<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended SEPTEMBER 30, 1997 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission file number: 0-18613
TRIMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4272695
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2644 30TH STREET
SANTA MONICA, CALIFORNIA 90405
(Address of principal executive offices) (Zip code)
(310) 314-2000
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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 12 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
----- ----
As of November 9, 1997, 4,182,627 shares of Trimark Holdings, Inc. common stock
were outstanding, excluding shares held by Trimark Holdings, Inc. as treasury
stock.
1
<PAGE>
TRIMARK HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
Item 1. Financial Statements:
<C> <S> <C>
Consolidated Balance Sheets at September 3
30, 1997 and June 30, 1997
Consolidated Statements of Operations - 4
Three months ended September 30, 1997 and
1996
Consolidated Statements of Cash Flows - 5
Three months ended September 30, 1997 and
1996
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and 8-14
Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative not
Disclosures about Market Risk applicable
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
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TRIMARK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
-----------------------------------------
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, June 30,
Assets 1997 1997
------ ------------ ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 471 $ 3,665
Accounts receivable, less allowances of
$3,639 and $4,010, respectively 18,820 23,124
Film costs, net (Note 2) 58,503 57,293
Deferred marketing costs 1,370 1,696
Inventories, net 672 650
Property and equipment at cost, less accumulated
depreciation of $2,140 and $2,049, respectively 797 808
Due from officers 1,025 662
Other assets 2,471 2,325
------- -------
$84,129 $90,223
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Debt $56,400 $57,700
Accounts payable and accrued expenses 3,182 7,575
Minimum guarantees and royalties payable 3,547 3,391
Deferred income 990 1,283
Income taxes payable 56 65
------- -------
Total liabilities 64,175 70,014
------- -------
Commitments and contingencies (Note 4) -- --
------- -------
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares; 5,134,827 shares issued
at September 30, 1997 and 5,099,081 shares
issued at June 30, 1997 5 5
Additional paid in capital 15,588 15,474
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued and
outstanding -- --
Retained earnings 8,791 9,160
Less treasury shares, at cost - 952,200 shares
and 952,200 shares (4,430) (4,430)
------- -------
Stockholders' equity 19,954 20,209
------- -------
$84,129 $90,223
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------
(Amounts in Thousands, Except (Loss) Earnings Per Share)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1997 1996
------- ------
(Unaudited)
<S> <C> <C>
Net revenues (Note 3) $14,559 $14,215
Film costs and distribution expenses 10,972 10,928
------- -------
Gross profit 3,587 3,287
------- -------
Operating expenses:
Selling 1,728 1,484
General and administrative 1,206 1,144
Bad debt 126 101
------- -------
3,060 2,729
------- -------
Operating earnings 527 558
Other (income) expenses:
Interest expense 942 213
Interest and investment income (46) (12)
------- -------
896 201
------- -------
(Loss) earnings before income taxes (369) 357
Income taxes -- 139
------- -------
Net (loss) earnings $ (369) $ 218
======= =======
Net (loss) earnings per common share $ (0.09) $ 0.05
======= =======
Average common and common equivalent shares
outstanding used in computation above 4,183 4,296
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Operating activities:
Net (loss) earnings $ (369) $ 218
Adjustments to reconcile net (loss) earnings to
net cash used by operating activities:
Film amortization 6,566 6,333
Depreciation and other amortization 91 144
Provision for returns (488) 615
Provision for bad debt 117 101
Provision for inventory obsolescence 32 37
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 4,675 (1,883)
Additions to film costs (7,776) (8,693)
Decrease in deferred marketing costs 326 255
(Increase) decrease in inventories (54) 160
Increase in notes receivable from officers (363) --
(Increase) decrease in other assets (146) 23
(Decrease) increase in accounts payable and
accrued expenses (4,393) 104
Increase (decrease) in minimum guarantees and
royalties payable 156 (819)
(Decrease) increase in income taxes payable (9) 139
Decrease in deferred income (293) (235)
------- -------
Net cash used by operating activities (1,928) (3,501)
------- -------
Investing activities:
Acquisition of property and equipment (80) (1)
------- -------
Net cash used by investing activities (80) (1)
------- -------
Financing activities:
Net (decrease) increase in debt (1,300) 4,000
Exercise of stock options 114 --
Purchase of treasury stock -- (154)
------- -------
Net cash (used) provided by financing activities (1,186) 3,846
------- -------
(Decrease) increase in cash and cash equivalents (3,194) 344
Cash and cash equivalents at beginning of period 3,665 344
------- -------
Cash and cash equivalents at end of period $ 471 $ 688
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
TRIMARK HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY:
- ---------------------
The consolidated financial statements of Trimark Holdings, Inc. and subsidiaries
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accompanying
financial statements should be read in conjunction with the more detailed
financial statements and related footnotes filed with the Form 10K for the year
ended June 30, 1997. Significant accounting policies used by the Company are
summarized in Note (2) to the June 30, 1997 financial statements.
In the opinion of management, all adjustments required for a fair presentation
of the financial position as of September 30, 1997 and the results of operations
and cash flows for the periods ended September 30, 1997 and September 30, 1996
have been made and all adjustments were of a normal and recurring nature.
Operating results for the quarter are not necessarily indicative of the
operating results for a full year.
NOTE 2 - FILM COSTS:
- --------------------
Film costs, net of amortization, consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------ ------------
(in thousands)
<S> <C> <C>
Released $35,489 $32,159
Completed not released 7,823 7,045
In process and development 15,191 18,089
------------ ------------
$58,503 $57,293
------------ ------------
</TABLE>
6
<PAGE>
NOTE 3 - NET REVENUES:
- ----------------------
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Domestic:
Home video distribution $ 8,817 $10,371
Theatrical distribution 24 16
Television distribution 1,273 1,373
Foreign:
All media 4,445 1,549
Interactive:
All media -- 906
------- -------
$14,559 $14,215
------- -------
</TABLE>
NOTE 4 - COMMITMENTS & CONTINGENCIES:
- -------------------------------------
The Company has entered into certain agreements which provide for royalty
advances and promotional and advertising commitments totaling $6.3 million. If
the conditions to these agreements are not met by the licensors, the Company may
withdraw from the arrangements. These commitments extend to March 1998.
NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -----------------------------------------------------------
Cash paid during the three month period for:
<TABLE>
<CAPTION>
September 30,
1997 1996
------ ------
(in thousands)
<S> <C> <C>
Interest $1,254 $ 151
Income taxes 86 125
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUES: Net revenues for the quarter ended September 30, 1997 increased
$344,000 or 2.4% compared with the quarter ended September 30, 1996. The
increase was primarily due to a $2.9 million increase in foreign distribution
revenue partially offset by decreases in domestic home video and interactive
revenues of $1.6 million and $906,000, respectively. The increase in foreign
distribution revenues was primarily due to the timing of releases. In the
quarter ended September 30, 1997, two (2) motion pictures, "Kid in Aladdin's
Palace" and "Chairman of the Board" were initially released into the foreign
market, whereas one (1) motion picture "Leprechaun 4," was released in the same
time period in fiscal 1997. The decrease in domestic home video net revenues for
the three month period ended September 30, 1997 compared to the same period in
fiscal 1997 was primarily due to a $1.0 million decrease in sell-thru video
revenues. The decrease in sell-thru revenue was primarily due to the fiscal 1997
period including four (4) direct to sell-thru releases including the Director's
cut of "Natural Born Killers" while the fiscal 1998 period only had one (1)
direct to sell-thru release, "Galgameth." Interactive revenues decreased in the
first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 due to
the Company's decision to exit the interactive market and related sale in March
1997 of substantially all assets of Trimark Interactive to an unrelated
independent entertainment and interactive music publisher. The Company does not
expect any significant future interactive revenues.
Primarily as a result of continuing competition in the domestic home video
market, the Company is focusing its resources on producing and acquiring an
increased number of films with mainstream and specialized theatrical potential.
See "Liquidity and Capital Resources."
GROSS PROFIT: The Company's gross profits for the three months ended September
30, 1997 increased $300,000 or 9.1% compared with the same period in fiscal
1997. Gross profits as a percentage of net revenues increased to 24.6% from
23.1% for the quarter ended September 30, 1997 compared with the prior year
quarter. The
8
<PAGE>
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
Company anticipates that the domestic home video market will continue to be
extremely competitive.
SELLING EXPENSES: The Company's selling expenses for the three months ended
September 30, 1997 increased $244,000 or 16.4% compared with the same period in
fiscal 1996. The increase reflects the increase in theatrical operations
partially offset by the decrease in interactive operations. During the quarter
ended March 31, 1997, the Company sold substantially all assets of Trimark
Interactive.
Selling expenses as a percentage of net revenues for the three month periods
ended September 30, 1997 and 1996 were 11.9% and 10.4%, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the three months ended September 30, 1997 increased $62,000 or 5.4% compared
with the same period in fiscal 1996.
BAD DEBT EXPENSE: Bad debt expense for the three months ended September 30,
1997 increased $25,000 or 24.8% compared with the same period in fiscal 1997.
Bad debt expense primarily represents reserves taken against domestic video and
foreign sales.
INTEREST EXPENSE: Interest expense for the three months ended September 30,
1997 increased $729,000 or 342% compared with the same period in fiscal 1997.
The increase in interest expense was primarily due to higher levels of borrowing
under the Company's credit facility for purposes of funding the costs associated
with the acquisition and distribution of theatrical motion pictures. As of
September 30, 1997, there was $56.4 million outstanding under the credit
facility. See "Liquidity and Capital Resources."
INTEREST AND INVESTMENT INCOME: Interest and investment income for the three
months ended September 30, 1997 increased $34,000 or 283% compared with the same
period in fiscal 1997. The increase was primarily due to interest income from
loans to officers in the
9
<PAGE>
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
fiscal 1998 period without any similar income in the fiscal 1997 period.
NET LOSS: The Company's net loss for the three months ended September 30, 1997
was $369,000. In the comparable fiscal 1997 period the Company had earnings of
$218,000. The fiscal 1998 loss was primarily due to the higher levels of
selling and interest expenses associated with the Company's increased theatrical
operations.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended September 30, 1997 the Company experienced negative
cash flow from operations due to investments in film cost net of amortization
and a decrease in accounts payable partially offset by a decrease in accounts
receivable.
During the first three months of fiscal 1998 the Company continued to make
significant investments in film costs. The Company invested $7.8 million in new
additions to film inventory. The additions were primarily incurred to build up
the Company's theatrical film slate.
Two principal factors have increased the length of time from investment in film
costs to recoupment. The first factor is the terms of the Company's new credit
facility. Under the Company's new credit facility, described below, the Company
directly pays production costs that generally were previously paid by off
balance sheet production company financing. This change in financing has
accelerated certain film acquisition payments that were previously made at the
time of film delivery and are now made periodically throughout the production
process. The production process often takes from six months to a year or more.
Commitments to purchase films from production companies upon delivery are
included in contingent contractual obligations. The Company's contingent
contractual obligations as of September 30, 1997 were $6.3 million, a decrease
of $28.0 million compared to the balance as of September 30, 1996. The second
factor is increased emphasis on theatrical distribution. Theatrical films
generally require significant marketing expenditures for prints and advertising
which are capitalized as film costs. Theatrical
10
<PAGE>
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
marketing campaigns begin well in advance of the theatrical release to generate
the maximum level of awareness for the film. The opening date must be carefully
selected and is often changed to address competition, screen availability and
other factors. In addition, the decision to release a film theatrically is often
not made until a theatrical test is conducted which can take several months. The
home video release and other ancillary market revenues are also not realized for
several months to years after the theatrical release.
The Company's cash requirements vary with the size and timing of production
advances and minimum guarantee payments along with the timing of its theatrical,
home video, television and international releases. In fiscal 1998 the principal
sources of funds have been provided by availability of the Company's credit
facility.
The Company's principal operating subsidiaries, Trimark Pictures, Inc. and
Trimark Television, Inc., on December 20, 1996 entered into a $75 million
revolving credit facility with a consortium of banks agented and arranged by The
Chase Manhattan Bank which replaced a $25 million revolving credit facility with
Bank of America NT & SA and Westdeustche Landesbank. The credit facility expires
December 19, 2000. Under the credit agreement, the Company may borrow for
various corporate purposes provided that the aggregate borrowings do not exceed
the Borrowing Base which is derived from specified percentages of approved
accounts receivable and film library. The credit agreement is guaranteed by the
Company and certain of its subsidiaries and is secured by substantially all of
the assets of the Company and its significant subsidiaries. Loans outstanding
under the credit facility bear interest at the rate of 1.25% above Chase
Manhattan's prime rate or 2.25% above Chase Manhattan's London Interbank Market
for Eurodollars for the loan term specified. An unused commitment fee is payable
on the average unused availability under the credit facility, at the rate of
0.375% per annum. As of September 30, 1997 there was $56.4 million outstanding
under the credit facility.
The Company believes that its present sources of working capital will be
sufficient to maintain its level of operations in accordance with the
anticipated release schedule, as described below.
11
<PAGE>
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, the Company plans to distribute approximately three (3)
films for mainstream domestic theatrical release. "Eve's Bayou" was released in
November 1997 and generated approximately $3.3 million in domestic box office in
its opening weekend. This represents the largest opening of a Trimark release to
date although no assurance can be made as to its future performance. "Star Kid"
and "Chairman of the Board" are scheduled for release in the first half of
calendar 1998. In the domestic specialized theatrical market the Company plans
to release approximately four (4) to six (6) motion pictures in fiscal 1998. In
the three months ended September 30, 1997 the Company released one (1)
specialized theatrical film "Box of Moonlight." During fiscal 1998 the Company
plans to release approximately thirty-four (34) motion pictures into the
domestic home video rental market (of which eleven (11) were released in the
first quarter) and to continue to expand distribution in the sell-thru market.
Also in fiscal 1998 the Company plans to release approximately seven (7) to nine
(9) motion pictures initially into international distribution (of which two (2)
were released in the first quarter).
Technicolor Videocassette, Inc. currently serves as the Company's video cassette
duplicator and fulfillment contractor. Technicolor Videocassette, Inc. has a
general lien on all of the Company's materials and products in its possession.
As previously reported, in March 1997 the Company sold substantially all assets
of Trimark Interactive to an unrelated independent entertainment and interactive
music publisher. In consideration for the assets sold the Company received
237,037 shares of non-registered convertible preferred stock in the acquiring
company. The convertible preferred shares can be converted into 237,037 shares
of common stock of the acquiring company and carry a mandatory three year
redemption value of $800,000 if not converted prior to three years. The
consideration received was determined by arms length negotiation and advice from
an investment banking firm retained by the Company. Due to the uncertainty of
realizing any value from the convertible preferred stock the Company is carrying
the stock at a zero value. No gain or loss was recognized from the sale of
12
<PAGE>
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
the assets. As a result of this asset sale, the Company does not expect any
significant future expenditures in Trimark Interactive.
On February 21, 1997, the Company announced a stock repurchase program pursuant
to which it could spend up to $1,500,000, $750,000 per fiscal year, to purchase
shares of its outstanding common stock in the open market. During fiscal 1998,
the Company made no expenditures under the repurchase program.
As a result of recent merger and acquisition activity in the entertainment
industry, the Company, as a leading independent distributor of specialized
theatrical, television and video product, received certain unsolicited inquires
from interested parties. Accordingly, on July 21, 1997, the Company announced
that it had retained the investment banking firm, Societe Generale Bannon, to
advise the Company on various strategic alternatives to help enhance shareholder
value.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievement of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: Changes in public tastes, industry
trends and demographic changes, which may influence the distribution and
exhibition of films in certain areas; public reaction to and acceptance of the
Company's video, theatrical and television product, which will impact the
Company's revenues; competition, including competition from major motion picture
studios, which may affect the Company's ability to generate revenues; reliance
on management and key personnel; consolidation in the retail video industry;
whether the Company's shift in strategy to release an increased number of films
theatrically and
13
<PAGE>
ITEM 2: (CONTINUED)
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
a decreased number of straight to video films is successful; new methods of
distributing motion pictures; whether the Company will be able to effect any
strategic alternatives that may help enhance shareholder value; and other
factors referenced in this Form 10-Q and the Form 10-K filed for the year ended
June 30, 1997.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No Description
- ---------- ---------------------------------------------------------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
On August 5, 1997, Trimark Holdings, Inc. filed a report dated
July 21, 1997 under Item 5, announcing that the Company has
retained the investment banking firm, Societe Generale Bannon, to
advise the Company on various strategic alternatives to help
enhance shareholder value.
15
<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.
TRIMARK HOLDINGS, INC.
By: /s/ James E. Keegan
-------------------
James E. Keegan
Executive Vice President -
Finance and Chief Financial
Officer (Principal Financial
Officer and authorized to sign
on behalf of the Registrant)
Date: November 13, 1997
-----------------
16
<PAGE>
INDEX TO EXHIBITS
Exhibit No Description Method of Filing
- ------------- ------------------------------------- ------------------
27 Financial Data Schedule. filed herewith
electronically
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 471
<SECURITIES> 0
<RECEIVABLES> 22,459
<ALLOWANCES> 3,639
<INVENTORY> 672
<CURRENT-ASSETS> 0<F1>
<PP&E> 2,937
<DEPRECIATION> 2,140
<TOTAL-ASSETS> 84,129
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 56,400
0
0
<COMMON> 5
<OTHER-SE> 19,949
<TOTAL-LIABILITY-AND-EQUITY> 84,129
<SALES> 14,559
<TOTAL-REVENUES> 14,559
<CGS> 10,972
<TOTAL-COSTS> 10,972
<OTHER-EXPENSES> 2,934
<LOSS-PROVISION> 126
<INTEREST-EXPENSE> 942
<INCOME-PRETAX> (369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (369)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
<FN>
<F1>IN ACCORDANCE WITH INDUSTRY PRACTICE, THE COMPANY PREPARES AN UNCLASSIFIED
BALANCE SHEET.
</FN>
</TABLE>
