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, 1996 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 October 25, 1996, 4,247,731 shares of Trimark Holdings, Inc. common stock
were outstanding, excluding shares held by Trimark Holdings, Inc. as treasury
stock.
1
Exhibit Index: Page 15
TRIMARK HOLDINGS, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 1996 3
and June 30, 1996
Consolidated Statements of Operations - Three 4
months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows - Three 5
months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of 8-12
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
2
TRIMARK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in Thousands, Except Share Data)
September 30, June 30,
Assets 1996 1996
------ ------------- ------------
(Unaudited)
Cash and cash equivalents $ 688 $ 344
Accounts receivable, less allowances of
$4,985 and $4,269, respectively 13,624 12,457
Film costs, net (Note 2) 32,213 29,853
Deferred marketing costs 1,269 1,524
Inventories, net 427 624
Property and equipment at cost, less accumulated
depreciation of $1,893 and $1,749, respectively 461 604
Other assets 2,972 2,995
---------- ----------
$ 51,654 $ 48,401
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
------------------------------------
Debt $ 19,000 $ 15,000
Accounts payable and accrued expenses 2,295 2,191
Minimum guarantees and royalties payable 3,820 4,639
Deferred income 1,909 2,144
Income taxes payable 216 77
---------- ----------
Total liabilities 27,240 24,051
---------- ----------
Commitments and contingencies (Note 4) -- --
---------- ----------
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares; 5,064,581 shares issued
at September 30, 1996 and 5,064,581 shares
issued at June 30, 1996 5 5
Additional paid in capital 15,385 15,385
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued and
outstanding -- --
Retained earnings 12,901 12,683
Less treasury shares, at cost - 816,850 shares
and 789,850 shares (3,877) (3,723)
---------- ----------
Stockholders' equity 24,414 24,350
---------- ----------
$ 51,654 $ 48,401
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements
3
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Amounts in Thousands, Except Earnings Per Share)
Three Months Ended
September 30,
-------------------------
1996 1995
---------- ----------
(Unaudited)
Net revenues (Note 3) $ 14,215 $ 16,067
Film costs and distribution expenses 10,928 12,624
---------- ----------
Gross profit 3,287 3,443
---------- ----------
Operating expenses:
Selling 1,484 1,443
General and administrative 1,144 1,340
Bad debt 101 312
---------- ----------
2,729 3,095
---------- ----------
Operating earnings 558 348
Other (income) expenses:
Interest expense 213 271
Interest and investment income (12) (22)
Minority interest -- (37)
---------- ----------
201 212
---------- ----------
Earnings before income taxes 357 136
Income taxes 139 54
---------- ----------
Net earnings $ 218 $ 82
---------- ----------
---------- ----------
Net earnings per common share $ 0.05 $ 0.02
---------- ----------
---------- ----------
Average common and common equivalent shares
outstanding used in computation above 4,296 4,440
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements
4
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollars in Thousands)
Three Months Ended
September 30,
------------------------
1996 1995
--------- --------
(Unaudited)
Operating activities:
Net earnings $ 218 $ 82
Adjustments to reconcile net earnings to
net cash used by operating activities:
Film amortization 6,333 7,994
Depreciation and other amortization 144 83
Provision for returns 615 571
Provision for bad debt 101 320
Provision for inventory obsolescence 37 (51)
Minority interest in net earnings -- (37)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,883) 4,057
Additions to film costs (8,693) (16,035)
Decrease in deferred marketing costs 255 258
Decrease in inventories 160 34
Decrease in other assets 23 705
Increase (decrease) in accounts payable and
accrued expenses 104 (66)
(Decrease) increase in minimum guarantees and
royalties payable (819) 1,951
Increase (decrease) in income taxes payable 139 (96)
Decrease in deferred income (235) (314)
---------- ----------
Net cash used by operating activities (3,501) (544)
---------- ----------
Investing activities:
Acquisition of property and equipment (1) (75)
---------- ----------
Net cash used by investing activities (1) (75)
---------- ----------
Financing activities:
Net increase in debt 4,000 --
Exercise of stock options -- 2
Purchase of treasury stock (154) (170)
---------- ----------
Net cash provided (used) by financing activities 3,846 (168)
---------- ----------
Increase (decrease) in cash and cash equivalents 344 (787)
Cash and cash equivalents at beginning of period 344 1,735
---------- ----------
Cash and cash equivalents at end of period $ 688 $ 948
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements
5
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, 1996. Significant accounting policies used by the Company are
summarized in Note (2) to the June 30, 1996 financial statements.
In the opinion of management, all adjustments required for a fair presentation
of the financial position as of September 30, 1996 and the results of operations
and cash flows for the periods ended September 30, 1996 and September 30, 1995
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:
September 30, June 30,
1996 1996
------------ ------------
(in thousands)
Released $ 14,814 $ 17,766
Completed not released 7,078 3,065
In process and development 10,321 9,022
------------ ------------
$ 32,213 $ 29,853
------------ ------------
------------ ------------
6
NOTE 3 - NET REVENUES:
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Domestic:
Home video distribution $ 10,371 $ 8,216
Theatrical distribution 16 --
Television distribution 1,373 985
Foreign:
All media 1,549 6,856
Interactive:
All media 906 10
------------ ------------
$ 14,215 $ 16,067
------------ ------------
------------ ------------
NOTE 4 - COMMITMENTS & CONTINGENCIES:
The Company has entered into certain agreements which provide for royalty
advances and promotional and advertising commitments totaling $34.3 million. If
the conditions to these agreements are not met by the licensors, the Company may
withdraw from the arrangements. These commitments extend to May 1997.
NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the three month period for:
September 30,
1996 1995
------------ ------------
(in thousands)
Interest $ 151 $ 333
Income taxes 125 286
7
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, 1996 decreased
$1.9 million or 11.5% compared with the quarter ended September 30, 1995. The
decrease for the quarter was primarily due to decreases in net revenues from
foreign distribution of $5.3 million partially offset by increases of $2.2
million from domestic home video. In the first three months of fiscal 1997, one
(1) motion picture, Leprechaun 4, was initially released into the foreign
market compared with three (3) motion pictures released in the same time period
in fiscal 1996.
Primarily as a result of continuing competition in the domestic home video
market, the Company is focusing its resources on distributing an increased
number of films with theatrical potential (both mainstream and specialized) and
decreasing the releases of straight-to-video films. The initial slate of
theatrical films are scheduled to begin release in January 1997.
GROSS PROFITS: The Company's gross profits for the quarter ended September 30,
1996 decreased $156,000 or 4.5% compared with the quarter ended September 30,
1995, primarily due to the decrease in net revenues. Gross profits as a
percentage of net revenues, however, increased to 23% from 21% for the quarter
ended September 30, 1996 compared with the prior year quarter. The Company
anticipates that the domestic home video market will continue to be extremely
competitive.
SELLING EXPENSES: The Company's selling expenses for the quarter ended
September 30, 1996 increased $41,000 or 3% compared with the quarter ended
September 30, 1995. The marginal increase reflects the Company's efforts to
control overhead costs. This expense category, however, is expected to increase
in future periods as the Company initiates marketing and distribution of its
upcoming domestic theatrical slate. See "Liquidity and Capital Resources" for
further discussion of the Company's upcoming theatrical releases. Selling
expenses as a percentage of net revenues for the quarters ended September 30,
1996 and 1995 were 10% and 9%, respectively.
8
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the quarter ended September 30, 1996 decreased $196,000 or 15% compared with the
quarter ended September 30, 1995. The decrease was primarily due to layoffs
made in January 1996.
BAD DEBT EXPENSE: Bad debt expense decreased $211,000 or 68% for the quarter
ended September 30, 1996, compared with the quarter ended September 30, 1995.
The decrease was primarily due to additional reserves recorded for certain
domestic video receivables in the three months ended September 30, 1995 without
any similar reserves taken in the three months ended September 30, 1996.
INTEREST EXPENSE: Interest expense decreased $58,000 or 21% for the quarter
ended September 30, 1996 compared with the quarter ended September 30, 1995.
The decrease in interest expense was due to lower levels of borrowing under the
credit facility for purposes of funding the costs associated with acquiring and
distributing motion pictures. As of September 30, 1996, there was $19 million
outstanding under the bank facility. See "Liquidity and Capital Resources."
INTEREST AND INVESTMENT INCOME: Interest and investment income decreased
$10,000 or 45.5% for the quarter ended September 30, 1996 compared with the
quarter ended September 30, 1995. The decrease is primarily due to interest
income from federal tax returns received in the period ended September 30, 1995
without any comparable interest income in the period ended September 30, 1996.
NET EARNINGS: Net earnings increased $136,000 or 166% for the quarter ended
September 30, 1996 compared with the quarter ended September 30, 1995. The
increase for the quarter was primarily due to higher gross profit margins and
decreased general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended September 30, 1996, the Company generated negative
cash flow from operations primarily as a
9
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
result of increased film inventory expenditures related to the Company's build
up of its theatrical film slate and increased accounts receivable due to the
timing of domestic video releases. In addition, the Company increased its bank
borrowings by $4.0 million at September 30, 1996. The Company's cash
requirements vary with the size and timing of delivery and minimum guarantee
payments along with the timing of its home video, theatrical, television,
international and interactive releases. In the three months ended September 30,
1996 the principal sources of funds have been provided by cash flow from
operations and availability of the Company's credit line.
The Company's principal operating subsidiaries, Trimark Pictures, Inc. and
Trimark Television, Inc., have a $25 million revolving credit facility with Bank
of America NT & SA and Westdeustche Landesbank which expires November 1, 1996.
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 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 .75%
above Bank of America's prime rate or 2.25% above Bank of America's offshore
dollar interbank rate for the loan term specified. An unused commitment fee is
payable on the average unused availability under the credit facility, at the
rate of .3125% per annum. As of September 30, 1996 there was $19 million
outstanding under the bank facility. The Company has entered into a commitment
with The Chase Manhattan Bank to agent and arrange a $75 million syndicated
revolving credit agreement. The Company believes the $75 million credit
facility will provide sources of cash sufficient to maintain and expand its
level of operations in accordance with the anticipated release schedule, as
described below, and will be closed before January 1997. Consummation of the
facility is subject to customary closing conditions, including satisfactory
syndication arrangements. The Company believes the expiration date of its
current credit facility will be extended until the new facility is in place.
10
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, the Company plans to distribute approximately six (6) films
in the domestic theatrical market, to release approximately 30 motion pictures
into the domestic home video market, and to expand distribution in the sell-
through market.
The Company has entered into certain contingent contractual obligations which
provide for guaranteed royalty advances and print and advertising commitments of
approximately $34.3 million at September 30, 1996.
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 of September 30, 1996, the Company had expended a total of $5.5 million in
Trimark Interactive, its 90% owned subsidiary.
Management of the Company is conducting an ongoing strategic review of Trimark
Interactive and has retained the financial advisory firm of Cruttenden Roth,
Inc. to assist it in such review. The strategic review includes discussions
with third parties regarding the merger or sale of all or part of Trimark
Interactive. There can be no assurance that any such transaction will occur or
as to the impact of such transaction on the Company's business
On December 6, 1994, the Company announced a stock repurchase program pursuant
to which it could buy up to $1,250,000 of its outstanding Common Stock in the
open market. During the three months ended September 30, 1996, the Company
purchased 27,000 shares for approximately $154,000 under the repurchase program.
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
11
ITEM 2: (CONTINUED)
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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: General economic and business
conditions, which will, among other things, impact demand for the Company's
products; changes in public tastes, industry trends and demographic changes,
which may influence the distribution and exhibition of films in certain areas;
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; new methods of
distributing motion pictures; and other factors referenced in this Form 10-Q and
the Form 10K filed for the year ended June 30, 1996.
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No Description
- ---------- ----------------------------------------------------------------
10.13 1990 Stock Option and Stock Appreciation Rights Plan of the
Registrant, as amended to date.
10.32 Directors' Stock Option Plan of the Registrant as amended to date.
10.62 Non-Qualified Stock Option Agreement dated July 2, 1996, by and
between the Registrant and Timothy Swain.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
13
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
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer
and authorized to sign on
behalf of the Registrant)
Date: November 1, 1996
----------------
14
INDEX TO EXHIBITS
Exhibit No Description Method of Filing
- ---------- --------------------------------- ----------------
10.13 1990 Stock Option and Stock filed herewith
Appreciation Rights Plan of the electronically
Registrant, as amended to date.
10.32 Directors' Stock Option Plan of filed herewith
the Registrant as amended to date. electronically
10.62 Non-Qualified Stock Option filed herewith
Agreement dated July 2, 1996, by electronically
and between the Registrant and
Timothy Swain.
27 Financial Data Schedule. filed herewith
electronically
15