SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission file number: 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 May 11, 1998, 4,182,627 shares of Trimark Holdings, Inc. common stock were
outstanding, excluding shares held by Trimark Holdings, Inc. as treasury
stock.
1
TRIMARK HOLDINGS, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1998
and June 30, 1997 3
Consolidated Statements of Operations - Nine
months and three months ended March 31, 1998
and 1997 4
Consolidated Statements of Cash Flows - Nine
months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-17
Item 3. Quantitative and Qualitative not
Disclosures about Market Risk applicable
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
2
TRIMARK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
----------------------------------------
(Dollars in Thousands, Except Share Data)
March 31, June 30,
Assets 1998 1997
---------- ----------- ----------
(Unaudited)
Cash and cash equivalents $ 1,993 $ 3,665
Accounts receivable, less allowances of
$6,058 and $4,010, respectively 24,713 23,124
Film costs, net (Note 2) 62,061 57,293
Deferred marketing costs 1,944 1,696
Inventories, net 898 650
Property and equipment at cost, less accumulated
depreciation of $2,325 and $2,049, respectively 790 808
Due from officers 981 662
Other assets 2,309 2,325
------- -------
$95,689 $90,223
======= =======
Liabilities and Stockholders' Equity
----------------------------------------
Revolving line of credit $61,750 $57,700
Accounts payable and accrued expenses 10,869 7,575
Minimum guarantees and royalties payable 5,813 3,391
Deferred income 1,266 1,283
Income taxes payable 43 65
------- -------
Total liabilities 79,741 70,014
------- -------
Commitments and contingencies (Note 3) -- --
------- -------
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares; 5,134,827 shares issued
at March 31, 1998 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 4,785 9,160
Less treasury shares, at cost - 952,200 shares
and 952,200 shares (4,430) (4,430)
------- -------
Stockholders' equity 15,948 20,209
------- -------
$95,689 $90,223
======= =======
See accompanying notes to consolidated financial statements
3
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------------
(Amounts in Thousands, Except (Loss) Earnings Per Common Share)
Nine Months Ended Three Months Ended
March 31, March 31,
----------------------- ---------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
(Unaudited)
Net revenues $62,163 $44,127 $24,618 $13,632
Film costs and distribution expenses 53,200 36,834 19,284 9,952
------- ------- ------- -------
Gross profit 8,963 7,293 5,334 3,680
------- ------- ------- -------
Operating expenses:
Selling 5,536 5,043 2,005 1,824
General and administrative 3,660 3,285 1,193 1,158
Bad debt 1,000 295 852 72
------- ------- ------- -------
10,196 8,623 4,050 3,054
------- ------- ------- -------
Operating (loss) earnings (1,233) (1,330) 1,284 626
Other (income) expenses:
Interest expense 3,257 1,122 1,166 555
Interest and investment income (115) (62) (35) (13)
------- ------- ------- -------
3,142 1,060 1,131 542
------- ------- ------- -------
(Loss) earnings before income taxes (4,375) (2,390) 153 84
Income taxes -- -- -- --
------- ------- ------- -------
Net (loss) earnings $(4,375) $(2,390) $ 153 $ 84
======= ======= ======= =======
Weighted average number of common shares (Note 5):
Basic 4,183 4,240 4,183 4,220
Diluted 4,183 4,240 4,192 4,244
======= ======= ======= =======
Net (loss) earnings per common share (Note 5):
Basic $ (1.05) $ (0.56) $ 0.04 $ 0.02
Diluted $ (1.05) $ (0.56) $ 0.04 $ 0.02
======= ======= ======= =======
See accompanying notes to consolidated financial statements
4
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Dollars in Thousands)
Nine Months Ended
March 31,
--------------------
1998 1997
-------- --------
(Unaudited)
Operating activities:
Net loss $ (4,375) $ (2,390)
Adjustments to reconcile net loss to
net cash used by operating activities:
Film amortization 37,304 27,428
Depreciation and other amortization 276 219
Provision for returns and bad debt 2,048 280
Provision for inventory obsolescence 3 (494)
Change in operating assets and liabilities:
Increase in accounts receivable (3,637) (3,393)
Additions to film costs (42,072) (53,122)
Increase in deferred marketing costs (248) (280)
(Increase) decrease in inventories (251) 536
Increase in notes receivable from officers (319) --
Decrease (increase) in other assets 16 (2,174)
Increase in accounts payable and
accrued expenses 3,294 7,493
Increase (decrease) in minimum guarantees and
royalties payable 2,422 (1,465)
(Decrease) increase in income taxes payable (22) 309
Decrease in deferred income (17) (1,000)
-------- --------
Net cash used by operating activities (5,578) (28,053)
-------- --------
Investing activities:
Acquisition of property and equipment (258) (187)
-------- --------
Net cash used by investing activities (258) (187)
-------- --------
Financing activities:
Net increase in revolving line of credit 4,050 29,000
Exercise of stock options 114 75
Purchase of treasury stock -- (702)
-------- --------
Net cash provided by financing activities 4,164 28,373
-------- --------
(Decrease) increase in cash and cash equivalents (1,672) 133
Cash and cash equivalents at beginning of period 3,665 344
-------- --------
Cash and cash equivalents at end of period $ 1,993 $ 477
======== ========
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 10-K 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 March 31, 1998 and the results of operations and
cash flows for the periods ended March 31, 1998 and March 31, 1997 have been
made and all adjustments were of a normal and recurring nature. Operating
results for the nine and three month periods 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:
March 31, June 30,
1998 1997
--------- ---------
(in thousands)
Released $46,286 $32,159
Completed not released 5,412 7,045
In process and development 10,363 18,089
------- -------
$62,061 $57,293
------- -------
6
NOTE 3 - COMMITMENTS & CONTINGENCIES:
- -------------------------------------
The Company has entered into certain agreements which provide for royalty
advances and promotional and advertising commitments totaling $12.5 million. If
the conditions to these agreements are not met by the licensors, the Company may
withdraw from the arrangements. These commitments extend to January 1999.
NOTE 4 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -----------------------------------------------------------
Cash paid during the nine month period for:
March 31,
1998 1997
------------ ------------
(in thousands)
Interest $3,662 $1,582
Income taxes 279 376
NOTE 5 - NET (LOSS) EARNINGS PER COMMON SHARE:
- ----------------------------------------------
Basic (loss) earnings per common share amounts are based on the weighted average
number of common shares outstanding during the respective periods. Dilutive
(loss) earnings per common share amounts are based on the weighted average
common shares outstanding during the period and shares assumed issued upon
conversion of stock options when the effect of such conversions would have been
dilutive to net (loss) earnings. There is no assumed conversion of stock
options for the nine months ended March 31, 1998 and 1997 as the effect would be
anti-dilutive.
Prior period amounts have been restated to conform to SFAS No. 128. The table
below presents a reconciliation of weighted average shares used in the
calculation of basic and diluted net (loss) earnings per common share:
Nine months ended Three months ended
March 31, March 31,
---------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(in thousands)
Basic shares - weighted
average of common shares
outstanding 4,183 4,240 4,183 4,220
Additional shares assuming
conversions of stock
options -- -- 9 24
------------ ------------ ------------ ------------
Diluted shares 4,183 4,240 4,192 4,244
------------ ------------ ------------ ------------
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUES:
Nine months ended Three months ended
March 31, March 31,
---------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(in thousands)
Domestic:
Home video distribution $37,019 $26,161 $15,172 $ 8,431
Theatrical distribution 7,687 2,027 2,664 1,977
Television distribution 7,743 4,389 3,222 979
Foreign:
All media 9,714 10,185 3,560 1,947
Interactive:
All media -- 1,365 -- 298
------------ ------------ ------------ ------------
$62,163 $44,127 $24,618 $13,632
------------ ------------ ------------ ------------
Net revenues for the nine months and quarter ended March 31, 1998 increased
$18.0 million or 40.9% and $11.0 million or 80.6%, respectively, compared with
the same periods in fiscal 1997. The increase for the nine month period was
primarily due to increases in net revenues from domestic home video, theatrical
and television distribution of $10.9 million, $5.7 million and $3.4 million,
respectively, partially offset by decreases in net revenues from interactive and
foreign distribution of $1.4 million and $471,000, respectively. The increase
in domestic home video net revenues was primarily due to the initial home video
distribution of the wide theatrically released films "Sprung" (October 1997) and
"Eve's Bayou" (March 1998, the rental title with the largest shipments in
Company history), without any comparable video releases of wide theatrical films
in the nine months ended March 31, 1997. The increase in revenues from domestic
theatrical distribution was primarily due to the release of two wide theatrical
films in the current year period, "Eve's Bayou" in October 1997 and "Star Kid"
(aka "Warrior of Waverly Street") in January 1998, compared to one wide
theatrical release, "Meet Wally Sparks" in the nine months ended March 31, 1997.
The increase in domestic television net revenues was primarily due to the
releases in the current nine month period of the made for cable television
movies "Trucks" and "The Colony" as well as the cable debut of "Meet Wally
Sparks." "Trucks" and "The Colony" are
8
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
part of the Company's strategic decision to increase production and acquisition
of made for television product. The comparable nine month period ending March
31, 1997 included the HBO premieres of "The Dentist" and "Crossworlds."
Interactive revenues decreased 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 interactive publisher. The
Company does not expect any significant future interactive revenues. The
decrease in foreign distribution revenues was primarily due to the large
advances generated in the fiscal 1997 period by "Star Kid" without any film
generating comparable advances in the fiscal 1998 period. In the nine months
ended March 31, 1998, seven (7) motion pictures, "A Kid in Aladdin's Palace,"
"Chairman of the Board," "Eve's Bayou," "Eye of God," "The Colony," "Trucks" and
"My Teacher's Wife" were initially released into the foreign market. In the same
time period in fiscal 1997 three (3) motion pictures "Leprechaun 4," "Never
Ever" (aka "Circle of Passion") and "Star Kid" were initially released.
The increase in net revenues for the quarter ended March 31, 1998 was primarily
due to increases in net revenues from domestic home video, domestic television,
foreign all media and domestic theatrical distribution of $6.7 million, $2.2
million, $1.6 million and $687,000, respectively, partially offset by decreases
in net revenues from interactive distribution of $298,000. The increase in
domestic home video net revenues was primarily due to the initial home video
distribution in March 1998 of the theatrically released film "Eve's Bayou"
without any comparable video release in the three months ended March 31, 1997.
The increase in domestic television net revenues was primarily due to the cable
debut in January 1998 of "Meet Wally Sparks" and the release in March 1998 of
the made for cable television movie "The Colony" on The USA Network's Sci-Fi
Channel. The comparable time period in fiscal 1997 included the HBO premier of
"Crossworlds." The increase in foreign distribution revenues was primarily due
to the timing of releases. In the three months ended March 31, 1998, there were
four (4) motion pictures "Eye of God," "The Colony," "Trucks" and "My Teacher's
Wife" initially released into the foreign market, whereas no motion pictures
were released in the same time period in fiscal 1997. The increase in revenues
from domestic theatrical distribution was primarily due to the release of "Star
Kid" in January 1998 compared to the release of "Meet
9
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
Wally Sparks" in the three months ended March 31, 1997. Interactive revenues
decreased due to the Company's decision to exit the interactive market as
described above.
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 specialized theatrical potential and those that
are made for initial release on network and cable television. See "Liquidity
and Capital Resources."
GROSS PROFIT: Gross profit as a percentage of net revenues for the nine month
periods ended March 31, 1998 and 1997 were 14.4% and 16.5%, respectively, and
for the quarters ended March 31, 1998 and 1997 were 21.7% and 27.0%,
respectively.
The Company's gross profits for the nine months ended March 31, 1998 increased
$1.7 million or 22.9% compared with the same period in fiscal 1997. The
Company's gross profit for the three months ended March 31, 1998 increased $1.7
million or 44.9% compared with the same period in fiscal 1997. The increase in
gross profit for the quarter is primarily due to the recognition of the
increased estimated future revenue of the Company's product from domestic
distribution on DVD (digital video discs) and sell-thru home video. Estimated
total revenues and costs are reviewed on a quarterly basis and revisions to
amortization rates are made as necessary including write downs to net realizable
value. The increase for the nine month period is primarily due to the increase
in the quarter. The gross profit for the nine months ended March 31, 1998
included approximately $4.2 million in write downs to net realizable value of
film inventory. These write downs primarily related to a non-cash charge
associated with the lower than anticipated performance of the January 1998
theatrical release of "Star Kid" and a write down associated with management's
decision not to release "Chairman of the Board" with a wide theatrical release,
but rather to have a selected market theatrical release. The decision to limit
the "Chairman of the Board" theatrical release was made to mitigate the risks
associated with the higher print and advertising expenses required for wide
release pictures. The gross profit for the quarter ended March 31, 1997
included a $3.0 million charge associated with the
10
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
January 1997 theatrical release of "Meet Wally Sparks" partially offset by a
reduction of the inventory obsolescence reserve due to the salability of
inventory. The Company anticipates that the domestic home video market will
continue to be extremely competitive.
SELLING EXPENSES: Selling expenses as a percentage of net revenues for the nine
month periods ended March 31, 1998 and 1997 were 8.9% and 11.4%, respectively,
and for the quarters ended March 31, 1998 and 1997 were 8.1% and 13.4%,
respectively.
The Company's selling expenses for the nine months ended March 31, 1998
increased $493,000 or 9.8% compared with the same period in fiscal 1997. For
the three months ended March 31, 1998 selling expenses increased $181,000 or
9.9% compared with the same period in fiscal 1997. The increases reflect 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.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the nine months ended March 31, 1998 increased $375,000 or 11.4% compared with
the same period in fiscal 1997. For the three months ended March 31, 1998
general and administrative expenses increased $35,000 or 3.0% compared with the
same period in fiscal 1997. The increases were primarily due to the costs
associated with setting up three regional theatrical sales offices and increased
consulting charges.
BAD DEBT EXPENSE: Bad debt expense for the nine months ended March 31, 1998
increased $705,000 or 239.0% compared with the same period in fiscal 1997. Bad
debt expense for the three months ended March 31, 1998 increased $780,000 or
1083.3% compared with the same period in fiscal 1997. Bad debt expense
primarily represents reserves taken against domestic video and foreign sales.
The increases are primarily due to specific reserves taken as a result of the
currency crisis in Southeast Asia and an increase in past due video receivables.
11
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
INTEREST EXPENSE: Interest expense for the nine months ended March 31, 1998
increased $2.1 million or 190.3% compared with the same period in fiscal 1997.
Interest expense for the three months ended March 31, 1998 increased $611,000 or
110.1% compared with the same period in fiscal 1997. The increases in interest
expense were 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 March 31,
1998, there was $61.8 million outstanding under the credit facility. The
Company expects to use excess cash flow generated by theatrical and library
product to decrease current debt levels. See "Liquidity and Capital Resources."
INTEREST AND INVESTMENT INCOME: Interest and investment income for the nine
months ended March 31, 1998 increased $53,000 or 85.5% compared with the same
period in fiscal 1997. Interest and investment income for the three months
ended March 31, 1998 increased $22,000 or 169.2% compared with the same period
in fiscal 1997. The increases were primarily due to interest income from loans
to officers in the fiscal 1998 period without any similar income in the fiscal
1997 period.
NET (LOSS) EARNINGS: The Company's net loss for the nine months ended March 31,
1998 increased $2.0 million or 83.1% compared with the same period in fiscal
1997. The loss for the nine months ended March 31, 1998 was $4.4 million
compared to a loss of $2.4 million in the comparable fiscal 1997 period. The
Company's net earnings for the three months ended March 31, 1998 increased
$69,000 or 82.1% compared with the same period in fiscal 1997. The fiscal 1998
nine month loss was primarily due to approximately $4.2 million in non-cash
write downs to net realizable value of film inventory. These write downs
primarily related to a charge associated with the lower than anticipated
performance of the January 1998 theatrical release of "Star Kid" and a write
down associated with management's decision not to release "Chairman of the
Board" with a wide theatrical release, but rather to have a selected market
theatrical release. The prior year losses were primarily due to a $3.0 million
write down associated with the January 1997 theatrical release of "Meet Wally
Sparks." The
12
ITEM 2: (CONTINUED)
RESULTS OF OPERATIONS
increase in earnings for the three month period is primarily due to the increase
in gross profits partially offset by the increase in interest and bad debt
expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash generated by operations and borrowings under its
credit facility to finance its operations. The Company's cash flows from
operating, investing and financing activities for the nine months ended March
31, 1998 and 1997 were as follows:
Nine Months Ended
March 31,
----------------------------------
1998 1997
-------------- ---------------
(in thousands)
Net cash used by operating activities ($ 5,578) ($ 28,053)
Net cash used by investing activities (258) (187)
Net cash provided by financing activities 4,164 28,373
Cash used by operations decreased by $22.5 million from $28.0 million used in
the nine months ended March 31, 1997 to $5.6 million used in the nine months
ended March 31, 1998 principally as the result of increased film amortization of
$9.9 million, a decrease in additions to film costs of $11.1 million, a decrease
in the change in other assets of $2.2 million and an increase in the change in
minimum guarantees and royalties payable of $3.9 million, which were partially
offset by an increased net loss of $2.0 million and a decrease in the change in
accounts payable and accrued expenses of $4.2 million. During the first nine
months of fiscal 1998 the Company continued to make significant investments in
film costs. The Company invested $42.1 million in additions to film inventory.
The additions were primarily incurred to release theatrically the films "Eve's
Bayou" and "Star Kid" and to produce and acquire new films.
Two principal factors have increased the length of time from investment in film
costs to recoupment, which has increased the Company's cash requirements. The
first factor is the terms of the Company's current credit facility entered into
in December 1996.
13
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Under the current 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 nine months to a year or more. Commitments to purchase
films from production companies upon delivery are included in contingent
contractual obligations. The second factor that has increased the length of time
from investment in film costs to recoupment is increased theatrical distribution
activity. Theatrical films generally require significant marketing expenditures
for prints and advertising which are capitalized as film costs. Theatrical
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. For further information
see "Results of Operations."
Investing activities for the nine months ended March 31, 1998 and 1997 have
primarily consisted of expenditures on equipment and leasehold improvements
related to the expansion of theatrical operations.
Financing activities, consisting primarily of borrowings under the Company's
credit facility, were greater in the nine months ended March 31, 1997 than for
the nine months ended March 31, 1998, primarily as the result of motion picture
production, acquisition and distribution expenditures exceeding operating cash
inflows. The Company's cash requirements vary in part 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 the nine
months ended March 31, 1998 and 1997 the principal sources of funds have been
provided by the Company's credit facility and available cash.
14
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
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 March 31, 1998 there was $61.8
million outstanding under the credit facility. The Company expects to use
excess cash flow generated by theatrical and library product to decrease current
debt levels.
The credit agreement contains various financial and other covenants to which the
Company must adhere. These covenants, among other things, require the
maintenance of minimum net worth and various financial ratios which are reported
to the bank on a quarterly basis and include limitations on additional
indebtedness, liens, investments, disposition of assets, guarantees, affiliate
transactions and the use of proceeds. As previously reported, at December 31,
1997, the Company was out of compliance with certain financial covenants
primarily as a result of the non-cash write downs of "Star Kid" and "Chairman of
the Board" to net realizable value. In May 1998 the Company obtained a waiver
and amendment to its credit agreement. As of March 31, 1998 the Company is in
compliance with all covenants.
The Company believes that its present sources of working capital will be
sufficient to maintain its current level of operations in accordance with the
anticipated release schedule, as described below.
15
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Management of the Company is conducting a strategic review of the Company's
theatrical operations. This strategic review includes the possibility of an
increase in the theatrical exhibition of specialized films, with which the
Company has demonstrated past successes including "Eve's Bayou" and "Kama Sutra:
A Tale of Love," and a reduction in the distribution of wide mainstream features
with wide releases to greater than 1,000 screens and which require substantial
print and advertising commitments. The Company does not plan to release any
additional wide theatrical releases in fiscal 1998.
In the domestic specialized theatrical market the Company plans to release three
(3) motion pictures in fiscal 1998. In the nine months ended March 31, 1998 the
Company released two (2) specialized theatrical films "Box of Moonlight" and
"Eve's Bayou." During fiscal 1998 the Company plans to release approximately
thirty-five (35) motion pictures into the domestic home video rental market (of
which twenty-seven (27) were released in the first nine months of fiscal 1998)
and to continue to expand distribution in the sell-thru market. Also in fiscal
1998 the Company plans to release approximately twelve (12) to fourteen (14)
motion pictures initially into international distribution (of which seven (7)
were released in the first nine months of the fiscal year).
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.
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 has made no expenditures under the repurchase program.
As a result of 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
16
ITEM 2: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
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 an increase in the theatrical
exhibition of specialized films and production and acquisition of made for
television product and a reduction in the distribution of wide mainstream
features 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.
17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No
- ---------- Description
--------------------------------------------------------
10.80 Non-Qualified Stock Option Certificate dated January
14, 1998, by and between the Registrant and Gordon
Stulberg.
10.81 Non-Qualified Stock Option Certificate dated January
14, 1998, by and between the Registrant and Matthew H.
Saver.
10.82 Non-Qualified Stock Option Certificate dated January
14, 1998, by and between the Registrant and Tofigh
Shirazi.
10.83 Amendment no. 2 to the Credit, Security, Guaranty and
Pledge Agreement, dated March 31, 1998, by and between
the Registrant's principal operating subsidiaries,
Trimark Pictures, Inc. and Trimark Television, Inc.,
and The Chase Manhattan Bank, as Administrative Agent
and Fronting Bank.
10.84 Consulting Agreement, dated April 2, 1998, by and
between Trimark Pictures, Inc. and Burlage\Edell
Productions, Inc. f/s/o Roger Burlage.
10.85 Letter Agreement, dated April 2, 1998, by and between
Trimark Holdings, Inc. and Roger Burlage.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
18
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: May 14, 1998
------------
19
INDEX TO EXHIBITS
Exhibit No Description Method of Filing
- ---------- ------------------------------------- ----------------
10.80 Non-Qualified Stock Option filed herewith
Certificate dated January 14, 1998, electronically
by and between the Registrant and
Gordon Stulberg.
10.81 Non-Qualified Stock Option filed herewith
Certificate dated January 14, 1998, electronically
by and between the Registrant and
Matthew H. Saver.
10.82 Non-Qualified Stock Option filed herewith
Certificate dated January 14, 1998, electronically
by and between the Registrant and
Tofigh Shirazi.
10.83 Amendment no. 2 to the Credit, filed herewith
Security, Guaranty and Pledge electronically
Agreement, dated March 31, 1998, by
and between the Registrant's
principal operating subsidiaries,
Trimark Pictures, Inc. and Trimark
Television, Inc., and The Chase
Manhattan Bank, as Administrative
Agent and Fronting Bank.
10.84 Consulting Agreement, dated April 2, filed herewith
1998, by and between Trimark electronically
Pictures, Inc. and Burlage\Edell
Productions, Inc. f/s/o Roger
Burlage.
10.85 Letter Agreement, dated April 2, filed herewith
1998, by and between Trimark electronically
Holdings, Inc. and Roger Burlage.
27 Financial Data Schedule. filed herewith
electronically
20
Trimark Holdings, Inc.
2644 30th Street
Santa Monica, CA 90405
May 14, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We hereby transmit through the EDGAR system a Form 10-Q for Trimark Holdings,
Inc., a Delaware corporation.
Kindly contact the undersigned at (310) 314-2000 with any questions concerning
this filing.
Very truly yours,
/s/James E. Keegan
- ------------------
James E. Keegan
Executive Vice President Finance and
Chief Financial Officer
cc: Price Waterhouse (Attn: Richard Withey)
Chase Securities, Inc. (Attn: V. David Shaheen)
Rosenfeld, Meyer & Susman (Attn: William Ross)