10-Q 1 d10q.txt FORM 10-Q ================================================================================ 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, 2001 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 incorporation or (IRS Employer Identification No.) organization 550 South Hope Street, Suite 1825 90071 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. As of May 7, 2001, there were 3,402,808 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. ================================================================================ CRAIG CORPORATION AND SUBSIDIARIES INDEX -----
Page ---- PART I. Financial Information ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2001 (Unaudited) and December 31, 2000........................ 1 Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2001 and 2000.............................. 3 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2001 and 2000.............................. 4 Notes to Condensed Consolidated Financial Statements..................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 18 PART II. Other Information -------- Item 1. Legal Proceedings........................................................ 24 Item 2. Changes in Securities.................................................... 24 Item 3. Defaults Upon Senior Securities.......................................... 24 Item 4. Submission of Matters to a Vote of Security Holders...................... 24 Item 5. Other Information........................................................ 24 Item 6. Exhibits and Reports on Form 8-K......................................... 24 Signatures............................................................... 25
PART I - Financial Information ------------------------------ Item 1 - Financial Statements ----------------------------- Craig Corporation and Subsidiaries Condensed Consolidated Balance Sheets (dollars in thousands)
March 31, December 31, 2001 2000 (Unaudited) --------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents (Note 1) $ 5,975 $ 16,475 Receivables 1,661 2,749 Restricted cash 1,112 1,267 Inventories (Note 1) 200 267 Prepayments and other current assets 1,382 945 Assets held for sale (Note 5) 2,239 4,039 --------------------------------------------------------------------------------------------- Total current assets 12,569 25,742 Investment in unconsolidated affiliates (Note 2) 17,348 17,650 Note receivable from joint venture partners 370 421 Note receivable from WPG 5,550 -- Note receivable from Citadel 1,706 -- Property held for development (Note 1) 22,845 25,158 Property and equipment, net (Note 3) 46,947 52,398 Other assets 1,989 2,162 --------------------------------------------------------------------------------------------- Total assets $109,324 $123,531 ---------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -1- Craig Corporation and Subsidiaries Condensed Consolidated Balance Sheets (dollars in thousands)
March 31, December 31, 2001 2000 (Unaudited) ------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable $ 5,290 $ 7,807 Film rental payable 775 1,719 Accrued taxes 1,398 1,428 Note payable - current 4,461 4,476 Note payable to Citadel 1,998 1,998 Other liabilities 2,463 1,203 ------------------------------------------------------------------------------------------------------- Total current liabilities 16,385 18,631 Note payable 12,320 14,390 Other liabilities 5,136 5,577 Deferred tax liabilities 8,368 8,368 ------------------------------------------------------------------------------------------------------- Total liabilities 42,209 46,966 ------------------------------------------------------------------------------------------------------- Minority interests in equity of subsidiaries 15,269 15,754 Redeemable preferred stock of Reading 7,000 7,000 Commitments and Contingencies (Note 6) Stockholders' Equity Preferred stock, par value $0.25, 1,000,000 shares authorized, none -- -- issued Class A common preference stock, par value $0.01, 10,000,000 shares 87 87 authorized, 8,734,065 issued and 7,058,408 outstanding at March 31, 2001 and at December 31, 2000, respectively Class B common stock, par value $0.01, 20,000,000 shares authorized, none issued -- -- Common stock, par value $0.25, 7,500,000 shares authorized, 5,444,065 1,361 1,361 shares issued and 3,402,808 and 3,512,308 outstanding at March 31, 2001 and December, 31, 2000, respectively Additional paid-in capital (Note 2) 28,804 28,804 Retained earnings 59,888 61,315 Accumulated other comprehensive loss (Note 7) (23,475) (15,937) Cost of treasury shares, 3,716,906 shares at March 31, 2001 and (21,819) (21,819) at December 31, 2000 ------------------------------------------------------------------------------------------------------- Total stockholders' equity 44,846 53,811 ------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 109,324 $ 123,531 -------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -2- Craig Corporation and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (dollars in thousands, except per share amounts)
Three Months Ended March 31, --------- 2001 2000 ----------------------------------------------------------------------------------------- Revenues Theater Admissions $ 7,383 $ 7,897 Concessions 2,399 2,496 Advertising and other 404 639 Real estate 207 189 ----------------------------------------------------------------------------------------- 10,393 11,221 ----------------------------------------------------------------------------------------- Operating costs and expenses Theater operating 8,260 9,216 Theater concession 516 538 Real estate costs -- -- Depreciation and amortization 529 804 General and administrative expenses 2,353 2,893 ----------------------------------------------------------------------------------------- 11,658 13,451 ----------------------------------------------------------------------------------------- Operating loss (1,265) (2,230) Non-operating expenses (income) Equity in losses of unconsolidated affiliates (Note 2) 149 79 Interest and dividend income (230) (187) Interest expense 368 251 Other income, net (16) (35) ----------------------------------------------------------------------------------------- Loss before income taxes and minority interests (1,536) (2,338) Income taxes (Note 4) 207 218 ----------------------------------------------------------------------------------------- Loss before minority interests (1,743) (2,556) Minority interests (430) (644) ----------------------------------------------------------------------------------------- Net loss (1,313) (1,912) Less: Preferred stock dividends 114 114 ----------------------------------------------------------------------------------------- Net loss applicable to common shareholders $ (1,427) $ (2,026) ----------------------------------------------------------------------------------------- Basic loss per share (Note 1) $ (0.14) $ (0.19) Weighted average number of shares outstanding 10,461,216 10,495,216 Diluted loss per share (Note 1) $ (0.14) $ (0.19) Diluted weighted average number of shares outstanding 10,461,216 10,495,216 -----------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -3- Craig Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)
Three Months Ended March 31, --------- 2001 2000 -------------------------------------------------------------------------------------------- Operating Activities Net loss $ (1,313) $(1,912) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 529 804 Deferred rent expense (143) 112 Equity in loss of unconsolidated affiliates 149 79 Other, net 37 5 Minority interests (430) (644) Changes in current assets and liabilities: Decrease (increase) in current assets 630 (733) Decrease in assets held for sale 1,706 -- Decrease in payables (2,539) (1,618) Decrease in accrued film rental (908) (201) Increase in other liabilities 383 31 -------------------------------------------------------------------------------------------- Net cash used in operating activities (1,899) (4,077) -------------------------------------------------------------------------------------------- Investing activities Purchase of property held for development (721) (11) Purchase of property and equipment (506) (5,639) Purchase of Citadel Class B common stock -- (31) Investment in joint venture (35) -- Distribution from joint ventures 54 224 Decrease in note receivable from joint venture 22 214 Increase in restricted cash (7) (2,016) -------------------------------------------------------------------------------------------- Net cash used in investing activities (1,193) (7,259) -------------------------------------------------------------------------------------------- Financing activities Treasury stock repurchases -- (364) Distributions to minority partner -- (42) Payment of Reading preferred dividends -- (114) Payment on notes payable (6,451) -- Issuance of note payable (1,706) 3,569 Proceeds from borrowings 1,534 -- -------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (6,623) 3,049 -------------------------------------------------------------------------------------------- Effect of foreign exchange rate changes on cash (785) (477) -------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (10,500) (8,764) Cash and cash equivalents at beginning of the period 16,475 15,077 -------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 5,975 $ 6,313 -------------------------------------------------------------------------------------------- Supplemental Disclosures Interest paid $ 388 $ 236 Income taxes paid $ -- $ --
See accompanying notes to consolidated financial statements. -4- Craig Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 2001 -------------------------------------------------------------------------------- Note 1 - Basis of Presentation Basis of Consolidation The consolidated financial statements include the accounts of Craig Corporation ("Craig Corp." and collectively with its corporate predecessors and wholly owned subsidiaries, "Craig" or the "Company") and collectively with its majority owned subsidiaries, the "Consolidated Company". Such majority owned subsidiaries include the accounts of Reading Entertainment, Inc. ("REI" and together with its corporate predecessors and its consolidated subsidiaries, "Reading"). The Company's principal holdings at March 31, 2001 consisted of (1) common and preferred stock representing approximately 78% of the voting power of REI, (2) Class A Nonvoting and Class B Voting common shares representing approximately 11.0% and 11.6% of the outstanding common shares of Citadel Holding Corporation ("CHC" and collectively with its corporate predecessors and consolidated subsidiaries "Citadel"), (3) 16.4% of the outstanding common stock of Big 4 Ranch, Inc. ("BRI"), a company owning a 40% interest in certain agricultural properties located in Kern County, California, and (4) cash and cash equivalents. The Consolidated Company holds a 32.8% voting interest in CHC and a 49% interest in BRI. Reading, the Company's majority owned subsidiary, is in the business of developing and operating multiplex cinemas and entertainment centers in Australia and New Zealand. Reading also operates cinemas in Puerto Rico and until March 2001, operated cinemas in the United States. Subsequent to March 8, 2001, Reading's only domestic cinema interest is its passive 33.3% membership interest in the Angelika Film Center, LLC ("AFC"), the owner of the Angelika Film Center and Cafe located in the Soho district Manhattan (the "NY Angelika"). This interest in the AFC and these historic domestic cinema operations are referred to herein as the "Domestic Cinemas". Reading's cinemas are owned and operated through Reading Cinemas of Puerto Rico, Inc., a wholly-owned subsidiary, under the CineVista name in Puerto Rico ("CineVista" or the "Puerto Rico Circuit"); through Reading Entertainment Australia Pty Ltd (collectively with its subsidiaries referred to herein as "Reading Australia"), under the Reading Cinemas name in Australia (the "Australia Circuit"), and through a 50/50 joint venture in New Zealand under the Berkeley Cinemas name. The Company's entertainment center development activities in Australia and New Zealand are conducted through the affiliates of Reading Australia in Australia and through affiliates of Reading New Zealand Ltd. (collectively referred to herein as "Reading New Zealand") in New Zealand. Through its ownership of REI, the Consolidated Company principally operates in two business segments, cinema operations and real estate development (See Note 10). The financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim information and 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. 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 -5- have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K fir the year ended December 31, 2000. Certain amounts in previously issued financial statements have been reclassified to conform to the current period presentation. Basis of Consolidation: All significant intercompany transactions and accounts ---------------------- have been eliminated in consolidation. Minority interest in equity of subsidiaries reflects the minority stockholders' proportionate share of Reading and the Consolidated Company's other joint ventures. Investments in which the Consolidated Company holds a 20 to 50 percent ownership interest are accounted for using the equity method. Investments in other companies are carried at cost. Use of Estimates: The preparation of financial statements requires management ---------------- to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: The Consolidated Company considers all highly liquid ------------------------- investments with original maturities of three months or less at the time of acquisition to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair market value, and consist principally of Eurodollar time deposits, interest-bearing bank deposits, federal agency securities and short-term money market instruments. Inventories: Inventories are comprised of confection goods used in theater ----------- operations and are stated at the lower of cost (first-in, first-out method) or net realizable value. Property held for development: Property held for development consists of land, ----------------------------- including land acquisition costs, acquired for the potential development of multiplex cinemas and/or entertainment centers and currently held either for such purposes or for other development purposes. Property held for development is carried at cost and, at such time that construction of the related multiplex cinema and/or entertainment center commences, is transferred to Property and equipment with future construction costs accounted for as Construction-in- progress. Property and Equipment: Property and equipment is carried at cost. ---------------------- Depreciation of buildings, capitalized lease, leasehold improvements and equipment is recorded on a straight-line basis over the estimated useful lives of the assets or, if the assets are leased, the remaining lease term, whichever is shorter. The estimated useful lives are generally as follows: Building and Improvements 20-40 years Equipment 3-15 years Furniture and Fixtures 3-7 years Leasehold Improvements 10-20 years
-6- Construction in Progress and Property Development Costs: Construction-in- ------------------------------------------------------- progress and property development costs are comprised of direct costs associated with the development of potential cinemas (whether for purchase or lease) or entertainment center locations. Startup costs and other costs not directly related to the acquisition of long term assets are expensed as incurred. Amounts are carried at cost unless management decides that a particular location will not be pursued to completion or if the costs are no longer relevant to the proposed project. If such a judgment is made, previously capitalized costs which are no longer of value to the Consolidated Company are expensed. Translation of Non-U.S. Currency Amounts: The financial statements and ---------------------------------------- transactions of the Australia and New Zealand cinema and real estate operations are maintained in their functional currency (Australian and New Zealand dollars, respectively) and translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation". Assets and liabilities of such operations are denominated in their functional currency and translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments are reported as "Accumulated other comprehensive income", a component of Shareholders equity. The carrying value of Reading Australia's and Reading New Zealand's assets will fluctuate due to changes in the exchange rate between the U.S. dollar and the Australian dollar ($0.4881 and $0.5466 were the respective exchange rates of U.S. dollars per Australian dollar at March 31, 2001 and December 31, 2000) and the U.S. dollar and the New Zealand dollar ($0.4033 and $0.4297 were the respective exchange rates of U.S. dollar per New Zealand dollar at March 31, 2001 and December 31, 2000). In the accompanying financial statements, balance sheet accounts are translated into U.S. dollars at the exchange rates in effect on the reporting date, and operating results are translated into U.S. dollars at the average of the exchange rates in effect during each period reported. Earnings (loss) Per Share: Basic earnings (loss) per share is calculated by ------------------------- dividing net earnings (loss) applicable to common shareholders by the weighted average shares outstanding during the periods presented. The weighted average number of shares used in the computation of basic earnings (loss) per share was 10,461,216 and 10,495,216 for the three months ended March 31, 2001 and 2000, respectively. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) applicable to common shareholders by the weighted average common shares outstanding for the period presented plus the dilutive effect of stock options. At March 31, 2001, these stock options were not considered dilutive as the exercise price of these options was greater than the market price. In addition, the Company reported a net loss for the three months ended March 31, 2001 and 2000 and therefore, the stock options would have been anti-dilutive. The weighted average number of shares used in the computation of diluted earnings (loss) per share was 10,461,216 and 10,495,216 for the three months ended March 31, 2001 and 2000, respectively. Basic and diluted net earnings (loss) per share were calculated based on net loss applicable to common stock shareholders, which includes a reduction for dividends declared on the redeemable preferred stock of REI amounting to $113,750 per quarter ($455,000 per year). Reclassification: Certain amounts in previously issued financial statements ---------------- have been reclassified to conform to the current presentation. -7- Note 2 - Investment in Unconsolidated Affiliates The tables below set forth the carrying values of the Consolidated Company's equity investments in unconsolidated affiliates, and the Consolidated Company's share of their earnings or losses, for the periods presented. The Consolidated Company accounts for its investment in unconsolidated affiliates by the equity method. The Consolidated Company records its share of such (loss) earnings in the Consolidated Statement of Operations as "Equity (loss) earnings of affiliate" and the carrying value of the Consolidated Company's investment in unconsolidated affiliates are recorded in the Consolidated Statement of Operations as "Equity (loss) earnings of affiliates" (dollars in thousands).
March 31, December 31, 2001 2000 ------------------------------------------------------------------ (dollars in thousands) CHC $12,848 $13,193 AFC 3,509 3,358 NZ JV 991 1,099 ------------------------------------------------------------------ $17,348 $17,650 ------------------------------------------------------------------
Three months Ended March 31, --------- 2001 2000 ------------------------------------------------------------------ (dollars in thousands) CHC $ (344) $ 44 AFC 151 -- NZ JV 44 32 WPG (Note 5) -- (156) ------------------------------------------------------------------ $ (149) $ (79) ------------------------------------------------------------------
Citadel Holding Corporation ("CHC") Prior to September 2000, the Consolidated Company owned 48.3% of the common stock of CHC, comprised of 2,567,823 shares of Class A Common Stock and 653,254 shares of Class B Common Stock. In September 2000, CHC issued its common stock to acquire OBI, diluting the Consolidated Company's ownership interest in CHC to approximately 32.4%. In accordance with the Securities Exchange Commission's Staff Accounting Bulletin No. 51, the Consolidated Company decreased its additional paid-in capital by approximately $2,306,000, to reflect the dilution in the Consolidated Company's ownership of CHC's common stock and decreased minority liability by $347,000 to reflect the REI minority shareholders' portion of such dilution. The Consolidated Company accounts for its investment in Citadel using the equity method. The carrying value of the Consolidated Company's investment in Citadel approximated the Consolidated Company's underlying equity in Citadel's net assets, adjusted for the Consolidated Company's percentage interest in the $1,998,000 loan receivable from the Consolidated Company, which is deducted from Citadel's shareholders equity for financial reporting purposes. The closing prices of CHC's Class A Common Stock and Class B Common Stock on the American Stock Exchange at March 31, 2001 were $1.84 and $2.27 per share, respectively. -8- Summarized financial information of Citadel as of March 31, 2001 and December 31, 2000 and for the three months ended March 31, 2001 and 2000 follows (dollars in thousands): Condensed Balance Sheets:
March 31, 2001 December 31, 2000 ------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 8,078 $ 16,010 Receivables 1,908 1,430 Marketable securities 876 493 Investment in unconsolidated affiliates 10,312 10,237 Rental property, net 8,924 9,029 Deferred tax asset, net 1,412 1,568 Property and equipment, net 20,235 10,791 Intangible assets, net 10,625 10,847 Other assets, net 2,750 3,517 ------------------------------------------------------------------------------------------------- Total assets $ 65,120 $ 63,922 ------------------------------------------------------------------------------------------------- Accounts payable and accrued liabilities $ 6,376 $ 8,033 Notes payable 17,683 15,372 Other liabilities 2,517 1,335 Minority interests 61 54 Shareholders' equity 40,481 41,126 Note receivable from stockholder (1,998) (1,998) ------------------------------------------------------------------------------------------------- Total liabilities and equity $ 65,120 $ 63,922 ------------------------------------------------------------------------------------------------- Condensed Statement of Operations: Three Months Ended March 31, 2000 1999 ------------------------------------------------------------------------------------------------- Revenues $ 4,637 $ 602 Operating costs and expenses 5,408 454 ------------------------------------------------------------------------------------------------- Operating (loss) income (771) 148 Non-operating expense (income) 45 (183) ------------------------------------------------------------------------------------------------- (Loss) earnings before taxes and minority interests (816) 331 Income tax expense 49 99 Minority interest 7 1 ------------------------------------------------------------------------------------------------- Net (loss) earnings $ (872) $ 331 ------------------------------------------------------------------------------------------------- Basic and diluted loss per share $ (0.09) $ 0.03 -------------------------------------------------------------------------------------------------
-9- National Auto Credit, Inc. ("NAC") & Angelika Film Center LLC ("AFC") On April 5, 2000, Reading sold a 50% interest in AFC to NAC in exchange for 8,999,900 shares of NAC common stock and 100 shares of NAC preferred stock. As a result of this exchange, Reading de-consolidated the accounts of AFC from those of Reading, with the Reading's remaining 33.3% interest in AFC being accounted for by the equity method from the date of the sale. In November and December 2000, Reading sold all of its shares of NAC common stock and preferred stock to NAC for approximately $14,702,000. Following completion of these transactions, Reading owned no NAC common stock at March 31, 2001 or December 31, 2000. New Zealand Joint Ventures ("NZ JV") During the second quarter of 1998, Reading New Zealand entered into a 50/50 joint venture, with a cinema operator in New Zealand (the "NZ JV"). In connection with the joint venture, Reading had made a loan to the joint venture of $1,200,000 in order to finance a portion of the acquisition price of two multiplex cinemas and the underlying property acquisition and construction costs of a cinema which the joint venture developed. Big 4 Ranch, Inc. ("BRI") In December 1997, Citadel capitalized a wholly-owned subsidiary, BRI, with a cash contribution of $1,200,000 and distributed 100% of the shares of BRI to CHC's common shareholders. The Consolidated Company received 1,564,473 shares or 23.4% of BRI. In September 1998, the Consolidated Company acquired 661,700 additional shares increasing its interest to 2,226,173 shares of common stock of BRI, an ownership interest of approximately 33.4%. The carrying value of the Consolidated Company's interest in BRI was reduced to $0 in 1998. Accordingly, the Consolidated Company did not recognize any share of BRI's net loss since 1998. The Consolidated Company has no obligation to fund BRI's operating losses. Note 3 - Property and Equipment The table below sets forth the Consolidated Company's investment in property and equipment as of the dates indicated:
March 31, December 31, 2001 2000 ------------------------------------------------------------------------- (dollars in thousands) Land $ 2,317 $ 2,598 Buildings 13,243 14,800 Leasehold improvements 15,645 27,244 Equipment 22,099 25,930 Construction-in-progress 14,623 16,193 ------------------------------------------------------------------------- 67,927 86,765 Accumulated depreciation (6,451) (8,059) Provision for asset impairment (14,529) (26,308) ------------------------------------------------------------------------- $ 46,947 $ 52,398 -------------------------------------------------------------------------
-10- The carrying amount of land includes land associated with operating theater properties, and excludes land which has yet to be developed, which amounts are included in "Property held for development" in the Condensed Consolidated Balance Sheets. The Consolidated Company's property and equipment as well as its asset impairment reserve decreased as a result of the sale of four domestic cinemas to Citadel in March 2001 (See Note 9). Note 4 - Income Taxes Craig and Reading file separate consolidated federal and state tax returns. Accordingly, one company's tax benefits from net operating loss and capital loss carryforwards cannot be used to offset the other company's tax liabilities. Income tax expense for the three months ended March 31, 2001 and 2000 includes $207,000 and $218,000, respectively, in current provision for federal, state, and foreign income taxes. Included in these amounts are $207,000 and $210,000 for the three months ended March 31, 2001 and 2000, respectively, in foreign withholding tax expense which will be paid if certain intercompany loans are repaid. Note 5 - Assets Held for Sale Whitehorse Property Group ------------------------- Reading Australia owns a 50% interest in WPG. The ownership is structured as a joint venture with Burstone Victoria Pty Limited ("Burstone") which owns the remaining 50% interest in WPG. WPG owns a shopping center located near Melbourne, Australia (the "Whitehorse Center"). Reading Australia paid $1,400,000 for its interest in WPG. In addition, Reading Australia guaranteed a 50% interest in an existing bank loan in the principal amount of $6,120,000, incurred by WPG in connection with its purchase of the shopping center and secured by a first mortgage on the shopping center ("WPG Loan"), and loaned to the principals of Burstone approximately $1,600,000 to enable these individuals to buy out certain minority interests in Burstone ("Burstone Loan"). The Burstone Loan was due and payable on November 21, 1999 and is guaranteed by Burstone and is secured by the borrower's interest in Burstone and by Burstone's interest in WPG. The Company has taken legal actions against the Burstone's principals to collect this loan which is currently in default. In early 2000, WPG determined to sell its shopping center and commenced marketing the property for sale during the second quarter of 2000. Based upon then estimates of the potential proceeds which could be expected from a sale of the shopping center, and WPG's investment in the property, the Consolidated Company wrote down its investment in WPG by approximately $1,725,000 in the second quarter of 2000 and its remaining investment in WPG of approximately $343,000 was written off in the third quarter of 2000. WPG has not yet been successful in selling the shopping center due to the refusal of Burstone to agree to sell the shopping center at the price currently being offered by a prospective qualified purchaser. On September 28, 2000, WPG was unable to repay the WPG Loan when the same became due. In light of the position taken by Burstone, the Consolidated Company has (1) commenced an action to recover the Burstone Loan; (2) purchased in March 2001 the WPG Loan, and (3) entered into an agreement to -11- sell the shopping center to a potential purchaser (subject to the satisfactory completion of due diligence by that potential purchaser, and the procurement by Reading Australia of its right to sell the shopping center over any ongoing objections by Burstone). WPG's net loss for the three months ended March 31, 2001 and 2000 totaled approximately $347,000 and $155,000, respectively. Reading recognized 100% of such losses in 2000, because it effectively held 100% of WPG due to its security interest in the WPG interest owned by Burstone and in the shares of Burstone owned by the borrowers under the Burstone Loan. In December 2000, however, the Consolidated Company reduced its investment in WPG to zero and accordingly, has since stopped recording WPG's loss. For the three months ended March 31, 2000, WPG's loss was recorded in the Consolidated Statement of Operations as "Equity in (losses) earnings of affiliates." Takanini -------- Takanini, a fifteen-acre site in a suburb of Auckland, was intended to be developed as a cinema and an entertainment center. Development plans for the Takanini site have not matured and the property is under contract to be sold for approximately $2,339,000 (NZ$5,800,000), net of disposal costs, which approximates its book value (See Note 12). Note 6 - Commitments and Contingencies Minimum Lease Payments: ---------------------- The Consolidated Company conducts some of its cinema operations in leased premises. At March 31, 2001, all of the Consolidated Company's Puerto Rico cinemas were operated in leased premises. The Consolidated Company's cinema leases have remaining terms inclusive of options of 10 to 50 years. Certain of the Consolidated Company's cinema leases provide for contingent rentals based upon a specified percentage of theater revenues with a guaranteed minimum. Substantially all of the leases require the payment of property taxes, insurance and other costs applicable to the property. All leases are accounted for as operating leases. The Consolidated Company has no leases which require capitalization. Domestic -------- The Consolidated Company's affiliate, Citadel, as the holder of the $7,000,000 of Series A Preferred Stock, has the right to require redemption of such stock during a ninety-day period commencing October 15, 2001. In addition, at March 31, 2001, Reading is nine quarters in arrears with respect to dividends owed on the Series B Preferred Stock amounting to $8,043,750 payable to Craig. In 1999, the Consolidated Company entered into a lease of a to-be- constructed theatre in Dallas, known as the Angelika Film Center and Cafe Dallas ("Angelika-Dallas"). On September 22, 2000, the Consolidated Company assigned that lease to Citadel and has agreed to reimburse Citadel that portion of its investment in the cinemas needed to produce a 20% return on the investment during the second operating year of that cinema provided that, subject to certain exceptions, Citadel's investment in the theater does not exceed $2,300,000. -12- 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 approximately $3,500,000. Reading presently is 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 ("IRS"). While Reading believes its reporting position in such period to be reasonable and the IRS has not alleged any deficiencies, no assurances can be made that Reading's tax reporting position will be upheld. Australia --------- The Consolidated Company has committed to development expenditures relating to cinema and entertainment development projects (Chirnside and fit-out of Auburn and Belmont) that have been approved for completion of approximately $5,226,000 all of which is expected to be funded in 2001. The Consolidated Company has secured what it believes to be adequate funding from the bank to complete its one pending development project. Under the current terms, this loan is due and payable in full in December 31, 2001. However, as long as the Consolidated Company remains in compliance with the applicable loan covenants, the loan will be extended to December 31, 2002. The Consolidated Company is in compliance with all such covenants at March 31, 2001. The Consolidated Company has also entered into a contract to build one entertainment center which is currently under review by the Consolidated Company. The extent of the Consolidated Company's exposure to the other contracting party if it fails to construct that entertainment center is uncertain. However, the Consolidated Company believes that its exposure for damage would not be material, were it to elect not to proceed with such construction. There are no other development commitments in Australia. New Zealand ----------- The Consolidated Company has succeeded in acquiring additional financing to fund its development obligations in Wellington which commenced in December 2000. The Consolidated Company also has a $2,800,000 property purchase mortgage on its Takanini property due in 2001, which will be repaid from the proceeds of its sale (See Notes 9 and 12). Note 7 - Other Comprehensive Loss The table below sets forth the Consolidated Company's comprehensive (loss) income (the Consolidated Company's net loss plus the effect of the foreign currency translation adjustments) for the periods shown.
Three Months Ended March 31, ---------------------------- 2001 2000 --------------------------------------------------------------------- Net loss $(1,427) $(2,026) Other comprehensive loss (7,538) (5,518) Other comprehensive income (loss) from equity investment in Citadel 110 (42) --------------------------------------------------------------------- Comprehensive loss $(8,855) $(7,586) ---------------------------------------------------------------------
-13- As a result of the Consolidated Company equity investment in Citadel, the Consolidated Company recorded 48.3% and 32.4% of other comprehensive income (loss) recorded by Citadel for the three months ended March 31, 2001 and 2000, respectively. Citadel's other comprehensive income (loss) is comprised of unrealized gain/(loss) on available-for-sale securities. Note 8 - Parent Company Condensed Financial Statements As described in Note 1, the accompanying consolidated financial statements include the accounts of Craig and its majority owned subsidiaries. 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. The tables below set forth condensed financial information for Craig and its wholly owned subsidiaries for the periods indicated (dollars in thousands).
March 31, December 31, Condensed Balance Sheets 2001 2000 ----------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 1,146 $ 29 Other current assets 564 1,849 ----------------------------------------------------------------------------------------- Total current assets 1,710 1,878 Investment in Common Stock of Reading 22,407 28,747 Investment in Preferred Stock of Reading 55,000 55,000 Property and equipment, net 606 632 Investment in Citadel 4,044 4,382 Other assets 51 53 Excess of cost over net assets acquired 1,000 1,021 ----------------------------------------------------------------------------------------- Total assets 84,818 91,713 ----------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses 615 607 Note payable to Citadel, current 1,998 1,998 Deferred tax liabilities 30,410 30,410 Stockholders' equity 51,795 58,698 --------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $84,818 $91,713 ---------------------------------------------------------------------------------------
-14-
Three Months Ended March 31, ------------------------- Condensed Statements of Operations 2001 2000 --------------------------------------------------------------------------- (dollars in thousands) Revenues Loss from Reading investment $(1,092) $(1,608) (Loss) earnings from Citadel investment (110) 20 Interest income -- 21 --------------------------------------------------------------------------- (1,202) (1,567) --------------------------------------------------------------------------- Expenses General and administrative expense 135 328 Depreciation and amortization 47 45 Interest expense 43 86 --------------------------------------------------------------------------- 225 459 --------------------------------------------------------------------------- Loss before income taxes (1,427) (2,026) Income taxes -- -- --------------------------------------------------------------------------- Net loss $(1,427) $(2,026) ---------------------------------------------------------------------------
Three Months Ended March 31, -------------------------- Condensed Statements of Cash Flows 2001 2000 --------------------------------------------------------------------------------------------------- (dollars in thousands) Operating Activities Net loss $(1,427) $(2,026) Depreciation and amortization 47 45 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Undistributed borrowings of equity affiliates 1,202 1,589 Decrease in affiliate receivables 1,316 -- Other (21) (288) -------------------------------------------------------------------------------------------------- Net cash provided by used in operating activities 1,117 (680) -------------------------------------------------------------------------------------------------- Investing Activities Acquisition of Citadel stock -- (31) Purchase of equipment -- (24) -------------------------------------------------------------------------------------------------- Net cash used in investing activities -- (55) -------------------------------------------------------------------------------------------------- Financing Activities Repurchase of common stock -- (363) -------------------------------------------------------------------------------------------------- Net cash used in financing activities -- (363) -------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 1,117 (1,098) Cash and cash equivalents at beginning of period 29 1,801 -------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1,146 $ 703 --------------------------------------------------------------------------------------------------
-15- Note 9 - Purchase and Sale of Assets Australia --------- On April 10, 2001, Reading Australia entered into an agreement to purchase the land, property and operating rights to the Maitland Cinema complex located in New South Wales, Australia, for approximately $1,700,000. Reading Australia is anticipated to take over operations of the Maitland cinema complex in mid May 2001. Domestic -------- On March 8, 2001, the Consolidated Company sold to Citadel the Consolidated Company's leasehold interests in four domestic cinemas for approximately $1,706,000, its approximate book basis (net of its asset impairment reserve relating to these cinemas totaling approximately $11,779,000). In addition, Citadel has assumed the liabilities of these cinemas and the Consolidated Company, in exchange, has agreed to reimburse Citadel approximately $1,162,000 representing the difference between the liabilities assumed and the amount of inventory, prepaid expenses and other current assets on the balance sheet as of the closing date. New Zealand: ----------- During 1998, Reading New Zealand Limited entered into two 50/50 joint ventures, one of which currently operates thirteen screens in three locations. The second joint venture owned a parcel of land in Wellington on which the Consolidated Company has now begun construction of an entertainment center featuring a 12 screen multiplex cinema. In July 1999, Reading New Zealand acquired 100% ownership of the Wellington property. In 1998, Reading New Zealand acquired ownership of (1) a property adjacent to the Wellington development site; (2) a multi-story parking garage, also located adjacent to the Wellington development site, and (3) a fifteen-acre site in a suburb of Auckland on which it intended to develop a cinema and an entertainment center ("Takanini"). Development plans for the Takanini site have not matured, and the property is under contract to be sold for approximately $2,339,000 (NZ$5,800,000), net of disposal costs (See Note 12), which approximates its book value. Note 10 - Segment Information The following sets forth certain information concerning the Consolidated Company's two segments, real estate development and cinema operations, for the three months ended March 31 (dollars in thousands):
Real Estate Cinema Corporate and Development Operations Eliminations Consolidated --------------------------------------------------------------------------------------------------- 2001 --------------------------------------------------------------------------------------------------- Revenues $ 134 $10,206 $ 53 $10,393 Operating (loss) income (795) 238 (708) (1,265) --------------------------------------------------------------------------------------------------- 2000 --------------------------------------------------------------------------------------------------- Revenues $ 139 $11,030 $ 52 $11,221 Operating (loss) income (637) 1 (1,594) (2,230)
-16- Note 11 - Proposed Consolidation of the Companies On March 15, 2001, the Boards of Directors of each of Reading, Craig and Citadel considered management's proposal to consolidate Reading, Craig and Citadel into a single public company and determined that it would be in the best interests of their respective companies and stockholders to consummate such a consolidation transaction, so long as the allocation of ownership of the resultant consolidated entity among the equity holders of the constituent entities was fair. However, in light of the overlapping management and membership of the Boards of Directors of each companies, and Mr. Cotter's status as a controlling stockholder of each of the three companies, it was determined to be appropriate to delegate management's proposal to the Conflicts Committees of the three companies. Accordingly, the Boards of Directors of each of the three companies delegated to their respective Conflict Committees authority and responsibility to review and take such action as they determined appropriate with respect to management's consolidation proposal, and authorized such committees to retain such professional advisors as they may require to carry out such delegated authority. These committees are composed entirely of independent outside directors. The Committees hired Marshall & Stevens to serve as the financial advisors and to assist them in determining a fair allocation of the ownership of the consolidated company. It is hoped that these committees will complete their work by the end of the second quarter of 2001. Note 12 - Subsequent Events Sale of Takanini On May 1, 2001, the sale of Takanini closed for $2,339,000. -17- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Craig Corporation (Craig and collectively with its wholly owned subsidiaries and corporate predecessors, the "Company") is in the business of identifying, acquiring, owning and strategically managing controlling interests in other operating companies. At March 31, 2001, the Company held (1) common stock of Reading Entertainment, Inc. ("REI" and collectively with its consolidated subsidiaries and corporate predecessors, "Reading") and REI Series B Preferred Stock representing approximately 78% of the voting power of that company; (2) 876,885 and 230,521 shares of Class A Non-voting Common Stock and Class B Voting Common Stock representing approximately 11.0% and 11.6% of such classes of common stock of Citadel Holding Corporation ("CHC" and collectively with its wholly-owned subsidiaries and corporate predecessors, "Citadel"), respectively; and (3) 1,107,406, representing approximately 16.4% of the common stock 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 Reading. The Consolidated Company currently owns approximately 33% of the common stock of CHC and approximately 50% of the common stock of BRI. Reading is principally engaged in the business of developing, owning and operating multiplex theaters in Australia, New Zealand and Puerto Rico, and in developing and eventually operating theater based entertainment centers in Australia and New Zealand. Prior to March 2001, the Company was also engaged in the business of developing, owning and operating cinemas in the United States. In transactions in September 2000 and March 2001, the Company conveyed to Citadel all of its domestic cinema interests other than a 33.3% passive membership interest in Angelika Film Center LLC ("AFC"). During the past several years, the Consolidated Company has been actively engaged in the construction of state-of-the art multiplexes, principally located in Australia. Certain of the Consolidated Company's properties also include a non-cinema retail component. Though certain Australia-based cinemas commenced operation prior to 1999, a substantial majority of the Consolidated Company's current Australia-based cinemas have been in operation for less than two years. The table below summarizes the number of cinema screens in operation as of each of the dates indicated.
Australia/ New Zealand Puerto Rico Domestic Total ----------------------------------------------------------------------------- March 31, 1999 21 44 22 87 March 31, 2000 63 56 42 161 March 31, 2001 81 52 -- 133
In the preceding table, (1) the increase in the number of cinema screens in Australia and New Zealand is wholly comprised of newly-constructed multiplexes; (2) the increase in the number of cinema screens in Puerto Rico from 1999 to 2000 is represented by a newly-constructed, 12-screen multiplex that opened in December 1999; and (3) the decrease in the number of domestic screens was a result of the deconsolidation of AFC (6 screens) in April 2000 following the sale of a 50% interest to National Auto Credit, Inc. ("NAC"), closure of an 8- screen cinema in June 2000, and the sale of four cinemas with 28-screens to Citadel in March 2001. (The number of Australia/New Zealand cinema screens at March 31, 2001 presented above does not include the 4-screen cinema purchased in early April 2001.) -18- Results of Operations The following tables and narrative set forth and discuss the results of operations for the three months ended March 31, 2001 and 2000 ("2001 Quarter" and "2000 Quarter", respectively). In the tables below, (1) revenues consist of admissions, concessions, advertising and real estate; (2) operating costs consist of costs directly attributable to the theater or real estate operations, (3) operating expenses consist of depreciation, amortization and general and administrative expenses; and (4) non-operating expense include all other expense and revenues. The revenues and expenses generated by the Company's Australian and New Zealand operations have been translated at the average exchange rates for each period presented and all intercompany transactions have been eliminated (dollars in thousands).
Three Months Ended March 31 --------------------------------- AUS/NZ Puerto Rico Domestic 2001 Quater Theaters Theaters Theaters Corporate Total ----------------------------------------------------------------------------------------------------- Revenues $5,842 $2,848 $1,651 $ 52 $10,393 Operating costs 3,987 3,262 1,527 -- 8,776 Operating expenses 1,481 276 50 1,075 2,882 Non-operating expenses 154 9 (6) 114 271 ----------------------------------------------------------------------------------------------------- Earnings (loss) before minority interest and income taxes $ 220 $ (699) $ 80 $(1,137) $(1,536) ----------------------------------------------------------------------------------------------------- 2000 Quarter ---------------------------------------------------------------------------------------------------- Revenues $4,494 $3,203 $3,472 $ 52 $11,221 Operating costs 3,656 3,137 2,961 -- 9,754 Operating expenses 1,378 245 430 1,644 3,697 Non-operating expenses 62 -- (22) 68 108 ---------------------------------------------------------------------------------------------------- Earnings (loss) before minority interest and income taxes $ (602) $ (179) $ 103 $(1,660) $(2,338) ----------------------------------------------------------------------------------------------------
Revenues The fluctuations noted in theater revenues generally resulted from a corresponding increase or decrease in the number of screens in operation during the 2001 Quarter as compared with the 2000 Quarter. The decline in revenues from the 2000 Quarter to the 2001 Quarter of approximately $828,000 was due to the following: . A $1,821,000 decrease in domestic theater revenues due to (1) a $1,436,000 decrease from the deconsolidation of AFC following the sale of 50% membership interest to NAC on April 5, 2000, (2) a $158,000 decrease in domestic theater revenues due to the closure of a 8-screen cinema in June 2000, and (3) that only 9 weeks of operations were reported for four cinemas in the 2001 Quarter as compared to 12 weeks of operations in the 2000 Quarter as these cinemas were sold to Citadel on March 8, 2001. -19- . A $1,348,000 increase in Australian/New Zealand theater revenues from the 18 new screens that have opened since the 2000 Quarter. . A $355,000 decrease in Puerto Rico's theater revenues due to (1) the closure of a 4-screen cinema in January 2001 and (2) increased competition, especially in the Plaza Las Americas in San Juan. Operating costs Operating costs include costs associated with the day-to-day management of the theater operations. Significant components of the operating costs such as film rent payable, concession costs, and employee costs fluctuate in line with the revenues and accordingly decreased approximately $978,000 from the 2000 Quarter due to the following: . Approximately $1,198,000 of the $1,434,000 decrease in the domestic operating costs is attributable to the deconsolidation of AFC and closure of an 8-screen theater in 2000 as discussed above. The remaining decrease is due to (1) only 9 weeks of operations of the four cinemas being included in the 2001 Quarter as discussed above, and (2) a decrease in overall operating costs as a result of implemented cost-saving measures. . Australian/New Zealand operating costs increased approximately $331,000 from the 2000 Quarter. This increase is due to 18 additional screens that opened since the 2000 Quarter, partially offset by a decrease in start-up costs as a majority of such start-up costs were incurred in 2000. . Puerto Rico's operating costs increased $125,000 from the 2000 Quarter due to significant increases in common area maintenance charges passed down from the landlords of the Plaza Las Americas and Plaza Carolina and a 20% increase in insurance premiums from the 2000 Quarter. Operating expenses Operating expenses include depreciation, amortization and general and administrative expenses. The items below represent the more significant contributors to changes in the operating expenses between the 2001 and 2000 Quarters: . The primary driver of the $380,000 decrease in the Domestic theaters' operating expense was (1) the $347,000 decrease in depreciation expense from the 2000 Quarter following the AFC deconsolidation in April 2000 and (2) the decrease in deprecation expense as a result of the impairment loss taken on the domestic cinemas assets in December 2000. . Australia/New Zealand's operating expenses increased $103,000 from the 2000 Quarter as a result of a $108,000 increase in depreciation from the new cinemas that have opened since the 2000 Quarter, partially offset by a minor decrease in its general and administrative expenses. -20- . Corporate operating expense decreased $569,000 from the 2000 Quarter as a result of Craig's consolidation of corporate functions with Reading and Citadel under a management sharing agreement, which is discussed in greater detail in the Consolidated Company's report on Form 10-K for the year ended December 31, 2000. Non-operating expense The Consolidated Company's non-operating expense (income) is comprised of interest and dividend income, equity in earnings/loss of unconsolidated entities, interest expense, and miscellaneous other income or expense. Corporate interest and dividend income and other income are presented net of intercompany transactions with the Puerto Rico and Australia/New Zealand subsidiaries. Overall, non-operating expense increased $163,000 due to increased interest expense from the 2000 Quarter. Business Plan, Capital Resources and Liquidity Since December 31, 1998, the Consolidated Company's cash and cash equivalents have decreased from approximately $63,314,000, to approximately $5,975,000 at March 31, 2001. During this period the Consolidated Company has utilized its available liquidity to (1) acquire land in Australia and New Zealand for the purpose of constructing state-of-the-art cinemas, or entertainment centers, thereon; (2) fit out newly-constructed cinema space in Australia, with respect to which the Consolidated Company is a tenant under long-term leases; and (3) construct state-of-the-art cinemas on leased land in the United States (one location) and in Puerto Rico (one location). Each of the complexes completed and opened since 1998 has been financed solely with the Consolidated Company's liquidity, except for one project located in Australia and one in Puerto Rico. (The funds borrowed for the Puerto Rico construction project were fully paid off in the first quarter of 2001). In addition to its investments in now-operating cinemas, at March 31, 2001, the Consolidated Company had a recorded investment of $22,845,000 (at current exchange rates) in various land parcels, located in Australia and New Zealand, each of which is intended for future development. Each of these investments in undeveloped land has also been financed with Consolidated Company's liquidity. During Fiscal 2000, the Consolidated Company determined that it would concentrate its available resources on developing and operating its Australian and New Zealand cinema circuits which the Consolidated Company's management believes to be more favorably positioned for potential growth and expansion than the domestic or Puerto Rico circuits. Concurrently, the Consolidated Company decided that it would exit out of the domestic cinema market. Through a serious of transactions in April and September 2000 and March 2001, the Consolidated Company has divested all of its domestic cinema assets except for a passive 33% membership interest in the Angelika Film Center ("AFC") at March 31, 2001. In addition, the Consolidated Company is looking to exit out of Puerto Rico if a suitable buyer can be found for its cinemas. The Consolidated Company has various commitments, which, in the aggregate, exceed its current liquidity. However, as discussed in greater detail in the Consolidated Company's report on Form 10-K for the year ended December 31, 2000, the Company received approximately $14,702,000 in cash from its sale of a portion of its investment in NAC common stock to NAC in November and December 2000. A significant portion of the cash proceeds from the sale of the NAC stock has been used to acquire the bank loan on the Whitehorse property which is currently being marketed for sale. The Consolidated -21- Company expects to fully recover the loan amount upon sale of the Whitehorse property. The Consolidated Company is actively negotiating with an Australian bank lender to finance a portion of the purchase price of the Maitland cinemas complex. No assurances can be given that management will be successful in obtaining the financing for the Maitland property. In addition to this cash infusion from the NAC transaction, the Consolidated Company has obtained a line-of-credit with a major bank which provides for borrowings of up to AUS$30,000,000 for the construction of an entertainment center and two cinemas in Sydney ("Australian Line of Credit"). The Australian Line of Credit is secured by a pledge of substantially all of Reading Australia's assets and requires Reading Australia to maintain various financial covenants, restricts dividends and limits additional borrowings. Also, Reading New Zealand entered into a loan agreement with a major New Zealand bank for borrowings up to NZ$30,400,000 for the purpose of the construction of the Wellington development and for the refinancing of the loan on the Wellington site. The loan is secured by a mortgage over the Wellington properties and pledge of the assets of Reading New Zealand and its subsidiaries associated with the Wellington project. While no assurances can be given, the Consolidated Company believes that it will be able to complete its development commitments for the year 2001 with funds from the Australian and New Zealand credit facilities and cash flow generated from operations. (These development commitments mostly consist of the Consolidated Company's build-out of certain tenant improvements in Auburn and Perth, Australia and fit out of Chirnside). The Australian Line of Credit, which had an original maturity date of December 2000, has been extended to December 2001. The Consolidated Company anticipates the loan to be extended again to December 2002 as long as Reading remains in compliance with the debt covenants. At March 31, 2001, Reading was in compliance with all such covenants. With respect to the Series A Voting Preferred Stock held by Citadel, the Consolidated Company intends to commence discussions over the coming months with Citadel, to explore its options with respect to Citadel's option to require the Consolidated Company to repurchase its Series A preferred shares (the "Repurchase Option"), though no assurance can be given that these discussions will result in an extension or deferral of Citadel's Repurchase Option. With respect to the Series B Voting Preferred Stock held by Craig, Craig intends generally to allow dividends thereon to accumulate indefinitely. In addition to the foregoing, the Consolidated Company owns several land parcels located in Australia which have yet to be developed. As part of its annual planning process, management intends to assess whether these properties can be economically developed, either independently or through joint ventures, or whether one or more of these properties should be marketed for sale, though at present, the Consolidated Company has no intentions of marketing any of these properties. At March 31, 2001, Craig had cash and cash equivalents of $1,146,000. Reading is majority owned by Craig, and accordingly, is included in the consolidated financial statements. However, 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. In 2000, the administrative offices of Reading were moved to Los Angeles, in space adjacent to the current executive offices of the Company and Citadel, and the general and administrative functions and staffs of the three companies were consolidated and substantially all of the general and administrative employees of the three companies were moved to the Craig payroll. The costs of these employees, as well as general and administrative expenses such as executive office space rent, are now -22- allocated among the various members of the Craig Group of Companies based upon the relative amounts of time spent by these employees on the business of such companies. These allocations are made in the first instance by management and are reviewed periodically by the Conflict Committees of the Boards of Directors of Craig, Reading and Citadel. As a result of this management agreement with Reading and Citadel, (1) Craig's general and administrative expenses have decreased significantly from prior years as a majority of the general and administrative costs are allocated to Reading and Citadel, and (2) Craig's liquidity became dependent on the reimbursements of allocated costs from Reading and Citadel and on Reading's ability to pay dividends on the Series B Voting Preferred Stock held by Craig amounting to approximately $3,575,000 annually. For now, the Consolidated Company intends to allow dividends with respect to the Series B Voting Preferred Stock held by Craig to accumulate indefinitely. At March 31, 2001, the accrued amount was $8,043,750. While not anticipated, Craig could achieve further liquidity through the sale of shares of Citadel and/or Reading. Forward-Looking Statements From time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing, including those contained herein. Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission. The words or phrases "anticipates," "expects," "will continue," "estimates," "projects," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The results contemplated by the Company's forward-looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to vary materially from anticipated results, including without limitation, delays in obtaining leases and permits for new multiplex locations, construction risks and delays, the lack of strong film product, the impact of competition, market and other risks associated with the Company's investment activities and other factors described herein. -23- 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, 2000. Item 2 - Change in Securities Not applicable. Item 3 - Defaults Upon Senior Securities Not applicable. Item 4 - Submission of Matters to a Vote of Security Holders. Not applicable. Item 5 - Other Information Not applicable. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K Form 8-K, describing the Company's capital stock, was filed with the Securities and Exchange Commission as of January 12, 2001 and is incorporated herein by reference. -24- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CRAIG CORPORATION REGISTRANT ---------------------------- Date: May 15, 2001 By: /s/ James J. Cotter ------------------- James J. Cotter Chief Executive Officer Date: May 15, 2001 By: /s/ Andrzej J. Matyczynski -------------------------- Andrzej J. Matyczynski Chief Financial Officer -25-