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READING INTERNATIONAL INC - Quarter Report: 2017 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

__________________________________

FORM 10-Q

(Mark One)



 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedSeptember 30, 2017

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

C:\Users\matthew.elmshauser\Pictures\Reading International logo.jpg

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.)

5995 Sepulveda Boulevard, Suite 300

Culver City,  CA

(Address of principal executive offices)

 

90230

(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   No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer”, accelerated filer”,  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act

(Check one):  Large accelerated filer  Accelerated filer  Non-accelerated filer   Smaller reporting company     

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

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, 2017, there were 21,184,863 shares of Class A Nonvoting Common Stock, $0.01 par value per share and 1,680,590 shares of Class B Voting Common Stock, $0.01 par value per share outstanding.

1


 

 

READING INTERNATIONAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS





 



Page

PART I - Financial Information

3

Item 1 – Financial Statements

3

Consolidated Balance Sheets (Unaudited)

3

Consolidated Statements of Income (Unaudited)

4

Consolidated Statements of Comprehensive Income (Unaudited)

5

Consolidated Statements of Cash Flows (Unaudited)

6

Notes to Consolidated Financial Statements (Unaudited)

7

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3 – Quantitative and Qualitative Disclosure about Market Risk

40

Item 4 – Controls and Procedures

41

PART II – Other Information

42

Item 1 - Legal Proceedings

42

Item 1A - Risk Factors

42

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3 - Defaults Upon Senior Securities

43

Item 5 - Other Information

43

Item 6 - Exhibits

44

SIGNATURES

45

Certifications

 









2


 

 

PART 1   FINANCIAL INFORMATION

Item 1 - Financial Statements



READING INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited; U.S. dollars in thousands, except share information)





 

 

 

 



 

 

 

 



 

 

 

 



September 30,

December 31,



2017

2016(1)

ASSETS

 

 

 

Current Assets:

 

 

 

 

Cash and cash equivalents

$

8,896 

$

19,017 

Receivables

 

36,191 

 

8,772 

Inventory

 

1,169 

 

1,391 

Prepaid and other current assets

 

4,329 

 

5,787 

Land held for sale

 

--

 

37,674 

Total current assets

 

50,585 

 

72,641 

Operating property, net

 

225,631 

 

211,886 

Investment and development property, net

 

73,751 

 

43,687 

Investment in unconsolidated joint ventures

 

5,339 

 

5,071 

Goodwill

 

20,438 

 

19,828 

Intangible assets, net

 

8,909 

 

10,037 

Deferred tax asset, net

 

28,907 

 

28,667 

Other assets

 

4,501 

 

13,949 

Total assets

$

418,061 

$

405,766 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Current Liabilities:

 

 

 

 

Accounts payable and accrued liabilities

$

21,030 

$

26,479 

Film rent payable

 

6,390 

 

10,528 

Debt – current portion

 

8,084 

 

567 

Taxes payable – current

 

2,163 

 

3,523 

Deferred current revenue

 

7,635 

 

10,758 

Other current liabilities

 

11,660 

 

14,131 

Total current liabilities

 

56,962 

 

65,986 

Debt – long-term portion

 

111,939 

 

115,707 

Subordinated debt, net

 

27,501 

 

27,340 

Noncurrent tax liabilities

 

20,808 

 

19,953 

Other liabilities

 

26,056 

 

30,165 

Total liabilities

 

243,266 

 

259,151 

Commitments and contingencies (Note 13)

 

 

 

 

Stockholders’ equity:

 

 

 

 

Class A non-voting common stock, par value $0.01,  100,000,000 shares authorized,

 

 

 

 

32,946,569 issued and 21,184,863 outstanding at September 30, 2017, and
32,856,267 issued and 21,497,717 outstanding at December 31, 2016

 

231 

 

230 

Class B voting common stock, par value $0.01,  20,000,000 shares authorized and

 

 

 

 

  1,680,590 issued and outstanding at September 30, 2017 and December 31, 2016

 

17 

 

17 

Nonvoting preferred stock, par value $0.01,  12,000 shares authorized and no issued 

 

 

 

 

  or outstanding shares at September 30, 2017 and December 31, 2016

 

--

 

--

Additional paid-in capital

 

145,504 

 

144,569 

Retained earnings

 

25,298 

 

1,680 

Treasury shares

 

(22,849)

 

(16,374)

Accumulated other comprehensive income

 

22,399 

 

12,075 

Total Reading International, Inc. stockholders’ equity

 

170,600 

 

142,197 

Noncontrolling interests

 

4,195 

 

4,418 

Total stockholders’ equity

 

174,795 

 

146,615 

Total liabilities and stockholders’ equity

$

418,061 

$

405,766 



See accompanying Notes to Unaudited Consolidated Financial Statements.

 (1) Certain 2016 balances have been reclassified to conform to the 2017 presentation (see Note 2Summary of Significant Accounting Policies – Reclassifications).

 







3


 

 

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; U.S. dollars in thousands, except per share data)







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Quarter Ended

 

Nine Months Ended



 

September 30,

 

September 30,

 

 

September 30,

 

September 30,



 

2017

 

2016(1)

 

 

2017

 

2016(1)

Revenue

 

 

 

 

 

 

 

 

 

Cinema

$

62,059 

$

67,825 

 

$

196,062 

$

192,579 

Real estate

 

4,028 

 

3,490 

 

 

11,892 

 

10,443 

Total revenue

 

66,087 

 

71,315 

 

 

207,954 

 

203,022 

Costs and expenses

 

 

 

 

 

 

 

 

 

Cinema

 

(49,591)

 

(52,103)

 

 

(153,512)

 

(148,864)

Real estate

 

(2,881)

 

(2,296)

 

 

(7,258)

 

(6,628)

Depreciation and amortization

 

(4,137)

 

(4,131)

 

 

(12,124)

 

(11,766)

General and administrative

 

(5,840)

 

(6,175)

 

 

(18,131)

 

(18,372)

Total costs and expenses

 

(62,449)

 

(64,705)

 

 

(191,025)

 

(185,630)

Operating income

 

3,638 

 

6,610 

 

 

16,929 

 

17,392 

Interest expense, net

 

(1,663)

 

(1,553)

 

 

(5,310)

 

(5,190)

Gain on sale of assets

 

--

 

--

 

 

9,417 

 

393 

Gain on insurance recoveries

 

--

 

--

 

 

9,217 

 

--

Other income (expense)

 

89 

 

(12)

 

 

937 

 

(115)

Income before income tax expense and equity earnings of unconsolidated joint ventures

 

2,064 

 

5,045 

 

 

31,190 

 

12,480 

Equity earnings of unconsolidated joint ventures

 

136 

 

200 

 

 

654 

 

808 

Income before income taxes

 

2,200 

 

5,245 

 

 

31,844 

 

13,288 

Income tax expense

 

(742)

 

(1,328)

 

 

(8,291)

 

(4,222)

Net income

$

1,458 

$

3,917 

 

$

23,553 

$

9,066 

Less: net income (loss) attributable to noncontrolling interests

 

(98)

 

62 

 

 

(66)

 

12 

Net income attributable to Reading International, Inc. common shareholders

$

1,556 

$

3,855 

 

$

23,619 

$

9,054 

Basic earnings per share attributable to Reading International, Inc. shareholders

$

0.07 

$

0.17 

 

$

1.02 

$

0.39 

Diluted earnings  per share attributable to Reading International, Inc. shareholders

$

0.07 

$

0.16 

 

$

1.01 

$

0.38 

Weighted average number of shares outstanding–basic

 

22,968,017 

 

23,334,892 

 

 

23,101,619 

 

23,334,892 

Weighted average number of shares outstanding–diluted

 

23,212,632 

 

23,532,796 

 

 

23,346,234 

 

23,532,796 



See accompanying Notes to Unaudited Consolidated Financial Statements.

(1) Certain 2016 balances have been reclassified to conform to the 2017 presentation (see Note 2 – Summary of Significant Accounting Policies – Reclassifications).



4


 

 

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; U.S. dollars in thousands)







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Quarter Ended

 

 

 

Nine Months Ended



 

 

September 30,

 

 

September 30,

 

 

 

September 30,

 

 

September 30,



 

 

2017

 

 

2016(1)

 

 

 

2017

 

 

2016(1)

Net income

 

$

1,458 

 

$

3,917 

 

 

$

23,553 

 

$

9,066 

Foreign currency translation gain

 

 

1,791 

 

 

5,042 

 

 

 

10,192 

 

 

9,310 

Others

 

 

51 

 

 

54 

 

 

 

151 

 

 

118 

Comprehensive income

 

 

3,300 

 

 

9,013 

 

 

 

33,896 

 

 

18,494 

Less: net income (loss) attributable to noncontrolling interests

 

 

(98)

 

 

62 

 

 

 

(66)

 

 

12 

Less: comprehensive income (loss) attributable to noncontrolling interests

 

 

33 

 

 

 

 

 

20 

 

 

14 

Comprehensive income attributable to Reading International, Inc.

 

$

3,365 

 

$

8,943 

 

 

$

33,942 

 

$

18,468 



See accompanying Notes to Unaudited Consolidated Financial Statements.

(1) Certain 2016 balances have been reclassified to conform to the 2017 presentation (see Note 2Summary of Significant Accounting Policies – Reclassifications)



5


 

 

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited; U.S. dollars in thousands)







 

 

 

 

 



 

 

 

 

 



 

Nine Months Ended



 

September 30,

 

 

September 30,



 

2017

 

 

2016(1)

Operating Activities

 

 

 

 

 

Net income

$

23,553 

 

$

9,066 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Equity earnings of unconsolidated joint ventures

 

(654)

 

 

(808)

Distributions of earnings from unconsolidated joint ventures

 

636 

 

 

779 

Gain recognized on foreign currency transactions

 

(910)

 

 

--

Gain on sale of assets

 

(9,417)

 

 

(393)

Gain on insurance recoveries

 

(9,217)

 

 

--

Change in net deferred tax assets

 

127 

 

 

(3,782)

Depreciation and amortization

 

12,124 

 

 

11,766 

Other amortization

 

1,840 

 

 

1,409 

Stock based compensation expense

 

730 

 

 

449 

Net changes in operating assets and liabilities:

 

 

 

 

 

Receivables

 

1,593 

 

 

2,092 

Prepaid and other assets

 

1,745 

 

 

(738)

Accounts payable and accrued expenses

 

(5,701)

 

 

(2,783)

Film rent payable

 

(4,347)

 

 

(3,089)

Taxes payable

 

(1,695)

 

 

2,142 

Deferred revenue and other liabilities

 

(1,652)

 

 

(1,594)

Net cash provided by operating activities

 

8,755 

 

 

14,516 

Investing Activities

 

 

 

 

 

Demolition costs of operating property

 

(3,510)

 

 

--

Insurance recoveries relating to property damage and demolition costs

 

18,415 

 

 

--

Purchases of and additions to operating and investment properties

 

(44,531)

 

 

(35,682)

Change in restricted cash

 

36 

 

 

(848)

Distributions of investment in unconsolidated joint ventures

 

125 

 

 

190 

Disposal of investment in unconsolidated joint ventures

 

(337)

 

 

--

Proceeds from sale of assets

 

16,606 

 

 

831 

Net cash used in investing activities

 

(13,196)

 

 

(35,509)

Financing Activities

 

 

 

 

 

Repayment of long-term borrowings

 

(46,629)

 

 

(40,802)

Proceeds from borrowings

 

47,706 

 

 

52,396 

Capitalized borrowing costs

 

--

 

 

(785)

Repurchase of Class A Nonvoting Common Stock

 

(6,475)

 

 

--

Proceeds from the exercise of stock options

 

207 

 

 

--

Noncontrolling interest contributions

 

63 

 

 

268 

Noncontrolling interest distributions

 

(240)

 

 

(194)

Net cash (used in)/provided by financing activities

 

(5,368)

 

 

10,883 

Effect of exchange rate changes on cash and cash equivalents

 

(312)

 

 

388 

Net decrease in cash and cash equivalents

 

(10,121)

 

 

(9,722)

Cash and cash equivalents at January 1

 

19,017 

 

 

19,702 

Cash and cash equivalents at September 30

$

8,896 

 

$

9,980 

Supplemental Disclosures

 

 

 

 

 

Interest paid

$

4,489 

 

$

3,053 

Income taxes paid

 

7,371 

 

 

5,288 



See accompanying Notes to Unaudited Consolidated Financial Statements.

(1) Certain 2016 balances have been reclassified to conform to the 2017 presentation (see Note 2Summary of Significant Accounting Policies – Reclassifications).



6


 

 

READING INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



Note 1 – Description of Business and Segment Reporting 

The Company

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 incorporated in 1999.  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.



Business Segments

Reported below are the operating segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer, the chief operating decision-maker of the Company.  As part of our real estate activities, we hold undeveloped land in urban and suburban centers in New Zealand and the United States.



The table below summarizes the results of operations for each of our business segments for the quarter and nine months ended September 30, 2017 and 2016, respectively.  Operating expense includes costs associated with the day-to-day operations of the cinemas and the management of rental properties, including our live theater assets.







 

 

 

 

 

 

 

 

 

 

 

 



 

Quarter Ended

 

Nine Months Ended

(Dollars in thousands)

 

September 30, 2017

 

September 30, 2016

 

September 30, 2017

 

September 30, 2016

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

  Cinema exhibition

 

$

62,059 

 

$

67,825 

 

$

196,062 

 

$

192,579 

  Real estate

 

 

6,036 

 

 

5,390 

 

 

17,467 

 

 

15,961 

  Inter-segment elimination

 

 

(2,008)

 

 

(1,900)

 

 

(5,575)

 

 

(5,518)



 

$

66,087 

 

$

71,315 

 

$

207,954 

 

$

203,022 

Segment operating income:

 

 

 

 

 

 

 

 

 

 

 

 

  Cinema exhibition

 

$

6,703 

 

$

9,726 

 

$

25,581 

 

$

26,536 

  Real estate

 

 

1,549 

 

 

1,755 

 

 

5,600 

 

 

5,844 



 

$

8,252 

 

$

11,481 

 

$

31,181 

 

$

32,380 



A reconciliation of segment operating income to income before income taxes is as follows:





 

 

 

 

 

 

 

 

 

 

 

 



 

Quarter Ended

 

Nine Months Ended

(Dollars in thousands)

 

September 30, 2017

 

September 30, 2016

 

September 30, 2017

 

September 30, 2016

Segment operating income

 

$

8,252 

 

$

11,481 

 

$

31,181 

 

$

32,380 

Unallocated corporate expense

 

 

 

 

 

 

 

 

 

 

 

 

    Depreciation and amortization expense

 

 

(108)

 

 

(102)

 

 

(321)

 

 

(295)

    General and administrative expense

 

 

(4,506)

 

 

(4,769)

 

 

(13,931)

 

 

(14,693)

    Interest expense, net

 

 

(1,663)

 

 

(1,553)

 

 

(5,310)

 

 

(5,190)

Equity earnings of unconsolidated joint ventures

 

 

136 

 

 

200 

 

 

654 

 

 

808 

Gain on sale of assets

 

 

--

 

 

--

 

 

9,417 

 

 

393 

Gain on insurance recoveries

 

 

--

 

 

--

 

 

9,217 

 

 

--

Other income (expense)

 

 

89 

 

 

(12)

 

 

937 

 

 

(115)

Income before income tax expense

 

$

2,200 

 

$

5,245 

 

$

31,844 

 

$

13,288 





 







Note 2 Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries as well as majority-owned subsidiaries that the Company controls, and should be read in conjunction with the Company’s Annual Report on Form 10-K as of and for the year-ended December 31, 2016 (“2016 Form 10-K”).  All significant intercompany balances and transactions have been eliminated on consolidation.  These consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”).  As such, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. We believe that we have included all normal and recurring adjustments necessary for a fair presentation of the results for the interim period. Operating results for the quarter and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

7


 

 

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Significant estimates include (i) projections we make regarding the recoverability and impairment of our assets (including goodwill and intangibles),  (ii) valuations of our derivative instruments, (iii) recoverability of our deferred tax assets, (iv) estimation of gift card and gift certificate breakage which we concluded to have remote likelihood of redemption, and (v) allocation of insurance proceeds to various recoverable components. Actual results may differ from those estimates.



Reclassifications

Certain reclassifications have been made in the 2016 comparative information in our consolidated financial statements and accompanying notes to conform to the 2017 presentation.  These reclassifications relate to the following items, for which we assessed to be allowable under Regulation S-X, Rule 10.01 due to immaterial balances:



(i)

reclassification of Investment in Reading International Trust I as part of “Other assets” line in our consolidated balance sheets;

(ii)

net-off of interest income against interest expense in our consolidated statements of income;

(iii)

combination of certain components in our consolidated statements of comprehensive income into one line, called “Others” and,

(iv)

combination of certain amortization items in our consolidated statement of cash flows (under Operating Activities section) into a singular line, called “Other amortization”.



Recently Adopted and Issued Accounting Pronouncements



Adopted:

On January 1, 2017, the Company adopted ASU 2016-09,  Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  This new guidance, which became effective for fiscal years beginning after December 15, 2016, provides for the simplification of several aspects of the accounting for share-based payment transactions, including (i) accounting for tax benefits in excess of compensation cost and tax deficiencies, (ii) accounting for forfeitures, and (iii) classification on the statement of cash flows. The only significant impact of the adoption of this new guidance to us is the immediate recognition of excess tax benefits (or “windfalls”) and tax deficiencies (or “shortfalls”) in the consolidated statement of income.  Previously, (i) tax windfalls were recorded in additional paid-in capital (“APIC”) in the consolidated statement of stockholders equity and (ii) tax shortfalls were recorded in APIC to the extent of previous windfalls and then to the consolidated statement of income

Issued:

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  The amendments in this Update (i) require that an employer disaggregate the service cost component from the other components of net benefit cost, and (ii) provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization.  The new guidance is effective for the Company on January 1, 2018.  Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance.  We do not anticipate the adoption of ASU 2017-07 to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  This new guidance removes the second step of the two-step impairment test for measuring goodwill and is to be applied on a prospective basis only. The new guidance is effective for the Company on January 1, 2020, including interim periods within the year of adoption.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate the adoption of ASU 2017-04 to have a material impact on our consolidated financial statements.

Also, in January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.  This ASU provides that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset  is not a business”, thus reducing the number of transactions that need further evaluation for business combination.   This becomes effective for the Company on January 1, 2018.   We do not expect the ASU 2017-01 to be applicable to our consolidated financial statements in the near term unless we enter into a definitive business acquisition transaction.

Further, in January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.  This ASU requires issuers to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period.   In accordance with this disclosure requirement, we provide below our initial analysis of the impact of the following recently issued standards (including any amendments prior to

8


 

 

adoption) that are effective in future periods:

1.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606) – FASB issued this new guidance, which becomes effective for us beginning January 1, 2018, to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. GAAP.  We do not currently believe the proposed guidance will have a material impact to our cinema exhibition business.  We are in the process of completing an analysis to ensure full compliance prior to the effective date.  In regards to ASUs subsequently issued that amend or are related to ASU 2014-09, we disclose our initial analysis as follows: 



·

ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products (Subtopic 405-20) – FASB issued this new guidance on extinguishment of liabilities, which becomes effective to us beginning January 1, 2018, related to prepaid stored-value products (such as our gift cards and gift certificates) based on the same breakage model required by Topic 606, Revenue from Contracts with Customers.  Accordingly, issuers will be required to recognize the expected breakage amount (i.e., derecognize the liability) either (1) proportionally in earnings as redemptions occur, or (2) when redemption is remote. While this guidance is not applicable until 2018, we have effectively applied this through our recording of the gift card breakage income as a change in accounting policy as reported in our 2016 Form 10-K with retrospective application to January 1, 2014. As a result, we do not anticipate that the adoption of ASU 2016-04 will have a material impact on the Company’s consolidated financial statements and related disclosures.



·

ASU 2016-08, Principal vs Agent Considerations (Reporting Revenue Gross versus Net) (Topic 606) – FASB issued this amendment to the principal versus agent guidance in the new revenue standard to clarify that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer.  We do not anticipate that the adoption of ASU 2016-08 will have a material impact on our consolidated financial statements and related disclosures.



2.

ASU 2016-02, Leases (Topic 842)  This new guidance, which becomes effective for us by January 1, 2019, establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  While we are still evaluating the impact of our pending adoption of this new standard on our consolidated financial statements, we expect that upon adoption we will recognize ROU assets and lease liabilities and that the amounts could be material since a majority of our operating cinemas are on a  leased-facility model.  We have developed an implementation plan. Significant implementation matters that we are addressing include(i) assessment of lease population, (ii) determination of appropriate discount rate to use and (ii) assessment of renewal options to include in the initial lease term.





Note 3 – 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 (collectively “foreign operations”) on a self-funding basis where we use cash flows generated by our foreign operations to pay for the expense of foreign operations.  Our Australian and New Zealand assets and liabilities are translated from their functional currencies of Australian dollar (“AU$”) and New Zealand dollar (“NZ$”), respectively, to the U.S. dollar based on the exchange rate as of September 30, 2017. The carrying value of the assets and liabilities of our foreign operations fluctuates as a result of changes in the exchange rates between the functional currencies of the foreign operations and the U.S. dollar. The translation adjustments are accumulated in the Accumulated Other Comprehensive Income in the Consolidated Balance Sheets.

As indicated previously, our overall operating strategy is to conduct business mostly on a self-funding basis (except for funds used to pay an appropriate share of our U.S. corporate overhead).  As such, we do not use derivative financial instruments to hedge against the risk of foreign currency exposure.  However, in certain circumstances, we may decide to move funds between jurisdictions where circumstances encouraged us to do so from an overall economic standpoint. As of December 31, 2016, we determined certain intercompany advances from the U.S. Parent Company to our Australian subsidiary should be considered short-term.    

Subsequently, on September 1, 2017, we determined that the remaining AU$21.1 million in long-term intercompany loans should be considered as short-term as well.   Such assessment was made on the basis of global funding opportunities, which were not present as of December 31, 2016.

As a result, we recognized foreign exchange gain on these intercompany advances based on the relative strengthening of the Australian dollar to the U.S. dollar in the amounts of $910,000 for the nine months ended September 30, 2017 in our Consolidated Statements of Income.





9


 

 

Presented in the table below are the currency exchange rates for Australia and New Zealand:







 

 

 

 

 

 

 

 

 



Foreign Currency / USD



September 30, 2017

 

December 31, 2016

 

September 30, 2016



As of and for the quarter ended

 

As of and for the nine months ended

 

As of and for the twelve months ended

 

As of and for the quarter ended

 

As of and for the nine months ended

Spot Rate

 

 

 

 

 

 

 

 

 

Australian Dollar

0.7840

 

0.7230

 

0.7667

New Zealand Dollar

0.7225

 

0.6958

 

0.7290

Average Rate

 

 

 

 

 

 

 

 

 

Australian Dollar

0.7899

 

0.7664

 

0.7440

 

0.7583

 

0.7420

New Zealand Dollar

0.7307

 

0.7159

 

0.6973

 

0.7226

 

0.6926







Note 4 – Earnings Per Share



Basic earnings per share (“EPS”) is calculated by dividing the net income attributable to the Company’s common stockholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated by dividing the net income attributable to the Company’s common stockholders by the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards



The following table sets forth the computation of basic and diluted EPS and a reconciliation of the weighted average number of common and common equivalent shares outstanding:





 

 

 

 

 

 

 

 

 

 

 

 



 

Quarter Ended

 

Nine Months Ended

(Dollars in thousands, except share data)

 

September 30,
2017

 

September 30,
2016

 

September 30,
2017

 

September 30,
2016

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to RDI common stockholders

 

$

1,556 

 

$

3,855 

 

$

23,619 

 

$

9,054 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common stock – basic

 

22,968,017 

 

23,334,892 

 

23,101,619 

 

23,334,892 

Weighted average dilutive impact of awards

 

244,615 

 

197,904 

 

244,615 

 

197,904 

Weighted average number of common stock – diluted

 

23,212,632 

 

23,532,796 

 

23,346,234 

 

23,532,796 

Basic EPS attributable to RDI common stockholders

 

$

0.07 

 

$

0.17 

 

$

1.02 

 

$

0.39 

Diluted EPS attributable to RDI common stockholders

 

$

0.07 

 

$

0.16 

 

$

1.01 

 

$

0.38 

Awards excluded from diluted EPS

 

149,841 

 

108,000 

 

 

149,841 

 

 

108,000 



Our weighted average number of common stock decreased as a result of our repurchase of 192,207 shares and 403,156 shares of Class A Common Stock for the quarter and nine months ended September 30, 2017, respectively, pursuant to our current stock repurchase program.



 

Note 5 – Property and Equipment

Operating Property, net

As of September 30, 2017 and December 31, 2016, property associated with our operating activities is summarized as follows:





 

 

 

 

 

 



 

September 30,

 

December 31,

(Dollars in thousands)

 

2017

 

2016

Land

 

$

76,736 

 

$

73,803 

Building and improvements

 

 

130,923 

 

 

122,863 

Leasehold improvements

 

 

48,605 

 

 

46,902 

Fixtures and equipment

 

 

130,086 

 

 

118,180 

Construction-in-progress

 

 

19,922 

 

 

11,517 

Total cost

 

 

406,272 

 

 

373,265 

  Less: accumulated depreciation

 

 

(180,641)

 

 

(161,379)

Operating property, net

 

$

225,631 

 

$

211,886 



10


 

 

Depreciation expense for operating property was $4.0 million and $11.8 million for the quarter and nine months ended September 30, 2017, and $4.0 million and $11.2 million for the quarter and nine months ended September 30, 2016.

Investment and Development Property, net

As of September 30, 2017 and December 31, 2016, our investment and development property is summarized below:



 

 

 

 

 

 



 

September 30,

 

December 31,

(Dollars in thousands)

 

2017

 

2016

Land

 

$

25,285 

 

$

24,616 

Building

 

 

1,900 

 

 

1,900 

Construction-in-progress (including capitalized interest)

 

 

46,566 

 

 

17,171 

Investment and development property

 

$

73,751 

 

$

43,687 

 



Construction-in-Progress Operating and Investing Properties

Construction-in-Progress balances are included in both our operating and development properties. The balances of our major projects along with the movements for the nine months ended September 30, 2017 are shown below:





 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Balance, December 31, 2016

 

Additions during the period(1)

 

Completed during the period

 

Foreign currency movements

 

Balance, September 30, 2017

Union Square development

$

11,412 

$

13,413 

$

--

$

--

$

24,825 

Newmarket Property development

 

2,106 

 

14,492 

 

--

 

438 

 

17,036 

Courtenay Central development

 

3,510 

 

883 

 

--

 

149 

 

4,542 

Cinema developments and improvements

 

7,796 

 

8,810 

 

(1,845)

 

64 

 

14,825 

Other real estate projects

 

3,864 

 

5,141 

 

(3,942)

 

197 

 

5,260 

Total

$

28,688 

$

42,739 

$

(5,787)

$

848 

$

66,488 



(1) Includes capitalized interest of $369,000 and $790,000 for the quarter and nine months ended September 30, 2017.

Real Estate Transactions



Sale of Landholding in Burwood, Australia

On May 12, 2014, we entered into a contract to sell our undeveloped 50.6 acre parcel in Burwood, Victoria, Australia, to Australand Holdings Limited (now known as Frasers Property Australia, “Frasers”) for a purchase price of $50.8 million (AU$65.0 million).  We received $5.9 million (AU$6.5 million) on May 23, 2014.   

The agreement provides for mandatory pre-payments in the event that any of the land is sold by the buyer, any such prepayment being in an amount equal to the greater of (a) 90% of the net sales price or (b) the balance of the purchase price multiplied by a fraction the numerator of which is the square footage of property being sold by the buyer and the denominator of which is the original square footage of the property being sold to the buyer.  The agreement does not provide for the payment of interest on the balance owed.

On June 19, 2017, Frasers sold a parcel of land for which we received additional payment in the amount of $16.5 million (AU$21.8 million), representing 90% of the net sales price.  We expect the final settlement on the remaining receivable amount of $28.8 million  (AU36.7 million), included as part of “Receivables” in our Consolidated Balance Sheet, to occur in December 2017.  Cumulatively, this transaction now has achieved the requisites to consummate the sale.  Since there is reasonable assurance of cost recovery and we have assessed the collectability of the remaining receivable to be high, we recognized the sale of the land and the total transaction gain, in the amount of $9.4 million (AU$12.5 million) during the quarter ended June 30, 2017, determined as follows:

 





 

 

 

(Dollars in thousands)

 

In AU$

Selling price

 

$

65,000 

Less: Property book value

 

 

(52,108)

Total transaction gain, gross

 

 

12,892 

Less: Direct costs incurred(1)

 

 

(439)

Total transaction gain, net

 

$

12,453 



(1) Represents commissions and legal expenses incurred in connection with this transaction. 



11


 

 

Sale of Properties in Taupo, New Zealand

On April 1, 2015, we entered into two definitive purchase and sale agreements to sell our properties at Taupo, New Zealand for a combined sales price of $2.4 million (NZ$3.4 million).  The first agreement related to a property with a sales price of $1.6 million (NZ$2.2 million) and a book value of $1.3 million (NZ$1.8 million), which closed on April 30, 2015 when we received the sales price in full. The other agreement related to a property with a sales price of $831,000  (NZ$1.2 million) and a book value of $426,000 (NZ$615,000) which was completed and for which we received cash settlement representing the full sales price on March 31, 2016.  The first transaction qualified as a sale under both U.S. GAAP and tax purposes during the year-ended December 31, 2015.  The second transaction was recorded as a sale during the quarter ended March 31, 2016.





Note 6 – Investments in Unconsolidated Joint Ventures

Our investments in unconsolidated joint ventures are accounted for under the equity method of accounting. Our previous investment in Rialto Distribution, which was fully written off since 2010, has been transferred to our previous business partners.  As part of our exit strategy, we paid an amount lower than the accrual we had taken for our debt obligation in the joint venture.  Consequently, we recognized a gain of  $15,000  (NZ$21,000) during the quarter ended June 30, 2017.



The table below summarizes our active investment holdings in two (2) unconsolidated joint ventures as of September 30, 2017 and December 31, 2016:



 

 

 

 

 

 

 

 



 

 

 

September 30,

 

December 31,

(Dollars in thousands)

 

Interest

 

2017

 

2016

Rialto Cinemas

 

50.0%

 

$

1,211 

 

$

1,197 

Mt. Gravatt

 

33.3%

 

 

4,128 

 

 

3,874 

Total investments

 

 

 

$

5,339 

 

$

5,071 



For the quarter and nine months ended September 30, 2017 and 2016, the recognized share of equity earnings from our investments in unconsolidated joint ventures are as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Quarter Ended

 

Nine Months Ended



 

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

(Dollars in thousands)

 

 

2017

 

 

2016

 

 

2017

 

 

2016

Rialto Cinemas

 

 

 

$

32 

 

$

47 

 

 

93 

 

 

208 

Mt. Gravatt

 

 

 

 

104 

 

 

153 

 

 

561 

 

 

600 

Total equity earnings

 

 

 

$

136 

 

$

200 

 

$

654 

 

$

808 







Note 7 – Goodwill and Intangible Assets

The table below summarizes goodwill by business segment as of September 30, 2017 and December 31, 2016.  







 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Cinema

 

Real Estate

 

Total

Balance at December 31, 2016

 

$

14,604 

 

$

5,224 

 

$

19,828 

Foreign currency translation adjustment

 

 

610 

 

 

--

 

 

610 

Balance at September 30, 2017

 

$

15,214 

 

$

5,224 

 

$

20,438 



The Company is required to test goodwill and other intangible assets for impairment on an annual basis and, if current events or circumstances require, on an interim basis.  Our next annual evaluation of goodwill and other intangible assets is scheduled during the fourth quarter of 2017.  To test the impairment of goodwill, the Company compares the fair value of each reporting unit to its carrying amount, including the goodwill, to determine if there is potential goodwill impairment. A reporting unit is generally one level below the operating segment. As of September 30, 2017, we were not aware of any events indicating potential impairment of goodwill had occurred.

The tables below summarize intangible assets other than goodwill as of September 30, 2017 and December 31, 2016, respectively.









 

 

 

 

 

 

 

 

 

 

 

 



 

As of September 30, 2017

(Dollars in thousands)

 

Beneficial Leases

 

Trade Name

 

Other Intangible Assets

 

Total

Gross carrying amount

 

$

28,879 

 

$

7,254 

 

$

1,087 

 

$

37,220 

Less: Accumulated amortization

 

 

(22,971)

 

 

(4,860)

 

 

(480)

 

 

(28,311)

Net intangible assets other than goodwill

 

$

5,908 

 

$

2,394 

 

$

607 

 

$

8,909 









 

 

 

 

 

 

 

 

 

 

 

 

12


 

 



 

As of December 31, 2016

(Dollars in thousands)

 

Beneficial Leases

 

Trade Name

 

Other Intangible Assets

 

Total

Gross carrying amount

 

$

28,671 

 

$

7,254 

 

$

1,084 

 

$

37,009 

Less: Accumulated amortization

 

 

(21,870)

 

 

(4,634)

 

 

(468)

 

 

(26,972)

Net intangible assets other than goodwill

 

$

6,801 

 

$

2,620 

 

$

616 

 

$

10,037 



Beneficial leases are amortized over the life of the lease up to 30 years, trade names are amortized based on the accelerated amortization method over its estimated useful life of 45 years, and other intangible assets are amortized over their estimated useful lives of up to 30 years (except for transferrable liquor licenses, which are indefinite-lived assets)The table below summarizes the amortization expense of intangible assets for the quarter and nine months ended September  30, 2017.  





 

 

 

 

 

 

 

 

 

 

 

 



 

Quarter Ended

 

Nine Months Ended



 

September 30,

 

September 30,

 

September 30,

 

September 30,

(Dollars in thousands)

 

2017

 

2016

 

2017

 

2016

Beneficial lease amortization

 

$

278 

 

$

578 

 

$

935 

 

$

968 

Other amortization

 

 

104 

 

 

296 

 

 

311 

 

 

845 

Total intangible assets amortization

 

$

382 

 

$

874 

 

$

1,246 

 

$

1,813 











Note 8 – Prepaid and Other Assets

Prepaid and other assets are summarized as follows:





 

 

 

 

 

 



 

September 30,

 

December 31,

(Dollars in thousands)

 

2017

 

2016

Prepaid and other current assets

 

 

 

 

 

 

Prepaid expenses

 

$

2,080 

 

$

981 

Prepaid rent

 

 

1,029 

 

 

1,237 

Prepaid taxes

 

 

863 

 

 

3,098 

Deposits

 

 

295 

 

 

404 

Investment in marketable securities

 

 

45 

 

 

50 

Restricted cash

 

 

17 

 

 

17 

Total prepaid and other current assets

 

$

4,329 

 

$

5,787 

Other non-current assets

 

 

 

 

 

 

Straight-line rent

 

 

2,509 

 

 

2,457 

Other non-cinema and non-rental real estate assets

 

 

1,134 

 

 

1,134 

Investment in Reading International Trust I

 

 

838 

 

 

838 

Interest rate cap at fair value

 

 

15 

 

 

Long-term deposits

 

 

 

 

39 

Insurance receivable(1)

 

$

--

 

$

9,480 

Total other non-current assets

 

$

4,501 

 

$

13,949 



 (1) This was subsequently received in May 2017 as a result of the final settlement from our Insurer.  Refer to Note 18 – Insurance Recoveries for further discussion on this item.

 

Note 9 – Income Taxes 

The provision for income taxes is different from the amount determined by applying the U.S. federal statutory rate to consolidated income before taxes.  The differences are attributable to foreign tax rate differential, unrecognized tax benefits, change in valuation allowance, and non-taxable insurance proceeds. Our effective tax rate was 26.0% and 31.8% for the nine months ended September 30, 2017 and 2016, respectively.  The change between 2017 and 2016 is primarily related to non-taxable income from insurance proceeds received in 2017 relating to our demolished Courtenay Central parking structure in Wellington, New Zealand.

13


 

 

Note 10 – Debt 



The Company’s borrowings at September 30, 2017 and December 31, 2016, net of deferred financing costs and including the impact of interest rate derivatives on effective interest rates, are summarized below:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

As of September 30, 2017

(Dollars in thousands)

 

Maturity Date

 

Contractual Facility

 

Balance, Gross

 

Balance, Net(3)

 

Stated Interest Rate

 

Effective Interest Rate (1)

Denominated in USD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Trust Preferred Securities (USA)

 

April 30, 2027

 

$

27,913 

 

$

27,913 

 

$

27,501 

 

5.31%

 

5.20%



Bank of America Credit Facility (USA)

 

November 28, 2019

 

 

55,000 

 

 

40,500 

 

 

40,481 

 

3.74%

 

3.65%



Bank of America Line of Credit (USA)

 

October 31, 2019

 

 

5,000 

 

 

--

 

 

--

 

4.24%

 

4.24%



Cinema 1, 2, 3 Term Loan (USA)(4)

 

September 1, 2019

 

 

19,601 

 

 

19,601 

 

 

19,168 

 

3.25%

 

3.25%



Minetta & Orpheum Theatres Loan (USA)(4)

 

June 1, 2018

 

 

7,500 

 

 

7,500 

 

 

7,452 

 

4.00%

 

4.00%



U.S. Corporate Office Term Loan (USA)(4)

 

January 1, 2027

 

 

9,774 

 

 

9,774 

 

 

9,651 

 

4.64%

 

4.64%



Union Square Construction Financing (USA)(4)

 

December 29, 2019

 

 

57,500 

 

 

8,000 

 

 

5,351 

 

5.49%

 

5.49%

Denominated in foreign currency ("FC") (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



NAB Corporate Term Loan (AU)

 

June 28, 2019

 

 

52,136 

 

 

38,024 

 

 

37,920 

 

3.55%

 

3.55%



Westpac Corporate Credit Facility (NZ)

 

December 31, 2018

 

 

38,293 

 

 

--

 

 

--

 

3.70%

 

3.70%



 

$

272,717 

 

 

151,312 

 

 

147,524 

 

 

 

 





(1) Effective interest rate includes the impact of interest rate derivatives hedging the interest rate risk associated with Trust Preferred Securities and Bank of America Credit Facility that were outstanding as of September 30, 2017.

(2) The contractual facilities and outstanding balances of the FC-denominated borrowings were translated into U.S. dollars based on the applicable exchange rates as of September 30, 2017.

(3) Net of deferred financing costs amounting to $3.8 million.

(4) The loan for our Minetta & Orpheum Theatres was obtained from Santander Bank. The term loan for our Cinema 1,2,3 Theatre was refinanced during the third quarter of 2016 with Valley National Bank. The term loan, which is collateralized by our new U.S Corporate Headquarters office building, was obtained with Citizens Asset Finance, Inc.  In December 2016, we completed the negotiation of the construction financing for our Union Square redevelopment project, $8.0 million of which was advanced from the total construction loan limit of $57.5 million



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

As of December 31, 2016

(Dollars in thousands)

 

Maturity Date

 

Contractual Facility

 

Balance, Gross

 

Balance, Net(3)

 

Stated Interest Rate

 

Effective Interest Rate (1)

Denominated in USD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Trust Preferred Securities (USA)

 

April 30, 2027

 

$

27,913 

 

$

27,913 

 

$

27,340 

 

4.89%

 

5.20%



Bank of America Credit Facility (USA)

 

November 28, 2019

 

 

55,000 

 

 

39,950 

 

 

39,759 

 

3.27%

 

3.90%



Bank of America Line of Credit (USA)

 

October 31, 2019

 

 

5,000 

 

 

--

 

 

--

 

3.77%

 

3.77%



Cinema 1, 2, 3 Term Loan (USA)(4)

 

September 1, 2019

 

 

19,901 

 

 

19,901 

 

 

19,356 

 

3.25%

 

3.25%



Minetta & Orpheum Theatres Loan (USA)(4)

 

June 1, 2018

 

 

7,500 

 

 

7,500 

 

 

7,398 

 

3.38%

 

3.38%



U.S. Corporate Office Term Loan (USA)(4)

 

January 1, 2027

 

 

8,363 

 

 

8,363 

 

 

8,239 

 

4.64%

 

4.64%



Union Square Construction Financing (USA)(4)

 

December 29, 2019

 

 

57,500 

 

 

8,000 

 

 

4,751 

 

4.52%

 

4.52%

Denominated in FC (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



NAB Corporate Term Loan (AU)

 

June 30, 2019

 

 

48,080 

 

 

28,558 

 

 

28,421 

 

2.64%

 

2.64%



Westpac Corporate Credit Facility (NZ)

 

March 31, 2018

 

 

36,877 

 

 

8,350 

 

 

8,350 

 

3.80%

 

3.80%



 

 

 

 

$

266,134 

 

$

148,535 

 

$

143,614 

 

 

 

 



(1) Effective interest rate includes the impact of interest rate derivatives hedging the interest rate risk associated with Trust Preferred Securities and Bank of America Credit Facility that were outstanding as of December 31, 2016.

(2) The contractual facilities and outstanding balances of the FC-denominated borrowings were translated into U.S. dollars based on the applicable exchange rates as of December 31, 2016.

(3) Net of deferred financing costs amounting to $4.9 million.

(4) The loan for our Minetta & Orpheum Theatres was obtained from Santander Bank. The term loan for our Cinema 1,2,3 Theatre was refinanced during the third quarter of 2016 with Valley National Bank. The term loan, which is collateralized by our new U.S Corporate Headquarters office building, was obtained with Citizens Asset Finance, Inc.. In December 2016, we completed the negotiation of the construction financing for our Union Square redevelopment project, $8.0 million of which was advanced from the total construction loan limit of $57.5 million



The Minetta & Orpheum Theatres Loan will become due within one year.  Currently, we are negotiating with our lender to renew this borrowing. 



Our loan arrangements are presented, net of the deferred financing costs, on the face of our consolidated balance sheet as follows:





 

 

 

 

 

 



 

Dollars in thousands

Balance Sheet Caption

 

September 30, 2017

 

December 31, 2016

Debt - current portion

 

$

8,084 

 

$

567 

Debt - long-term portion

 

 

111,939 

 

 

115,707 

Subordinated debt

 

 

27,501 

 

 

27,340 

Total borrowings

 

$

147,524 

 

$

143,614 



Union Square Construction Financing

On December 29, 2016, we closed our new construction finance facilities totaling $57.5 million to fund the non-equity portion of the

14


 

 

anticipated construction costs of the redevelopment of our property at 44 Union Square in New York City. The combined facilities consist of $50 million in aggregate loans (comprised of three loan tranches) from Bank of the Ozarks and a $7.5 million mezzanine loan from Tammany Mezz Investor, LLC, an affiliate of Fisher Brothers.  As of December 31, 2016, Bank of the Ozarks advanced $8.0 million to repay the then existing $8.0 million loan with East West Bank.

Presented in the table below is the breakdown of the Union Square construction financing as of September 30, 2017:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

Facility Limits and Advances

 

 

 

 

Financing Component

 

Lender

 

Facility Limit

 

Advanced-to- Date

 

Remaining Facility

 

Interest Rate(1)

 

Maturity Date(2)

Mezzanine loan

 

Tammany Mezz Investor LLC

 

$

7,500 

 

$

--

 

$

7,500 

 

Greater of (i) 10.50% and (ii) Adjusted LIBOR + 10%

 

December 29, 2019

Senior loan, including building and project loan

 

Bank of the Ozarks

 

 

50,000 

 

 

8,000 

 

 

42,000 

 

Greater of (i) 4.75% and (ii) Adjusted LIBOR + 4.25%

 

December 29, 2019

Total Union Square Financing

 

$

57,500 

 

$

8,000 

 

$

49,500 

 

 

 

 



(1) Not to exceed the New York State maximum lawful borrowing rate, which typically is 16%.

(2) Allowable for up to two (2) extension request options, one (1) year for each extension request.



Cinema 1,2,3 Term Loan

On August 31, 2016, Sutton Hill Properties LLC (“SHP”), a 75% subsidiary of RDI, refinanced its $15.0 million Santander Bank term loan with a different lender, Valley National Bank.  This new $20.0 million loan is collateralized by our Cinema 1,2,3 property and bears an interest rate of 3.25%  per annum, with principal instalments and accruing interest paid monthly. The new loan matures on September 1, 2019, with a one-time option to extend the maturity date for another year.



Bank of America Credit Facility

On March 3, 2016, we amended our $55.0 million credit facility with Bank of America to permit real property acquisition loans.  This amendment provides that the consolidated leverage ratio be reduced by 0.25% from the established levels in the credit facility during the period of such borrowing, with a repayment term based on the earlier of the eighteen months from the date of such borrowing or the maturity date of the credit agreement.  Such modification was not considered substantial in accordance with U.S. GAAP. 



Bank of America Line of Credit

In October 2016, the term of this line of credit was extended to October 31, 2019.  Such modification was not considered to be substantial under US GAAP.



Westpac Bank Corporate Credit Facility

On April 26, 2017, we extended the maturity of the 1st tranche (general/non-construction credit line) of our Westpac Corporate Credit Facility, $24.5 million (NZ$35.0 million) to December 31, 2018, from March 31, 2018We  are currently working on a longer-term renewal of our Westpac Corporate Credit Facility which will replace the existing facility.

U.S. Corporate Office Term Loan

On December 13, 2016, we obtained a ten-year $8.4 million mortgage loan on our new Los Angeles Corporate Headquarters at a fixed annual interest rate of 4.64%.    This loan provided for a second loan upon completion of certain improvements.  On June 26, 2017, we obtained a further $1.5 million under this provision at a fixed annual interest rate of 4.44%.

Note 11 – Other Liabilities

Other liabilities are summarized as follows:



 

 

 

 

 

 

(Dollars in thousands)

 

September 30, 2017

 

December 31, 2016

Current liabilities

 

 

 

 

 

 

Lease liability

 

$

5,900 

 

$

5,900 

Liability for demolition costs

 

 

2,934 

 

 

5,914 

Accrued pension

 

 

2,736 

 

 

2,223 

Security deposit payable

 

 

90 

 

 

77 

Other

 

 

--

 

 

17 

  Other current liabilities

 

$

11,660 

 

$

14,131 

Other liabilities

 

 

 

 

 

 

Straight-line rent liability

 

$

12,759 

 

$

12,413 

Lease make-good provision

 

 

5,596 

 

 

5,146 

Accrued pension

 

 

5,354 

 

 

5,732 

Environmental reserve

 

 

1,656 

 

 

1,656 

Deferred revenue - real estate

 

 

 

 

4,398 

Acquired leases

 

 

209 

 

 

267 

Interest rate swap

 

 

--

 

 

58 

Other

 

 

479 

 

 

495 

  Other liabilities

 

$

26,056 

 

$

30,165 

15


 

 

On August 29, 2014, the Supplemental Executive Retirement Plan (“SERP”) that has been effective since March 1, 2007, was ended and replaced in accordance with the terms of a pension annuity.  As a result of the termination of the SERP program, the accrued pension liability of $7.6 million was reversed and replaced with this pension annuity liability of $7.5 million.  The valuation of the liability is based on the present value of $10.2 million discounted at a rate of 4.25% over a 15- year term, resulting in a monthly payment of $57,000.  The discount rate of 4.25% has been applied since 2014 to determine the net periodic benefit cost and plan benefit obligation and is expected to be used in future years.  The discounted value of $2.7 million (which is the difference between the estimated payout of $10.2 million and the present value of $7.5 million) as of August 29, 2014 will be amortized and expensed based on the 15-year term.  In addition, the accumulated actuarial loss of $3.1 million recorded, as part of other comprehensive income will also be amortized based on the 15-year term.



As a result of the above, included in our current and non-current liabilities are accrued pension costs of $8.1 million at September 30, 2017.  The benefits of our pension plans are fully vested and therefore no service costs were recognized for the quarter and nine months ended September 30, 2017 and 2016Our pension plans are unfunded.  During the quarter and  nine months ended September 30, 2017, the interest cost was $45,000 and $135,000, respectively, and actuarial loss was $52,000 and $155,000, respectively.  During the quarter and nine months ended September 30, 2016, the interest cost was $45,000 and $135,000, respectively, and actuarial loss was $52,000 and $116,000, respectively. 



Note 12 – Accumulated Other Comprehensive Income

The following table summarizes the changes in each component of accumulated other comprehensive income attributable to RDI:





 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Foreign Currency Items

 

Unrealized Gain (Losses) on Available-for-Sale Investments

 

Accrued Pension Service Costs

 

Total

Balance at January 1, 2017

$

14,784 

 

$

10 

 

$

(2,719)

 

$

12,075 

Net current-period other comprehensive income

 

10,173 

 

 

(4)

 

 

155 

 

 

10,324 

Balance at September 30, 2017

$

24,957 

 

$

 

$

(2,564)

 

$

22,399 























Note 13 – Commitments and Contingencies

Litigation 

Derivative Litigation and James J. Cotter, Jr. Employment Arbitration

On June 12, 2015, the Board of Directors terminated James J. Cotter, Jr. as the President and Chief Executive Officer of our Company.  That same day, Mr. Cotter, Jr. filed a lawsuit, styled as both an individual and a derivative action, and titled “James J. Cotter, Jr., individually and derivatively on behalf of Reading International, Inc. vs. Margaret Cotter, et al.” Case No,: A-15-719860-V, Dept. XI, against our Company and each of our then sitting Directors (Ellen Cotter, Margaret Cotter, Guy Adams, William Gould, Edward Kane, Douglas McEachern, and Tim Storey) in the Eighth Judicial District Court of the State of Nevada for Clark County (the “Nevada District Court”).   Since that date, our Company has been engaged in ongoing litigation with Mr. Cotter, Jr. with respect to his claims against our Directors. Mr. Cotter, Jr. has over this period of time twice amended his complaint, removing his individual claims and withdrawing his claims against Tim Storey (but reserving the right to reinstitute such claims), adding claims relating to actions taken by our Board since the filing of his original complaint and adding as defendants two of our directors who were not on our Board at the time of his termination:  Judy Codding and Michael Wrotniak.  Mr. Cotter, Jr.’s lawsuit, as amended from time to time, is referred to herein as the “Cotter Jr. Derivative Action” and his complaint, as amended from time to time, is referred to herein as the “Cotter Jr. Derivative Complaint.”  The defendant directors named in the Cotter Jr. Derivative Complaint, from time to time, are referred to herein as the “Defendant Directors.”

 

The Cotter Jr. Derivative Complaint alleges among other things, that the Defendant Directors breached their fiduciary duties to the Company by terminating  Mr. Cotter, Jr. as President and Chief Executive Officer,  continuing to make use of the Executive Committee that has been in place for more than the past ten years (but which no longer includes Mr. Cotter, Jr. as a member), making allegedly potentially misleading statements in our Company’s press releases and filings with the SEC, paying certain compensation to Ellen Cotter, allowing the Cotter Estate to make use of Class A Common Stock to pay for the exercise of certain long outstanding stock options to acquire 100,000 shares of Class B Common Stock held of record by the Cotter Estate and determined by the Nevada District Court to be assets of the Cotter Estate, and allowing Ellen Cotter and Margaret Cotter to vote the 100,000 shares of Class B Common Stock issued upon the exercise of such options, appointing Ellen Cotter as President and Chief Executive Officer, appointing Margaret Cotter as Executive Vice President-Real Estate Management and Development-NYC, and the way in which the Board handled an unsolicited indication of interest made by a third party to acquire all of the stock of our Company. In the lawsuit, Mr. Cotter, Jr. seeks, among other things, reinstatement as President and Chief Executive Officer, a declaration that Ellen Cotter and Margaret Cotter may not vote the above referenced 100,000 shares of Class B Stock, and alleges as damages fluctuations in the price for our Company’s shares after the announcement of his termination as President and Chief Executive Officer and certain unspecified

16


 

 

damages to our Company’s reputation.



In addition, our Company is in arbitration with Mr. Cotter, Jr.  (Reading International, Inc. v. James J. Cotter, AAA Case No. 01-15-0004-2384, filed July 2015) (the “Cotter Jr. Employment Arbitration”) seeking declaratory relief and defending claims asserted by Mr. Cotter, Jr.  On January 20, 2017, Mr. Cotter Jr. filed a First Amended Counter-Complaint which includes claims of breach of contract, contractual indemnification, retaliation, wrongful termination in violation of California Labor Code § 1102.5, wrongful discharge, and violations of California Code of Procedure § 1060 based on allegations of unlawful and unfair conduct. Mr. Cotter, Jr. seeks compensatory damages estimated by his counsel at more than $1.2 million, plus unquantified special and punitive damages, penalties, interest and attorney’s fees.  On April 9, 2017, the Arbitrator granted without leave to amend the Company’s motion to dismiss Mr. Cotter, Jr.’s claims for retaliation, violation of labor code §1102.5 and wrongful discharge in violation of public policy.



Mr. Cotter, Jr. also brought a direct action in the Nevada District Court (James J. Cotter, Jr. v. Reading International, Inc., a Nevada corporation; Does 1-100 and Roe Entities, 1-100, inclusive, Case No. A-16-735305-B) seeking advancement of attorney’s fees incurred in the Cotter Jr. Employment Arbitration.   Summary judgment was entered against Mr. Cotter, Jr. with respect to that direct action on October 3, 2016.



For a period of approximately 12 months, between August 6, 2015 and August 4, 2016, our Company and our directors other than Mr. Cotter, Jr. were subject to a derivative lawsuit  filed in the Nevada District Court captioned T2 Partners Management, LP, a Delaware limited partnership, doing business as Kase Capital Management; T2 Accredited Fund, LP, a Delaware limited partnership, doing business as Kase Fund; T2 Qualified Fund, LP, a Delaware limited partnership, doing business as Kase Qualified Fund; Tilson Offshore Fund, Ltd, a Cayman Islands exempted company; T2 Partners Management I, LLC, a Delaware limited liability company, doing business as Kase Management; T2 Partners Management Group, LLC, a Delaware limited liability company, doing business as Kase Group; JMG Capital Management, LLC, a Delaware limited liability company, Pacific Capital Management, LLC, a Delaware limited liability company (the “T2 Plaintiffs”), derivatively on behalf of Reading International, Inc. vs. Margaret Cotter, Ellen Cotter, Guy Adams, Edward Kane, Douglas McEachern, Timothy Storey, William Gould and Does 1 through 100, inclusive, as defendants, and, Reading International, Inc., a Nevada corporation, as Nominal Defendant.  That complaint was subsequently amended (as amended the “T2 Derivative Complaint”) to add as defendants Directors Judy Codding and Michael Wrotniak (collectively with the directors initially named the “T2 Defendant Directors”) and S. Craig Tompkins, our Company’s legal counsel (collectively with the T2 Defendant Directors, the “T2 Defendants”).    The T2 Derivative Action was settled pursuant to a Settlement Agreement between the parties dated August 4, 2016, which as modified was approved by the Nevada District Court on October 6, 2016.   The District Court’s Order provided for the dismissal with prejudice of all claims contained in the T2 Plaintiffs’ First Amended Complaint and provide that each side would be responsible for its own attorneys’ fees. 



In the joint press release issued by our Company and the T2 Plaintiffs on July 13, 2016, representatives of the T2 Plaintiffs stated as follows:  "We are pleased with the conclusions reached by our investigations as Plaintiff Stockholders and now firmly believe that the Reading Board of Directors has and will continue to protect stockholder interests and will continue to work to maximize shareholder value over the long-term.  We appreciate the Company's willingness to engage in open dialogue and are excited about the Company's prospects. Our questions about the termination of James Cotter, Jr., and various transactions between Reading and members of the Cotter family-or entities they control-have been definitively addressed and put to rest. We are impressed by measures the Reading Board has made over the past year to further strengthen corporate governance.  We fully support the Reading Board and management team and their strategy to create stockholder value.”



The T2 Plaintiffs alleged in their T2 Derivative Complaint various violations of fiduciary duty, abuse of control, gross mismanagement and corporate waste by the T2 Defendant Directors.  More specifically the T2 Derivative Complaint sought the reinstatement of James J. Cotter, Jr. as President and Chief Executive Officer, an order setting aside the election results from the 2015 Annual Meeting of Stockholders, based on an allegation that Ellen Cotter and Margaret Cotter were not entitled to vote the shares of Class B Common Stock held by the Cotter Estate and the Cotter Trust, and certain monetary damages, as well as equitable injunctive relief, attorney fees and costs of suit.   In May 2016, the T2 Plaintiffs unsuccessfully sought a preliminary injunction (1) enjoining the Inspector of Elections from counting at our 2016 Annual Meeting of Stockholders any proxies purporting to vote either the 327,808 Class B shares held of record by the Cotter Estate or the 696,080 Class B shares held of record by the Cotter Trust, and (2) enjoining Ellen Cotter, Margaret Cotter and James J. Cotter, Jr. from voting the above referenced shares at the 2016 Annual Meeting of Stockholders.  This request for preliminary injunctive relief was denied by the Nevada District Court after a hearing on May 26, 2016.



On September 15, 2016, Mr. Cotter, Jr. filed a writ with the Nevada Supreme Court seeking a determination that the Nevada District Court erred in its determination that, by communicating his thoughts about the Cotter Jr. Derivative Action with counsel for the T2 Plaintiffs without any confidentiality or joint representation agreement, Mr. Cotter, Jr’s counsel waived any attorney work product privilege that might otherwise have been applicable to such communication.  Our Company is of the view that any privilege was waived by the unprotected communication of such thoughts to a third party such as counsel to the T2 Plaintiffs.  On March 23, 2017, the Nevada Supreme Court set oral argument on the matter for the next available calendar.



On February 14, 2017, we filed a writ with the Nevada Supreme Court seeking a determination that the Nevada District Court erred in

17


 

 

its decision to allow Mr. Cotter, Jr. access to certain communications between the Defendant Directors and Company counsel, which the Defendant Directors and our Company believe to be subject to the attorney-client communication privilege. Specifically, our writ asks the Nevada Supreme Court to determine whether the fact that the Defendant Directors are relying upon the Nevada business judgment rule constitutes, in whole or in part, a waiver of the attorney-client privilege held by us. 



Our request was substantially mooted by the decision in July 2017 in the Wynn Resorts Case, in which similar issues were considered.  In that case, the Nevada Supreme Court stated:



Accordingly, we reiterate that the business judgment rule goes beyond shielding directors from personal liability in decision-making.  Rather, it also ensures that courts defer to the business judgment of corporate executives and prevents courts from “substitute[ing] [their] own notions of what is or is not sound business judgment,” if “the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.”  [Citations omitted]



And,



We agree that “it is the existence of legal advice that is material to the question of whether the board acted with due care, not the substance of that advice.”  Accordingly, the district court erred when it compelled Wynn Resorts to produce any attorney client privileged . . . documents on the basis that Wynn Resorts waive the attorney-client privilege of those documents by claiming the business judgment rule as a defense.  [Citations omitted]. 

   

On September 28, 2017 the Nevada Supreme Court concluded judicial economy would best be served if petitioners asked the District Court to reconsider the challenge based on the Wynn Resorts findings.   Based in large part on the Nevada Supreme Court’s decision in Wynn Resorts, The Nevada District Court has now denied Mr. Cotter, Jr.’s motion to discover advice given by Company counsel to the Defendant Directors.

Discovery is now complete, and we believe it likely that the Cotter, Jr. Derivative Action will likely go to a jury trial in the first quarter of 2018.

   

The Cotter Jr. Employment Arbitration is in the discovery phase.

   

Our Company is and was legally obligated to cover the costs and expenses incurred by our Defendant Directors in defending the Cotter Jr. Derivative Action and the T2 Derivative Action.  Furthermore, although in a derivative action, the stockholder plaintiff seeks damages or other relief for the benefit of our Company, and not for the stockholder plaintiff’s individual benefit and, accordingly, we are, at least in theory, only a nominal defendant, as a practical matter, because Mr. Cotter, Jr. is also seeking, among other things, an order that our Board’s determination to terminate Mr. Cotter, Jr. was ineffective and that he be reinstated as the President and Chief Executive Officer of our Company and also limiting the use of our Board’s Executive Committee, and as he asserts potentially misleading statements in certain press releases and filings with the SEC, our Company is also incurring on its own account significant cost and expense defending the decision to terminate Mr. Cotter, Jr. as President and Chief Executive Officer, its board committee structure, and the adequacy of those press releases and filings, in addition to its costs incurred in responding to discovery demands and satisfying indemnity obligations to the Defendant Directors.  Likewise, in connection with the T2 Derivative Action, our Company incurred substantial costs defending claims related to the defense of claims relating to the termination of Mr. Cotter, Jr., opposing his reinstatement, and defending the conduct of its annual meetings.  Cost incurred in the Cotter Jr. Employment Arbitration and in the defense of the Cotter Jr. Attorney’s fees case were direct costs of our Company.



The Directors and Officer’s Insurance Policy, in the amount of $10 million, being used to cover a portion of the costs of defending the Cotter Jr. Derivative Action, has been exhausted.  We are now covering the defense costs of the Defendant Directors, in addition to our own costs incurred in connection with the Cotter Jr. Derivative Action.  



On August 7, 2017, our Board  appointed a Special Independent Committee to, among other things, review, consider, deliberate, investigate, analyze, explore, evaluate, monitor and exercise general oversight of any and all activities of the Company directly or indirectly involving, responding to or relating to the Cotter  Jr. Derivative Action, the Cotter Jr. Employment Arbitration and any other litigation or arbitration matters involving any one or more of Ellen Cotter, Margaret Cotter, James J. Cotter, Jr., the Cotter Estate and/or the Cotter Living Trust.   Directors Judy Codding, William Gould and Douglas McEachern have been appointed to serve on this Special Independent Committee.



The STOMP Arbitration 

In April 2015, Liberty Theatres, LLC (“Liberty”), a wholly owned subsidiary of the Company, commenced an American Arbitration Association arbitration proceeding (Case No.:01-15-0003-3728) against The Stomp Company Limited Partnership (“Stomp”), the producer of the show STOMP, in response to Stomp’s purported termination of their license agreement with Liberty relating to such show.  STOMP has been playing at our Orpheum Theatre in New York City for 23 years and still continues to play to date.  Liberty sought specific performance, injunctive and declaratory relief and damages.  Stomp counterclaimed for unspecified damages, alleging

18


 

 

that Liberty has interfered with the Stomp’s endeavors to move the show to another Off-Broadway theater. Stomp based its purported termination of the license agreement upon the alleged deficient condition of the Orpheum Theater.

On December 18, 2015, the Arbitrator issued his Partial Final Award of Arbitration, providing for, among other things (i) the issuance of a permanent injunction prohibiting Stomp from “transferring or taking actions to market, promote, or otherwise facilitate any transfer of, STOMP to another theatre in New York City having fewer than 500 seats without Liberty’s prior written consent”, (ii) the Stomp’s Notice of Termination purportedly terminating the parties’ license agreement was invalid, null and void and the License Agreement remains in full force and effect, and (iii) the award to Liberty of its reasonable attorneys’ fees in an amount to be determined by the Arbitrator.  

In explaining his decision to award Liberty its reasonable attorneys’ fees, the Arbitrator stated as follows:  “Liberty is entitled to such an award [of attorneys’ fees] not only because it is the prevailing party in this proceeding, but because [the Producer] unfairly disparaged the Orpheum and caused Liberty to incur attorneys’ fees in order to address and resolve [the Producer’s] groundless and frivolous allegations with respect to the Orpheum’s condition, Liberty’s performance under the License Agreement, and Stomp’s reasons for seeking to transfer STOMP to a larger theatre.”

In April 2016, we received a Final Award in our arbitration with Stomp.   The Final Award awards us $2.3 million in attorney’s fees and costs.  In September 2016, the parties agreed on the payment terms of the Final Award (“Payment Agreement”), on a basis that is intended to allow recovery by Liberty of the entire Final Award (plus interest at 4%), while at the same time allowing the show to continue playing at our Orpheum Theater.  Under the Payment Agreement, Stomp have paid a total of $1.6 million to-date, $1.1 million of which were received during the nine months ended September 30, 2017.   The remaining amount is to be paid over time, with final payment due and payable in June 2019.  We have filed a judgment of the arbitral award against Stomp with the New York Supreme Court to protect Liberty in the event Stomp defaults on the Payment Agreement.  STOMP continues to play at our Orpheum Theater under a license agreement that was amended by the Payment Agreement. 



 

Note 14 – Non-controlling Interests

These are composed of the following enterprises:

·

Australia Country Cinemas Pty Ltd. -- 25% noncontrolling interest owned by Panorama Cinemas for 21st Century Pty Ltd.;

·

Shadow View Land and Farming, LLC -- 50% noncontrolling membership interest owned by either the estate of Mr. James J. Cotter, Sr. (the “Cotter Estate”) and/or the James J. Cotter, Sr. Living Trust (the “Cotter Trust”); and,

·

Sutton Hill Properties, LLC -- 25% noncontrolling interest owned by Sutton Hill Capital, LLC (which in turn is 50% owned by Cotter Estate and/or the Cotter Trust).



The components of noncontrolling interests are as follows:

 

 

 

 

 

 

 



 

September 30,

 

December 31,

(Dollars in thousands)

 

2017

 

2016

Australian Country Cinemas, Pty Ltd

 

$

228 

 

$

264 

Shadow View Land and Farming, LLC

 

 

1,885 

 

 

1,980 

Sutton Hill Properties, LLC

 

 

2,082 

 

 

2,174 

Noncontrolling interests in consolidated subsidiaries

 

$

4,195 

 

$

4,418 



The components of income/(loss) attributable to noncontrolling interests are as follows:





 

 

 

 

 

 

 

 

 

 

 

 



 

Quarter Ended

 

Nine Months Ended



 

September 30,

 

September 30,

 

September 30,

 

September 30,

(Dollars in thousands)

 

2017

 

2016

 

2017

 

2016

Australian Country Cinemas, Pty Ltd

 

$

72 

 

$

79 

 

$

184 

 

$

137 

Shadow View Land and Farming, LLC

 

 

(132)

 

 

(12)

 

 

(158)

 

 

(29)

Sutton Hill Properties, LLC

 

 

(38)

 

 

(5)

 

 

(92)

 

 

(96)

Net income (loss) attributable to noncontrolling interests

 

$

(98)

 

$

62 

 

$

(66)

 

$

12 













19


 

 

Summary of Controlling and Noncontrolling Stockholders’ Equity

A summary of the changes in controlling and noncontrolling stockholders’ equity is as follows:







 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

Controlling Stockholders’ Equity

 

 

Noncontrolling Stockholders’ Equity

 

 

Total Stockholders’ Equity

Equity at January 1, 2017

 

$

142,197 

 

$

4,418 

 

$

146,615 

Net income

 

 

23,619 

 

 

(66)

 

 

23,553 

Increase in additional paid in capital

 

 

936 

 

 

--

 

 

936 

Treasury stock purchased

 

 

(6,475)

 

 

--

 

 

(6,475)

Contributions from noncontrolling stockholders - SHP

 

 

--

 

 

63 

 

 

63 

Distributions to noncontrolling stockholders

 

 

--

 

 

(240)

 

 

(240)

Accumulated other comprehensive income

 

 

10,323 

 

 

20 

 

 

10,343 

Equity at September 30, 2017

 

$

170,600 

 

$

4,195 

 

$

174,795 



 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

Controlling Stockholders’ Equity

 

 

Noncontrolling Stockholders’ Equity

 

 

Total Stockholders’ Equity

Equity at January 1, 2016

 

$

132,865 

 

$

4,331 

 

$

137,196 

Net income (loss)

 

 

9,054 

 

 

12 

 

 

9,066 

Increase in additional paid in capital

 

 

447 

 

 

--

 

 

447 

Contributions from noncontrolling stockholders - SHP

 

 

--

 

 

268 

 

 

268 

Distributions to noncontrolling stockholders

 

 

--

 

 

(194)

 

 

(194)

Accumulated other comprehensive loss

 

 

9,414 

 

 

14 

 

 

9,428 

Equity at September 30, 2016

 

$

151,780 

 

$

4,431 

 

$

156,211 



 

Note 15 – Stock-Based Compensation and Stock Repurchases

Employee and Director Stock Option Plan

The Company may grant stock options and other share-based payment awards of our Class A Common Stock to eligible employees, directors, and consultants under the 2010 Stock Incentive Plan (the “Plan”). The aggregate total number of shares of the Class A Common Stock authorized for issuance under the Plan is 1,250,000.   As of September 30, 2017, we had 302,540 shares remaining for future issuances. 

Since the adoption of the Plan in 2010, the Company has granted awards primarily in the form of stock options.  In the 1st quarter of 2016, the Company started to award restricted stock units (“RSUs”) to directors and certain members of management.  Stock options are generally granted at exercise prices equal to the grant-date market prices and typically expire no later than five years from the grant date.  In contrast to a stock option where the grantee buys the Company’s share at an exercise price determined on grant date, an RSU entitles the grantee to receive one share for every RSU based on a vesting plan.  At the discretion of our Compensation and Stock Options Committee, the vesting period of stock options and RSUs granted to employees ranges from zero to four years. Grants to directors and certain executive officers are subject to Board approval.  At the time the options are exercised or RSUs vest, at the discretion of management, we will issue treasury shares or make a new issuance of shares to the option or RSU holder.

Stock Options

We estimate the grant-date fair value of our stock options using the Black-Scholes option-valuation 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.  We expense the estimated grant-date fair values of options over the vesting period on a straight-line basis. Based on our historical experience, the “deemed exercise” of expiring in-the-money options and the relative market price to strike price of the options, we have not hereto estimated any forfeitures of vested or unvested options.



For the nine months ended September 30, 2017 and 2016, respectively, the weighted average assumptions used in the option-valuation model were as follows:







 

 

 



Nine Months Ended September 30



2017

 

2016

Stock option exercise price

$

15.94  11.87 

Risk-free interest rate

 

1.66%  1.20% 

Expected dividend yield

 

     --

                    --

Expected option life in years

 

3.75  3.75 

Expected volatility

 

24.95%  25.01% 

Weighted average fair value

$

3.45  2.49 

20


 

 

For the quarter ended September 30, 2017 and 2016, we recorded compensation expense of $86,000 and $74,000, respectively.    For the nine months ended September 30, 2017 and 2016, we recorded compensation expense of $223,000 and $264,000, respectively.  At September 30, 2017, the total unrecognized estimated compensation expense related to non-vested stock options was $915,000, which we expect to recognize over a weighted average vesting period of 1.93 years.  The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at September 30, 2017 was $3.0 million, of which 79.5% are currently exercisable.



The following table summarizes the information of options outstanding and exercisable as of September 30, 2017 and December 31, 2016:



 

 

 

 

 

 

 

 

 



 

Outstanding Stock Options - Class A Shares



 

Number of Options

 

Weighted Average Exercise Price

 

Weighted Average Remaining Years of Contractual Life

Aggregate Intrinsic Value

Balance - December 31, 2015

 

486,565 

 

$

8.68 

 

2.89 

$

2,188,011 

Granted

 

169,327 

 

 

11.87 

 

 

 

 

Exercised

 

(46,815)

 

 

9.50 

 

 

$

220,002 

Forfeited

 

(74,000)

 

 

7.02 

 

 

 

 

Balance - December 31, 2016

 

535,077 

 

$

9.84 

 

2.61 

$

3,615,191 

Granted

 

169,762 

 

 

15.94 

 

 

 

 

Exercised

 

(107,750)

 

 

8.94 

 

 

$

595,873 

Forfeited

 

(2,500)

 

 

6.23 

 

 

 

 

Balance - September 30, 2017

 

594,589 

 

$

11.76 

 

3.02 

$

3,007,071 



 

 

 

 

 

 

 

 

 

Restricted Stock Units

We estimate the grant-date fair values of our RSUs using the Company’s stock price at grant-date and record such fair values as compensation expense over the vesting period on a straight-line basis.  The following table summarizes the status of the RSUs granted to-date as of September 30, 2017:





 

 

 

 

 

 

 

 

 

 

 



 

 

Outstanding Restricted Stock Units



 

 

RSU Grants (in units)

 

Total

 

Vested,

 

Unvested,

Grant Date

 

 

Directors

 

Management

 

Grants

 

September 30, 2017

 

September 30, 2017

March 10, 2016

 

 

35,147 

 

27,381 

 

62,528 

 

41,992 

 

20,536 

April 11, 2016

 

 

--

 

5,625 

 

5,625 

 

1,406 

 

4,219 

March 23, 2017

 

 

30,681 

 

32,463 

 

63,144 

 

--

 

63,144 

August 29, 2017

 

 

--

 

7,394 

 

7,394 

 

--

 

7,394 

Total

 

 

65,828 

 

72,863 

 

138,691 

 

43,398 

 

95,293 



These RSU awards vest 25% at the end of each year for 4 years (in the case of members of management) and vest 100% on the first business day of the year following in which such RSUs were granted (in the case of directors).  For the quarter ended September 30, 2017 and 2016, we recorded compensation expense of $182,000 and $130,000, respectively.  For the nine months ended September 30, 2017 and 2016, we recorded compensation expense of $482,000 and $290,000, respectively.  The total unrecognized compensation expense related to the non-vested RSUs was $1.0 million as of September  30, 2017, which we expect to recognize over a weighted average vesting period of 1.0 year.  

Stock Repurchase Program

On March 2, 2017, the Company's Board of Directors authorized management, at its discretion, to spend up to an aggregate of $25.0 million to acquire shares of Reading’s Class A Common Stock.  The previously approved stock repurchase program, which allowed management to spend up to an aggregate of $10.0 million to acquire shares of Reading’s Non-Voting Common Stock, was completed as of December 31, 2016.

The repurchase program allows Reading to repurchase its shares in accordance with the requirements of the SEC on the open market, in block trades and in privately negotiated transactions, depending on market conditions and other factors.  All purchases are subject to the availability of shares at prices that are acceptable to Reading, and accordingly, no assurances can be given as to the timing or number of shares that may ultimately be acquired pursuant to this authorization.

Under the stock repurchase program, the Company has reacquired 403,156 shares of Class A Common Stock for $6.4 million at an average price of $15.92 per share (excluding transaction costs) to-date.  This leaves $18.6 million available under the March 2, 2017 program for repurchase as of September 30, 2017.





21


 

 

Note 16 – Derivative Instruments

From time-to-time, we  purchase interest rate derivative instruments to hedge the interest rate risk that results from the variability of our floating-rate borrowings. Our use of derivative transactions is intended to reduce long-term fluctuations in cash flows caused by market movements. All derivative instruments are recorded on the balance sheet at fair value with changes in fair value through interest expense in the Consolidated Statement of Income. As of September 30, 2017, we do not have material derivative positions nor have designated any of these derivatives as accounting hedges.

 

Note 17 – Fair Value Measurements

ASC 820, Fair Value Measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

·

Level 1: Quoted market prices in active markets for identical assets or liabilities;

·

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and,

·

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As of September 30, 2017 and December 31, 2016, we do not have material financial assets and financial liabilities carried and measured at fair value on a recurring basis. 



The following tables summarize our financial liabilities that are carried at cost and measured at fair value on a non-recurring basis as of September 30, 2017 and December 31, 2016, by level within the fair value hierarchy.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Fair Value Measurement at September 30, 2017

(Dollars in thousands)

 

Carrying Value(1)

 

Level 1

 

Level 2

 

Level 3

 

Total

  Notes payable

 

$

123,399 

 

$

--

 

$

--

 

$

122,563 

 

$

122,563 

  Subordinated debt

 

 

27,913 

 

 

--

 

 

--

 

 

15,854 

 

 

15,854 



 

$

151,312 

 

$

--

 

$

--

 

$

138,417 

 

$

138,417 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Fair Value Measurement at December 31, 2016

(Dollars in thousands)

 

Carrying Value(1)

 

Level 1

 

Level 2

 

Level 3

 

Total

  Notes payable

 

$

120,622 

 

$

--

 

$

--

 

$

121,204 

 

$

121,204 

  Subordinated debt

 

 

27,913 

 

 

--

 

 

--

 

 

15,247 

 

 

15,247 



 

$

148,535 

 

$

--

 

$

--

 

$

136,451 

 

$

136,451 



(1) These balances are presented before any deduction for deferred financing costs.

Following is a description of the valuation methodologies used to estimate the fair value of our financial assets and liabilities. There have been no changes in the methodologies used at September 30, 2017 and December 31, 2016.

·

Level 1 investments in marketable securities primarily consist of investments associated with the ownership of marketable securities in U.S. and New Zealand. These investments are valued based on observable market quotes on the last trading date of the reporting period.

·

Level 2 derivative financial instruments are valued based on discounted cash flow models that incorporate observable inputs such as interest rates and yield curves from the derivative counterparties. The credit valuation adjustments associated with our non-performance risk and counterparty credit risk are incorporated in the fair value estimates of our derivatives.  As of September 30, 2017 and December 31, 2016, we concluded that the credit valuation adjustments were not significant to the overall valuation of our derivatives.  

·

Level 3 borrowings include our secured and unsecured notes payable, trust preferred securities and other debt instruments.  The borrowings are valued based on discounted cash flow models that incorporate appropriate market discount rates. We calculated the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or LIBOR for variable-rate debt, for maturities that correspond to the maturities of our debt, adding appropriate credit spreads derived from information obtained from third-party financial institutions.  These credit spreads take into account factors such as our credit rate, debt maturity, types of borrowings, and the loan-to-value ratios of the debt.

22


 

 

The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable.  The carrying values of these financial instruments approximate the fair values due to their short maturities. Additionally, there were no transfers of assets and liabilities between levels 1, 2, or 3 during the quarter and nine months ended September 30, 2017 and September 30, 2016.

Note 18 – Insurance Recoveries

On November 14, 2016, we filed an initial insurance claim with our Insurer with respect to earthquake damage to our parking building adjacent to our Courtenay Central entertainment-themed center (“ETC”) in Wellington, New Zealand and to the ETC itself.  Also, we filed a separate business interruption claim to recover lost profits as a result of the earthquake. As of December 31, 2016, we recorded a recoverable asset to the extent of our incurred losses that we deemed probable of recoverability under our insurance claim, consisting of the (i) written down carrying value of the damaged parking building and (ii) a significant portion of the derivative loss contingencies on demolition activities.   We received an initial settlement from our Insurer in December 2016 amounting to $5.0 million (NZ$7.1 million).

In April 2017, our Insurer concluded that our losses exceeded the earthquake coverage policy limit of $25.0 million (NZ$36.0 million). We received a final settlement of US$20.0 million  (NZ$28.9 million) in May 2017, taking us to the policy limit.

Our allocation of the total insurance proceeds to the various covered risks and the bases for such allocation are described below:





 

 

 

 

 

 

 

 

 

 

Covered Risks

 

Basis for Allocation

(Dollars in thousands)

 

Commentary

 

% Allocation

 

Allocation of Insurance Proceeds

(Dollars in thousands)

Property damage

 

NZ$

44,808 

 

Estimated replacement cost for Courtenay Central parking building, as determined by an independent construction cost consultant.

 

81%

 

NZ$

29,093 

Demolition costs

 

 

7,276 

 

Actual costs incurred and best estimates of remaining costs to complete the demolition activities of Courtenay Central parking building

 

13%

 

 

4,724 

Business interruption

 

 

3,415 

 

Estimated lost profits during the closure period relating to our various revenue-generating components within Courtenay Central ETC (including our cinema and property operations)

 

6%

 

 

2,217 

Total

 

NZ$

55,499 

 

 

 

100%

 

NZ$

36,034 



As a result of the final settlement, we recorded total insurance gain of $10.7 million (NZ$14.8 million) during the quarter ended June 30, 2017, determined as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Recoverable Components



 

Non-Operating Income

 

Operating Income

 

 

 

(Dollars in thousands)

 

Property Damage(1)

 

Demolition Costs(1)

 

Total

 

Business Interruption(2)

 

Grand Total

Insurance Proceed Allocation

 

NZ$

29,093 

 

NZ$

4,724 

 

NZ$

33,817 

 

NZ$

2,217 

 

NZ$

36,034 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Recorded values of Recoverable Components, June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Recorded as of December 31, 2016

 

 

13,451 

 

 

7,276 

 

 

20,727 

 

 

--

 

 

20,727 

Changes in estimates and others

 

 

347 

 

 

--

 

 

347 

 

 

111 

 

 

458 



 

 

13,798 

 

 

7,276 

 

 

21,074 

 

 

111 

 

 

21,185 

Net Impact in Current Earnings (in NZ$)

 

NZ$

15,295 

 

NZ$

(2,552)

 

NZ$

12,743 

 

NZ$

2,106 

 

NZ$

14,849 

Net Impact in Current Earnings (in US$)

 

$

11,063 

 

$

(1,846)

 

$

9,217 

 

$

1,523 

 

$

10,740 



(1) The net impact to current earnings of $9.2 million (NZ$12.7 million) is recorded as “Gain on Insurance Recoveries” in our Consolidated Statement of Income.

(2) The impact to current earnings of $1.5 million (NZ$2.1 million) is recorded as part of the applicable segment revenues in our Consolidated Statement of Income.

23


 

 

This MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements included in Part I, Item 1 (Financial Statements). The foregoing discussions and analyses contain certain forward-looking statements. Please refer to the “Forward Looking Statements” included at the conclusion of this section.

Item 2 – Management’s Discussions and Analysis (“MD&A”) of Financial Condition and Results of Operations

BUSINESS OVERVIEW

We are an internationally diversified company principally focused on the development, ownership, and operation of entertainment and real estate assets in the United States, Australia, and New Zealand.  Currently, we operate in two business segments:

·

Cinema exhibition, through our 58 multiplex cinemas; and,

·

Real estate, including real estate development and the rental of retail, commercial and live theater assets.

We believe that these two business segments can complement one another, as we can use the comparatively consistent cash flows generated by our cinema operations to fund the front-end cash demands of our real estate development business.

Cinema Exhibition

We manage our worldwide cinema exhibition businesses under various brands:

·

in the U.S., under the following brands: Reading Cinemas, Angelika Film Centers, Consolidated Theatres, and City Cinemas;

·

in Australia, under the Reading Cinemas brand; and,

·

in New Zealand, under the Reading Cinemas and Rialto brands.



Shown in the following table are the number of locations and theatre screens in our theatre circuit in each country, by state/territory/ region and indicating our cinema brands and our interest in the underlying asset as of September 30, 2017:







 

 

 

 

 

 

 

 

 

 

 

 



 

State / Territory /

 

Location

 

Screen

 

Interest in Asset Underlying the Cinema

 

 

Country

 

Region

 

Count

 

Count

 

Leased

 

Owned

 

Operating Brands

United States

 

Hawaii

 

9

 

98

 

9

 

 

 

Consolidated Theatres



 

California

 

7

 

88

 

7

 

 

 

Reading Cinemas, Angelika Film Center



 

New York(3)

 

6

 

23

 

5

 

1

 

Angelika Film Center, City Cinemas



 

Texas

 

2

 

13

 

2

 

 

 

Angelika Film Center



 

New Jersey

 

1

 

12

 

1

 

 

 

Reading Cinemas



 

Virginia

 

1

 

8

 

1

 

 

 

Angelika Film Center



 

Washington DC

 

1

 

3

 

1

 

 

 

Angelika Film Center



 

U.S. Total

 

27

 

245

 

26

 

1

 

 

Australia

 

New South Wales

 

6

 

43

 

4

 

2

 

Reading Cinemas



 

Victoria

 

6

 

43

 

6

 

 

 

Reading Cinemas



 

Queensland

 

4

 

40

 

2

 

2

 

Reading Cinemas, Event Cinemas(1)



 

Western Australia

 

2

 

16

 

1

 

1

 

Reading Cinemas



 

South Australia

 

2

 

15

 

2

 

 

 

Reading Cinemas



 

Australia Total

 

20

 

157

 

15

 

5

 

 

New Zealand

 

Wellington

 

2

 

15

 

1

 

1

 

Reading Cinemas



 

Otago

 

3

 

15

 

2

 

1

 

Reading Cinemas, Rialto Cinemas(2)



 

Auckland

 

2

 

15

 

2

 

 

 

Reading Cinemas, Rialto Cinemas(2)



 

Canterbury

 

1

 

8

 

1

 

 

 

Reading Cinemas



 

Southland

 

1

 

5

 

 

 

1

 

Reading Cinemas



 

Bay of Plenty

 

1

 

5

 

 

 

1

 

Reading Cinemas



 

Hawke's Bay

 

1

 

4

 

 

 

1

 

Reading Cinemas



 

New Zealand Total

 

11

 

67

 

6

 

5

 

 

GRAND TOTAL

 

 

 

58

 

469

 

47

 

11

 

 

(1)

The Company has a 33.3% unincorporated joint venture interest in a 16-screen cinema located in Mt. Gravatt, Queensland managed by Event Cinemas.

(2)

The Company is a 50% joint venture partner in two (2) New Zealand Rialto cinemas.  We negotiate the commercial theatrical release terms of these cinemas and our joint venture partner, Event Cinemas, manages their day-to-day operations.

(3)

Our New York statistics include one (1) managed cinema.



Real Estate

We engage in real estate development and the ownership, and rental or licensing to third parties of retail, commercial and live theater assets. We own the fee interests in all of our live theaters, and in 11 of our cinemas (as presented in the preceding table).  Our real estate business creates long-term value for our stockholders through the continuous improvement and development of our investment and operating properties, including our ETCs.

24


 

 

Our real estate activities have historically consisted principally of:

·

the ownership of fee or long-term leasehold interests in properties used in our cinema exhibition activities or which were acquired for the development of cinemas or cinema-based real estate development projects;

·

the acquisition and development of fee interests in land;

·

the licensing to production companies of our live theaters; and,

·

the redevelopment of our existing fee-owned cinema or live theater sites to their highest and best use.



RECENT DEVELOPMENTS

During the nine months ended September 30, 2017, we recorded the following one-time real estate transactions:



·

the gain on sale for our Burwood property (disclosed in Note 5, Property & Equipment, to the consolidated financial statements); and,

·

insurance proceeds related to our Courtenay Central property (disclosed in Note 18, Insurance Recoveries, to the consolidated financial statements).  



Compared to our cinema business, we expect lower near-term contribution from our real estate segment to our net results as we continue to execute value-creating projects to bring our real estate assets to full utilization.  The impact of one-time events noted above to our net results, along with other changes, is as follows:





 

 

 

 

 

 

 

 

 

 

 

 



 

Quarter-Ended September 30, 2017

 

Nine-Month Ended September 30, 2017

(Dollars in thousands, except EPS)

 

After-tax Effect

 

EPS

 

After-tax Effect

 

EPS

Decrease in segment operating income

 

$

(2,198)

 

$

(0.10)

 

$

(799)

 

$

(0.03)

Impact of significant events for the period

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of assets

 

 

--

 

 

--

 

 

6,300 

 

 

0.27 

Gain on insurance recoveries

 

 

--

 

 

--

 

 

8,684 

 

 

0.38 

Foreign currency gain on short-term advances

 

 

--

 

 

--

 

 

566 

 

 

0.02 

Other changes in non-segment items

 

 

(101)

 

 

(0.00)

 

 

(186)

 

 

(0.01)

Increase (Decrease) in Net Income

 

$

(2,299)

 

$

(0.10)

 

$

14,565 

 

$

0.63 



Recent developments in our two business segments (which include discussions on the significant events noted above), as well as corporate matters and changes in borrowing arrangements, are discussed below:



Cinema Exhibition

We continue to grow our worldwide cinema circuit.  On October 21, 2016, we opened Olino by Consolidated Theatres, our ninth theatre in Hawaii and our first to open in the state since 2001.    Recently, we entered into an agreement to lease (“ATL”) for two (2) cinema locations in Australia, as follows:



·

Traralgon, Victoria – in June 2017, we entered into an agreement to lease a 5-screen complex  located in the City of Traralgon, which is situated in the Latrobe Shire within the Gippsland region of Victoria approx 1.5 hours drive east of Melbourne.  The large Traralgon Central Business District site is being redeveloped into a mixed-use complex comprising dining, bar, hotel and cinema facilities.  We expect this new Reading cinema to commence operations during the fourth quarter of 2019.



·

South City Square, Brisbane – in March 2017, we entered into an agreement to lease for an 8-screen complex with an initial term of 15 years.  Located in the city of Brisbane, 7 minutes from the Central Business District and South of the Brisbane River, South City Square is a 5.1-acre (2.1-hectare) former industrial site which is being redeveloped into a major residential, hotel, retail and entertainment lifestyle complex.  Our cinema complex in this location will be one of two major anchor tenants for the approximately AU$600 million project; we anticipate this to commence operations in 2020.



In addition, our Board has approved the development of one (1) more new leasehold cinema in each of Australia and New Zealand, which are anticipated to commence operations during 2019 and 2020.  



We remain focused in certain areas of the mature cinema business where we believe we have growth potential and ultimately, provide long-term value to our stockholders.  These included the (i) upgrading of our existing cinemas and (ii) development of new cinemas to provide our customers with premium offerings, incorporating state-of-the-art presentation (including sound, lounges and bar service) and luxury seating. 



We continue to upgrade our cinema food & beverage (“F&B”) offerings, having obtained liquor licenses for 25 of our current cinema locations in the U.S., Australia and New Zealand, with four (4) applications currently in-process in the U.S.   During the nine months ended September 30, 2017, we:

25


 

 

·

enhanced the screen format for two (2) cinemas in our global circuit (1 screen each in California, U.S. and New South Wales, Australia) to a TITAN XC feature; and,



·

introduced our “Premium” dine-in bar service in three cinema locations in our Australian cinema circuit (for a total of 4 screens).



As of September 30, 2017, the upgrades to our theater circuit’s film exhibition technology and amenities (including upgraded F&B offerings) are summarized in the following table (excluding our managed cinema):





 

 

 



Location Count

 

Screen Count

Screen Format

 

 

 

Digital (all cinemas in our theatre circuit)

57

 

465

IMAX

1

 

1

Titan XC and LUXE

12

 

13

Dine-in Service (for international operations)

 

 

 

Gold Lounge(1)

8

 

20

Premium(2)

8

 

14

Upgraded Food & Beverage menu (for U.S. operations)(3)

9

 

n/a

Premium Seating (recliner seating features)

15

 

62

Liquor Licenses Obtained(4)

25

 

n/a

(1) Gold Lounge: This is our "First Class Full Dine-in Service" in our Australian and New Zealand cinemas, which includes upgraded F&B menu (with alcoholic beverages), luxury recliner seating features (intimate 30-40 seat cinemas) and waiter service.

(2) Premium Service: This is our "Business Class Dine-in Service" in our Australian and New Zealand cinemas, which includes upgraded F&B menu (with alcoholic beverages) and luxury recliner seating features (less intimate 80-seat cinemas), but no waiter service.

(3) Upgraded Food & Beverage Menu: Contrary to our offerings in Australia and New Zealand, our upgraded F&B offerings in the U.S. cinemas are available in a common counter in each of our cinema locations rather than a dine-in service at each auditorium.  We have worked with  a renowned former Food Network executive and a talent-show winning chefs to curate a menu of locally inspired and freshly prepared items.

(4) Liquor Licenses: Licenses are applicable at each cinema location, rather than each theatre auditorium (except for our Hawaii licenses, where we are licensed for particular auditoriums).  For accounting purposes, we capitalize the cost of successfully purchasing or applying for liquor licenses meeting certain thresholds as an intangible asset due to long-term economic benefits derived on future sales of alcoholic beverages.



Innovative value pricing, improved food and beverage offerings and proactive social media engagement with our customers is a primary focus and to that end social media has been a powerful tool for connecting with and marketing to customers in real time. We continue to focus (i) upon our company wide customer service training program to improve staff productivity, and (ii) the quality of customer interactions with a view to improve our per capita transaction spend. Refining, enhancing and remixing our F&B offerings has been an ongoing initiative to minimize our cost of sales and improve the inventory blend of our over-the-counter customer offerings.



Real Estate

We continue to work on the further development of our real estate assets.  Our progress in implementing our plan to develop a super market component for our Courtenay Central ETC in Wellington has suffered delays due to a late 2016 earthquake near that city.  However, this earthquake and the resultant insurance settlement related to damage suffered as a result of that earthquake, have provided us with the opportunity to substantially rethink our plans for that center, including the development of substantially more retail stores at the siteIndividual projects are discussed below:



·

Union Square Redevelopmentwe secured construction financing for our Union Square property in December 2016 and have entered into a guaranteed maximum price construction management agreement with an affiliate of CNY. Construction is now underway and we are currently proceeding on time and on budget. We anticipate the re-developed property will be ready for retail fit-out during the third quarter of 2018. Retail and office leasing interest to date has been strong and we are currently in discussions with quality tenants. This redevelopment will add approximately 23,000 square footage of rentable space to the current square footage of the building for an approximate total of 73,322 square feet of rentable space, inclusive of anticipated BOMA adjustments and subject to lease negotiations and the final tenant mix.  For the nine months ended September 30, 2017, we have invested $13.4 million in new capital expenditures relating to the Union Square re-development project, bringing our total investment in the project to $28.1  million (including direct costs incurred in obtaining the related construction financing). 



·

Cinema 1,2,3 Redevelopment  in June 2017, we entered into an exclusive dealing and pre-development agreement with our adjoining neighbors, 260-264 LLC, to jointly develop the properties, currently home to Cinemas 1,2,3 and Anassa Taverna. Under the terms of the agreement, Reading and 260-264 LLC will work together on a comprehensive mixed-use plan to co-develop the properties located on 3rd Avenue, between 59th Street and 60th Streets, in New York City. The parties have completed an initial feasibility study, analyzing various retail, entertainment and residential uses for the site and are working on the terms of a final agreement for the development of the combined property.



·

Newmarket Expansionin the third quarter of 2016, we commenced the construction on our expansion project at our Newmarket shopping center in Brisbane, Australia, with a projected opening in December 2017. This expansion project includes the addition of an eight-screen Reading Cinemas with TITAN LUXE, approximately 10,170 square feet of additional F&B retail space and a

26


 

 

further  124 car parking spaces.  We have entered into heads-of agreement to lease all of this new space.    We invested $14.5 million of capital expenditures during the first nine months of 2017, bringing the total investment in the project to $17.0 million.



·

Courtenay Central Redesign/Expansion/Temporary Closure and the related demolition of adjacent parking building  – we continue to make progress on our supermarket development project at our Courtenay Central ETC in Wellington, New Zealand.   On November 14, 2016, Wellington experienced a severe 7.8 magnitude earthquake. That earthquake rendered our Tory Street parking building unsafe and ultimately led to the demolition of that building and the temporary closure of our adjacent ETC, which reopened on March 29, 2017. Our supermarket tenant remains committed to the site but has delayed construction in order to upgrade to a “premium” offering. Under the agreement to lease, our tenant is responsible for any increase in our costs resulting from those design changes. In light of the demolition of the existing parking building (a major portion of the cost of which is covered by insurance), we are undertaking a comprehensive redesign analysis, intended to increase the amount of retail leasable space at the center and to better coordinate the interface between the parking building and the remainder of the center.  While we work on a redesign of the property, we have activated the building with several temporary pop-up retail offerings.    We are currently working on plans and in discussions with tenants regarding the construction of additional retail space at the site.



In April 2017, our Insurer completed the examination of our insurance claim with respect to the parking building and shopping center earthquake damage and related business interruption. We received a final settlement of US$20.0 million in May 2017, reaching the policy maximum of US$25.0 million for the loss event.  As a result, we recorded a gain of $9.2 million (NZ$12.7 million) representing excess insurance recoveries over the recorded property value during the second quarter ended June 30, 2017.  This amount is recorded net of demolition costs incurred and an allocation to lost profits, covered within the same insurance policy.



As previously disclosed in our Form 10-Q for the 1st Quarter of 2017, the total closure of our Courtenay Central, Wellington, New Zealand location had a significant impact on the performance of both our Cinema and Real Estate divisions during the quarter ended March 31, 2017, resulting in reduction in our overall profitability by $1.1 million (NZ$1.5 million) and decline in basic EPS by $0.05 compared to the same period of 2016.  This performance decline has been effectively recovered through business interruption insuranceDuring the quarter ended June 30, 2017, we recorded a gain on business interruption recoveries of $1.5 million (NZ$2.1 million), presented as part of the relevant segment revenue lines in our Consolidated Statement of Income for that quarter.  While the earthquake has opened up possibilities to reconfigure our Courtenay Central property, the gains recorded during the quarter ended June 30, 2017 do not compensate for the lost time value of the delay of our development plan.

Refer to Note 18, Insurance Recoveries, in our consolidated financial statements for further discussions on the allocation of insurance proceeds and the determination of the insurance gain.

·

Manukau Land Rezoning  in August 2016, the Auckland City Council re-zoned 64.0 acres of our 70.4 acre property in Manukau from agricultural to light industrial use. The remaining 6.4 acres were already zoned for heavy industrial use. Now that our zoning enhancement goal is achieved, we are reviewing our options with respect to the value realization opportunities and commercial exploitation of this asset.  We see this property as a future value realization opportunity for us.  This tract is adjacent to the Auckland Airport which has recently been expanding towards our property. 



·

Settlement of Fraser’s apportioned sale of Burwood Property  Frasers, the buyer of our Burwood Property, completed the sale of 6.0 acres of the total 50.6 acre undeveloped parcel to a third party in June 2017.    As a result, we collected an amount equal to $16.5 million (AU$21.8 million) representing 90% of the net sales price of that parcel sale (as contemplated in the sale agreement), and thus, we recorded the full gain on our original sale transaction of $9.4 million (AU$12.5 million) during the second quarter ended June 30, 2017.  The remaining receivable of $28.8 million (AU$36.7 million) is due on or before December 31, 2017.



·

Occupancy of New Corporate Headquarters Building  – during February 2017, we relocated our corporate headquarters into the 24,000 square foot Culver City office building that we purchased in April 2016. We currently use approximately 50% of the leasable area for our corporate headquarters and intend to lease, over time, the remainder to unaffiliated third parties. We purchased the property for $11.2 million in cash and financed the property with a  $9.9 million 10-year, fixed-rate mortgage loan.



Corporate Matters

On March 2, 2017, our Board of Directors approved the following:



·

Three Year Business Strategy, which focuses on the continued development of new cinemas in the United States, Australia and New Zealand, the continued improvement of our existing cinemas to elevate the guest experience, presentation and food and beverage program, and the continued re-development of our various real estate assets (including our Union Square and Cinemas 1,2,3 properties in New York City and our Australian and New Zealand ETCs).



·

$25-million Stock Repurchase ProgramThe prior repurchase program was completed at the end of 2016.  The newly approved

27


 

 

repurchase program allows Reading to repurchase its Class A Common Shares from time to time in accordance with the requirements of the Securities and Exchange Commission on the open market, in block trades and in privately negotiated transactions, depending on market conditions and other factors. The Board’s authorization is for a two-year period, expiring March 1, 2019, or earlier should the full repurchase authorization be used.



Our Financing Strategy

Our treasury management is focused on concerted cash management using cash balances to reduce debt.  We have used cash generated from operations and other excess cash, to the extent not needed for any capital expenditures, to pay down our loans and credit facilities providing us some flexibility on our available loan facilities for future use and thereby, reducing interest charges. On a periodic basis, we review the maturities of our borrowing arrangements and negotiate for renewals and extensions where necessary in the current circumstances.

Over the past twelve months, we:

(i)

extended the maturity, in April 2017, of the NZ$35.0 million (US$24.5 million) general/non-construction credit line of our Westpac Corporate Credit Facility to December 31, 2018, from March 31, 2018.  Subsequently, in June 2017, we fully paid our loan balance using the cash received from insurance settlement relating to Courtenay Central property damage;

(ii)

extended  the maturity date of our $5.0 million Bank of America line of credit for two years in October 2016;

(iii)

replaced the funding that we used to purchase the new U.S. Corporate Headquarters in Los Angeles through a new $9.9 million loan with 10-year repayment term in December 2016 and June 2017; and,

(iv)

closed in December 2016 the $57.5 million 3-year term construction financing for our Union Square redevelopment project, $8.0 million of which was advanced to repay the existing $8.0 million Union Square mortgage loan with East West Bank, originally scheduled to mature in July 2017.



Refer to our 2016 Form 10-K for more details on our cinema and real estate segments.

28


 

 



RESULTS OF OPERATIONS

The table below summarizes the results of operations for each of our principal business segments along with the non-segment information for the quarter and nine months ended September 30, 2017 and September 30, 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Quarter Ended

 

% Change 

 

Nine Months Ended

 

% Change 

(Dollars in thousands)

 

September 30, 2017

 

September 30, 2016

 

Fav/(Unfav)

 

September 30, 2017

 

September 30, 2016

 

Fav/(Unfav)

SEGMENT RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



  Cinema exhibition

 

$

62,059 

 

$

67,825 

 

 

(9)

%

 

$

196,062 

 

$

192,579 

 

 

%



  Real estate

 

 

6,036 

 

 

5,390 

 

 

12 

%

 

 

17,467 

 

 

15,961 

 

 

%



  Inter-segment elimination

 

 

(2,008)

 

 

(1,900)

 

 

(6)

%

 

 

(5,575)

 

 

(5,518)

 

 

(1)

%



  Total revenue

 

 

66,087 

 

 

71,315 

 

 

(7)

%

 

 

207,954 

 

 

203,022 

 

 

%



Operating expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



  Cinema exhibition

 

 

(51,598)

 

 

(54,003)

 

 

%

 

 

(159,087)

 

 

(154,383)

 

 

(3)

%



  Real estate

 

 

(2,881)

 

 

(2,296)

 

 

(25)

%

 

 

(7,258)

 

 

(6,628)

 

 

(10)

%



  Inter-segment elimination

 

 

2,008 

 

 

1,900 

 

 

%

 

 

5,575 

 

 

5,518 

 

 

%



  Total operating expense

 

 

(52,471)

 

 

(54,399)

 

 

%

 

 

(160,770)

 

 

(155,493)

 

 

(3)

%



Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



  Cinema exhibition

 

 

(2,951)

 

 

(3,075)

 

 

%

 

 

(8,867)

 

 

(8,875)

 

 

--

%



  Real estate

 

 

(1,079)

 

 

(954)

 

 

(13)

%

 

 

(2,936)

 

 

(2,596)

 

 

(13)

%



  Total depreciation and amortization

 

 

(4,030)

 

 

(4,029)

 

 

--

%

 

 

(11,803)

 

 

(11,471)

 

 

(3)

%



General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



  Cinema exhibition

 

 

(807)

 

 

(1,021)

 

 

21 

%

 

 

(2,527)

 

 

(2,785)

 

 

%



  Real estate

 

 

(527)

 

 

(385)

 

 

(37)

%

 

 

(1,673)

 

 

(893)

 

 

(87)

%



  Total general and administrative expense

 

 

(1,334)

 

 

(1,406)

 

 

%

 

 

(4,200)

 

 

(3,678)

 

 

(14)

%



Segment operating income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



  Cinema exhibition

 

 

6,703 

 

 

9,726 

 

 

(31)

%

 

 

25,581 

 

 

26,536 

 

 

(4)

%



  Real estate

 

 

1,549 

 

 

1,755 

 

 

(12)

%

 

 

5,600 

 

 

5,844 

 

 

(4)

%



Total segment operating income

 

$

8,252 

 

$

11,481 

 

 

(28)

%

 

$

31,181 

 

$

32,380 

 

 

(4)

%

NON-SEGMENT RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Depreciation and amortization expense

 

 

(108)

 

 

(102)

 

 

nm

 

 

(321)

 

 

(295)

 

 

nm



General and administrative expense

 

 

(4,506)

 

 

(4,769)

 

 

%

 

 

(13,931)

 

 

(14,693)

 

 

%



Interest expense, net

 

 

(1,663)

 

 

(1,553)

 

 

(7)

%

 

 

(5,310)

 

 

(5,190)

 

 

(2)

%



Equity earnings of unconsolidated joint ventures

 

 

136 

 

 

200 

 

 

nm

 

 

654 

 

 

808 

 

 

nm



Gain on sale of assets

 

 

--

 

 

--

 

 

--

%

 

 

9,417 

 

 

393 

 

 

> 100

%



Gain on insurance recoveries

 

 

--

 

 

--

 

 

--

%

 

 

9,217 

 

 

--

 

 

100 

%



Other income/(expense)

 

 

89 

 

 

(12)

 

 

nm

 

 

937 

 

 

(115)

 

 

nm



Income before income taxes

 

 

2,200 

 

 

5,245 

 

 

(58)

%

 

 

31,844 

 

 

13,288 

 

 

> 100

%



Income tax expense

 

 

(742)

 

 

(1,328)

 

 

44 

%

 

 

(8,291)

 

 

(4,222)

 

 

(96)

%

Net income

 

 

1,458 

 

 

3,917 

 

 

(63)

%

 

 

23,553 

 

 

9,066 

 

 

> 100

%



Less: net income/(loss) attributable to noncontrolling interests

 

 

(98)

 

 

62 

 

 

nm

 

 

(66)

 

 

12 

 

 

nm

Net income attributable to RDI common stockholders

 

$

1,556 

 

$

3,855 

 

 

(60)

%

 

$

23,619 

 

$

9,054 

 

 

> 100

%

Basic EPS

 

$

0.07 

 

$

0.17 

 

 

(60)

%

 

$

1.02 

 

$

0.39 

 

 

> 100

%

 nm – not meaningful























Consolidated and Non-Segment Results:

3rd Quarter and Nine-Month Net Results

Revenue for the quarter ended September 30, 2017 decreased by  7%, or $5.2 million, to $66.1 million and net income attributable to RDI common stockholders decreased by 60%, or $2.3 million, to $1.6 million.  EPS for the quarter ended September 30, 2017 decreased by $0.10 to $0.07 from the prior-year quarter, mainly attributable to $2.2 million decrease (net of tax effect) in cinema segment operating income in line with the global cinema business performance.



Revenue for the nine months ended September 30, 2017 increased by 2%, or $4.9 million, to $208.0 million and net income

29


 

 

attributable to RDI common stockholders increased by $14.6 million, to $23.6 million.  EPS for the first nine months of 2017 increased by $0.63 to $1.02 from the prior-year period, mainly attributable to the following:  (i) $799,000 decrease (net of tax effect) in segment operating income due to lower operating results, which decreased our basic EPS by $0.03, (ii) $566,000 increase relating to foreign currency gains on short-term advances, improving our basic EPS by $0.02,  (iii) $6.3 million increase in gain (net of tax effect)  from the sale of Burwood asset (net of gain on Taupo sale during Q1 2016), contributing a $0.27 increase in our basic EPS, and (iv) $8.7 million gain (net of tax effect) on insurance recoveries for Courtenay Central (net of business interruption recoveries), enhancing our basic EPS by $0.38. 



Non-Segment General & Administrative Expenses

Non-segment general and administrative expense for the quarter and nine months ended September 30, 2017 compared to the same period of the prior year decreased by 6% ($263,000) and 5% ($762,000), respectively. This decrease mainly relates to (i)  additional expenses paid in 2016 in connection with the 2015 year-end audit relating to prior years’ income tax matters (ii) reduction in variable compensation costs  (attributable to reversals of prior year incentive compensation accruals not deemed necessary).  These favorable changes were offset by higher legal expenses incurred on the Derivative Litigation, the Cotter Employment Arbitration and other Cotter litigation matters during the quarter and nine months ended September 30, 2017 which totaled $82,000 and $1.1 million, respectively.  In 2016, expense related to the defense of the Derivative Litigation was substantially reimbursed from the Company’s Directors and Officers’ (“D&O”) Insurance Program. 



Gain on Sale of Assets

The $9.4 million capital gain recognized during the 2nd quarter of 2017 was pertaining to our full recognition of the transaction gain triggered by the additional payment from Frasers, the buyer of our Burwood property in Australia.  During the 1st quarter of 2016, we recognized a gain of $393,000 (NZ$585,000) relating to our Taupo property in New Zealand.

Gain on Insurance Recoveries

During the 2nd quarter of 2017, we recognized $9.2 million gain as a result of the final insurance settlement relating to the earthquake damage on our Courtenay Central parking structure (excluding business interruption insurance recoveries).

Income Tax Expense

Income tax expense for the quarter ended September 30, 2017 decreased by $586,000 compared to prior-year quarter mainly due to decrease in pre-tax income.  Income tax expense for the nine months ended September 30, 2017 increased by $4.1 million compared to prior-year nine months period.  The increase is primarily due to increase in pretax income, offset by non-taxable insurance proceeds received in 2017 relating to our demolished Courtenay Central parking structure in Wellington, New Zealand.    







Business Segment Results

At September 30, 2017, we owned and operated 54 cinemas with 436 screens, had interests in certain unconsolidated joint ventures that own an additional 3 cinemas with 29 screens and managed 1 cinema with 4 screens.  During the period, we also (i) owned and operated four ETCs located in Belmont (a suburb of Perth),  Auburn (a suburb of Sydney)  and Townsville in Australia and Wellington in New Zealand, (ii) owned the fee interests in three developed commercial properties in Manhattan and Chicago improved with live theaters comprising six stages and ancillary retail and commercial space (our fourth live theatre was closed at the end of 2015 as part of the Union Square property redevelopment), (iii) owned a 75% managing member interest in a limited liability company which in turn owns the fee interest in Cinemas 1,2,3, (iv) held for development an additional four parcels aggregating approximately 70.4 acres located in New Zealand, (v) owned a  50% managing member interest in a limited liability company which in turn owns a 202-acre property that is zoned approximately 150 acres for single-family residential use (maximum  of 550 homes) and approximately 50 acres for high density mixed use in the U.S.  and (vi) owned approximately 200 acres in Pennsylvania and New Jersey from our legacy business



The Company transacts business in Australia and New Zealand and is subject to risks associated with changing foreign currency exchange rates. The Australian and New Zealand Dollars both strengthened against the US Dollar by 4% and 1%, respectively, comparing the average exchange rate movements during the third quarter of 2017 to those during the same period of 2016Similarly, when comparing the first nine months of 2017 to the equivalent prior-year period, both the Australian and New Zealand Dollar strengthened against the US Dollar by 3%.  This had the effect of increasing the value of our Australian and New Zealand assets, liabilities, revenues and expenses.  Refer to Note 3 – Operations in Foreign Currency for further information. 

















30


 

 

Cinema Exhibition

The following table details our cinema exhibition segment operating results for the quarter and nine months ended September 30, 2017 and September 30, 2016, respectively:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Quarter Ended

 

Nine Months Ended

 

% Change - Fav/(Unfav)

(Dollars in thousands)

 

September 30, 2017

% of Revenue

 

September 30, 2016

% of Revenue

 

September 30, 2017

% of Revenue

 

September 30, 2016

% of Revenue

 

Quarter
Ended

 

Nine Months Ended

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

Admissions revenue

 

$

19,760 

32%

 

$

21,925 

32%

 

$

63,730 

33%

 

$

64,704 

34%

 

(10)

%

 

(2)

%



 

Food & beverage revenue

 

 

9,752 

16%

 

 

10,146 

15%

 

 

31,059 

16%

 

 

30,441 

16%

 

(4)

%

 

%



 

Advertising and other revenue

 

 

2,687 

4%

 

 

2,130 

3%

 

 

7,069 

4%

 

 

6,130 

3%

 

26 

%

 

15 

%



 

 

 

$

32,199 

52%

 

$

34,201 

50%

 

$

101,858 

52%

 

$

101,275 

53%

 

(6)

%

 

%



Australia

Admissions revenue

 

$

14,232 

23%

 

$

16,360 

24%

 

$

46,261 

24%

 

$

44,103 

23%

 

(13)

%

 

%



 

Food & beverage revenue

 

 

6,874 

11%

 

 

7,361 

11%

 

 

21,789 

11%

 

 

20,018 

10%

 

(7)

%

 

%



 

Advertising and other revenue

 

 

1,796 

3%

 

 

1,830 

3%

 

 

5,234 

3%

 

 

4,847 

3%

 

(2)

%

 

%



 

 

 

$

22,902 

37%

 

$

25,551 

38%

 

$

73,284 

37%

 

$

68,968 

36%

 

(10)

%

 

%



New Zealand

Admissions revenue

 

$

4,423 

7%

 

$

5,381 

8%

 

$

13,164 

7%

 

$

15,065 

8%

 

(18)

%

 

(13)

%



 

Food & beverage revenue

 

 

2,010 

3%

 

 

2,238 

3%

 

 

5,677 

3%

 

 

6,098 

3%

 

(10)

%

 

(7)

%



 

Advertising and other revenue

 

 

525 

1%

 

 

454 

1%

 

 

2,080 

1%

 

 

1,173 

1%

 

16 

%

 

77 

%



 

 

 

$

6,958 

11%

 

$

8,073 

12%

 

$

20,921 

11%

 

$

22,336 

12%

 

(14)

%

 

(6)

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Total revenue

 

$

62,059 

100%

 

$

67,825 

100%

 

$

196,063 

100%

 

$

192,579 

100%

 

(9)

%

 

%

OPERATING EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

Film rent and advertising cost

 

$

(10,327)

17%

 

$

(11,769)

17%

 

$

(33,638)

17%

 

$

(34,637)

18%

 

12 

%

 

%



 

Food & beverage cost

 

 

(1,992)

3%

 

 

(1,856)

3%

 

 

(6,144)

3%

 

 

(5,372)

3%

 

(7)

%

 

(14)

%



 

Occupancy expense

 

 

(6,919)

11%

 

 

(6,748)

10%

 

 

(20,753)

11%

 

 

(19,769)

10%

 

(3)

%

 

(5)

%



 

Other operating expense

 

 

(10,307)

17%

 

 

(9,422)

14%

 

 

(30,598)

16%

 

 

(27,903)

14%

 

(9)

%

 

(10)

%



 

 

 

$

(29,545)

48%

 

$

(29,795)

44%

 

$

(91,133)

46%

 

$

(87,681)

46%

 

%

 

(4)

%



Australia

Film rent and advertising cost

 

$

(6,297)

10%

 

$

(7,796)

11%

 

$

(21,276)

11%

 

$

(20,823)

11%

 

19 

%

 

(2)

%



 

Food & beverage cost

 

 

(1,435)

2%

 

 

(1,584)

2%

 

 

(4,619)

2%

 

 

(4,172)

2%

 

%

 

(11)

%



 

Occupancy expense

 

 

(3,774)

6%

 

 

(3,571)

5%

 

 

(11,148)

6%

 

 

(10,412)

5%

 

(6)

%

 

(7)

%



 

Other operating expense

 

 

(5,156)

8%

 

 

(5,360)

8%

 

 

(15,313)

8%

 

 

(14,822)

8%

 

%

 

(3)

%



 

 

 

$

(16,662)

27%

 

$

(18,311)

27%

 

$

(52,356)

27%

 

$

(50,229)

26%

 

%

 

(4)

%



New Zealand

Film rent and advertising cost

 

$

(2,054)

3%

 

$

(2,512)

4%

 

$

(6,121)

3%

 

$

(6,929)

4%

 

18 

%

 

12 

%



 

Food & beverage cost

 

 

(484)

1%

 

 

(527)

1%

 

 

(1,329)

1%

 

 

(1,453)

1%

 

%

 

%



 

Occupancy expense

 

 

(1,222)

2%

 

 

(1,252)

2%

 

 

(3,347)

2%

 

 

(3,575)

2%

 

%

 

%



 

Other operating expense

 

 

(1,634)

3%

 

 

(1,606)

2%

 

 

(4,801)

2%

 

 

(4,516)

2%

 

(2)

%

 

(6)

%



 

 

 

$

(5,394)

9%

 

$

(5,897)

9%

 

$

(15,598)

8%

 

$

(16,473)

9%

 

%

 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Total operating expense

 

$

(51,601)

83%

 

$

(54,003)

80%

 

$

(159,087)

81%

 

$

(154,383)

80%

 

%

 

(3)

%

DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

Depreciation and amortization

 

$

(1,391)

2%

 

$

(1,547)

2%

 

$

(4,261)

2%

 

$

(4,472)

2%

 

10 

%

 

%



 

General and administrative expense

 

 

(570)

1%

 

 

(818)

1%

 

 

(1,674)

1%

 

 

(2,059)

1%

 

30 

%

 

19 

%



 

 

 

$

(1,961)

3%

 

$

(2,365)

3%

 

$

(5,935)

3%

 

$

(6,531)

3%

 

17 

%

 

%



Australia

Depreciation and amortization

 

$

(1,117)

2%

 

$

(1,092)

2%

 

$

(3,284)

2%

 

$

(3,153)

2%

 

(2)

%

 

(4)

%



 

General and administrative expense

 

 

(227)

0%

 

 

(217)

0%

 

 

(832)

0%

 

 

(748)

0%

 

(5)

%

 

(11)

%



 

 

 

$

(1,344)

2%

 

$

(1,309)

2%

 

$

(4,116)

2%

 

$

(3,901)

2%

 

(3)

%

 

(6)

%



New Zealand

Depreciation and amortization

 

$

(443)

1%

 

$

(436)

1%

 

$

(1,322)

1%

 

$

(1,249)

1%

 

(2)

%

 

(6)

%



 

General and administrative expense

 

 

(7)

0%

 

 

14 

0%

 

 

(22)

0%

 

 

21 

0%

 

nm

 

 

nm

 



 

 

 

$

(450)

1%

 

$

(422)

1%

 

$

(1,344)

1%

 

$

(1,228)

1%

 

(7)

%

 

(9)

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Total depreciation, amortization, general and administrative expense

 

$

(3,755)

6%

 

$

(4,096)

6%

 

$

(11,395)

6%

 

$

(11,660)

6%

 

%

 

%

OPERATING INCOME - CINEMA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

 

$

693 

1%

 

$

2,041 

3%

 

$

4,790 

2%

 

$

7,063 

4%

 

(66)

%

 

(32)

%



Australia

 

 

4,896 

8%

 

 

5,931 

9%

 

 

16,812 

9%

 

 

14,838 

8%

 

(17)

%

 

13 

%



New Zealand

 

 

1,114 

2%

 

 

1,754 

3%

 

 

3,979 

2%

 

 

4,635 

2%

 

(36)

%

 

(14)

%



Total Cinema operating income

 

$

6,703 

11%

 

$

9,726 

14%

 

$

25,581 

13%

 

$

26,536 

14%

 

(31)

%

 

(4)

%

 “nm – not meaningful”

31


 

 

3rd Quarter Results:

Segment operating income

Cinema segment operating income decreased by 31%,  or $3.0 million, to $6.7 million for the quarter ended September 30, 2017 compared to September 30, 2016, primarily driven by lower admissions and food & beverage (“F&B”) revenues across our three geographic markets,  partially offset by favorable foreign currency movements of our foreign operations.  



This has been a difficult quarter for the cinema exhibition industry due the weaker film slate compared to the strong box office in the prior year period, resulting in lower revenues and profitability.  Both the commercial and specialty box office were down considerably against the prior year.  While the film slate in the first two months of the current third quarter was disappointing, September 2017, which is typically the weakest month of the year, showed a return to strength with some superior product.  Our US and Australia box office revenues performed well relative to the industry during the third quarter.   Please refer below for further details.

Revenue

Cinema revenue decreased by 9%, or $5.8 million, to $62.1 million for the quarter ended September 30, 2017 compared to September 30, 2016, primarily attributable to decreases in attendance and average ticket prices (”ATP”) in our operating jurisdictions.  Here are the changes in our cinema revenue markets:



·

The quarter revenue in the United States decreased by 6%, or $2.0 million,  due to a  12% decrease in attendance but slight increase in ATP.  

·

Australia’s cinema revenue decreased by 10%, or $2.6 million, primarily due to a  14% decrease in attendance and slight decrease in ATP.  

·

In New Zealand, our cinema revenue decreased by 14%, or $1.1 million,  as a result of the 14% decrease in attendance and  decrease in ATP    

Operating expense

Operating expense for the quarter ended September 30, 2017 decreased by 4%,  or $2.4 million, primarily attributable to (i) lower film rent due to lower admissions revenue and (ii)  lower F&B costs,  partially offset by the favorable impact of foreign currency movements.    

Operating expense as a percentage of gross revenue increased by 3%, to 83%, due mainly to comparable fixed costs (mainly rent expense on our leased cinema locations) covering lower revenues.  



Depreciation,  amortization, general and administrative expense

Depreciation, amortization, general and administrative expense for the quarter ended September 30, 2017 decreased by 8%, or  $341,000,  mainly due to a reduction in doubtful accounts expense.

Nine-Month Results:

Segment operating income

Cinema segment operating income decreased by 4%,  or $955,000, to $25.6 million for the nine months ended September 30, 2017 compared to September 30, 2016, primarily driven by lower admissions and F&B revenues for our US and New Zealand operations.  These were offset by higher operating performance of our Australia market and the favorable foreign currency movements of our foreign operations. Please refer below for further detailed explanation.

Revenue

Cinema revenue increased by 2%, or $3.5 million, to $196.1 million for the nine months ended September 30, 2017 compared to September 30, 2016, primarily attributable to higher attendance in our Australian operations and business interruption insurance proceeds for Courtenay Central in New Zealand recognized during the second quarterBelow are the changes in our cinema revenues:



·

The revenue in the United States remained flat with a minimal increase by 1%, or $583,000,  due to the offsetting impact of a  5% decrease in attendance and a  4% increase in ATP.  

·

Australia’s cinema revenue increased by 6%, or $4.3 million, primarily due to  a 7% increase in attendance, offset by a  decrease in ATP

·

In New Zealand, cinema revenue decreased by 6%, or $1.4 million, mainly due to 10% reduction in attendance and a modest decrease in ATP and the impact of the temporary closure of the Courtenay Central cinemas during the 1st Quarter of 2017 (which re-opened in late March 2017).  These were offset, in part, by the business interruption insurance proceeds recognized in the 2nd Quarter of 2017



32


 

 

Operating expense

Operating expense for the first nine months of 2017 increased by  3%, or  $4.7 million, primarily attributable to (i) higher film rent and advertising costs due to higher admissions revenue, and (ii) higher F&B costs. 

Operating expense as a percentage of gross revenue remained stable at 80-81% range, in line with our expectations.  



Depreciation,  amortization, general and administrative expense

Depreciation, amortization, general and administrative expense for the nine months ended September 30, 2017 remained consistent, with a minimal decrease of 2%, or $265,000.



Real Estate

The following table details our real estate segment operating results for the quarter and nine months ended September 30, 2017 and September 30, 2016, respectively:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Quarter Ended

 

Nine Months Ended

 

% Change - Fav / (Unfav)

(Dollars in thousands)

 

September 30, 2017

% of Revenue

 

September 30, 2016

% of Revenue

 

September 30, 2017

% of Revenue

 

September 30, 2016

% of Revenue

 

Quarter Ended

 

Nine Months Ended

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

Live theater rental and ancillary income

 

$

1,080 

18%

 

$

623 

12%

 

$

2,926 

17%

 

$

2,119 

13%

 

73 

%

 

38 

%



 

Property rental income

 

 

99 

2%

 

 

108 

2%

 

 

297 

2%

 

 

304 

2%

 

(8)

%

 

(2)

%



 

 

 

 

1,179 

20%

 

 

731 

14%

 

 

3,223 

18%

 

 

2,423 

15%

 

61 

%

 

33 

%



Australia

Property rental income

 

 

3,794 

63%

 

 

3,480 

65%

 

 

11,228 

64%

 

 

10,111 

63%

 

%

 

11 

%



New Zealand

Property rental income

 

 

1,063 

18%

 

 

1,179 

22%

 

 

3,016 

17%

 

 

3,428 

21%

 

(10)

%

 

(12)

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Total revenue

 

$

6,036 

100%

 

$

5,390 

100%

 

$

17,467 

100%

 

$

15,962 

100%

 

12 

%

 

%

OPERATING EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

Live theater cost

 

$

(270)

4%

 

$

(75)

1%

 

$

(834)

5%

 

$

(1,167)

7%

 

(260)

%

 

29 

%



 

Property cost

 

 

(314)

5%

 

 

(118)

2%

 

 

(493)

3%

 

 

(163)

1%

 

(166)

%

 

(202)

%



 

Occupancy expense

 

 

(169)

3%

 

 

(253)

5%

 

 

(487)

3%

 

 

(473)

3%

 

33 

%

 

(3)

%



 

 

 

 

(753)

12%

 

 

(446)

8%

 

 

(1,814)

10%

 

 

(1,803)

11%

 

(69)

%

 

(1)

%



Australia

Property cost

 

 

(666)

11%

 

 

(887)

16%

 

 

(2,161)

12%

 

 

(1,945)

12%

 

25 

%

 

(11)

%



 

Occupancy expense

 

 

(677)

11%

 

 

(511)

9%

 

 

(1,733)

10%

 

 

(1,599)

10%

 

(32)

%

 

(8)

%



 

 

 

 

(1,343)

22%

 

 

(1,398)

26%

 

 

(3,894)

22%

 

 

(3,544)

22%

 

%

 

(10)

%



New Zealand

Property cost

 

 

(635)

11%

 

 

(298)

6%

 

 

(1,111)

6%

 

 

(809)

5%

 

(113)

%

 

(37)

%



 

Occupancy expense

 

 

(150)

2%

 

 

(155)

3%

 

 

(439)

3%

 

 

(472)

3%

 

%

 

%



 

 

 

 

(785)

13%

 

 

(453)

8%

 

 

(1,550)

9%

 

 

(1,281)

8%

 

(73)

%

 

(21)

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Total operating expense

 

$

(2,881)

48%

 

$

(2,297)

43%

 

$

(7,258)

42%

 

$

(6,628)

42%

 

(25)

%

 

(10)

%

DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

Depreciation and amortization

 

$

(152)

3%

 

$

(91)

2%

 

$

(383)

2%

 

$

(252)

2%

 

(67)

%

 

(52)

%



 

General and administrative expense

 

 

(219)

4%

 

 

(72)

1%

 

 

(676)

4%

 

 

(69)

0%

 

(204)

%

 

(880)

%



 

 

 

 

(371)

6%

 

 

(163)

3%

 

 

(1,059)

6%

 

 

(321)

2%

 

(128)

%

 

(230)

%



Australia

Depreciation and amortization

 

$

(684)

11%

 

$

(600)

11%

 

$

(1,936)

11%

 

$

(1,617)

10%

 

(14)

%

 

(20)

%



 

General and administrative expense

 

 

(322)

5%

 

 

(279)

5%

 

 

(995)

6%

 

 

(774)

5%

 

(15)

%

 

(29)

%



 

 

 

 

(1,006)

17%

 

 

(879)

16%

 

 

(2,931)

17%

 

 

(2,391)

15%

 

(14)

%

 

(23)

%



New Zealand

Depreciation and amortization

 

 

(243)

4%

 

 

(262)

5%

 

 

(616)

4%

 

 

(727)

5%

 

%

 

15 

%



 

General and administrative expense

 

 

14 

0%

 

 

(34)

1%

 

 

(3)

0%

 

 

(51)

0%

 

141 

%

 

94 

%



 

 

 

 

(229)

4%

 

 

(296)

5%

 

 

(619)

4%

 

 

(778)

5%

 

23 

%

 

20 

%



Total depreciation, amortization, general and administrative expense

 

$

(1,606)

27%

 

$

(1,338)

25%

 

$

(4,609)

26%

 

$

(3,490)

22%

 

(20)

%

 

(32)

%

OPERATING INCOME - REAL ESTATE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



United States

 

$

55 

1%

 

$

122 

2%

 

$

350 

2%

 

$

299 

2%

 

(55)

%

 

17 

%



Australia

 

 

1,445 

24%

 

 

1,203 

22%

 

 

4,403 

25%

 

 

4,176 

26%

 

20 

%

 

%



New Zealand

 

 

49 

1%

 

 

430 

8%

 

 

847 

5%

 

 

1,369 

9%

 

(89)

%

 

(38)

%



Total real estate operating income

 

$

1,549 

26%

 

$

1,755 

33%

 

$

5,600 

32%

 

$

5,844 

37%

 

(12)

%

 

(4)

%

 “nm – not meaningful



33


 

 

3rd Quarter Results:

Segment operating income

Real estate segment operating income decreased by 12%, or $206,000, to $1.5 million for the quarter ended September 30, 2017 compared to September 30, 2016, primarily attributable to increases in our operating expenses and depreciation, amortization and general & administrative expense, offset by the STOMP settlement proceeds received ($468,000) during the quarterPlease refer below for further explanation.

Revenue

Real estate revenue for the quarter increased by 12%, or $646,000, mainly driven by the additional instalment from STOMP ($468,000) as part of the legal settlement and increase in property rental income for Australia due to new tenancies on our recently completed buildings in Auburn and Newmarket.    We would expect our Real Estate business to benefit from incremental rental income once we lease the remaining 50% unoccupied space of our LA Corporate Headquarters building to third parties.

Operating expense

Operating expense for the quarter ended September 30, 2017 increased by 25%, or $584,000,  due to the following:

·

for the U.S, operating expenses on our Corporate Headquarters in Los Angeles; and,

·

for New Zealand, set-up costs relating to our Courtenay Courtyard pop-up retail stores.

Depreciation,  amortization, general and administrative expense

Depreciation, amortization, general and administrative expense for the quarter ended September 30, 2017 increased by 20%, or $268,000, primarily driven by (i) increased depreciation expense due to capital enhancements and (ii) increased salary costs due to staff expansion and travel expenses as we continue to develop our Real Estate capacity in Australia and New Zealand. 

Nine-Month Results:

Segment operating income

Real estate segment operating income decreased slightly by 4%, or $244,000, to $5.6 million for the nine months ended September 30, 2017 compared to September 30, 2016, primarily attributable to increases in our operating and general & administrative expenses relating to our Corporate Headquarters in Los Angeles and expansion of our real estate activities in Australia and New Zealand.  These were offset by the : (i) gain on insurance recoveries from our business interruption claim for Courtenay Central ETC,  and (ii) the STOMP settlement instalment. Please refer below for further explanation.

Revenue

Real estate revenue for the nine months of 2017 increased by 9%, or  $1.5 million, mainly driven by the following:

·

for the U.S., instalment payments from STOMP as part of our 2016 legal settlement ($1.1 million);

·

for Australia, increase in rental revenue due to new tenancies on our recently completed buildings in Auburn and Newmarket: and,

·

for New Zealand, the decrease in property rental income for New Zealand operations due to the temporary closure of our Courtenay Central ETC and the demolition of the adjacent parking, offset by the related insurance recoveries received during the second quarter    

Operating expense

Operating expense for the nine months ended September 30, 2017 increased by 10%, or $630,000,  due to the following:

·

for the U.S, the operating expenses on our Corporate Headquarters in Los Angeles; and,

·

for New New Zealand, set-up costs relating to our Courtenay Courtyard pop-up retail stores.

Depreciation,  amortization, general and administrative expense

Depreciation, amortization, general and administrative expense for the nine months ended September 30, 2017 increased by 32%, or $1.1 million, primarily driven by (i) increased depreciation expense due to capital enhancements and (ii) increased salary costs due to staff expansion and travel expenses as we continue to develop our Real Estate capacity in Australia and New Zealand.







34


 

 

LIQUIDITY AND CAPITAL RESOURCES

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.  In addition, we are refurbishing our cinema properties where feasible, and adding (1) premium projection and sound presentation, (2) recliner seating when appropriate, and (3)  enhanced food and beverage options when possible.    Our real estate business plan is to re-develop our existing property assets, to be sensitive to opportunities to convert our entertainment assets to higher and better uses, or, when appropriate, to dispose of such assets.  In addition, we review opportunities to monetize our assets where such action could lead to a financially acceptable outcome.  We also continue to investigate potential synergistic acquisitions that may not readily fall into either of our two cinema or real estate segments. 

Liquidity risk is the risk relating to our ability to meet our financial obligations when they come due. In todays environment, our financial obligations arise mainly from capital expenditure needs,  working capital requirements, and debt servicing requirements. We manage the liquidity risk by ensuring our ability to generate sufficient cash flows from operating activities and to obtain adequate, reasonable financing and/or to convert non-performing or non-strategic assets into cash.    

The changes in cash and cash equivalents are discussed as follows: 





 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

(Dollars in thousands)

 

September 30, 2017

 

September 30, 2016

 

% Change

Net cash provided by operating activities

 

$

8,755 

 

$

14,516 

 

(40)

%

Net cash used in investing activities

 

 

(13,196)

 

 

(35,509)

 

(63)

%

Net cash (used in)/provided by financing activities

 

 

(5,368)

 

 

10,883 

 

149 

%

Effect of exchange rate changes on cash and cash equivalents

 

 

(312)

 

 

388 

 

(> 100)

%

Decrease in cash and cash equivalents

 

$

(10,121)

 

$

(9,722)

 

%

Operating activities

Cash provided by operating activities for the first nine months of 2017 decreased by $5.8 million, to $8.8,  primarily driven by higher cash outflows during the quarter relating to the following operational expenses:  (i) income taxes paid ($2.1 million), (ii) loan interest payments ($1.4 million), (iii) film rental payments ($1.2 million) and (iv) litigation costs ($1.1 million). 

Investing activities

Cash used in investing activities during the nine months ended September 30, 2017 decreased by $22.3 million compared to same period of 2016, to net cash used of $13.2 million, primarily due to (i) final insurance settlement relating to our Courtenay Central earthquake damage ($18.4 million, net of business interruption recoveries), and (ii) partial payment from Frasers relating to the sale of our Burwood property ($16.6 million).  These were offset by (i) expenditures relating to the demolition and disposal of the parking building adjacent to our Courtney Central ETC in Wellington, New Zealand ($3.5 million), and (ii) increase in capital expenditures relating to our real estate development program and enhancements to our existing cinemas ($8.8 million).  

Financing Activities

The $5.4 million net cash used in financing activities during the nine months ended September 30, 2017 was primarily related to (i) $6.5 million in stock repurchases, and (ii) $1.1 million of new borrowings (net of $46.6 million of repayments). 



We manage our cash, investments and capital structure so we are able to meet the short-term and long-term obligations of our business, while maintaining financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable investment and financing within the overall constraints of our financial strategy.

At  September 30, 2017, our consolidated cash and cash equivalents totaled $8.9 million.  Of this amount, $2.3 million and $1.1 million were held by our Australian and New Zealand subsidiaries, respectively.  Our intention is to indefinitely reinvest Australian earnings but not indefinitely reinvest New Zealand earnings. If the Australian earnings were used to fund U.S. operations, they would be subject to additional income taxes upon repatriation.

We have historically funded our working capital requirements, capital expenditures, investments in the acquisition of individual properties primarily from internally generated cash flows and lines of creditAs noted in the succeeding table, we have $67.8 million unused/unrestricted capacity of credit facilities at September 30, 2017.  In addition, we have $49.5 million and $13.0 million (NZ$18.0 million) unused capacity for Union Square development uses and construction funding for New Zealand, respectively.    The Minetta & Orpheum Theatres Loan will become due within one year.  Currently, we are negotiating with our lender to renew this borrowing on a long-term basis. 



As part of our operating cycle, we utilize cash collected from (i) our cinema business when selling tickets and food and beverage items, 

35


 

 

and (ii) rental income typically received in advance, to reduce our long term borrowings and realize savings on interest charges.  We then settle our operating expenses generally with a lag within traditional trade terms.  This generates a temporary working capital deficit.  As discussed previously, we review the maturities of our borrowings and negotiate for renewals and extensions, as necessary for liquidity purposes.  We believe the cash flow generated from our operations coupled with our ability to renew loans when due will provide sufficient liquidity in the upcoming year.



The table below presents the changes in our total available resources (cash and borrowings), debt-to-equity ratio, working capital and other relevant information addressing our liquidity for the nine months ended September 30, 2017 and preceding four years:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of and for the 9-Months Ended

 

Year Ended December 31

($ in thousands)

 

9/30/2017

 

2016

 

2015

 

2014

 

2013

Total Resources (cash and borrowings)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (unrestricted)

 

$

8,896 

 

$

19,017 

 

$

19,702 

 

$

50,248 

 

$

37,696 

Unused borrowing facility

 

 

121,405 

 

 

117,599 

 

 

70,134 

 

 

45,700 

 

 

19,400 

Restricted for capital projects(1)

 

 

62,505 

 

 

62,024 

 

 

10,263 

 

 

--

 

 

--

Unrestricted capacity

 

 

58,900 

 

 

55,575 

 

 

59,871 

 

 

45,700 

 

 

19,400 

Total resources at period end

 

 

130,301 

 

 

136,616 

 

 

89,836 

 

 

95,948 

 

 

57,096 

Total unrestricted resources at period end

 

 

67,796 

 

 

74,592 

 

 

79,573 

 

 

95,948 

 

 

57,096 

Debt-to-Equity Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contractual facility

 

$

272,717 

 

$

266,134 

 

$

207,075 

 

$

201,318 

 

$

187,860 

Total debt (gross of deferred financing costs)

 

 

151,312 

 

 

148,535 

 

 

130,941 

 

 

164,036 

 

 

168,460 

Current

 

 

8,084 

 

 

567 

 

 

15,000 

 

 

38,104 

 

 

75,538 

Non-current

 

 

143,228 

 

 

147,968 

 

 

115,941 

 

 

125,932 

 

 

92,922 

Total book equity

 

 

174,795 

 

 

146,615 

 

 

138,951 

 

 

133,716 

 

 

123,531 

Debt-to-equity ratio

 

 

0.87 

 

 

1.01 

 

 

0.94 

 

 

1.23 

 

 

1.36 

Changes in Working Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital (deficit)

 

$

(6,377)

 

$

6,655 

 

$

(35,581)

 

$

(15,119)

 

$

(75,067)

Current ratio

 

 

0.89 

 

 

1.10 

 

 

0.51 

 

 

0.84 

 

 

0.43 

Capital Expenditures (including acquisitions)

 

$

44,531 

 

$

49,166 

 

$

53,119 

 

$

14,914 

 

$

20,082 



(1) This relates to the construction facilities specifically negotiated for: (i) Union Square redevelopment project, obtained in December 2016, and (ii) New Zealand construction projects, obtained in May 2015.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

The following table provides information with respect to the maturities and scheduled principal repayments of our recorded contractual obligations and certain of our commitments and contingencies, either recorded or off-balance sheet, as of September 30, 2017:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2017

 

2018

 

2019

 

2020

 

2021

 

Thereafter

 

Total

Debt(1)

 

$

157 

 

$

8,139 

 

$

105,843 

 

$

246 

 

$

258 

 

$

8,756 

 

$

123,399 

Subordinated debt(1)

 

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

 

27,913 

 

 

27,913 

Tax settlement liability

 

 

--

 

 

--

 

 

--

 

 

--

 

 

2,686 

 

 

--

 

 

2,686 

Pension liability

 

 

2,311 

 

 

684 

 

 

684 

 

 

684 

 

 

684 

 

 

3,043 

 

 

8,090 

Village East purchase option(3)

 

 

--

 

 

--

 

 

--

 

 

--

 

 

5,900 

 

 

--

 

 

5,900 

Lease obligations

 

 

8,290 

 

 

29,564 

 

 

27,135 

 

 

20,233 

 

 

16,317 

 

 

129,070 

 

 

230,609 

Estimated interest on debt (2)

 

 

1,691 

 

 

6,559 

 

 

5,054 

 

 

1,892 

 

 

1,880 

 

 

9,969 

 

 

27,045 

  Total

 

$

12,449 

 

$

44,946 

 

$

138,716 

 

$

23,055 

 

$

27,725 

 

$

178,751 

 

$

425,642 

 (1) Information is presented exclusive of deferred financing costs.

(2) Estimated interest on debt is based on the anticipated loan balances for future periods and current applicable interest rates.

(3) Represents the lease liability of the option associated with the purchase of our interest in the underlying ground lease of the Village East cinema.  



Refer to Note 13 – Commitments and Contingencies for additional information.

Litigation

We are currently involved in certain legal proceedings and, as required, have accrued estimates of probable and estimable losses for the resolution of these claims. 

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 usually entitled to recover its attorneys’ fees, which typically work 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 are determined not to be the prevailing party.



36


 

 

Where we are the defendants, we accrue for probable damages that insurance may not cover 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.  It is possible, however, that future results of the operations for any particular quarterly or annual period could be materially affected by the ultimate outcome of the legal proceedings.    Please refer to Item 3 – Legal Proceedings in the Company’s 2016 Form 10-K for the year ended December 31, 2016 for more information. There have been no material changes to our litigation exposure since our 2016 Form 10-K, except as set forth in Note 13 – Commitments and Contingencies in the accompanying consolidated financial statements include in this Form 10-Q and in Part II – Item 1A – Risk Factors below.



Off-Balance Sheet Arrangements

Other than the operating lease arrangements mostly relating to our operating cinemas, there are no off-balance sheet 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, revenue or expense, results of operations, liquidity, capital expenditures or capital resources.

CRITICAL ACCOUNTING POLICIES

SEC 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.  We believe our most critical accounting policies relate to:

·

impairment of long-lived assets, including goodwill and intangible assets;

·

recognition of gift card and gift certificate breakage income;

·

tax valuation allowance and obligations, and,

·

contingencies (including the insurance recoverability of losses incurred as a result of the recent earthquake in New Zealand).

We provided detailed discussion regarding these critical accounting policies in our 2016 Form 10-K and advise you to refer to that discussion.  Refer to Note 2Summary of Significant Accounting Policies –  Recently Adopted and Issued Accounting Pronouncements for more information regarding recently adopted and issued accounting pronouncements.

FINANCIAL RISK MANAGEMENT

Currency and interest rate risk

The Companys objective in managing exposure to foreign currency and interest rate fluctuations is to reduce volatility of earnings and cash flows in order to allow management to focus on core business issues and challenges.      

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 to match revenues and expenses. Since we intend to conduct business mostly on a self-funding basis, except for funds used to pay an appropriate share of our domestic corporate overhead), we do not believe the currency fluctuations presents a material risk to the Company.  As such, we  do not use derivative financial instruments to hedge against the risk of foreign currency exposure. 

Set forth below is a chart reflecting the currency trends for the Australian and New Zealand Dollars vis-à-vis the U.S. Dollars over the past 20 years.

Picture 2

37


 

 

Our exposure to interest rate risk arises out of our intermediate term floating-rate borrowings.  To manage the risk, we utilize interest rate derivative contracts to convert certain floating-rate borrowings into fixed-rate borrowings. It is the Company’s policy to enter into interest rate derivative transactions only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into these transactions or any other hedging transactions for speculative purposes.

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, we have managed the effects of inflation appropriately, and, as a result, it has not had a material impact on our operations and the resulting financial position or liquidity.



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 a 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-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 and DVD rentals and sales, and online streaming;

o

the cost and impact of improvements to our cinemas, such as improve seating, enhanced food and beverage offerings and other improvements;

o

disruptions from theater improvements; and

o

the extent to and the efficiency with which we are able to integrate 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

the ability to obtain all permits to construct improvements;

o

the ability to finance improvements;

o

the disruptions from construction;

o

the possibility of construction delays, work stoppage and material shortage;

o

competition for development sites and tenants;

o

environmental remediation issues;

38


 

 

o

the extent to which our cinemas can continue to serve as an anchor tenant that will, in turn, be influenced by the same factors as will influence generally the results of our cinema operations;

o

the ability to negotiate and execute joint venture opportunities and relationships; and

o

certain of our activities are in geologically active areas, creating a risk of damage and/or disruption of real estate and/or cinema businesses from earthquakes.

·

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

expenses, management and Board distraction and other effects of the litigation efforts mounted by James Cotter, Jr. against the Company, including his efforts to cause a sale of voting control of the Company;

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, 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.

39


 

 

Item 3 – Quantitative and Qualitative Disclosure about Market Risk

The SEC 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.  We base the following discussion on a sensitivity analysis that 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; and

·

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, 2017, approximately 44% and 16% of our assets were invested in assets denominated in Australian dollars (Reading Australia) and New Zealand dollars (Reading New Zealand), respectively, including approximately $3.4 million in cash and cash equivalents.  At December 31, 2016, approximately 42% and 18% of our assets were invested in assets denominated in Australian dollars (Reading Australia) and New Zealand dollars (Reading New Zealand), including approximately $8.5 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, we have procured a majority of our expenses in Australia and New Zealand in local currencies.  Despite this natural hedge, recent movements in foreign currencies have had an effect on our current earnings.  Although foreign currency has had an effect on our current earnings, the effect of the translation adjustment on our assets and liabilities noted in our other comprehensive income was an increase of $10.2 million for the nine months ended September 30, 2017.  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 not be material in the future.

Historically, our policy has been to borrow in local currencies to finance the development and construction of our long-term assets 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 Trust Preferred Securities in 2007, and their subsequent partial repayment, approximately 72% and 74% 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 $13.3 million and $4.8 million, respectively, and the change in our quarterly net income would be $1.8 million and $716,000, respectively.  Presently, we have no plan to hedge such exposure.

We record unrealized foreign currency translation gains or losses that could materially affect our financial position.  As of September 30, 2017 and December 31, 2016,  the balance of cumulative foreign currency translation adjustments was approximately $25.0 million gain and $14.8 million gain, respectively.

Historically, we maintain most of our cash and cash equivalent balances in short-term money market instruments with original maturities of three months or less.  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.

We have a combination of fixed and variable interest rate loans. In connection with our variable interest rate loans, a change of approximately 1% in short-term interest rates would have resulted in approximately $134,000 increase or decrease in our quarterly interest expense.





40


 

 

Item 4 – Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC’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 Exchange Act.  Based upon that evaluation, we concluded that, as of September 30, 2017, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were  no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 









41


 

 

PART II – Other Information

Item 1 – Legal Proceedings

The information required under Part II, Item 1 (Legal Proceedings) is incorporated by reference to the information contained in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements included herein in Part I, Item 1 (Financial Statements) on this Quarterly Report on Form 10-Q.

For further details on our legal proceedings, please refer to Item 3, Legal Proceedings, contained in our 2016 Form 10-K.

Item 1A – Risk Factors 

There have been no material changes in risk factors as previously disclosed in our 2016 Form 10-K, other than the below.

In a Petition filed with the California Superior Court in and for the County of Los Angeles in the matter of the James J. Cotter Living Trust (“Cotter Trust”), Case No. BP159755 (the "Trust Litigation") on or about July 12, 2017 (the “GAL Petition”), and at a hearing held on August 1-2, 2017, relating to other contested matters, the guardian ad litem (“GAL”) expressed to the Superior Court his view that the interests of the Cotter Grandchildren (the children of Margaret Cotter and Mr. Cotter, Jr.) would be best served by a sale at this time of the Class B Voting Stock held by the Cotter Trust and that he would recommend the appointment of a trustee ad litem (a “TAL”) to conduct a public sale of such Class B Voting Stock structured to open the sales process to interested purchasers general, but at the same time provide an opportunity for such Class B Voting Stock to be retained within the control of Ellen Cotter and Margaret Cotter.   As previously disclosed, the Trust Litigation involves assets of our Company’s founder, former Chairman, Chief Executive Officer and controlling stockholder, James J. Cotter, Sr.  The Cotter Trust holds approximately 41.4% of our Class B Voting Stock. The James J. Cotter Estate, which is the subject of a separate probate proceeding pending in the State of Nevada, holds, among other assets, 25.5% of our Class B Voting Stock, which is currently anticipated to ultimately “pour over” into the Cotter Trust.  The Cotter Trust provides for the creation of a sub-trust (the “Voting Trust’) to hold all of the Class B Voting Stock previously owned by Mr. Cotter, Sr.  Upon the funding of this Voting Trust, it will control approximately 66.9%.  Under applicable Nevada Law, subject to limited fiduciary obligations to minority stockholders, the holder of 66.6% of more of our Company’s Class B Voting Stock may remove and appoint directors to our Company at will.



Ellen Cotter and Margaret Cotter have requested an evidentiary hearing on the GAL Petition and the related Ex Parte Petition by Mr. Cotter, Jr., which likewise seeks the appointment of a TAL to sell the Class B Voting Stock previously owned by Mr. Cotter, Sr.   Mr. Cotter, Jr., has opposed Ellen Cotter and Margaret Cotter’s request for an evidentiary hearing, and requested that the Superior Court promptly grant his Ex Parte Petition without allowing any such evidentiary hearing.  No hearing has been scheduled, and it is questionable, in light of recent action by the Superior Court described below, that  the Superior Court will honor Ellen Cotter and Margaret Cotter’s request for an evidentiary hearing.



On August 29, 2017, the Superior Court entered a Tentative Statement of Decision (the "Tentative Ruling") in the Trust Litigation.  The Tentative Ruling declares that the 2014 Amendment to the Cotter Living Trust signed by Mr. Cotter, Sr., shortly before his death is invalid. Accordingly, subject to the Tentative Ruling becoming final, Ellen Cotter and Margaret Cotter will continue as the sole Co-Trustees of the Cotter Living Trust, as it existed prior to the 2014 Amendment, and Margaret Cotter will likewise continue as the sole trustee of the Voting Trust, again as it existed prior to the 2014 Amendment.   The Tentative Ruling also provides, again subject to becoming final, for the appointment of a temporary trustee ad litem “with the narrow and specific authority to obtain offers to purchase the Reading stock in the voting trust or the citrus farms (certain orchard and packing house properties previously owned by Mr. Cotter, Sr.), but not to exercise any other powers without court approval, specifically the sale of the [sic] company or any other powers possessed by the trustees.” The Superior Court acknowledges that it has no jurisdiction over “the sale of the [C]ompany.” However, the Superior Court has jurisdiction over the assets in the Cotter Trust, including the potential disposition of a controlling interest in the Company. Under the governing California Rules of Court, the Tentative Ruling does not constitute a judgment and is not binding on the Superior Court. The Superior Court remains free to modify or change its decision. It is uncertain as to when, if ever, the Tentative Ruling will become final, or the form in which it will ultimately be issued.

 

Our Company has advised the Superior Court that our Company supports the request by Ellen Cotter and Margaret Cotter for an evidentiary hearing on the issues of if, when and/or how the potentially controlling interest in our Company should be sold and that, in the view of our Board of Directors, it is in the best interests of our Company and stockholders generally that our Company be permitted to continue to execute on the Three Year Business Strategy approved by our Board on February 18, 2017.   We have further advised the Superior Court that our Board has a fiduciary duty to our Company and our stockholders generally to see that that Three Year Business Strategy is realized and not disrupted or dismantled.  



We are advised by Margaret Cotter and Ellen Cotter that they are opposed to any sale at this time of any of the Class B Voting Stock previously owned by their father, Mr. Cotter, Sr.   They have further advised that they believe that a sale of such Class B Voting Stock would be inconsistent with the applicable trust documents and the intentions of their father.  We understand that Mr. Cotter, Jr., is of

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the view such shares should be offered for sale to the highest bidder in an auction process which would allow the participation of multiple bidders and which would not include any protections for minority stockholders or provide for the participation of minority stockholders in any resulting change of control transaction.  



We are advised by Margaret Cotter and Ellen Cotter that, if there is a judicially ordered disposition of the Class B Voting Stock previously owned by James J. Cotter, Sr., they intend to be the purchasers of such shares, to retain control of our Company within the Cotter Family, and to preserve and continue on the execution of our Company’s Three Year Business Plan.  We are advised that Mr. Cotter, Jr., opposes a buy-out by Ellen Cotter and Margaret Cotter of the Class B Voting Stock beneficially owned by his  children (representing three-fifths of the Class B Voting Stock to be held by the Voting Trust) and that he has requested the Superior Court, if it were to consider a potential buy-out of his children’s interest in the Class B Voting Stock  by Margaret Cotter and Ellen Cotter, that he be given the same opportunity to buy-out Margaret Cotter’s children’s shares.

   

Mr. Cotter, Jr., voted against the adoption of our Company’s Three Year Business Strategy and continues to prosecute his derivative action against all of the other members of our Board of Directors and our Company.



On August 7, 2017, our Board of Directors appointed a Special Independent Committee to, among other things, review, consider, deliberate, investigate, analyze, explore, evaluate, monitor and exercise general oversight of any and all activities of the Company directly or indirectly involving, responding to or relating to any potential change of control transaction relating to a sale by the Cotter Living Trust of its holdings of Class B Voting Stock.   The Special Independent Committee has not, however, been delegated any authority to issue or to obligate the Company to issue any shares of our Company’s stock, or to approve any merger, consolidation or liquidation of our Company.   Directors Judy Codding, William Gould and Douglas McEachern have been appointed to serve on this Special Independent Committee.  The Special Committee will be reviewing the scope and implications of the Tentative Ruling and, consistent with its delegated authority, working to protect the best interests of our Company and stockholders generally.



If control of our Company is auctioned off to a third party through the Trust Litigation, no assurances can be given that our Company would be able to continue with its current business plan, that any stockholders other than the Cotter Trust and the Cotter Estate would be able to participate in any such change of control transaction, and/or that the interests of such a purchaser of control would be consistent with the best interest of stockholders generally.

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the periods covered by this report.



The following table summarizes our repurchases under the March 2, 2017 stock repurchase program for the nine months ended September 30, 2017:





 

 

 

 

 

 

 

 

 

Period

 

Total Number of Shares Purchased

 

Average Price Paid per Share

 

 

Total Number of Shares Purchased as part of our Stock Buy-Back Program

 

Approximate Dollar Value of Shares that may yet be Purchased under the Stock Buy-Back Program

March 2017

 

41,899 

 

$              15.99 

 

 

41,899 

 

$               24,330,149 

May 2017

 

98,816 

 

$              15.78 

 

 

98,816 

 

$               22,771,316 

June 2017

 

70,234 

 

$              16.39 

 

 

70,234 

 

$               21,620,212 

August 2017

 

187,207 

 

$              15.81 

 

 

187,207 

 

$               18,659,580 

September 2017

 

5,000 

 

$              15.71 

 

 

5,000 

 

$               18,581,038 

Total

 

403,156 

 

$              15.92 

 

 

403,156 

 

 



For a description of grants of stock to certain executives, see the Stock Based Compensation section under see Note 15Equity and Stock-Based Compensation to our Consolidated Financial Statements.

Item 3 – Defaults upon Senior Securities

None.

Item 5 – Other Information

Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for details.

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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.

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Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation

101.DEF

XBRL Taxonomy Extension Definition

101.LAB

XBRL Taxonomy Extension Labels

101.PRE

XBRL Taxonomy Extension Presentation

















44


 

 

SIGNATURES

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, 2017



By: /s/ Ellen M. Cotter

Ellen M. Cotter

Chief Executive Officer



Date:November 6, 2017



By: /s/ Devasis Ghose

Devasis Ghose

Chief Financial Officer

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