Cannon Suffers $12-Million Loss, May Face Major Debt Payments
Cannon Group on Thursday reported a $12-million loss for its second quarter and said its net worth has slipped below the minimum $37.5-million level required by its lenders and debtors.
If the troubled Los Angeles-based entertainment company is still below that level at the end of its current quarter ending Oct. 3, the company could face hefty payments--totaling $49 million--to bankers and bondholders within three months.
Yet another deadline looms on Sept. 15, when Cannon’s bankers must decide whether to extend waivers to Cannon, which has not been in compliance with all of its obligations under its borrowing agreements. And on Oct. 15, Cannon faces an $11.7-million interest payment to bondholders.
“The pressure is on to restructure before all this happens in September and October,” said Lisbeth R. Barron, a research vice president at Balis Zorn Gerard Inc., an investment firm in New York.
Throughout the summer, a group of would-be rescuers has declared a willingness to restructure the company’s finances but has refused to unveil a plan until shareholder lawsuits are resolved and a Securities and Exchange Commission investigation ends.
The rescuers--who include Cannon’s two top officers, Menahem Golan and Yoram Globus, and European investors--have formed a new company called Intercorporation, which has already pumped $27 million into Cannon.
Scheer’s Added Role
On Thursday, Cannon announced that one of Intercorporation’s officers, Frederic G. E. Scheer, has been named chief financial officer, in addition to his posts as senior executive vice president and director.
Scheer, in a telephone interview, said he is resigning from all of his operating duties with European companies to concentrate on Cannon, although he will continue as president and chairman of another U.S.-based company, Imperial 400 National Inc., which owns 70 hotels.
“I’m working hard to get (Cannon) out of the crisis and to help the company and all of the employees of this company,” Scheer said.
For the past year, the SEC has been probing the company’s cost accounting practices and its financial disclosures since 1983. In a press release issued Thursday, Cannon said it “will conclude” settlement discussions with the SEC staff “very shortly.”
Cannon’s losses have totaled $82.4 million in the past 18 months, largely from repeated failures at the box office. As a result, the company has been forced to consider selling some of the assets--including theaters and a British film library--acquired in 1986.
As of Aug. 18, Cannon said it had borrowed $54 million of the $60-million sum available from a consortium of American banks and an additional $73 million from Credit Lyonnais, its largest European lender. The Credit Lyonnais borrowings exceed the $66 million authorized under three different credit arrangements with that bank.
“Credit Lyonnais has really come through for us,” said A. Steven Kaffen, Cannon’s newly hired vice president of finance who reports to Scheer. Kaffen, formerly with Levi Strauss in San Francisco, noted that Golan’s and Globus’ relationship with Credit Lyonnais’ bankers dates back many years to their days as independent film makers, before they took control of Cannon in 1979.
Cannon officials noted that the company’s consolidated net worth at the end of the second quarter would have been $42.6 million instead of $31 million if payment of $11.6 million had been recorded for the proposed sale of 1.45 million shares of Cannon stock to Intercorporation. The payment has already been accepted, even though the shares cannot be issued until shareholders vote on the matter.
Analysts do not anticipate shareholder objections since Intercorporation has agreed to pay $8 per share, even though Cannon shares have been trading below $5. The stock closed Thursday at $3.75 a share, down 12.5 cents on the New York Stock Exchange.
Cannon said its second-quarter results cannot be compared to those recorded a year ago because Cannon has decided that it is “impracticable” to restate the earlier financial statements.
