Other assets 7,687 7,537
-------- --------
Total assets $170,456 $178,012
======== ========
Current liabilities $ 6,376 $ 13,177
Other liabilities 5,422 5,344
Minority interests 2,044 2,006
Series A Preferred stock held by Citadel 7,000 7,000
Shareholders' equity 149,614 150,485
-------- --------
Total liabilities and equity $170,456 $178,012
======== ========
CONDENSED STATEMENT OF OPERATIONS:
Revenue:
Theater $ 8,703 $ 5,771
Real estate 42 37
-------- --------
Total revenue 8,745 5,808
Theater costs (6,664) (4,727)
Depreciation and amortization (848) (617)
General and administrative (2,117) (1,563)
-------- --------
(Loss) from operations (884) (1,099)
Interest and dividends 1,328 2,434
Equity in earnings of affiliates 118 65
Other income, net (632) 230
-------- --------
Income (loss) before income taxes (70) 1,630
Income taxes (193) (159)
Minority interest (94) (46)
-------- --------
Net income (loss) (357) 1,425
Less preferred stock dividends (1,079) (1,076)
-------- --------
Net income applicable to common shareholders $ (1,436) $ 349
======== ========
Basic and diluted earnings (losses) per share $ (0.19) $ 0.05
======== ========
</TABLE>
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<PAGE>
NOTE 4 - EQUITY INVESTMENT AND NOTE RECEIVABLE FROM AGRICULTURAL PARTNERSHIPS
- -----------------------------------------------------------------------------
As described in Note 1, the Company acquired a 40% equity interest in the
Agricultural Partnerships. Also, on December 31, 1997, the Agricultural
Partnerships acquired the Big 4 Properties. The assets acquired included (i)
approximately 560 acres of Navel oranges, 205 acres of Valencia oranges, 145
acres of lemons, 32 acres of mineolas and 600 acres of open land currently
leased on a short term basis to a third party for the cultivation of annual
crops (the "Open Land"), (ii) irrigation systems, (iii) water rights, (iv) frost
prevention systems and (v) the fruit currently on the trees and slated for
harvest in 1998. The Big 4 Properties were acquired by the Partnerships (the
"Ranch Acquisition") from Prudential Insurance Company of America ("Prudential")
on an arms length basis for a purchase price of $6.75 million, plus
reimbursement of certain cultural costs approximating $831,000.
The Ranch Acquisition was financed by prorata capital contributions of the
partners (Citadel's 40% portion amounting to approximately $1.08 million), by a
$4.05 million purchase money loan from Prudential, and by an initial crop
finance loan by Citadel to the Agricultural Partnerships of approximately $.831
million. The loan by Citadel was advanced pursuant to a $1.2 million Line of
Credit Agreement (the "Crop Financing") extended by the Company to the
Agricultural Partnerships. Drawdowns under the Crop Financing accrue interest at
prime plus 200 basis points, payable quarterly, and are due and payable in
August 1998. Thereafter, Citadel may, but will be under no obligation to,
provide future crop financing on terms to be negotiated at arms length. At March
31, 1998 and December 31, 1997, Citadel had advanced approximately $1.073
million and $.831 million, respectively, under the Crop Financing Line of
Credit. For financial statement purposes, the note receivable is included in the
Balance Sheet as Note Receivable from Agriculture Partnerships, inclusive of the
40% or $.429 million and $.332 million as of March 31, 1998 and 1997,
respectively, advanced upon Citadel's behalf. While under no obligation, it
appears likely that Citadel will, as a practical matter, need to renew the Crop
Financing in August 1998.
Prior to the spin-off, Big 4 Farming LLC ("Farming", owned 80% by the
Company and 20% by Visalia) entered into a two-year farming services agreement
(the "Farming Contract") with each of the Partnerships, pursuant to which it
provides farm operation services for an initial term of two years. The Visalia
minority interest ownership of Farming is included in the Consolidated Balance
Sheet at March 31, 1998 as "Minority Interest" in the amount of $22,000.
Visalia's portion of Farming's operations for the three months ended March 31,
1998 amounting to a loss of $6,000 is included in the Consolidated Statement of
Operations as "Minority Interest."
In consideration of the services provided under the Farming Contract,
Farming is to be paid an amount equal to 100% of its costs plus a profit factor
equal to 5% of the gross agricultural receipts from the Big 4 Properties,
calculated after the costs of picking, packing and hauling. Farming has entered
into a contract with Cecelia Packing Corporation ("Ceceila") for certain
management consulting, purchasing and bookkeeping services for an initial terms
of two years at a fee of $6,000 per month plus reimbursement of certain out-of-
pocket expenses. Cecelia will also pack a portion of the fruit produced by the
Agricultural Partnerships.
The Prudential Purchase Money Loan in the amount of $4.05 million is
secured by, among other things, a first priority mortgage lien on the property,
has a ten-year maturity and accrues interest, payable quarterly, at a fixed rate
of 7.7%. In order to defer principal payments until January 1, 2002, the
Partnerships must make capital improvements to the real property totaling
$500,000 by December 31, 2000 and an additional 200,000 by December 31, 2001.
If the required capital expenditures are not made, then
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<PAGE>
the Partnerships will be required to make a mandatory prepayment of principal on
January 31, 2001 equal to difference between $200,000 and the amount of capital
improvements made through December 31, 2000. The purchase money mortgage also
imposes a prepayment penalty equal to the greater of (a) one-half of one percent
of each prepayment of principal and (b) a present value calculation of the
anticipated loss that the note holder will suffer as a result of such
prepayment.
Combined summarized financial information of the three Agricultural
Partnerships for the three months ended March 31, 1998 follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET: MARCH 31, 1998
--------------
(000'S)
<S> <C>
Receivables $ 68
Inventories 1,965
Property and equipment, net 5,515
Deferred loan costs 98
------
Total assets $7,646
======
Accounts payable $ 13
Line of credit to Citadel 1,073
Mortgage note payable 4,050
------
Total liabilities 5,136
Partners capital 2,510
------
Total assets and liabilities $7,646
======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
STATEMENT OF OPERATIONS: MARCH 31, 1998
--------------
(000's)
<S> <C>
Sales of crops $ 250
Costs of sales 239
-----
Gross profit 11
General and administrative expense (1) (64)
Depreciation (135)
Interest expense, including $20,000 paid to Citadel (100)
-----
Net (loss) $(288)
=====
Equity loss - 40% Citadel $(115)
Interest income from partnership loan 20
-----
Net (loss) from investment in and advances to Agriculture Partnership $ (95)
=====
</TABLE>
___________________________
(1) Reflects reimbursement of expenses and fees to Big 4 Farming LLC, an
80% owned subsidiary.
-11-
<PAGE>
NOTE 5 - TAXES ON INCOME
- ------------------------
The provision for income taxes for the three months ended March 31, 1998
and 1997 amounted to approximately $80,000 and $30,000, respectively,
representing a provision for estimated federal alternative minimum tax and state
taxes.
NOTE 6 - COMMON STOCK
- ---------------------
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares
of the Company's treasury common stock at an exercise price of $3.00 per share
of $1.998 million. Such exercise was consummated pursuant to delivery by Craig
of its secured promissory note (the "Craig Secured Note") in the amount of
$1.998 million, secured by 500,000 shares of REI Common Stock owned by Craig.
The Craig Secured Note in the amount of $1.998 million is included in the
Balance Sheet as a contra equity account under the caption "Note Receivable from
shareholders" at March 31, 1998 and December 31, 1997. Interest is payable
quarterly in arrears at the prime rate computed on a 360 day-year. Principal
and accrued but unpaid interest is due upon the earlier of April 11, 2002 and
120 days following the Company's written demand for payment. Interest income
from the Craig secured Note amounted to approximately $43,000 for the three
months ended March 31, 1998. The Craig Secured Note may be prepaid, in whole or
in part, at any time by Craig without penalty or premium.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following is a comparison of the results of operations for the three
months ended March 31, 1998, ("1998 Quarter") with the three months ended March
31, 1997 ("1997 Quarter"). Due to the nature of the Company's business
activities, revenues and earnings have and will vary significantly reflecting
the results of real estate sales, the acquisition of the Reading Entertainment,
Inc. ("REI") Preferred Stock and the December 1997 acquisition of the
Agriculture Partnerships. Accordingly, period to period comparisons of
operating results will not necessarily be indicative of future financial
results.
The Company's net earnings for the three months ended March 31, 1998
amounted to $371,000 or $0.06 per basic share as compared to the net income of
$246,000 or $0.04 per basic share for the three month period ended March 31,
1997.
Rental income amounted to $1,366,000 for the 1998 Quarter as compared to
$1,124,000 for the 1997 Quarter. Real estate operating expenses increased to
$591,000 in the 1998 Quarter as compared to $490,000 in the 1997 Quarter
reflecting slightly higher operating costs. As of March 31, 1998 and 1997,
rental properties consisted of two office buildings located in Glendale,
California and Phoenix, Arizona. The Glendale property is leased to Disney
Enterprises, Inc., and Fidelity Federal Bank, and American Express leases
approximately 56% of the Phoenix Building. The increase in rental revenue of
$242,000 between the 1998 Quarter and 1997 Quarter is generally attributable to
the increased rental rates which commenced in the 1997 Quarter. Accordingly,
the 1998 Quarter includes the impact of such increased rental rates for the
entire quarter. The Disney lease commenced in February 1997 and the increase
rental from the two year extension of the American Express lease at increased
rates commenced in March 1997. Rental income from these leases amounted to
approximately $1,070,000 (78%) and $826,000 (74%) for the 1998 and 1997
Quarters, respectively.
Consulting income from shareholder amounted to $100,000 in the 1998 Quarter
as compared to $42,000 in the 1997 Quarter. The Company provides a substantial
portion of its executives time providing real estate consulting services to
Reading in connection with the development by Reading of multiplex cinemas in
Puerto Rico, Australia and the United States. The increase in the 1998 Quarter
reflects the additional costs charged by Citadel for such increased services.
On December 31, 1997, the Company acquired, through its interest in three
general partnerships (the "Agricultural Partnerships"), a 40% interest in
approximately 1,580 acres of agricultural land and related improvements, located
in Kern County, California, commonly known as the Big 4 Ranch (the "Property").
The other two partners in the Partnerships are Visalia LLC (a limited liability
company controlled by Mr. James J. Cotter, the Chairman of the Board of the
Company, and owned by Mr. Cotter and certain members of his family) which has a
20% interest and Big 4 Ranch, Inc., a publicly held corporation, which has the
remaining 40% interest. The Company accounts for its 40% investment in the
Agricultural Partnerships utilizing the equity method of accounting. As the
acquisition did not occur until December 31, 1997; there was no impact in the
results of operations for the three months ended March 31, 1997.
-13-
<PAGE>
The assets acquired included (i) approximately 560 acres of Navel oranges,
205 acres of Valencia oranges, 145 acres of lemons, 32 acres of mineolas and 600
acres of open land currently leased on a short term basis to a third party for
the cultivation of annual crops (the "Open Land"), (ii) irrigation systems,
(iii) water rights, (iv) frost prevention systems and (v) the fruit currently on
the trees and slated for harvest in 1998. The Big 4 Properties were acquired by
the Partnerships (the "Ranch Acquisition") from Prudential Insurance Company of
America ("Prudential") on an arms length basis for a purchase price of $6.75
million, plus reimbursement of certain cultural costs approximating $831,000.
The Ranch Acquisition was financed by prorata capital contributions of the
partners (Citadel's 40% portion amounting to approximately $1.08 million), by a
$4.05 million purchase money loan from Prudential, and by an initial crop
finance loan by Citadel to the Agricultural Partnerships of approximately $.831
million. The loan by Citadel was advanced pursuant to a $1.2 million Line of
Credit Agreement (the "Crop Financing") extended by the Company to the
Agricultural Partnerships. Drawdowns under the Crop Financing accrue interest at
prime plus 200 basis points, payable quarterly, and are due and payable in
August 1998. At March 31, 1998 and December 31, 1997, Citadel had advanced
approximately $1.073 million and $.831 million, respectively, under the Crop
Financing Line of Credit. For financial statement purposes, the note receivable
is included in the Balance Sheet as Note Receivable from Agriculture
Partnerships, inclusive of the 40% or $.429 million and $.332 million as of
March 31, 1998 and 1997, respectively, advanced upon Citadel's behalf. While
under no obligation, it appears likely that Citadel will, as a practical matter,
need to renew the Crop Financing in August 1998.
The operations of the Agriculture Partnerships are impacted by the general
seasonal trends that are characteristic of the citrus industries. The
Agriculture Partnerships anticipate receiving a majority of their net income
during the second and third calendar quarters following the harvest and sale of
these citrus crops. Due to this concentrated activity, the Agriculture
Partnership anticipate net losses in the first and fourth calendar quarters.
Included in the Statement of Operations as "Earnings from investment in and
advances to Agriculture Partnerships" is the Company's 40% equity share of the
Agriculture Partnerships operating results for the three months ended March 31,
1998, net of $20,000 of interest income received pursuant to loans made to the
Agriculture Partnerships amounting to $95,000. The Agriculture Partnerships
reported a net loss for the three months ended March 31, 1998 of $288,000, the
Company's share amounting to approximately $115,000.
Interest income (reflected in the Statement of Operations as "Interest
income" and "Interest income from shareholders") was comparable between the 1998
and 1997 Quarters and amounted to $95,000 in the 1998 Quarter and $97,000 in the
1997 Quarter. Included in the Statements of Operations for the 1998 and 1997
Quarter is approximately $114,000 of dividend income earned with respect to the
Company's investment in REI Preferred Stock. The REI Series A Preferred Stock
is convertible at any time into shares of REI Common Stock at a conversion price
of $11.50 per share. The closing market price of REI Common Stock at May 7,
1997 was $13.25 per share. REI reported net loss available to common
shareholders of approximately $357,000 for the 1998 Quarter as compared to net
income available to common shareholders of approximately $349,000 in the 1997
Quarter.
General and administrative expenses increased in the 1998 Quarter and
amounted to $281,000 as compared to $197,000 in the 1997 Quarter. The increase
in general and administrative expenses is primarily a result of an increase in
payroll costs and certain overhead costs associated with the operations of Big 4
Farming.
-14-
<PAGE>
Interest expense was $249,000 in the 1998 Quarter as compared to $263,000
in the 1997 Quarter. Two mortgage loans were outstanding for both the 1998 and
1997 Quarter. The slight decrease in interest expense is generally attributable
to the reduction in the average mortgage balances outstanding. The terms of the
mortgage loans provide for an adjustable rate of interest, which rate amounted
to 10.097% at March 31, 1998.
BUSINESS PLAN, CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents increased approximately $319,000 from $6.4364
million at December 31, 1997 to $4.683 million at March 31, 1998. Net cash used
in investing activities amounted to $59,000 in the 1998 Quarter and reflects
leasehold improvements made to rental properties. Net cash used in financing
activities amounted to $200,000 in the 1998 Quarter and resulted from (i)
additional borrowings by the Agriculture Partnerships of approximately $242,000
and (ii) the amortization of long-term mortgage loans.
Cash and cash equivalents decreased approximately $214,000 to $6,142,000 at
March 31, 1997. Net cash provided from investing activities amounted to
$965,000 in the 1997 Quarter and is comprised of approximately $1,128,000
provided from the sale of a rental property, offset by $163,000 used to make
leasehold improvements to real estate properties. Net cash used in financing
activities amounted to $793,000 in the 1997 Quarter and resulted from the
repayment of long-term mortgage loans inclusive of the mortgage on the property
sold in January 1997.
The Company expects that its sources of funds in the near term will include
(i) cash on hand and related interest income, (ii) cash flow from the operations
of its two real estate properties, (iii) consulting fee income from Reading and
(iv) a preferred stock dividend, payable quarterly, from REI amounting to
approximately $455,000 annually. The Company does not expect to have cash flow
from its investment in the Agriculture Partnerships in the near future.
In the short term, uses of funds are expected to include (i) funding of the
Glendale Building leasehold and tenant improvements of approximately $1.9
million, (ii) operating expenses, and (iii) debt service pursuant to the
property mortgages. As part of the Big 4 Ranch, Inc., spin off, the Company
agreed to provide a $200,000 line of credit to that company. In addition, the
Company has provided an agricultural line of credit to the Agriculture
Partnerships of $1,200,000. As of March 31, 1998, $1,073,000 has been borrowed
by the Agriculture Partnerships. The Company expects to receive additional
requests for borrowings of the total committed credit lines.
Management believes that the Company's sources of funds will be sufficient
to meet its cash flow requirements for the foreseeable future. The October 1996
Acquisition of the Reading Preferred Stock and the Asset Put Option, provided
the Company with the opportunity to make an initial investment in the Beyond-
the-Home segment of the entertainment industry, and the ability thereafter, to
review the implementation by Reading of its business plan and, if it approves of
the progress made by Reading, to make a further investment in this industry
through the exercise of its Asset Put Option to exchange all or substantially
all of its assets for Reading Common Stock. The Company has the right to require
Reading to redeem the Reading Preferred Stock after October 15, 2001 or sooner
if Reading fails to pay dividends on such securities for four quarters.
-15-
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
For a description of legal proceedings, please refer to Item 3 entitled
Legal Proceedings contained in the Company's Form 10-K for the fiscal year ended
December 31, 1997
ITEM 2 - CHANGE IN SECURITIES
- -----------------------------
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES 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
None.
-16-
<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.
CITADEL HOLDING CORPORATION
---------------------------
By: /s/ Steve Wesson
----------------
Steve Wesson
President and Chief Executive Officer
May 15, 1998
/s/ S. Craig Tompkins
---------------------
S. Craig Tompkins
Principal Accounting Officer
May 15, 1998
-17-
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<SECURITIES> 0
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0
0
<COMMON> 67
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