Page
Item
1 – Financial Statements
Reading
International, Inc. and Subsidiaries
Consolidated
Balance Sheets (Unaudited)
(U.S.
dollars in thousands)
|
|
June
30,
2007
|
|
|
December
31,
2006
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
22,391
|
|
|
$ |
11,008
|
|
Receivables
|
|
|
7,619
|
|
|
|
6,612
|
|
Inventory
|
|
|
529
|
|
|
|
606
|
|
Investment
in marketable securities
|
|
|
15,653
|
|
|
|
8,436
|
|
Restricted
cash
|
|
|
714
|
|
|
|
1,040
|
|
Prepaid
and other current assets
|
|
|
3,002
|
|
|
|
2,589
|
|
Total
current assets
|
|
|
49,908
|
|
|
|
30,291
|
|
Land
held for sale
|
|
|
1,985
|
|
|
|
--
|
|
Property
held for development
|
|
|
1,721
|
|
|
|
1,598
|
|
Property
under development
|
|
|
55,464
|
|
|
|
38,876
|
|
Property
& equipment, net
|
|
|
179,939
|
|
|
|
170,667
|
|
Investment
in unconsolidated joint ventures and entities
|
|
|
16,179
|
|
|
|
19,067
|
|
Investment
in Reading International Trust I
|
|
|
1,547
|
|
|
|
--
|
|
Goodwill
|
|
|
19,027
|
|
|
|
17,919
|
|
Intangible
assets, net
|
|
|
8,038
|
|
|
|
7,954
|
|
Other
assets
|
|
|
5,214
|
|
|
|
2,859
|
|
Total
assets
|
|
$ |
339,022
|
|
|
$ |
289,231
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
12,176
|
|
|
$ |
13,539
|
|
Film
rent payable
|
|
|
3,691
|
|
|
|
4,642
|
|
Notes
payable – current portion
|
|
|
2,140
|
|
|
|
2,237
|
|
Note
payable to related party – current portion
|
|
|
5,000
|
|
|
|
5,000
|
|
Current
tax liabilities
|
|
|
4,376
|
|
|
|
9,128
|
|
Deferred
current revenue
|
|
|
1,985
|
|
|
|
2,565
|
|
Other
current liabilities
|
|
|
170
|
|
|
|
177
|
|
Total
current liabilities
|
|
|
29,538
|
|
|
|
37,288
|
|
Notes
payable – long-term portion
|
|
|
101,317
|
|
|
|
113,975
|
|
Note
payable to related parties
|
|
|
9,000
|
|
|
|
9,000
|
|
Subordinated
debt
|
|
|
51,547
|
|
|
|
--
|
|
Noncurrent
tax liabilities
|
|
|
4,954
|
|
|
|
--
|
|
Deferred
non-current revenue
|
|
|
532
|
|
|
|
528
|
|
Other
liabilities
|
|
|
15,099
|
|
|
|
18,178
|
|
Total
liabilities
|
|
|
211,987
|
|
|
|
178,969
|
|
Commitments
and contingencies
|
|
|
--
|
|
|
|
--
|
|
Minority
interest in consolidated affiliates
|
|
|
5,292
|
|
|
|
2,603
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Class
A Nonvoting Common Stock, par value $0.01, 100,000,000 shares
authorized,
35,495,729 issued and 20,992,453 outstanding at June 30, 2007
and
35,468,733 issued and 20,980,865 outstanding at December 31,
2006
|
|
|
216
|
|
|
|
216
|
|
Class
B Voting Common Stock, par value $0.01, 20,000,000 shares authorized
and
1,495,490 issued and outstanding at June 30, 2007 and December
31,
2006
|
|
|
15
|
|
|
|
15
|
|
Nonvoting
Preferred Stock, par value $0.01, 12,000 shares authorized and
no
outstanding shares
|
|
|
--
|
|
|
|
--
|
|
Additional
paid-in capital
|
|
|
131,449
|
|
|
|
128,399
|
|
Accumulated
deficit
|
|
|
(49,579 |
) |
|
|
(50,058 |
) |
Treasury
shares
|
|
|
(4,306 |
) |
|
|
(4,306 |
) |
Accumulated
other comprehensive income
|
|
|
43,948
|
|
|
|
33,393
|
|
Total
stockholders’ equity
|
|
|
121,743
|
|
|
|
107,659
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
339,022
|
|
|
$ |
289,231
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statements of Operations (Unaudited)
(U.S.
dollars in thousands, except per share amounts)
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
$ |
26,034
|
|
|
$ |
23,954
|
|
|
$ |
50,540
|
|
|
$ |
46,463
|
|
Real
estate
|
|
|
4,105
|
|
|
|
2,824
|
|
|
|
7,575
|
|
|
|
5,515
|
|
|
|
|
30,139
|
|
|
|
26,778
|
|
|
|
58,115
|
|
|
|
51,978
|
|
Operating
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
|
19,931
|
|
|
|
18,004
|
|
|
|
38,051
|
|
|
|
35,144
|
|
Real
estate
|
|
|
1,864
|
|
|
|
1,756
|
|
|
|
3,865
|
|
|
|
3,468
|
|
Depreciation
and amortization
|
|
|
3,047
|
|
|
|
3,337
|
|
|
|
6,016
|
|
|
|
6,577
|
|
General
and administrative
|
|
|
3,879
|
|
|
|
3,076
|
|
|
|
7,555
|
|
|
|
6,441
|
|
|
|
|
28,721
|
|
|
|
26,173
|
|
|
|
55,487
|
|
|
|
51,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,418
|
|
|
|
605
|
|
|
|
2,628
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
84
|
|
|
|
26
|
|
|
|
229
|
|
|
|
87
|
|
Interest
expense
|
|
|
(2,034 |
) |
|
|
(1,537 |
) |
|
|
(3,930 |
) |
|
|
(3,382 |
) |
Net
gain (loss) on sale of assets
|
|
|
--
|
|
|
|
--
|
|
|
|
(185 |
) |
|
|
3
|
|
Other
income (expense)
|
|
|
465
|
|
|
|
1
|
|
|
|
(271 |
) |
|
|
(1,157 |
) |
Loss
before minority interest expense, income tax expense, and equity
earnings
of unconsolidated joint ventures and entities
|
|
|
(67 |
) |
|
|
(905 |
) |
|
|
(1,529 |
) |
|
|
(4,101 |
) |
Minority
interest expense
|
|
|
(154 |
) |
|
|
(192 |
) |
|
|
(495 |
) |
|
|
(272 |
) |
Loss
from continuing operations
|
|
|
(221 |
) |
|
|
(1,097 |
) |
|
|
(2,024 |
) |
|
|
(4,373 |
) |
Gain
on sale of a discontinued operation
|
|
|
1,912
|
|
|
|
--
|
|
|
|
1,912
|
|
|
|
--
|
|
Income
(loss) before income tax expense and equity earnings of unconsolidated
joint ventures and entities
|
|
|
1,691
|
|
|
|
(1,097 |
) |
|
|
(112 |
) |
|
|
(4,373 |
) |
Income
tax expense
|
|
|
(443 |
) |
|
|
(344 |
) |
|
|
(942 |
) |
|
|
(681 |
) |
Income
(loss) before equity earnings of unconsolidated joint ventures
and
entities
|
|
|
1,248
|
|
|
|
(1,441 |
) |
|
|
(1,054 |
) |
|
|
(5,054 |
) |
Equity
earnings of unconsolidated joint ventures and entities
|
|
|
386
|
|
|
|
1,207
|
|
|
|
2,042
|
|
|
|
1,674
|
|
Net
income (loss)
|
|
$ |
1,634
|
|
|
$ |
(234 |
) |
|
$ |
988
|
|
|
$ |
(3,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing
operations
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.15 |
) |
Earnings
from discontinued
operations
|
|
|
0.08
|
|
|
|
--
|
|
|
|
0.08
|
|
|
|
--
|
|
Basic
and diluted earnings (loss) per share
|
|
$ |
0.07
|
|
|
$ |
(0.01 |
) |
|
$ |
0.04
|
|
|
$ |
(0.15 |
) |
Weighted
average number of shares outstanding – basic and
diluted
|
|
|
22,487,943
|
|
|
|
22,413,995
|
|
|
|
22,485,480
|
|
|
|
22,431,834
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statements of Cash Flows (Unaudited)
(U.S.
dollars in thousands)
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
988
|
|
|
$ |
(3,380 |
) |
Adjustments
to reconcile net
income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
(Gain)
loss recognized on foreign
currency transactions
|
|
|
(132 |
) |
|
|
6
|
|
Equity
earnings of unconsolidated
joint ventures and entities
|
|
|
(2,042 |
) |
|
|
(1,674 |
) |
Distributions
of earnings from
unconsolidated joint ventures and entities
|
|
|
4,318
|
|
|
|
483
|
|
Gain
on sale of marketable
securities
|
|
|
(224 |
) |
|
|
--
|
|
Gain
on sale of a discontinued
operation
|
|
|
(1,912 |
) |
|
|
--
|
|
Gain
(loss) on disposal of
assets
|
|
|
185
|
|
|
|
(3 |
) |
Loss
on extinguishment of
debt
|
|
|
97
|
|
|
|
--
|
|
Depreciation
and
amortization
|
|
|
6,016
|
|
|
|
6,577
|
|
Stock
based compensation
expense
|
|
|
539
|
|
|
|
45
|
|
Minority
interest
|
|
|
495
|
|
|
|
272
|
|
Changes
in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Decrease
(increase) in
receivables
|
|
|
1,617
|
|
|
|
1,062
|
|
Increase
in prepaid and other
assets
|
|
|
(183 |
) |
|
|
(780 |
) |
Decrease
in accounts payable and
accrued expenses
|
|
|
(2,645 |
) |
|
|
(1,134 |
) |
Decrease
in film rent
payable
|
|
|
(1,167 |
) |
|
|
(220 |
) |
Increase
in deferred revenues and
other liabilities
|
|
|
1,207
|
|
|
|
450
|
|
Net
cash provided by operating activities
|
|
|
7,157
|
|
|
|
1,704
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
(11,768 |
) |
|
|
(3,689 |
) |
Purchase
of property and equipment
|
|
|
(7,944 |
) |
|
|
(4,645 |
) |
Change
in restricted cash
|
|
|
326
|
|
|
|
193
|
|
Investment
in Reading International Trust I
|
|
|
(1,547 |
) |
|
|
--
|
|
Distributions
of investment in unconsolidated joint ventures and
entities
|
|
|
1,434
|
|
|
|
--
|
|
Investments
in unconsolidated joint ventures and entities
|
|
|
--
|
|
|
|
(1,800 |
) |
Purchase
of marketable securities
|
|
|
(11,861 |
) |
|
|
(219 |
) |
Sale
of marketable securities
|
|
|
4,010
|
|
|
|
--
|
|
Net
cash used in investing activities
|
|
|
(27,350 |
) |
|
|
(10,160 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Repayment
of long-term borrowings
|
|
|
(43,539 |
) |
|
|
(2,907 |
) |
Proceeds
from borrowings
|
|
|
78,204
|
|
|
|
8,038
|
|
Capitalized
borrowing costs
|
|
|
(2,254 |
) |
|
|
--
|
|
Option
deposit received
|
|
|
--
|
|
|
|
3,000
|
|
Proceeds
from exercise of stock options
|
|
|
--
|
|
|
|
87
|
|
Repurchase
of Class A Nonvoting Common Stock
|
|
|
--
|
|
|
|
(792 |
) |
Minority
interest distributions
|
|
|
(838 |
) |
|
|
(1,489 |
) |
Net
cash provided by financing activities
|
|
|
31,573
|
|
|
|
5,937
|
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
|
3
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
11,383
|
|
|
|
(2,433 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
11,008
|
|
|
|
8,548
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
22,391
|
|
|
$ |
6,115
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
5,208
|
|
|
$ |
4,021
|
|
Income
taxes paid
|
|
$ |
123
|
|
|
$ |
166
|
|
Non-cash
transactions
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cost basis
of Cinemas 1, 2, & 3 related to the purchase price adjustment of the
call option liability to related party
|
|
$ |
(2,100 |
) |
|
$ |
1,037
|
|
Adjustment
to retained earnings
related to adoption of FIN 48 (Note 10)
|
|
$ |
509
|
|
|
$ |
--
|
|
Decrease
in deposit payable and
increase in minority interest liability related to the exercise
of the
Cinemas 1, 2 & 3 call option by a related party
|
|
$ |
(3,000 |
) |
|
$ |
--
|
|
Decrease
in call option liability
and increase in additional paid in capital related to the exercise
of the
Cinemas 1, 2 & 3 call option by a related party
|
|
$ |
(2,513 |
) |
|
$ |
--
|
|
Accrued
construction-in-progress
costs
|
|
$ |
(2,440 |
) |
|
$ |
--
|
|
See
accompanying notes to consolidated financial statements.
Notes
to Consolidated Financial Statements (Unaudited)
For
the Six Months Ended June 30, 2007
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,
2006
(“2006 Annual Report”). The financial information presented in this
quarterly report on Form 10-Q for the period ended June 30, 2007 (the “June
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 2006 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 six months ended June 30, 2007
have been made. The results of operations for the three months and
six months ended June 30, 2007 are not necessarily indicative of the results
of
operations to be expected for the entire year.
Marketable
Securities
We
have investments in marketable
securities of $15.7 million at June 30, 2007. These investments are
accounted for as available for sale investments in accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities.” In accordance with the Financial Accounting
Standards Board’s Emerging Issues Task Force (“EITF”) 03-1, “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments,” assessments of potential impairment for these investments are
performed for each applicable reporting period. We have determined
that there was no impairment for these investments at June 30,
2007. These investments have a cumulative unrealized gain of $639,000
included in accumulated other comprehensive income at June 30,
2007. For the three months and six months ended June 30, 2007 our net
unrealized gain on marketable securities was $385,000 and $738,000,
respectively. During the three months ended June 30, 2007, we sold
$5.7 million of our marketable securities resulting in realized gain on sale
of
$224,000.
Adjustments
Subsequent
to the issuance of our June 30, 2006 consolidated financial statements, we
determined that we had overstated our real estate revenue and cinema operating
expense by $1.2 million and $1.9 million for the three and six months ended
June
30, 2006, respectively, due to an error in the elimination of intercompany
rental
charges
among our international subsidiaries. We have adjusted our
consolidated statements of operations for the three and six months ended
June
30, 2006 to correctly present consolidated real estate revenue and cinema
operating expenses. The effects of the adjustment on our originally
reported statements of operations are summarized below (dollars in
thousands):
|
|
Three
months ended June 30, 2006
|
|
|
Six
months ended June 30, 2006
|
|
|
|
Real
Estate Revenue
|
|
|
Cinema
Expense
|
|
|
Real
Estate Revenue
|
|
|
Cinema
Expense
|
|
As
originally reported
|
|
$ |
4,007
|
|
|
$ |
19,187
|
|
|
$ |
7,435
|
|
|
$ |
37,064
|
|
Intercompany
eliminations
|
|
|
(1,183 |
) |
|
|
(1,183 |
) |
|
|
(1,920 |
) |
|
|
(1,920 |
) |
As
adjusted
|
|
$ |
2,824
|
|
|
$ |
18,004
|
|
|
$ |
5,515
|
|
|
$ |
35,144
|
|
This
adjustment had no impact on our
operating income, on our losses from continuing operations, or on our net
loss
for the three and six months ended June 30, 2006. These adjustments
were not material to the presentation of our consolidated financial statements
for the three and six months ended June 30, 2006.
Changes
in Accounting Policies
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No.
158).” SFAS No. 158 requires an employer to recognize the funded
status of each pension and other postretirement benefit plan as an asset
or
liability on their balance sheet with all unrecognized amounts to be recorded
in
other comprehensive income. SFAS No. 158 also ultimately requires an
employer to measure the funded status of a plan as of the date of the employer’s
fiscal year-end statement of financial position. As required, we
adopted the provisions of SFAS No. 158 and initially applied it to the funded
status of our defined benefit pension plan as of March 1, 2007 (the inception
date of the pension plan). The adoption of SFAS No. 158 had no effect
on net earnings or cash flows.
New
Accounting Pronouncements
Statement
of Financial Accounting Standards No. 159
In
February 2007, the FASB issued SFAS No. 159 - The Fair Value
Option for Financial Assets and Financial Liabilities—Including an amendment of
FASB Statement No. 115. This Statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings
caused
by measuring related assets and liabilities differently without having to
apply
complex hedge accounting provisions. This Statement is expected to
expand the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial
instruments. The provisions of SFAS 159 are effective at the
beginning of each reporting entity’s first fiscal year that begins after
November 15, 2007. If adopted, we do not anticipate the application
of this pronouncement will have a material impact on our results of operations
or financial condition.
Statement
of Financial Accounting Standards No. 157
In
September 2006, the FASB issued SFAS 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 do not anticipate the
application
of this pronouncement will have a material impact on our results of operations
or financial condition.
FASB
Interpretation No. 48
In
June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes.” FIN 48 prescribes rules for financial statement
recognition and measurement of a tax positions taken or expected to be taken
in
a tax return. We adopted FIN 48 on January 1, 2007. As a
result, we recognized a $509,000 cumulative increase to reserves for uncertain
tax positions, which was accounted for as an adjustment to the beginning
balance
of accumulated deficit in 2007. Overall, we had approximately $12.5
million of gross tax benefits unrecognized on the financial statements as
of the
date of adoption.
Note
2 – Stock-Based Compensation
Stock
Based Compensation
As
part
of his compensation package, Mr. John Hunter, our Chief Operating Officer,
was
granted $100,000 of restricted Class A Non-Voting Common Stock on February
12,
2007. This stock grant has a vesting period of two years and a stock
grant exercise price of $8.63. During the three months and six months
ended June 30, 2007, we recorded compensation expense of $59,000 and $119,000,
respectively, for the vesting of all our restricted stock grants. The
following table details the grants and vesting of restricted stock to our
employees (dollars in thousands):
|
|
Non-Vested
Restricted Stock
|
|
|
Weighted
Average Share Price
|
|
Outstanding
– December 31, 2006
|
|
|
46,313
|
|
|
$ |
8.10
|
|
Granted
|
|
|
11,587
|
|
|
$ |
8.63
|
|
Outstanding
– June 30, 2007
|
|
|
57,900
|
|
|
$ |
8.20
|
|
We
have
formed two new wholly owned subsidiaries, Landplan Property Partners, Pty
Ltd
and Landplan Property Partners New Zealand, Ltd collectively referred to
as
Landplan Property Partners (“LPP”), to engage in the real estate development
business under the leadership of Mr. Doug Osborne. We have an
agreement with Mr. Osborne pursuant to which he has a contingent interest
in
certain property trusts, owned by LPP, ranging between 27.5% and 15%, depending
on a number of factors including the amount and duration of the investments
of
LPP. Mr. Osborne’s interest is subordinated to (i) the repayment of
all third party indebtedness, (ii) the repayment of all funds invested or
advanced by Reading, and (iii) the realization by Reading of an 11% annual
compounded preferred return on its capital. Based on SFAS 123(R), we
have calculated the fair value of Mr. Osborne’s interest for book purposes at
$171,000 with respect to property acquired by LPP in the first
quarter. During the three and six months ended June 30, 2007, we
expensed $57,000 and $97,000, respectively, associated with Mr. Osborne’s
interests. At June 30, 2006, the total unrecognized compensation
expense related to the LPP equity awards was $138,000, which is expected
to be
recognized over the remaining weighted average period of approximately 12
months.
Employee/Director
Stock Option Plan
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.
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. For the
three months ended June 30, 2007 and 2006, there was no impact to the
consolidated statement of cash flows because there were no recognized tax
benefits from stock option exercises during these periods.
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.
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.
We
granted 231,250 and 301,250 of options during the three and six months ended
June 30, 2007, respectively. Of these options, 70,000 were granted to
our directors as fully vested options during the six months ended June 30,
2007. Also, there were 20,000 options granted to our employees during
the three and six months ended June 30, 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:
|
2007
|
2006
|
Stock
option exercise price
|
$8.35
- $10.30
|
$8.10
|
Risk-free
interest rate
|
4.636
- 4.824%
|
4.220%
|
Expected
dividend yield
|
--
|
--
|
Expected
option life
|
9.60
- 9.96 yrs
|
9.66
yrs
|
Expected
volatility
|
33.64
- 33.74%
|
34.70%
|
Weighted
average fair value
|
$4.42
- $4.82
|
$4.33
|
Using
the
above assumptions and in accordance with the SFAS No. 123(R) modified
prospective method, we recorded $92,000 and $418,000 in compensation expense
for
the total estimated grant date fair value of stock options that vested during
the three and six months ended June 30, 2007, respectively. We also
recorded $25,000 and $45,000 in compensation expense for the total estimated
grant date fair value of stock options that vested during the three and six
months ended June 30, 2006, respectively. At June 30, 2007, the total
unrecognized estimated compensation cost related to non-vested stock options
granted was $1.0 million, which is expected to be recognized over a weighted
average vesting period of 1.44 years. We recorded cash received from
stock options exercised of $88,000 for the six months ended June 30, 2006
and
the total realized value of these exercised stock options was
$131,000. No options were exercised during the three or six months
ended June 30, 2007 or during the three months ended June 30, 2006; therefore,
no cash was received from the exercising of stock options and no value was
realized from the exercise of options during those periods. Except
for the 70,000 fully vested options granted to our directors during the first
quarter, only 5,000 options vested during the three and six months ended
June
30, 2007; therefore, the grant date fair value of options vesting during
the
three and six months ended June 30, 2007 was $41,000. The intrinsic,
unrealized value of all options outstanding, vested and expected to vest,
at
June 30, 2007 was $2.3 million of which 98.9% are currently
exercisable.
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 1,293,400. 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 June 30, 2007
and
December 31, 2006:
|
|
Common
Stock Options Outstanding
|
|
|
Weighted
Average Exercise
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-January
1, 2006
|
|
|
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-December
31, 2006
|
|
|
514,100
|
|
|
|
185,100
|
|
|
$ |
5.21
|
|
|
$ |
9.90
|
|
|
|
488,475
|
|
|
|
185,100
|
|
|
$ |
5.06
|
|
|
$ |
9.90
|
|
Granted
|
|
|
151,250
|
|
|
|
150,000
|
|
|
$ |
9.37
|
|
|
$ |
10.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(81,250 |
) |
|
|
(150,000 |
) |
|
$ |
10.25
|
|
|
$ |
10.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding-June
30, 2007
|
|
|
584,100
|
|
|
|
185,100
|
|
|
$ |
5.59
|
|
|
$ |
9.90
|
|
|
|
482,225
|
|
|
|
35,100
|
|
|
$ |
4.70
|
|
|
$ |
8.47
|
|
The
weighted average remaining contractual life of all options outstanding, vested
and expected to vest, at June 30, 2007 and December 31, 2006 was approximately
6.72 and 3.60 years, respectively. The weighted average remaining
contractual life of the exercisable options outstanding at June 30, 2007
and
December 31, 2006 was approximately 5.24 and 3.39 years,
respectively.
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.
Effective
the fourth quarter of 2006,
we changed the presentation of our segment reporting such that our intersegment
revenues and expenses are reported separately from our segments’ operating
activity. The effect of this change is to include intercompany rent
revenues and rent expenses into their respective cinema and real estate business
segments. The revenues and expenses for the six months ending June
30, 2006 have been adjusted to conform to the current year
presentation. We believe that this presentation more accurately
portrays how our operating decision makers’ view the operations, how they assess
segment performance, and how they make decisions about allocating resources
to
the segments.
The
tables below summarize the results of operations for each of our principal
business segments for the three (“2007 Quarter”) and six (“2007 Six Months”)
months ended June 30, 2007 and the three (“2006 Quarter”) and six (“2006 Six
Months”) months ended June 30, 2006, 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 June 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
26,034
|
|
|
$ |
5,564
|
|
|
$ |
(1,459 |
) |
|
$ |
30,139
|
|
Operating
expense
|
|
|
21,390
|
|
|
|
1,864
|
|
|
|
(1,459 |
) |
|
|
21,795
|
|
Depreciation
& amortization
|
|
|
1,798
|
|
|
|
1,108
|
|
|
|
--
|
|
|
|
2,906
|
|
General
& administrative expense
|
|
|
761
|
|
|
|
271
|
|
|
|
--
|
|
|
|
1,032
|
|
Segment
operating income
|
|
$ |
2,085
|
|
|
$ |
2,321
|
|
|
$ |
--
|
|
|
$ |
4,406
|
|
Three
months ended June 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue1
|
|
$ |
23,954
|
|
|
$ |
4,164
|
|
|
$ |
(1,340 |
) |
|
$ |
26,778
|
|
Operating
expense1
|
|
|
19,344
|
|
|
|
1,756
|
|
|
|
(1,340 |
) |
|
|
19,760
|
|
Depreciation
& amortization
|
|
|
2,271
|
|
|
|
999
|
|
|
|
--
|
|
|
|
3,270
|
|
General
& administrative expense
|
|
|
732
|
|
|
|
312
|
|
|
|
--
|
|
|
|
1,044
|
|
Segment
operating income
|
|
$ |
1,607
|
|
|
$ |
1,097
|
|
|
$ |
--
|
|
|
$ |
2,704
|
|
Reconciliation
to consolidated net loss:
|
|
2007
Quarter
|
|
|
2006
Quarter
|
|
Total
segment operating income
|
|
$ |
4,406
|
|
|
$ |
2,704
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
141
|
|
|
|
67
|
|
General
and administrative
expense
|
|
|
2,847
|
|
|
|
2,032
|
|
Operating
income
|
|
|
1,418
|
|
|
|
605
|
|
Interest
expense,
net
|
|
|
(1,950 |
) |
|
|
(1,511 |
) |
Other
income
|
|
|
465
|
|
|
|
1
|
|
Minority
interest
|
|
|
(154 |
) |
|
|
(192 |
) |
Gain
on sale of a discontinued
operation
|
|
|
1,912
|
|
|
|
--
|
|
Income
tax
expense
|
|
|
(443 |
) |
|
|
(344 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
386
|
|
|
|
1,207
|
|
Net
income (loss)
|
|
$ |
1,634
|
|
|
$ |
(234 |
) |
Six
months ended June 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
50,540
|
|
|
$ |
10,405
|
|
|
$ |
(2,830 |
) |
|
$ |
58,115
|
|
Operating
expense
|
|
|
40,881
|
|
|
|
3,865
|
|
|
|
(2,830 |
) |
|
|
41,916
|
|
Depreciation
& amortization
|
|
|
3,592
|
|
|
|
2,146
|
|
|
|
--
|
|
|
|
5,738
|
|
General
& administrative expense
|
|
|
1,525
|
|
|
|
457
|
|
|
|
--
|
|
|
|
1,982
|
|
Segment
operating income
|
|
$ |
4,542
|
|
|
$ |
3,937
|
|
|
$ |
--
|
|
|
$ |
8,479
|
|
1
For the three
months ended June 30, 2006, the real estate revenues and cinema operating
expenses have been adjusted from the amounts previously reported. See
Note 1 – Basis of Presentation.
Six
months ended June 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue2
|
|
$ |
46,463
|
|
|
$ |
8,164
|
|
|
$ |
(2,649 |
) |
|
$ |
51,978
|
|
Operating
expense2
|
|
|
37,793
|
|
|
|
3,468
|
|
|
|
(2,649 |
) |
|
|
38,612
|
|
Depreciation
& amortization
|
|
|
4,355
|
|
|
|
2,019
|
|
|
|
--
|
|
|
|
6,374
|
|
General
& administrative expense
|
|
|
1,899
|
|
|
|
412
|
|
|
|
--
|
|
|
|
2,311
|
|
Segment
operating income
|
|
$ |
2,416
|
|
|
$ |
2,265
|
|
|
$ |
--
|
|
|
$ |
4,681
|
|
Reconciliation
to consolidated net loss:
|
|
2007
Six Months
|
|
|
2006
Six Months
|
|
Total
segment operating income
|
|
$ |
8,479
|
|
|
$ |
4,681
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
278
|
|
|
|
203
|
|
General
and administrative
expense
|
|
|
5,573
|
|
|
|
4,130
|
|
Operating
income
|
|
|
2,628
|
|
|
|
348
|
|
Interest
expense,
net
|
|
|
(3,701 |
) |
|
|
(3,295 |
) |
Other
income
(expense)
|
|
|
(456 |
) |
|
|
(1,154 |
) |
Minority
interest
|
|
|
(495 |
) |
|
|
(272 |
) |
Gain
on sale of a discontinued
operation
|
|
|
1,912
|
|
|
|
--
|
|
Income
tax
expense
|
|
|
(942 |
) |
|
|
(681 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
2,042
|
|
|
|
1,674
|
|
Net
income (loss)
|
|
$ |
988
|
|
|
$ |
(3,380 |
) |
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 June 30, 2007 and December 31, 2006:
|
|
US
Dollar
|
|
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
Australian
Dollar
|
|
$ |
0.8491
|
|
|
$ |
0.7884
|
|
New
Zealand Dollar
|
|
$ |
0.7730
|
|
|
$ |
0.7046
|
|
Note
5 – Earnings (Loss) Per Share
Basic
earnings (loss) per share is
computed by dividing the net income (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 the
net income (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
2
For the six months
ended June 30, 2006, the real estate revenues and cinema operating expenses
have
been adjusted from the amounts previously reported. See Note 1 –
Basis of Presentation.
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 loss per
share calculation under the treasury stock method. The following is a
calculation of earnings (loss) per share (dollars in thousands, except share
data):
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Loss
from continuing operations
|
|
$ |
(278 |
) |
|
$ |
(234 |
) |
|
$ |
(924 |
) |
|
$ |
(3,380 |
) |
Gain
on sale of a discontinued operation
|
|
|
1,912
|
|
|
|
--
|
|
|
|
1,912
|
|
|
|
--
|
|
Net
income (loss)
|
|
$ |
1,634
|
|
|
$ |
(234 |
) |
|
$ |
988
|
|
|
$ |
(3,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing
operations
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.15 |
) |
Gain
on sale of a discontinued
operation
|
|
|
0.08
|
|
|
|
--
|
|
|
|
0.08
|
|
|
|
--
|
|
Basic
earnings (loss) per share
|
|
$ |
0.07
|
|
|
$ |
(0.01 |
) |
|
$ |
0.04
|
|
|
$ |
(0.15 |
) |
Weighted
average common stock – basic and diluted
|
|
|
22,487,943
|
|
|
|
22,413,995
|
|
|
|
22,485,480
|
|
|
|
22,431,834
|
|
For
the three and six months ended June
30, 2007 and 2006, we recorded losses from continuing operations. As
such, the incremental shares of 262,428 and 204,055 in 2007 and 2006 from
stock
options to purchase shares of common stock were excluded from the computation
of
diluted loss per share because they were anti-dilutive in those
periods.
Note
6 - Property Under Development and Property and Equipment
As
of
June 30, 2007 and December 31, 2006, we owned property under development
summarized as follows (dollars in thousands):
Property
Under Development
|
|
June
30,
2007
|
|
|
December
31,
2006
|
|
Land
|
|
$ |
35,975
|
|
|
$ |
30,296
|
|
Construction-in-progress
(including capitalized interest)
|
|
|
19,489
|
|
|
|
8,580
|
|
Property
Under Development
|
|
$ |
55,464
|
|
|
$ |
38,876
|
|
We
recorded capitalized interest
related to our properties under development for the three months ended June
30,
2007 and 2006 of $900,000 and $354,000, respectively, and $2.0 million and
$705,000 for six months ended June 30, 2007 and 2006, respectively.
Incident
to the development of our Burwood property, in late 2006, we began various
fill
and earth moving operations. In late February 2007, it became
apparent that our cost estimates with respect to site preparation were low,
as
the extent of the contaminated soil present at the site – a former brickworks –
was greater than we had originally believed. Our previous estimated
cost of $500 million included the approximately $1.4 million (AUS$1.8 million)
of estimated cost to remove the contaminated soil. As we were not the
source of this contamination, we are not currently under any legal obligation
to
remove this contaminated soil from the site. However, as a practical
matter we intend to address these issues in connection with our planned
redevelopment of the site as a mixed-use retail, entertainment, commercial
and
residential complex. As of June 30, 2007, we estimate that the total
site preparation costs associated with the removal of this contaminated soil
will be $7.5 million (AUS$8.9 million) and as of that date we had incurred
a
total of $4.1 million (AUS$4.8 million) of these costs. In accordance
with EITF 90-8 Capitalization of Costs to Treat
Environmental
Contamination,
contamination clean up costs that improve the property from its original
acquisition state are capitalized as part of the property’s overall development
costs.
As
of
June 30, 2007 and December 31, 2006, we owned investments in property and
equipment as follows (dollars in thousands):
Property
and equipment
|
|
June
30,
2007
|
|
|
December
31,
2006
|
|
Land
|
|
$ |
57,766
|
|
|
$ |
56,830
|
|
Building
|
|
|
111,928
|
|
|
|
99,285
|
|
Leasehold
interest
|
|
|
11,770
|
|
|
|
11,138
|
|
Construction-in-progress
|
|
|
651
|
|
|
|
425
|
|
Fixtures
and equipment
|
|
|
62,796
|
|
|
|
58,164
|
|
|
|
|
244,911
|
|
|
|
225,842
|
|
Less
accumulated depreciation
|
|
|
(64,972 |
) |
|
|
(55,175 |
) |
Property
and equipment, net
|
|
$ |
179,939
|
|
|
$ |
170,667
|
|
Depreciation
expense for property and
equipment was $2.8 million and $3.1 million for the three months ended June
30,
2007 and 2006, respectively, and $5.5 million and $6.2 million for the six
months ended June 30, 2007 and 2006, respectively.
Note
7 – Investments in Unconsolidated Joint Ventures and
Entities
Except
as
noted below regarding our investment in Malulani Investments, Limited,
investments in unconsolidated joint ventures and entities are accounted for
under the equity method of accounting, and, as of June 30, 2007 and December
31,
2006, include the following (dollars in thousands):
|
|
Interest
|
|
|
June
30,
2007
|
|
|
December
31,
2006
|
|
Malulani
Investments, Ltd.
|
|
|
18.4%
|
|
|
$ |
1,800
|
|
|
$ |
1,800
|
|
Rialto
Distribution
|
|
|
33.3%
|
|
|
|
953
|
|
|
|
782
|
|
Rialto
Cinemas
|
|
|
50.0%
|
|
|
|
6,131
|
|
|
|
5,608
|
|
205-209
East 57th
Street Associates, LLC
|
|
|
25.0%
|
|
|
|
1,761
|
|
|
|
5,557
|
|
Mt.
Gravatt Cinema
|
|
|
33.3%
|
|
|
|
4,888
|
|
|
|
4,713
|
|
Berkeley
Cinemas – Botany
|
|
|
50.0%
|
|
|
|
646
|
|
|
|
607
|
|
Total
|
|
|
|
|
|
$ |
16,179
|
|
|
$ |
19,067
|
|
For
the
three months and six months ended June 30, 2007 and 2006, we recorded our
share
of equity earnings (loss) from our investments in unconsolidated joint ventures
and entities as follows:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Malulani
Investments, Ltd.
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
Rialto
Distribution
|
|
|
63
|
|
|
|
(22 |
) |
|
|
88
|
|
|
|
(22 |
) |
Rialto
Cinemas
|
|
|
3
|
|
|
|
--
|
|
|
|
(20 |
) |
|
|
--
|
|
205-209
East 57th
Street Associates, LLC
|
|
|
39
|
|
|
|
918
|
|
|
|
1,349
|
|
|
|
918
|
|
Mt.
Gravatt Cinema
|
|
|
211
|
|
|
|
97
|
|
|
|
427
|
|
|
|
285
|
|
Berkeley
Cinemas – Group & Palms
|
|
|
--
|
|
|
|
196
|
|
|
|
--
|
|
|
|
278
|
|
Berkeley
Cinema – Botany
|
|
|
70
|
|
|
|
18
|
|
|
|
198
|
|
|
|
215
|
|
|
|
$ |
386
|
|
|
$ |
1,207
|
|
|
$ |
2,042
|
|
|
$ |
1,674
|
|
Malulani
Investments, Limited
We
continue to treat this investment on
a cost basis by recognizing earnings as they are distributed to us.
205-209
East 57th
Street
Associates, LLC
During
2007, this joint venture has
been in the process of completing the development of a predominately-residential
condominium complex in midtown Manhattan called Place 57. During the
three and six months ending June 30, 2007, the partnership closed on the
sale of
one and seven of its remaining eight residential condominiums resulting in
gross
sales of $2.3 million and $22.6 million, respectively, which resulted in
equity
earnings from unconsolidated joint ventures and entities to us of $39,000
and
$1.3 million, respectively. One remaining residential condominium is
under contract to be sold and the retail condominium is still available to
be
sold. The condensed statement of operations for 205-209 East 57th
Street Associates, LLC (Unaudited) is as follows:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
revenue
|
|
$ |
2,347
|
|
|
$ |
15,820
|
|
|
$ |
22,597
|
|
|
$ |
15,820
|
|
Operating
expense
|
|
|
2,193
|
|
|
|
12,146
|
|
|
|
16,832
|
|
|
|
12,146
|
|
Net
income
|
|
$ |
154
|
|
|
$ |
3,674
|
|
|
$ |
5,765
|
|
|
$ |
3,674
|
|
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 June 30, 2007 and December 31, 2006, we had goodwill consisting of the
following (dollars in thousands):
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Total
|
|
Balance
as of January 1, 2007
|
|
$ |
12,713
|
|
|
$ |
5,206
|
|
|
$ |
17,919
|
|
Foreign
currency translation adjustment
|
|
|
1,036
|
|
|
|
72
|
|
|
|
1,108
|
|
Balance
at June 30, 2007
|
|
$ |
13,749
|
|
|
$ |
5,278
|
|
|
$ |
19,027
|
|
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 June 30, 2007 and 2006, amortization expense totaled $248,000 and
$218,000, respectively; and for the six months ended June 30, 2007 and 2006,
amortization expense totaled $475,000 and $414,000, respectively.
Intangible
assets subject to amortization consist of the following (dollars in
thousands):
As
of June 30, 2007
|
|
Beneficial
Leases
|
|
|
Option
Fee
|
|
|
Other
Intangible Assets
|
|
|
Total
|
|
Gross
carrying amount
|
|
$ |
11,523
|
|
|
$ |
2,773
|
|
|
$ |
239
|
|
|
$ |
14,535
|
|
Less:
Accumulated amortization
|
|
|
4,000
|
|
|
|
2,474
|
|
|
|
23
|
|
|
|
6,497
|
|
Total,
net
|
|
$ |
7,523
|
|
|
$ |
299
|
|
|
$ |
216
|
|
|
$ |
8,038
|
|
As
of December 31, 2006
|
|
Beneficial
Leases
|
|
|
Option
Fee
|
|
|
Other
Intangible Assets
|
|
|
Total
|
|
Gross
carrying amount
|
|
$ |
10,984
|
|
|
$ |
2,773
|
|
|
$ |
219
|
|
|
$ |
13,976
|
|
Less:
Accumulated amortization
|
|
|
3,577
|
|
|
|
2,426
|
|
|
|
19
|
|
|
|
6,022
|
|
Total,
net
|
|
$ |
7,407
|
|
|
$ |
347
|
|
|
$ |
200
|
|
|
$ |
7,954
|
|
Note
9 – Prepaid and Other Assets
Prepaid
and other assets are summarized as follows (dollars in thousands):
|
|
June
30,
2007
|
|
|
December
31,
2006
|
|
Prepaid
and other current assets
|
|
|
|
|
|
|
Prepaid
expenses
|
|
$ |
880
|
|
|
$ |
1,214
|
|
Prepaid
taxes
|
|
|
551
|
|
|
|
552
|
|
Deposits
|
|
|
1,053
|
|
|
|
534
|
|
Other
|
|
|
518
|
|
|
|
289
|
|
Total
prepaid and other current
assets
|
|
$ |
3,002
|
|
|
$ |
2,589
|
|
|
|
|
|
|
|
|
|
|
Other
non-current assets
|
|
|
|
|
|
|
|
|
Other
non-cinema and non-rental real estate assets
|
|
$ |
1,270
|
|
|
$ |
1,270
|
|
Deferred
financing costs, net
|
|
|
2,923
|
|
|
|
898
|
|
Interest
rate swaps
|
|
|
317
|
|
|
|
206
|
|
Other
|
|
|
704
|
|
|
|
485
|
|
Total
non-current
assets
|
|
$ |
5,214
|
|
|
$ |
2,859
|
|
Note
10 – Income Tax
The
income tax provision for the three
months and six months ended June 30, 2007 and 2006 was composed of the following
amounts (dollars in thousands):
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Foreign
income tax provision
|
|
$ |
73
|
|
|
$ |
30
|
|
|
$ |
160
|
|
|
$ |
59
|
|
Foreign
withholding tax
|
|
|
172
|
|
|
|
137
|
|
|
|
312
|
|
|
|
273
|
|
Federal
tax provision
|
|
|
128
|
|
|
|
128
|
|
|
|
255
|
|
|
|
255
|
|
Other
income tax
|
|
|
70
|
|
|
|
49
|
|
|
|
215
|
|
|
|
94
|
|
Net
tax provision
|
|
$ |
443
|
|
|
$ |
344
|
|
|
$ |
942
|
|
|
$ |
681
|
|
In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of
FASB Statement No. 109” (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes.” FIN 48
prescribes rules for financial statement recognition and measurement of tax
positions taken or expected to be taken in a tax return.
The
incremental effects of applying FIN 48 on line items in the accompanying
consolidated balance sheet at January 1, 2007 was as follows (dollars in
thousands):
|
|
Before
Application of FIN 48 on January 1, 2007
|
|
|
FIN
48 Adjustments as of January 1, 2007
|
|
|
After
Application of FIN 48 on January 1, 2007
|
|
Current
tax liabilities
|
|
$ |
9,128
|
|
|
$ |
(4,000 |
) |
|
$ |
5,128
|
|
Noncurrent
tax liabilities
|
|
$ |
--
|
|
|
$ |
4,509
|
|
|
$ |
4,509
|
|
Accumulated
deficit
|
|
$ |
(50,058 |
) |
|
$ |
(509 |
) |
|
$ |
(50,567 |
) |
We
adopted FIN 48 on January 1, 2007. As a result, we recognized a
$509,000 cumulative increase to reserves for uncertain tax positions, which
was
accounted for as an adjustment to the beginning balance of accumulated deficit
in 2007. As of that date, we also reclassified approximately $4.0
million in reserves from current taxes liabilities to noncurrent tax
liabilities. We had approximately $12.5 million of gross tax benefits
unrecognized on the financial statements as of the date of adoption, mostly
reflecting operating loss carry forwards and the IRS litigation matter described
below. Of the $12.5 million total gross unrecognized tax benefits at
January 1, 2007, $4.5 million would impact the effective tax rate if
recognized. The remaining balance consists of items that would not
impact the effective tax rate due to the existence of the valuation
allowance. We recorded an increase to our gross unrecognized tax
benefits of approximately $390,000 during the period January 1, 2007 to June
30,
2007, and the total balance at June 30, 2007 was approximately $12.9
million.
Interest
and/or penalty related to income tax matters are recorded as part of income
tax
expense. Of the total reserve for uncertain tax positions as of the
date of adoption, approximately $1.7 million represented accrued interest
and
penalties. Approximately $370,000 of additional interest and
penalties were accrued for the period January 1, 2007 to June 30, 2007, mostly
related to the IRS assessment described below.
Our
company and subsidiaries are subject to U.S. federal income tax, income tax
in
various U.S. states, and income tax in Australia, New Zealand, and Puerto
Rico.
Generally,
changes to our federal and most state income tax returns for the calendar
year
2002 and earlier are barred by statutes of limitations. Certain
domestic subsidiaries filed federal and state tax returns for periods before
these entities became consolidated with us. These subsidiaries were
examined by IRS for the years 1996 to 1999 and significant tax deficiencies
were
assessed for those years. We are contesting these deficiencies in Tax
Court. Our income tax returns of Australia filed since inception in
1995 are currently open for examination. The income tax returns filed
in New Zealand and Puerto Rico for calendar year 2002 and afterward are also
currently open for examination.
We
do not
anticipate that within 12 months following June 30, 2007 our total unrecognized
tax benefits will change significantly because of settlement of audits and
expiration of statutes of limitations.
Note
11 – Notes Payable
Notes
payable are summarized as follows (dollars in thousands):
|
|
Interest
Rates as of
|
|
|
|
Balance
as of
|
|
Name
of Note Payable or Security
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
Maturity
Date
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
Australian
Corporate Credit Facility
|
|
|
7.34%
|
|
|
|
7.33%
|
|
January
1, 2009
|
|
$ |
73,023
|
|
|
$ |
70,516
|
|
Australian
Shopping Center Loans
|
|
|
--
|
|
|
|
--
|
|
2007-2013
|
|
|
1,099
|
|
|
|
1,147
|
|
Euro-Hypo
Loan
|
|
|
6.73%
|
|
|
|
--
|
|
July
1, 2012
|
|
|
15,000
|
|
|
|
--
|
|
New
Zealand Corporate Credit Facility
|
|
|
9.50%
|
|
|
|
9.15%
|
|
November
23, 2010
|
|
|
5,179
|
|
|
|
35,230
|
|
Trust
Preferred Securities
|
|
|
9.22%
|
|
|
|
--
|
|
April
30, 2027
|
|
|
51,547
|
|
|
|
--
|
|
US
Sutton Hill Capital Note 1 – Related Party
|
|
|
9.69%
|
|
|
|
9.69%
|
|
July
28, 2007
|
|
|
5,000
|
|
|
|
5,000
|
|
US
Royal George Theatre Term Loan
|
|
|
7.86%
|
|
|
|
7.86%
|
|
November
29, 2007
|
|
|
1,736
|
|
|
|
1,819
|
|
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
|
|
|
6.26%
|
|
|
|
6.26%
|
|
January
1, 2010
|
|
|
7,420
|
|
|
|
7,500
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$ |
169,004
|
|
|
$ |
130,212
|
|
Notes
Payable
During
the first six months of 2007, we retired a portion of our bank indebtedness
in
Australia of $5.8 million (AUS$7.4 million). We subsequently drew
down $3.4 million (AUS$4.0 million) during the second quarter of
2007. This credit facility remains available to us in full to draw on
when needed either for additional working capital or for
acquisitions.
Euro-Hypo
Loan
On
June 28, 2007, Sutton Hill
Properties LLC (“SHP”), one of our consolidated subsidiaries, entered into a
$15.0 million loan that is secured by SHP’s interest in the Cinemas 1, 2, &
3 land and building. SHP is owned 75% by Reading and 25% by Sutton
Hill Capital, LLC (“SHC”), a joint venture indirectly wholly owned by Mr. James
J. Cotter, our Chairman and Chief Executive Officer and an unrelated third
party. The terms of the credit agreement require interest only
payments at 6.725% fixed until the loan matures on July 1, 2012. The
most restrictive covenant for the service of this loan will be the monthly
interest payments to be made by SHP. Because, the cash flows from SHP
are insufficient, the ownership partners of SHP, Reading International, Inc.
and
Sutton Hill Capital, LLC, will be required to regularly contribute capital
to
the partnership to service the debt. Reading will be responsible for
75% and SHC will be responsible for 25% of any such shortfall.
New
Zealand Corporate Credit Facility
On
June 29, 2007, we finalized the
renegotiation of our New Zealand Corporate Credit Facility as a $46.4 million
(NZ$60.0 million) line of credit. This renegotiated agreement carries
the same terms as noted in our 2006 Consolidated Financial Statements except
that it is now a line of credit instead of term debt, the maturity date has
been
extended by one year to November 23, 2010, the interest rate for the facility
will be based on the 90-day Bank Bill Bid Rate (BBBR) plus a 1.00% margin,
and a
0.20% line charge will be incurred on the total line of credit of $46.4 million
(NZ$60.0 million). The current interest rate for the outstanding loan
balance at June 30, 2007 was 9.50%. As noted below, we had previously
paid off our term debt of this facility of $34.4 million (NZ$50.0 million)
as a
use of the proceeds from our new Subordinated Notes from Reading International
Trust I. On June 29, 2007, we drew down on this new line of credit by
$5.2 million (NZ$6.7 million) to purchase a property in New Zealand (see
Note 17
– Acquisitions and Dispositions).
UBS
Financial Services Line of Credit
In
order to finance a portion of our
purchases of marketable securities, we had arranged a line of credit (a broker
margin account) with UBS Financial Services, Inc. which carried an interest
rate
of 7.25%. The line of credit was secured by the marketable securities
which we purchased on the account. Under the line of credit, we were
able to borrow approximately 50% of the market value of our securities in
our
UBS account. During the second quarter of 2007, we paid off this line
of credit in conjunction with our sale of the associated marketable
securities.
Subordinated
Notes – Reading International Trust I
On
February 5, 2007, we issued $51.5 million in 20-year fully subordinated notes
to
a trust which we control, and which in turn issued $51.5 million in
securities. Of the $51.5 million, $50.0 million in trust preferred
securities were issued to unrelated investors in a private placement and
$1.5
million of common trust securities were issued by the trust to
Reading. This $1.5 million is shown on our balance sheet as
“Investment in Reading International Trust I.” The interest on the
notes and preferred dividends on the trust securities carry a fixed rate
for
five years of 9.22% after which the interest will be based on an adjustable
rate
of LIBOR plus 4.00% unless we exercise our right to refix the rate at the
current market rate at that time. There are no principal payments due
until maturity in 2027 when the notes and the trust securities are scheduled
to
be paid in full. We may pay off the debt after the first five years
at 100.0% of the principal amount without any penalty. The trust is
essentially a pass through, and the transaction is accounted for on our books
as
the issuance of fully subordinated notes. The credit facility
includes a number of affirmative and negative covenants designed to monitor
our
ability to service the debt. Currently, the most restrictive covenant
of the facility requires that we must maintain a fixed charge coverage ratio
at
a certain level. The placement generated $49.9 million in net
proceeds, which were used principally to make our investment in the common
trust
securities of $1.5 million, to retire all of our bank indebtedness in New
Zealand of $34.4 million (NZ$50.0 million) and to retire a portion of our
bank
indebtedness in Australia of $5.8 million (AUS$7.4 million). During
the three and six months ended June 30, 2007, we paid $1.1 million in preferred
dividends to the unrelated investors. At June 30, 2007, we had
preferred dividends payable of $768,000.
Note
12 – Other Liabilities
Other
liabilities are summarized as follows (dollars in thousands):
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
Current
liabilities
|
|
|
|
|
|
|
Security
deposit
payable
|
|
$ |
169
|
|
|
$ |
177
|
|
Other
|
|
|
1
|
|
|
|
--
|
|
Other
current
liabilities
|
|
$ |
170
|
|
|
$ |
177
|
|
Other
liabilities
|
|
|
|
|
|
|
|
|
Foreign
withholding
taxes
|
|
$ |
5,346
|
|
|
$ |
5,212
|
|
Straight-line
rent
liability
|
|
|
3,750
|
|
|
|
3,693
|
|
Purchase
option
liability
|
|
|
--
|
|
|
|
3,681
|
|
Environmental
reserve
|
|
|
1,656
|
|
|
|
1,656
|
|
Executive
pension
plans
|
|
|
2,933
|
|
|
|
174
|
|
Option
deposit
|
|
|
--
|
|
|
|
3,000
|
|
Other
|
|
|
1,414
|
|
|
|
762
|
|
Other
liabilities
|
|
$ |
15,099
|
|
|
$ |
18,178
|
|
Executive
Pension Plans
On
March
15, 2007, the Board of Directors of Reading International, Inc. (“Reading”)
approved a Supplemental Executive Retirement Plan (“SERP”) pursuant to which
Reading has agreed to provide James J. Cotter, its Chief Executive Officer
and
Chairman of the Board of Directors, supplemental retirement benefits effective
March 1, 2007. Under the SERP, Mr. Cotter will receive a monthly
payment of the greater of (i) 40% of the average monthly earnings over the
highest consecutive 36-month period of earnings prior to Mr. Cotter’s separation
from service with Reading or (ii) $25,000 per month for the remainder of
his
life, with a guarantee of 180 monthly payments following his separation from
service with Reading or following his death. The beneficiaries under
the SERP may be designated by Mr. Cotter or by his beneficiary following
his or
his beneficiary’s death. The benefits under the SERP are fully vested
as of March 1, 2007.
The
SERP
initially will be unfunded, but Reading may choose to establish one or more
grantor trusts from which to pay the SERP benefits. As such, the SERP
benefits are unsecured, general obligations of Reading. The SERP is
administered by the Compensation Committee of the Board of Directors of
Reading. In accordance with SFAS 158 - Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB
Statements No. 87, 88, 106, and 132(R), the initial pension benefit
obligation of $2.7 million is included in our other liabilities with a
corresponding amount of unrecognized prior service cost included in accumulated
other comprehensive income (see Note 16 – Comprehensive
Income). The $2.7 million will be amortized as a prior service
cost over the estimated service period of 10 years combined with an annual
interest cost. For the three and six months ended June 30, 2007, we
recognized $39,000 and $52,000, respectively, of interest cost and $76,000
and
$101,000, respectively, of amortized prior service cost. The balance
of the other liability for this pension plan is $2.7 million at June 30,
2007
and the accumulated other comprehensive income balance was $2.6 million at
June
30, 2007. The value of the SERP is based on a discount rate of 5.75%
and an annual compensation growth rate of 3.50%.
In
addition to the aforementioned SERP, Mr. S. Craig Tompkins has a vested interest
in the pension plan originally established by Craig Corporation prior to
its
merger with our company of $181,000, which amount accrues interest at 30
day
LIBOR and is maintained as an unfunded Executive Pension Plan obligation
included in other liabilities.
Sutton
Hill Capital – Cinemas 1, 2, & 3 Purchase Option
As
part
of the purchase of the real property underlying our leasehold interest in
the
Cinemas 1, 2, & 3 on June 1, 2005, we granted a purchase option to Sutton
Hill Capital, LLC (“SHC”), a limited liability company beneficially owned in
equal 50/50 shares by Messrs. James J. Cotter and Michael Forman, to acquire
at
the acquisition date cost basis, up to a 25% non-managing membership interest
in
Sutton Hill Properties, LLC (“SHP”). SHP is the limited liability
company that we formed to acquire these interests. In relation to
this option, we estimated, based on a June 2007 property appraisal, the fair
value of the option for the three months ending June 30, 2007 remained unchanged
and the fair value of the option had increased for the six months ended June
30,
2007 by $950,000 which was expensed for the six months ending June 30,
2007. During 2006, the value of the option at June 30, 2006 had
increased from approximately $1.7 million at January 1, 2006 to $3.5 million,
resulting in an expense for the three and six months ended June 30, 2006
of
$275,000 and $1.4 million, respectively.
On
June
28, 2007, SHC exercised this option with the application of their $3.0 million
deposit plus the assumption of their proportionate share of SHP’s liabilities
giving them a 25% non-managing membership interest in SHP. Upon
exercise, the settlement of the previously capitalized option liability of
$4.6
million resulted in an increase in additional paid-in-capital of $2.5 million
as
the transfer of the 25% non-managing membership interest to SHC constituted
a
transfer of an equity interest between entities under common
control.
Note
13 – Commitments and Contingencies
Unconsolidated
Debt
Total
debt of unconsolidated joint ventures and entities was $5.3 million and $4.8
million as of June 30, 2007 and December 31, 2006, respectively. Our
share of unconsolidated debt, based on our ownership percentage, was $2.4
million and $2.2 million as of June 30, 2007 and December 31, 2006,
respectively. This debt is without recourse to Reading as of June 30,
2007 and December 31, 2006.
Litigation
There
have not been any material changes to our litigation exposure since our December
31, 2006 Consolidated Financial Statements.
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.;
|
|
·
|
25%
minority interest in Australia Country Cinemas Pty Ltd (“ACC”) owned by
Panorama Cinemas for the 21st
Century Pty
Ltd.;
|
|
·
|
33%
minority interest in the Elsternwick Joint Venture owned by Champion
Pictures Pty Ltd.;
|
|
·
|
Up
to 27.5% minority interest in certain property holding trusts established
by Landplan Property Partners to hold, manage and develop properties
identified by Doug Osborne;
|
|
·
|
25%
minority interest in the Sutton Hill Properties, LLC owned by Sutton
Hill
Capital, LLC; and
|
|
·
|
20%
minority interest in Big 4 Farming LLC by Cecelia Packing
Corporation.
|
The
components of minority interest are as follows (dollars in
thousands):
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
AFC
|
|
$ |
1,843
|
|
|
$ |
2,264
|
|
Australian
Country Cinemas
|
|
|
165
|
|
|
|
174
|
|
Elsternwick
Unincorporated Joint Venture
|
|
|
166
|
|
|
|
151
|
|
Landplan
Property Partners Property Trusts
|
|
|
117
|
|
|
|
13
|
|
Sutton
Hill Properties
|
|
|
3,000
|
|
|
|
--
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
Minority
interest in consolidated
affiliates
|
|
$ |
5,292
|
|
|
$ |
2,603
|
|
|
|
Expense
for the
|
|
|
Expense
for the
|
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
AFC
LLC
|
|
$ |
61
|
|
|
$ |
187
|
|
|
$ |
329
|
|
|
$ |
257
|
|
Australian
Country Cinemas
|
|
|
26
|
|
|
|
--
|
|
|
|
52
|
|
|
|
3
|
|
Elsternwick
Unincorporated Joint Venture
|
|
|
(19 |
) |
|
|
5
|
|
|
|
18
|
|
|
|
12
|
|
Landplan
Property Partners Property Trusts
|
|
|
86
|
|
|
|
--
|
|
|
|
96
|
|
|
|
--
|
|
Sutton
Hill Properties
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Minority
interest expense
|
|
$ |
154
|
|
|
$ |
192
|
|
|
$ |
495
|
|
|
$ |
272
|
|
Landplan
Property Partners
As
fully described in our 2006
Consolidated Financial Statements, we have formed two new wholly-owned
subsidiaries, Landplan Property Partners, Pty Ltd and Landplan Property Partners
New Zealand, Ltd collectively referred to as Landplan Property Partners (“LPP”),
to engage in the real estate development business under the leadership of
Mr.
Doug Osborne. We have an agreement with Mr. Osborne pursuant to which
he has a contingent interest in certain property trusts, owned by LPP, ranging
between 27.5% and 15%, depending on a number of factors including the amount
and
duration of the investments of LPP. Mr. Osborne’s interest is subject
to (i) the repayment of all third party indebtedness, (ii) the repayment
of all
funds invested or advanced by Reading, and (iii) the realization by Reading
of
an 11% annual compounded preferred return on its capital. Based on
SFAS 123(R), we have calculated the fair value of Mr. Osborne’s interest for
book purposes at $171,000 with respect to property acquired by LPP in the
first
quarter. During the three and six months ended June 30, 2007, we
expensed $57,000 and $97,000, respectively, associated with Mr. Osborne’s
interests.
Sutton
Hill Properties
On
June
28, 2007, SHC exercised its Cinemas 1, 2, & 3 Purchase Option for a cash
contribution of $3.0 million plus the assumption of their proportionate share
of
SHP’s liabilities giving them a 25% non-managing membership interest in
SHP.
Big
4
Farming LLC
The
Big 4 Farming entity that is
subject to this minority interest is not an operating company.
Note
15 – Common Stock
Employee
Stock Grants
As
part
of his compensation package, Mr. John Hunter, our Chief Operating Officer,
was
granted $100,000 of restricted Class A Non-Voting Common Stock on February
12,
2007. This stock grant has a vesting period of two years and a stock
grant price of $8.63.
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
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
income (loss)
|
|
$ |
1,634
|
|
|
$ |
(234 |
) |
|
$ |
988
|
|
|
$ |
(3,380 |
) |
Foreign
currency translation gain (loss)
|
|
|
8,582
|
|
|
|
2,497
|
|
|
|
12,417
|
|
|
|
(999 |
) |
Accrued
pension
|
|
|
76
|
|
|
|
--
|
|
|
|
(2,600 |
) |
|
|
--
|
|
Unrealized
gain on AFS securities
|
|
|
385
|
|
|
|
10
|
|
|
|
738
|
|
|
|
17
|
|
Comprehensive
income (loss)
|
|
$ |
10,677
|
|
|
$ |
2,273
|
|
|
$ |
11,543
|
|
|
$ |
(4,362 |
) |
Note
17 – Acquisitions, Dispositions, and Assets Held for Sale
New
Zealand Property Acquisitions
On
June
29, 2007, we acquired a commercial property for $5.9 million (NZ$7.6 million),
rented to an unrelated third party, to be held for current income and long
term
appreciation. We have not yet completed our purchase price allocation
for this property and the related acquired operating lease in accordance
with
SFAS 141 – Business Combinations. The initial purchase price
allocation was based on the assets acquired from the seller. The
preliminary purchase price allocation for this acquisition is $1.2 million
(NZ$1.6 million) allocated to land and $4.7 million (NZ$6.1 million) allocated
to building. In addition, we entered into a contract, through a
Landplan Property Partners property trust, to purchase 64.0 acres of undeveloped
agricultural land for $9.2 million (NZ$11.9 million), and made a deposit
of
$907,000 (NZ$1.2 million) with respect to that transaction. The
property was subsequently acquired on July 27, 2007 (see Note 19 –
Subsequent Events). We anticipate rezoning the property from
its current agricultural use to commercial use, and thereafter to redevelop
the
property in accordance with its proposed new zoning. No assurances
can be given that such rezoning will be achieved, or if achieved, that it
will
be achieved in the near term.
On
February 14, 2007, we acquired, through a Landplan Property Partners property
trust, a 1.0 acre parcel of commercial real estate for approximately $5.3
million (NZ$7.7 million). The property is currently improved with a
motel, but we anticipate that this use will be discontinued as we renovate
the
property and sell the units as condominiums. A portion of this
property includes unimproved land that we do not intend to
develop. At the time of purchase, this land was determined to have a
fair value of $1.8 million (NZ$2.6 million) and is included on our balance
sheet
as land held for sale. The remaining property and its cost basis of
$3.5 million (NZ$5.1 million) was included in property under
development. The operating activities of the motel are not
material. We have completed our purchase price allocation for this
property in accordance with SFAS 141 – Business
Combinations.
Cinemas
1, 2, & 3 Building
On
June
28, 2007, we purchased the building associated with our Cinemas 1, 2, & 3
for $100,000 from Sutton Hill Capital (“SHC”). Our option to purchase
that building has been previously disclosed, and was granted to us by SHC
at the
time that we acquired the underlying ground lease from SHC on June 1,
2005. As SHC is a related party to our corporation, our Board’s Audit
and Conflicts Committee, comprised entirely of outside
independent directors, and subsequently our entire Board of Directors
unanimously approved the purchase of the property. The Cinemas 1, 2
& 3 is located on 3rd Avenue between 59th and 60th Streets.
Tower
Ground Lease
On
February 8, 2007, we purchased the
tenant’s interest in the ground lease underlying the building lease for one of
our domestic cinemas. The purchase price of $493,000 was paid in two
installments; $243,000 was paid on February 8, 2007 and $250,000 was paid
on
June 28, 2007.
Discontinued
Operation
In
June
2007, upon the fulfillment of our commitment, we recorded the release of
a
deferred gain on the sale of a discontinued operation of $1.9 million associated
with a previously sold property.
Note
18 – Derivative Instruments
The
following table sets forth the terms of our interest rate swap derivative
instruments at June 30, 2007:
Type
of Instrument
|
|
Notional
Amount
|
|
|
Pay
Fixed Rate
|
|
|
Receive
Variable Rate
|
|
Maturity
Date
|
Interest
rate swap
|
|
$ |
9,128,000
|
|
|
|
5.7000%
|
|
|
|
6.5650%
|
|
December
31, 2007
|
Interest
rate swap
|
|
$ |
14,222,000
|
|
|
|
6.4400%
|
|
|
|
6.5650%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
13,861,000
|
|
|
|
6.6800%
|
|
|
|
6.5650%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
10,338,000
|
|
|
|
5.8800%
|
|
|
|
6.5650%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
2,972,000
|
|
|
|
6.3600%
|
|
|
|
6.5650%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
2,972,000
|
|
|
|
6.9600%
|
|
|
|
n/a
|
|
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 $74,000 (AUS$73,000)
and $111,000 (AUS$112,000) decrease to interest expense during the three
and six
months ended June 30, 2007, respectively, and a $442,000 (AUS$621,000) and
$553,000 (AUS$755,000) increase to interest expense during the three and
six
months ended June 30, 2006, respectively. At June 30, 2007 and
December 31, 2006, we have recorded the fair market value of our interest
rate
swaps of $317,000 (AUS$373,000) and $206,000 (AUS$261,000), respectively,
as an
other noncurrent asset. The last swap listed above with a notional
amount of $2,972,000 does not have a “Receive Variable Rate” because the
instrument will not be effective until July 1, 2007. In accordance
with SFAS No. 133, we have not designated any of our current interest rate
swap
positions as financial reporting hedges.
Note
19 – Subsequent Events
New
Zealand Property Acquisition
On
July
27, 2007, we purchased through a Landplan Property Partners property trust
a
64.0 acre parcel of undeveloped agricultural real estate for approximately
$9.2
million (NZ$11.9 million). We anticipate rezoning the property from
its current agricultural use to commercial use, and thereafter to redevelop
the
property in accordance with its new zoning. No assurances can be
given that such rezoning will be achieved, or if achieved, that it will be
achieved in the near term.
As
Reading International, Inc. (RDI and
collectively with our consolidated subsidiaries, “Reading” and “we,” “us” or
“our”), 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 (“ETRCs”) in Australia and New Zealand
and live theater assets in Manhattan and Chicago in the United
States.
|
We
believe cinema exhibition to be a
business that will likely continue to generate fairly consistent cash flows
in
the years ahead. This is based on our belief that people will
continue to spend some reasonable portion of their entertainment dollar on
entertainment outside of the home and that, when compared to other forms
of
outside the home entertainment, movies continue to be a popular and
competitively priced option. While we intend to be opportunistic in
adding to our existing cinema portfolio (and are continuing to consider the
acquisition of existing cinema assets as they come on the market), we believe
it
is likely that, over the long term, we will be reinvesting the majority our
free
cash flow more in our general real estate development activities than in
our
cinema activities. Over time, we anticipate that our cinema
operations will become increasingly a source of cash flow to support our
real
estate oriented activities, rather than a focus of growth, and that our real
estate activities will become the principal thrust of our business.
In
short, while we do have operating
company attributes, we see ourselves principally as a hard asset company
and
intend to add to shareholder value by building the value of our portfolio
of
tangible assets.
In
addition, we may from time to time identify opportunities to expand our existing
businesses and asset base, or to otherwise profit, through the acquisition
of
interests in other publicly traded companies, both in the United States and
in
the overseas jurisdictions in which we do business. At June 30, 2007,
our investments in the securities of other public companies aggregated $15.7
million, based on the closing price of such securities on that
date.
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
June
30, 2007, we owned and operated 35 cinemas with 231 screens, had interests
in
certain unconsolidated joint ventures and 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.
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, with the recent reduction in our New Zealand
and Australia debt, foreign currency can have a significant effect on the
value
of assets and liabilities with fluctuations noted in other comprehensive
income. On February 5, 2007, we issued $51.5 million in 20-year fully
subordinated notes and paid off our bank indebtedness in New Zealand $34.4
million (NZ$50.0 million) and retired a portion of our bank indebtedness
in
Australia $5.8 million (AUS$7.4 million). By paying off our New
Zealand debt and paying down on our Australia debt with the proceeds of our
Trust Preferred Securities, we have added an increased element of currency
risk
to our Company. We believe that this currency risk is mitigated by
the comparatively favorable interest rate and the long-term nature of the
fully
subordinated notes. 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. For a
description of our acquisitions so far in 2007, see Note 17 – Acquisitions
and Assets Held for Sale to our June 30, 2007 Consolidated Financial
Statements.
Results
of Operations
At
June 30, 2007, we owned and operated
35 cinemas with 231 screens, had interests in certain unconsolidated joint
ventures and entities that 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 have 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, which
together comprise 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 seven parcels (aggregating
approximately 59 acres) located principally 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 or principal activity centres,” and we are
currently in the planning phases of their development.
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
opening in the fourth quarter of 2005 and the occupancy of the
majority of
tenancies during first and second quarters of 2006 of our Newmarket
Shopping Center, a 100,000 square foot retail center in a suburb
of
Brisbane, Australia;
|
|
·
|
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
increase in the value of the Australian and New Zealand dollars
vis-à-vis
the US dollar from $0.7423 and $0.6105, respectively, as of June
30, 2006
to $0.8491 and $0.7730, respectively, as of June 30,
2007.
|
The
tables below summarize the results of operations for each of our principal
business segments for the three (“2007 Quarter”) and six (“2007 Six Months”)
months ended June 30, 2007 and the three (“2006 Quarter”) and six (“2006 Six
Months”) months ended June 30, 2006, respectively. Effective the
fourth quarter of 2006, we
changed
the presentation of our segment reporting such that our intersegment revenues
and expenses are reported separately from our segments’ operating
activity. The effect of this change is to include intercompany rent
revenues and rent expenses into their respective cinema and real estate business
segments. The revenues and expenses for the three and six months
ending June 30, 2006 have been adjusted to conform to the current year
presentation. We believe that this presentation more accurately
portrays how our operating decision makers’ view the operations, how they assess
segment performance, and how they make decisions about allocating resources
to
the segments (dollars in thousands):
Three
months ended June 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
26,034
|
|
|
$ |
5,564
|
|
|
$ |
(1,459 |
) |
|
$ |
30,139
|
|
Operating
expense
|
|
|
21,390
|
|
|
|
1,864
|
|
|
|
(1,459 |
) |
|
|
21,795
|
|
Depreciation
& amortization
|
|
|
1,798
|
|
|
|
1,108
|
|
|
|
--
|
|
|
|
2,906
|
|
General
& administrative expense
|
|
|
761
|
|
|
|
271
|
|
|
|
--
|
|
|
|
1,032
|
|
Segment
operating income
|
|
$ |
2,085
|
|
|
$ |
2,321
|
|
|
$ |
--
|
|
|
$ |
4,406
|
|
Three
months ended June 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue3
|
|
$ |
23,954
|
|
|
$ |
4,164
|
|
|
$ |
(1,340 |
) |
|
$ |
26,778
|
|
Operating
expense3
|
|
|
19,344
|
|
|
|
1,756
|
|
|
|
(1,340 |
) |
|
|
19,760
|
|
Depreciation
& amortization
|
|
|
2,271
|
|
|
|
999
|
|
|
|
--
|
|
|
|
3,270
|
|
General
& administrative expense
|
|
|
732
|
|
|
|
312
|
|
|
|
--
|
|
|
|
1,044
|
|
Segment
operating income
|
|
$ |
1,607
|
|
|
$ |
1,097
|
|
|
$ |
--
|
|
|
$ |
2,704
|
|
Reconciliation
to consolidated net loss:
|
|
2007
Quarter
|
|
|
2006
Quarter
|
|
Total
segment operating income
|
|
$ |
4,406
|
|
|
$ |
2,704
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
141
|
|
|
|
67
|
|
General
and administrative
expense
|
|
|
2,847
|
|
|
|
2,032
|
|
Operating
income
|
|
|
1,418
|
|
|
|
605
|
|
Interest
expense,
net
|
|
|
(1,950 |
) |
|
|
(1,511 |
) |
Other
income
|
|
|
465
|
|
|
|
1
|
|
Minority
interest
|
|
|
(154 |
) |
|
|
(192 |
) |
Gain
on sale of a discontinued
operation
|
|
|
1,912
|
|
|
|
--
|
|
Income
tax
expense
|
|
|
(443 |
) |
|
|
(344 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
386
|
|
|
|
1,207
|
|
Net
income (loss)
|
|
$ |
1,634
|
|
|
$ |
(234 |
) |
3
For the three
months ended June 30, 2006, the real estate revenues and cinema operating
expenses have been adjusted from the amounts previously reported. See
Note 1 – Basis of Presentation.
Six
months ended June 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
50,540
|
|
|
$ |
10,405
|
|
|
$ |
(2,830 |
) |
|
$ |
58,115
|
|
Operating
expense
|
|
|
40,881
|
|
|
|
3,865
|
|
|
|
(2,830 |
) |
|
|
41,916
|
|
Depreciation
& amortization
|
|
|
3,592
|
|
|
|
2,146
|
|
|
|
--
|
|
|
|
5,738
|
|
General
& administrative expense
|
|
|
1,525
|
|
|
|
457
|
|
|
|
--
|
|
|
|
1,982
|
|
Segment
operating income
|
|
$ |
4,542
|
|
|
$ |
3,937
|
|
|
$ |
--
|
|
|
$ |
8,479
|
|
Six
months ended June 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue4
|
|
$ |
46,463
|
|
|
$ |
8,164
|
|
|
$ |
(2,649 |
) |
|
$ |
51,978
|
|
Operating
expense4
|
|
|
37,793
|
|
|
|
3,468
|
|
|
|
(2,649 |
) |
|
|
38,612
|
|
Depreciation
& amortization
|
|
|
4,355
|
|
|
|
2,019
|
|
|
|
--
|
|
|
|
6,374
|
|
General
& administrative expense
|
|
|
1,899
|
|
|
|
412
|
|
|
|
--
|
|
|
|
2,311
|
|
Segment
operating income
|
|
$ |
2,416
|
|
|
$ |
2,265
|
|
|
$ |
--
|
|
|
$ |
4,681
|
|
Reconciliation
to consolidated net loss:
|
|
2007
Six Months
|
|
|
2006
Six Months
|
|
Total
segment operating income
|
|
$ |
8,479
|
|
|
$ |
4,681
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
278
|
|
|
|
203
|
|
General
and administrative
expense
|
|
|
5,573
|
|
|
|
4,130
|
|
Operating
income
|
|
|
2,628
|
|
|
|
348
|
|
Interest
expense,
net
|
|
|
(3,701 |
) |
|
|
(3,295 |
) |
Other
income
(expense)
|
|
|
(456 |
) |
|
|
(1,154 |
) |
Minority
interest
|
|
|
(495 |
) |
|
|
(272 |
) |
Gain
on sale of a discontinued
operation
|
|
|
1,912
|
|
|
|
--
|
|
Income
tax
expense
|
|
|
(942 |
) |
|
|
(681 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
2,042
|
|
|
|
1,674
|
|
Net
income (loss)
|
|
$ |
988
|
|
|
$ |
(3,380 |
) |
Cinema
Included
in the cinema segment above is revenue and expense from the operations of
35
cinema complexes with 231 screens during the 2007 and the 2006
Quarters. The following tables detail our cinema segment operating
results for the three months ended June 30, 2007 and 2006, respectively (dollars
in thousands):
4
For the six months
ended June 30, 2006, the real estate revenues and cinema operating expenses
have
been adjusted from the amounts previously reported. See Note 1 –
Basis of Presentation.
Three
Months Ended June 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
3,911
|
|
|
$ |
10,915
|
|
|
$ |
4,113
|
|
|
$ |
18,939
|
|
Concessions
revenue
|
|
|
1,151
|
|
|
|
3,615
|
|
|
|
1,134
|
|
|
|
5,900
|
|
Advertising
and other revenues
|
|
|
377
|
|
|
|
615
|
|
|
|
203
|
|
|
|
1,195
|
|
Total
revenues
|
|
|
5,439
|
|
|
|
15,145
|
|
|
|
5,450
|
|
|
|
26,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
4,178
|
|
|
|
11,567
|
|
|
|
4,278
|
|
|
|
20,023
|
|
Concession
costs
|
|
|
242
|
|
|
|
835
|
|
|
|
290
|
|
|
|
1,367
|
|
Total
operating expense
|
|
|
4,420
|
|
|
|
12,402
|
|
|
|
4,568
|
|
|
|
21,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
491
|
|
|
|
873
|
|
|
|
434
|
|
|
|
1,798
|
|
General
& administrative expense
|
|
|
532
|
|
|
|
227
|
|
|
|
2
|
|
|
|
761
|
|
Segment
operating income (loss)
|
|
$ |
(4 |
) |
|
$ |
1,643
|
|
|
$ |
446
|
|
|
$ |
2,085
|
|
Three
Months Ended June 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
3,952
|
|
|
$ |
9,822
|
|
|
$ |
3,790
|
|
|
$ |
17,564
|
|
Concessions
revenue
|
|
|
1,186
|
|
|
|
2,980
|
|
|
|
1,095
|
|
|
|
5,261
|
|
Advertising
and other revenues
|
|
|
471
|
|
|
|
475
|
|
|
|
183
|
|
|
|
1,129
|
|
Total
revenues
|
|
|
5,609
|
|
|
|
13,277
|
|
|
|
5,068
|
|
|
|
23,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs5
|
|
|
4,107
|
|
|
|
10,190
|
|
|
|
3,920
|
|
|
|
18,217
|
|
Concession
costs
|
|
|
163
|
|
|
|
701
|
|
|
|
263
|
|
|
|
1,127
|
|
Total
operating expense
|
|
|
4,270
|
|
|
|
10,891
|
|
|
|
4,183
|
|
|
|
19,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
545
|
|
|
|
1,411
|
|
|
|
315
|
|
|
|
2,271
|
|
General
& administrative expense
|
|
|
518
|
|
|
|
235
|
|
|
|
(21 |
) |
|
|
732
|
|
Segment
operating income
|
|
$ |
276
|
|
|
$ |
740
|
|
|
$ |
591
|
|
|
$ |
1,607
|
|
|
·
|
Cinema
revenue increased for the 2007 Quarter by $2.1 million or 8.7%
compared to
the same period in 2006. The 2007 Quarter increase resulted
from improved results from our Australia and New Zealand operations
including $1.4 million from admissions and $1.0 million from concessions
and other revenues.
|
|
·
|
Operating
expense increased for the 2007 Quarter by $2.1 million or 10.6%
compared
to the same period in 2006. This increase followed the
aforementioned increase in revenues. Overall, our operating
expenses from year-to-year held fairly constant at 82% of gross
revenue
for the 2007 Quarter and 81% of gross revenue for the 2006
Quarter.
|
|
·
|
Depreciation
and amortization expense decreased for the 2007 Quarter by $473,000
or
20.8% compared to the same period in 2006 primarily related to
several
Australia cinema assets reaching their useful depreciable life
as of
December 31, 2006.
|
|
·
|
General
and administrative expense increased for the 2007 Quarter by $29,000
or 4%
compared to the same period in
2006.
|
5
For the three
months ended June 30, 2006, the cinema operating expenses have been adjusted
from the amounts previously reported. See Note 1 – Basis of
Presentation.
|
·
|
Because
of the above, cinema segment income increased for the 2007 Quarter
by
$478,000 compared to the same period in
2006.
|
The
following tables detail our cinema segment operating results for the six
months
ended June 30, 2007 and 2006, respectively, (dollars in thousands):
Six
Months Ended June 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
9,102
|
|
|
$ |
20,545
|
|
|
$ |
7,397
|
|
|
$ |
37,044
|
|
Concessions
revenue
|
|
|
2,524
|
|
|
|
6,480
|
|
|
|
2,125
|
|
|
|
11,129
|
|
Advertising
and other revenues
|
|
|
833
|
|
|
|
1,100
|
|
|
|
434
|
|
|
|
2,367
|
|
Total
revenues
|
|
|
12,459
|
|
|
|
28,125
|
|
|
|
9,956
|
|
|
|
50,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
8,904
|
|
|
|
21,737
|
|
|
|
7,729
|
|
|
|
38,370
|
|
Concession
costs
|
|
|
500
|
|
|
|
1,464
|
|
|
|
547
|
|
|
|
2,511
|
|
Total
operating expense
|
|
|
9,404
|
|
|
|
23,201
|
|
|
|
8,276
|
|
|
|
40,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
978
|
|
|
|
1,774
|
|
|
|
840
|
|
|
|
3,592
|
|
General
& administrative expense
|
|
|
1,071
|
|
|
|
450
|
|
|
|
4
|
|
|
|
1,525
|
|
Segment
operating income
|
|
$ |
1,006
|
|
|
$ |
2,700
|
|
|
$ |
836
|
|
|
$ |
4,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
8,238
|
|
|
$ |
19,205
|
|
|
$ |
6,608
|
|
|
$ |
34,051
|
|
Concessions
revenue
|
|
|
2,505
|
|
|
|
5,898
|
|
|
|
1,955
|
|
|
|
10,358
|
|
Advertising
and other revenues
|
|
|
754
|
|
|
|
942
|
|
|
|
358
|
|
|
|
2,054
|
|
Total
revenues
|
|
|
11,497
|
|
|
|
26,045
|
|
|
|
8,921
|
|
|
|
46,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs6
|
|
|
8,759
|
|
|
|
20,003
|
|
|
|
6,733
|
|
|
|
35,495
|
|
Concession
costs
|
|
|
422
|
|
|
|
1,356
|
|
|
|
520
|
|
|
|
2,298
|
|
Total
operating expense
|
|
|
9,181
|
|
|
|
21,359
|
|
|
|
7,253
|
|
|
|
37,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
991
|
|
|
|
2,778
|
|
|
|
586
|
|
|
|
4,355
|
|
General
& administrative expense
|
|
|
1,453
|
|
|
|
430
|
|
|
|
16
|
|
|
|
1,899
|
|
Segment
operating income (loss)
|
|
$ |
(128 |
) |
|
$ |
1,478
|
|
|
$ |
1,066
|
|
|
$ |
2,416
|
|
|
·
|
Cinema
revenue increased for the 2007 Six Months by $4.1 million or 8.8%
compared
to the same period in 2006. The 2007 Six Month increase related
to improved results not only from our Australia and New Zealand
operations
including $2.1 million from admissions and $986,000 from concessions
and
other revenues but also from our domestic cinema operations of
$864,000
from admissions and $98,000 from concessions and other
revenues.
|
|
·
|
Operating
expense increased for the 2007 Six Months by $3.1 million or 8.2%
compared
to the same period in 2006. This increase followed the
aforementioned increase in revenues. Overall, our operating
expenses from year-to-year held constant at 81% of gross revenue
for the
Six Months ended 2007 and 2006.
|
6
For the six months
ended June 30, 2006, the cinema operating expenses have been adjusted from
the
amounts previously reported. See Note 1 – Basis of
Presentation.
|
·
|
Depreciation
and amortization expense decreased for the 2007 Six Months by $763,000
or
17.5% compared to the same period in 2006. This decrease is
primarily related to several Australia cinema assets reaching their
useful
depreciable life as of December 31,
2006.
|
|
·
|
General
and administrative expense decreased for the 2007 Six Months by
$374,000
or 19.7% compared to the same period in 2006. The decrease was
due to a drop in legal costs primarily related to our anti-trust
litigation associated with our Village East
cinema.
|
|
·
|
As
a result of the above, cinema segment income increased for the
2007 Six
Months by $2.1 million compared to the same period in
2006.
|
Real
Estate
For
the three months ended June 30,
2007, our third party, rental generating real estate holdings consisted
of:
|
·
|
ETRCs
at Belmont in Perth; at Auburn in Sydney; and at Courtenay Central
in
Wellington, New Zealand; and our Newmarket shopping center in Brisbane,
Australia;
|
|
·
|
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 ended June 30, 2007 and 2006, respectively (dollars in
thousands):
Three
Months Ended June 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
997
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
997
|
|
Property
rental income
|
|
|
370
|
|
|
|
2,445
|
|
|
|
1,752
|
|
|
|
4,567
|
|
Total
revenues
|
|
|
1,367
|
|
|
|
2,445
|
|
|
|
1,752
|
|
|
|
5,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
526
|
|
|
|
--
|
|
|
|
--
|
|
|
|
526
|
|
Property
rental cost
|
|
|
211
|
|
|
|
717
|
|
|
|
410
|
|
|
|
1,338
|
|
Total
operating expense
|
|
|
737
|
|
|
|
717
|
|
|
|
410
|
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
95
|
|
|
|
590
|
|
|
|
423
|
|
|
|
1,108
|
|
General
& administrative expense
|
|
|
2
|
|
|
|
164
|
|
|
|
105
|
|
|
|
271
|
|
Segment
operating income
|
|
$ |
533
|
|
|
$ |
974
|
|
|
$ |
814
|
|
|
$ |
2,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
1,003
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
1,003
|
|
Property
rental income7
|
|
|
302
|
|
|
|
1,511
|
|
|
|
1,348
|
|
|
|
3,161
|
|
Total
revenues
|
|
|
1,305
|
|
|
|
1,511
|
|
|
|
1,348
|
|
|
|
4,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
490
|
|
|
|
--
|
|
|
|
--
|
|
|
|
490
|
|
Property
rental cost
|
|
|
245
|
|
|
|
645
|
|
|
|
376
|
|
|
|
1,266
|
|
Total
operating expense
|
|
|
735
|
|
|
|
645
|
|
|
|
376
|
|
|
|
1,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
106
|
|
|
|
529
|
|
|
|
364
|
|
|
|
999
|
|
General
& administrative expense
|
|
|
--
|
|
|
|
312
|
|
|
|
--
|
|
|
|
312
|
|
Segment
operating income
|
|
$ |
464
|
|
|
$ |
25
|
|
|
$ |
608
|
|
|
$ |
1,097
|
|
|
·
|
Revenue
increased for the 2007 Quarter by $1.4 million or 33.6% compared
to the
same period in 2006. The increase was primarily related to
higher rental revenues from our foreign real estate holdings including
a
$628,000 increase from our Newmarket shopping center which did
not fully
open until the third quarter of
2006.
|
|
·
|
Operating
expense for the real estate segment increased for the 2007 Quarter
by
$108,000 or 6.2% compared to the same period in 2006. This
increase in expense was primarily related to our Newmarket shopping
center
in Brisbane, Australia.
|
|
·
|
Depreciation
expense for the real estate segment increased by $109,000 or 10.9%
for the
2007 Quarter compared to the same period in 2006. The majority
of this increase was attributed to the Australia Newmarket shopping
center
assets which were put into service during the first quarter
2007.
|
|
·
|
As
a result of the above, real estate segment income increased for
the 2007
Quarter by $1.2 million compared to the same period in 2006 of
which
$642,000 was attributable to our Newmarket shopping
center.
|
The
following tables detail our real estate segment operating results for the
six
months ended June 30, 2007 and 2006, respectively (dollars in
thousands):
Six
Months Ended June 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
1,729
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
1,729
|
|
Property
rental income
|
|
|
907
|
|
|
|
4,483
|
|
|
|
3,286
|
|
|
|
8,676
|
|
Total
revenues
|
|
|
2,636
|
|
|
|
4,483
|
|
|
|
3,286
|
|
|
|
10,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
1,010
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,010
|
|
Property
rental cost
|
|
|
562
|
|
|
|
1,441
|
|
|
|
852
|
|
|
|
2,855
|
|
Total
operating expense
|
|
|
1,572
|
|
|
|
1,441
|
|
|
|
852
|
|
|
|
3,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
191
|
|
|
|
1,147
|
|
|
|
808
|
|
|
|
2,146
|
|
General
& administrative expense
|
|
|
14
|
|
|
|
309
|
|
|
|
134
|
|
|
|
457
|
|
Segment
operating income
|
|
$ |
859
|
|
|
$ |
1,586
|
|
|
$ |
1,492
|
|
|
$ |
3,937
|
|
7 For
the three
months ended March 31, 2006, the property rental income has been adjusted
from
the amounts previously reported. See Note 1 – Basis of
Presentation.
Six
Months Ended June 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
2,038
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
2,038
|
|
Property
rental income8
|
|
|
736
|
|
|
|
2,677
|
|
|
|
2,713
|
|
|
|
6,126
|
|
Total
revenues
|
|
|
2,774
|
|
|
|
2,677
|
|
|
|
2,713
|
|
|
|
8,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
1,146
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,146
|
|
Property
rental cost
|
|
|
436
|
|
|
|
1,175
|
|
|
|
711
|
|
|
|
2,322
|
|
Total
operating expense
|
|
|
1,582
|
|
|
|
1,175
|
|
|
|
711
|
|
|
|
3,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
212
|
|
|
|
1,054
|
|
|
|
753
|
|
|
|
2,019
|
|
General
& administrative expense
|
|
|
--
|
|
|
|
412
|
|
|
|
--
|
|
|
|
412
|
|
Segment
operating income
|
|
$ |
980
|
|
|
$ |
36
|
|
|
$ |
1,249
|
|
|
$ |
2,265
|
|
|
·
|
Revenue
increased for the 2007 Six Months by $2.2 million or 27.4% compared
to the
same period in 2006. The increase was primarily related the
increase in rent from an enhanced rental stream from our recently
opened
Australia Newmarket shopping center and New Zealand properties
of $2.4
million offset by a decrease in rents from our domestic live
theatres.
|
|
·
|
Operating
expense for the real estate segment increased for the 2007 Six
Months by
$397,000 or 11.4% compared to the same period in 2006. This
increase in expense was primarily higher operating costs related
to our
recently opened Australia Newmarket shopping
center.
|
|
·
|
Depreciation
expense for the real estate segment increased by $127,000 or 6.3%
for the
2007 Six Months compared to the same period in 2006. The
majority of this increase was attributed to the Newmarket shopping
center
assets in Australia which were put into service during the first
quarter
2007.
|
|
·
|
As
a result of the above, real estate segment income for the 2007
Six Months
increased by $1.7 million compared to the same period in 2006 of
which
$1.2 million was attributable to our Newmarket shopping
center.
|
Corporate
General
and administrative expense
includes expenses that are not directly attributable to other operating
segments. General and administrative expense increased by $815,000 in
the 2007 Quarter compared to the 2006 Quarter primarily related to increased
salary expense primarily from our newly appointed Chief Operating Officer,
to
legal and professional fees associated principally with our real estate
acquisition and investment activities, and to our newly adopted Supplemental
Executive Retirement Plan.
General
and administrative expense increased by $1.4 million in the 2007 Six Months
compared to the 2006 Six Months. The 2007 increases were primarily
related to increased corporate compensation expense related to the granting
of
70,000 fully vested options to our directors coupled with an increase in
director fees; to compensation for our newly appointed Chief Operating Officer;
legal and professional fees associated principally with our real estate
acquisition and investment activities; and to our newly adopted Supplemental
Executive Retirement Plan.
8
For the six months
ended June 30, 2006, the real estate revenues have been adjusted from the
amounts previously reported. See Note 1 – Basis of
Presentation.
Net
interest expense increased by
$439,000 and by $406,000 for the 2007 Quarter and the 2007 Six Months,
respectively, compared to last year primarily related to increased interest
expense due to higher outstanding loan balances during the 2007 compared
to the
2006.
Other
income increased by approximately
$465,000 for the 2007 Quarter resulting from a $224,000 gain on sale of
marketable securities coupled with a mark-to-market expense in 2006 not repeated
in 2007 related to our option liability for the option held by Sutton Hill
Capital, LLC to acquire a 25% non-managing membership interest in our Cinemas
1,
2 & 3 property. Other expense decreased by $698,000 for 2007 Six
Months compared to last year due to a lower mark-to-market expense in 2007
than
that recorded in 2006 related to that same option liability; an accrual of
$342,000 for union dues in 2006 not repeated in 2007; and an offsetting gain
on
sale of marketable securities of $224,000 in 2007.
During
the three and six months ended June 30, 2007, upon the fulfillment of our
commitment, we recorded the release of a deferred gain on the sale of a
discontinued operation of $1.9 million associated with a previously sold
property.
Equity
earnings of unconsolidated joint ventures and entities decreased by
approximately $821,000 for the 2007 Quarter compared to the same period last
year and increased by $368,000 for 2007 Six Months compared to the same period
last year. Both the decrease in the 2007 Quarter and the increase in
the 2007 Six Months were primarily related to the changing sales activity
in our
investment 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 closed on the sale of one and seven
condominiums during the three and six months ended June 30, 2007, respectively,
resulting in gross sales of $2.3 million and $22.6 million, respectively,
and
equity earnings from unconsolidated joint ventures and entities to us of
$39,000
and $1.3 million, respectively.
Consolidated
Net Income/Losses
During
2007, we recorded net income of $1.6 million and $988,000 for the 2007 Quarter
and 2007 Six Months, respectively. During 2006, we recorded a net
loss of $234,000 and $3.4 million for the 2006 Quarter and 2006 Six Months,
respectively. As noted above, the increase in income is related to
improved operating results from both our cinema and our real estate segments
and
increased income associated with a gain on the sale of a discontinued
operation.
Acquisitions
New
Zealand Property Acquisitions
On
June
29, 2007, we acquired a commercial property for $5.9 million (NZ$7.6 million),
rented to an unrelated third party, to be held for current income and long
term
appreciation. We have not yet completed our purchase price allocation
for this property and the related acquired operating lease in accordance
with
SFAS 141 – Business Combinations. In addition, we entered
into a contract, through a Landplan Property Partners property trust, to
purchase 64.0 acres of undeveloped agricultural land for $9.2 million (NZ$11.9
million), and made a deposit of $907,000 (NZ$1.2 million) with respect to
that
transaction. The property was subsequently acquired on July 27, 2007
(see Note 18 – Subsequent Events). We anticipate rezoning
the property from its current agricultural use to commercial use, and thereafter
to redevelop the property in accordance with its proposed new
zoning. No assurances can be given that any such rezoning will be
achieved or, if achieved, that it will be achieved in the near
term.
On
February 14, 2007, we acquired, through a Landplan Property Partners property
trust, a 1.0 acre parcel of commercial real estate for approximately $5.3
million (NZ$7.7 million). The property is currently improved with a
motel, but we anticipate that this use will be discontinued as we renovate
the
property and sell the
units
as condominiums. A portion of this property includes unimproved land
that we do not intend to
develop. At
the time of purchase, this land was determined to have a fair value of $1.8
million (NZ$2.6 million) and is included on our balance sheet as land held
for
sale. The remaining property and its cost basis of $3.5 million
(NZ$5.1 million) was included in property under development. The
operating activities of the motel are not material. We have completed
our purchase price allocation for this property in accordance with SFAS 141
–
Business Combinations.
Cinemas
1, 2, & 3 Building
On
June
28, 2007, we purchased the building associated with our Cinemas 1, 2, & 3
for $100,000 from Sutton Hill Capital (“SHC”). Our option to purchase
that building has been previously disclosed, and was granted to us by SHC
at the
time that we acquired the underlying ground lease from SHC. As SHC is
a related party to our corporation, our Board’s Audit and Conflicts Committee,
comprised entirely of outside independent directors, and subsequently our
entire
Board of Directors unanimously approved the purchase of the
property. The Cinemas 1, 2 & 3 is located on 3rd Avenue between
59th and 60th Streets.
Tower
Ground Lease
On
February 8, 2007, we purchased the
tenant’s interest in the ground lease underlying the building lease for one of
our domestic cinemas. The purchase price of $493,000 was paid in two
installments; $243,000 was paid on February 8, 2007 and $250,000 was paid
on
June 28, 2007.
Business
Plan, Capital Resources, and Liquidity
Business
Plan
Our
cinema exhibition business plan is to continue to identify, develop, and
acquire
cinema properties, where reasonably available, that allow us to leverage
our
cinema expertise and technology over a larger operating base. 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. In addition, we will
actively seek out potential real estate sites in Australia and New Zealand
that
show profitable redevelopment opportunities.
Contractual
Obligations
The
following table provides information with respect to the maturities and
scheduled principal repayments of our secured debt and lease obligations
at June
30, 2007 (in thousands):
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
Long-term
debt
|
|
$ |
1,957
|
|
|
$ |
376
|
|
|
$ |
73,411
|
|
|
$ |
12,246
|
|
|
$ |
170
|
|
|
$ |
15,297
|
|
Notes
payable to related parties
|
|
|
5,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
9,000
|
|
|
|
--
|
|
|
|
--
|
|
Subordinated
notes
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
51,547
|
|
Lease
obligations
|
|
|
6,049
|
|
|
|
11,114
|
|
|
|
11,265
|
|
|
|
11,055
|
|
|
|
10,386
|
|
|
|
68,837
|
|
Estimated
interest on long-term debt
|
|
|
7,988
|
|
|
|
11,655
|
|
|
|
11,643
|
|
|
|
5,793
|
|
|
|
4,610
|
|
|
|
70,680
|
|
Total
|
|
$ |
20,994
|
|
|
$ |
23,145
|
|
|
$ |
96,319
|
|
|
$ |
38,094
|
|
|
$ |
15,166
|
|
|
$ |
206,361
|
|
Estimated
interest on long-term debt is
based on the anticipated loan balances for future periods calculated against
current fixed and variable interest rates.
We
adopted FIN 48, “Accounting for Uncertainty in Income Taxes” on January 1,
2007. As of adoption, the total amount of gross unrecognized tax
benefits for uncertain tax positions was $12.5 million increasing to $12.9
million as of June 30, 2007. The determination of actual amounts and
timing of payments
will
depend on the activity of tax authorities with respect to the contested
tax
issues disclosed in Note 10 – Income Tax to our 2006 Annual Report on
form 10-K. We do not expect a significant tax payment related to
these obligations within the 12 months.
Unconsolidated
Debt
Total
debt of unconsolidated joint ventures and entities was $5.3 million and $4.8
million as of June 30, 2007 and December 31, 2006, respectively. Our
share of unconsolidated debt, based on our ownership percentage, was $2.4
million and $2.2 million as of June 30, 2007 and December 31, 2006,
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 $7.2 million in the 2007 Six Months compared to
$1.7
million for the 2006 Six Months. The increase in cash provided by
operations of $5.5 million is due primarily to:
|
·
|
increased
cinema operational cash flow primarily from our US and Australia
operations;
|
|
·
|
increased
real estate operational cash flow predominately from our Australia
operations. This increase can be particularly attributed to our
Newmarket shopping center in Brisbane, Australia;
and
|
|
·
|
an
increase in distributions from unconsolidated joint ventures and
entities
of $4.3 million.
|
Investing
Activities
Cash
used in investing activities for
the 2007 Six Months increased by $17.2 million to $27.4 million from $10.2
million compared to the same period in 2006. The $27.4 million cash
used for the 2007 Six Months was primarily related to:
|
·
|
$11.9
million to purchase marketable
securities;
|
|
·
|
$11.8
million to purchase real estate assets including $11.2 million
for real
estate purchases made in New Zealand, $100,000 for the purchase
of the
Cinemas 1, 2, & 3 building, and $493,000 for the purchase of the
ground lease of our Tower Cinema in Sacramento,
California;
|
|
·
|
$7.9
million in property enhancements to our properties;
and
|
|
·
|
$1.5
million in our investment in Reading International Trust I securities
(the
issuer of our Trust Preferred
Securities);
|
offset
by
|
·
|
$4.0
million in cash provided by the sale of marketable securities;
and
|
|
·
|
$1.4
million in distributions from our investment in Place
57.
|
The
$10.2 million cash used for the
2006 Six Months was primarily related to:
|
·
|
$939,000
in cash used to purchase the Queenstown Cinema in New
Zealand;
|
|
·
|
$2.8
million in cash used to purchase the 50% share that we did not
already own
of the Palms joint venture cinema located in Christchurch, New
Zealand;
|
|
·
|
$4.6
million in cash used to complete the Newmarket shopping center
and for
property enhancements to our Australia, New Zealand and U.S. properties;
and
|
|
·
|
$1.8
million paid for Malulani Investments, Ltd.
stock.
|
Cash
provided by financing activities for the 2007 Six Months increased by $25.7
million to $31.6 million from $5.9 million compared to the same period in
2006. The $31.6 million in cash provided in the 2007 Six Months was
primarily related to:
|
·
|
$49.9
million of net proceeds from our new Trust Preferred
Securities;
|
|
·
|
$14.4
million of net proceeds from our new Euro-Hypo
loan;
|
|
·
|
$3.1
million of proceeds from our margin account on marketable securities;
and
|
|
·
|
$8.6
million of borrowing on our Australia and New Zealand credit
facilities;
|
offset
by
|
·
|
$43.5
million of cash used to retire bank indebtedness including $34.4
million
(NZ$50.0 million) to pay off our New Zealand term debt, $5.8 million
(AUS$7.4 million) to retire a portion of our bank indebtedness
in
Australia, and $3.1 million to pay off our margin account on marketable
securities; and
|
|
·
|
$838,000
in distributions to minority
interests.
|
The
$5.9
million in cash provided in the 2006 Six Months was primarily related
to:
|
·
|
$8.0
million of new borrowings on our Australian Corporate Credit
Facility;
|
|
·
|
$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
|
·
|
$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 Six 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.
|
Summary
Our
cash
position at June 30, 2007 was $22.4 million compared to $11.0 million at
December 31, 2006. The majority of the $11.4 million increase in cash
related to the following transactions:
|
·
|
$7.2
million net cash provided by operating
activities;
|
|
·
|
$49.9
million of net proceeds from our new Trust Preferred
Securities;
|
|
·
|
$14.4
million of net proceeds from our new Euro-Hypo
loan;
|
|
·
|
$3.1
million of proceeds from our margin account on marketable
securities;
|
|
·
|
$8.6
million of borrowing on our Australia and New Zealand credit
facilities;
|
|
·
|
$1.4
million in distributions from our investment in Place 57;
and
|
|
·
|
$4.0
million in cash provided by the sale of marketable
securities;
|
offset
by
|
·
|
$11.9
million in cash used to purchase marketable
securities;
|
|
·
|
$11.8
million to purchase certain real estate
assets;
|
|
·
|
$7.9
million in property enhancements to our
properties;
|
|
·
|
$43.5
million of cash used to retire bank indebtedness including $34.4
million
(NZ$50.0 million) to pay off our New Zealand term debt, $5.8 million
(AUS$7.4 million) to retire a portion of our bank indebtedness
in
Australia, and $3.1 million to pay off our margin account on marketable
securities;
|
|
·
|
$1.5
million in our investment in Reading International Trust I securities
(the
issuer of our Trust Preferred Securities);
and
|
|
·
|
$838,000
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 2006 Annual Report
and
you are advised to refer to that discussion.
In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with Statement of Financial Accounting Standards No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes rules for financial
statement recognition and measurement of a tax positions taken or expected
to be
taken in a tax return. We adopted FIN 48 on January 1, 2007. As
a result, we recognized a $509,000 cumulative increase to reserves for uncertain
tax positions, which was accounted for as an adjustment to the beginning
balance
of accumulated deficit in 2007. Overall, we had approximately $12.5
million of gross tax benefits unrecognized on the financial statements as
of the
date of adoption.
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, whenever possible, natural
hedges in Australia and New Zealand. This involves local country
sourcing of goods and services as well as borrowing in local
currencies. On February 5, 2007, we issued $51.5 million in 20-year
fully subordinated notes and paid off our bank indebtedness in New Zealand
$34.4
million (NZ$50.0 million) and retired a portion of our bank indebtedness
in
Australia $5.8 million (AUS$7.4 million). By paying off our New
Zealand debt and paying down on our Australia debt with the proceeds of our
Trust Preferred Securities, we have added an increased element of currency
risk
to our Company. We believe that this currency risk is mitigated by
the comparatively favorable interest rate and the long-term nature of the
fully
subordinated notes.
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 $74,000 (AUS$73,000)
and $111,000 (AUS$112,000) decrease to interest expense during the three
and six
months ended June 30, 2007, respectively, and a $442,000 (AUS$621,000) and
$553,000 (AUS$755,000) increase to interest expense during the three and
six
months ended June 30, 2006, respectively. At June 30, 2007
and
December 31, 2006, we have recorded the fair market value of our interest
rate
swaps of $317,000 (AUS$373,000) and $206,000 (AUS$261,000), respectively,
as an
other long-term liability. The last swap listed above with a notional
amount of $2,972,000 does not have a “Receive Variable Rate” because the
instrument will not be effective until July 1, 2007. 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;
|
|
·
|
environmental
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 2006 Annual Report.
There
have not been any material changes to our litigation exposure since our
Company’s 2006 Annual Report.
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
risks and uncertainties associated with real estate
development;
|
|
o
|
The
availability and cost of labor and
materials;
|
|
o
|
Competition
for development sites and tenants
|
|
o
|
Environmental
remediation issues; 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 “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.
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
June
30, 2007, approximately 47% and 23% of our assets were invested in assets
denominated in Australian dollars (Reading Australia) and New Zealand dollars
(Reading New Zealand), respectively, including approximately $5.1 million
in
cash and cash equivalents. At December 31, 2006, approximately 49%
and 23% of our assets were invested in assets denominated in Australian dollars
(Reading Australia) and New Zealand dollars (Reading New Zealand) including
approximately $9.3 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 current earnings. Although foreign currency
has had a nominal effect on our current earnings, the effect of the translation
adjustment on our assets and liabilities noted in our other comprehensive
income
was $8.6 million and $12.4 million for the three and six months ended June
30,
2007. 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.
Historically,
our policy has been 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, and as a
result of our issuance of fully subordinated notes described below,
approximately 49% and 77% 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 $7.8 million
and
$5.9 million, respectively, and the change in our quarterly net income would
be
$34,000 and $14,000, respectively. At the present time, we have no
plan to hedge such exposure. On February 5, 2007, we issued $51.5
million in 20-year fully subordinated notes and paid off our bank indebtedness
in New Zealand $34.4 million (NZ$50.0 million) and retired a portion of our
bank
indebtedness in Australia $5.8 million (AUS$7.4 million). By paying
off our New Zealand debt and paying down on our Australia debt with the proceeds
of our Trust Preferred Securities, we have added an increased element of
currency risk to our Company. We believe that this currency risk is
mitigated by the comparatively favorable interest rate and the long-term
nature
of the fully subordinated notes.
We
record unrealized foreign currency
translation gains or losses that could materially affect our financial
position. As of June 30, 2007 and December 31, 2006, we have recorded
a cumulative unrealized foreign currency translation gain of approximately
$45.9
million and $33.4 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.
The
majority of our U.S. 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 $4,000
increase or decrease in our 2007 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 $87,000 increase in our 2007 Quarter Australian and New Zealand
interest expense while a 1% decrease in short-term interest rates would have
resulted in approximately $90,000 decrease the 2007 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 ineffective as of the end of
the
period covered by this quarterly report.
The
disclosure controls and procedures were ineffective because of a material
weakness in controls related to the preparation of the statement of cash
flows,
which were operating ineffectively as of the reporting date of the consolidated
financial statements and failed to prevent or detect errors in our consolidated
financial statements.
We
concluded that this weakness resulted in an actual material misstatement
between
operating and investing activities and within the presentation of our financing
activities on our interim consolidated statement of cash
flows. Specifically, the weakness related to the overstatement of
cash provided by investing activities from the sale of marketable securities
due
to an error in recording such cash flows based on the trade date rather than
the
settlement date when cash was actually received. Such actual material
misstatement has been corrected in the accompanying consolidated statement
of
cash flows for the six months ended June 30, 2007. We are in the
process of enhancing our internal controls in the area of presentation of
cash
flows for reporting purposes.
Changes
in Internal Control over Financial Reporting
No
change
in our internal control over financial reporting (as defined in Rule 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the quarter ended June
30,
2007 that has materially affected, or is reasonably likely to materially
affect,
our internal control over financial reporting.
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, 2006.
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:
|
August
8, 2007
|
By:
|
/s/
James J. Cotter
|
|
|
|
James
J. Cotter
|
|
|
|
Chief
Executive Officer
|
Date:
|
August
8, 2007
|
By:
|
/s/
Andrzej Matyczynski
|
|
|
|
Andrzej
Matyczynski
|
|
|
|
Chief
Financial Officer
|
CERTIFICATIONS
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
James
J. Cotter, certify that:
|
1)
|
I
have reviewed this quarterly report on Form 10-Q of Reading International
Inc.;
|
|
2)
|
Based
on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to
make the statements made, in light of the circumstances under which
such
statements were made, not misleading with respect to the period
covered by
this quarterly report;
|
|
3)
|
Based
on my knowledge, the financial statements, and other financial
information
included in this quarterly report, fairly present in all material
respects
the financial condition, results of operations and cash flows of
the
registrant as of, and for, the periods presented in this quarterly
report;
|
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we
have:
|
|
a)
|
designed
such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is
being
prepared;
|
|
b)
|
designed
such internal control over financial reporting, or caused such
internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with general accepted accounting
principles;
|
|
c)
|
evaluated
the effectiveness of the registrant's disclosure controls and procedures
as of the end of the period covered by this report based on such
evaluation; and
|
|
d)
|
presented
in this quarterly report our conclusions about the effectiveness
of the
disclosure controls and procedures based on our evaluation as of
the
Evaluation Date;
|
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the
equivalent function):
|
|
a)
|
all
significant deficiencies in the design or operation of internal
controls
which could adversely affect the registrant's ability to record,
process,
summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls;
and
|
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
|
|
6)
|
The
registrant's other certifying
officer and I have indicated in this quarterly report whether or
not there
were significant changes in internal controls or in other factors
that
could significantly affect internal controls subsequent to the
date of our
most recent evaluation, including any corrective actions with regard
to
significant deficiencies and material
weaknesses.
|
By:
|
/s/
James J. Cotter
|
|
James
J. Cotter
|
|
Chief
Executive Officer
|
|
August
8, 2007
|
EXHIBIT
31.2
CERTIFICATIONS
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Andrzej Matyczynski, certify that:
|
1)
|
I
have reviewed this quarterly report on Form 10-Q of Reading International
Inc.;
|
|
2)
|
Based
on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to
make the statements made, in light of the circumstances under which
such
statements were made, not misleading with respect to the period
covered by
this quarterly report;
|
|
3)
|
Based
on my knowledge, the financial statements, and other financial
information
included in this quarterly report, fairly present in all material
respects
the financial condition, results of operations and cash flows of
the
registrant as of, and for, the periods presented in this quarterly
report;
|
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we
have:
|
|
a)
|
designed
such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is
being
prepared;
|
|
b)
|
designed
such internal control over financial reporting, or caused such
internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with general accepted accounting
principles;
|
|
c)
|
evaluated
the effectiveness of the registrant's disclosure controls and procedures
as of the end of the period covered by this report based on such
evaluation; and
|
|
d)
|
presented
in this quarterly report our conclusions about the effectiveness
of the
disclosure controls and procedures based on our evaluation as of
the
Evaluation Date;
|
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the
equivalent function):
|
|
a)
|
all
significant deficiencies in the design or operation of internal
controls
which could adversely affect the registrant's ability to record,
process,
summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls;
and
|
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
|
|
6)
|
The
registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes
in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including
any corrective actions with regard to significant deficiencies
and
material weaknesses.
|
By:
|
/s/
Andrzej Matyczynski
|
|
Andrzej
Matyczynski
|
|
Chief
Financial Officer
|
|
August
8, 2007
|
EXHIBIT
32
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
Each
of
the undersigned hereby certifies, in his capacity as an officer of Reading
International, Inc. (the “Company”), for purposes of 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
|
·
|
The
Quarterly Report of the Company on Form 10-Q for the period ended
June 30,
2007 as filed with the Securities and Exchange Commission fully
complies
with the requirements of Section 13(a) and 15(d), as applicable,
of the
Securities Exchange Act of 1934;
and
|
|
·
|
The
information contained in such report fairly presents, in all material
respects, the financial condition and results of operation of the
Company.
|
A
signed
original of this written statement required by Section 906 has been provided
to
the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
Dated: August
8, 2007
/s/ James
J.
Cotter
Name: James
J. Cotter
Title:
Chief Executive Officer
/s/ Andrzej
Matyczynski
Name: Andrzej
Matyczynski
Title: Chief
Financial Officer