SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________________
FORM
10-Q
(Mark
One)
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended: September 30, 2006
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from _____________ to ___________
Commission
file number 1-8625
READING
INTERNATIONAL, INC.
(Exact
name of Registrant as specified in its charter)
NEVADA
(State
or other jurisdiction of incorporation or organization)
|
95-3885184
(IRS
Employer Identification No.)
|
|
|
500
Citadel Drive, Suite 300
Commerce
CA
(Address
of principal executive offices)
|
90040
(Zip
Code)
|
Registrant’s
telephone number, including area code: (213) 235-2240
Indicate
by check mark whether the registrant: (1) has filed all reports required
to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
þ
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one): Large
accelerated filer ¨
Accelerated filer þ
Non-accelerated filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
þ
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of November
6, 2006, there were 20,918,505 shares of Class A Nonvoting Common Stock,
$0.01
par value per share and 1,495,490 shares of Class B Voting Common Stock,
$0.01
par value per share outstanding.
READING
INTERNATIONAL, INC. AND
SUBSIDIARIES
TABLE
OF CONTENTS
PART
I - Financial
Information
Item
1 - Financial Statements
Reading
International, Inc. and Subsidiaries
Consolidated
Balance Sheets (Unaudited)
(U.S.
dollars in thousands)
|
|
September
30, 2006
|
|
December
31, 2005
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
8,050
|
|
$
|
8,548
|
|
Receivables
|
|
|
4,353
|
|
|
5,272
|
|
Inventory
|
|
|
437
|
|
|
468
|
|
Investment
in marketable securities
|
|
|
634
|
|
|
401
|
|
Restricted
cash
|
|
|
300
|
|
|
--
|
|
Prepaid
and other current assets
|
|
|
1,803
|
|
|
996
|
|
Total
current assets
|
|
|
15,577
|
|
|
15,685
|
|
Property
held for development
|
|
|
3,265
|
|
|
6,889
|
|
Property
under development
|
|
|
33,644
|
|
|
23,069
|
|
Property
& equipment, net
|
|
|
165,590
|
|
|
167,389
|
|
Investment
in unconsolidated entities
|
|
|
21,861
|
|
|
14,025
|
|
Capitalized
leasing costs
|
|
|
12
|
|
|
15
|
|
Goodwill
|
|
|
17,099
|
|
|
14,653
|
|
Intangible
assets, net
|
|
|
8,136
|
|
|
8,788
|
|
Other
assets
|
|
|
2,254
|
|
|
2,544
|
|
Total
assets
|
|
$
|
267,438
|
|
$
|
253,057
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
11,627
|
|
$
|
13,538
|
|
Film
rent payable
|
|
|
3,320
|
|
|
4,580
|
|
Notes
payable - current portion
|
|
|
1,617
|
|
|
1,776
|
|
Note
payable to related party - current portion
|
|
|
5,000
|
|
|
--
|
|
Income
taxes payable
|
|
|
8,303
|
|
|
7,504
|
|
Deferred
current revenue
|
|
|
1,970
|
|
|
2,319
|
|
Other
current liabilities
|
|
|
200
|
|
|
250
|
|
Total
current liabilities
|
|
|
32,037
|
|
|
29,967
|
|
Notes
payable - long-term portion
|
|
|
103,944
|
|
|
93,544
|
|
Note
payable to related parties
|
|
|
9,000
|
|
|
14,000
|
|
Deferred
non-current revenue
|
|
|
545
|
|
|
554
|
|
Other
liabilities
|
|
|
18,011
|
|
|
12,509
|
|
Total
liabilities
|
|
|
163,537
|
|
|
150,574
|
|
Commitments
and contingencies
|
|
|
--
|
|
|
--
|
|
Minority
interest in consolidated affiliates
|
|
|
2,015
|
|
|
3,079
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Class
A Nonvoting Common Stock, par value $0.01, 100,000,000 shares authorized,
35,495,729 issued and 20,918,505 outstanding at September 30, 2006
and
35,468,733 issued and 20,990,458 outstanding at December 31,
2005
|
|
|
215
|
|
|
215
|
|
Class
B Voting Common Stock, par value $0.01, 20,000,000 shares authorized
and
1,495,490 issued and outstanding at September 30, 2006 and December
31,
2005
|
|
|
15
|
|
|
15
|
|
Nonvoting
Preferred Stock, par value $0.01, 12,000 shares authorized and
no
outstanding shares
|
|
|
--
|
|
|
--
|
|
Additional
paid-in capital
|
|
|
128,184
|
|
|
128,028
|
|
Accumulated
deficit
|
|
|
(51,202
|
)
|
|
(53,914
|
)
|
Treasury
shares
|
|
|
(4,307
|
)
|
|
(3,515
|
)
|
Accumulated
other comprehensive income
|
|
|
28,981
|
|
|
28,575
|
|
Total
stockholders’ equity
|
|
|
101,886
|
|
|
99,404
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
267,438
|
|
$
|
253,057
|
|
See
accompanying notes to consolidated financial statements.
Reading
International, Inc. and
Subsidiaries
Consolidated
Statements of Operations (Unaudited)
(U.S.
dollars in thousands,
except per share amounts)
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
$
|
21,806
|
|
$
|
21,429
|
|
$
|
68,269
|
|
$
|
64,328
|
|
Real
estate
|
|
|
3,236
|
|
|
3,380
|
|
|
10,672
|
|
|
10,858
|
|
|
|
|
25,042
|
|
|
24,809
|
|
|
78,941
|
|
|
75,186
|
|
Operating
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
|
16,812
|
|
|
17,140
|
|
|
53,876
|
|
|
52,375
|
|
Real
estate
|
|
|
2,161
|
|
|
1,484
|
|
|
5,628
|
|
|
5,148
|
|
Depreciation
and amortization
|
|
|
3,385
|
|
|
3,242
|
|
|
9,963
|
|
|
9,409
|
|
General
and administrative
|
|
|
3,047
|
|
|
5,600
|
|
|
9,489
|
|
|
13,479
|
|
|
|
|
25,405
|
|
|
27,466
|
|
|
78,956
|
|
|
80,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(363
|
)
|
|
(2,657
|
)
|
|
(15
|
)
|
|
(5,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
70
|
|
|
40
|
|
|
157
|
|
|
149
|
|
Interest
expense
|
|
|
(1,835
|
)
|
|
(1,783
|
)
|
|
(5,217
|
)
|
|
(3,465
|
)
|
Other
income (loss)
|
|
|
209
|
|
|
(265
|
)
|
|
(945
|
)
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest expense, discontinued operations, income
tax
expense, and equity earnings of unconsolidated entities
|
|
|
(1,919
|
)
|
|
(4,665
|
)
|
|
(6,020
|
)
|
|
(8,517
|
)
|
Minority
interest expense
|
|
|
153
|
|
|
140
|
|
|
425
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(2,072
|
)
|
|
(4,805
|
)
|
|
(6,445
|
)
|
|
(9,076
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of business operations
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
13,610
|
|
Loss
from discontinued operations
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(1,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax expense and equity earnings of unconsolidated
entities
|
|
|
(2,072
|
)
|
|
(4,805
|
)
|
|
(6,445
|
)
|
|
3,155
|
|
Income
tax expense
|
|
|
540
|
|
|
190
|
|
|
1,222
|
|
|
643
|
|
Income
(loss) before equity earnings of unconsolidated entities and gain
on sale
of unconsolidated entity
|
|
|
(2,612
|
)
|
|
(4,995
|
)
|
|
(7,667
|
)
|
|
2,512
|
|
Equity
earnings of unconsolidated entities
|
|
|
5,263
|
|
|
423
|
|
|
6,937
|
|
|
1,013
|
|
Gain
on sale of unconsolidated entity
|
|
|
3,442
|
|
|
--
|
|
|
3,442
|
|
|
--
|
|
Net
income (loss)
|
|
$
|
6,093
|
|
$
|
(4,572
|
)
|
$
|
2,712
|
|
$
|
3,525
|
|
Earnings
(loss) per common share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations
|
|
$
|
0.27
|
|
$
|
(0.20
|
)
|
$
|
0.12
|
|
$
|
(0.39
|
)
|
Earnings
(loss) from discontinued operations, net
|
|
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
|
0.55
|
|
Basic
earnings (loss) per share
|
|
$
|
0.27
|
|
$
|
(0.20
|
)
|
$
|
0.12
|
|
$
|
0.16
|
|
Weighted
average number of shares outstanding - basic
|
|
|
22,413,995
|
|
|
22,437,569
|
|
|
22,425,941
|
|
|
22,168,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations
|
|
$
|
0.27
|
|
$
|
(0.20
|
)
|
$
|
0.12
|
|
$
|
(0.39
|
)
|
Earnings
from discontinued operations, net
|
|
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
|
0.55
|
|
Diluted
earnings (loss) per share
|
|
$
|
0.27
|
|
$
|
(0.20
|
)
|
$
|
0.12
|
|
$
|
0.16
|
|
Weighted
average number of shares outstanding - diluted
|
|
|
22,616,560
|
|
|
22,437,569
|
|
|
22,628,505
|
|
|
22,168,652
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statements of Cash Flows (Unaudited)
(U.S.
dollars in thousands)
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
Operating
Activities
|
|
|
|
|
|
Net
income
|
|
$
|
2,712
|
|
$
|
3,525
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
(Gain)
loss recognized on foreign currency transactions
|
|
|
22
|
|
|
(398
|
)
|
Equity
earnings of unconsolidated entities
|
|
|
(6,937
|
)
|
|
(1,013
|
)
|
Gain
on sale of unconsolidated entity
|
|
|
(3,442
|
)
|
|
--
|
|
Distributions
of earnings from unconsolidated entities
|
|
|
481
|
|
|
754
|
|
Gain
on sale of Puerto Rico Cinema Circuit
|
|
|
--
|
|
|
(1,597
|
)
|
Gain
on sale of Glendale Office Building
|
|
|
--
|
|
|
(12,013
|
)
|
(Gain)
loss on disposal of other assets
|
|
|
8
|
|
|
5
|
|
Depreciation
and amortization
|
|
|
9,963
|
|
|
9,409
|
|
Stock
based compensation expense
|
|
|
70
|
|
|
--
|
|
Minority
interest
|
|
|
425
|
|
|
559
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
in receivables
|
|
|
1,442
|
|
|
695
|
|
Decrease
(increase) in prepaid and other assets
|
|
|
(629
|
)
|
|
673
|
|
Decrease
in accounts payable and accrued expenses
|
|
|
(1,281
|
)
|
|
(1,343
|
)
|
Decrease
in film rent payable
|
|
|
(1,257
|
)
|
|
(907
|
)
|
Increase
(decrease) in deferred revenues and other liabilities
|
|
|
858
|
|
|
(1,224
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
2,435
|
|
|
(2,875
|
)
|
Investing
activities
|
|
|
|
|
|
|
|
Proceeds
from sale of an unconsolidated joint venture
|
|
|
4,573
|
|
|
--
|
|
Proceeds
from the sale of Puerto Rico Circuit
|
|
|
--
|
|
|
2,335
|
|
Proceeds
from the sale of Glendale Office Building
|
|
|
--
|
|
|
10,300
|
|
Acquisitions
|
|
|
(8,087
|
)
|
|
(14,354
|
)
|
Purchase
of property and equipment
|
|
|
(6,359
|
)
|
|
(23,244
|
)
|
Investments
in unconsolidated entities
|
|
|
(2,676
|
)
|
|
(905
|
)
|
Change
in restricted cash
|
|
|
(106
|
)
|
|
1,020
|
|
Purchase
of marketable securities
|
|
|
(215
|
)
|
|
(78
|
)
|
Proceeds
from disposal of assets
|
|
|
--
|
|
|
515
|
|
Net
cash used in investing activities
|
|
|
(12,870
|
)
|
|
(24,411
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
Repayment
of long-term borrowings
|
|
|
(2,957
|
)
|
|
(305
|
)
|
Proceeds
from borrowings
|
|
|
11,797
|
|
|
25,707
|
|
Option
deposit received
|
|
|
3,000
|
|
|
--
|
|
Proceeds
from exercise of stock options
|
|
|
87
|
|
|
91
|
|
Repurchase
of Class A Nonvoting Common Stock
|
|
|
(792
|
)
|
|
--
|
|
Minority
interest distributions
|
|
|
(1,496
|
)
|
|
(557
|
)
|
Net
cash provided by financing activities
|
|
|
9,639
|
|
|
24,936
|
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
|
298
|
|
|
260
|
|
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
|
(498
|
)
|
|
(2,090
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
8,548
|
|
|
12,292
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
8,050
|
|
$
|
10,202
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
6,402
|
|
$
|
4,411
|
|
Income
taxes paid
|
|
$
|
369
|
|
$
|
254
|
|
Non-cash
transactions
|
|
|
|
|
|
|
|
Common
stock issued for note receivable (Note 2)
|
|
$
|
--
|
|
$
|
55
|
|
Increase
in cost basis of Cinemas 1, 2, & 3 related to the purchase price
adjustment of the call option liability to related party
|
|
$
|
1,087
|
|
|
--
|
|
Buyer
assumption of note payable on Glendale Office Building
|
|
$
|
--
|
|
$
|
10,103
|
|
Non-cash
financing of acquisition
|
|
$
|
--
|
|
$
|
9,000
|
|
Property
addition from purchase option asset
|
|
$
|
--
|
|
$
|
1,337
|
|
Treasury
shares received
|
|
$
|
--
|
|
$
|
(3,515
|
)
|
Stock
options exercised in exchange for treasury shares received
|
|
$
|
--
|
|
$
|
3,515
|
|
See
accompanying notes to consolidated financial statements.
Reading
International, Inc. and
Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
For
the Nine Months Ended September 30, 2006
Note
1 - Basis of Presentation
Reading
International, Inc., a Nevada corporation (“RDI” and collectively with our
consolidated subsidiaries and corporate predecessors, the “Company,” “Reading”
and “we,” “us,” or “our”), was founded in 1983 as a Delaware corporation and
reincorporated in 1999 in Nevada. Our businesses consist primarily
of:
|
·
|
the
development, ownership and operation of multiplex cinemas in the
United
States, Australia, and New Zealand
and
|
|
·
|
the
development, ownership and operation of retail and commercial real
estate
in Australia, New Zealand and the United States, including
entertainment-themed retail centers (“ETRC”) in Australia and New Zealand
and live theatre assets in Manhattan and Chicago in the United
States.
|
The
accompanying unaudited consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States
of
America (“US GAAP”) for interim reporting and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission
for
interim reporting. As such, certain
information and footnote disclosures typically required by US GAAP for complete
financial statements have been condensed or omitted. There have been no material
changes in the information disclosed in the notes to the consolidated financial
statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2005 (“2005 Annual Report”). The financial information presented in
this quarterly report on Form 10-Q for the period ended September 30, 2006
(the
“September Report”), including the information under the heading, Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
should
be read in conjunction with our 2005 Annual Report which contains the latest
audited financial statements and related footnotes.
In
the
opinion of management, all adjustments of a normal recurring nature considered
necessary to present fairly in all material respects our financial position,
results of our operations and cash flows as of and for the three months and
nine
months ended September 30, 2006 have been made. The results of operations
for
the three months and nine months ended September 30, 2006 are not necessarily
indicative of the results of operations to be expected for the entire
year.
Marketable
Securities
We
have
available for sale investments in marketable securities primarily in Australia
of $634,000 at September 30, 2006 with a cumulative unrealized gain of $35,000
at September 30, 2006. For the three months and nine months ended September
30,
2006 our net unrealized gain on marketable securities was $7,000 and
$24,000.
New
Accounting and Tax Pronouncements
Statement
of Financial Accounting Standard No. 157
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 157, Fair
Value Measurement
(SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring
fair
value in accordance with Generally Accepted Accounting Principles (GAAP),
and
expands disclosures about fair value measurements. The provisions of SFAS
157
are effective for fiscal years
beginning
after November 15, 2007. We are evaluating SFAS 157 and have not yet determined
the impact the adoption will have on the consolidated financial
statements.
Financial
Interpretation No. 48
In
June
2006, the Financial Accounting Standards Board issued Financial Interpretation
No. 48 Accounting
for Uncertainty in Income Taxes—an Interpretation of FASB Statement No.
109.
This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes
a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. This Interpretation is effective for fiscal years
beginning after December 15, 2006. As the Interpretation will not affect
our
financials until the first quarter of 2007, we have not yet evaluated the
impact
of this statement on our consolidated financial statements.
Staff
Accounting Bulletin (SAB) 108
The
SEC
staff’s recently issued Staff Accounting Bulletin (SAB) 108 provides guidance on
quantifying and evaluating the materiality of unrecorded misstatements. SAB
108
is effective for annual financial statements covering the first fiscal year
ending after November 15, 2006.
SAB
108
requires that a company use both the “iron curtain” and “rollover” approaches
when quantifying misstatement amounts. The determination that an error is
material in a current year that includes prior-year effects may result in
the
need to correct prior-year financial statements, even if the misstatement
in the
prior year or years is considered immaterial. When companies correct prior-year
financial statements for immaterial errors, SAB 108 does not require previously
filed reports to be amended. Such correction may be made the next time the
company files the prior year financial statements.
When
preparing its financial statements for fiscal years ending on or before November
15, 2006, a company may have quantified errors by using either the iron curtain
or rollover approach, but not both. Based on the guidance in SAB 108, after
applying both approaches, a company may now conclude that errors existing
in the
previously issued financial statements are material. For some companies,
the
adoption of SAB 108 may result in the need to record corrections for errors
that
were properly determined to be immaterial prior to SAB 108’s adoption. In these
circumstances, SAB 108 permits registrants to record the correcting amount
as an
adjustment to the opening balance of assets and liabilities, with an offsetting
cumulative effect adjustment to retained earnings as of the beginning of
the
year of adoption. We have not yet determined the impact of adopting SAB 108
on
our consolidated financial statements.
Note
2 - Stock-Based Compensation
We
have a
long-term incentive stock option plan that provides for the grant to eligible
employees and non-employee directors of incentive stock options and
non-qualified stock options to purchase shares of the Company’s Class A
Nonvoting Common Stock. During the nine months ending September 30, 2006,
we
issued for cash to an employee of the corporation under this stock based
compensation plan 12,000 shares and 15,000 shares of Class A Nonvoting Common
Stock at exercise prices of $3.80 and $2.76 per share, respectively. During
the
nine months ending September 30, 2005, we did not issue any shares under
this
stock based compensation plan.
Prior
to
January 1, 2006, we accounted for stock-based employee compensation under
the
intrinsic value method as outlined in the provisions of APB Opinion No.
25,
Accounting
for Stock Issued to Employees,
and
related interpretations while disclosing pro-forma net income and pro-forma
net
income per share as if the fair value method had been applied in accordance
with
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation.
Under
the intrinsic value method, we did not recognize any compensation expense
when
the exercise price of the stock options equaled or exceeded the market
price of
the underlying stock on the date of grant. We issued all stock option grants
with exercise prices equal to, or greater than, the market value of the
common
stock on the date of grant. No stock compensation expense was recognized
in the
consolidated statements of operations through December 31, 2005.
Effective
January 1, 2006, we adopted SFAS No. 123(R), Share-Based
Payment
(SFAS
123(R)) which replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS
123(R) requires that all stock-based compensation be recognized as an expense
in
the financial statements and that such costs be measured at the fair value
of
the award. This statement was adopted using the modified prospective method,
which requires the Company to recognize compensation expense on a prospective
basis for all newly granted options and any modifications or cancellations
of
previously granted awards. Therefore, prior period consolidated financial
statements have not been restated. Under this method, in addition to reflecting
compensation expense for new share-based payment awards, modifications to
awards, and cancellations of awards, expense is also recognized to reflect
the
remaining vesting period of awards that had been included in pro-forma
disclosures in prior periods. We estimate the valuation of stock based
compensation using a Black-Scholes option pricing formula.
When
the
Company’s tax deduction from an option exercise exceeds the compensation cost
resulting from the option, a tax benefit is created. SFAS 123(R) requires
that
excess tax benefits related to stock option exercises be reflected as financing
cash inflows instead of operating cash inflows. Had we previously adopted
SFAS
123(R), there would have been no impact on our presentation of the consolidated
statement of cash flows because there were no recognized tax benefits relating
to the three months and nine months ended September 30, 2005. For the three
months and nine months ended September 30, 2006, there also was no impact
to the
consolidated statement of cash flows because there were no recognized tax
benefits during this period.
SFAS
No.
123(R) requires Companies to estimate forfeitures. Based on our historical
experience and the relative market price to strike price of the options,
we do
not currently estimate any forfeitures of vested or unvested options that
would
result in a cumulative adjustment from a change in accounting principle for
the
nine months ended September 30, 2006.
In
November 2005, the FASB issued FASB Staff Position No. SFAS 123(R)-3,
Transition
Election Related to Accounting for Tax Effects of Share-Based Payment
Awards.
The
Company has elected to adopt the alternative transition method provided in
this
FASB Staff Position for calculating the tax effects of share-based compensation
pursuant to SFAS No. 123(R). The alternative transition method includes a
simplified method to establish the beginning balance of the additional paid-in
capital pool or APIC pool related to the tax effects of employee share-based
compensation, which is available to absorb tax deficiencies recognized
subsequent to the adoption of SFAS No. 123(R).
In
accordance with SFAS No. 123(R), we estimate the fair value of our options
using
the Black-Scholes option-pricing model, which takes into account assumptions
such as the dividend yield, the risk-free interest rate, the expected stock
price volatility and the expected life of the options. The dividend yield
is
excluded from the calculation, as it is our present intention to retain all
earnings. We expense the estimated grant date fair values of options issued
on a
straight-line basis over the vesting period.
There
were 7,500 options granted during the nine months ended September 30, 2005.
In
accordance with SFAS No. 123, we used the intrinsic value method and did
not
recognize any compensation expense when the exercise price of the stock options
equaled or exceeded the market price of the underlying stock on the date
of
grant.
For the 20,000 options granted during 2006, we estimated the fair value of
these
options at the date of grant using a Black-Scholes option-pricing model with
the
following weighted average assumptions:
|
2006
|
Stock
option exercise price
|
$
8.10
|
Risk-free
interest rate
|
4.22%
|
Expected
dividend yield
|
--
|
Expected
option life
|
5.97
yrs
|
Expected
volatility
|
34.70%
|
Weighted
average fair value
|
$
4.33
|
Using
the
above assumptions and in accordance with the SFAS No. 123(R) modified
prospective method, we recorded $25,000 and $70,000 in compensation expense
for
the total estimated grant date fair value of stock options that vested for
the
three months and nine months ended September 30, 2006, respectively. At
September 30, 2006, the total unrecognized estimated compensation cost related
to non-vested stock options granted was $118,000, which is expected to be
recognized over a weighted average vesting period of 1.84 years. The total
realized value of stock options exercised during the nine months ended September
30, 2006 was $131,000. We recorded cash received from stock options exercised
of
$87,000 during the nine months ended September 30, 2006. No options were
exercised; therefore, no cash was received from the exercising of stock options
during the three months ending September 30, 2006. The intrinsic, unrealized
value of all options outstanding at September 30, 2006 was $1.6 million of
which
99% are currently exercisable. The total fair value of the stock options
that
are vesting for the remainder of this year, but have not yet reached their
vesting date, is $15,000 as of September 30, 2006.
All
stock
options granted have a contractual life of 10 years at the grant date. The
aggregate total number of shares of Class A Nonvoting Common Stock and Class
B
Voting Common Stock authorized for issuance under our 1999 Stock Option Plan
is
1,350,000. At the time that options are exercised, at the discretion of
management, we will either issue treasury shares or make a new issuance of
shares to the employee or board member. Dependent on the grant letter to
the
employee or board member, the required service period for option vesting
is
between zero and four years.
We
had
the following stock options outstanding and exercisable as of September 30,
2006
and December 31, 2005:
|
|
Common
Stock Options Outstanding
|
|
Weighted
Average
Price
of Options Outstanding
|
|
Common
Stock Exercisable
Options
|
|
Weighted
Average
Price
of Exercisable
Options
|
|
|
|
Class
A
|
|
Class
B
|
|
Class
A
|
|
Class
B
|
|
Class
A
|
|
Class
B
|
|
Class
A
|
|
Class
B
|
|
Outstanding-December
31, 2004
|
|
|
1,488,200
|
|
|
185,100
|
|
$
|
4.19
|
|
$
|
9.90
|
|
|
1,377,700
|
|
|
185,100
|
|
$
|
4.80
|
|
$
|
9.90
|
|
Exercised
|
|
|
(974,600
|
)
|
|
--
|
|
$
|
3.78
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
7,500
|
|
|
--
|
|
$
|
7.86
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding-December
31, 2005
|
|
|
521,100
|
|
|
185,100
|
|
$
|
5.00
|
|
$
|
9.90
|
|
|
474,600
|
|
|
185,100
|
|
$
|
5.04
|
|
$
|
9.90
|
|
Exercised
|
|
|
(27,000
|
)
|
|
--
|
|
$
|
3.22
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
20,000
|
|
|
--
|
|
$
|
8.10
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding-September
30, 2006
|
|
|
514,100
|
|
|
185,100
|
|
$
|
5.21
|
|
$
|
9.90
|
|
|
488,475
|
|
|
185,100
|
|
$
|
5.06
|
|
$
|
9.90
|
|
The
weighted average remaining contractual life of all options outstanding at
September 30, 2006 and 2005 were approximately 3.85 and 4.79 years,
respectively. The weighted average remaining contractual life of the exercisable
options outstanding at September 30, 2006 and 2005 was approximately 3.64
and
4.53 years, respectively.
The
following table illustrates the effect on net income per common share for
the
three months and nine months ended September 30, 2005 as if we had consistently
measured the compensation cost for stock option programs under the fair
value
method adopted on January 1, 2006 (dollars in thousands):
|
|
Three
Months
Ended
September 30,
2005
|
|
Nine
Months
Ended
September 30,
2005
|
|
Net
income (loss), as reported
|
|
$
|
(4,572
|
)
|
$
|
3,525
|
|
Add:
Stock-based employee/director compensation expense included in
reported
net income
|
|
|
--
|
|
|
--
|
|
Less:
Total stock-based employee compensation expense determined under
fair
value based method for all awards
|
|
|
20
|
|
|
61
|
|
Pro
forma net income (loss)
|
|
$
|
(4,592
|
)
|
$
|
3,464
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
Basic
and diluted—as reported
|
|
$
|
(0.20
|
)
|
$
|
0.16
|
|
Basic
and diluted—pro forma
|
|
$
|
(0.20
|
)
|
$
|
0.16
|
|
Note
3 - Business Segments
Our
operations are organized into two reportable business segments within the
meaning of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information.
Our
reportable segments are (1)
cinema
exhibition and (2)
real
estate. The cinema segment is engaged in the development, ownership and
operation of multiplex cinemas. The real estate segment is engaged in the
development, ownership and operation of commercial properties, including
ETRC’s
in Australia and New Zealand and live theatres in the United States.
Historically, our development projects have included a cinema component.
Incident to our real estate operations we have acquired, and continue to
hold,
raw land in urban and suburban centers in Australia and New
Zealand.
The
tables below summarize the results of operations for each of our principal
business segments for the three (“2006 Quarter”) and nine (“2006 Nine Months”)
months ended September 30, 2006 and the three (“2005 Quarter”) and nine (“2005
Nine Months”) months ended September 30, 2005, respectively. Operating expenses
include costs associated with the day-to-day operations of the cinemas and
live
theatres and the management of rental properties. All operating results from
discontinued operations are included in “Loss from discontinued operations”
(dollars in thousands):
Three
Months Ended September 30, 2006
|
|
Cinema
|
|
Real
Estate
|
|
Total
|
|
Revenue
|
|
$
|
21,806
|
|
$
|
3,236
|
|
$
|
25,042
|
|
Operating
expense
|
|
|
16,812
|
|
|
2,161
|
|
|
18,973
|
|
Depreciation
& amortization
|
|
|
2,245
|
|
|
989
|
|
|
3,234
|
|
General
& administrative expense
|
|
|
1,306
|
|
|
577
|
|
|
1,883
|
|
Segment
operating income (loss)
|
|
$
|
1,443
|
|
$
|
(491
|
)
|
$
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2005
|
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Total
|
|
Revenue
|
|
$
|
21,429
|
|
$
|
3,380
|
|
$
|
24,809
|
|
Operating
expense
|
|
|
17,140
|
|
|
1,484
|
|
|
18,624
|
|
Depreciation
& amortization
|
|
|
2,140
|
|
|
930
|
|
|
3,070
|
|
General
& administrative expense
|
|
|
1,840
|
|
|
79
|
|
|
1,919
|
|
Segment
operating income
|
|
$
|
309
|
|
$
|
887
|
|
$
|
1,196
|
|
Reconciliation
to consolidated net income (loss):
|
|
2006
Quarter
|
|
2005
Quarter
|
|
Total
segment operating income
|
|
$
|
952
|
|
$
|
1,196
|
|
Non-segment:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
151
|
|
|
172
|
|
General
and administrative expense
|
|
|
1,164
|
|
|
3,681
|
|
Operating
loss
|
|
|
(363
|
)
|
|
(2,657
|
)
|
Interest
expense, net
|
|
|
(1,765
|
)
|
|
(1,743
|
)
|
Other
income (loss)
|
|
|
209
|
|
|
(265
|
)
|
Minority
interest expense
|
|
|
(153
|
)
|
|
(140
|
)
|
Income
tax expense
|
|
|
(540
|
)
|
|
(190
|
)
|
Equity
earnings of unconsolidated entities
|
|
|
5,263
|
|
|
423
|
|
Gain
on sale of unconsolidated entity
|
|
|
3,442
|
|
|
--
|
|
Net
income (loss)
|
|
$
|
6,093
|
|
$
|
(4,572
|
)
|
Nine
Months Ended September 30, 2006
|
|
Cinema
|
|
Real
Estate
|
|
Total
|
|
Revenue
|
|
$
|
68,269
|
|
$
|
10,672
|
|
$
|
78,941
|
|
Operating
expense
|
|
|
53,876
|
|
|
5,628
|
|
|
59,504
|
|
Depreciation
& amortization
|
|
|
6,600
|
|
|
3,009
|
|
|
9,609
|
|
General
& administrative expense
|
|
|
2,815
|
|
|
578
|
|
|
3,393
|
|
Segment
operating income
|
|
$
|
4,978
|
|
$
|
1,457
|
|
$
|
6,435
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2005
|
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Total
|
|
Revenue
|
|
$
|
64,328
|
|
$
|
10,858
|
|
$
|
75,186
|
|
Operating
expense
|
|
|
52,375
|
|
|
5,148
|
|
|
57,523
|
|
Depreciation
& amortization
|
|
|
6,371
|
|
|
2,794
|
|
|
9,165
|
|
General
& administrative expense
|
|
|
5,405
|
|
|
255
|
|
|
5,660
|
|
Segment
operating income
|
|
$
|
177
|
|
$
|
2,661
|
|
$
|
2,838
|
|
Reconciliation
to consolidated net income:
|
|
2006
Nine Months
|
|
2005
Nine Months
|
|
Total
segment operating income
|
|
$
|
6,435
|
|
$
|
2,838
|
|
Non-segment:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
354
|
|
|
244
|
|
General
and administrative expense
|
|
|
6,096
|
|
|
7,819
|
|
Operating
loss
|
|
|
(15
|
)
|
|
(5,225
|
)
|
Interest
expense, net
|
|
|
(5,060
|
)
|
|
(3,316
|
)
|
Other
income (loss)
|
|
|
(945
|
)
|
|
24
|
|
Minority
interest expense
|
|
|
(425
|
)
|
|
(559
|
)
|
Gain
on disposal of discontinued operations
|
|
|
--
|
|
|
13,610
|
|
Loss
from discontinued operations
|
|
|
--
|
|
|
(1,379
|
)
|
Income
tax expense
|
|
|
(1,222
|
)
|
|
(643
|
)
|
Equity
earnings of unconsolidated entities
|
|
|
6,937
|
|
|
1,013
|
|
Gain
on sale of unconsolidated entity
|
|
|
3,442
|
|
|
--
|
|
Net
income
|
|
$
|
2,712
|
|
$
|
3,525
|
|
Note
4 - Operations in Foreign Currency
We
have
significant assets in Australia and New Zealand. To the extent possible,
we
conduct our Australian and New Zealand operations on a self-funding basis.
The
carrying value of our Australian and New Zealand assets fluctuate due to
changes
in the exchange rates between the US dollar and the functional currency of
Australia (Australian dollar) and New Zealand (New Zealand dollar). We have
no
derivative financial instruments to hedge foreign currency
exposure.
Presented
in the table below are the currency exchange rates for Australia and New
Zealand
as of September 30, 2006 and December 31, 2005:
|
|
US
Dollar
|
|
|
|
September
30, 2006
|
|
December
31, 2005
|
|
Australian
Dollar
|
|
$
|
0.7461
|
|
$
|
0.7342
|
|
New
Zealand Dollar
|
|
$
|
0.6530
|
|
$
|
0.6845
|
|
Note
5 - Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed by dividing net earnings (loss) to
common
stockholders by the weighted average number of common shares outstanding
during
the period. Diluted earnings (loss) per share is computed by dividing net
earnings (loss) to common stockholders by the weighted average number of
common
shares outstanding during the period after giving effect to all potentially
dilutive common shares that would have been outstanding if the dilutive common
shares had been issued. Stock options give rise to potentially dilutive common
shares. In accordance with SFAS No. 128, “Earnings
Per Share,” these
shares are included in the dilutive earnings per share calculation under
the
treasury stock method. The following is a calculation of earnings per share
(dollars in thousands, except share data):
|
|
Three
Months Ending
September
30,
|
|
Nine
Months Ending
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Income
(loss) from continuing operations
|
|
$
|
6,093
|
|
$
|
(4,572
|
)
|
$
|
2,712
|
|
$
|
(8,706
|
)
|
Income
from discontinued operations
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
12,231
|
|
Net
income (loss)
|
|
|
6,093
|
|
|
(4,572
|
)
|
|
2,712
|
|
|
3,525
|
|
Weighted
average shares of common stock - basic
|
|
|
22,413,995
|
|
|
22,437,569
|
|
|
22,425,941
|
|
|
22,168,652
|
|
Weighted
average shares of common stock - dilutive
|
|
|
22,616,560
|
|
|
22,437,569
|
|
|
22,628,505
|
|
|
22,168,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations - basic and diluted
|
|
$
|
0.27
|
|
$
|
(0.20
|
)
|
$
|
0.12
|
|
$
|
(0.39
|
)
|
Earnings
from discontinued operations - basic and diluted
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
0.55
|
|
Earnings
(loss) per share - basic and diluted
|
|
$
|
0.27
|
|
$
|
(0.20
|
)
|
$
|
0.12
|
|
$
|
0.16
|
|
For
the
three months and nine months ended September 30, 2005, we recorded operating
losses. As such, the incremental shares of 215,056 in 2005 from stock options
to
purchase shares of common stock were excluded from the computation of diluted
earnings (loss) per share because they were anti-dilutive in those
periods.
Note
6 - Property Under Development and Property and Equipment
As
of
September 30, 2006 and December 31, 2005, we owned property under development
summarized as follows (dollars in thousands):
Property
Under Development
|
|
September
30,
2006
|
|
December
31,
2005
|
|
Land
|
|
$
|
26,885
|
|
$
|
18,585
|
|
Construction-in-progress
(including capitalized interest)
|
|
|
6,759
|
|
|
4,484
|
|
Property
Under Development
|
|
$
|
33,644
|
|
$
|
23,069
|
|
We
recorded capitalized interest related to our properties under development
for
the three months ended September 30, 2006 and 2005 of $449,000 and $706,000,
respectively, and $1.2 million and $1.8 million for nine months ended September
30, 2006 and 2005, respectively.
As
of
September 30, 2006 and December 31, 2005, we owned investments in property
and
equipment as follows (dollars in thousands):
|
|
September
30,
2006
|
|
December
31,
2005
|
|
Property
and equipment
|
|
|
|
|
|
Land
|
|
$
|
55,502
|
|
$
|
54,476
|
|
Building
|
|
|
94,312
|
|
|
92,188
|
|
Leasehold
interest
|
|
|
9,727
|
|
|
9,075
|
|
Construction-in-progress
|
|
|
1,088
|
|
|
863
|
|
Fixtures
and equipment
|
|
|
54,420
|
|
|
51,221
|
|
|
|
|
215,049
|
|
|
207,823
|
|
Less
accumulated depreciation
|
|
|
(49,459
|
)
|
|
(40,434
|
)
|
Property
and equipment, net
|
|
$
|
165,590
|
|
$
|
167,389
|
|
Depreciation
expense for property and equipment was $3.2 million and $2.9 million for
the
three months ended September 30, 2006 and 2005, respectively, and $9.3 million
and $8.5 million for the nine months ended September 30, 2006 and 2005,
respectively.
Note
7 - Investments in Unconsolidated Entities
Investments
in unconsolidated entities are accounted for under the equity method of
accounting, and, as of September 30, 2006 and December 31, 2005, include
the
following (dollars in thousands):
|
|
Interest
|
|
September
30,
2006
|
|
December
31,
2005
|
|
Malulani
Investments, Ltd.
|
|
|
18.4
%
|
|
$
|
1,800
|
|
$
|
--
|
|
Rialto
Distribution
|
|
|
33.3
%
|
|
|
646
|
|
|
734
|
|
Rialto
Cinemas
|
|
|
50.0
%
|
|
|
5,241
|
|
|
4,691
|
|
205-209
East 57th
Street Associates, LLC
|
|
|
25.0
%
|
|
|
9,085
|
|
|
3,139
|
|
Mt.
Gravatt
|
|
|
33.3
%
|
|
|
4,593
|
|
|
4,052
|
|
Berkeley
Cinemas
|
|
|
50.0
%
|
|
|
496
|
|
|
1,409
|
|
Total
|
|
|
|
|
$
|
21,861
|
|
$
|
14,025
|
|
For
the
three months and nine months ending September 30, 2006 and 2005, we recorded
our
share of equity earnings (loss) from our investments in unconsolidated entities
as follows:
|
|
Three
Months Ending
September
30,
|
|
Nine
Months Ending
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Rialto
Distribution
|
|
$
|
(31
|
)
|
$
|
--
|
|
$
|
(53
|
)
|
$
|
--
|
|
Rialto
Cinemas
|
|
|
(123
|
)
|
|
--
|
|
|
(123
|
)
|
|
--
|
|
205-209
East 57th
Street Associates, LLC
|
|
|
5,027
|
|
|
--
|
|
|
5,946
|
|
|
--
|
|
Mt.
Gravatt
|
|
|
194
|
|
|
92
|
|
|
473
|
|
|
310
|
|
Berkeley
Cinemas
|
|
|
196
|
|
|
331
|
|
|
694
|
|
|
703
|
|
|
|
$
|
5,263
|
|
$
|
423
|
|
$
|
6,937
|
|
$
|
1,013
|
|
Rialto
Cinemas
As
noted
in our 2005 Annual Report, we were in dispute with our joint venture partner,
which precluded us from receiving timely financial reporting which required
us
to treat our ownership of Rialto Cinemas on a cost
basis. We have now resolved the dispute and are receiving regular financial
reporting on the results of the cinemas. As such, for the three and nine
months
ending September 30, 2006, we recorded equity losses $123,000 (NZ$192,000)
related to the cinemas’ operations. Also during the three months ended September
30, 2006, we contributed an additional $876,000 (NZ$1.4 million) to the
partnership that was used to pay off the bank loans owed by the
cinemas.
205-209
East 57th
Street Associates, LLC
During
2006, this joint venture has been developing a residential condominium complex
in midtown Manhattan called Place 57. This partnership has closed on the
sales
of 36 and 47 condominiums during the three and nine months ending September
30,
2006, respectively, resulting in gross sales of $71.2 million and $87.0 million,
respectively, and equity earnings from unconsolidated entities to us of $5.0
million and $5.9 million, respectively. The condensed statement of operations
for 205-209 East 57th Street Associates, LLC (Unaudited) is as
follows:
|
|
2006
Nine Months
|
|
Net
revenue
|
|
$
|
86,998
|
|
Operating
expense
|
|
|
63,214
|
|
Net
income
|
|
|
23,784
|
|
Malulani
Investments, Ltd.
On
June
26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real
estate company with holdings principally in California, Texas and Hawaii,
including the Guenoc Winery located on approximately 22,000 acres of land
located in Napa and Lake Counties in Northern California. We are still in
the
process of determining the purchase price allocation for this acquisition.
We
have been in contact with the controlling shareholder of Malulani Investments,
Ltd. and requested quarterly or annual operating financials. To date, he
has not
responded to our request for relevant financial information. Based on this
situation, we do not believe that we can assert significant influence over
the
dealings of this joint venture. As such and in accordance with FASB
Interpretation No. 35 - Criteria
for Applying the Equity Method of Accounting for Investments in Common Stock
-
an Interpretation of APB Opinion No. 18,
we are
treating this investment on a cost basis by recognizing earnings as they
are
distributed to us.
Berkeley
Cinemas
On
August
28, 2006, we sold to our Joint Venture Partner our interest in the cinemas
at
Whangaparaoa, Takapuna and Mission Bay, New Zealand for $4.6 million (NZ$7.2
million) in cash and the assumption of $1.6 million (NZ$2.5 million) in debt.
The sale resulted in a gain on sale of unconsolidated entity for the three
months and nine months ending September 30, 2006 of $3.4 million (NZ$5.4
million).
Additionally,
effective April 1, 2006, we purchased from our Joint Venture partner the
50%
share that we did not already own of the Palms cinema located in Christchurch,
New Zealand for cash of $2.8 million (NZ$4.5 million) and the proportionate
share of assumed debt which amounted to $993,000 (NZ$1.6 million). This
8-screen, leasehold cinema had previously been included in our Berkeley Cinemas
Joint Venture investment and was not previously consolidated for accounting
purposes. Subsequent to April 1, 2006, we have consolidated this entity into
our
financial statements.
As
of
September 30, 2006, the only remaining cinema owned by this joint venture
is the
Botany Downs cinema, located in suburban Auckland.
Note
8 - Goodwill and Intangible Assets
Subsequent
to January 1, 2002, in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets,
we do
not amortize goodwill. Instead, we perform an annual impairment review of
our
goodwill and other intangible assets in the fourth quarter unless changes
in
circumstances indicate that an asset may be impaired. As of September 30,
2006
and December 31, 2005, we had goodwill consisting of the following (dollars
in
thousands):
|
|
September
30,
2006
|
|
December
31,
2005
|
|
Segments
|
|
|
|
|
|
Cinema
|
|
$
|
11,963
|
|
$
|
9,489
|
|
Real
estate
|
|
|
5,136
|
|
|
5,164
|
|
Total
|
|
$
|
17,099
|
|
$
|
14,653
|
|
The
increase in goodwill in the cinema segment of $2.5 million was primarily
related
to the purchase of the Queenstown and Palms Cinemas (see Note 18 - Acquisitions
and Dispositions).
We
have finalized the purchase price allocation for these acquisitions in
accordance with SFAS No. 141 Business
Combinations.
We
have
intangible assets other than goodwill that are subject to amortization and
are
being amortized over various periods. We amortize our beneficial leases over
the
lease period, the longest of which is 20 years, and our option fee and other
intangible assets over 10 years. For the three months ended September 30,
2006
and 2005, amortization expense totaled $223,000 and $297,000, respectively,
and
for the nine months ended September 30, 2006 and 2005, the amortization expense
totaled $638,000 and $909,000, respectively.
Intangible
assets subject to amortization consist of the following (dollars in
thousands):
As
of September 30, 2006
|
|
Beneficial
Leases
|
|
Option
Fee
|
|
Other
Intangible Assets
|
|
Total
|
|
Gross
carrying amount
|
|
$
|
10,953
|
|
$
|
2,773
|
|
$
|
202
|
|
$
|
13,928
|
|
Less:
Accumulated amortization
|
|
|
3,373
|
|
|
2,403
|
|
|
16
|
|
|
5,792
|
|
Total,
net
|
|
$
|
7,580
|
|
$
|
370
|
|
$
|
186
|
|
$
|
8,136
|
|
As
of December 31, 2005
|
|
Beneficial
Leases
|
|
Option
Fee
|
|
Other
Intangible Assets
|
|
Total
|
|
Gross
carrying amount
|
|
$
|
10,957
|
|
$
|
2,773
|
|
$
|
212
|
|
$
|
13,942
|
|
Less:
Accumulated amortization
|
|
|
2,809
|
|
|
2,332
|
|
|
13
|
|
|
5,154
|
|
Total,
net
|
|
$
|
8,148
|
|
$
|
441
|
|
$
|
199
|
|
$
|
8,788
|
|
Note
9 - Prepaid and Other Assets
Prepaid
and other assets are summarized as follows (dollars in thousands):
|
|
September
30,
2006
|
|
December
31,
2005
|
|
Prepaid
and other current assets
|
|
|
|
|
|
Prepaid
expenses
|
|
$
|
971
|
|
$
|
246
|
|
Prepaid
taxes
|
|
|
452
|
|
|
370
|
|
Deposits
|
|
|
161
|
|
|
157
|
|
Other
|
|
|
219
|
|
|
223
|
|
Total
prepaid and other current assets
|
|
$
|
1,803
|
|
$
|
996
|
|
|
|
|
|
|
|
|
|
Other
non-current assets
|
|
|
|
|
|
|
|
Other
non-cinema and non-rental real estate assets
|
|
$
|
1,314
|
|
$
|
1,314
|
|
Long-term
restricted cash
|
|
|
--
|
|
|
191
|
|
Deferred
financing costs, net
|
|
|
604
|
|
|
847
|
|
Other
|
|
|
336
|
|
|
192
|
|
Total
non-current assets
|
|
$
|
2,254
|
|
$
|
2,544
|
|
Note
10 - Income Tax
The
income tax expense for the three months and nine months ended September 30,
2006
and 2005 was composed of the following amounts (dollars in
thousands):
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Foreign
income tax provision
|
|
$
|
76
|
|
$
|
31
|
|
$
|
135
|
|
$
|
103
|
|
Foreign
withholding tax
|
|
|
138
|
|
|
126
|
|
|
411
|
|
|
371
|
|
Federal
tax provision
|
|
|
235
|
|
|
--
|
|
|
490
|
|
|
51
|
|
Other
income tax
|
|
|
91
|
|
|
33
|
|
|
186
|
|
|
118
|
|
Income
tax expense
|
|
$
|
540
|
|
$
|
190
|
|
$
|
1,222
|
|
$
|
643
|
|
Note
11 - Notes Payable
Notes
payable are summarized as follows (dollars in thousands):
|
|
Interest
Rates as of
|
|
|
|
Balance
as of
|
|
Name
of Note Payable
|
|
September
30, 2006
|
|
December
31, 2005
|
|
Maturity
Date
|
|
September
30, 2006
|
|
December
31, 2005
|
|
Australian
Corporate Credit Facility
|
|
|
7.13
%
|
|
|
6.96
%
|
|
|
January
1, 2009
|
|
$
|
66,733
|
|
$
|
32,442
|
|
Australian
Newmarket Construction Loan
|
|
|
N/A
%
|
|
|
7.34
%
|
|
|
N/A
|
|
|
--
|
|
|
21,701
|
|
Australian
Shopping Center Loans
|
|
|
6.53
%
|
|
|
6.53
%
|
|
|
2007-2013
|
|
|
1,108
|
|
|
1,169
|
|
New
Zealand Corporate Credit Facility
|
|
|
9.05
%
|
|
|
9.15
%
|
|
|
November
23, 2009
|
|
|
32,650
|
|
|
34,225
|
|
New
Zealand Movieland Note Payable
|
|
|
N/A
%
|
|
|
5.50
%
|
|
|
February
27, 2006
|
|
|
--
|
|
|
537
|
|
US
Sutton Hill Capital Note 1 - Related Party
|
|
|
9.26
%
|
|
|
9.26
%
|
|
|
July
28, 2007
|
|
|
5,000
|
|
|
5,000
|
|
US
Royal George Theatre Term Loan
|
|
|
7.99
%
|
|
|
6.97
%
|
|
|
November
29, 2007
|
|
|
1,861
|
|
|
1,986
|
|
US
Sutton Hill Capital Note 2 - Related Party
|
|
|
8.25
%
|
|
|
8.25
%
|
|
|
December
31, 2010
|
|
|
9,000
|
|
|
9,000
|
|
US
Union Square Theatre Term Loan
|
|
|
7.31
%
|
|
|
7.31
%
|
|
|
October
1, 2011
|
|
|
3,209
|
|
|
3,260
|
|
Total
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
$
|
119,561
|
|
$
|
109,320
|
|
During
the first nine months of 2006, we drew down $5.7 million (AUS$7.6 million)
to
purchase the Palms - Christchurch Cinema (see
Note 18 - Acquisitions and Dispositions) and
to
make other capital improvements to our existing cinema sites, $2.0 million
(NZ$3.1 million) to payoff the Palms - Christchurch Cinema bank debt, $2.2
million (AUS$3.0 million) to purchase a 0.4 acre commercial site adjacent
to our
Moonee Ponds property in Melbourne, Australia, and $1.6 million (AUS$2.2
million) to purchase a commercial development in Indooroopilly a suburb of
Brisbane, Australia. Additionally, we drew down $2.3 million (AUS$3.1 million)
on our Newmarket Construction Loan used to finance the completion of the
retail
portions of our
Newmarket Shopping Centre development in Brisbane, Australia. As prescribed
by
the credit agreement, upon completion of the retail portions of our Newmarket
ETRC, our Newmarket Construction Loan was combined with our Australian Corporate
Credit Facility during the first quarter of 2006. The combined total borrowing
limit of our Australian Corporate Credit Facility is $74.3 million (AUS$99.6
million) which
reflects a
principal repayment on the
facility
of
$280,000 (AUS$377,500) made on June 30, 2006. As
of
September 30, 2006, we had drawn a total of $66.7 million (AUS$89.4 million)
against this facility and issued lease guarantees as the lessee of $3.0 million
(AUS$4.0 million) leaving an available, undrawn balance of $4.6 million (AUS$6.2
million).
Effective
September 30, 2006, we renegotiated our Australian Corporate Credit Facility.
Under the new terms, it is unlikely that we will be required to make any
further
principal payments on the loan until the facility comes to term on January
1,
2009.
At
September 30, 2006, we were in the process of renegotiating the rate, term
and
amount of our Union Square Theatre Term Loan (see Note 20 - Subsequent
Events).
On
February 27, 2006, we paid off the balance of our New Zealand Movieland Note
Payable that we had issued in August 2004 in connection with the purchase
of our
Movieland Circuit. The balance of this purchase money promissory note was
paid
in full for $520,000 (NZ$784,000) plus $14,000 (NZ$22,000) of accrued
interest.
Note
12 - Other Liabilities
Other
liabilities are summarized as follows (dollars in thousands):
|
|
September
30, 2006
|
|
December
31, 2005
|
|
Current
liabilities
|
|
|
|
|
|
Security
deposit payable
|
|
$
|
199
|
|
$
|
174
|
|
Other
|
|
|
1
|
|
|
76
|
|
Other
current liabilities
|
|
$
|
200
|
|
$
|
250
|
|
Other
liabilities
|
|
|
|
|
|
|
|
Foreign
withholding taxes
|
|
$
|
5,145
|
|
$
|
4,944
|
|
Straight-line
rent liability
|
|
|
3,644
|
|
|
3,541
|
|
Option
liability
|
|
|
3,581
|
|
|
1,055
|
|
Environmental
reserve
|
|
|
1,656
|
|
|
1,656
|
|
Interest
rate swap
|
|
|
86
|
|
|
635
|
|
Option
deposit
|
|
|
3,000
|
|
|
--
|
|
Other
|
|
|
899
|
|
|
678
|
|
Other
liabilities
|
|
$
|
18,011
|
|
$
|
12,509
|
|
As
part
of the purchase of the real property underlying our leasehold interest in
the
Cinemas 1, 2, & 3 we have granted an option to Sutton Hill Capital, LLC, a
limited liability company beneficially owned in equal 50/50 shares by Messrs.
James J. Cotter and Michael Forman, to acquire, at cost, up to a 25%
non-managing membership interest in the limited liability company that we
formed
to acquire these interests. That limited liability company is called Sutton
Hill
Properties LLC, a subsidiary of Reading International, Inc. In June 2006,
Sutton
Hill Capital, LLC gave us $3.0 million as a deposit on the exercise price
of
this option.
In
relation to this option, we had previously recorded a $1.0 million call option
liability in other liabilities and a corresponding increase in purchase price
paid for the land by Sutton Hill Properties LLC at December
31, 2005. We have adjusted our purchase price allocation relating to the
completed valuation of the option as of September 19, 2005 and have recorded
an
additional $1.1 million as land acquisition costs and option liability. Any
change in the option value subsequent to the issuance date is recorded as
other
income or expense in the statement of operations. As part of our quarterly
valuation procedures and with the input from our real estate appraisers,
we
updated the valuation of these property interests in Cinemas 1, 2, & 3.
Because of an increase in the value of the underlying real property assets,
the
value of the option at September 30, 2006 increased to $3.6 million, resulting
in a charge for the three months and nine months ended September 30, 2006
of
$100,000 and $1.5 million, respectively.
During
the first quarter of 2006, the Motion Picture Projectionists, Video Technicians
and Allied Crafts Union asserted that due to the Company’s reduced reliance on
union labor in New York City, there was a partial withdrawal from the union
pension plan by the Company in 2003 resulting in a funding liability on the
part
of the Company of approximately $342,000. We believe that the estimated amount
of our obligation to the Union for their pension plan is in question and
disputable. For this reason, we intend to discuss further the matter with
the
Union. However, to reflect the Union’s asserted assessment at this time, we have
recorded the $342,000 liability in our other liabilities as of September
30,
2006.
Note
13 - Commitments and Contingencies
Unconsolidated
Debt
Total
debt of unconsolidated entities was $5.2 million and $69.8 million as of
September 30, 2006 and December 31, 2005, respectively. Our share of
unconsolidated debt, based on our ownership percentage, was $2.2 million
and
$20.4 million as of September 30, 2006 and December 31, 2005,
respectively.
Except
for what is noted below regarding Tax/Audit Litigation, there have been no
material changes to our litigation exposure since our Company’s 2005 Annual
Report.
Mackie
Dispute
In
November 2005, Mackie Group Pty Ltd ("Mackie") filed in the Supreme Court
of
Victoria at Melbourne as action No. 9121 of 2005, a lawsuit against Reading
Properties Pty Ltd, an indirectly wholly owned subsidiary of our Company
("Reading Properties"), asserting that it was owed $746,000 (AUS$1.0 million),
under an agreement dated May 25, 1998. We dispute this claim and have filed
a
response denying liability. On or about July 21, 2006, plaintiffs filed a
motion
for summary judgment in that case. The response of Reading Properties is
due in
late November. Having reviewed the plaintiff's motion for summary judgment,
we
continue to be of the view that we have no liability to Mackie under the
May
1998 agreement, and intend to continue to dispute Mackie's claim.
Tax
Audit/Litigation
The
Internal Revenue Service (the “IRS”) completed its audits of the tax return of
Reading Entertainment Inc. (RDGE) for its tax years ended December 31, 1996
through December 31, 1999 and the tax return of Craig Corporation (CRG) for
its
tax year ended September 30, 1997. With respect to both of these companies,
the
principal focus of these audits was the treatment of the contribution by
RDGE to
our wholly owned subsidiary, Reading Australia, and thereafter the subsequent
repurchase by Stater Bros. Inc. from Reading Australia of certain preferred
stock in Stater Bros. Inc. (the “Stater Stock”) received by RDGE from CRG as a
part of a private placement of securities by RDGE which closed in October
1996.
A second issue involving equipment leasing transactions entered into by RDGE
(discussed below) is also involved.
By
letters dated November 9, 2001, the IRS issued reports of examination proposing
changes to the tax returns of RDGE and CRG for the years in question (the
“Examination Reports”). The Examination Report for each of RDGE and CRG proposed
that the gains on the disposition by RDGE of Stater Stock, reported as taxable
on the RDGE return, should be allocated to CRG. As reported, the gain resulted
in no additional tax to RDGE inasmuch as the gain was entirely offset by
a net
operating loss carry forward of RDGE. This proposed change would result in
an
additional tax liability for CRG of approximately $20.9 million plus interest
of
approximately $11.0 million as of September 30, 2006. In addition, this proposal
would result in California tax liability of approximately $5.3 million plus
interest of approximately $3.0 million as of September 30, 2006. Accordingly,
this proposed change represented, as of September 30, 2006, an exposure of
approximately $40.2 million.
Moreover,
California has “amnesty” provisions imposing additional liability on taxpayers
who are determined to have materially underreported their taxable income.
While
these provisions have been criticized by a number of corporate taxpayers
to the
extent that they apply to tax liabilities that are being contested in good
faith, no assurances can be given that these new provisions will be applied
in a
manner that would mitigate the impact on such taxpayers. Accordingly, these
provisions may cause an additional $4.0 million exposure to CRG, for a total
exposure of approximately $44.2 million. We have accrued $3.8 million as
a
probable loss in
relation
to this exposure and believe that the possible total settlement amount will
be
between $3.8 million and $44.2 million.
In
early
February 2005, we had a mediation conference with the IRS concerning this
proposed change. The mediation was conducted by two mediators, one of whom
was
selected by the taxpayer from the private sector and one of whom was an employee
of the IRS. In connection with this mediation, we and the IRS each prepared
written submissions to the mediators setting forth our respective cases.
In its
written submission, the IRS noted that it had offered to settle its claims
against us at 30% of the proposed change, and reiterated this offer at the
mediation. This offer constituted, in effect, an offer to settle for a payment
of $5.5 million federal tax, plus interest, for an aggregate settlement amount
of approximately $8.0 million. Based on advice of counsel given after reviewing
the materials submitted by the IRS to the mediation panel, and the oral
presentation made by the IRS to the mediation panel and the comments of the
mediators (including the IRS mediator), we determined not to accept this
offer.
Notices
of deficiency (“N/D”) dated June 29, 2006 were received with respect to each of
RDGE and CRG determining proposed deficiencies of $20.9 million for CRG and
a
total of $349,000 for RDGE for the tax years 1997, 1998 and 1999.
We
intend
to litigate aggressively these matters in the U.S. Tax Court and an appeal
was
filed with the court on September 26, 2006. While there are always risks
in
litigation, we believe that a settlement at the level currently offered by
the
IRS would substantially understate the strength of our position and the
likelihood that we would prevail in a trial of these matters.
Since
these tax liabilities relate to time periods prior to the Consolidation of
CDL,
RDGE, and CRG into Reading International, Inc. and since RDGE and CRG continue
to exist as wholly owned subsidiaries of RII, it is expected that any adverse
determination would be limited in recourse to the assets of RDGE or CRG,
as the
case may be, and not to the general assets of RII. At the present time, the
assets of these subsidiaries are comprised principally of RII securities.
Accordingly, we do not anticipate, even if there were to be an adverse judgment
in favor of the IRS that the satisfaction of that judgment would interfere
with
the internal operation or result in any levy upon or loss of any of our material
operating assets. The satisfaction of any such adverse judgment would, however,
result in a material dilution to existing stockholder interests.
The
N/D
issued to RDGE does not cover its tax year 1996 which will be held in abeyance
pending the resolution of the CRG case. An adjustment to 1996 taxable income
for
RDGE would result in a refund of alternative
minimum tax paid that year. The N/D issued to RDGE eliminated the gains booked
by RDGE in 1996 as a consequence of its acquisition certain computer equipment
and sale of the anticipated income stream from the lease of such equipment
to
third parties and disallowed depreciation deductions that we took with respect
to that equipment in 1997, 1998 and 1999. Such disallowance has the effect
of
decreasing net operating losses but did not result in any additional regular
federal income tax for such years. However, the depreciation disallowance
would
increase RDGE state tax liability for those years by approximately $170,000
plus
interest. The only tax liability reflected in the RDGE N/D is alternative
minimum tax in the total amount of approximately $350,000 plus interest.
On
September 26, 2006, we filed an appeal on this N/D with the U.S. Tax
Court.
Note
14 - Minority Interest
Minority
interest is composed of the following enterprises:
|
·
|
50%
of membership interest in Angelika Film Center LLC (“AFC LLC”) owned by a
subsidiary of National Auto Credit,
Inc.;
|
|
·
|
33%
minority interest in the Elsternwick Joint Venture owned by Champion
Pictures Pty Ltd.; and
|
|
·
|
25%
minority interest in Australia Country Cinemas Pty Ltd (“ACC”) owned by
Panorama Cinemas for the 21st
Century Pty Ltd.
|
The
components of minority interest are as follows (dollars in
thousands):
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
AFC
LLC
|
|
$
|
1,884
|
|
$
|
2,847
|
|
Elsternwick
Unincorporated Joint Venture
|
|
|
35
|
|
|
116
|
|
Australian
Country Cinemas
|
|
|
95
|
|
|
113
|
|
Others
|
|
|
1
|
|
|
3
|
|
Minority
interest in consolidated affiliates
|
|
$
|
2,015
|
|
$
|
3,079
|
|
|
|
Expense
for the
|
|
Expense
for the
|
|
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
AFC
LLC
|
|
$
|
168
|
|
$
|
348
|
|
$
|
425
|
|
$
|
557
|
|
Australian
Country Cinemas
|
|
|
(3
|
)
|
|
(126
|
)
|
|
--
|
|
|
26
|
|
Elsternwick
Unincorporated Joint Venture
|
|
|
(12
|
)
|
|
(82
|
)
|
|
--
|
|
|
(24
|
)
|
Minority
interest expense
|
|
$
|
153
|
|
$
|
140
|
|
$
|
425
|
|
$
|
559
|
|
Note
15 - Common Stock
During
the first quarter of 2006, we issued for cash to an employee of the corporation
under our stock based compensation plan 12,000 shares and 15,000 shares of
Class
A Nonvoting Common Stock at exercise prices of $3.80 and $2.76 per share,
respectively.
On
February 27, 2006, we paid $792,000 (NZ$1.2 million) to the sellers of the
Movieland Circuit in exchange for 98,949 Class A Common Nonvoting Common
Stock.
This transaction resulted from the exercise of
their
option to put back to us at an exercise price of NZ$11.94 the shares they
received as part of the purchase price of the Movieland Circuit.
Note
16 - Comprehensive Income
U.S.
GAAP
requires that the effect of foreign currency translation adjustments and
unrealized gains and/or losses on securities that are available-for-sale
(“AFS”)
be classified as comprehensive income. The following table sets forth our
comprehensive income for the periods indicated (dollars in
thousands):
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
income (loss)
|
|
$
|
6,093
|
|
$
|
(4,572
|
)
|
$
|
2,712
|
|
$
|
3,525
|
|
Foreign
currency translation gain (loss)
|
|
|
1,381
|
|
|
459
|
|
|
382
|
|
|
(1,065
|
)
|
Unrealized
gain on AFS
|
|
|
7
|
|
|
--
|
|
|
24
|
|
|
--
|
|
Comprehensive
income (loss)
|
|
$
|
7,481
|
|
$
|
(4,113
|
)
|
$
|
3,118
|
|
$
|
2,460
|
|
Note
17 - Discontinued Operations and Assets Held For Sale
In
accordance with SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
we
report as discontinued operations real estate assets that meet the definition
of
a component of an entity and have been sold or meet the criteria to be
classified as held for sale under SFAS 144. We included all results of these
discontinued operations, less applicable income taxes, in a separate component
of operations on the consolidated statements of operations under the heading
“discontinued operations.”
Glendale
Building. On
May
17, 2005, we sold our Glendale office building in Glendale, California for
$10.3
million cash and $10.1 million of assumed debt resulting in a $12.0 million
gain.
The
results for the Glendale Property for the nine months ended September 30,
2005
are as follows (dollars in thousands):
|
|
Nine
Months 2005
|
|
Revenue
|
|
$
|
1,103
|
|
Operating
expense
|
|
|
355
|
|
Depreciation
& amortization expense
|
|
|
51
|
|
General
& administrative expense
|
|
|
1
|
|
Operating
income
|
|
|
696
|
|
Interest
income
|
|
|
3
|
|
Interest
expense
|
|
|
312
|
|
Income
from discontinued operations before gain on sale
|
|
|
387
|
|
Gain
on sale
|
|
|
12,013
|
|
Total
income from discontinued operations
|
|
$
|
12,400
|
|
Puerto
Rico Cinema Operations. On
June
8, 2005, we sold our assets and certain liabilities associated with our Puerto
Rico cinema operations for $2.3 million resulting in a $1.6 million gain.
The
results for the Puerto Rico discontinued operations for the nine months ended
September 30, 2005 are as follows (dollars in thousands):
|
|
Nine
Months 2005
|
|
Revenue
|
|
$
|
4,575
|
|
Operating
expense
|
|
|
5,752
|
|
Depreciation
& amortization expense
|
|
|
206
|
|
General
& administrative expense
|
|
|
383
|
|
Income
(loss) from discontinued operations before gain on sale
|
|
|
(1,766
|
)
|
Gain
on sale
|
|
|
1,597
|
|
Total
income (loss) from discontinued operations
|
|
$
|
(169
|
)
|
Note
18 - Acquisitions and Dispositions
Indooroopilly
Land
On
September 18, 2006, we purchased a 0.26 acre property for $1.8 million (AUS$2.3
million) as part of our newly established Landplan Property Partners arrangement
with Mr. Doug Osborne.
In
July
2006, we entered into an agreement with Mr. Doug Osborne pursuant to which
(i)
Mr. Osborne will serve as the chief executive officer of our newly formed
Australian subsidiary Landplan Property Partners, Ltd (“LPP”) and (ii) Mr.
Osborne’s affiliate, Landplan Property Group, Ltd (“LPG”), will perform certain
property management services for LPP. LPP was formed to identify, acquire,
develop and operate properties in Australia and New Zealand offering
redevelopment possibilities and, ultimately, to sell the resultant redeveloped
properties. The agreement provides for a base salary and an equity interest
to
Mr. Osborne in these properties. Mr Osborne’s ownership interest in these
properties, however, is subordinate to our right to an 11% compounded return
on
investment and is subject to adjustment depending upon his length of service
and
the amounts we invest. Generally speaking, his ownership interest will range
from 27.5% to 15% based on meeting the defined service requirements and
depending on our level of investment. To date, we have only purchased one
property pursuant to this new initiative: the Indooroopilly property.
Moonee
Ponds Land
On
September 1, 2006, we purchased two parcels of land aggregating 0.4 acres
adjacent to our Moonee Ponds property for $2.5 million (AUS$3.3 million).
This
acquisition increases our holdings at Moonee Ponds to 3.1 acres and gives
us
frontage facing the principal transit station servicing the area. We are
now in
the process of developing the entire site and anticipate completion of this
project in 2008.
Berkeley
Cinemas
On
August
28, 2006, we sold to our Joint Venture Partner our interest in the cinemas
at
Whangaparaoa, Takapuna and Mission Bay, New Zealand for $4.6 million (NZ$7.2
million) in cash and the assumption of $1.6 million (NZ$2.5 million) in debt.
The sale resulted in a gain on sale of unconsolidated entity for the three
months and nine months ending September 30, 2006 of $3.4 million (NZ$5.4
million).
Additionally,
effective April 1, 2006, we purchased from our Joint Venture partner the
50%
share that we did not already own of the Palms cinema located in Christchurch,
New Zealand for cash of $2.8 million (NZ$4.5 million) and the proportionate
share of assumed debt which amounted to $987,000 (NZ$1.6 million). This
8-screen, leasehold cinema had previously been included in our Berkeley Cinemas
Joint Venture investment and was not previously consolidated for accounting
purposes. We drew down $4.8 million (AUS$6.3
million) on our Australian Corporate Credit Facility to purchase the Palms
cinema and to payoff its bank debt of $2.0 million (NZ$3.1 million). We
have
finalized the purchase price allocation for this acquisition, in accordance
with
SFAS No. 141 Business Combinations. A
summary
of the increased assets and liabilities relating to this acquisition as recorded
at estimated fair values is as follows (dollars
in thousands):
|
|
Palms
Cinema
|
|
Assets
|
|
|
|
Accounts
receivable
|
|
$
|
31
|
|
Inventory
|
|
|
11
|
|
Other
assets
|
|
|
8
|
|
Property
and equipment
|
|
|
1,430
|
|
Goodwill
|
|
|
2,310
|
|
Total
assets
|
|
|
3,790
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
178
|
|
Note
payable
|
|
|
987
|
|
Other
liabilities
|
|
|
12
|
|
Total
liabilities
|
|
|
1,177
|
|
|
|
|
|
|
Total
net assets
|
|
$
|
2,613
|
|
As
a
result of these transactions, the only cinema held in the Berkeley Joint
Venture
at September 30, 2006 is the Botany Downs cinema in suburban
Auckland.
Malulani
Investments, Ltd.
On
June
26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real
estate company with holdings principally in California, Texas and Hawaii,
including the Guenoc Winery located on approximately 22,000 acres of land
located in Napa and Lake Counties in Northern California. We are still in
the
process of determining the purchase price allocation of the assets and
liabilities associated with this acquisition.
Queenstown
Cinema
Effective
February 23, 2006, we purchased a 3-screen leasehold cinema in Queenstown,
New
Zealand for $939,000 (NZ$1.4 million). We funded this acquisition through
internal sources.
Note
19
- Derivative Instruments
The
following table sets forth the terms of our interest rate swap derivative
instruments at September 30, 2006:
Type
of Instrument
|
|
Notional
Amount
|
|
Pay
Fixed Rate
|
|
Receive
Variable Rate
|
|
Maturity
Date
|
|
Interest
rate swap
|
|
$
|
8,580,000
|
|
|
5.7000
%
|
|
|
6.0300
%
|
|
|
December
31, 2007
|
|
Interest
rate swap
|
|
$
|
11,938,000
|
|
|
6.4400
%
|
|
|
6.0300
%
|
|
|
December
31, 2008
|
|
Interest
rate swap
|
|
$
|
12,180,000
|
|
|
6.6800
%
|
|
|
6.0300
%
|
|
|
December
31, 2008
|
|
Interest
rate swap
|
|
$
|
9,084,000
|
|
|
5.8800
%
|
|
|
6.0300
%
|
|
|
December
31, 2008
|
|
Interest
rate swap
|
|
$
|
2,611,000
|
|
|
6.3600
%
|
|
|
6.0300
%
|
|
|
December
31, 2008
|
|
In
accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
we
marked our Australian interest rate swap instruments to market on the
consolidated balance sheet resulting in a $2,000
(AUS$3,000) and $555,000 (AUS$758,000) decrease to interest expense during
the
three and nine months ended September 30, 2006, respectively, and a $204,000
(AUS$271,000) and $194,000 (AUS$224,000) increase to interest expense during
the
three and nine months ended September 30, 2005, respectively. At
September
30, 2006 and December 31, 2005, we have recorded the fair market value of
our
interest rate swaps of $84,000 (AUS$112,000) and $638,000 (AUS$870,000),
respectively, as an other long-term liability. In accordance with SFAS No.
133,
we have not designated any of our current interest rate swap positions as
financial reporting hedges.
Note
20 - Subsequent Events
Union
Square Loan
On
October 19, 2006, we entered into a preliminary agreement to refinance our
Union
Square property with the same lender that holds the current mortgage on that
property. While no assurances can be given, the terms of the preliminary
agreement stipulate that the new loan will close on or about November 30,
2006
with a fixed interest rate of 6.26% and a balance of $7.5 million. This new
loan
will replace the existing Union Square mortgage which currently has a 7.31%
interest rate and a loan balance of $3.2 million.
As
Reading International, Inc. (RDI and collectively with our consolidated
subsidiaries, “Reading” and “we,” “us” or “our”), we have historically
considered ourselves to be essentially a cinema exhibition and live theatre
operating company with a strong focus on the development, operation and holding
of commercial real estate assets. We believe that this strategic mix coupled
with our management expertise allows us to bring value to developable land
by
providing our own “anchor tenant” and to realize the value in older cinema sites
by developing them, on an opportunistic basis, to their highest and best
use.
This strategy has allowed us to use our available free cash flow to build
assets, while freeing us, to some extent, from the volatility that can result
from a focus on simply operating cinema assets in leased facilities. Given
relative opportunities for cinema expansion and for real estate development,
we
believe it likely that we will, as time progresses, become more and more
a real
estate company and less and less a cinema and live theatre operating
company.
On
February 20, 2006, our efforts to rezone our 50.6 acre parcel in suburban
Melbourne, Australia, were rewarded, as our Burwood property was rezoned
clearing the way for us to redevelop that historically industrial use property
into a mixture of retail, commercial, entertainment and residential uses.
Our
cost basis in our Burwood property is $19.6 million (AUS$26.3 million).
It
is
anticipated that the complete build out of our Burwood site will be done
in
stages over an approximately 10 year period, and require an investment of
approximately $500 million (AUS$670 million). Given the size and scope of
this
project, and our other ongoing projects at Moonee Ponds (also in Melbourne),
Redyard (in suburban Sydney) and Courtenay Central (in Wellington, New Zealand),
and our new Landplan Property Partners initiative, it is likely that an
increasing proportion of our capital and human resources will be focused
on the
real estate segment of our business.
Our
business operations currently include:
|
·
|
the
development, ownership and operation of multiplex cinemas in the
United
States, Australia, and New Zealand;
|
|
·
|
the
development, ownership and operation of commercial real estate
in
Australia, New Zealand and the United States typically as a business
ancillary to the development and operation of cinemas, cinema-based
ETRC’s
and live theatres; and
|
|
·
|
the
ownership and operation, typically as a landlord, of “Off Broadway” style
live theatres in Manhattan and
Chicago.
|
We
manage
our worldwide cinema business under various different brands:
|
·
|
in
the US, under the Reading,
Angelika Film Center
and City
Cinemas
brands;
|
|
·
|
in
Australia, under the Reading
brand; and
|
|
·
|
in
New Zealand, under the Reading,
Berkeley Cinemas
and Rialto
brands.
|
At
September 30, 2006, we owned and operated
35 cinemas with 231 screens, had interests in certain unconsolidated entities
that own an additional 7 cinemas with 46 screens and managed 2 cinemas with
9
screens.
Our
business plan going forward is to build-out our existing development properties,
and to seek out additional real estate development opportunities while
continuing to use our presence in the cinema exhibition and live theatre
business, to identify, develop and acquire cinema and live theatre properties.
In the case of cinema and live theatre acquisitions, we intend to focus on
those
opportunities where we can acquire (i) either the fee interest underlying
the
operating assets, or long-term leases, which we believe provide flexibility
with
respect to the usage of such leasehold assets or (ii) strategic cinemas that
will provide synergies with our existing cinema operations.
During
the first nine months of 2006, our efforts on the real estate side of our
business were focused in large part on:
|
·
|
obtaining
approval from the Victoria State Government of the rezoning of
our 50.6
acre Burwood property (located in suburban Melbourne) from an essentially
industrial to a priority use zone allowing a mixture of retail,
entertainment, commercial and residential uses;
|
|
·
|
completion
and lease-up of the retail portion of our 4.1 acre Newmarket ETRC
in
Brisbane, Australia (100,000 square feet of leased retail space),
and
finalization of the governmental approvals required for the construction
of the cinema portion of that project. The retail portion of that
property
is now approximately 98% leased, including anchor tenancies provided
by a
major grocery chain and a major pub operator; and all necessary
land use
authorizations for the cinema portion of the project have now been
obtained; and
|
|
·
|
the
start up of a new real estate initiative for Australia and New
Zealand,
focusing on the identification, acquisition and redevelopment of
real
estate sites offering potential for redevelopment. This new initiative,
currently operating under the name Landplan Property Partners has
retained
its first property, a 0.26 acre commercial property in Indooroopilly,
a
suburb of Brisbane, Australia, which was acquired for $1.8 million
(AUS$2.3 million) and is now actively investigating several additional
properties. Unlike our prior real estate operations, this initiative
is
not intended to focus on properties that may offer a cinema or
live
theater development opportunity.
|
A
significant portion of our business is conducted in Australia and New Zealand,
and as such, we are subject to a certain degree of currency risk. We do not
engage in currency hedging activities. Rather, to the extent possible, we
operate our Australian and New Zealand operations on a self-funding basis.
Our
policy in Australia and New Zealand is to match revenues and expenses, whenever
possible, in local currencies. As a result, the majority of our expenses
in
Australia and New Zealand have been procured in local currencies. Due to
the
developing nature of our operations in Australia and New Zealand, our revenues
are not yet significantly greater than our operating expenses. The resulting
natural operating hedge has led to a negligible foreign currency effect on
our
net earnings. However, foreign currency can have a significant effect on
the
value of assets and liabilities with fluctuations noted in other comprehensive
income. As we continue to progress with our acquisition and development
activities in Australia and New Zealand, we cannot assure you that the foreign
currency effect on our earnings will be insignificant in the
future.
We
continue to acquire, to dispose of or to reposition assets in accordance
with
our business plan. So far, in 2006, we have made the following acquisitions
and
dispositions:
Indooroopilly
Land
On
September 18, 2006, we purchased a 0.26 acre property for $1.8 million (AUS$2.3
million) as part of our newly established Landplan Property Partners initiative.
It is currently anticipated that the property will be redeveloped for commercial
purposes.
Moonee
Ponds Land
On
September 1, 2006, we purchased two parcels of land aggregating 0.4 acres
adjacent to our Moonee Ponds property for $2.5 million (AUS$3.3 million).
This
acquisition increases our holdings at Moonee Ponds to 3.1 acres and gives
us
frontage facing the principal transit station servicing the area. We are
now in
the process of developing the entire site and anticipate completion of this
project in 2008.
Berkeley
Cinemas
On
August
28, 2006, we sold to our Joint Venture Partner our interest in the cinemas
at
Whangaparaoa, Takapuna and Mission Bay, New Zealand for $4.6 million (NZ$7.2
million) in cash and the assumption of $1.6 million (NZ$2.5 million) in debt.
The sale resulted in a gain on sale of unconsolidated entity for the three
months and nine months ending September 30, 2006 of $3.4 million (NZ$5.4
million).
Additionally,
effective April 1, 2006, we purchased from our Joint Venture partner the
50%
share that we did not already own of the Palms cinema located in Christchurch,
New Zealand for cash of $2.8 million (NZ$4.5 million) and the proportionate
share of assumed debt which amounted to $993,000 (NZ$1.6 million). This
8-screen, leasehold cinema had previously been included in our Berkeley Cinemas
Joint Venture investment and was not previously consolidated for accounting
purposes. Subsequent to April 1, 2006, we have consolidated this entity into
our
financial statements.
As
a
result of these transactions, the only cinema owned by this joint venture
is the
Botany Downs cinema, located in suburban Auckland.
Malulani
Investments, Ltd.
On
June
26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real
estate company with holdings principally in California, Texas and Hawaii
including, the Guenoc Winery located on approximately 22,000 acres of land
located in Napa and Lake Counties in Northern California. We are still in
the
process of determining the purchase price allocation of the assets and
liabilities associated with this acquisition.
Queenstown
Cinema
Effective
February 23, 2006, we purchased a 3-screen leasehold cinema in Queenstown,
New
Zealand for $939,000 (NZ$1.4 million). We funded this acquisition through
internal sources.
Results
of Operations
At
September 30, 2006, we directly operated 35 cinemas with 231 screens, had
interests in certain unconsolidated entities in which we have varying interests,
which own an additional 7 cinemas with 46 screens and managed 2 cinemas with
9
screens. Regarding real estate, we owned and operated during the period four
ETRC’s that we developed in Australia and New Zealand; owned the fee interests
in four developed commercial properties in Manhattan and Chicago, all of
which
are improved with live theatres comprising seven stages and, in two cases,
ancillary retail and commercial space; owned the fee interests underlying
one of
our Manhattan cinemas and hold for development an additional five parcels
(aggregating approximately 58 acres) in urbanized areas of Australia and
New
Zealand. Two of these parcels, Burwood and Moonee Ponds, comprise approximately
54 acres, and are in areas designated by the provincial government of Victoria,
Australia as “major activity centres,” and we are currently in the planning
phases of their development.
The
tables below summarize the results of operations for each of our principal
business segments for the three (“2006
Quarter”) and nine (“2006 Nine Months”) months ended September 30, 2006 and the
three (“2005 Quarter”) and nine (“2005 Nine Months”) months ended September 30,
2005, respectively. Operating expenses include costs associated with the
day-to-day operations of the cinemas and live theatres and the management
of
rental properties. Our year-to-year results of operation were principally
impacted by the following:
|
·
|
the
sale effective June 8, 2005 of our Puerto Rican cinema
operations;
|
|
·
|
the
sale effective May 17, 2005 of our Glendale, California office
building,
our only commercial domestic property with no entertainment
component;
|
|
·
|
the
acquisition on June 1, 2005 and September 19, 2005 of the various
real
property interests underlying our leasehold interest in our Cinemas
1, 2
& 3 cinema;
|
|
·
|
the
opening in the fourth quarter of 2005 and the occupancy of the
majority of
tenancies during first quarter of 2006 of our Newmarket Shopping
Center, a
100,000 square foot retail center in a suburb of Brisbane,
Australia;
|
|
·
|
the
opening of a cinema in a suburb of Adelaide, Australia on October
20, 2005
and the acquisition of a cinema in Queenstown, New Zealand effective
February 23, 2006;
|
|
·
|
the
purchase of the 50% share that we did not already own of the Palms
8-screen, leasehold cinema located in Christchurch, New Zealand
effective
April 1, 2006;
|
|
·
|
the
sale of our 50% share of the cinemas at Whangaparaoa, Takapuna
and Mission
Bay, New Zealand formerly part of the Berkeley Cinemas Group effective
August 28, 2006; and
|
|
·
|
the
reduction in the value of the Australian and New Zealand dollars
vis-à-vis
the US dollar from $0.7643 and $0.6938, respectively, as of September
30,
2005 to $0.7461 and $0.6530, respectively, as of September 30,
2006.
|
The
following tables detail our operating results for our three months and nine
months ended September 30, 2006. All operating results from discontinued
operations are included in “Loss from discontinued operations” (dollars in
thousands):
Three
Months Ended September 30, 2006
|
|
Cinema
|
|
Real
Estate
|
|
Total
|
|
Revenue
|
|
$
|
21,806
|
|
$
|
3,236
|
|
$
|
25,042
|
|
Operating
expense
|
|
|
16,812
|
|
|
2,161
|
|
|
18,973
|
|
Depreciation
& amortization
|
|
|
2,245
|
|
|
989
|
|
|
3,234
|
|
General
& administrative expense
|
|
|
1,306
|
|
|
577
|
|
|
1,883
|
|
Segment
operating income (loss)
|
|
$
|
1,443
|
|
$
|
(491
|
)
|
$
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2005
|
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Total
|
|
Revenue
|
|
$
|
21,429
|
|
$
|
3,380
|
|
$
|
24,809
|
|
Operating
expense
|
|
|
17,140
|
|
|
1,484
|
|
|
18,624
|
|
Depreciation
& amortization
|
|
|
2,140
|
|
|
930
|
|
|
3,070
|
|
General
& administrative expense
|
|
|
1,840
|
|
|
79
|
|
|
1,919
|
|
Segment
operating income
|
|
$
|
309
|
|
$
|
887
|
|
$
|
1,196
|
|
Reconciliation
to consolidated net income (loss):
|
|
2006
Quarter
|
|
2005
Quarter
|
|
Total
segment operating income
|
|
$
|
952
|
|
$
|
1,196
|
|
Non-segment:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
151
|
|
|
172
|
|
General
and administrative expense
|
|
|
1,164
|
|
|
3,681
|
|
Operating
loss
|
|
|
(363
|
)
|
|
(2,657
|
)
|
Interest
expense, net
|
|
|
(1,765
|
)
|
|
(1,743
|
)
|
Other
income (loss)
|
|
|
209
|
|
|
(265
|
)
|
Minority
interest expense
|
|
|
(153
|
)
|
|
(140
|
)
|
Income
tax expense
|
|
|
(540
|
)
|
|
(190
|
)
|
Equity
earnings of unconsolidated entities
|
|
|
5,263
|
|
|
423
|
|
Gain
on sale of unconsolidated entity
|
|
|
3,442
|
|
|
--
|
|
Net
income (loss)
|
|
$
|
6,093
|
|
$
|
(4,572
|
)
|
Nine
Months Ended September 30, 2006
|
|
Cinema
|
|
Real
Estate
|
|
Total
|
|
Revenue
|
|
$
|
68,269
|
|
$
|
10,672
|
|
$
|
78,941
|
|
Operating
expense
|
|
|
53,876
|
|
|
5,628
|
|
|
59,504
|
|
Depreciation
& amortization
|
|
|
6,600
|
|
|
3,009
|
|
|
9,609
|
|
General
& administrative expense
|
|
|
2,815
|
|
|
578
|
|
|
3,393
|
|
Segment
operating income
|
|
$
|
4,978
|
|
$
|
1,457
|
|
$
|
6,435
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2005
|
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Total
|
|
Revenue
|
|
$
|
64,328
|
|
$
|
10,858
|
|
$
|
75,186
|
|
Operating
expense
|
|
|
52,375
|
|
|
5,148
|
|
|
57,523
|
|
Depreciation
& amortization
|
|
|
6,371
|
|
|
2,794
|
|
|
9,165
|
|
General
& administrative expense
|
|
|
5,405
|
|
|
255
|
|
|
5,660
|
|
Segment
operating income
|
|
$
|
177
|
|
$
|
2,661
|
|
$
|
2,838
|
|
Reconciliation
to consolidated net income:
|
|
2006
Nine Months
|
|
2005
Nine Months
|
|
Total
segment operating income
|
|
$
|
6,435
|
|
$
|
2,838
|
|
Non-segment:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
354
|
|
|
244
|
|
General
and administrative expense
|
|
|
6,096
|
|
|
7,819
|
|
Operating
loss
|
|
|
(15
|
)
|
|
(5,225
|
)
|
Interest
expense, net
|
|
|
(5,060
|
)
|
|
(3,316
|
)
|
Other
income (loss)
|
|
|
(945
|
)
|
|
24
|
|
Minority
interest expense
|
|
|
(425
|
)
|
|
(559
|
)
|
Gain
on disposal of discontinued operations
|
|
|
--
|
|
|
13,610
|
|
Loss
from discontinued operations
|
|
|
--
|
|
|
(1,379
|
)
|
Income
tax expense
|
|
|
(1,222
|
)
|
|
(643
|
)
|
Equity
earnings of unconsolidated entities
|
|
|
6,937
|
|
|
1,013
|
|
Gain
on sale of unconsolidated entity
|
|
|
3,442
|
|
|
--
|
|
Net
income
|
|
$
|
2,712
|
|
$
|
3,525
|
|
Cinema
Included
in the cinema segment above is revenue and expense from the operations of
35
cinema complexes with 231 screens. The following tables detail our cinema
segment operating results for the three months ending September 30, 2006
and
2005, respectively (dollars in thousands):
Three
Months Ended September 30, 2006
|
|
United
States
|
|
Australia
|
|
New
Zealand
|
|
Total
|
|
Admissions
revenue
|
|
$
|
4,698
|
|
$
|
8,031
|
|
$
|
3,136
|
|
$
|
15,865
|
|
Concessions
revenue
|
|
|
1,386
|
|
|
2,538
|
|
|
957
|
|
|
4,881
|
|
Advertising
and other revenues
|
|
|
448
|
|
|
400
|
|
|
212
|
|
|
1,060
|
|
Total
revenues
|
|
|
6,532
|
|
|
10,969
|
|
|
4,305
|
|
|
21,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
4,223
|
|
|
9,167
|
|
|
2,332
|
|
|
15,722
|
|
Concession
costs
|
|
|
273
|
|
|
576
|
|
|
241
|
|
|
1,090
|
|
Total
operating expense
|
|
|
4,496
|
|
|
9,743
|
|
|
2,573
|
|
|
16,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
381
|
|
|
1,482
|
|
|
382
|
|
|
2,245
|
|
General
& administrative expense
|
|
|
534
|
|
|
762
|
|
|
10
|
|
|
1,306
|
|
Segment
operating income (loss)
|
|
$
|
1,121
|
|
$
|
(1,018
|
)
|
$
|
1,340
|
|
$
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2005
|
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$
|
4,569
|
|
$
|
8,232
|
|
$
|
2,922
|
|
$
|
15,723
|
|
Concessions
revenue
|
|
|
1,242
|
|
|
2,675
|
|
|
927
|
|
|
4,844
|
|
Advertising
and other revenues
|
|
|
368
|
|
|
373
|
|
|
121
|
|
|
862
|
|
Total
revenues
|
|
|
6,179
|
|
|
11,280
|
|
|
3,970
|
|
|
21,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
4,414
|
|
|
9,201
|
|
|
2,371
|
|
|
15,986
|
|
Concession
costs
|
|
|
261
|
|
|
632
|
|
|
261
|
|
|
1,154
|
|
Total
operating expense
|
|
|
4,675
|
|
|
9,833
|
|
|
2,632
|
|
|
17,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
549
|
|
|
1,379
|
|
|
212
|
|
|
2,140
|
|
General
& administrative expense
|
|
|
1,607
|
|
|
229
|
|
|
4
|
|
|
1,840
|
|
Segment
operating income (loss)
|
|
$
|
(652
|
)
|
$
|
(161
|
)
|
$
|
1,122
|
|
$
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
·
|
Cinema
revenue increased for the 2006 Quarter by $377,000 or 1.8% compared
to the
same period in 2005. The 2006 Quarter increase was from improved
attendance at our New Zealand and United States cinemas.
|
|
·
|
Operating
expense decreased for the 2006 Quarter by $328,000 or 1.9% compared
to the
same period in 2005. This decrease was primarily related to improved
cost
management in our United States operations which resulted in an
overall
improvement in our operating expenses from 80% to 77% of gross
revenue for
the 2005 and 2006 Quarters,
respectively.
|
|
·
|
Depreciation
and amortization expense increased for the 2006 Quarter by $105,000
or
4.9% compared to the same period in 2005 primarily related to the
increase
in depreciation in the new Australian Elizabeth Cinema acquired
in October
2005 and our newly acquired New Zealand Palms and Queenstown cinemas
offset by the decrease in the City Cinema Option Fee amortization
expense
directly related to the purchase of the leasehold associated with
the
Cinemas 1, 2, & 3 in Sep 2005.
|
|
·
|
General
and administrative expense decreased for the 2006 Quarter by $534,000
or
29.0% compared to the same period in 2005. The decrease was due
to a drop
in legal costs primarily related to our anti-trust litigation associated
with our Village East cinema and the purchase of the Cinemas 1,
2, & 3
which decreased the amount of rent paid to related parties.
|
|
·
|
As
a result of the above, cinema segment income increased for the
2006
Quarter by $1.1 million compared to the same period in
2005.
|
The
following tables detail our cinema segment operating results for the nine
months
ending September 30, 2006 and 2005, respectively, adjusted to exclude our
discontinued Puerto Rico cinema operations (dollars in thousands):
Nine
Months Ended September 30, 2006
|
|
United
States
|
|
Australia
|
|
New
Zealand
|
|
Total
|
|
Admissions
revenue
|
|
$
|
12,936
|
|
$
|
27,236
|
|
$
|
9,744
|
|
$
|
49,916
|
|
Concessions
revenue
|
|
|
3,891
|
|
|
8,436
|
|
|
2,911
|
|
|
15,238
|
|
Advertising
and other revenues
|
|
|
1,202
|
|
|
1,342
|
|
|
571
|
|
|
3,115
|
|
Total
revenues
|
|
|
18,029
|
|
|
37,014
|
|
|
13,226
|
|
|
68,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
12,982
|
|
|
29,170
|
|
|
8,336
|
|
|
50,488
|
|
Concession
costs
|
|
|
695
|
|
|
1,932
|
|
|
761
|
|
|
3,388
|
|
Total
operating expense
|
|
|
13,677
|
|
|
31,102
|
|
|
9,097
|
|
|
53,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,373
|
|
|
4,260
|
|
|
967
|
|
|
6,600
|
|
General
& administrative expense
|
|
|
1,986
|
|
|
802
|
|
|
27
|
|
|
2,815
|
|
Segment
operating income
|
|
$
|
993
|
|
$
|
850
|
|
$
|
3,135
|
|
$
|
4,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2005
|
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$
|
12,955
|
|
$
|
25,530
|
|
$
|
8,755
|
|
$
|
47,240
|
|
Concessions
revenue
|
|
|
3,586
|
|
|
8,031
|
|
|
2,704
|
|
|
14,321
|
|
Advertising
and other revenues
|
|
|
997
|
|
|
1,334
|
|
|
436
|
|
|
2,767
|
|
Total
revenues
|
|
|
17,538
|
|
|
34,895
|
|
|
11,895
|
|
|
64,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
13,172
|
|
|
28,410
|
|
|
7,360
|
|
|
48,942
|
|
Concession
costs
|
|
|
751
|
|
|
1,885
|
|
|
797
|
|
|
3,433
|
|
Total
operating expense
|
|
|
13,923
|
|
|
30,295
|
|
|
8,157
|
|
|
52,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,593
|
|
|
4,049
|
|
|
729
|
|
|
6,371
|
|
General
& administrative expense
|
|
|
4,697
|
|
|
727
|
|
|
(19
|
)
|
|
5,405
|
|
Segment
operating income (loss)
|
|
$
|
(2,675
|
)
|
$
|
(176
|
)
|
$
|
3,028
|
|
$
|
177
|
|
|
·
|
Cinema
revenue increased for the 2006 Nine Months by $3.9 million or 6.1%
compared to the same period in 2005. The 2006 Nine Month increase
was from
improved results from our Australia and New Zealand operations
including
$2.7 million from admissions and $755,000 from concessions and
other
revenues.
|
|
·
|
Operating
expense increased for the 2006 Nine Months by $1.5 million or 2.9%
compared to the same period in 2005. This increase followed the
aforementioned increase in revenues. Overall, our operating expenses
from
year-to-year improved from 81% to 79% of gross revenue for the
Nine Months
ending 2005 and 2006, respectively, primarily due to improved cost
management in our United States
operations.
|
|
·
|
Depreciation
and amortization expense increased for the 2006 Nine Months by
$229,000 or
3.6% compared to the same period in 2005. This increase is primarily
related to the new Australian Elizabeth Cinema acquired in October
2005
and our newly acquired New Zealand Palms and Queenstown cinemas
|
|
|
offset
by the decrease in the City Cinema Option Fee amortization expense
directly related to the purchase of the leasehold associated
with the
Cinemas 1, 2, & 3 in Sep 2005.
|
|
·
|
General
and administrative expense decreased for the 2006 Nine Months by
$2.6
million or 47.9% compared to the same period in 2005. The decrease
was due
to a drop in legal costs primarily related to our anti-trust litigation
associated with our Village East cinema and the purchase of land
associated with the Cinemas 1, 2 & 3 which decreased the amount of
rent paid to related parties.
|
|
·
|
As
a result of the above, cinema segment income increased for the
2006 Nine
Months by $4.8 million compared to the same period in
2005.
|
Real
Estate
For
the
three months ended September 30, 2006, our third party, rental generating
real
estate holdings consisted of:
|
·
|
ETRCs
at Belmont in Perth; at Auburn in Sydney; and at Newmarket in Brisbane
in
Australia; and Courtenay Central in Wellington, New
Zealand;
|
|
·
|
three
single auditorium live theatres in Manhattan (Minetta Lane, Orpheum,
and
Union Square) and a four auditorium live theatre complex in Chicago
(The
Royal George) and, in the case of the Union Square and the Royal
George
their accompanying ancillary retail and commercial
tenants;
|
|
·
|
the
ancillary retail and commercial tenants at some of our non-ETRC cinema
locations; and
|
|
·
|
certain
raw land, used in our historic
activities.
|
The
following tables detail our real estate segment operating results for the
three
months ending September 30, 2006 and 2005, respectively (dollars in
thousands):
Three
Months Ended September 30, 2006
|
|
United
States
|
|
Australia
|
|
New
Zealand
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$
|
911
|
|
$
|
--
|
|
$
|
--
|
|
$
|
911
|
|
Property
rental income
|
|
|
205
|
|
|
1,804
|
|
|
316
|
|
|
2,325
|
|
Total
revenues
|
|
|
1,116
|
|
|
1,804
|
|
|
316
|
|
|
3,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
830
|
|
|
--
|
|
|
--
|
|
|
830
|
|
Property
rental cost
|
|
|
371
|
|
|
651
|
|
|
309
|
|
|
1,331
|
|
Total
operating expense
|
|
|
1,201
|
|
|
651
|
|
|
309
|
|
|
2,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
106
|
|
|
512
|
|
|
371
|
|
|
989
|
|
General
& administrative expense
|
|
|
11
|
|
|
565
|
|
|
1
|
|
|
577
|
|
Segment
operating income (loss)
|
|
$
|
(202
|
)
|
$
|
76
|
|
$
|
(365
|
)
|
$
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2005
|
|
United
States
|
|
Australia
|
|
New
Zealand
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$
|
1,145
|
|
$
|
--
|
|
$
|
--
|
|
$
|
1,145
|
|
Property
rental income
|
|
|
351
|
|
|
1,042
|
|
|
842
|
|
|
2,235
|
|
Total
revenues
|
|
|
1,496
|
|
|
1,042
|
|
|
842
|
|
|
3,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
587
|
|
|
--
|
|
|
--
|
|
|
587
|
|
Property
rental cost
|
|
|
173
|
|
|
535
|
|
|
189
|
|
|
897
|
|
Total
operating expense
|
|
|
760
|
|
|
535
|
|
|
189
|
|
|
1,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
109
|
|
|
383
|
|
|
438
|
|
|
930
|
|
General
& administrative expense
|
|
|
--
|
|
|
79
|
|
|
--
|
|
|
79
|
|
Segment
operating income
|
|
$
|
627
|
|
$
|
45
|
|
$
|
215
|
|
$
|
887
|
|
|
·
|
Revenue
decreased for the 2006 Quarter by $144,000 or 4.3% compared to
the same
period in 2005. The decrease was primarily related to a drop in
rents from
our domestic live theatres due to fewer shows during 2006 compared
to 2005
offset by higher property income from our newly constructed Australia
Newmarket shopping centre.
|
|
·
|
Operating
expense for the real estate segment increased for the 2006 Quarter
by
$677,000 or 45.6% compared to the same period in 2005. This increase
in
expense was primarily related to our Newmarket shopping centre
in
Brisbane, Australia and costs related to our domestic live theatres
and
domestic properties.
|
|
·
|
Depreciation
expense for the real estate segment increased by $59,000 or 6.3%
for the
2006 Quarter compared to the same period in 2005. The majority
of this
increase was attributed to the Australia Newmarket shopping center
assets
which were put into service during the first quarter
2006.
|
|
·
|
As
a result of the above, real estate segment income decreased for
the 2006
Quarter by $1.4 million compared to the same period in
2005.
|
The
following tables detail our real estate segment operating results for the
nine
months ending September 30, 2006 and 2005, respectively, adjusted to reflect
the
sale of our Glendale property which was sold during the second quarter of
2005
(dollars in thousands):
Nine
Months Ended September 30, 2006
|
|
United
States
|
|
Australia
|
|
New
Zealand
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$
|
2,950
|
|
$
|
--
|
|
$
|
--
|
|
$
|
2,950
|
|
Property
rental income
|
|
|
941
|
|
|
4,481
|
|
|
2,300
|
|
|
7,722
|
|
Total
revenues
|
|
|
3,891
|
|
|
4,481
|
|
|
2,300
|
|
|
10,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
1,976
|
|
|
--
|
|
|
--
|
|
|
1,976
|
|
Property
rental cost
|
|
|
806
|
|
|
1,826
|
|
|
1,020
|
|
|
3,652
|
|
Total
operating expense
|
|
|
2,782
|
|
|
1,826
|
|
|
1,020
|
|
|
5,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
318
|
|
|
1,566
|
|
|
1,125
|
|
|
3,009
|
|
General
& administrative expense
|
|
|
13
|
|
|
565
|
|
|
--
|
|
|
578
|
|
Segment
operating income
|
|
$
|
778
|
|
$
|
524
|
|
$
|
155
|
|
$
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2005
|
|
United
States
|
|
Australia
|
|
New
Zealand
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$
|
3,784
|
|
$
|
--
|
|
$
|
--
|
|
$
|
3,784
|
|
Property
rental income
|
|
|
884
|
|
|
3,302
|
|
|
2,888
|
|
|
7,074
|
|
Total
revenues
|
|
|
4,668
|
|
|
3,302
|
|
|
2,888
|
|
|
10,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
2,042
|
|
|
--
|
|
|
--
|
|
|
2,042
|
|
Property
rental cost
|
|
|
434
|
|
|
1,509
|
|
|
1,163
|
|
|
3,106
|
|
Total
operating expense
|
|
|
2,476
|
|
|
1,509
|
|
|
1,163
|
|
|
5,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
282
|
|
|
1,162
|
|
|
1,350
|
|
|
2,794
|
|
General
& administrative expense
|
|
|
3
|
|
|
252
|
|
|
--
|
|
|
255
|
|
Segment
operating income
|
|
$
|
1,907
|
|
$
|
379
|
|
$
|
375
|
|
$
|
2,661
|
|
|
·
|
Revenue
decreased for the 2006 Nine Months by $186,000 or 1.7% compared
to the
same period in 2005. The decrease was primarily related the decrease
in
rent from our domestic live theatres offset by an enhanced rental
stream
from our recently opened Australia Newmarket ETRC.
|
|
·
|
Operating
expense for the real estate segment increased for the 2006 Nine
Months by
$480,000 or 9.3% compared to the same period in 2005. This increase
in
expense was primarily higher property taxes from our United States
properties and operating costs related to our recently opened Australia
Newmarket ETRC.
|
|
·
|
Depreciation
expense for the real estate segment increased by $215,000 or 7.7%
for the
2006 Nine Months compared to the same period in 2005. The majority
of this
increase was attributed to the Newmarket shopping center assets
in
Australia which were put into service during the first quarter
2006.
|
|
·
|
As
a result of the above, real estate segment income for the 2006
Nine Months
decreased by $1.2 million compared to the same period in
2005.
|
Corporate
General
and administrative expense includes expenses that are not directly attributable
to other operating segments. General and administrative expense decreased
by
$2.5 million in the 2006 Quarter compared to the 2005 Quarter and by $1.7
million in the 2006 Nine Months compared to the 2005 Nine Months. The decreases
were primarily related to a drop in legal fees and from a one-time charge
for
additional bonus accrual in 2005 for our Chief Executive Officer’s new
employment contract.
Net
interest expense increased by $22,000 and $1.7 million for the 2006 Quarter
and
the 2006 Nine Months compared to last year primarily related to a higher
outstanding loan balance in Australia and due to the effective completion
of
construction of our Newmarket Shopping Centre in early 2006 which decreased
the
amount of interest being capitalized. This interest increase was offset by
a
decrease in interest expense related to the mark-to-market adjustment of
our
interest rate swaps compared to the adjustment for the same three month and
nine
month periods in 2005.
During
the 2006 Nine Months, other expense increased by $1.0 million primarily due
to a
$1.5 million mark-to-market charge relating to an option liability held by
Sutton Hill Capital LLC to acquire a 25% non-managing membership interest
in our
Cinemas 1, 2 & 3 property.
A
$13.6
million gain on the sale of discontinued operations and the corresponding
$1.4
million loss from discontinued operations from the combination of our Puerto
Rico cinemas and Glendale property operations was recognized in 2005 and
not
repeated in 2006.
Equity
earnings of unconsolidated entities increased by approximately $4.8 million
for
the 2006 Quarter and by $5.9 million for 2006 Nine Months compared to last
year.
The increase was primarily related to the 205-209
East 57th Street Associates, LLC,
that
has been developing a residential condominium complex in midtown Manhattan
called Place 57. The partnership has closed on the sale of 36 and 47
condominiums during the three and nine months ending September 30, 2006,
respectively, resulting in gross sales of $71.2 million and $87.0 million,
respectively, and equity earnings from unconsolidated entities to us of
$5.0
million and $5.9 million, respectively.
In
addition to the aforementioned equity earnings, we recorded a gain on sale
of
unconsolidated entities of $3.4 million (NZ$5.4 million), from the sale
of
our
interest in the cinemas at Whangaparaoa, Takapuna and Mission Bay, New
Zealand.
Consolidated
Net Income (Losses)
During
2006, we recorded a net income of $6.1 million and $2.7 million for the
2006
Quarter and 2006 Nine Months, respectively. During 2005, we recorded a
net loss
of $4.6 million for the 2005 Quarter and net income of $3.5 million and
2005
Nine Months, respectively. The current year income is primarily related
to the
equity earnings from 205-209
East 57th Street Associates, LLC
and from
the sale of our interest in the cinemas at Whangaparaoa, Takapuna and Mission
Bay, New Zealand. The prior year income was primarily due to the aforementioned
sale of our Glendale property and Puerto Rico operations. If it were not
for
these items, our consolidated net loss would have been $2.3 million and
$6.6
million for the 2006 Quarter and 2006 Nine Months, respectively, and $4.6
million and $10.1 million for the 2005 Quarter and 2005 Nine Months,
respectively.
Acquisitions
Indooroopilly
Land
On
September 18, 2006, we purchased a 0.26 acre property for $1.8 million (AUS$2.3
million) as part of our newly established Landplan Property Partners
initiative.
Moonee
Ponds Land
On
September 1, 2006, we purchased two parcels of land aggregating 0.4 acres
adjacent to our Moonee Ponds property for $2.5 million (AUS$3.3 million).
This
acquisition increases our holdings at Moonee Ponds to 3.1 acres and gives
us
frontage facing the principal transit station servicing the area. We are
now in
the process of developing the entire site and anticipate completion of this
project in 2008.
Berkeley
Cinemas
Effective
April 1, 2006, we purchased from our Joint Venture partner the 50% share
that we
did not already own of the Palms cinema located in Christchurch, New Zealand
for
cash of $2.8 million (NZ$4.5 million) and the proportionate share of assumed
debt which amounted to $993,000 (NZ$1.6 million). This 8-screen, leasehold
cinema had previously been included in our Berkeley Cinemas Joint Venture
investment and was not previously consolidated for accounting purposes.
Subsequent to April 1, 2006, we have consolidated this entity into our financial
statements as a wholly-owned subsidiary.
As
of
September 30, 2006, the only cinema owned by this joint venture is the Botany
Downs cinema, located in suburban Auckland.
Malulani
Investments, Ltd.
On
June
26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real
estate company with holdings principally in California, Texas and Hawaii,
including the Guenoc Winery located on approximately 22,000 acres of land
located in Napa and Lake Counties in Northern California. We are still in
the
process of determining the purchase price allocation of the assets and
liabilities associated with this acquisition.
Queenstown
Cinema
Effective
February 23, 2006, we purchased a 3-screen leasehold cinema in Queenstown,
New
Zealand for $939,000 (NZ$1.4 million). We funded this acquisition through
internal sources.
Dispositions
Berkeley
Cinemas
On
August
28, 2006, we sold to our Joint Venture Partner our interest in the cinemas
at
Whangaparaoa, Takapuna and Mission Bay, New Zealand for $4.6 million (NZ$7.2
million) in cash and the assumption of $1.6 million (NZ$2.5 million) in debt.
The sale resulted in a gain on sale of unconsolidated entity for the three
months and nine months ending September 30, 2006 of $3.4 million (NZ$5.4
million).
Business
Plan, Capital Resources and Liquidity
Business
Plan
Our
cinema exhibition business plan is to continue to identify, develop and acquire
cinema properties, focusing, where reasonably available, on those opportunities
where we can acquire either the fee interest underlying such operating assets,
or long-term leases, which provide flexibility with respect to the usage
of such
leasehold estates. Our real estate business plan is to continue to develop
our
existing land assets, focusing principally on uses that incorporate
entertainment elements such as cinemas, and to continue to be sensitive to
opportunities to convert our entertainment assets to higher and better uses
-
such as the ongoing redevelopment of our Sutton Cinema property into residential
and retail condominium units. In addition, we will actively seek out potential
real estate sites in Australia and New Zealand that show profitable
redevelopment opportunities.
We
are
currently concentrating our acquisitions and development activities primarily
in
Australia and New Zealand, as we believe that there are currently better
opportunities in these markets than domestically. We continue to close
under-performing cinema assets, or to sell or put to other purposes those
cinema
assets that have value as real estate significantly in excess of their value
as
cinemas.
Contractual
Obligations
The
following table provides information with respect to the maturities and
scheduled principal repayments of our secured debt and lease obligations
at
September 30, 2006 (in thousands):
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Long-term
debt
|
|
$
|
232
|
|
$
|
4,080
|
|
$
|
2,188
|
|
$
|
95,700
|
|
$
|
242
|
|
$
|
3,119
|
|
Notes
payable to related parties
|
|
|
--
|
|
|
5,000
|
|
|
--
|
|
|
--
|
|
|
9,000
|
|
|
--
|
|
Lease
obligations
|
|
|
2,477
|
|
|
10,260
|
|
|
9,604
|
|
|
9,506
|
|
|
9,356
|
|
|
70,674
|
|
Estimated
interest on long-term debt
|
|
|
2,325
|
|
|
9,014
|
|
|
8,422
|
|
|
3,279
|
|
|
955
|
|
|
172
|
|
Total
|
|
$
|
5,034
|
|
$
|
28,354
|
|
$
|
20,214
|
|
$
|
108,485
|
|
$
|
19,553
|
|
$
|
73,965
|
|
Estimated
interest on long-term debt is based on the anticipated loan balances for
future
periods calculated against current fixed and variable interest
rates.
Unconsolidated
Debt
Total
debt of unconsolidated entities was $5.2 million and $69.8 million as of
September 30, 2006 and December 31, 2005, respectively. Our share of
unconsolidated debt, based on our ownership percentage, was $2.2 million
and
$20.4 million as of September 30, 2006 and December 31, 2005,
respectively.
Off-Balance
Sheet Arrangements
There
are
no off-balance sheet transactions, arrangements or obligations (including
contingent obligations) that have, or are reasonably likely to have, a current
or future material effect on our financial condition, changes in the financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Liquidity
and Capital Resources
Our
ability to generate sufficient cash flows from operating activities in order
to
meet our obligations and commitments drives our liquidity position. This
is
further affected by our ability to obtain adequate, reasonable financing
and/or
to convert non-performing or non-strategic assets into cash. We cannot separate
liquidity from capital resources in achieving our long-term goals in order
to
meet our debt servicing requirements.
Currently,
our liquidity needs arise mainly from:
|
·
|
working
capital requirements;
|
|
·
|
debt
servicing requirements; and
|
|
·
|
capital
expenditures, centered on obtaining the right financing for the
development of our Burwood
property.
|
Operating
Activities
Cash
provided by operations was $2.4 million in the 2006 Nine Months compared
to $2.9
million of cash used in operations for the 2005 Nine Months. The increase
in
cash provided by operations of $5.3 million is due primarily to increased
cinema
operational cash flow from our Australia and New Zealand operations and
improved
cash flow from our U.S. cinemas during 2006 resulting from the sale of
our
formerly underperforming Puerto Rico operations in June 2005.
Investing
Activities
Cash
used
in investing activities for the 2006 Nine Months decreased by $11.5 million
to
$12.9 million from $24.4 million compared to the same period in 2005. The
$12.9
million cash used for the 2006 Nine Months was primarily related
to:
|
·
|
$8.1
million in acquisitions including:
|
|
o
|
$939,000
in cash used to purchase the Queenstown Cinema in New
Zealand,
|
|
o
|
$2.8
million in cash used to purchase the 50% share that we did not
already own
of the Palms cinema located in Christchurch, New
Zealand,
|
|
o
|
$1.8
million for the Australia Indooroopilly property,
and
|
|
o
|
$2.5
million for the adjacent parcel to our Moonee Ponds
property;
|
|
·
|
$6.4
million in cash used to complete the Newmarket property and for
property
enhancements to our Australia, New Zealand and U.S. properties;
and
|
|
·
|
$2.7
million in investment in unconsolidated entities including $1.8
million
paid for Malulani Investments, Ltd. stock and $876,000 additional
cash
invested in Rialto Cinemas used to pay off their bank
debt,
|
offset
by
|
·
|
$4.6
million cash received from the sale
of our
interest the cinemas at Whangaparaoa, Takapuna and Mission Bay,
New
Zealand.
|
The
$24.4
million cash used for the 2005 Nine Months was primarily related to:
|
·
|
$14.4
million paid for acquisitions including $11.8 million for the acquisition
of the fee interest and tenant’s ground lease interest of the Cinemas 1, 2
& 3 property in New York City, $700,000 deposit paid to secure a
contract to acquire a company whose sole assets is a 50% interest
in an
unincorporated joint venture that owns 20 screens, and $1.9 million
(AUS$2.5 million) paid for our new Melbourne Office Building;
|
|
·
|
$23.2
million in purchases of property and equipment related to approximately
$21.4 million for the on-going construction work on our Newmarket
development in Brisbane, Australia and the fit-out of our 8 screen
Adelaide, Australia cinema which opened on October 20, 2005 and
$1.8
million in purchases of equipment primarily related to our renovation
of
our New Zealand Movieland sites;
|
|
·
|
$905,000
cash paid as additional capital contributions with respect to our
investment in the 205-209 East 57th
Street Associates, LLC;
|
offset
by
|
·
|
$12.6
million in net proceeds from the sales of our Glendale office building
and
Puerto Rico operations;
|
|
·
|
$1.0
million cash provided by a decrease in restricted cash;
and
|
|
·
|
$515,000
in cash proceeds from the sale of our Wilmington and Northern
property.
|
Financing
Activities
Cash
provided by financing activities for the 2006 Nine Months decreased by $15.3
million to $9.6 million from $24.9 million compared to the same period in
2005.
The $9.6 million in cash provided in the 2006 Nine Months was primarily related
to:
|
·
|
$11.8
million of new borrowings on our Australian Corporate Credit
Facility;
|
|
·
|
$3.0
million of a deposit received from Sutton Hill Capital, LLC for
the option
to purchase a 25% non-managing membership interest in the limited
liability company that owns the Cinemas 1, 2 &
3;
|
offset
by
|
·
|
$2.9
million of cash used to pay down long-term debt which was primarily
related to the final payoff of the Movieland purchase note payable
of
approximately $512,000; the payoff of the Palms - Christchurch
Cinema bank
debt of approximately $1.9 million; and we
made the first principal payment on our
Australian Corporate Credit Facility
of
$280,000;
|
|
·
|
$792,000
of cash used to repurchase the Class A Nonvoting Common Stock (these
shares were previously issued to the Movieland sellers who exercised
their
put option during the 2006 Nine Months to sell back to us the shares
they
had received in partial consideration for the sale of the Movieland
cinemas); and
|
|
·
|
$1.5
million in distributions to minority
interests.
|
Cash
provided by financing activities was $24.9 million for the first nine months
of
2005 and was attributable to our increase in borrowings of approximately
$25.7
million primarily used to finance the 2005 construction work on our Newmarket
development in Brisbane, Australia.
Summary
Our
cash
position at September 30, 2006 was $8.1 million compared to $8.5 million
at
December 31, 2005. The majority of the $498,000 change related to the following
transactions:
|
·
|
$2.4
million net cash provided by operating
activities;
|
|
·
|
$11.8
million of new borrowings on our Australian Corporate Credit Facility;
|
|
·
|
$4.6
million cash received from the sale
of our
interest the cinemas at Whangaparaoa, Takapuna and Mission Bay,
New
Zealand; and
|
|
·
|
$3.0
million of a deposit paid by Sutton Hill Capital, LLC of the option
to
purchase a 25% non-managing membership interest in the limited
liability
company that owns the Cinemas 1, 2, & 3;
|
offset
by
|
·
|
$8.1
million in acquisitions of the Queenstown and Palms cinemas in
New Zealand
and Indooroopilly and Moonee Ponds properties in
Australia;
|
|
·
|
$6.4
million in cash used to complete the Newmarket property and for
property
enhancements to our Australia, New Zealand and U.S.
properties;
|
|
·
|
$2.9
million of cash used to pay down long-term debt which was primarily
related the final payoff of the Movieland purchase note payable
of
approximately $512,000, to payoff the Palms - Christchurch Cinema
bank
debt of approximately $1.9 million, and we
made the first principal payment on our
Australian Corporate Credit Facility
of
$280,000;
|
|
·
|
$792,000
of cash used to repurchase the Class A Nonvoting Common Stock (these
shares were previously issued to the Movieland sellers who exercised
their
put option during the 2006 Nine Months to sell back to us the shares
they
had received in partial consideration for the sale of the Movieland
cinemas);
|
|
·
|
$2.7
million in investment in unconsolidated entities including $1.8
million
paid for Malulani Investments, Ltd. stock and $876,000 additional
cash
invested in Rialto Cinema; and
|
|
·
|
$1.5
million in distributions to minority
interests.
|
Critical
Accounting Policies
The
Securities and Exchange Commission defines critical accounting policies as
those
that are, in management’s view, most important to the portrayal of the company’s
financial condition and results of operations and the most demanding in their
calls on judgment. Although accounting for our core business of cinema and
live
theatre exhibition with a real estate focus is relatively straightforward,
we
believe our most critical accounting policies relate to:
|
·
|
impairment of long-lived assets, including goodwill
and
intangible assets; |
|
·
|
tax
valuation allowance and obligations;
and
|
|
·
|
legal
and environmental obligations.
|
These
critical accounting policies are fully discussed in our 2005 Annual Report
and
you are advised to refer to that discussion.
Financial
Risk Management
Our
internally developed risk management procedure, seeks to minimize the
potentially negative effects of changes in foreign exchange rates and interest
rates on the results of operations. Our primary exposure to fluctuations
in the
financial markets is currently due to changes in foreign exchange rates between
U.S and Australia and New Zealand, and interest rates.
As
our
operational focus continues to shift to Australia and New Zealand, unrealized
foreign currency translation gains and losses could materially affect our
financial position. We currently manage our currency exposure by creating
natural hedges in Australia and New Zealand. This involves local country
sourcing of goods and services as well as borrowing in local
currencies.
Our
exposure to interest rate risk arises out of our long-term debt obligations.
Consistent with our internally developed guidelines, we seek to reduce the
negative effects of changes in interest rates by changing the character of
the
interest rate on our long-term debt, converting a variable rate into a fixed
rate. Our internal procedures allow us to enter into derivative contracts
on
certain borrowing transactions to achieve this goal. Our Australian credit
facilities provide for floating interest rates but require that not less
than a
certain percentage of the loans be swapped into fixed rate obligations using
the
derivative contracts.
In
accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
we
marked our Australian interest rate swap instruments to market on the
consolidated balance sheet resulting in a $2,000 (AUS$3,000) and $555,000
(AUS$758,000) decrease to interest expense during the three and nine months
ended September 30, 2006, respectively, and a $204,000 (AUS$271,000) and
$194,000 (AUS$224,000) increase to interest expense during the three and
nine
months ended September 30, 2005, respectively. At September 30, 2006 and
December 31, 2005, we have recorded the fair market value of our interest
rate
swaps of $84,000 (AUS$112,000) and $638,000 (AUS$870,000), respectively,
as an
other long-term liability. In accordance with SFAS No. 133, we have not
designated any of our current interest rate swap positions as financial
reporting hedges.
Inflation
We
continually monitor inflation and the effects of changing prices. Inflation
increases the cost of goods and services used. Competitive conditions in
many of
our markets restrict our ability to recover fully the higher costs of acquired
goods and services through price increases. We attempt to mitigate the impact
of
inflation by implementing continuous process improvement solutions to enhance
productivity and efficiency and, as a result, lower costs and operating
expenses. In our opinion, the effects of inflation have been managed
appropriately and as a result, have not had a material impact on our operations
and the resulting financial position or liquidity.
Litigation
We
are
currently, and are from time to time, involved with claims and lawsuits arising
in the ordinary course of our business. Some examples of the types of claims
are:
|
·
|
contractual
obligations;
|
|
·
|
employment
matters; and
|
Where
we
are the plaintiffs, we expense all legal fees on an on-going basis and make
no
provision for any potential settlement amounts until received. In Australia,
the
prevailing party is entitled to recover its attorneys fees, which typically
works out to be approximately 60% of the amounts actually spent where first
class legal counsel is engaged at customary rates. Where we are a plaintiff,
we
have likewise made no provision for the liability for the defendant’s attorneys'
fees in the event we were determined not to be the prevailing
party.
Where
we
are the defendants, we accrue for probable damages, which may not be covered
by
insurance, as they become known and can be reasonably estimated. In our opinion,
any claims and litigation in which we are currently involved are not reasonably
likely to have a material adverse effect on our business, results of operations,
financial position or liquidity. However, we do not give any assurance as
to the
ultimate outcome of such claims and litigation. The resolution of such claims
and litigation could be material to our operating results for any particular
period, depending on the level of income for such period. There have been
no
material changes to our litigation exposure since our Company’s 2005 Annual
Report.
Except
for what is noted below regarding Tax/Audit Litigation, there have been no
material changes to our litigation exposure since our Company’s 2005 Annual
Report.
Mackie
Dispute
In
November 2005, Mackie Group Pty Ltd ("Mackie") filed in the Supreme Court
of
Victoria at Melbourne as action No. 9121 of 2005, a lawsuit against Reading
Properties Pty Ltd, an indirectly wholly owned subsidiary of our Company
("Reading Properties"), asserting that it was owed $746,000 (AUS$1.0 million),
under an agreement dated May 25, 1998. We dispute this claim and have filed
a
response denying liability. On or about July 21, 2006, plaintiffs filed a
motion
for summary judgment in that case. The response of Reading Properties is
due in
late November. Having reviewed the plaintiff's motion for summary judgment,
we
continue to be of the view that we have no liability to Mackie under the
May
1998 agreement, and intend to continue to dispute Mackie's claim.
Tax
Audit/Litigation
The
Internal Revenue Service (the “IRS”) completed its audits of the tax return of
Reading Entertainment Inc. (RDGE) for its tax years ended December 31, 1996
through December 31, 1999 and the tax return of Craig Corporation (CRG) for
its
tax year ended September 30, 1997. With respect to both of these companies,
the
principal focus of these audits was the treatment of the contribution by
RDGE to
our wholly owned subsidiary, Reading Australia, and thereafter the subsequent
repurchase by Stater Bros. Inc. from Reading Australia of certain preferred
stock in Stater Bros. Inc. (the “Stater Stock”) received by RDGE from CRG as a
part of a private placement of securities by RDGE which closed in October
1996.
A second issue involving equipment leasing transactions entered into by RDGE
(discussed below) is also involved.
By
letters dated November 9, 2001, the IRS issued reports of examination proposing
changes to the tax returns of RDGE and CRG for the years in question (the
“Examination Reports”). The Examination Report for each of RDGE and CRG proposed
that the gains on the disposition by RDGE of Stater Stock, reported as taxable
on the RDGE return, should be allocated to CRG. As reported, the gain resulted
in no additional tax to RDGE
inasmuch as the gain was entirely offset by a net operating loss carry forward
of RDGE. This proposed change would result in an additional tax liability
for
CRG of approximately $20.9 million plus interest of approximately $11.0 million
as of September 30, 2006. In addition, this proposal would result in California
tax liability of approximately $5.3 million plus interest of approximately
$3.0
million as of September 30, 2006. Accordingly, this proposed change represented,
as of September 30, 2006, an exposure of approximately $40.2 million.
Moreover,
California has “amnesty” provisions imposing additional liability on taxpayers
who are determined to have materially underreported their taxable income.
While
these provisions have been criticized by a number of corporate taxpayers
to the
extent that they apply to tax liabilities that are being contested in good
faith, no assurances can be given that these new provisions will be applied
in a
manner that would mitigate the impact on such taxpayers. Accordingly, these
provisions may cause an additional $4.0 million exposure to CRG, for a total
exposure of approximately $44.2 million. We have accrued $3.8 million as
a
probable loss in relation to this exposure and believe that the possible
total
settlement amount will be between $3.8 million and $44.2 million.
In
early
February 2005, we had a mediation conference with the IRS concerning this
proposed change. The mediation was conducted by two mediators, one of whom
was
selected by the taxpayer from the private sector and one of whom was an employee
of the IRS. In connection with this mediation, we and the IRS each prepared
written submissions to the mediators setting forth our respective cases.
In its
written submission, the IRS noted that it had offered to settle its claims
against us at 30% of the proposed change, and reiterated this offer at the
mediation. This offer constituted, in effect, an offer to settle for a payment
of $5.5 million federal tax, plus interest, for an aggregate settlement amount
of approximately $8.0 million. Based on advice of counsel given after reviewing
the materials submitted by the IRS to the mediation panel, and the oral
presentation made by the IRS to the mediation panel and the comments of the
mediators (including the IRS mediator), we determined not to accept this
offer.
Notices
of deficiency (“N/D”) dated June 29, 2006 were received with respect to each of
RDGE and CRG determining proposed deficiencies of $20.9 million for CRG and
a
total of $349,000 for RDGE for the tax years 1997, 1998 and 1999.
We
intend
to litigate aggressively these matters in the U.S. Tax Court and an appeal
was
filed with the court on September 26, 2006. While there are always risks
in
litigation, we believe that a settlement at the level currently offered by
the
IRS would substantially understate the strength of our position and the
likelihood that we would prevail in a trial of these matters.
Since
these tax liabilities relate to time periods prior to the Consolidation of
CDL,
RDGE, and CRG into Reading International, Inc. and since RDGE and CRG continue
to exist as wholly owned subsidiaries of RII, it is expected that any adverse
determination would be limited in recourse to the assets of RDGE or CRG,
as the
case may be, and not to the general assets of RII. At the present time, the
assets of these subsidiaries are comprised principally of RII securities.
Accordingly, we do not anticipate, even if there were to be an adverse judgment
in favor of the IRS that the satisfaction of that judgment would interfere
with
the internal operation or result in any levy upon or loss of any of our material
operating assets. The satisfaction of any such adverse judgment would, however,
result in a material dilution to existing stockholder interests.
The
N/D
issued to RDGE does not cover its tax year 1996 which will be held in abeyance
pending the resolution of the CRG case. An adjustment to 1996 taxable income
for
RDGE would result in a refund of alternative minimum tax paid that year.
The N/D
issued to RDGE eliminated the gains booked by RDGE in 1996 as a consequence
of
its acquisition certain computer equipment and sale of the anticipated income
stream from the lease of such equipment to third parties and disallowed
depreciation deductions that we took with respect to that equipment in 1997,
1998 and 1999. Such disallowance has the effect of decreasing net operating
losses
but did not result in any additional regular federal income tax for such
years.
However, the depreciation disallowance would increase RDGE state tax liability
for those years by approximately $170,000 plus interest. The only tax liability
reflected in the RDGE N/D is alternative minimum tax in the total amount
of
approximately $350,000 plus interest. On September 26, 2006, we filed an
appeal
on this N/D with the U.S. Tax Court.
Forward-Looking
Statements
Our
statements in this interim quarterly report contain a variety of forward-looking
statements as defined by the Securities Litigation Reform Act of 1995.
Forward-looking statements reflect only our expectations regarding future
events
and operating performance and necessarily speak only as of the date the
information was prepared. No guarantees can be given that our expectation
will
in fact be realized, in whole or in part. You can recognize these statements
by
our use of words such as, by way of example, “may,” “will,” “expect,” “believe,”
and “anticipate” or other similar terminology.
These
forward-looking statements reflect our expectation after having considered
a
variety of risks and uncertainties. However, they are necessarily the product
of
internal discussion and do not necessarily completely reflect the views of
individual members of our Board of Directors or of our management team.
Individual Board members and individual members of our management team may
have
different view as to the risks and uncertainties involved, and may have
different views as to future events or our operating performance.
Among
the
factors that could cause actual results to differ materially from those
expressed in or underlying our forward-looking statements are the
following:
|
·
|
With
respect to our cinema operations:
|
|
o
|
The
number and attractiveness to movie goers of the films released
in future
periods;
|
|
o
|
The
amount of money spent by film distributors to promote their motion
pictures;
|
|
o
|
The
licensing fees and terms required by film distributors from motion
picture
exhibitors in order to exhibit their
films;
|
|
o
|
The
comparative attractiveness of motion pictures as a source of entertainment
and willingness and/or ability of consumers (i) to spend their
dollars on
entertainment and (ii) to spend their entertainment dollars on
movies in
an outside the home environment;
and
|
|
o
|
The
extent to which we encounter competition from other cinema exhibitors,
from other sources of outside of the home entertainment, and from
inside
the home entertainment options, such as “home theaters” and competitive
film product distribution technology such as, by way of example,
cable,
satellite broadcast, DVD and VHS rentals and sales, and so called
“movies
on demand;”
|
|
·
|
With
respect to our real estate development and operation
activities:
|
|
o
|
The
rental rates and capitalization rates applicable to the markets
in which
we operate and the quality of properties that we
own;
|
|
o
|
The
extent to which we can obtain on a timely basis the various land
use
approvals and entitlements needed to develop our
properties;
|
|
o
|
The
availability and cost of labor and
materials;
|
|
o
|
Competition
for development sites and tenants;
and
|
|
o
|
The
extent to which our cinemas can continue to serve as an anchor
tenant
which will, in turn, be influenced by the same factors as will
influence
generally the results of our cinema operations;
and
|
|
·
|
With
respect to our operations generally as an international company
involved
in both the development and operation of cinemas and the development
and
operation of real estate; and previously engaged for many years
in the
railroad business in the United
States:
|
|
o
|
Our
ongoing access to borrowed funds and capital and the interest that
must be
paid on that debt and the returns that must be paid on such
capital;
|
|
o
|
The
relative values of the currency used in the countries in which
we
operate;
|
|
o
|
Changes
in government regulation, including by way of example, the costs
resulting
from the implementation of the requirements of
Sarbanes-Oxley;
|
|
o
|
Our
labor relations and costs of labor (including future government
requirements with respect to pension liabilities, disability insurance
and
health coverage, and vacations and
leave);
|
|
o
|
Our
exposure from time to time to legal claims and to uninsurable risks
such
as those related to our historic railroad operations, including
potential
environmental claims and health related claims relating to alleged
exposure to asbestos or other substances now or in the future recognized
as being possible causes of cancer or other health related
problems;
|
|
o
|
Changes
in future effective tax rates and the results of currently ongoing
and
future potential audits by taxing authorities having jurisdiction
over our
various companies; and
|
|
o
|
Changes
in applicable accounting policies and
practices.
|
The
above
list is not necessarily exhaustive, as business is by definition unpredictable
and risky, and subject to influence by numerous factors outside of our
control
such as changes in government regulation or policy, competition, interest
rates,
supply, technological innovation, changes in consumer taste and fancy,
weather,
and the extent to which consumers in our markets have the economic wherewithal
to spend money on beyond-the-home entertainment.
Given
the
variety and unpredictability of the factors that will ultimately influence
our
businesses and our results of operation, it naturally follows that no guarantees
can be given that any of our forward-looking statements will ultimately prove to
be correct. Actual results will undoubtedly vary and there is no guarantee
as to
how our securities will perform either when considered in isolation or when
compared to other securities or investment opportunities.
Finally,
please understand that we undertake no obligation to update publicly or to
revise any of our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable law. Accordingly, you should always note the date to which our
forward-looking statements speak.
Additionally,
certain of the presentations included in this interim quarterly report may
contain “pro forma” information or “non-GAAP financial measures.” In such case,
a reconciliation of this information to our GAAP financial statements will
be
made available in connection with such statements.
Item
3 - Quantitative and Qualitative Disclosure about Market
Risk
The
Securities and Exchange Commission requires that registrants include information
about potential effects of changes in currency exchange and interest rates
in
their filings. Several alternatives, all with some limitations, have been
offered. The following discussion is based on a sensitivity analysis, which
models the effects of fluctuations in currency exchange rates and interest
rates. This analysis is constrained by several factors, including the
following:
|
·
|
It
is based on a single point in time.
|
|
·
|
It
does not include the effects of other complex market reactions
that would
arise from the changes modeled.
|
Although
the results of such an analysis may be useful as a benchmark, they should
not be
viewed as forecasts.
At
September 30, 2006, approximately 50% and 22% of our assets were invested
in
assets denominated in Australian dollars (Reading Australia) and New Zealand
dollars (Reading New Zealand), respectively, including approximately $6.8
million in cash and cash equivalents. At December 31, 2005, approximately
50%
and 23% of our assets were invested in assets denominated in Australian dollars
(Reading Australia) and New Zealand dollars (Reading New Zealand) including
approximately $6.4 million in cash and cash equivalents.
Our
policy in Australia and New Zealand is to match revenues and expenses, whenever
possible, in local currencies. As a result, a majority of our expenses in
Australia and New Zealand have been procured in local currencies. Due to
the
developing nature of our operations in Australia and New Zealand, our revenue
is
not yet significantly greater than our operating expense. The resulting natural
operating hedge has led to a somewhat negligible foreign currency effect
on our
earnings. As we continue to progress our acquisition and development activities
in Australia and New Zealand, we cannot assure you that the foreign currency
effect on our earnings will be insignificant in the future.
Our
policy is to borrow in local currencies to finance the development and
construction of our ETRC’s in Australia and New Zealand whenever possible. As a
result, the borrowings in local currencies have provided somewhat of a natural
hedge against the foreign currency exchange exposure. Even so, approximately
46%
and 28% of our Australian and New Zealand assets, respectively, remain subject
to such exposure unless we elect to hedge our foreign currency exchange between
the US and Australian and New Zealand dollars. If the foreign currency rates
were to fluctuate by 10% the resulting change in Australian and New Zealand
assets would be $6.1 million and $1.7 million, respectively, and the change
in
our quarterly net income would be $409,000 and $332,000, respectively. At
the
present time, we have no plan to hedge such exposure.
We
record
unrealized foreign currency translation gains or losses which could materially
affect our financial position. As of September 30, 2006 and December 31,
2005,
we have recorded a cumulative unrealized foreign currency translation gain
of
approximately $29.0 million and $28.6 million, respectively.
Historically,
we maintained most of our cash and cash equivalent balances in short-term
money
market instruments with original maturities of three months or less. Some
of our
money market investments may decline in value if interest rates increase.
Due to
the short-term nature of such investments, a change of 1% in short-term interest
rates would not have a material effect on our financial condition.
Item
3A - Quantitative and Qualitative Disclosure about Interest
Risk
The
majority of our U.S. bank loans have fixed interest rates; however, one of
our
domestic loans has a variable interest rate and a change of approximately
1% in
short-term interest rates would have resulted in an approximately $5,000
increase or decrease in our 2006 Quarter interest expense.
While
we
have typically used fixed rate financing (secured by first mortgages) in
the
U.S., fixed rate financing is typically not available to corporate borrowers
in
Australia and New Zealand. The majority of our Australian and New Zealand
bank
loans have variable rates. The Australian facilities provide for floating
interest rates, but require that not less than a certain percentage of the
loans
be swapped into fixed rate obligations (see
Financial Risk Management above).
If we consider the interest rate swaps, a 1% increase in short-term interest
rates would have resulted in approximately $76,000 increase in our 2006 Quarter
Australian and New Zealand interest expense while a 1% decrease in short-term
interest rates would have resulted in approximately $79,000 decrease the
2006
Quarter of Australian and New Zealand interest expense.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Company’s Exchange Act reports, as
amended, is recorded, processed, summarized and reported within the time
periods
specified in the Securities and Exchange Commission’s rules and forms and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate,
to
allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes
that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and our management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted
an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Based on this evaluation, our principal
executive officer and our principal financial officer concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this quarterly report.
Item
1 - Legal Proceedings
For
a
description of legal proceedings, please refer to Item 3 entitled Legal
Proceedings contained in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2005.
Item
2 - Change in Securities
Not
applicable.
Item
3 - Defaults upon Senior Securities
Not
applicable.
Item
4 - Submission of Matters to a Vote of Securities Holders
None
Item
5 - Other Information
Not
applicable.
Item
6 - Exhibits
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
32
|
Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
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.
READING
INTERNATIONAL, INC.
Date:
|
November
6, 2006
|
By:
|
/s/
James J. Cotter
|
|
|
|
James
J. Cotter
|
|
|
|
Chief
Executive Officer
|
Date:
|
November
6, 2006
|
By:
|
/s/
Andrzej Matyczynski
|
|
|
|
Andrzej
Matyczynski
|
|
|
|
Chief
Financial Officer
|