10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 UNITED STATES 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 June 30, 2000 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 000-____

SILVER CINEMAS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 72-2656147 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.)

4004 BELTLINE ROAD, SUITE 205, ADDISON, TEXAS 75001-4363 (Address of principal executive offices) (Zip Code) (972) 503-9851 (Registrant's telephone number, including area code) N/A (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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 142,046 shares of common stock as of August 11, 2000 -1- 2 INDEX

-2- 3 PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

See accompanying notes to condensed consolidated financial statements. -3- 4 SILVER CINEMAS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) --------------------------------------------------------------------------------

-4- 5 SILVER CINEMAS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) --------------------------------------------------------------------------------

See accompanying notes to condensed consolidated financial statements. -5- 6 SILVER CINEMAS INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL - Silver Cinemas International, Inc. and its subsidiaries (collectively referred to as the "Company") own or lease and operate motion picture theaters. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Results of operations for the periods presented herein are not necessarily indicative of results of operations for any subsequent quarter or the year ending December 31, 2000. The information included in this Form 10-Q should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 1999 included in the Annual Report filed on Form 10-K by the Company under the Securities Exchange Act of 1934 on April 15, 2000. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. BANKRUPTCY FILING - On May 16, 2000 (the "Petition Date"), the Company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware (the "Court"). The Company is currently operating as debtor-in-possession under the supervision of the Court. Under these proceedings, substantially all liabilities, litigation and claims against the Company in existence at the filing date are stayed unless the stay is modified or lifted or payment has been otherwise authorized by the Court. With final orders received June 14, 2000, the Court has authorized the Company to enter into debtor-in-possession ("DIP") financing which will provide financing of up to $50.0 million. As of June 30, 2000, the Company has drawn approximately $32.0 million of these proceeds. The Company is working toward the preparation of a plan of reorganization. Under Chapter 11, the Company has until September 13, 2000 (120 days from Petition Date), to exercise their exclusive right to file a reorganization plan. The Company is planning to file a motion to extend the exclusivity period. These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Company will realize the carrying value of its assets, and satisfy its obligations and commitments except as otherwise disclosed, in the normal course of business. However, these filings and the circumstances relating to this event raise substantial doubt about the Company's ability to continue as a going concern. Furthermore, the Company's ability to continue as a going concern is dependent upon, among other things, the ability to formulate a plan of reorganization that will be confirmed by the Court, maintain DIP financing, achieve profitable operations and generate sufficient cash from operations and financing sources to meet obligations. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect reported amounts of assets, liabilities, income and expenses and disclosure of contingencies. Actual results could differ from the estimates and judgements made in preparing these financial statements which include assumptions made concerning the acceptance of a plan of reorganization. The Company's financial statements as of June 30, 2000, have been presented in conformity with the AICPA's Statement of Position 90-7 "Financial Reporting By Entities In Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires that pre-petition liabilities that are subject to compromise be segregated in the -6- 7 Company's consolidated balance sheet as liabilities subject to compromise and the identification of all transactions and events that are directly associated with the reorganization of the Company in the consolidated statement of operations. The liabilities are recorded at the amounts expected to be allowed as claims by the Court, rather than the amounts for which those allowed claims may ultimately be settled. 2. THEATER PROPERTIES AND EQUIPMENT The following is a summary of theater properties and equipment:

3. OTHER ASSETS The following is a summary of other assets:

-7- 8 4. DEBT The following is a summary of debt:

The senior subordinated notes (the "Notes") bear interest at 10 1/2% and are due in 2005. The Notes are redeemable, in whole or in part, at the option of the Company at a redemption price of 107.875% in 2001, 105.250% in 2002, 102.625% in 2003 and 100% in 2004 and thereafter plus any accrued but unpaid interest. In addition, on or before April 15, 2001, the Company may, at its option and subject to certain requirements, use an amount equal to the net cash proceeds from one or more public equity offerings, as defined, to redeem up to an aggregate of 35% of the principal amount of the Notes originally issued at a redemption price of 110.5% plus any accrued but unpaid interest. Upon a change in control of the Company, as defined in the indenture, the Company will be required to make an offer to repurchase all or any part of each holder's Notes at a price equal to 101% of the principal amount thereof plus interest. The Notes also include restrictive covenants relative to the incurrence of additional indebtedness, the payment of dividends and other matters. The Company did not make a scheduled interest payment for the Notes when due on April 15, 2000 and is not currently in compliance with certain requirements of its senior secured credit agreement. Accordingly, the Notes were included in the current portion of long-term debt on the Company's consolidated balance sheet at December 31, 1999. The Notes are included in liabilities subject to compromise at June 30, 2000 (See Note 5). PRIOR CREDIT AGREEMENT - On October 6, 1999, the Company entered into a four year, senior secured credit facility with aggregate availability of $50 million, subject to a defined real estate collateral based borrowing base (the "Prior Credit Facility"). The $50.0 million facility was comprised of a revolving credit facility of up to $15.0 million (the "Revolver"), term loans of up to $17.0 million ("Term A Loan") and term loans of up to $18.0 million ("Term B Loans"). The Term A Loan was funded in its entirety on October 8, 1999. Under the Term A Loan and the Revolver, the Company utilized borrowings to fund working capital requirements, and for other general corporate purposes, including, subject to certain conditions, the acquisition and construction of theaters. The Term B Loans could be used only for repurchasing the Notes, and the amount of Term B Loans was limited to the lesser of (i) $18.0 and (ii) the amount by which the real estate collateral-based borrowing base exceeds the sum of the outstanding principal balance (including accrued interest) of the Term A Loan and the $15.0 million revolving loan commitment). Borrowings under the Prior Credit Facility ranked senior in right of payment to the Notes and were secured by a perfected first priority security interest in substantially all existing and future assets of the Company including: (i) fee interests and certain leasehold interests in real property; (ii) accounts receivable, equipment, inventory, and intangibles; and (iii) the capital stock of the Company and its subsidiaries. Borrowings bore total annual interest at 15.5% with annual interest at 12.875% due monthly and the remaining interest due with the borrowings. The Company paid an annual unused commitment fee of 0.50%. -8- 9 Obligations under the Prior Credit Facility to advance funds at any time during the four-year term were subject to certain conditions customary in secured credit facilities, including the absence of a default under the Prior Credit Facility. The Prior Credit Facility contained a number of covenants that, among other things, restricted the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness or guarantees, prepay other indebtedness, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans, or advances, make acquisitions, engage in mergers or consolidations, make capital expenditures, change the business conducted by the Company or its subsidiaries or engage in certain corporate activities. The Company was not in compliance with certain requirements, including its failure to make a scheduled interest payment for the Company's Notes when due on April 15, 2000. Accordingly, the total borrowings and deferred interest of approximately $19.8 million under the Prior Credit Facility was included in the current portion of long-term debt on the Company's consolidated balance sheet at December 31, 1999. Additional advances of approximately $12.4 million were made under the revolving loan commitment through June 2, 2000, at which time all amounts owed were paid. Commencing April 29, 2000, loans under the Prior Credit Facility bore annual interest at 17.5%. DEBTOR-IN-POSSESSION FACILITY - On June 2, 2000, the Company entered into a Loan and Security Agreement (the "Loan Agreement") which provides up to $50.0 million (including $15.0 million for construction of certain new theaters) in DIP financing. Borrowings under the Loan Agreement bear interest at prime plus 4.0%, are limited by defined theater level cash flows and revenues and are secured by substantially all of the Company's assets. Certain restrictive covenants apply, including maintenance of certain financial levels such as defined earnings before interest, taxes, depreciation and amortization ("EBITDA") and limitations on issuance of additional indebtedness, capital expenditures, asset sales and payment of dividends. The Company is not in compliance with certain requirements, including its failure to achieve required EBITDA levels. The Loan Agreement terminates upon the earlier of December 2, 2001, the termination of the financing order entered by the Court on May 17, 2000, or the date the Court confirms a plan of reorganization. Proceeds from the Loan Agreement were used to repay all borrowings under the Prior Credit Facility. As a result, the Company recognized an extraordinary loss of approximately $5.6 million associated with the Prior Credit Facility's unamortized debt issue costs. 5. LIABILITIES SUBJECT TO COMPROMISE The principal categories of claims classified as liabilities subject to compromise under reorganization proceedings are identified below. All amounts below may be subject to future adjustment depending on bankruptcy court action, further developments with respect to disputed claims, determination as to the value of any collateral securing claims, or other events.

As a result of the bankruptcy filing, no principal or interest payments will be made on any pre-petition debt without bankruptcy court approval or until the effective date of a bankruptcy plan. Contractual interest expense not recorded on the outstanding 10 1/2% senior subordinated notes totaled approximately $1.3 million for the period from May 16, 2000 through June 30, 2000. -9- 10 Prior to the bankruptcy filing, the Company's debt included $99.6 million of the outstanding 10 1/2% senior subordinated notes due in April 2005 plus accrued interest of $6.4 million. Interest on these notes is payable semiannually in arrears on April 15 and October 15 of each year. The Company was in default of the terms of this obligation due to the Company's failure to make the April 15, 2000 interest payment. 6. CAPITAL STOCK As of June 30, 2000 and December 31, 1999, aggregate Series A Preferred Stock dividends of $6,386,957 and $5,148,497, respectively, are in arrears. The Company also has Convertible Preferred Stock dividends in arrears of $246,048 and $79,200 as of June 30, 2000 and December 31, 1999, respectively. 7. SEGMENTS The Company identifies its segments based on type of films exhibited and management responsibility. Segment profit (loss) is measured as operating profit (loss), which is defined as profit (loss) before other income (expense). Information on segments and a reconciliation to net loss for the three months and six months ended June 30, 2000 and 1999 follows (in thousands):

-10- 11

8. ASSET IMPAIRMENT AND REORGANIZATION CHARGES Based on its continuing evaluation of recoverability of long-lived theater assets, the Company recorded $1.0 million and $6.5 million impairment of long-lived asset charges in June and March 2000, respectively, representing the value of assets abandoned or impaired as a result of the closing of three second run theaters (20 screens) and one specialty theater (3 screens) and the closing of 17 second run theaters (124 screens) on May 1, 2000. Reorganization charges resulting from the Company's reorganization filings incurred during the three months ended June 30, 2000 are as follows (in thousands): Professional fees $256 Costs associated with unit closings and other 81 ---- Total $337 ====

9. INCOME TAXES As a result of net losses and the Company's inability to recognize a benefit for its deferred tax assets, the Company did not record a provision for income taxes in the three or six months ended June 30, 2000 and 1999. The amount of net operating losses carryforwards available for future use may be subject to reduction as a result of the expected plan of reorganization. -11- 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. OVERVIEW The following analysis of the financial condition and results of operations of Silver Cinemas International ("Silver Cinemas") and its wholly owned subsidiaries, Silver Cinemas, Inc. ("Silver") and Landmark Theatre Corp. ("Landmark") (collectively referred to as the "Company") should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included elsewhere herein. In the six months ended June 30, 2000, the Company opened one specialty theater with 7 screens and closed 18 second run theaters, two first run theaters and one specialty theater as a result of unfavorable base renewals or individual theater performance. In April 2000 the Company opened one second run theater (6 screens). As of August 11, 2000, the Company's total theater and screen count is 83 and 382, respectively. Revenues for the six months ended June 30, 2000 declined $5.6 million, or 11.0%, to $45.6 million, as a result of decreased attendance. In the six months ended June 30, 2000, the Company incurred a net loss of $22.8 million compared with a net loss for the same period of 1999 of $7.2 million. The consolidated operating loss for the first six months of 2000 was $11.0 million, compared with an operating loss of $1.8 million for the six months ended June 30, 1999. The loss in 2000 included noncash charges totaling $7.5 million for the impairment of value of certain theaters and reorganization costs of $337,000. SEGMENT DATA A summary of the results of operations for each of the Company's principal business segments is displayed in Note 7 to the condensed consolidated financial statements. The Company's business operations are aligned into the following two segments: Landmark (Specialty Film) and Silver Cinemas (primarily second-run). -12- 13 RESULTS OF OPERATIONS OF LANDMARK THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999 The following table sets forth information for the three months ended June 30, 2000 and 1999 for Landmark.

Admissions Revenues. Admissions revenues increased $0.2 million or 1.6% to $10.6 million during the three months ended June 30, 2000 compared to the three months ended June 30, 1999. The increased admissions revenue was primarily the result of a 6.6% decrease in attendance from 1,776,000 to 1,659,000 offset by an increase in the average ticket price from $5.87 to $6.39. Landmark benefits from having an average ticket price that is substantially higher than the national average ticket and strong customer loyalty due to their dedication to the specialty film market. Concessions Revenues. Concessions revenues increased $0.1 million or 4.4% to $2.4 million during the three months ended June 30, 2000 compared to the three months ended June 30, 1999. The increase in concession revenue was primarily the result of concession price increases. Film Rental Expenses. Film rental expenses as a percentage of admissions revenue decreased from 49.4% to 44.3% as a result of graduated rate film mix. Landmark's film rental rates are typically below film rental rates of first-run theaters, which average in the low to mid 50% range. -13- 14 Cost of Concessions. Concession costs as a percentage of concession revenue decreased for the three months ended June 30, 2000 compared to the three months ended June 30, 1999 from 17.5% to 13.7%. The reduction is primarily attributable to concession item mix. Payroll and Related Expense. Payroll expense increased from $2.1 million for the three months ended June 30, 1999 to $2.3 million for the three months ended June 30, 2000. Payroll per attendee increased from $1.20 per attendee to $1.38 per attendee. The increase is primarily attributable to a decline in attendance and wage increases. Occupancy Costs. Occupancy costs increased from $1.8 million for the three months ended June 30, 1999 to $2.1 million for the three months ending June 30, 2000 due to the opening of a new theater in early 2000. Advertising Expenses. Advertising expenses remained flat at $0.4 million for the three months ended June 30, 2000 compared to the three months ended June 30, 1999. General and Administrative Expenses. General and administrative expenses remained flat at $0.8 million for the three months ended June 30, 2000 and the three months ended June 30, 1999. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 The following table sets forth information for the six months ended June 30, 2000 and 1999 for Landmark:

Admissions Revenues. Admissions revenues decreased $2.2 million or 8.5% to $23.2 million during the six months ended June 30, 2000 compared to the six months ended June 30, 1999. The decreased admissions -14- 15 revenue was primarily the result of a 15.2% decrease in attendance from 4,293,000 to 3,642,000 partially offset by an increase in the average ticket price from $5.91 to $6.38. Landmark benefits from having an average ticket price that is substantially higher than the national average ticket and strong customer loyalty due to their dedication to the specialty film market. Concessions Revenues. Concessions revenues decreased $0.3 million or 5.9% to $5.2 million during the six months ended June 30, 2000 compared to the six months ended June 30, 1999. The decrease in concession revenue was primarily the result of a decrease in attendance. Film Rental Expenses. Film rental expenses as a percentage of admissions revenue remained relatively stable at about 45% for both the six months ended June 30, 1999 and June 30, 2000. Landmark's film rental rates are typically below film rental rates of first-run theaters, which average in the low to mid 50% range. Cost of Concessions. Concession costs as a percentage of concession revenue decreased for the six months ended June 30, 2000 compared to the six months ended June 30, 1999 from 17.5% to 15.0%. The reduction is primarily attributable to concession item mix. Payroll and Related Expense. Payroll expense increased from $4.3 million for the six months ended June 30, 1999 to $4.4 million for the six months ended June 30, 2000. Payroll per attendee increased from $1.01 per attendee to $1.21 per attendee. The increase is primarily attributable to a decline in attendance and wage increases. Occupancy Costs. Occupancy costs increased from $3.5 million for the six months ended June 30, 1999 to $4.0 million for the six months ending June 30, 2000 due to the opening of a new theater in early 2000. Advertising Expenses. Advertising expenses decreased from $1.0 million for the six months ended June 30, 1999 to $0.9 million for the six months ended June 30, 2000. General and Administrative Expenses. General and administrative expenses decreased from $1.6 million for the six months ended June 30, 1999 to $1.5 million for the three months ended June 30, 2000. -15- 16 RESULTS OF OPERATIONS OF SILVER CINEMAS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999 The following table sets forth information for the three months ended June 30, 2000 and 1999 for Silver Cinemas:

Admissions Revenues. Admissions revenue decreased $1.0 million or 18.9% to $4.1 million during the three months ending June 30, 2000 compared to the three months ending June 30, 1999. The decreased admission revenue was primarily the result of a 31.3% decrease in attendance (due to theater closings) from 3,225,000 to 2,316,000 partially offset by an increase in the average ticket price from $1.58 to $1.79. Concession Revenues. Concession revenue decreased $0.9 million or 21.7% to $3.4 million during the three months ended June 30, 2000 compared to the three months ended June 30, 1999. The decreased concession revenue was primarily the result of a decrease in attendance due to theater closings. Film Rental Expenses. Film rental expenses as a percentage of admissions revenues declined from 39.1% for the three months ended June 30, 1999 compared to 38.6% for the three months ended June 30, 2000. The decrease was primarily attributable to graduated rate film mix. Cost of Concessions. Concession costs as a percentage of concession revenue for the period to period comparison decreased from 20.0% of concession sales to 17.8% primarily due to cost control efforts. Payroll and Related Expenses. Payroll expense decreased from $2.1 million for the three months ended June 30, 1999 to $1.5 million for the three months ended June 30, 2000, due to theater closings. Payroll per attendee increased from $0.64 per attendee to $0.67 per attendee. The increase is primarily attributable to a decline in attendance. -16- 17 Occupancy Costs. Occupancy costs decreased $0.9 million to $1.8 million or 34.9% for the three months ended June 30, 2000 from $2.7 million for the three months ended June 30, 1999. The decrease in occupancy costs is primarily attributable to theater closings and lower percentage rents. Advertising Expenses. Advertising expenses were stable at $0.3 million for the three months ended June 30, 1999 and the three months ended June 30, 2000. Advertising expenses comprised 4.5% and 3.1% of total revenues for the three months ended June 30, 2000 and 1999, respectively. General and Administrative Expenses. General and administrative expenses increased from $1.0 million to $1.8 million or 84.4% for the three months ended June 30, 2000 compared to the three months ended June 30, 1999. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 The following table sets forth information for the six months ended June 30, 2000 and 1999 for Silver Cinemas:

Admissions Revenues. Admissions revenue decreased $1.4 million or 13.7% to $9.1 million during the six months ending June 30, 2000 compared to the six months ending June 30, 1999. The decreased admission revenue was primarily the result of a 21.3% decrease in attendance (due to theatre closings) from 6,566,000 to 5,169,000 partially offset by an increase in the average ticket price from $1.60 to $1.77. Concession Revenues. Concession revenue decreased $1.6 million or 17.4% to $7.4 million during the six months ended June 30, 2000 compared to the six months ended June 30, 1999. The decreased concession revenue was primarily the result of a decrease in attendance due to theatre closings. -17- 18 Film Rental Expenses. Film rental expenses as a percentage of admissions revenues declined from 38.0% for the six months ended June 30, 1999 compared to 37.0% for the six months ended June 30, 2000. The decrease was primarily attributable to graduated rate film mix. Cost of Concessions. Concession costs as a percentage of concession revenue for the period to period comparison increased from 19.2% of concession sales to 19.6% primarily due to implementation of the Company's reduced price concession menu at additional locations. Payroll and Related Expenses. Payroll expense decreased from $4.1 million for the six months ended June 30, 1999 to $3.4 million for the six months ended June 30, 2000. Payroll per attendee increased from $0.62 per attendee to $0.65 per attendee. The increase is primarily attributable to a decline in attendance. Occupancy Costs. Occupancy costs decreased $1.1 million to $4.3 million or 20.9% for the six months ended June 30, 2000 from $5.4 million for the six months ended June 30, 1999. The decrease in occupancy costs is primarily attributable to theater closings and lower percentage rents. Advertising Expenses. Advertising expenses decreased $0.1 million or 12.0% from the six months ended June 30, 1999 to $0.7 million for the six months ended June 30, 2000. Advertising expenses comprised 4.1% and 3.9% of total revenues for the six months ended March 31, 2000 and 1999, respectively. General and Administrative Expenses. General and administrative expenses increased from $2.0 million to $3.1 million or 52% for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES Revenues are collected in cash, primarily through box office receipts and the sale of concession items. Because revenues are received in cash prior to the payment of related expenses, there are, in effect, minimal accounts receivable. This, in combination with minimal inventory requirements, creates a negative working capital position, which provides certain operating capital. During the first six months of 2000, the Company's capital requirements were the result of the continued construction of one theater in Chicago. Such capital expenditures were financed with bank borrowings, and internally generated cash. The Company's operating activities provided net cash of approximately $6.5 million during the six months ended June 30, 2000. Net cash used in operations resulted primarily from a net loss of $22.8 million, adjusted for depreciation and amortization expense of $4.2 million, reorganization charges of $0.3 million, asset impairment charges of $7.5 million, and an increase in accounts payable and accrued liabilities of $1.0 million. Cash used by investing activities was approximately $1.2 million, which consisted primarily of $6.7 million used for construction of new theaters offset by a reduction of other assets of $5.5 million. Cash provided by financing activities was approximately $9.7 million during the six months ended June 30, 2000. Additional debt financing of approximately $52.6 million was offset by an increase in debt issue costs of approximately $1.0 million and a decrease in net bank overdrafts of $1.2 million. "Same Theater" attendance at the Company's Landmark and Silver theaters has declined by approximately 16.6% and 6.5% for the six months ending June 30, 2000 compared to the six months -18- 19 ended June 30, 1999. Management believes this trend is the result of several factors including the development of megaplexes in certain markets, changes in film and video release patterns, and the overall strength of the US economy. If this trend continues, the Company's ability to generate liquidity will continue to be negatively impacted. The preceding statements concerning the attendance declines may constitute forward-looking statements within the meaning of the federal securities laws. The Company warns that many factors could, individually or in aggregate, lead to further declines in theater attendance, including, without limitation, the following: consumer spending trends and habits; increased competition in the theater industry; adverse developments in economic factors influencing the exhibition industry; and lack of demand for films by the general public. The Company does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements pertain only to the date hereof. On May 16, 2000, the Company filed Chapter 11 petitions to address certain operational and liquidity disruptions. The Company's liquidity position for the remainder of fiscal 2000 will be impacted primarily by the success of initiatives undertaken to improve theater level cash flows and the effects of the Chapter 11 petitions. The Company's uses of capital for the remainder of fiscal 2000 are expected to include working capital for operating expenses and satisfaction of current liabilities, expenditures related to maintaining and refurbishing existing theaters, interest payments on outstanding borrowings and costs associated with the Chapter 11 petitions. The Company's capital resources cannot be determined until a plan of reorganization has been developed and confirmed in connection with the Chapter 11 petitions. As a debtor-in-possession under the Bankruptcy Code, actions to collect prepetition indebtedness are stayed and certain contractual obligations may not be enforced against the Company. With the approval of the bankruptcy court, certain of these obligations may be paid prior to the confirmation of the reorganization plan. To date, the Company has received approval to pay customary prepetition obligations associated with the daily operation of its business, including employee wages and other obligations. The Company has not completed its review of all of its prepetition contracts and leases for assumption or rejection. The ultimate amount of, and settlement terms for, such liabilities are subject to an approved plan of reorganization and, accordingly, the timing and form of settlement are not presently determinable. DEBTOR-IN-POSSESSION FACILITY On June 2, 2000, the Company entered into a Loan and Security Agreement (the "Loan Agreement") which provides up to $50.0 million (including $15.0 million for construction of certain new theaters) in DIP financing. Borrowings under the Loan Agreement bear interest at prime plus 3.0%, are limited by defined theater level cash flows and revenues and are secured by substantially all of the Company's assets. Certain restrictive covenants apply, including maintenance of certain financial levels such as defined earnings before interest, taxes, depreciation and amortization and limitations on insurance of additional indebtedness, capital expenditures, asset sales and payment of dividends. The Loan Agreement terminates upon the earlier of December 2, 2001, the termination of the financing order entered by the Court on May 17, 2000, or the date the Court confirms a plan of reorganization. Proceeds from the Loan Agreement were used to repay all borrowings under the Company's Prior Credit Facility. As a result, the Company recognized an extraordinary loss of $5.6 million associated with the Prior Credit Facility's unamortized debt issue costs. As of June 30, 2000, the Company had $6,386,957 and $246,048 of Series A Preferred Stock and Convertible Preferred Stock dividends in arrears, respectively. -19- 20 INFLATION Inflation has not had a significant impact on the Company's operations to date. SEASONALITY The Company's quarterly results of operations tend to be affected by film release patterns by producers and distributors, and the commercial success of films. In the past the year-end holiday season and the summer resulted in higher-than-average quarterly revenues for the Company. -20- 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not have any derivative financial instruments in place as of June 30, 2000. The following table presents the carrying and fair value at June 30, 2000 of the Company's senior subordinated debt along with its interest rates. Fair value is determined as the quoted price of the financial instrument.

PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 16, 2000, the Company filed voluntary petitions for Reorganization under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware. The Company is from time to time a party to legal proceedings that arise in the ordinary course of business. Management does not believe that the resolution of any threatened or pending legal proceedings will have a material adverse effect on the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company did not make scheduled senior subordinated notes interest payments of approximately $5.0 million when due on April 15, 2000 and is not currently in compliance with certain requirements of its Debtor-In-Possession facility. The senior subordinated notes include a restrictive covenant relative to the payment of dividends. As of June 30, 2000, aggregate Series A Preferred Stock and convertible preferred stock dividends of $6,386,957 and $246,048 are in arrears. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS There have been no matters submitted to a vote of the holders of securities of the Company since the Company became subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. ITEM 5. OTHER INFORMATION None. -21- 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. EXHIBIT NO. DESCRIPTION 27.1 Financial Data Schedule. (b) Reports on Form 8-K. DATE OF REPORT AND REGARDING (SEE ACTUAL FILING FOR COMPLETE FILING DATE DESCRIPTION) May 16, 2000 Announcement that the Company filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware in Wilmington, Delaware. Announcement that Foothill Capital Corporation had issued a commitment to the Company to provide $50.0 million in debtor-in-possession financing. -22- 23 SIGNATURES Pursuant to the requirement 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. SILVER CINEMAS INTERNATIONAL, INC. By /s/ THOMAS J. ANDRUS ------------------------------ Thomas J. Andrus Chief Financial Officer -23- 24 INDEX TO EXHIBITS

SILVER CINEMAS INTERNATIONAL INC 10-Q