form10q.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________________
FORM
10-Q
(Mark
One)
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period
ended: September 30, 2007
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from
_____________ to ___________
Commission
file number 1-8625
READING
INTERNATIONAL, INC.
(Exact
name of Registrant as specified in its charter)
NEVADA
(State
or other jurisdiction of incorporation or organization)
|
95-3885184
(IRS
Employer Identification No.)
|
|
|
500
Citadel Drive, Suite 300
Commerce CA
(Address
of principal executive offices)
|
90040
(Zip
Code)
|
Registrant’s
telephone number, including area code: (213) 235-2240
Indicate
by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding twelve months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90
days. Yes þ No ¨
Indicate
by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer ¨ Accelerated
filer þ Non-accelerated
filer ¨
Indicate
by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No þ
Indicate
the number of shares
outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date. As of November 6, 2007, there were 20,998,703
shares of Class A Nonvoting Common Stock, $0.01 par value per share and
1,495,490 shares of Class B Voting Common Stock, $0.01 par value per share
outstanding.
READING
INTERNATIONAL, INC. AND
SUBSIDIARIES
TABLE
OF CONTENTS
Page
Item
1 – Financial Statements
Reading
International, Inc. and Subsidiaries
Consolidated
Balance Sheets (Unaudited)
(U.S.
dollars in thousands)
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
27,148
|
|
|
$ |
11,008
|
|
Receivables
|
|
|
4,484
|
|
|
|
6,612
|
|
Inventory
|
|
|
531
|
|
|
|
606
|
|
Investment
in marketable securities
|
|
|
4,575
|
|
|
|
8,436
|
|
Restricted
cash
|
|
|
243
|
|
|
|
1,040
|
|
Prepaid
and other current assets
|
|
|
2,074
|
|
|
|
2,589
|
|
Total
current
assets
|
|
|
39,055
|
|
|
|
30,291
|
|
Land
held for sale
|
|
|
1,955
|
|
|
|
--
|
|
Property
held for development
|
|
|
10,951
|
|
|
|
1,598
|
|
Property
under development
|
|
|
64,267
|
|
|
|
38,876
|
|
Property
& equipment, net
|
|
|
180,330
|
|
|
|
170,667
|
|
Investment
in unconsolidated joint ventures and entities
|
|
|
15,670
|
|
|
|
19,067
|
|
Investment
in Reading International Trust I
|
|
|
1,547
|
|
|
|
--
|
|
Goodwill
|
|
|
19,006
|
|
|
|
17,919
|
|
Intangible
assets, net
|
|
|
7,903
|
|
|
|
7,954
|
|
Other
assets
|
|
|
6,125
|
|
|
|
2,859
|
|
Total
assets
|
|
$ |
346,809
|
|
|
$ |
289,231
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
11,542
|
|
|
$ |
13,539
|
|
Film
rent payable
|
|
|
3,504
|
|
|
|
4,642
|
|
Notes
payable – current portion
|
|
|
2,081
|
|
|
|
2,237
|
|
Note
payable to related party – current portion
|
|
|
5,000
|
|
|
|
5,000
|
|
Current
tax liabilities
|
|
|
4,401
|
|
|
|
9,128
|
|
Deferred
current revenue
|
|
|
2,144
|
|
|
|
2,565
|
|
Other
current liabilities
|
|
|
239
|
|
|
|
177
|
|
Total
current
liabilities
|
|
|
28,911
|
|
|
|
37,288
|
|
Notes
payable – long-term portion
|
|
|
110,508
|
|
|
|
113,975
|
|
Note
payable to related parties
|
|
|
9,000
|
|
|
|
9,000
|
|
Subordinated
debt
|
|
|
51,547
|
|
|
|
--
|
|
Noncurrent
tax liabilities
|
|
|
5,082
|
|
|
|
--
|
|
Deferred
non-current revenue
|
|
|
589
|
|
|
|
528
|
|
Other
liabilities
|
|
|
15,249
|
|
|
|
18,178
|
|
Total
liabilities
|
|
|
220,886
|
|
|
|
178,969
|
|
Commitments
and contingencies
|
|
|
--
|
|
|
|
--
|
|
Minority
interest in consolidated affiliates
|
|
|
2,453
|
|
|
|
2,603
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Class
A Nonvoting Common Stock, par value $0.01, 100,000,000 shares authorized,
35,575,927 issued and 20,998,703 outstanding
at
September 30, 2007 and 35,558,089 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 September 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
|
|
|
131,711
|
|
|
|
128,399
|
|
Accumulated
deficit
|
|
|
(48,709 |
) |
|
|
(50,058 |
) |
Treasury
shares
|
|
|
(4,306 |
) |
|
|
(4,306 |
) |
Accumulated
other comprehensive income
|
|
|
44,543
|
|
|
|
33,393
|
|
Total
stockholders’ equity
|
|
|
123,470
|
|
|
|
107,659
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
346,809
|
|
|
$ |
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
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
$ |
29,110
|
|
|
$ |
21,806
|
|
|
$ |
79,651
|
|
|
$ |
68,269
|
|
Real
estate
|
|
|
3,449
|
|
|
|
2,512
|
|
|
|
11,023
|
|
|
|
8,528
|
|
|
|
|
32,559
|
|
|
|
24,318
|
|
|
|
90,674
|
|
|
|
76,797
|
|
Operating
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
|
20,983
|
|
|
|
16,088
|
|
|
|
59,033
|
|
|
|
51,732
|
|
Real
estate
|
|
|
2,280
|
|
|
|
2,161
|
|
|
|
6,145
|
|
|
|
5,628
|
|
Depreciation
and amortization
|
|
|
2,917
|
|
|
|
3,385
|
|
|
|
8,933
|
|
|
|
9,963
|
|
General
and administrative
|
|
|
3,870
|
|
|
|
3,047
|
|
|
|
11,425
|
|
|
|
9,489
|
|
|
|
|
30,050
|
|
|
|
24,681
|
|
|
|
85,536
|
|
|
|
76,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
2,509
|
|
|
|
(363 |
) |
|
|
5,138
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
329
|
|
|
|
70
|
|
|
|
558
|
|
|
|
157
|
|
Interest
expense
|
|
|
(2,596 |
) |
|
|
(1,835 |
) |
|
|
(6,526 |
) |
|
|
(5,217 |
) |
Net
loss on sale of assets
|
|
|
--
|
|
|
|
--
|
|
|
|
(185 |
) |
|
|
(8 |
) |
Other
income (expense)
|
|
|
707
|
|
|
|
209
|
|
|
|
435
|
|
|
|
(937 |
) |
Income
(loss) before minority interest expense, income tax expense, and
equity
earnings of unconsolidated joint ventures and
entities
|
|
|
949
|
|
|
|
(1,919 |
) |
|
|
(580 |
) |
|
|
(6,020 |
) |
Minority
interest expense
|
|
|
(162 |
) |
|
|
(153 |
) |
|
|
(657 |
) |
|
|
(425 |
) |
Income
(loss) from continuing operations
|
|
|
787
|
|
|
|
(2,072 |
) |
|
|
(1,237 |
) |
|
|
(6,445 |
) |
Gain
on sale of a discontinued operation
|
|
|
--
|
|
|
|
--
|
|
|
|
1,912
|
|
|
|
--
|
|
Income
(loss) before income tax expense and equity earnings of unconsolidated
joint ventures and entities
|
|
|
787
|
|
|
|
(2,072 |
) |
|
|
675
|
|
|
|
(6,445 |
) |
Income
tax expense
|
|
|
(501 |
) |
|
|
(540 |
) |
|
|
(1,443 |
) |
|
|
(1,222 |
) |
Income
(loss) before equity earnings of unconsolidated joint ventures and
entities
|
|
|
286
|
|
|
|
(2,612 |
) |
|
|
(768 |
) |
|
|
(7,667 |
) |
Equity
earnings of unconsolidated joint ventures and entities
|
|
|
584
|
|
|
|
5,263
|
|
|
|
2,626
|
|
|
|
6,937
|
|
Gain
on sale of unconsolidated joint venture
|
|
|
--
|
|
|
|
3,442
|
|
|
|
--
|
|
|
|
3,442
|
|
Net
income
|
|
$ |
870
|
|
|
$ |
6,093
|
|
|
$ |
1,858
|
|
|
$ |
2,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
operations
|
|
$ |
0.04
|
|
|
$ |
0.27
|
|
|
$ |
(0.01 |
) |
|
$ |
0.12
|
|
Earnings
from discontinued
operations
|
|
|
--
|
|
|
|
--
|
|
|
|
0.09
|
|
|
|
--
|
|
Basic
earnings per share
|
|
$ |
0.04
|
|
|
$ |
0.27
|
|
|
$ |
0.08
|
|
|
$ |
0.12
|
|
Weighted
average number of shares outstanding – basic
|
|
|
22,487,943
|
|
|
|
22,413,995
|
|
|
|
22,486,395
|
|
|
|
22,425,941
|
|
Diluted
earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
operations
|
|
$ |
0.04
|
|
|
$ |
0.27
|
|
|
$ |
(0.01 |
) |
|
$ |
0.12
|
|
Earnings
from discontinued
operations
|
|
|
--
|
|
|
|
--
|
|
|
|
0.09
|
|
|
|
--
|
|
Diluted
earnings per share
|
|
$ |
0.04
|
|
|
$ |
0.27
|
|
|
$ |
0.08
|
|
|
$ |
0.12
|
|
Weighted
average number of shares outstanding – diluted
|
|
|
22,761,270
|
|
|
|
22,616,560
|
|
|
|
22,486,395
|
|
|
|
22,628,505
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statements of Cash Flows (Unaudited)
(U.S.
dollars in thousands)
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,858
|
|
|
$ |
2,712
|
|
Adjustments
to reconcile net
income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
(Gain)
loss recognized on foreign
currency transactions
|
|
|
(132 |
) |
|
|
22
|
|
Equity
earnings of unconsolidated
joint ventures and entities
|
|
|
(2,626 |
) |
|
|
(6,937 |
) |
Distributions
of earnings from
unconsolidated joint ventures and entities
|
|
|
4,693
|
|
|
|
481
|
|
Gain
on sale of marketable
securities
|
|
|
(773 |
) |
|
|
--
|
|
Gain
on sale of a discontinued
operation
|
|
|
(1,912 |
) |
|
|
--
|
|
Gain
on sale of an unconsolidated
entity
|
|
|
--
|
|
|
|
(3,442 |
) |
Loss
on disposal of
assets
|
|
|
185
|
|
|
|
8
|
|
Loss
on extinguishment of
debt
|
|
|
98
|
|
|
|
--
|
|
Depreciation
and
amortization
|
|
|
8,933
|
|
|
|
9,963
|
|
Stock
based compensation
expense
|
|
|
775
|
|
|
|
70
|
|
Minority
interest
expense
|
|
|
657
|
|
|
|
425
|
|
Changes
in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Decrease
in
receivables
|
|
|
2,510
|
|
|
|
1,442
|
|
Decrease
(increase) in prepaid
and other assets
|
|
|
(34 |
) |
|
|
(629 |
) |
Decrease
in accounts payable and
accrued expenses
|
|
|
(846 |
) |
|
|
(1,281 |
) |
Decrease
in film rent
payable
|
|
|
(1,428 |
) |
|
|
(1,257 |
) |
Increase
in deferred revenues and
other liabilities
|
|
|
1,576
|
|
|
|
858
|
|
Net
cash provided by operating activities
|
|
|
13,534
|
|
|
|
2,435
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from sale of an unconsolidated joint venture
|
|
|
--
|
|
|
|
4,573
|
|
Acquisitions
|
|
|
(20,631 |
) |
|
|
(8,087 |
) |
Purchase
of property and equipment
|
|
|
(1,121 |
) |
|
|
(4,131 |
) |
Additions
to property under development
|
|
|
(16,227 |
) |
|
|
(2,228 |
) |
Change
in restricted cash
|
|
|
796
|
|
|
|
(106 |
) |
Investment
in Reading International Trust I
|
|
|
(1,547 |
) |
|
|
--
|
|
Distributions
of investment in unconsolidated joint ventures and
entities
|
|
|
2,186
|
|
|
|
--
|
|
Investments
in unconsolidated joint ventures and entities
|
|
|
--
|
|
|
|
(2,676 |
) |
Purchase
of marketable securities
|
|
|
(15,548 |
) |
|
|
(215 |
) |
Sale
of marketable securities
|
|
|
19,900
|
|
|
|
--
|
|
Net
cash used in investing activities
|
|
|
(32,192 |
) |
|
|
(12,870 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Repayment
of long-term borrowings
|
|
|
(55,813 |
) |
|
|
(2,957 |
) |
Proceeds
from borrowings
|
|
|
96,098
|
|
|
|
11,797
|
|
Capitalized
borrowing costs
|
|
|
(2,334 |
) |
|
|
--
|
|
Option
deposit received
|
|
|
--
|
|
|
|
3,000
|
|
Proceeds
from exercise of stock options
|
|
|
25
|
|
|
|
87
|
|
Repurchase
of Class A Nonvoting Common Stock
|
|
|
--
|
|
|
|
(792 |
) |
Minority
interest distributions
|
|
|
(3,856 |
) |
|
|
(1,496 |
) |
Net
cash provided by financing activities
|
|
|
34,120
|
|
|
|
9,639
|
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
|
678
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
16,140
|
|
|
|
(498 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
11,008
|
|
|
|
8,548
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
27,148
|
|
|
$ |
8,050
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
8,625
|
|
|
$ |
6,402
|
|
Income
taxes paid
|
|
$ |
252
|
|
|
$ |
369
|
|
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 |
) |
|
$ |
1,087
|
|
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 Nine Months Ended September 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 September 30, 2007 (the
“September Report”), including the information under the heading, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, should
be read in conjunction with our 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 nine months ended September 30,
2007 have been made. The results of operations for the three months
and nine months ended September 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 $4.6 million at September 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 September
30, 2007. These investments have a cumulative unrealized loss of
$790,000 included in accumulated other comprehensive income at September 30,
2007. For the three months ended September 30, 2007, our net
unrealized loss on marketable securities was $880,000 and for the nine months
ended September 30, 2007 our net unrealized gain on marketable securities was
$82,000. During the three and nine months ended September 30, 2007,
we sold $13.4 million and $19.1 million, respectively of our marketable
securities resulting in realized gain on sale of $549,000 and $773,000,
respectively.
Adjustments
Subsequent
to the issuance of our September 30, 2006 consolidated financial statements,
we
determined that we had overstated our real estate revenue and cinema operating
expense by $724,000 and $2.1 million for the three and nine months ended
September 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 nine
months ended September 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 September 30, 2006
|
|
|
Nine
months ended September 30, 2006
|
|
|
|
Real
Estate Revenue
|
|
|
Cinema
Expense
|
|
|
Real
Estate Revenue
|
|
|
Cinema
Expense
|
|
As
originally reported
|
|
$ |
3,236
|
|
|
$ |
16,812
|
|
|
$ |
10,672
|
|
|
$ |
53,876
|
|
Intercompany
eliminations
|
|
|
(724 |
) |
|
|
(724 |
) |
|
|
(2,144 |
) |
|
|
(2,144 |
) |
As
adjusted
|
|
$ |
2,512
|
|
|
$ |
16,088
|
|
|
$ |
8,528
|
|
|
$ |
51,732
|
|
This
adjustment had no impact on our
operating income, on our losses from continuing operations, or on our net loss
for the three and nine months ended September 30, 2006. These
adjustments were not material to the presentation of our consolidated financial
statements for the three and nine months ended September 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.
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.
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. When adopted and if we elect to measure at fair
value, 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.
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 nine
months ended September 30, 2007, we recorded compensation expense of $59,000
and
$178,000, respectively, for the vesting of all our restricted stock
grants. The following table details the grants 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
– September 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. LPP acquired another property during the third quarter of
2007 for which we estimate Mr. Osborne’s interest for book purposes to be
$158,000 (see Note 17 – Acquisitions, Dispositions, and Assets Held for
Sale). During the three and nine months ended September 30, 2007, we
expensed $59,000 and $155,000, respectively, associated with Mr. Osborne’s
interests. At September 30, 2007, the total unrecognized compensation
expense related to the LPP equity awards was $244,000, which is expected to
be
recognized over the remaining weighted average period of approximately 36
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 and nine months ended September 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 301,250 of options during the nine months ended September 30,
2007. No options were granted during the three months ended September
30, 2007. Of the granted options, 70,000 were granted to our
directors as fully vested options during the nine months ended September 30,
2007. Also, there were 20,000 options granted to our employees during
the nine months ended September 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
- 45.47%
|
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 $177,000 and $597,000 in compensation expense
for the total estimated grant date fair value of stock options that vested
during the three and nine months ended September 30, 2007,
respectively. We also recorded $25,000 and $70,000 in compensation
expense for the total estimated grant date fair value of stock options that
vested during the three and nine months ended September 30, 2006,
respectively. At September 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 1.36 years. We recorded cash received from stock options
exercised of $25,000 for the three and nine months ended September 30, 2007
and
$87,000 for the nine months ended September 30, 2006. The total
realized value of these exercised stock options for the three and nine months
ended September 30, 2007 was $37,000 and $131,000 for the nine months ended
September 30, 2006. No options were exercised during the three months
ended September 30, 2006; therefore, no cash was received from the exercising
of
stock options and no value was realized from the exercise of options during
that
period. Except for the 70,000 fully vested options granted to our
directors during the first quarter, 1,875 and 6,875 options vested during the
three and nine months ended September 30, 2007; therefore, the grant date fair
value of options vesting during the three and nine months ended September 30,
2007 was $15,000 and $55,000, respectively. The intrinsic, unrealized
value of all options outstanding, vested and expected to vest, at September
30,
2007 was $2.5 million of which 98.7% 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 1,287,150. At the time that options are
exercised, at the discretion of management, we will either issue treasury shares
or make a new issuance of shares to the employee or board
member. Dependent on the grant letter to the employee or board
member, the required service period for option vesting is between zero and
four
years.
We
had
the following stock options outstanding and exercisable as of September 30,
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,250 |
) |
|
|
--
|
|
|
$ |
4.01
|
|
|
$ |
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(81,250 |
) |
|
|
(150,000 |
) |
|
$ |
10.25
|
|
|
$ |
10.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding-September
30, 2007
|
|
|
577,850
|
|
|
|
185,100
|
|
|
$ |
5.60
|
|
|
$ |
9.90
|
|
|
|
477,850
|
|
|
|
35,100
|
|
|
$ |
4.72
|
|
|
$ |
8.47
|
|
The
weighted average remaining contractual life of all options outstanding, vested
and expected to vest, at September 30, 2007 and December 31, 2006 was
approximately 6.47 and 3.60 years, respectively. The weighted average
remaining contractual life of the exercisable options outstanding at September
30, 2007 and December 31, 2006 was approximately 4.99 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 nine months ending
September 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 nine (“2007 Nine Months”)
months ended September 30, 2007 and the three (“2006 Quarter”) and nine (“2006
Nine Months”) months ended September 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 “Gain on sale of a discontinued operation” (dollars in
thousands):
Three
months ended September 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
29,110
|
|
|
$ |
5,521
|
|
|
$ |
(2,072 |
) |
|
$ |
32,559
|
|
Operating
expense
|
|
|
23,055
|
|
|
|
2,280
|
|
|
|
(2,072 |
) |
|
|
23,263
|
|
Depreciation
& amortization
|
|
|
1,650
|
|
|
|
1,127
|
|
|
|
--
|
|
|
|
2,777
|
|
General
& administrative expense
|
|
|
792
|
|
|
|
108
|
|
|
|
--
|
|
|
|
900
|
|
Segment
operating income
|
|
$ |
3,613
|
|
|
$ |
2,006
|
|
|
$ |
--
|
|
|
$ |
5,619
|
|
Three
months ended September 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue1
|
|
$ |
21,806
|
|
|
$ |
3,771
|
|
|
$ |
(1,259 |
) |
|
$ |
24,318
|
|
Operating
expense1
|
|
|
17,347
|
|
|
|
2,161
|
|
|
|
(1,259 |
) |
|
|
18,249
|
|
Depreciation
& amortization
|
|
|
2,245
|
|
|
|
989
|
|
|
|
--
|
|
|
|
3,234
|
|
General
& administrative expense
|
|
|
901
|
|
|
|
154
|
|
|
|
--
|
|
|
|
1,055
|
|
Segment
operating income
|
|
$ |
1,313
|
|
|
$ |
467
|
|
|
$ |
--
|
|
|
$ |
1,780
|
|
Reconciliation
to consolidated net income:
|
|
2007
Quarter
|
|
|
2006
Quarter
|
|
Total
segment operating income
|
|
$ |
5,619
|
|
|
$ |
1,780
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
140
|
|
|
|
151
|
|
General
and administrative
expense
|
|
|
2,970
|
|
|
|
1,992
|
|
Operating
income (loss)
|
|
|
2,509
|
|
|
|
(363 |
) |
Interest
expense,
net
|
|
|
(2,267 |
) |
|
|
(1,765 |
) |
Other
income
|
|
|
707
|
|
|
|
209
|
|
Minority
interest
expense
|
|
|
(162 |
) |
|
|
(153 |
) |
Income
tax
expense
|
|
|
(501 |
) |
|
|
(540 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
584
|
|
|
|
5,263
|
|
Gain
on sale of unconsolidated
entity
|
|
|
--
|
|
|
|
3,442
|
|
Net
income
|
|
$ |
870
|
|
|
$ |
6,093
|
|
1
For the three
months ended September 30, 2006, the real estate revenues and cinema operating
expenses have been adjusted from the amounts previously reported. See
Note 1 – Basis of Presentation.
Nine
months ended September 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
79,651
|
|
|
$ |
15,926
|
|
|
$ |
(4,903 |
) |
|
$ |
90,674
|
|
Operating
expense
|
|
|
63,936
|
|
|
|
6,145
|
|
|
|
(4,903 |
) |
|
|
65,178
|
|
Depreciation
& amortization
|
|
|
5,242
|
|
|
|
3,273
|
|
|
|
--
|
|
|
|
8,515
|
|
General
& administrative expense
|
|
|
2,317
|
|
|
|
566
|
|
|
|
--
|
|
|
|
2,883
|
|
Segment
operating income
|
|
$ |
8,156
|
|
|
$ |
5,942
|
|
|
$ |
--
|
|
|
$ |
14,098
|
|
Nine
months ended September 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue2
|
|
$ |
68,269
|
|
|
$ |
12,437
|
|
|
$ |
(3,909 |
) |
|
$ |
76,797
|
|
Operating
expense2
|
|
|
55,641
|
|
|
|
5,628
|
|
|
|
(3,909 |
) |
|
|
57,360
|
|
Depreciation
& amortization
|
|
|
6,600
|
|
|
|
3,009
|
|
|
|
--
|
|
|
|
9,609
|
|
General
& administrative expense
|
|
|
2,801
|
|
|
|
567
|
|
|
|
--
|
|
|
|
3,368
|
|
Segment
operating income
|
|
$ |
3,227
|
|
|
$ |
3,233
|
|
|
$ |
--
|
|
|
$ |
6,460
|
|
Reconciliation
to consolidated net income:
|
|
2007
Nine Months
|
|
|
2006
Nine Months
|
|
Total
segment operating income
|
|
$ |
14,098
|
|
|
$ |
6,460
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
418
|
|
|
|
354
|
|
General
and administrative
expense
|
|
|
8,542
|
|
|
|
6,121
|
|
Operating
income (loss)
|
|
|
5,138
|
|
|
|
(15 |
) |
Interest
expense,
net
|
|
|
(5,968 |
) |
|
|
(5,060 |
) |
Other
income
(expense)
|
|
|
250
|
|
|
|
(945 |
) |
Minority
interest
expense
|
|
|
(657 |
) |
|
|
(425 |
) |
Gain
on sale of a discontinued
operation
|
|
|
1,912
|
|
|
|
--
|
|
Income
tax
expense
|
|
|
(1,443 |
) |
|
|
(1,222 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
2,626
|
|
|
|
6,937
|
|
Gain
on sale of unconsolidated
entity
|
|
|
--
|
|
|
|
3,442
|
|
Net
income
|
|
$ |
1,858
|
|
|
$ |
2,712
|
|
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.
2
For the nine months
ended September 30, 2006, the real estate revenues and cinema operating expenses
have been adjusted from the amounts previously reported. See Note 1 –
Basis of Presentation.
Presented
in the table below are the currency exchange rates for Australia and New Zealand
as of September 30, 2007 and December 31, 2006:
|
|
US
Dollar
|
|
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
Australian
Dollar
|
|
$ |
0.8855
|
|
|
$ |
0.7884
|
|
New
Zealand Dollar
|
|
$ |
0.7568
|
|
|
$ |
0.7046
|
|
Note
5 – Earnings Per Share
Basic
earnings per share is computed by
dividing the net income to common stockholders by the weighted average number
of
common shares outstanding during the period. Diluted earnings per
share is computed by dividing the net income to common stockholders by the
weighted average number of common shares outstanding during the period after
giving effect to all potentially dilutive common shares that would have been
outstanding if the dilutive common shares had been issued. Stock
options give rise to potentially dilutive common shares. In
accordance with SFAS No. 128, “Earnings Per
Share,” these shares are included in the dilutive earnings
per share calculation under the treasury stock method. The following
is a calculation of earnings per share (dollars in thousands, except share
data):
|
|
Three
Months Ending
September
30,
|
|
|
Nine
Months Ending
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Income
(loss) from continuing operations
|
|
$ |
870
|
|
|
$ |
6,093
|
|
|
$ |
(54 |
) |
|
$ |
2,712
|
|
Income
from discontinued operations
|
|
|
--
|
|
|
|
--
|
|
|
|
1,912
|
|
|
|
--
|
|
Net
income
|
|
$ |
870
|
|
|
$ |
6,093
|
|
|
$ |
1,858
|
|
|
$ |
2,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock - basic
|
|
|
22,487,943
|
|
|
|
22,413,995
|
|
|
|
22,486,395
|
|
|
|
22,425,941
|
|
Weighted
average shares of common stock - dilutive
|
|
|
22,761,270
|
|
|
|
22,616,560
|
|
|
|
22,486,395
|
|
|
|
22,628,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing
operations – basic and diluted
|
|
$ |
0.04
|
|
|
$ |
0.27
|
|
|
$ |
(0.01 |
) |
|
$ |
0.12
|
|
Earnings
from discontinued
operations – basic and diluted
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
0.09
|
|
|
$ |
--
|
|
Earnings
per share –
basic and diluted
|
|
$ |
0.04
|
|
|
$ |
0.27
|
|
|
$ |
0.08
|
|
|
$ |
0.12
|
|
For
the nine months ended September 30,
2007, we recorded losses from continuing operations. As such, the
incremental shares of 273,327 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 Held for Development, Property Under Development and Property and
Equipment
Our
property held for development
increased by $9.3 million during the nine months ended September 30, 2007 due
to
the acquisition of a 64.0 acre parcel of undeveloped agricultural real estate
which we purchased for approximately $9.3 million (NZ$12.1 million) through
a
Landplan Property Partners property trust (see Note 17 – Acquisitions,
Dispositions, and Assets Held for Sale).
As
of
September 30, 2007 and December 31, 2006, we owned property under development
summarized as follows (dollars in thousands):
Property
Under Development
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
Land
|
|
$ |
37,206
|
|
|
$ |
30,296
|
|
Construction-in-progress
(including capitalized interest)
|
|
|
27,061
|
|
|
|
8,580
|
|
Property
Under Development
|
|
$ |
64,267
|
|
|
$ |
38,876
|
|
We
recorded capitalized interest
related to our properties under development for the three months ended September
30, 2007 and 2006 of $1.1 million and $449,000, respectively, and $3.1 million
and $1.2 million for nine months ended September 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 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 September 30, 2007, we estimate that the
total site preparation costs associated with the removal of this contaminated
soil will be $7.9 million (AUS$8.9 million) and as of that date we had incurred
a total of $7.1 million (AUS$8.0 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
September 30, 2007 and December 31, 2006, we owned investments in property
and
equipment as follows (dollars in thousands):
Property
and equipment
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
Land
|
|
$ |
58,558
|
|
|
$ |
56,830
|
|
Building
|
|
|
113,737
|
|
|
|
99,285
|
|
Leasehold
interest
|
|
|
11,755
|
|
|
|
11,138
|
|
Construction-in-progress
|
|
|
581
|
|
|
|
425
|
|
Fixtures
and equipment
|
|
|
64,875
|
|
|
|
58,164
|
|
|
|
|
249,506
|
|
|
|
225,842
|
|
Less
accumulated depreciation
|
|
|
(69,176 |
) |
|
|
(55,175 |
) |
Property
and equipment, net
|
|
$ |
180,330
|
|
|
$ |
170,667
|
|
Depreciation
expense for property and
equipment was $2.9 million and $3.2 million for the three months ended September
30, 2007 and 2006, respectively, and $8.3 million and $9.3 million for the
nine
months ended September 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 September 30, 2007 and
December 31, 2006, include the following (dollars in thousands):
|
|
Interest
|
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
Malulani
Investments Limited
|
|
|
18.4 |
% |
|
$ |
1,800
|
|
|
$ |
1,800
|
|
Rialto
Distribution
|
|
|
33.3 |
% |
|
|
934
|
|
|
|
782
|
|
Rialto
Cinemas
|
|
|
50.0 |
% |
|
|
5,795
|
|
|
|
5,608
|
|
205-209
East 57th
Street Associates, LLC
|
|
|
25.0 |
% |
|
|
1,280
|
|
|
|
5,557
|
|
Mt.
Gravatt Cinema
|
|
|
33.3 |
% |
|
|
5,112
|
|
|
|
4,713
|
|
Berkeley
Cinemas – Botany
|
|
|
50.0 |
% |
|
|
749
|
|
|
|
607
|
|
Total
|
|
|
|
|
|
$ |
15,670
|
|
|
$ |
19,067
|
|
For
the
three months and nine months ended September 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
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Malulani
Investments Limited
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
Rialto
Distribution
|
|
|
3
|
|
|
|
(31 |
) |
|
|
91
|
|
|
|
(53 |
) |
Rialto
Cinemas
|
|
|
74
|
|
|
|
(123 |
) |
|
|
54
|
|
|
|
(123 |
) |
205-209
East 57th
Street Associates, LLC
|
|
|
201
|
|
|
|
5,027
|
|
|
|
1,550
|
|
|
|
5,946
|
|
Mt.
Gravatt Cinema
|
|
|
184
|
|
|
|
194
|
|
|
|
610
|
|
|
|
473
|
|
Berkeley
Cinemas – Group & Palms
|
|
|
--
|
|
|
|
45
|
|
|
|
--
|
|
|
|
322
|
|
Berkeley
Cinema – Botany
|
|
|
122
|
|
|
|
151
|
|
|
|
321
|
|
|
|
372
|
|
|
|
$ |
584
|
|
|
$ |
5,263
|
|
|
$ |
2,626
|
|
|
$ |
6,937
|
|
Malulani
Investments Limited
We
continue to treat this investment on
a cost basis by recognizing earnings as they are distributed to
us. We are currently in litigation with certain controlling
shareholders of Malulani Investments Limited. We have contractually
agreed to share these litigation costs with another minority
shareholder. The outstanding balance for their obligation is included
in our other assets as a receivable.
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 nine months ending September 30, 2007, the partnership closed on
the
sale of one and eight of its remaining residential condominiums resulting in
gross sales of $3.4 million and $26.0 million, respectively, which resulted
in
equity earnings from unconsolidated joint ventures and entities to us of
$201,000 and $1.6 million, respectively. All of the residential
condominiums have been sold and only the retail condominium is still available
for sale. The condensed statement of operations for 205-209 East 57th
Street Associates, LLC (Unaudited) is as follows:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
revenue
|
|
$ |
3,431
|
|
|
$ |
71,178
|
|
|
$ |
26,028
|
|
|
$ |
86,998
|
|
Operating
expense
|
|
|
2,627
|
|
|
|
51,068
|
|
|
|
19,828
|
|
|
|
63,214
|
|
Net
income
|
|
$ |
804
|
|
|
$ |
20,110
|
|
|
$ |
6,200
|
|
|
$ |
23,784
|
|
Note
8 – Goodwill and Intangible Assets
Subsequent
to January 1, 2002, in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we
do not amortize goodwill. Instead, we perform an annual impairment
review of our goodwill and other intangible assets in the fourth quarter unless
changes in circumstances indicate that an asset may be impaired. As
of September 30, 2007 and December 31, 2006, we had goodwill consisting of
the
following (dollars in thousands):
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Total
|
|
Balance
as of December 31, 2006
|
|
$ |
12,713
|
|
|
$ |
5,206
|
|
|
$ |
17,919
|
|
Foreign
currency translation adjustment
|
|
|
1,031
|
|
|
|
56
|
|
|
|
1,087
|
|
Balance
at September 30, 2007
|
|
$ |
13,744
|
|
|
$ |
5,262
|
|
|
$ |
19,006
|
|
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 and nine
months ended September 30, 2007, amortization expense totaled $139,000 and
$614,000, respectively; and for the three and nine months ended September 30,
2006, amortization expense totaled $223,000 and $638,000,
respectively.
Intangible
assets subject to amortization consist of the following (dollars in
thousands):
As
of September 30, 2007
|
|
Beneficial
Leases
|
|
|
Option
Fee
|
|
|
Other
Intangible Assets
|
|
|
Total
|
|
Gross
carrying amount
|
|
$ |
11,531
|
|
|
$ |
2,773
|
|
|
$ |
235
|
|
|
$ |
14,539
|
|
Less:
Accumulated amortization
|
|
|
4,115
|
|
|
|
2,497
|
|
|
|
24
|
|
|
|
6,636
|
|
Total,
net
|
|
$ |
7,416
|
|
|
$ |
276
|
|
|
$ |
211
|
|
|
$ |
7,903
|
|
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):
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
Prepaid
and other current assets
|
|
|
|
|
|
|
Prepaid
expenses
|
|
$ |
669
|
|
|
$ |
1,214
|
|
Prepaid
taxes
|
|
|
536
|
|
|
|
552
|
|
Deposits
|
|
|
102
|
|
|
|
534
|
|
Other
receivables
|
|
|
100
|
|
|
|
--
|
|
Other
|
|
|
667
|
|
|
|
289
|
|
Total
prepaid and other current
assets
|
|
$ |
2,074
|
|
|
$ |
2,589
|
|
|
|
|
|
|
|
|
|
|
Other
non-current assets
|
|
|
|
|
|
|
|
|
Other
non-cinema and non-rental real estate assets
|
|
$ |
1,270
|
|
|
$ |
1,270
|
|
Deferred
financing costs, net
|
|
|
2,845
|
|
|
|
898
|
|
Interest
rate swaps
|
|
|
392
|
|
|
|
206
|
|
Other
receivables
|
|
|
854
|
|
|
|
--
|
|
Other
|
|
|
764
|
|
|
|
485
|
|
Total
non-current
assets
|
|
$ |
6,125
|
|
|
$ |
2,859
|
|
Note
10 – Income Tax
The
income tax provision for the three
months and nine months ended September 30, 2007 and 2006 was composed of the
following amounts (dollars in thousands):
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Foreign
income tax provision
|
|
$ |
122
|
|
|
$ |
76
|
|
|
$ |
282
|
|
|
$ |
135
|
|
Foreign
withholding tax
|
|
|
168
|
|
|
|
138
|
|
|
|
480
|
|
|
|
411
|
|
Federal
income tax provision
|
|
|
128
|
|
|
|
235
|
|
|
|
383
|
|
|
|
490
|
|
Other
income tax
|
|
|
83
|
|
|
|
91
|
|
|
|
298
|
|
|
|
186
|
|
Net
tax provision
|
|
$ |
501
|
|
|
$ |
540
|
|
|
$ |
1,443
|
|
|
$ |
1,222
|
|
The
incremental effects of applying FIN 48 on line items in the accompanying
consolidated balance sheet at January 1, 2007 were 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 $1.0 million during the period January 1, 2007
to
September 30, 2007, and the total balance at September 30, 2007 was
approximately $13.5 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 $400,000 of additional interest and
penalties were accrued for the period January 1, 2007 to September 30, 2007,
mostly related to the IRS litigation matter.
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 September 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
|
September
30, 2007
|
December
31, 2006
|
Maturity
Date
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
Australian
Corporate Credit Facility
|
7.54%
|
7.33%
|
January
1, 2009
|
|
$ |
84,995
|
|
|
$ |
70,516
|
|
Australian
Shopping Center Loans
|
--
|
--
|
2007-2013
|
|
|
1,075
|
|
|
|
1,147
|
|
Euro-Hypo
Loan
|
6.73%
|
--
|
July
1, 2012
|
|
|
15,000
|
|
|
|
--
|
|
New
Zealand Corporate Credit Facility
|
10.00%
|
9.15%
|
November
23, 2010
|
|
|
2,452
|
|
|
|
35,230
|
|
Trust
Preferred Securities
|
9.22%
|
--
|
April
30, 2027
|
|
|
51,547
|
|
|
|
--
|
|
US
Sutton Hill Capital Note 1 – Related Party
|
9.91%
|
9.69%
|
January
28, 2008
|
|
|
5,000
|
|
|
|
5,000
|
|
US
Royal George Theatre Term Loan
|
7.66%
|
7.86%
|
November
29, 2007
|
|
|
1,694
|
|
|
|
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
|
|
|
7,373
|
|
|
|
7,500
|
|
Total
|
|
|
|
|
$ |
178,136
|
|
|
$ |
130,212
|
|
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 Mr. Michael
Foreman. Under the terms of the credit agreement, this loan bears a
fixed interest rate of 6.73% per annum payable monthly. The loan
matures on July 1, 2012. No principal payments are due until
maturity. SHP distributed the proceeds of the loan to Reading and to
SHC in the amount of $10.6 million and $3.5 million,
respectively. Because, the cash flows from SHP are currently
insufficient, Reading and Sutton Hill Capital, LLC, have agreed to contribute
the capital required to service the debt. Reading will be responsible
for 75% and SHC will be responsible for 25% of such capital
payments.
Australia
Corporate Credit Facility
During
the first nine 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 $11.9 million (AUS$14.0 million) during 2007. In October 2007,
we negotiated an increase of our total Australia Corporate Credit Facility
from
$88.6 million (AUS$100.0 million) to $97.4 million (AUS$110.0 million) (see
Note
19 – Subsequent Events).
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 September 30, 2007 was 10.00%.
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 and on July 29, 2007 we drew down an additional $9.4
million (NZ$12.2 million) to purchase the Manukau property in New Zealand (see
Note 17 – Acquisitions and Dispositions). On August 2, 2007,
we paid down this facility by $12.0 million (NZ$15.7 million) from the proceeds
of the sale of certain marketable securities.
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 nine months ended September 30, 2007, we paid $1.1 million and
$2.2 million, respectively, in preferred dividends to the unrelated
investors. At September 30, 2007, we had preferred dividends payable
of $768,000.
Note
12 – Other Liabilities
Other
liabilities are summarized as follows (dollars in thousands):
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
Current
liabilities
|
|
|
|
|
|
|
Security
deposit
payable
|
|
$ |
237
|
|
|
$ |
177
|
|
Other
|
|
|
2
|
|
|
|
--
|
|
Other
current
liabilities
|
|
$ |
239
|
|
|
$ |
177
|
|
Other
liabilities
|
|
|
|
|
|
|
|
|
Foreign
withholding
taxes
|
|
$ |
5,413
|
|
|
$ |
5,212
|
|
Straight-line
rent
liability
|
|
|
3,782
|
|
|
|
3,693
|
|
Purchase
option
liability
|
|
|
--
|
|
|
|
3,681
|
|
Environmental
reserve
|
|
|
1,656
|
|
|
|
1,656
|
|
Executive
pension
plans
|
|
|
2,972
|
|
|
|
174
|
|
Option
deposit
|
|
|
--
|
|
|
|
3,000
|
|
Other
|
|
|
1,426
|
|
|
|
762
|
|
Other
liabilities
|
|
$ |
15,249
|
|
|
$ |
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 nine months ended September 30,
2007, we recognized $39,000 and $91,000, respectively, of interest cost and
$76,000 and $177,000, respectively, of amortized prior service
cost. The balance of the other liability for this pension plan was
$2.8 million at September 30, 2007 and the accumulated other comprehensive
income balance was $2.5 million at September 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, our Executive Vice
President, Director – Business Affairs, Chief Legal Officer and Corporate
Secretary, 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 nine months ended
September 30, 2007 by $950,000 which was expensed for the nine months ending
September 30, 2007. During 2006, the value of the option at September
30, 2006 increased to approximately $3.6 million, resulting in an expense for
the three and nine months ended September 30, 2006 of $100,000 and $1.5 million,
respectively.
On
June
28, 2007, SHC exercised this option, paying the option exercise price through
the application of their $3.0 million deposit plus the assumption of its
proportionate share of SHP’s liabilities giving it 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 $5.0 million and $4.8
million as of September 30, 2007 and December 31, 2006,
respectively. Our share of unconsolidated debt, based on our
ownership percentage, was $2.3 million and $2.2 million as of September 30,
2007
and December 31, 2006, respectively. This debt is without recourse to
Reading as of September 30, 2007 and December 31, 2006.
Litigation
On
October 31, 2007, The Malulani Group (“TMG”), the controlling shareholder and
principal unsecured creditor of MIL, filed an Amended Complaint in Intervention
against Magoon Acquisition & Development and us (the “Amended
Complaint”). TMG owns 70% of the voting stock of MIL and is
controlled by Easton Manson, one of the defendants in our existing
case. The Amended Complaint generally alleges that we are attempting
to force MIL to spin off its Guenoc Winery and Langtry Ranch subsidiaries
to us
or to greenmail MIL into an unreasonable buy-out of our interest in
MIL. The Amended Complaint seeks declaratory relief in opposition to
the injunctive relief sought by us in our existing lawsuit, recoupment of
costs
and other unspecified relief. No damages have been
alleged. We are of the view that TMG’s claims are without merit and
intend to continue to aggressively pursue our claims.
Other
than the above, 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; and
|
|
·
|
25%
minority interest in the Sutton Hill Properties, LLC owned by Sutton
Hill
Capital, LLC.
|
The
components of minority interest are as follows (dollars in
thousands):
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
AFC
|
|
$ |
1,972
|
|
|
$ |
2,264
|
|
Australian
Country Cinemas
|
|
|
191
|
|
|
|
174
|
|
Elsternwick
Unincorporated Joint Venture
|
|
|
173
|
|
|
|
151
|
|
Landplan
Property Partners Property Trusts (see below)
|
|
|
177
|
|
|
|
13
|
|
Sutton
Hill Properties (see below)
|
|
|
(61 |
) |
|
|
--
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
Minority
interest in consolidated
affiliates
|
|
$ |
2,453
|
|
|
$ |
2,603
|
|
|
|
Expense
for the
|
|
|
Expense
for the
|
|
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
AFC
LLC
|
|
$ |
130
|
|
|
$ |
168
|
|
|
$ |
458
|
|
|
$ |
425
|
|
Australian
Country Cinemas
|
|
|
18
|
|
|
|
(3 |
) |
|
|
71
|
|
|
|
--
|
|
Elsternwick
Unincorporated Joint Venture
|
|
|
16
|
|
|
|
(12 |
) |
|
|
34
|
|
|
|
--
|
|
Landplan
Property Partners Property Trusts
|
|
|
59
|
|
|
|
--
|
|
|
|
155
|
|
|
|
--
|
|
Sutton
Hill Properties
|
|
|
(61 |
) |
|
|
--
|
|
|
|
(61 |
) |
|
|
--
|
|
Minority
interest
expense
|
|
$ |
162
|
|
|
$ |
153
|
|
|
$ |
657
|
|
|
$ |
425
|
|
Landplan
Property Partners Property Trusts
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. LPP acquired another property during the third quarter of
2007 for which we estimate Mr. Osborne’s interest for book purposes to be
$158,000 (see Note 17 – Acquisitions, Dispositions, and Assets Held for
Sale). During the three and nine months ended September 30, 2007, we
expensed $59,000 and $155,000, respectively, associated with Mr. Osborne’s
interests. These individual trusts are referred to in this note as
the Landplan Property Partners Property Trusts.
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 its proportionate share
of
SHP’s liabilities giving them a 25% non-managing membership interest in
SHP. In July 2007, SHP distributed $3.5 million as an equal
distribution to SHC of which $3.0 million was deemed a minority interest
distribution and $525,000 was deemed an excess distribution of minority interest
which we recorded as an expense to Reading.
Note
15 – Common Stock
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.
During
the third quarter of 2007, we issued for cash to an employee of the corporation
under our employee stock option plan 6,250 shares of Class A Nonvoting Common
Stock at an exercise price of $4.01 per share.
Note
16 - Comprehensive Income
U.S.
GAAP requires that the effect of
foreign currency translation adjustments and unrealized gains and/or losses
on
securities that are available-for-sale (“AFS”) be classified as comprehensive
income. The following table sets forth our comprehensive income for
the periods indicated (dollars in thousands):
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
income
|
|
$ |
870
|
|
|
$ |
6,093
|
|
|
$ |
1,858
|
|
|
$ |
2,712
|
|
Foreign
currency translation gain
|
|
|
1,948
|
|
|
|
1,381
|
|
|
|
14,365
|
|
|
|
382
|
|
Accrued
pension
|
|
|
76
|
|
|
|
--
|
|
|
|
(2,524 |
) |
|
|
--
|
|
Realized
gain on AFS securities
|
|
|
(549 |
) |
|
|
--
|
|
|
|
(773 |
) |
|
|
--
|
|
Unrealized
gain (loss) on AFS securities
|
|
|
(880 |
) |
|
|
7
|
|
|
|
82
|
|
|
|
24
|
|
Comprehensive
income
|
|
$ |
1,465
|
|
|
$ |
7,481
|
|
|
$ |
13,008
|
|
|
$ |
3,118
|
|
Note
17 – Acquisitions, Dispositions, and Assets Held for Sale
New
Zealand Property Acquisitions
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
$9.3
million (NZ$12.1 million). We intend to rezone 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 occur
in
the near term.
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 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
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.
On
February 14, 2007, we acquired, through a Landplan Property Partners property
trust, a 1.0 acre parcel of commercial real estate for approximately $4.9
million (NZ$6.9 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. This land was determined to have a fair value of $1.8
million (NZ$2.6 million) at the time of purchase and is included on our balance
sheet as land held for sale. The remaining property and its cost
basis of $3.1 million (NZ$4.3 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 September 30, 2007:
Type
of Instrument
|
|
Notional
Amount
|
|
|
Pay
Fixed Rate
|
|
|
Receive
Variable Rate
|
|
Maturity
Date
|
Interest
rate swap
|
|
$ |
9,298,000
|
|
|
|
5.7000%
|
|
|
|
6.4867%
|
|
December
31, 2007
|
Interest
rate swap
|
|
$ |
14,832,000
|
|
|
|
6.4400%
|
|
|
|
6.4867%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
14,456,000
|
|
|
|
6.6800%
|
|
|
|
6.4867%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
10,781,000
|
|
|
|
5.8800%
|
|
|
|
6.4867%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
3,099,000
|
|
|
|
6.3600%
|
|
|
|
6.4867%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
3,099,000
|
|
|
|
6.9600%
|
|
|
|
6.4867%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
2,479,000
|
|
|
|
7.0000%
|
|
|
|
6.8600%
|
|
December
31, 2008
|
Interest
rate swap
|
|
$ |
1,231,000
|
|
|
|
7.1900%
|
|
|
|
7.1483%
|
|
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 $76,000 (AUS$70,000)
and $186,000 (AUS$182,000) decrease to interest expense during the three and
nine months ended September 30, 2007, respectively, and a $2,000 (AUS$3,000)
and
$555,000 (AUS$758,000) increase to interest expense during the three and nine
months ended September 30, 2006, respectively. At September 30, 2007
and December 31, 2006, we have recorded the fair market value of our interest
rate swaps of $392,000 (AUS$443,000) and $206,000 (AUS$261,000), respectively,
as an other noncurrent asset. 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
Acquisition
of Pacific Theaters Owned Cinemas
On
October 8, 2007, we entered into agreements to acquire leasehold interests
in 15
cinemas currently owned by Pacific Theatres Exhibition Corp. and its
affiliates. The cinemas, which are located in the United States,
contain 181 screens with annual revenue of approximately $81.0
million. The aggregate purchase price of the cinemas and related
assets is $72.0 million.
The
acquisition will be made through a
wholly owned subsidiary of RDI and will be financed principally by a combination
of debt financing which has been contingently committed by GE Capital
Corporation and seller financing. Our obligation to complete the
acquisition is conditioned upon its receipt of funds described in the financing
commitment, and RDI has agreed to pay the sellers a termination fee if the
acquisition is not completed under certain circumstances. The
completion of the acquisition is also subject to customary closing conditions
and is expected to be completed with the timing dependent on a number of
factors, before year-end.
Australia
Corporate Credit Facility
In
October 2007, our Australia Corporate Credit Facility was increased from $88.6
million (AUS$100.0 million) to $97.4 million (AUS$110.0 million).
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. As we intend to be opportunistic in
adding to our existing cinema portfolio, on October 8, 2007, we entered into
agreements to acquire 15 cinemas with 181 screens in Hawaii and California
and
we are continuing to consider the acquisition of existing cinema assets
currently being offered for sale in Australia, New Zealand, and the United
States. Nevertheless, we believe it is likely that, over the long
term, we will be reinvesting the majority our free cash flow into our general
real estate development activities. We anticipate that our cinema
operations will continue as our main source of cash flow and will support our
real estate oriented activities.
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 September 30,
2007, our investments in the securities of other public companies aggregated
$4.6 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
September 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 and judiciously expand
our presence in the cinema exhibition and live theatre business, by identifying,
developing, and acquiring cinema and live theatre properties when and where
appropriate.
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 and Note 19 – Subsequent Events to our
September 30, 2007 Consolidated Financial Statements.
Results
of Operations
At
September 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 123 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;
|
|
·
|
the
acquisition in February 2007, of the long-term ground lease interest
underlying our Tower Theater in Sacramento, California (the principal
art
cinema in Sacramento); and
|
|
·
|
the
increase in the value of the Australian and New Zealand dollars vis-à-vis
the US dollar from $0.7461 and $0.6530, respectively, as of September
30,
2006 to $0.8855 and $0.7568, respectively, as of September 30,
2007.
|
The
tables below summarize the results of operations for each of our principal
business segments for the three (“2007 Quarter”) and nine (“2007 Nine Months”)
months ended September 30, 2007 and the three (“2006 Quarter”) and nine (“2006
Nine Months”) months ended September 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 nine months
ending September 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 September 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
29,110
|
|
|
$ |
5,521
|
|
|
$ |
(2,072 |
) |
|
$ |
32,559
|
|
Operating
expense
|
|
|
23,055
|
|
|
|
2,280
|
|
|
|
(2,072 |
) |
|
|
23,263
|
|
Depreciation
& amortization
|
|
|
1,650
|
|
|
|
1,127
|
|
|
|
--
|
|
|
|
2,777
|
|
General
& administrative expense
|
|
|
792
|
|
|
|
108
|
|
|
|
--
|
|
|
|
900
|
|
Segment
operating income
|
|
$ |
3,613
|
|
|
$ |
2,006
|
|
|
$ |
--
|
|
|
$ |
5,619
|
|
Three
months ended September 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue3
|
|
$ |
21,806
|
|
|
$ |
3,771
|
|
|
$ |
(1,259 |
) |
|
$ |
24,318
|
|
Operating
expense3
|
|
|
17,347
|
|
|
|
2,161
|
|
|
|
(1,259 |
) |
|
|
18,249
|
|
Depreciation
& amortization
|
|
|
2,245
|
|
|
|
989
|
|
|
|
--
|
|
|
|
3,234
|
|
General
& administrative expense
|
|
|
901
|
|
|
|
154
|
|
|
|
--
|
|
|
|
1,055
|
|
Segment
operating income
|
|
$ |
1,313
|
|
|
$ |
467
|
|
|
$ |
--
|
|
|
$ |
1,780
|
|
Reconciliation
to consolidated net income:
|
|
2007
Quarter
|
|
|
2006
Quarter
|
|
Total
segment operating income
|
|
$ |
5,619
|
|
|
$ |
1,780
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
140
|
|
|
|
151
|
|
General
and administrative
expense
|
|
|
2,970
|
|
|
|
1,992
|
|
Operating
income (loss)
|
|
|
2,509
|
|
|
|
(363 |
) |
Interest
expense,
net
|
|
|
(2,267 |
) |
|
|
(1,765 |
) |
Other
income
|
|
|
707
|
|
|
|
209
|
|
Minority
interest
expense
|
|
|
(162 |
) |
|
|
(153 |
) |
Income
tax
expense
|
|
|
(501 |
) |
|
|
(540 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
584
|
|
|
|
5,263
|
|
Gain
on sale of unconsolidated
entity
|
|
|
--
|
|
|
|
3,442
|
|
Net
income
|
|
$ |
870
|
|
|
$ |
6,093
|
|
3
For the three
months ended September 30, 2006, the real estate revenues and cinema operating
expenses have been adjusted from the amounts previously reported. See
Note 1 – Basis of Presentation.
Nine
months ended September 30, 2007
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue
|
|
$ |
79,651
|
|
|
$ |
15,926
|
|
|
$ |
(4,903 |
) |
|
$ |
90,674
|
|
Operating
expense
|
|
|
63,936
|
|
|
|
6,145
|
|
|
|
(4,903 |
) |
|
|
65,178
|
|
Depreciation
& amortization
|
|
|
5,242
|
|
|
|
3,273
|
|
|
|
--
|
|
|
|
8,515
|
|
General
& administrative expense
|
|
|
2,317
|
|
|
|
566
|
|
|
|
--
|
|
|
|
2,883
|
|
Segment
operating income
|
|
$ |
8,156
|
|
|
$ |
5,942
|
|
|
$ |
--
|
|
|
$ |
14,098
|
|
Nine
months ended September 30, 2006
|
|
Cinema
|
|
|
Real
Estate
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
Revenue4
|
|
$ |
68,269
|
|
|
$ |
12,437
|
|
|
$ |
(3,909 |
) |
|
$ |
76,797
|
|
Operating
expense4
|
|
|
55,641
|
|
|
|
5,628
|
|
|
|
(3,909 |
) |
|
|
57,360
|
|
Depreciation
& amortization
|
|
|
6,600
|
|
|
|
3,009
|
|
|
|
--
|
|
|
|
9,609
|
|
General
& administrative expense
|
|
|
2,801
|
|
|
|
567
|
|
|
|
--
|
|
|
|
3,368
|
|
Segment
operating income
|
|
$ |
3,227
|
|
|
$ |
3,233
|
|
|
$ |
--
|
|
|
$ |
6,460
|
|
Reconciliation
to consolidated net income:
|
|
2007
Nine Months
|
|
|
2006
Nine Months
|
|
Total
segment operating income
|
|
$ |
14,098
|
|
|
$ |
6,460
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
418
|
|
|
|
354
|
|
General
and administrative
expense
|
|
|
8,542
|
|
|
|
6,121
|
|
Operating
income (loss)
|
|
|
5,138
|
|
|
|
(15 |
) |
Interest
expense,
net
|
|
|
(5,968 |
) |
|
|
(5,060 |
) |
Other
income
(expense)
|
|
|
250
|
|
|
|
(945 |
) |
Minority
interest
expense
|
|
|
(657 |
) |
|
|
(425 |
) |
Gain
on sale of a discontinued
operation
|
|
|
1,912
|
|
|
|
--
|
|
Income
tax
expense
|
|
|
(1,443 |
) |
|
|
(1,222 |
) |
Equity
earnings of
unconsolidated joint ventures and entities
|
|
|
2,626
|
|
|
|
6,937
|
|
Gain
on sale of unconsolidated
entity
|
|
|
--
|
|
|
|
3,442
|
|
Net
income
|
|
$ |
1,858
|
|
|
$ |
2,712
|
|
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 September 30, 2007 and 2006, respectively
(dollars in thousands):
4
For the nine months
ended September 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 September 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
4,537
|
|
|
$ |
11,773
|
|
|
$ |
4,721
|
|
|
$ |
21,031
|
|
Concessions
revenue
|
|
|
1,376
|
|
|
|
3,944
|
|
|
|
1,387
|
|
|
|
6,707
|
|
Advertising
and other revenues
|
|
|
597
|
|
|
|
557
|
|
|
|
218
|
|
|
|
1,372
|
|
Total
revenues
|
|
|
6,510
|
|
|
|
16,274
|
|
|
|
6,326
|
|
|
|
29,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
4,774
|
|
|
|
12,108
|
|
|
|
4,683
|
|
|
|
21,565
|
|
Concession
costs
|
|
|
263
|
|
|
|
859
|
|
|
|
368
|
|
|
|
1,490
|
|
Total
operating expense
|
|
|
5,037
|
|
|
|
12,967
|
|
|
|
5,051
|
|
|
|
23,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
487
|
|
|
|
727
|
|
|
|
436
|
|
|
|
1,650
|
|
General
& administrative expense
|
|
|
483
|
|
|
|
308
|
|
|
|
1
|
|
|
|
792
|
|
Segment
operating income
|
|
$ |
503
|
|
|
$ |
2,272
|
|
|
$ |
838
|
|
|
$ |
3,613
|
|
Three
Months Ended September 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
4,698
|
|
|
$ |
8,031
|
|
|
$ |
3,136
|
|
|
$ |
15,865
|
|
Concessions
revenue
|
|
|
1,386
|
|
|
|
2,538
|
|
|
|
957
|
|
|
|
4,881
|
|
Advertising
and other revenues
|
|
|
448
|
|
|
|
400
|
|
|
|
212
|
|
|
|
1,060
|
|
Total
revenues
|
|
|
6,532
|
|
|
|
10,969
|
|
|
|
4,305
|
|
|
|
21,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs5
|
|
|
4,223
|
|
|
|
9,167
|
|
|
|
2,867
|
|
|
|
16,257
|
|
Concession
costs
|
|
|
273
|
|
|
|
576
|
|
|
|
241
|
|
|
|
1,090
|
|
Total
operating expense
|
|
|
4,496
|
|
|
|
9,743
|
|
|
|
3,108
|
|
|
|
17,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
381
|
|
|
|
1,482
|
|
|
|
382
|
|
|
|
2,245
|
|
General
& administrative expense
|
|
|
534
|
|
|
|
356
|
|
|
|
11
|
|
|
|
901
|
|
Segment
operating income (loss)
|
|
$ |
1,121
|
|
|
$ |
(612 |
) |
|
$ |
804
|
|
|
$ |
1,313
|
|
|
·
|
Cinema
revenue increased for the 2007 Quarter by $7.3 million or 33.5% compared
to the same period in 2006. The 2007 Quarter increase resulted
from improved results from our Australia and New Zealand operations
including $5.3 million from admissions and $2.0 million from concessions
and other revenues.
|
|
·
|
Operating
expense increased for the 2007 Quarter by $5.7 million or 32.9% 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 79.2% of gross
revenue
for the 2007 Quarter and 79.6% of gross revenue for the 2006
Quarter.
|
|
·
|
Depreciation
and amortization expense decreased for the 2007 Quarter by $595,000
or
26.5% 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 decreased for the 2007 Quarter by $109,000
or
12.1% compared to the same period in 2006 from improved cost
management.
|
5
For the three
months ended September 30, 2006, the cinema operating expenses have been
adjusted from the amounts previously reported. See Note 1 – Basis
of Presentation.
|
·
|
The
Australia and New Zealand quarterly average exchange rates have changed
by
9.9% and 16.6%, respectively, since 2006, which had an impact on
the
individual components of the income statement. However, the
overall effect of the foreign currency change on operating income
was
minimal.
|
|
·
|
Because
of the above, cinema segment income increased for the 2007 Quarter
by $2.3
million compared to the same period in
2006.
|
The
following tables detail our cinema segment operating results for the nine months
ended September 30, 2007 and 2006, respectively, (dollars in
thousands):
Nine
Months Ended September 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
13,639
|
|
|
$ |
32,317
|
|
|
$ |
12,119
|
|
|
$ |
58,075
|
|
Concessions
revenue
|
|
|
3,900
|
|
|
|
10,424
|
|
|
|
3,512
|
|
|
|
17,836
|
|
Advertising
and other revenues
|
|
|
1,430
|
|
|
|
1,657
|
|
|
|
653
|
|
|
|
3,740
|
|
Total
revenues
|
|
|
18,969
|
|
|
|
44,398
|
|
|
|
16,284
|
|
|
|
79,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs
|
|
|
13,678
|
|
|
|
33,844
|
|
|
|
12,412
|
|
|
|
59,934
|
|
Concession
costs
|
|
|
763
|
|
|
|
2,324
|
|
|
|
915
|
|
|
|
4,002
|
|
Total
operating expense
|
|
|
14,441
|
|
|
|
36,168
|
|
|
|
13,327
|
|
|
|
63,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,465
|
|
|
|
2,500
|
|
|
|
1,277
|
|
|
|
5,242
|
|
General
& administrative expense
|
|
|
1,554
|
|
|
|
758
|
|
|
|
5
|
|
|
|
2,317
|
|
Segment
operating income
|
|
$ |
1,509
|
|
|
$ |
4,972
|
|
|
$ |
1,675
|
|
|
$ |
8,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Admissions
revenue
|
|
$ |
12,936
|
|
|
$ |
27,236
|
|
|
$ |
9,744
|
|
|
$ |
49,916
|
|
Concessions
revenue
|
|
|
3,891
|
|
|
|
8,436
|
|
|
|
2,911
|
|
|
|
15,238
|
|
Advertising
and other revenues
|
|
|
1,202
|
|
|
|
1,342
|
|
|
|
571
|
|
|
|
3,115
|
|
Total
revenues
|
|
|
18,029
|
|
|
|
37,014
|
|
|
|
13,226
|
|
|
|
68,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
costs6
|
|
|
12,982
|
|
|
|
29,170
|
|
|
|
10,101
|
|
|
|
52,253
|
|
Concession
costs
|
|
|
695
|
|
|
|
1,932
|
|
|
|
761
|
|
|
|
3,388
|
|
Total
operating expense
|
|
|
13,677
|
|
|
|
31,102
|
|
|
|
10,862
|
|
|
|
55,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,373
|
|
|
|
4,260
|
|
|
|
967
|
|
|
|
6,600
|
|
General
& administrative expense
|
|
|
1,986
|
|
|
|
788
|
|
|
|
27
|
|
|
|
2,801
|
|
Segment
operating income
|
|
$ |
993
|
|
|
$ |
864
|
|
|
$ |
1,370
|
|
|
$ |
3,227
|
|
|
·
|
Cinema
revenue increased for the 2007 Nine Months by $11.4 million or 16.7%
compared to the same period in 2006. The 2007 Nine Month
increase related to improved results not only from our Australia
and New
Zealand operations including $7.5 million from admissions and $3.0
million
from concessions and other revenues but also from our domestic cinema
operations of $703,000 from admissions and $237,000 from concessions
and
other revenues.
|
|
·
|
Operating
expense increased for the 2007 Nine Months by $8.3 million or 14.9%
compared to the same period in 2006. This increase followed the
aforementioned increase in revenues. Overall, our
operating
|
6
For the nine months
ended September 30, 2006, the cinema operating expenses have been adjusted
from
the amounts previously reported. See Note 1 – Basis of
Presentation.
|
expenses
from year-to-year improved slightly to 80.3% of gross revenue for
the 2007
Nine Months from 81.5% of gross revenue for the 2006 Nine
Months.
|
|
·
|
Depreciation
and amortization expense decreased for the 2007 Nine Months by $1.4
or
20.6% 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 Nine Months by
$484,000
or 17.3% 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.
|
|
·
|
The
Australia and New Zealand annual average exchange rates have changed
by
9.9% and 13.3%, respectively, since 2006, which had an impact on
the
individual components of the income statement. However, the
overall effect of the foreign currency change on operating income
was
minimal.
|
|
·
|
As
a result of the above, cinema segment income increased for the 2007
Nine
Months by $4.9 million compared to the same period in
2006.
|
Real
Estate
For
the three months ended September
30, 2007, our rental income 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, which continue to generate
minimal rent.
|
The
following tables detail our real estate segment operating results for the three
months ended September 30, 2007 and 2006, respectively (dollars in
thousands):
Three
Months Ended September 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
657
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
657
|
|
Property
rental income
|
|
|
723
|
|
|
|
2,252
|
|
|
|
1,889
|
|
|
|
4,864
|
|
Total
revenues
|
|
|
1,380
|
|
|
|
2,252
|
|
|
|
1,889
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
455
|
|
|
|
--
|
|
|
|
--
|
|
|
|
455
|
|
Property
rental cost
|
|
|
435
|
|
|
|
759
|
|
|
|
631
|
|
|
|
1,825
|
|
Total
operating expense
|
|
|
890
|
|
|
|
759
|
|
|
|
631
|
|
|
|
2,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
96
|
|
|
|
596
|
|
|
|
435
|
|
|
|
1,127
|
|
General
& administrative expense
|
|
|
--
|
|
|
|
118
|
|
|
|
(10 |
) |
|
|
108
|
|
Segment
operating income
|
|
$ |
394
|
|
|
$ |
779
|
|
|
$ |
833
|
|
|
$ |
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
911
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
911
|
|
Property
rental income7
|
|
|
205
|
|
|
|
1,804
|
|
|
|
851
|
|
|
|
2,860
|
|
Total
revenues
|
|
|
1,116
|
|
|
|
1,804
|
|
|
|
851
|
|
|
|
3,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
830
|
|
|
|
--
|
|
|
|
--
|
|
|
|
830
|
|
Property
rental cost
|
|
|
371
|
|
|
|
651
|
|
|
|
309
|
|
|
|
1,331
|
|
Total
operating expense
|
|
|
1,201
|
|
|
|
651
|
|
|
|
309
|
|
|
|
2,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
106
|
|
|
|
512
|
|
|
|
371
|
|
|
|
989
|
|
General
& administrative expense
|
|
|
11
|
|
|
|
143
|
|
|
|
--
|
|
|
|
154
|
|
Segment
operating income (loss)
|
|
$ |
(202 |
) |
|
$ |
498
|
|
|
$ |
171
|
|
|
$ |
467
|
|
|
·
|
Revenue
increased for the 2007 Quarter by $1.8 million or 46.4% compared
to the
same period in 2006. The increase was primarily related to
higher rental revenues from our foreign real estate holdings including
our
recently opened Australia Newmarket shopping center and our Courtenay
Central property and newly acquired Landplan properties in New
Zealand.
|
|
·
|
Operating
expense for the real estate segment increased for the 2007 Quarter
by
$119,000 or 5.5% compared to the same period in 2006. This
increase in expense was primarily related to the aforementioned newly
acquired Landplan properties and Courtenay Central property in New
Zealand.
|
|
·
|
Depreciation
expense for the real estate segment increased by $138,000 or 14.0%
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.
|
|
·
|
The
Australia and New Zealand quarterly average exchange rates have changed
by
9.9% and 16.6%, respectively, since 2006, which had an impact on
the
individual components of the income statement. However, the
overall effect of the foreign currency change on operating income
was
minimal.
|
|
·
|
As
a result of the above, real estate segment income increased for the
2007
Quarter by $1.5 million compared to the same period in
2006.
|
7
For the three
months ended September 30, 2006, the real estate revenues have been adjusted
from the amounts previously reported. See Note 1 – Basis of
Presentation.
The
following tables detail our real estate segment operating results for the nine
months ended September 30, 2007 and 2006, respectively (dollars in
thousands):
Nine
Months Ended September 30, 2007
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
2,385
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
2,385
|
|
Property
rental income
|
|
|
1,631
|
|
|
|
6,735
|
|
|
|
5,175
|
|
|
|
13,541
|
|
Total
revenues
|
|
|
4,016
|
|
|
|
6,735
|
|
|
|
5,175
|
|
|
|
15,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
1,465
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,465
|
|
Property
rental cost
|
|
|
997
|
|
|
|
2,200
|
|
|
|
1,483
|
|
|
|
4,680
|
|
Total
operating expense
|
|
|
2,462
|
|
|
|
2,200
|
|
|
|
1,483
|
|
|
|
6,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
286
|
|
|
|
1,744
|
|
|
|
1,243
|
|
|
|
3,273
|
|
General
& administrative expense
|
|
|
14
|
|
|
|
427
|
|
|
|
125
|
|
|
|
566
|
|
Segment
operating income
|
|
$ |
1,254
|
|
|
$ |
2,364
|
|
|
$ |
2,324
|
|
|
$ |
5,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2006
|
|
United
States
|
|
|
Australia
|
|
|
New
Zealand
|
|
|
Total
|
|
Live
theatre rental and ancillary income
|
|
$ |
2,950
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
2,950
|
|
Property
rental income8
|
|
|
941
|
|
|
|
4,481
|
|
|
|
4,065
|
|
|
|
9,487
|
|
Total
revenues
|
|
|
3,891
|
|
|
|
4,481
|
|
|
|
4,065
|
|
|
|
12,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
theatre costs
|
|
|
1,976
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,976
|
|
Property
rental cost
|
|
|
806
|
|
|
|
1,826
|
|
|
|
1,020
|
|
|
|
3,652
|
|
Total
operating expense
|
|
|
2,782
|
|
|
|
1,826
|
|
|
|
1,020
|
|
|
|
5,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
318
|
|
|
|
1,566
|
|
|
|
1,125
|
|
|
|
3,009
|
|
General
& administrative expense
|
|
|
13
|
|
|
|
554
|
|
|
|
--
|
|
|
|
567
|
|
Segment
operating income
|
|
$ |
778
|
|
|
$ |
535
|
|
|
$ |
1,920
|
|
|
$ |
3,233
|
|
|
·
|
Revenue
increased for the 2007 Nine Months by $3.5 million or 28.1% compared
to
the same period in 2006. The increase was primarily related to
an enhanced rental stream from our recently opened Australia Newmarket
shopping center and our New Zealand properties of $3.4
million.
|
|
·
|
Operating
expense for the real estate segment increased for the 2007 Nine Months
by
$517,000 or 9.2% compared to the same period in 2006. This
increase in expense was primarily due to higher operating costs related
to
our recently opened Australia Newmarket shopping
center.
|
|
·
|
Depreciation
expense for the real estate segment increased by $264,000 or 8.8%
for the
2007 Nine 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.
|
|
·
|
The
Australia and New Zealand annual average exchange rates have changed
by
9.9% and 13.3%, respectively, since 2006, which had an impact on
the
individual components of the income statement. However, the
overall effect of the foreign currency change on operating income
was
minimal.
|
8
For the nine months
ended September 30, 2006, the real estate revenues have been adjusted from
the
amounts previously reported. See Note 1 – Basis of
Presentation.
|
·
|
As
a result of the above, real estate segment income for the 2007 Nine
Months
increased by $2.7 million compared to the same period in 2006 of
which
$1.5 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 $978,000 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 $2.4 million in the 2007 Nine Months
compared to the 2006 Nine 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.
Net
interest expense increased by
$502,000 and by $908,000 for the 2007 Quarter and the 2007 Nine Months,
respectively, compared to last year primarily related to higher outstanding
loan
balances during 2007 compared to 2006.
Other
income increased by approximately
$498,000 for the 2007 Quarter resulting from a $549,000 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 income increased by $1.2 million
for 2007 Nine Months compared to last year primarily due to the aforementioned
mark-to-market expense in 2006 not repeated in 2007.
During
the three and nine months ended September 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 $4.7 million for the 2007 Quarter and by $4.3 million for 2007
Nine Months compared to the same period last year. Both the decrease
in the 2007 Quarter and the decrease in the 2007 Nine 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 eight condominiums
during the three and nine months ended September 30, 2007, respectively,
resulting in gross sales of $3.4 million and $26.0 million, respectively, and
equity earnings from unconsolidated joint ventures and entities to us of
$201,000 and $1.6 million, respectively. All of the residential
condominiums have been sold and only the retail condominium is still available
for sale.
In
addition to the aforementioned equity earnings, during the three and nine months
ending September 30, 2006, we recorded a gain on sale of unconsolidated entities
of $3.4 million (NZ$5.4 million), from the sale of our interest in the cinemas
at Whangaparaoa, Takapuna and Mission Bay, New Zealand.
Consolidated
Net Income/Losses
During
2007, we recorded net income of $870,000 and $1.9 million for the 2007 Quarter
and 2007 Nine Months, respectively. As noted above, this income is
related to improved operating results from both our cinema and our real estate
segments and income associated with a gain on the sale of a discontinued
operation. During 2006, we recorded a net income of $6.1 million and
$2.7 million for the 2006 Quarter and 2006 Nine Months,
respectively. This income was primarily related to the equity
earnings from 205-209 East 57th Street Associates, LLC and from the
sale of our interest in the cinemas at Whangaparaoa, Takapuna and Mission Bay,
New Zealand. In the prior periods, we recorded net losses from
operations.
Acquisitions
New
Zealand Property Acquisitions
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
$9.3
million (NZ$12.1 million). We intend to rezone 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 occur
in
the near term.
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 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.
On
February 14, 2007, we acquired, through a Landplan Property Partners property
trust, a 1.0 acre parcel of commercial real estate for approximately $4.9
million (NZ$6.9 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
$3.1 million (NZ$4.3 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.
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
September 30, 2007 (in thousands):
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
Long-term
debt
|
|
$ |
1,846
|
|
|
$ |
383
|
|
|
$ |
85,391
|
|
|
$ |
9,527
|
|
|
$ |
177
|
|
|
$ |
15,265
|
|
Notes
payable to related parties
|
|
|
--
|
|
|
|
5,000
|
|
|
|
--
|
|
|
|
9,000
|
|
|
|
--
|
|
|
|
--
|
|
Subordinated
notes
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
51,547
|
|
Lease
obligations
|
|
|
2,948
|
|
|
|
11,092
|
|
|
|
11,158
|
|
|
|
10,944
|
|
|
|
10,272
|
|
|
|
67,072
|
|
Estimated
interest on long-term debt
|
|
|
3,140
|
|
|
|
12,015
|
|
|
|
11,961
|
|
|
|
5,599
|
|
|
|
4,610
|
|
|
|
70,688
|
|
Total
|
|
$ |
7,934
|
|
|
$ |
28,490
|
|
|
$ |
108,510
|
|
|
$ |
35,070
|
|
|
$ |
15,059
|
|
|
$ |
204,572
|
|
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 $13.5
million as of September 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 $5.0 million and $4.8
million as of September 30, 2007 and December 31, 2006,
respectively. Our share of unconsolidated debt, based on our
ownership percentage, was $2.3 million and $2.2 million as of September 30,
2007
and December 31, 2006, respectively. This debt is without recourse to
Reading as of September 30, 2007 and December 31, 2006.
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:
|
·
|
acquisition
activities;
|
|
·
|
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 $13.5 million in the 2007 Nine Months compared to
$2.4 million for the 2006 Nine Months. The increase in cash provided
by operations of $11.1 million is due primarily to:
|
·
|
increased
cinema operational cash flow primarily from our 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 predominately our Place 57 joint venture
of
$4.7 million.
|
Investing
Activities
Cash
used in investing activities for
the 2007 Nine Months increased by $19.3 million to $32.2 million from $12.9
million compared to the same period in 2006. The $32.2 million cash
used for the 2007 Nine Months was primarily related to:
|
·
|
$15.5
million to purchase marketable
securities;
|
|
·
|
$20.6
million to purchase real estate assets including $20.1 million for
real
estate purchases 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;
|
|
·
|
$1.1
million in property enhancements to our existing
properties;
|
|
·
|
$16.2
million in development costs associated with our properties under
development; and
|
|
·
|
$1.5
million in our investment in Reading International Trust I securities
(the
issuer of our Trust Preferred
Securities);
|
|
·
|
$19.9
million in cash provided by the sale of marketable securities;
and
|
|
·
|
$2.2
million in distributions from our investment in joint
ventures.
|
The
$12.9 million cash used for the
2006 Nine Months was primarily related to:
|
·
|
$8.1
million in acquisitions including:
|
|
o
|
$939,000
in cash used to purchase the Queenstown Cinema in New
Zealand,
|
|
o
|
$2.8
million in cash used to purchase the 50% share that we did not already
own
of the Palms cinema located in Christchurch, New
Zealand,
|
|
o
|
$1.8
million for the Australia Indooroopilly property,
and
|
|
o
|
$2.5
million for the adjacent parcel to our Moonee Ponds
property;
|
|
·
|
$6.4
million in cash used to complete the Newmarket property and for property
enhancements to our Australia, New Zealand and U.S. properties;
and
|
|
·
|
$2.7
million in investment in unconsolidated entities including $1.8 million
paid for Malulani Investments, Ltd. stock and $876,000 additional
cash
invested in Rialto Cinemas used to pay off their bank
debt,
|
offset
by
|
·
|
$4.6
million cash received from the sale of our interest the cinemas at
Whangaparaoa, Takapuna, and Mission Bay, New
Zealand.
|
Cash
provided by financing activities for the 2007 Nine Months increased by $24.5
million to $34.1 million from $9.6 million compared to the same period in
2006. The $34.1 million in cash provided in the 2007 Nine 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
|
|
·
|
$26.4
million of borrowing on our Australia and New Zealand credit
facilities;
|
offset
by
|
·
|
$55.8
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, $3.1 million to pay off our margin account on marketable
securities, and $12.1 million (NZ$15.7 million) to pay down our New
Zealand Westpac line of credit in August 2007;
and
|
|
·
|
$3.9
million in distributions to minority
interests.
|
The
$9.6
million in cash provided in the 2006 Nine Months was primarily related
to:
|
·
|
$11.8
million of new borrowings on our Australian Corporate Credit
Facility;
|
|
·
|
$3.0
million of a deposit received from Sutton Hill Capital, LLC for the
option
to purchase a 25% non-managing membership interest in the limited
liability company that owns the Cinemas 1, 2 &
3;
|
offset
by
|
·
|
$2.9
million of cash used to pay down long-term debt which was primarily
related to the final payoff of the Movieland purchase note payable
of
approximately $512,000; the payoff of the Palms – Christchurch Cinema bank
debt of approximately $1.9 million; and we made the first principal
payment on our Australian Corporate Credit Facility of
$280,000;
|
|
·
|
$792,000
of cash used to repurchase the Class A Nonvoting Common Stock (these
shares were previously issued to the Movieland sellers who exercised
their
put option during the 2006 Nine Months to sell back to us the shares
they
had received in partial consideration for the sale of the Movieland
cinemas); and
|
|
·
|
$1.5
million in distributions to minority
interests.
|
Summary
As
a
result of the above, our cash position at September 30, 2007 was $27.1 million
compared to $11.0 million at December 31, 2006.
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 $76,000 (AUS$70,000)
and $186,000 (AUS$182,000) decrease to interest expense during the three and
nine months ended September 30, 2007, respectively, and a $2,000 (AUS$3,000)
and
$555,000 (AUS$758,000) increase to interest expense during the three and nine
months ended September 30, 2006, respectively. At September 30, 2007
and December 31, 2006, we have recorded the fair market value of our interest
rate swaps of $392,000 (AUS$443,000) and $206,000 (AUS$261,000), respectively,
as an other noncurrent asset. 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;
|
|
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;” and
|
|
o
|
The
extent to and the efficiency with which, we are able to integrate
any
acquisitions of cinema circuits with our existing
operations.
|
|
·
|
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
September 30, 2007, approximately 51% and 24% of our assets were invested in
assets denominated in Australian dollars (Reading Australia) and New Zealand
dollars (Reading New Zealand), respectively, including approximately $10.5
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 $9.0 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 $1.9 million and $14.4 million for the three and nine months ended September
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 46% and 82% 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 $8.2 million
and
$7.1 million, respectively, and the change in our quarterly net income would
be
$118,000 and $21,000, 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 September 30, 2007 and December 31, 2006, we have
recorded a cumulative unrealized foreign currency translation gain of
approximately $47.9 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 $91,000 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 $94,000 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 effective as of the end of the
period covered by this quarterly report.
Changes
in Internal Control over Financial Reporting
Except
as
noted below, 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 September 30, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Subsequent
to June 30, 2007, we determined that a material control weakness existed at
June
30, 2007 related to the preparation of the statement of cash flows, which were
operating ineffectively as of the reporting date of the quarterly consolidated
financial statements and failed to prevent or detect errors in our quarterly
consolidated financial statements. As a result of identifying this
control weakness, we materially changed our system of internal controls over
financial reporting. This change of internal controls involves a more
complete management review process of the statement of cash flows. We
believe that these enhanced procedures provide additional internal controls
over
financial reporting and improve our ability to identify potential accounting
issues prior to and during the comprehensive review of our consolidated
financial statements. Management believes these changes, which were
implemented during the three months ending September 30, 2007, have remediated
the control weakness that led to the June 30, 2007 adjustment discussed
above. Such remediation was completed and tested by us and such
enhanced internal controls over financial reporting were subject to our
management’s assessment of the effectiveness of our internal control over
financial reporting as of September 30, 2007.
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:
|
November
6, 2007
|
By:
|
/s/
James J. Cotter
|
|
|
|
James
J. Cotter
|
|
|
|
Chief
Executive Officer
|
Date:
|
November
6, 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
|
|
November
6, 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
|
|
November
6, 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
September 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: November
6, 2007
/s/
James J.
Cotter
Name: James
J. Cotter
Title: Chief
Executive Officer
/s/
Andrzej
Matyczynski
Name: Andrzej
Matyczynski
Title: Chief
Financial Officer