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READING INTERNATIONAL INC - Quarter Report: 2023 September (Form 10-Q)

rdi-20230930x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________

FORM 10-Q

(Mark One)

þ

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

For the quarterly period ended: September 30, 2023

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 Number)

189 Second Avenue, Suite 2S

New York, New York

(Address of principal executive offices)

 

10003

(Zip Code)

Registrant’s telephone number, including area code: (213) 235-2240

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Class A Nonvoting Common Stock, $0.01 par value

 

RDI

 

The Nasdaq Stock Market LLC

Class B Voting Common Stock, $0.01 par value

RDIB

The Nasdaq Stock Market LLC

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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No ¨

Indicate by check mark whether the registrant has submitted electronically 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 þ  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer  þ Smaller Reporting Company þ 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  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 13, 2023, there were 20,592,834 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

25

Item 3 – Quantitative and Qualitative Disclosure about Market Risk

44

Item 4 – Controls and Procedures

46

PART II – Other Information

47

Item 1 – Legal Proceedings

47

Item 1A – Risk Factors

47

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

47

Item 3 – Defaults Upon Senior Securities

47

Item 4 – Mine Safety Disclosure

47

Item 5 – Other Information

47

Item 6 – Exhibits

48

SIGNATURES

49

Certifications

 


 

2


PART 1 – FINANCIAL INFORMATION

Item 1 - Financial Statements

READING INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

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

September 30,

December 31,

2023

2022

ASSETS

(unaudited)

Current Assets:

Cash and cash equivalents

$

11,925

$

29,947

Restricted cash

5,714

5,032

Receivables

5,779

6,206

Inventories

1,488

1,616

Derivative financial instruments - current portion

17

907

Prepaid and other current assets

4,243

3,804

Land and property held for sale

12,362

Total current assets

41,528

47,512

Operating property, net

261,614

286,952

Operating lease right-of-use assets

180,718

200,417

Investment and development property, net

8,336

8,792

Investment in unconsolidated joint ventures

4,488

4,756

Goodwill

24,597

25,504

Intangible assets, net

2,110

2,391

Deferred tax asset, net

489

447

Other assets

8,717

10,284

Total assets

$

532,597

$

587,055

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable and accrued liabilities

$

41,896

$

42,590

Film rent payable

3,462

5,678

Debt - current portion

40,402

37,279

Subordinated debt - current portion

776

747

Taxes payable - current

2,390

300

Deferred revenue

8,616

10,286

Operating lease liabilities - current portion

22,977

23,971

Other current liabilities

6,673

813

Total current liabilities

127,192

121,664

Debt - long-term portion

138,560

148,688

Subordinated debt, net

27,117

26,950

Noncurrent tax liabilities

5,842

7,117

Operating lease liabilities - non-current portion

180,002

200,037

Other liabilities

11,829

19,320

Total liabilities

$

490,542

$

523,776

Commitments and contingencies (Note 15)

 

 

Stockholders’ equity:

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

33,528,994 issued and 20,592,834 outstanding at September 30, 2023 and

33,348,295 issued and 20,412,185 outstanding at December 31, 2022

236

235

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

1,680,590 issued and outstanding at September 30, 2023 and December 31, 2022

17

17

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

or outstanding shares at September 30, 2023 and December 31, 2022

Additional paid-in capital

154,903

153,784

Retained earnings/(deficits)

(67,104)

(48,816)

Treasury shares

(40,407)

(40,407)

Accumulated other comprehensive income

(5,647)

(1,957)

Total Reading International, Inc. stockholders’ equity

41,998

62,856

Noncontrolling interests

57

423

Total stockholders’ equity

42,055

63,279

Total liabilities and stockholders’ equity

$

532,597

$

587,055

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

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,

2023

2022

2023

2022

Revenue

Cinema

$

62,688

$

48,359

$

165,731

$

147,476

Real estate

3,875

2,837

11,694

8,432

Total revenue

66,563

51,196

177,425

155,908

Costs and expenses

Cinema

(53,278)

(45,308)

(146,297)

(134,579)

Real estate

(2,281)

(2,352)

(6,600)

(6,715)

Depreciation and amortization

(4,580)

(5,010)

(13,908)

(15,781)

Impairment expense

(1,549)

General and administrative

(5,405)

(5,257)

(15,693)

(17,364)

Total costs and expenses

(65,544)

(57,927)

(182,498)

(175,988)

Operating income (loss)

1,019

(6,731)

(5,073)

(20,080)

Interest expense, net

(5,072)

(3,693)

(14,063)

(10,242)

Gain (loss) on sale of assets

(59)

(59)

Other income (expense)

267

5,455

356

8,445

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

(3,786)

(5,028)

(18,780)

(21,936)

Equity earnings of unconsolidated joint ventures

217

61

443

233

Income (loss) before income taxes

(3,569)

(4,967)

(18,337)

(21,703)

Income tax benefit (expense)

(896)

(332)

(313)

(1,492)

Net income (loss)

$

(4,465)

$

(5,299)

$

(18,650)

$

(23,195)

Less: net income (loss) attributable to noncontrolling interests

(65)

(122)

(361)

(228)

Net income (loss) attributable to Reading International, Inc.

$

(4,400)

$

(5,177)

$

(18,289)

$

(22,967)

Basic earnings (loss) per share

$

(0.20)

$

(0.23)

$

(0.82)

$

(1.04)

Diluted earnings (loss) per share

$

(0.20)

$

(0.23)

$

(0.82)

$

(1.04)

Weighted average number of shares outstanding–basic

22,273,423

22,043,823

22,208,757

22,011,755

Weighted average number of shares outstanding–diluted

22,273,423

22,043,823

22,208,757

22,011,755

See accompanying Notes to the Unaudited Consolidated Financial Statements. 

 

4


READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; U.S. dollars in thousands)

Quarter Ended

Nine Months Ended

September 30,

September 30,

2023

2022

2023

2022

Net income (loss)

$

(4,465)

$

(5,299)

$

(18,650)

$

(23,195)

Foreign currency translation gain (loss)

(1,686)

(8,279)

(3,038)

(15,268)

Gain (loss) on cash flow hedges

(26)

60

(813)

1,253

Other

52

49

156

154

Comprehensive income (loss)

(6,125)

(13,469)

(22,345)

(37,056)

Less: net income (loss) attributable to noncontrolling interests

(65)

(122)

(361)

(228)

Less: comprehensive income (loss) attributable to noncontrolling interests

(3)

(3)

(5)

(1)

Comprehensive income (loss)

$

(6,057)

(13,344)

$

(21,979)

$

(36,827)

See accompanying Notes to the Unaudited Consolidated Financial Statements


 

5


READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; U.S. dollars in thousands)

Nine Months Ended

September 30,

2023

2022

Operating Activities

Net income (loss)

$

(18,650)

$

(23,195)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Equity earnings of unconsolidated joint ventures

(443)

(233)

Distributions of earnings from unconsolidated joint ventures

468

283

(Gain) loss recognized on foreign currency transactions

(5,952)

Loss provision on impairment of asset

1,549

(Gain) Loss on sale of assets

59

Amortization of operating leases

14,871

17,342

Amortization of finance leases

23

30

Change in operating lease liabilities

(15,998)

(17,560)

Purchase of derivative instruments

(86)

Change in net deferred tax assets

(98)

(370)

Depreciation and amortization

13,908

15,781

Other amortization

1,157

1,225

Stock based compensation expense

1,364

1,379

Net changes in operating assets and liabilities:

Receivables

325

2,536

Prepaid and other assets

(483)

(1,768)

Payments for accrued pension

(513)

(513)

Accounts payable and accrued expenses

932

(2,333)

Film rent payable

(2,127)

(4,014)

Taxes payable

2,155

(8,131)

Deferred revenue and other liabilities

(3,257)

(2,143)

Net cash provided by (used in) operating activities

(6,366)

(26,114)

Investing Activities

Purchases of and additions to operating and investment properties

(6,191)

(6,387)

Contributions to unconsolidated joint ventures

(32)

Net cash provided by (used in) investing activities

(6,191)

(6,419)

Financing Activities

Repayment of borrowings

(6,862)

(7,535)

Repayment of finance lease principal

(25)

(32)

Proceeds from borrowings

3,839

Capitalized borrowing costs

(594)

(236)

(Cash paid) proceeds from the settlement of employee share transactions

(244)

(83)

Noncontrolling interest contributions

4

Noncontrolling interest distributions

(64)

Net cash provided by (used in) financing activities

(3,886)

(7,946)

Effect of exchange rate on cash and restricted cash

(897)

(2,242)

Net increase (decrease) in cash and cash equivalents and restricted cash

(17,340)

(42,721)

Cash and cash equivalents and restricted cash at the beginning of the period

34,979

88,571

Cash and cash equivalents and restricted cash at the end of the period

$

17,639

$

45,850

Cash and cash equivalents and restricted cash consists of:

Cash and cash equivalents

$

11,925

$

39,628

Restricted cash

5,714

6,222

$

17,639

$

45,850

Supplemental Disclosures

Interest paid

$

13,826

$

9,082

Income taxes (refunded) paid

(697)

9,636

Non-Cash Transactions

Additions to operating and investing properties through accrued expenses

2,557

2,961

See accompanying Notes to the Unaudited Consolidated Financial Statements. 

 

6


READING INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Note 1 – Description of Business and Segment Reporting

Our 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, owned and operated through our various subsidiaries, consist primarily of:

the development, ownership, and operation of cinemas in the United States, Australia, and New Zealand; and

the development, ownership, operation and/or rental of retail, commercial and live venue real estate assets in Australia, New Zealand, and the United States.

Business Segments

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

The table below summarizes the results of operations for each of our business segments for the quarter and nine months ended September 30, 2023, and 2022, respectively. Operating expense includes costs associated with the day-to-day operations of the cinemas and the management of rental properties, including our live theatre assets.

Quarter Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2023

2022

2023

2022

Revenue:

Cinema exhibition

$

62,688

$

48,358

$

165,731

$

147,476

Real estate

5,056

4,070

15,338

12,265

Inter-segment elimination

(1,181)

(1,232)

(3,644)

(3,833)

$

66,563

$

51,196

$

177,425

$

155,908

Segment operating income (loss):

Cinema exhibition

$

4,395

$

(2,137)

$

4,256

$

(5,902)

Real estate

920

(145)

3,212

(125)

$

5,315

$

(2,282)

$

7,468

$

(6,027)

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

Quarter Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2023

2022

2023

2022

Segment operating income (loss)

$

5,315

$

(2,282)

$

7,468

$

(6,027)

Unallocated corporate expense

Depreciation and amortization expense

(172)

(258)

(527)

(804)

General and administrative expense

(4,124)

(4,190)

(12,014)

(13,249)

Interest expense, net

(5,072)

(3,694)

(14,063)

(10,242)

Equity earnings of unconsolidated joint ventures

217

61

443

233

Gain (loss) on sale of assets

(59)

(59)

Other income (expense)

267

5,455

356

8,445

Income (loss) before income tax expense

$

(3,569)

$

(4,967)

$

(18,337)

$

(21,703)

 


 

7


Note 2 – Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of our Company’s wholly-owned subsidiaries as well as majority-owned subsidiaries that our Company controls, and should be read in conjunction with our Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2022 (“2022 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, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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 breakage and redemption experience rates, which drive how we recognize breakage on our gift card and gift certificates, and revenue from our customer loyalty program, and (v) estimation of our Incremental Borrowing Rate (“IBR”) as relates to the valuation of our right-of-use assets and lease liabilities. Actual results may differ from those estimates.

Note 3 – Impact of COVID-19 Pandemic and the Writers and Actors Strikes on Operations and Liquidity

Cinema Segment Ongoing Impacts

With respect to the COVID-19 pandemic, the World Health Organization has declared that the COVID-19 emergency has passed. However, the legacy of COVID-19 continues to negatively impact the profitability of our cinema operating segment. The following factors, which are largely beyond our control, continue to impact the profitability of our global cinema segment compared to pre-pandemic levels:

(i)The number of movies released by the major Hollywood studios and other distributors, while increasing from pandemic levels, has not yet returned to pre-pandemic levels;

(ii)The timing of certain anticipated cinema releases and the effectiveness of cinema marketing related to cinema releases have been adversely affected by the now settled writers’ and actors’ strikes (the “Hollywood Strikes”);

(iii)Inflationary pressures, ongoing supply chain issues and increased variable operating expenses continue to compress margins as we encounter consumer resistance to price increases;

(iv)Labor costs continue to increase (due both to government mandates and labor shortages);

(v)The Reserve banks in the U.S., Australia and New Zealand have increased interest rates causing our cost of borrowing to increase materially; and

(vi)Increased fixed costs, such as third-party cinema rents, some of which are increasing due to long ago negotiated fixed rent increases, which are exacerbated on a cash flow basis now by our need to also pay certain rent deferrals accrued during the periods when our operations were closed or restricted due to the COVID-19 pandemic.

Notwithstanding the above, our global cinema segment operating income continues to grow when compared to pandemic periods. Movies leading the box office during this period included Barbie, Oppenheimer, Mission: Impossible – Dead Reckoning Part One, Indiana Jones and the Dial of Destiny, Teenage Mutant Ninja Turtles: Mutant Mayhem and Sound of Freedom. Despite the fact that our industry has not fully returned to pre-COVID-19 pandemic levels, our industry is recovering.

In light of the above factors, our Company continues its cost-reduction efforts in our cinema operating segment, including, but not limited to, restricting utilities and essential operating expenses to the minimum levels necessary, reducing employment costs by limiting hours of operation and/or shifts and increasing reliance on automation, and minimizing capital outlays. We continue to work with our landlords to manage our rent obligations. We have terminated cinema leases where their long-term profitability is in sufficient doubt.

Our Real Estate operating segment has been less impacted by the legacy impacts of the COVID-19 pandemic, with the exception of our assets associated with office space, such as 44 Union Square in New York City and 5995 Sepulveda in Culver City, California.

 

8


Going Concern

We continue to evaluate the going concern assertion required by ASC 205-40 Going Concern as it relates to our Company. The evaluation of the going concern assertion involves firstly considering whether it is probable that our Company has sufficient resources, as at the issue date of the financial statements, to meet its obligations as they fall due for twelve months following the issue date. Should it be probable that there are not sufficient resources, we must determine whether it is probable that our plans will mitigate the consequential going concern substantial doubt. Our evaluation is informed by current operating conditions (including the progressive improvement in both the cinema segment revenues and operating income due to the successful release of various movies during the period), liquidity positions, debt obligations, cash flow estimates, known capital and other expenditure requirements and commitments and our current business plan and strategies. Our Company’s business plan - two businesses (real estate and cinema) in three countries (Australia, New Zealand and the U.S.) - has served us well since the onset of COVID-19 and is key to management’s overall evaluation of ASC 205-40 Going Concern. As of December 31, 2022, in our Form 10-K, we reported that our plans were probable of being implemented and thus they alleviated the substantial doubt about our Company’s ability to continue as a going concern.

We have $58.6 million of debt maturing in the twelve months from the issue of this Form 10-Q. As at September 30, 2023, we have unrestricted cash of $11.9 million and negative working capital of $85.7 million. To alleviate doubt that our Company will be able to generate sufficient cash flows for the coming twelve-months, these loans need to be refinanced, our revenues and net income need to continue to improve, cinema rents need to be renegotiated downward, and/or funds need to be raised through asset monetizations.

We believe that it is probable that our outstanding loans with current maturities will be extended on terms reasonably acceptable to us. The maturity date of our loan on the Cinemas 123 from Valley National Bank was extended from April 1, 2023, to July 3, 2023, then to October 3, 2023 to allow additional time to complete a refinance under a term sheet, and has now been extended to October 1, 2024, following the refinance on September 29, 2023. We extended our loan on our Australian assets from NAB facility to July 31, 2025. With respect to our U.S. based loan from Santander ($8.0 million), we expect our lender to extend that loan for a reasonable period to allow for an appropriate refinance. With respect to our loan on our assets in New Zealand from Westpac ($8.3 million), we have requested an extension for a reasonable period to allow for an appropriate refinance.

We have begun active processes to monetize certain assets as detailed in Note 6. Based on the results of our asset monetizations in 2021, we believe these processes will produce net proceeds sufficient to alleviate any substantial doubt about our Company’s ability to continue as a going concern. As we monitor the cinema market conditions (such as improving box office and progression of the Hollywood Strike negotiations), we are also currently exploring the potential monetization of other real estate assets to further enhance our liquidity conditions for the long-term future of our Company.

As noted above, we are continuing to reduce our fixed costs of operation by renegotiating lease rents and closing non-performing cinemas upon the expiration of their current lease terms.

Notwithstanding some temporary release schedule impacts from the Hollywood Strikes, we believe that the global cinema industry will continue to recover in 2023 and into 2024 and 2025. This belief underpins our forecasts and cash flow projections. Our forecasts rely upon, among other things, the current industry movie release schedule, which demonstrates an increased number of movies from the major studios and other distributors and an improvement in the quality of the movie titles, and the public’s demonstrable desire to attend movies in a theatrical environment. These factors are both out of management’s control and are material, individually and in aggregate, to the realization of management’s forecasts and expectations.

In conclusion, as of the date of issuance of these financial statements, based on our evaluation of ASC 205-40 Going Concern and the current conditions and events, considered in the aggregate, and our various plans for enhancing liquidity and the extent to which those plans are progressing, we conclude that our plans are probable of being implemented and that they alleviate the substantial doubt about our Company’s ability to continue as a going concern.

Impairment Considerations

Our Company considers that the events and factors described above constitute impairment indicators under ASC 360 Property, Plant and Equipment. In 2022, when considered necessary, our Company performed quantitative recoverability tests of the carrying values of all its asset groups. These tests compare the carrying values of all asset groups to the estimated undiscounted future cash flows expected to result from the use of those asset groups. As a result of this testing, we recorded $1.5 million of impairment charges against certain cinema asset groups in the second quarter of 2022. The charges related to cinemas whose performance had not improved commensurate with the wider group. No further impairment charges were recorded in the remainder of the year. No impairment charges were recorded in nine months of 2023. Actual performance against our forecasts is dependent on several variables and conditions, many of which are subject to the uncertainties associated with COVID-19 and its aftermath, with government policy related to work-place regulation, increasing interest rates, inflationary impacts and with ongoing theatrical release patterns and applicable film rent, and as a result, actual results may materially differ from management’s estimates.

 

9


Our Company also considers that the events and factors described above continue to constitute impairment indicators under ASC 350 Intangibles – Goodwill and Other. Our Company performed a quantitative goodwill impairment test and determined that our goodwill was not impaired as of December 31, 2022. The test was performed at a reporting unit level by comparing each reporting unit’s carrying value, including goodwill, to its fair value. The fair value of each reporting unit was assessed using a discounted cash flow model based on the budgetary revisions performed by management in response to COVID-19 and the developing market conditions. No additional triggering events were identified in the first nine months of 2023, and therefore no goodwill impairment testing or charges were necessary. Actual performance against our forecasts is dependent on several variables and conditions, many of which are subject to the uncertainties associated with COVID-19 and its aftermath, with government policy related to work-place regulation, increasing interest rates, inflationary impacts and with ongoing theatrical release patterns and applicable film rent and as a result, actual results may materially differ from management’s estimates.

 

Note 4 – Operations in Foreign Currency

We have significant assets in Australia and New Zealand. Historically, we have conducted 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 expenses of those foreign operations. However, in recent periods, we have looked to our overseas operations to cover an increasing portion of our domestic general and administrative costs. 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, 2023. 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.

Due to the natural-hedge nature of our funding policy, we have not historically used derivative financial instruments to hedge against the risk of foreign currency exposure. We take a global view of our financial resources and are flexible in making use of resources from one jurisdiction in other jurisdictions.

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

Foreign Currency / USD

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

September 30, 2023

December 31, 2022

September 30, 2022

Spot Rate

Australian Dollar

0.6451

0.6805

0.6437

New Zealand Dollar

0.6013

0.6342

0.5642

Average Rate

Australian Dollar

0.6551

0.6691

0.6946

0.6829

0.7071

New Zealand Dollar

0.6053

0.6179

0.6357

0.6127

0.6463

 

Note 5 – Earnings Per Share

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

 

10


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

September 30,

September 30,

(Dollars in thousands, except share data)

2023

2022

2023

2022

Numerator:

Net income (loss) attributable to Reading International, Inc.

$

(4,400)

$

(5,177)

$

(18,289)

$

(22,967)

Denominator:

Weighted average number of common stock – basic

22,273,423

22,043,823

22,208,757

22,011,755

Weighted average dilutive impact of awards

Weighted average number of common stock – diluted

22,273,423

22,043,823

22,208,757

22,011,755

Basic earnings (loss) per share

$

(0.20)

$

(0.23)

$

(0.82)

$

(1.04)

Diluted earnings (loss) per share

$

(0.20)

$

(0.23)

$

(0.82)

$

(1.04)

Awards excluded from diluted earnings (loss) per share

205,122

911,732

205,122

911,732

Our weighted average number of common stock - basic increased, primarily as a result of the vesting of restricted stock units. We did not repurchase any shares of Class A Common Stock during the first nine months of 2023 and 2022.

Certain shares issuable under stock options and restricted stock units were excluded from the computation of diluted net income (loss) per share in periods when their effect was anti-dilutive; either because our Company incurred a net loss for the period, or the exercise price of the options was greater than the average market price of the common stock during the period, or the effect was anti-dilutive as a result of applying the treasury stock method.

 

Note 6 – Property and Equipment

Operating Property, net

Property associated with our operating activities as at September 30, 2023 and December 31, 2022, is summarized as follows:

September 30,

December 31,

(Dollars in thousands)

2023

2022

Land

$

59,479

$

67,392

Building and improvements

202,302

213,226

Leasehold improvements

59,067

64,230

Fixtures and equipment

188,955

194,753

Construction-in-progress

4,845

6,839

Total cost

514,648

546,440

Less: accumulated depreciation

(253,034)

(259,488)

Operating property, net

$

261,614

$

286,952

Depreciation expense for operating property was $4.5 million and $13.8 million for the quarter and nine months ended September 30, 2023, respectively, and $4.9 million and $15.5 million for the quarter and nine months ended September 30, 2022, respectively.

Investment and Development Property, net

Our investment and development property as of September 30, 2023 and December 31, 2022, is summarized below:

September 30,

December 31,

(Dollars in thousands)

2023

2022

Land

$

3,657

$

3,857

Construction-in-progress (including capitalized interest)

4,679

4,935

Investment and development property

$

8,336

$

8,792

 

11


Construction-in-Progress – Operating and Investment 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, 2023, are shown below:

(Dollars in thousands)

Balance,
December 31,
2022

Additions during the period

Completed
during the
period

Foreign
currency
translation

Balance,
September 30,
2023

Courtenay Central development

6,380

(318)

6,062

Cinema developments and improvements

2,990

2,880

(3,542)

(61)

2,267

Other real estate projects

2,404

1,557

(2,744)

(22)

1,195

Total

$

11,774

$

4,437

$

(6,286)

$

(401)

$

9,524

Disposal Groups Held for Sale

Culver City, Los Angeles

In May 2023, we classified our Culver City administrative building, commonly known as 5995 Sepulveda Blvd., as held for sale. Our book value (as opposed to fair value) of the property is $11.2 million, being the lower of cost and fair value less costs to sell. No adjustments to the book value of the assets contained within this disposal group were required. The disposal group consists of land, a building and various leasehold improvements. We expect to complete the sale within 12 months. The property is currently encumbered with a $8.5 million first mortgage which will become due on sale. It is not anticipated that any pre-payment penalty or make-whole payment will be payable in connection with such payoff.

2483 Trenton Avenue, Williamsport, Pennsylvania

In June 2023, we classified our approximately 26.6-acre property at 2483 Trenton Avenue, Williamsport, Pennsylvania, as held for sale at the lower of cost and fair value less costs to sell. The current book value (as opposed to fair value) of the property is $460,000. The property is part of our historic railroad operations, consisting of land and an 18,000 square foot industrial building. No adjustments to the book value of the assets contained within this disposal group were required. We expect to complete the sale within 12 months. The property is unencumbered. We have retained CBRE as our exclusive agent for the marketing of this property.

Maitland Centre, New South Wales

In September 2023, we classified our freehold Maitland cinema as held for sale. Our book value (as opposed to fair value) of the property is $706,000, being the lower of cost and fair value less costs to sell. No adjustments to the book value of the assets contained within this disposal group were required. On October 25, 2023, we completed the sale of this property at a sales price of AU$2,800,000.

 

Note 7 – Leases

In all leases, whether we are the lessor or lessee, we define lease term as the non-cancellable term of the lease plus any renewals covered by renewal options that are reasonably certain of exercise based on our assessment of economic factors relevant to the lessee. The non-cancellable term of the lease commences on the date the lessor makes the underlying property in the lease available to the lessee, irrespective of when lease payments begin under the contract.

As Lessee

We have operating leases for certain cinemas, and finance leases for certain equipment assets. Our leases have remaining lease terms of 1 to 25 years, with certain leases having options to extend to up to a further 20 years. Lease payments for our cinema operating leases consist of fixed base rent, and for certain leases, variable lease payments consisting of contracted percentages of revenue, changes in the relevant CPI, and/or other contracted financial metrics.

 

12


The components of lease expense were as follows:

Quarter Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2023

2022

2023

2022

Lease cost

Finance lease cost:

Amortization of right-of-use assets

$

8

$

8

$

23

$

30

Interest on lease liabilities

1

1

2

Operating lease cost

8,076

8,160

24,287

24,475

Variable lease cost

722

181

1,377

270

Total lease cost

$

8,806

$

8,350

$

25,688

$

24,777

Supplemental cash flow information related to leases is as follows:

Nine Months Ended

September 30,

(Dollars in thousands)

2023

2022

Cash flows relating to lease cost

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for finance leases

$

26

$

33

Operating cash flows for operating leases

24,944

26,034

Right-of-use assets obtained in exchange for new operating lease liabilities

1,578

6,720

Supplemental balance sheet information related to leases is as follows:

September 30,

December 31,

(Dollars in thousands)

2023

2022

Operating leases

Operating lease right-of-use assets

$

180,718

$

200,417

Operating lease liabilities - current portion

22,977

23,971

Operating lease liabilities - non-current portion

180,002

200,037

Total operating lease liabilities

$

202,979

$

224,008

Finance leases

Property plant and equipment, gross

356

363

Accumulated depreciation

(353)

(338)

Property plant and equipment, net

$

3

$

25

Other current liabilities

3

28

Total finance lease liabilities

$

3

$

28

Other information

Weighted-average remaining lease term - finance leases

0

1

Weighted-average remaining lease term - operating leases

11

11

Weighted-average discount rate - finance leases

5.21%

5.21%

Weighted-average discount rate - operating leases

4.56%

4.55%

The maturities of our leases were as follows:

(Dollars in thousands)

Operating
leases

Finance
leases

2023

$

8,149

$

3

2024

31,198

2025

29,159

2026

27,283

2027

24,977

Thereafter

139,619

Total lease payments

$

260,385

$

3

Less imputed interest

(57,406)

Total

$

202,979

$

3

 

13


As Lessor

We have entered into various leases as a lessor for our owned real estate properties. These leases vary in length between 1 and 20 years, with certain leases containing options to extend at the behest of the applicable tenants. Lease components consist of fixed base rent, and for certain leases, variable lease payments consisting of contracted percentages of revenue, changes in the relevant CPI, and/or other contracted financial metrics. None of our leases grant any right to the tenant to purchase the underlying asset.

Lease income relating to operating lease payments was as follows:

Quarter Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2023

2022

2023

2022

Components of lease income

Lease payments

$

2,834

2,046

$

8,271

$

6,065

Variable lease payments

288

333

618

598

Total lease income

$

3,122

$

2,379

$

8,889

$

6,663

The book value of underlying assets under operating leases from owned assets was as follows:

September 30,

December 31,

(Dollars in thousands)

2023

2022

Building and improvements

Gross balance

$

132,000

$

136,749

Accumulated depreciation

(27,234)

(26,148)

Net Book Value

$

104,766

$

110,601

 

The Maturity of our leases were as follows:

 

(Dollars in thousands)

Operating
leases

2023

$

2,345

2024

9,083

2025

8,696

2026

7,225

2027

6,541

Thereafter

28,045

Total

$

61,935

 

Note 8 – Goodwill and Intangible Assets

The table below summarizes goodwill by business segment as of September 30, 2023, and December 31, 2022.

(Dollars in thousands)

Cinema

Real Estate

Total

Balance at December 31, 2022

$

20,280

$

5,224

$

25,504

Foreign currency translation adjustment

(907)

(907)

Balance at September 30, 2023

$

19,373

$

5,224

$

24,597

Our Company is required to test goodwill and other intangible assets for impairment on an annual basis and, if current events or circumstances require them, on an interim basis. Our next annual evaluation of goodwill and other intangible assets is scheduled during the fourth quarter of 2023. To test the impairment of goodwill, our 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, 2023, we were not aware that any events indicating potential impairment of goodwill had occurred outside of those described at Note 3 – Impact of COVID-19 Pandemic and Liquidity.

 

14


The tables below summarize intangible assets other than goodwill, as of September 30, 2023, and December 31, 2022, respectively.

As of September 30, 2023

(Dollars in thousands)

Beneficial
Leases

Trade
Name

Other
Intangible
Assets

Total

Gross carrying amount

$

11,237

$

9,058

$

4,829

$

25,124

Less: Accumulated amortization

(11,030)

(7,956)

(4,020)

(23,006)

Less: Impairments

(8)

(8)

Net intangible assets other than goodwill

$

207

$

1,102

$

801

$

2,110

As of December 31, 2022

(Dollars in thousands)

Beneficial
Leases

Trade
Name

Other
Intangible
Assets

Total

Gross carrying amount

$

12,216

$

9,058

$

4,915

$

26,189

Less: Accumulated amortization

(11,964)

(7,838)

(3,956)

(23,758)

Less: Impairments

(40)

(40)

Net intangible assets other than goodwill

$

252

$

1,220

$

919

$

2,391

Beneficial leases obtained in business combinations where we are the landlord are amortized over the life of the relevant leases. Trade names are amortized based on the accelerated amortization method over their estimated useful life of 30 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, 2023

Quarter Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2023

2022

2023

2022

Beneficial lease amortization

$

21

$

21

$

43

$

65

Other amortization

129

286

182

396

Total intangible assets amortization

$

150

$

307

$

225

$

461

 

Note 9 – Investments in Unconsolidated Joint Ventures

Our investments in unconsolidated joint ventures are accounted for under the equity method of accounting.

The table below summarizes our active investment holdings in two (2) unconsolidated joint ventures as of September 30, 2023, and December 31, 2022:

September 30,

December 31,

(Dollars in thousands)

Interest

2023

2022

Rialto Cinemas

50.0%

$

860

$

920

Mt. Gravatt

33.3%

3,628

3,836

Total investments

$

4,488

$

4,756

For the quarter and nine months ended September 30, 2023 and 2022, 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,

(Dollars in thousands)

2023

2022

2023

2022

Rialto Cinemas

$

25

$

(15)

$

(14)

$

(68)

Mt. Gravatt

192

76

457

301

Total equity earnings

$

217

$

61

$

443

$

233

 

 

15


Note 10 – Prepaid and Other Assets

Prepaid and other assets are summarized as follows:

September 30,

December 31,

(Dollars in thousands)

2023

2022

Prepaid and other current assets

Prepaid expenses

$

2,349

$

1,859

Prepaid taxes

1,181

1,687

Income taxes receivable

415

Prepaid rent

19

Deposits

247

233

Interest receivable

16

8

Investments in marketable securities

16

17

Total prepaid and other current assets

$

4,243

$

3,804

Other non-current assets

Other non-cinema and non-rental real estate assets

675

1,134

Investment in Reading International Trust I

838

838

Straight-line rent asset

7,196

8,302

Long-term deposits

8

10

Total other non-current assets

$

8,717

$

10,284

 

Note 11 – Income Taxes

The interim provision for income taxes is different from the amount determined by applying the U.S. federal statutory rate to consolidated income or loss before taxes. The differences are attributable to foreign tax rate differential, unrecognized tax benefits, and change in valuation allowance. Our effective tax rate was (1.7%) and (6.9%) for the nine months ended September 30, 2023 and 2022, respectively. The difference is primarily due to a decrease in reserve for unrecognized tax benefits in 2023. The forecasted effective tax rate is updated each quarter as new information becomes available. 

Note 12 – Borrowings

Our Company’s borrowings at September 30, 2023 and December 31, 2022, net of deferred financing costs and including the impact of interest rate derivatives on effective interest rates, are summarized below:

As of September 30, 2023

(Dollars in thousands)

Maturity Date

Contractual
Facility

Balance,
Gross

Balance,
Net(1)

Stated
Interest Rate

Effective
Interest
Rate

Denominated in USD

Trust Preferred Securities (US)

April 30, 2027

$

27,913 

$

27,913 

$

27,117

9.63%

9.63%

Bank of America Credit Facility (US)

September 4, 2024

22,375

22,375

22,260

11.00%

11.00%

Cinemas 1, 2, 3 Term Loan (US)

October 1, 2024

21,061

21,061

20,805

8.31%

8.31%

Minetta & Orpheum Theatres Loan (US)(2)

November 1, 2023

8,000 

8,000 

7,998

8.22%

6.00%

U.S. Corporate Office Term Loan (US)

January 1, 2027

8,471

8,471

8,422

4.64% / 4.44%

4.61%

Union Square Financing (US)

May 6, 2024

55,000 

46,840

46,447

12.52%

12.52%

Purchase Money Promissory Note (US)

September 18, 2024

776

776

776

5.00%

5.00%

Denominated in foreign currency ("FC") (3)

NAB Corporate Term Loan (AU)

July 31, 2025

64,831

64,831

64,708

5.85%

5.85%

Westpac Bank Corporate (NZ)

January 1, 2024

8,322

8,322

8,322

8.20%

8.20%

$

216,749

$

208,589

$

206,855

(1)Net of deferred financing costs amounting to $1.7 million.

(2)The interest rate derivative associated with the Minetta & Orpheum loan provides for an effective fixed rate of 6.00%.

(3)The contractual facilities and outstanding balances of the foreign currency denominated borrowings were translated into U.S. dollars based on the applicable exchange rates as of September 30, 2023.

 

16


As of December 31, 2022

(Dollars in thousands)

Maturity Date

Contractual
Facility

Balance,
Gross

Balance,
Net(1)

Stated
Interest
Rate

Effective
Interest
Rate

Denominated in USD

Trust Preferred Securities (US)

April 30, 2027

$

27,913 

$

27,913 

$

26,950

8.41%

8.41%

Bank of America Credit Facility (US)(5)

March 1, 2024

26,750

26,750

26,663

10.00%

10.00%

Cinemas 1, 2, 3 Term Loan (US)(5)

April 1, 2023

22,455

22,455

22,208

6.63%

6.63%

Minetta & Orpheum Theatres Loan (US)(2)

November 1, 2023

8,000 

8,000 

7,974

7.12%

5.15%

U.S. Corporate Office Term Loan (US)

January 1, 2027

8,674

8,674

8,613

4.64% / 4.44%

4.64%

Union Square Financing (US)(3)

May 6, 2024

55,000 

43,000 

42,484

11.25%

7.40%

Purchase Money Promissory Note (US)

September 18, 2024

1,333

1,333

1,333

5.00%

5.00%

Denominated in foreign currency ("FC")(4)

NAB Corporate Term Loan (AU)

June 30, 2024

68,731

68,731

68,662

4.82%

4.82%

Westpac Bank Corporate (NZ)

January 1, 2024

8,777

8,777

8,777

6.95%

6.95%

Total

$

227,633

$

215,633

$

213,664

(1)Net of deferred financing costs amounting to $2.0 million.

(2)The interest rate derivative associated with the Minetta & Orpheum loan provided for an effective fixed rate of 5.15%.

(3)The interest rate derivative associated with the Union Square loan provided for an effective fixed rate of 7.40%.

(4)The contractual facilities and outstanding balances of the foreign currency denominated borrowings were translated into U.S. dollars based on the applicable exchange rates as of December 31, 2022.

(5)This financing facilities were extended after December 31, 2022.

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

September 30,

December 31,

Balance Sheet Caption (Dollars in thousands)

2023

2022

Debt - current portion

$

40,402

$

37,279

Debt - long-term portion

138,560

148,688

Subordinated debt - current portion

776

747

Subordinated debt - long-term portion

27,117

26,950

Total borrowings

$

206,855

$

213,664

Bank of America Credit Facility

Our Bank of America facility now matures on September 4, 2024, following a Q1 2023 loan modification, which, among other things, extended the maturity date from March 1, 2024. The current facility requires monthly repayments of $725,000 commencing in May 2023, with a balloon payment upon maturity. Interest is charged at a fixed rate of 3.0% above the Bank of America Prime rate, which itself has a floor of 1.0%. Payment-in-kind interest of 0.5% accrues from January 1, 2024, but will be waived in the event of repayment of the entire debt prior to April 1, 2024.

Minetta and Orpheum Theatres Loan

On October 12, 2018, we refinanced our $7.5 million loan with Santander Bank, which is secured by our Minetta and Orpheum Theatres, with a loan for a five-year term of $8.0 million.  Such modification was not considered to be substantial under U.S. GAAP.   Our current loan with Bank Santander matured on November 1, 2023.   Based on conversations with the Bank Santander, and while no assurances can be given, we understand that Bank Santander is preparing a proposal for a short term extension of that loan. 

U.S. Corporate Office Term Loan

On December 13, 2016, we obtained a ten-year $8.4 million mortgage loan on our Culver City building at a fixed annual interest rate of 4.64%. On June 26, 2017, we obtained a further $1.5 million at a fixed annual interest rate of 4.44%.

Cinemas 1,2,3 Term Loan

Our Cinemas 1,2,3 Term Loan is held by Sutton Hill Properties LLC (“SHP”), a 75% owned subsidiary of RDI. On September 29, 2023, we extended the maturity of this loan from October 3, 2023, to October 1, 2024. The loan is with Valley National Bank, carries an interest rate of 3.50% above monthly SOFR, with a floor of 7.50%, and includes provisions for a prepaid interest reserve.

Union Square Financing

On May 7, 2021, we closed on a new three-year $55.0 million loan facility with Emerald Creek Capital secured by our 44 Union Square property and certain limited guarantees. The facility bears a variable interest rate of one month LIBOR plus 6.9% with a floor of 7.0 %

 

17


and includes provisions for a prepaid interest and property tax reserve fund. The loan has two 12-month options to extend, and may be repaid at any time, without the payment of any premium. As these options are within our control, we continue to keep the loan classified as long-term. The loan currently carries an interest rate of 12.52%.

Purchase Money Promissory Note

On September 18, 2019, we purchased for $5.5 million 407,000 shares of our Class A Common Stock in a privately negotiated transaction under our Share Repurchase Program. Of this amount, $3.5 million was paid by the issuance of a Purchase Money Promissory Note, which bears an interest rate of 5.0% per annum, payable in equal quarterly payments of principal plus accrued interest. The Purchase Money Promissory Note matures on September 18, 2024.

Westpac Bank Corporate Credit Facility (NZ)

Our Westpac Corporate Credit Facility for NZ$13.8 million matures on January 1, 2024. The facility currently carries an interest rate and line of credit charge of 2.40% above the Bank Bill Bid Rate and 1.65% respectively. Westpac has waived the requirement to test certain covenants for each quarter since the third quarter of 2020, including the current quarter and the quarter ending December 31, 2023.

Australian NAB Corporate Term Loan (AU)

Our Revolving Corporate Markets Loan Facility with National Australia Bank (“NAB”) matures on July 31, 2025. It currently consists of (i) a AU$100.5 million Corporate Loan facility at 1.75% above BBSY, of which AU$60.0 million is revolving and AU$40.5 million is core and (ii) a Bank Guarantee Facility of AU$5.0 million at a rate of 1.9% per annum. The last required AU$500,000 in principal payment for core Corporate Loan Facility, before maturity, was paid in full on October 31, 2023.

 

Note 13 – Other Liabilities

Other liabilities are summarized as follows:

September 30,

December 31,

(Dollars in thousands)

2023

2022

Current liabilities

Lease liability

$

5,900

$

Accrued pension

684

684

Security deposit payable

53

68

Finance lease liabilities

3

28

Other

33

33

Other current liabilities

$

6,673

$

813

Other liabilities

Lease make-good provision

5,860

6,131

Accrued pension

2,771

3,138

Deferred rent liability

1,537

2,484

Environmental reserve

1,656

1,656

Lease liability

5,900

Acquired leases

5

11

Other non-current liabilities

$

11,829

$

19,320

Pension Liability – Supplemental Executive Retirement Plan

Details of our Supplemental Executive Retirement Plan are disclosed in Note 13 – Pension and Other Liabilities in our 2022 Form 10-K.

Included in our current and non-current liabilities are accrued pension costs of $3.5 million on September 30, 2023. The benefits of our pension plan are fully vested and therefore no service costs were recognized for the nine months ended September 30, 2023, and 2022. Our pension plan is unfunded.

During the quarter and nine months ended September 30, 2023, the interest cost was $47,000 and $146,000, respectively, and the actuarial loss was $52,000 and $155,000, respectively. During the quarter and nine months ended September 30, 2022, the interest cost was $53,000 and $165,000, respectively, and the actuarial loss was $52,000 and $155,000, respectively.

 

 

18


Note 14 – 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

Hedge
Accounting
Reserve

Total

Balance at January 1, 2023

$

(697)

$

(18)

$

(1,822)

$

580

$

(1,957)

Change related to derivatives

Total change in hedge fair value recorded in Other Comprehensive Income

(2)

(2)

Amounts reclassified from accumulated other comprehensive income

(811)

(811)

Net change related to derivatives

(813)

(813)

Net current-period other comprehensive income (loss)

(3,033)

1

155

(813)

(3,690)

Balance at September 30, 2023

$

(3,730)

$

(17)

$

(1,667)

$

(233)

$

(5,647)

 

Note 15 – Commitments and Contingencies

Litigation General

Insofar as our Company is aware, there are no claims, arbitration proceedings, or litigation proceedings that constitute material contingent liabilities of our Company. Such matters require significant judgments based on the facts known to us. These judgments are inherently uncertain and can change significantly when additional facts become known. We provide accruals for matters that have probable likelihood of occurrence and can be properly estimated as to their expected negative outcome. We do not record expected gains until the proceeds are received by us. However, we typically make no accruals for potential costs of defense, as such amounts are inherently uncertain and dependent upon the scope, extent and aggressiveness of the activities of the applicable plaintiff.

Litigation Matters

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, including legal costs.

Where we are the plaintiffs, we accrue legal fees as incurred 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 recoveries 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.

Where we are the defendants, we accrue for probable damages that insurance may not cover as they become known and can be reasonably estimated, as permitted under ASC 450-20 Loss Contingencies. 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. From time to time, we are involved with claims and lawsuits arising in the ordinary course of our business that may include contractual obligations, insurance claims, tax claims, employment matters, and anti-trust issues, among other matters.

Environmental and Asbestos Claims on Reading Legacy Operations

Certain of our subsidiaries were historically involved in railroad operations, coal mining, and manufacturing. Also, certain of these subsidiaries appear in the chain-of-title of properties that may suffer from pollution. Accordingly, certain of these subsidiaries have, from time to time, been named in and may in the future be named in various actions brought under applicable environmental laws. Also, we are in the real estate development business and may encounter from time to time environmental conditions at properties that we have acquired for development and which will need to be addressed in the future as part of the development process. These environmental conditions can increase the cost of such projects and adversely affect the value and potential for profit of such projects. We do not currently believe that our exposure under applicable environmental laws is material in amount.

From time to time, there are claims brought against us relating to the exposure of former employees to asbestos and/or coal dust. These are generally covered by an insurance settlement reached in September 1990 with our insurance providers1555. However, this insurance

 

19


settlement does not cover litigation by people who were not employees of our historic railroad operations and who may claim direct or second-hand exposure to asbestos, coal dust and/or other chemicals or elements now recognized as potentially causing cancer in humans. Our known exposure to these types of claims, asserted or probable of being asserted, is not material.

Note 16 – Non-controlling Interests

These are composed of the following enterprises:

Australia Country Cinemas Pty Ltd. - 25% noncontrolling interest owned by Panorama Group International Pty Ltd;

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

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

The components of noncontrolling interests are as follows:

September 30,

December 31,

(Dollars in thousands)

2023

2022

Australian Country Cinemas, Pty Ltd

$

82

$

26

Shadow View Land and Farming, LLC

(2)

(3)

Sutton Hill Properties, LLC

(23)

400

Noncontrolling interests in consolidated subsidiaries

$

57

$

423

The components of income attributable to noncontrolling interests are as follows:

Quarter Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2023

2022

2023

2022

Australian Country Cinemas, Pty Ltd

$

25

$

15

$

60

$

76

Shadow View Land and Farming, LLC

1

(3)

1

(4)

Sutton Hill Properties, LLC

(91)

(134)

(422)

(300)

Net income (loss) attributable to noncontrolling interests

$

(65)

$

(122)

$

(361)

$

(228)

Summary of Controlling and Noncontrolling Stockholders’ Equity

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

Common Stock

Retained

Accumulated 

Reading

Class A 

Class A

Class B

Class B 

Additional

Earnings

 Other 

International Inc. 

Total

Non-Voting

 Par 

Voting

Par

Paid-In

(Accumulated 

Treasury

Comprehensive 

Stockholders’ 

Noncontrolling 

Stockholders’

(Dollars in thousands, except shares)

Shares

Value

 Shares

 Value

 Capital

Deficit)

 Shares

Income (Loss)

Equity

Interests

 Equity

At January 1, 2023

20,412

$

235

1,681

$

17

$

153,784

$

(48,816)

$

(40,407)

$

(1,957)

$

62,856

$

423

$

63,279

Net income (loss)

(11,111)

(11,111)

(213)

(11,324)

Other comprehensive income, net

(1,293)

(1,293)

(1)

(1,294)

Share-based compensation expense

443

443

443

Restricted Stock Units

89

(132)

(132)

(132)

At March 31, 2023

20,501

$

235

1,681

$

17

$

154,095

$

(59,927)

$

(40,407)

$

(3,250)

$

50,763

$

209

$

50,972

Net income

(2,778)

(2,778)

(83)

(2,861)

Other comprehensive income, net

(740)

(740)

(1)

(741)

Share-based compensation expense

308

308

308

Restricted Stock Units

92

1

(113)

(112)

(112)

At June 30, 2023

20,593

$

236

1,681

$

17

$

154,290

$

(62,705)

$

(40,407)

$

(3,990)

$

47,441

$

125

$

47,566

Net income

(4,400)

(4,400)

(65)

(4,465)

Other comprehensive income, net

(1,657)

(1,657)

(3)

(1,660)

Share-based compensation expense

614

614

614

Restricted Stock Units

0

At September 30, 2023

20,593

$

236

1,681

$

17

$

154,904

$

(67,105)

$

(40,407)

$

(5,647)

$

41,998

$

57

$

42,055

 

20


Common Stock

Retained

Accumulated 

Reading

Class A 

Class A

Class B

Class B 

Additional

Earnings

 Other 

International Inc. 

Total

Non-Voting

 Par 

Voting

Par

Paid-In

(Accumulated 

Treasury

Comprehensive 

Stockholders’ 

Noncontrolling 

Stockholders’

(Dollars in thousands, except shares)

Shares

Value

 Shares

 Value

 Capital

Deficit)

 Shares

Income (Loss)

Equity

Interests

 Equity

At January 1, 2022

20,260

$

233

1,680

$

17

$

151,981

$

(12,632)

$

(40,407)

$

4,882

$

104,074

$

986

$

105,060

Net income (loss)

(15,354)

(15,354)

(99)

(15,453)

Other comprehensive income, net

3,524

3,524

1

3,525

Share-based compensation expense

415

415

415

Restricted Stock Units

52

1

(32)

(31)

(31)

Distributions to noncontrolling stockholders

(22)

(22)

At March 31, 2022

20,312

$

234

1,680

$

17

$

152,364

$

(27,986)

$

(40,407)

$

8,406

$

92,628

$

866

$

93,494

Net income

(2,436)

(2,436)

(7)

(2,443)

Other comprehensive income, net

(9,218)

(9,218)

1

(9,217)

Share-based compensation expense

466

466

466

Restricted Stock Units

49

(52)

(52)

(52)

Distributions to noncontrolling stockholders

(21)

(21)

At June 30, 2022

20,361

$

234

1,680

$

17

$

152,778

$

(30,422)

$

(40,407)

$

(812)

$

81,388

$

839

$

82,227

Net income

(5,177)

(5,177)

(122)

(5,299)

Other comprehensive income, net

(8,167)

(8,167)

(3)

(8,170)

Share-based compensation expense

497

497

--

497

Distributions to noncontrolling stockholders

--

(21)

(21)

At September 30, 2022

20,361

$

234

1,680

$

17

$

153,275

$

(35,599)

$

(40,407)

$

(8,979)

$

68,541

$

693

$

69,234

 

Note 17 – Stock-Based Compensation and Stock Repurchases

Employee and Director Stock Incentive Plan

2020 Stock Incentive Plan

On November 4, 2020, the Company enacted the 2020 Stock Incentive Plan, which was also approved by the Company’s stockholders on December 8, 2020 (the “2020 Plan”). Under the 2020 Plan, the number of permitted authorized shares for issuance was 1,250,000 (the “2020 Authorized Amount”).   Added to the 2020 Authorized Amount would be any awards outstanding under the 2010 Plan and 2020 Plan that were subsequently forfeited (for instance, through a then outstanding out of the money option) or if the related shares are repurchased, a corresponding number of shares would automatically become available for issuance under the 2020 Plan, thus resulting in a potential increase from the 2020 Authorized Amount available for issuance under the 2020 Plan.

Under the 2020 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. At September 30, 2023, there were 278,193 shares of Class A Common Stock available for issuance under the 2020 Plan, which includes shares from the 2010 Plan that become available for issuance due to the forfeiture of then outstanding out of the money stock options.

Stock options are 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 our Company’s share at an exercise price determined on the grant date, a restricted stock unit (“RSU”) entitles the grantee to receive one share for every RSU based on a vesting plan, typically between one year and four years from grant. As discussed further below, a performance component has been added to certain of the RSUs granted to management. At the time the options are exercised or RSUs vest and are settled, 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 have estimated 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 expensed 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 estimated any forfeitures of vested or unvested options.

No stock options were issued in the nine months ended September 30, 2023.

For the quarters ended September 30, 2023, and 2022, we recorded a compensation expense of $9,000 and $53,000, respectively. For the nine months ended September 30, 2023, and 2022, we recorded a compensation expense of $27,000 and $159,000, respectively, with respect to our prior stock option grants. At September 30, 2023, the total unrecognized estimated compensation expense related to non-vested stock options was $9,000, which we expect to recognize over a weighted average vesting period of 0.25 years. The intrinsic, unrealized value of all options outstanding vested and expected to vest, at September 30, 2023, was nil, as the closing price of our Class A Common Stock on that date was $2.12.

 

21


The following table summarizes the number of options outstanding and exercisable as of September 30, 2023, and December 31, 2022:

Outstanding Stock Options - Class A Shares

Number
of Options

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Years of
Contractual
Life

Aggregate
Intrinsic
Value

Class A

Class A

Class A

Class A

Balance - December 31, 2021

517,344

$

15.42

1.66

$

Granted

Exercised

Forfeited

(189,846)

14.63

Balance - December 31, 2022

327,498

$

15.87

1.24

$

Granted

Exercised

Forfeited

(122,376)

Balance - September 30, 2023

205,122

$

15.92

0.45

$

Restricted Stock Units

The following table summarizes the status of RSUs granted to date as of September 30, 2023:

Restricted Stock Units

RSU Grants (in units)

Vested,

Unvested,

Forfeited,

Grant Date

Directors

Management

Total
Grants

September 30,
2023

September 30,
2023

September 30,
2023

Opening balance

189,880

507,635

697,515

642,908

18,758

35,849

April 5, 2021

262,830

262,830

90,804

149,008

23,018

April 19, 2021

22,888

22,888

10,831

10,560

1,497

August 11, 2021

26,924

26,924

26,924

December 8, 2021

48,951

48,951

48,951

April 18, 2022

428,899

428,899

75,721

316,601

36,577

December 15, 2022

73,683

73,683

73,683

April 11, 2023

413,536

413,536

413,536

April 21, 2023

237,719

237,719

237,719

April 28, 2023

20,427

20,427

20,427

Total

339,438

1,893,934

2,233,372

896,139

1,240,292

96,941

Time vested RSU awards to management vest 25% on the anniversary of the grant date and the remainder over a period of four years. Beginning in 2020, a performance component has been added to certain of the RSUs granted to management, which vest on the third anniversary of their grant date based on the achievement of certain performance metrics. From 2021 onwards, RSUs have two structures, which include time vesting and performance vesting. The majority of RSUs vest 75% evenly over a period of four years, with the remaining 25% contingent upon the achievement of certain performance metrics, vesting in full on the third anniversary of the date of the grant. In the case of our Chief Executive Officer, RSUs vest 50% evenly over a period of four years with the remaining 50%, contingent upon the achievement of certain performance metrics, vesting in full on the third anniversary of the grant date. On April 11 and April 21, 2023, the Board of Directors determined that our Company was not in a position to pay cash bonuses that would otherwise have been earned by certain members of management under our Company’s Incentive Compensation Plan for 2022, and authorized the issuance in lieu of such cash bonuses 85,139 RSUs, vesting on April 11, 2024 and 52,350 RSUs, vesting on April 21, 2024.

RSUs issued to non-employee directors vest on the first to occur of (i) 5:00 pm, Los Angeles, CA time on the last business day prior to the one-year anniversary of the Grant Date or (ii) the date on which the Recipient has served such Recipient’s full term as a Director.

For the quarters ended September 30, 2023, and 2022, we recorded compensation expense of $604,000 and $444,000, respectively. For the nine months ended September 30, 2023, and 2022, we recorded compensation expense of $1.3 million and $1.2 million, respectively. The total unrecognized compensation expense related to the non-vested RSUs was $4.1 million as of September 30, 2023, which we expect to recognize over a weighted average vesting period of 1.48 years.

 

22


Stock Repurchase Program

On March 10, 2020, our Board of Directors authorized a $25.0 million increase to our 2017 stock repurchase program, bringing our total authorized repurchase amount remaining to $26.0 million, and extended the program to March 2, 2024. Through September 30, 2023, we have repurchased 1,792,819 shares of Class A Common Stock at an average price of $13.39 per share (excluding transaction costs). The last share repurchase made by our Company was made on March 5, 2020, at which time 25,000 shares were purchased at an average cost per share of $7.30.

 

Note 18 – Hedge Accounting

As of September 30, 2023, our Company held interest rate derivatives in the total nominal amount of $8.0 million. As of December 31, 2022, our Company held interest rate derivatives in the total notional amount of $51.0 million.

The derivatives are recorded on the balance sheet at fair value and are included in the following line items:

Asset Derivatives

September 30,

December 31,

2023

2022

(Dollars in thousands)

Balance sheet location

Fair value

Balance sheet location

Fair value

Interest rate contracts

Derivative financial instruments - current portion

$

17

Derivative financial instruments - current portion

$

907 

Derivative financial instruments - non-current portion

Derivative financial instruments - non-current portion

Total derivatives designated as hedging instruments

$

17

$

907 

Total derivatives

$

17

$

907 

The changes in fair value are recorded in Other Comprehensive Income and released into interest expense in the same period(s) in which the hedged transactions affect earnings. In the quarter and nine months ended September 30, 2023 and September 30, 2022, respectively, the derivative instruments affected Comprehensive Income as follows:

(Dollars in thousands)

Location of Loss Recognized in Income on Derivatives

Amount of Loss (Gain) Recognized in Income on Derivatives

Quarter Ended September 30

Nine Months Ended September 30

2023

2022

2023

2022

Interest rate contracts

Interest expense

$

(26)

$

(252)

$

(812)

$

(204)

Total

$

(26)

$

(252)

$

(812)

$

(204)

Loss (Gain) Recognized in OCI on Derivatives (Effective Portion)

(Dollars in thousands)

Amount

Amount

Quarter Ended September 30

Nine Months Ended September 30

2023

2022

2023

2022

Interest rate contracts

$

$

(312)

$

2

$

(1,457)

Total

$

$

(312)

$

2

$

(1,457)

Loss (Gain) Reclassified from OCI into Income (Effective Portion)

Line Item

Amount

Amount

Quarter Ended September 30

Nine Months Ended September 30

2023

2022

2023

2022

Interest expense

$

(26)

$

(252)

$

(812)

$

(204)

Total

$

(26)

$

(252)

$

(812)

$

(204)

 The derivatives have no ineffective portion, and consequently no losses have been recognized directly in income.

 

Note 19 – 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,

 

23


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

As of September 30, 2023, and December 31, 2022, we had derivative financial assets carried and measured at fair value on a recurring basis of $17,000 and $907,000, respectfully. As of September 30, 2023, and December 31, 2022, we had no derivatives in a liability position.

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, 2023, and December 31, 2022, by level within the fair value hierarchy.

Fair Value Measurement at September 30, 2023

(Dollars in thousands)

Carrying
Value(1)

Level 1

Level 2

Level 3

Total

Notes payable

$

179,900

$

$

$

177,329

$

177,329

Subordinated debt

28,689

26,035

26,035

$

208,589

$

$

$

203,364

$

203,364

Fair Value Measurement at December 31, 2022

(Dollars in thousands)

Carrying
Value(1)

Level 1

Level 2

Level 3

Total

Notes payable

$

186,387

$

$

$

172,230

$

172,230

Subordinated debt

29,246

25,025

25,025

$

215,633

$

$

$

197,255

$

197,255

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

The 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 as of September 30, 2023, and December 31, 2022.

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, 2023, and December 31, 2022, 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.

Our 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, 2023, and September 30, 2022.

Note 20 – Subsequent Events

On October 25, 2023, we closed on the sale of our property in Maitland, NSW in Australia for AU$2.8 million. We simultaneously entered into a lease back to Reading Cinemas for a 2-year period.

On November 1, 2023, we closed our Reading Cinema in Rohnert Park, California.

 

24


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 “Cautionary Statement Regarding Forward-Looking Statements” included at the conclusion of this section and our “Risk Factors” set forth in our 2022 Form 10-K, Part 1 – Financial Information, Item 1A and the Risk Factors set out below.

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

The MD&A should be read in conjunction with our consolidated financial statements and related notes in this Report.

Business Overview & Updates

We continue to be optimistic about the current trajectory of our business and the cinema industry as a whole. Although we remain positive, we are currently, and have in recent years, been impacted by multiple factors. These factors are largely beyond our control, and continue to impact the profitability of our global cinema segment when compared to pre-pandemic levels:

Cinema patronage levels that have not yet returned to the higher pre-pandemic levels;

The number of movies released by the major Hollywood studios and other distributors, while increasing from pandemic levels, have not yet returned to their higher pre-pandemic levels;

The duration of the exclusive theatrical release window is under continuing pressure from cable and streaming;

Increased film rent expense, as distributors demand more and more rent for high profile movies;

Inflationary pressures, ongoing supply chain issues and increased operating expenses arising post-pandemic continue to push up our variable costs while we encounter consumer resistance to higher ticket prices;

Labor costs continue to increase (resulting from a combination of inflation and labor shortages);

Increased fixed costs for third party cinema rents, some of which are increasing due to fixed rent escalations, which are exacerbated by having to also pay our COVID-19 related rent deferrals for the periods of time when our operations were closed or restricted and

Reserve banks in the U.S., Australia and New Zealand have increased interest rates causing our cost of borrowing to increase materially.

In addition to the above factors impacting the income levels of our global cinema business, we are also monitoring the future potential impact of the Hollywood strikes on our global cinema business. On September 28, 2023, the Hollywood writers’ strike officially ended followed by the actors’ strike on November 8, 2023. While we are thrilled about the recent end of the Hollywood Strikes, we know that the duration of the strikes will likely impact our global cinema business in 2024 due to production delays and shifting theatrical release date. Nonetheless, the recent settlement gives us more confidence that 2023 will end on a positive note delivering a marked improvement over 2022.

Despite the above factors, we believe that with (i) the re-recognition by the major studios, and other distributors, including streamers such as Amazon and Apple, of the economic importance of the theatrical release of movies, (ii) the increasing quantity and quality of films being released to the cinemas compared to pandemic levels and (iii) the expansion of certain movie audiences (such as audiences for concert films and faith based films), that the long term prospects for our industry are positive. Still, it is generally recognized that there are currently too many cinemas in the U.S., and we are reviewing and culling our poor performers where possible. Fortunately, most of our cinemas are in good markets which are not, in our view, over-screened and we believe that oversupply is less of an issue in post-pandemic Australia and New Zealand. We have confidence that in the next few years, we will return to being able to again use our cinema cash flow to support our real estate development activities. We continue to receive and review proposals for new or available existing cinemas.

We are continuing to address the challenges of the post-COVID world. For instance, we are (i) increasing and improving our automated and self-service options at the cinema level to reduce labor costs, (ii) continuing to focus on our food and beverage offerings and now have liquor licenses in every U.S. cinema, and (iii) continuing to expand our alternative content program with the intention of attracting a broader and more diversified range of patrons. Despite COVID-19 legacy issues, the global cinema industry experienced a robust performance during the third quarter of 2023 which was ignited by the double feature of record-breaking films, Barbie and Oppenheimer.

We are also continuing to reduce our fixed costs of operation by closing non-performing cinemas upon the expiration of their current lease terms. In addition, in light of potential impacts to the movie release schedule in the next few years due to the Hollywood Strikes, we are in the process of seeking occupancy relief from existing cinema landlords. Over the first ten months of 2023, we have elected not to extend three underperforming US cinema leases.

While we are closing down non-performing theatres in the over-screened U.S., we are continuing to build and expand our circuit in Australia in New Zealand. In 2023, we have opened two new cinemas, representing 13 screens in Australia. We also have two more cinemas, representing an additional 11 screens that are in the pipeline: one in Queensland Australia and one in New Zealand.

 

25


We also believe that, as our guests return to the cinema, we will see enhanced operating results from the expansion of our F&B menus and our continued improvement on the quality and diversity of our F&B offer. In the U.S., 100% of our cinemas are licensed for the sale of liquor, beer and wine.

Moreover, the remainder of the year features a unique and compelling film slate that is expected to continue driving audiences to the big screens. After a wildly successful record-breaking concert tour, the Taylor Swift: The Eras Tour movie was released on October 13th, 2023 to excited movie-goers and continued to break records for the theaters. The “Swifties” came out in full force for opening weekend, making the movie the highest grossing concert film of all time in North America, grossing almost $93 million domestically in its opening weekend, and thus far has already earned over $241 million globally.

Recent Box Office Improvements

The third quarter of 2023 witnessed a significant boost in box office performance due to the highly anticipated release of Barbie and Oppenheimer on July 21, 2023. This double feature drove audiences across the globe to the big screens to experience the cultural phenomenon referred to as “Barbenheimer”, resulting in a strong quarterly box office that outperformed that of Q3 2022. As of date of this report, Barbie has generated over $1.4 billion in worldwide grosses, making it 2023’s highest grossing global movie and the highest grossing opening weekend for a non-franchise film ever. Similarly, Oppenheimer has generated over $948 million in worldwide grosses and as of the date of this report, it is the third highest grossing film of 2023.

The simultaneous release of these two highly acclaimed films generated a surge of excitement among moviegoers that benefited the cinema industry and the summer film line up immensely. Sound of Freedom, which was considered this summer’s unlikely box office hit, has generated over $244 million in worldwide grosses, as of today, making it one of the most successful independent films of all time. After a 5-year franchise hiatus, Mission: Impossible – Dead Reckoning has grossed over $567 million worldwide. Finishing off the summer season, Teenage Mutant Ninja Turtles: Mutant Mayhem has become the first non-Disney, non-Universal, and non-Marvel superhero animated movie to make over $118 million domestically. As of the date of this report, it has grossed over $180 million worldwide.

The success of these films continues to support our confidence in the long-term viability of the global cinema business and reinforces the industry's resilience in the face of ongoing challenges such as labor shortages, supply chain constraints, and rising costs. The continued enthusiasm of patrons for the movie-going experience, along with the increased availability of compelling and unique film content, has been the driving force behind this success. We are confident that we will continue to build on this box office momentum as we head into the final quarter of the year with another exciting film line-up. Audiences can look forward to the release of Hunger Games: The Ballad of Songbirds and Snakes, Napoleon, Wish, Migration, Wonka, The Color Purple, and Aquaman and the Lost Kingdom.

Real Estate Developments

In the United States, during the first quarter of 2022, we leased to Petco Animal Supplies Stores, Inc. (“Petco”), the cellar, ground floor, and second floor of our 44 Union Square property, representing approximately 42 percent of the leasable area of that building. Petco is in possession of the space and began paying cash rent in December 2022. Petco’s 44 Union Square flagship store opened on June 1, 2023.

Our real estate team continues to work to secure one or more tenants for the remaining space at 44 Union Square. We believe that the pandemic’s impact on the office leasing market in New York City and the slow pace of the “return to office” effort in New York City have adversely impacted leasing opportunities and will continue to adversely impact our efforts to locate an office tenant for the space at 44 Union Square. As a result, we are currently exploring non-office and alternative uses for the remainder of the building. Should we obtain a tenant, we already have mortgage financing in place for this project to cover leasing and tenant improvement costs.

As of September 30, 2023, all of our tenants were currently open for business at our Australian and New Zealand properties (with the exception of two new tenants in Australia completing new fit outs). Most of the rentable retail portions of our Courtenay Central location in New Zealand continue to be closed due to seismic concerns, however one tenant remains open and trading. Furthermore, there is also one tenant trading on our Wakefield property. Our open land areas in Wellington are generating parking revenues.

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 62 cinemas as of September 30, 2023.

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

 

26


We believe these two business segments complement and support one another. Prior to COVID-19, we used cash flows generated by our cinema operations to fund the front-end cash demands of our real estate development business. As a result of COVID-19, we relied more upon income from our real estate assets, and tapped into the imbedded value in those assets, to support our Company through the COVID-19 crisis. As COVID-19 impacts decrease, quality film product improves, and patrons return to our cinemas, we believe we will once again be able to rely on the cash flows generated by our cinema portfolio.

Despite the fact that our global cinema segment is improving at an income level, in light of our upcoming liquidity needs due to debt maturities, we have identified certain real estate assets to monetize to support our liquidity needs and will be exploring the monetization of other properties to the extent our liquidity needs require. We are steadfast in our belief that our two-pronged, diversified international business strategy will keep carrying our Company through these difficult times as we continue to navigate the uncertainty and challenges posed by the recent macroeconomic obstacles.

Key Performance Indicators

Food and Beverage Spend Per Patron

A key performance indicator utilized by management in our cinema segment is Food and Beverage (“F&B”) Spend Per Patron (“SPP”), which is calculated based on our total Food & Beverage Revenues on a post-tax basis divided by our attendance during a specific period.

One of our strategic priorities has been to continue upgrading the food and beverage menu at several of our global cinemas. As of September 30, 2023, we have a total of 39 theater locations with elevated food and beverage menus (i.e. menus that are beyond traditional popcorn, soda, and candy). We use F&B SPP as a measure of our food and beverage operational performance as compared to that of our competitors. Although the profitability of our food and beverage operations is influenced by numerous factors, including labor and cost of goods, F&B SPP serves as an indicator of our ability to achieve consistent strong top-line performance. In addition, F&B SPP highlights our ability to optimize revenue by effectively promoting and selling supplementary products to our customers during each visit. Moreover, this metric assists in evaluating how well we can differentiate our F&B offerings from our competitors. Management in turn uses F&B SPP to adjust food and beverage pricing strategies at our individual theaters, measure the effectiveness of promotional marketing initiatives, optimize menu offerings, and to ensure price barriers are not created for our attendance.

Average Ticket Price Per Patron

An additional key performance indicator utilized by management in our cinema segment is Average Ticket Price (“ATP”) Per Patron, which is calculated based on our total Box Office Revenues on a post-tax basis divided by our attendance during a specific period. ATP serves to measure our operational cinema performance when compared to that of our competitors. ATP is a useful metric for evaluating our ability to achieve a strong top line performance as we recover from the COVID-19 pandemic. In addition, ATP gauges the effectiveness of our cinemas’ pricing strategies and our ability to draw back audiences to our theaters. Management uses ATP to adjust and inform ticket pricing schemes for our individual theaters, measure the effectiveness of our content programming, and ensure that price barriers are not created for core guests.

Cinema Exhibition Overview

We operate our worldwide cinema exhibition businesses through various subsidiaries under various brands:

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

in Australia, under the Reading Cinemas, the State Cinema by Angelika, and for our one unconsolidated joint venture theatre, Event Cinemas brands.

in New Zealand, under the Reading Cinemas and our two unconsolidated joint venture theatres, Rialto Cinemas brands.

 

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Shown in the following table are the number of locations and screens in our cinema circuit in each country, by state/territory/region, our cinema brands, and our interest in the underlying assets as of September 30, 2023.

State / Territory /

Location

Screen

Interest in Asset
Underlying the Cinema

Country

Region

Count(3)

Count

Leased

Owned

Operating Brands

United States

Hawaii

6

74

6

Consolidated Theatres

California

7

88

7

Reading Cinemas, Angelika Film Center

New York

3

16

2

1

Angelika Film Center

Texas

2

13

2

Angelika Film Center

New Jersey

1

12

1

Reading Cinemas

Virginia

1

8

1

Angelika Film Center

Washington, D.C.

1

3

1

Angelika Film Center

U.S. Total

21

214

20

1

Australia

Victoria

9

62

9

Reading Cinemas

New South Wales

6

44

5

1

Reading Cinemas

Queensland

7

64

4

3

Reading Cinemas, Angelika Film Center, Event Cinemas(1)

Western Australia

4

27

3

1

Reading Cinemas

South Australia

2

15

2

Reading Cinemas

Tasmania

2

14

2

Reading Cinemas, State Cinema by Angelika

Australia Total

30

226

25

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

7

4

GRAND TOTAL

62

507

52

10

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

(2)Our Company is a 50% joint venture partner in two New Zealand Rialto Cinemas, with a total of 13 screens. We are responsible for the booking of these cinemas and our joint venture partner, Event Cinemas, manages their day-to-day operations.

(3)Our total location counts as of September 30, 2023, reflects all operating cinemas, including (i) the Angelika Film Center at South City Square in Australia, which opened on August 24, 2023, (ii) the Reading Cinemas at Busselton in Australia, which opened on September 22, 2023, (iii) the Reading Cinemas at Courtenay Central in New Zealand, which remains closed while we address certain seismic issues and (iv) two underperforming Consolidated Theatres in Hawaii were closed, as of July 9, 2023 and July 31, 2023 respectively.

Our cinema revenues consist primarily of cinema ticket sales, F&B sales, screen advertising, gift card purchases, cinema rentals, and online convenience fee revenue generated by the sale of our cinema tickets through our websites and mobile apps. Cinema operating expenses consist of the costs directly attributable to the operation of the cinemas, including (i) film rent expense, (ii) operating costs, such as employment costs and utilities, and (iii) occupancy costs. Cinema revenues and certain expenses fluctuate with the availability of quality first run films and the number of weeks such first run films stay in the market. For a breakdown of our current cinema assets that we own and/or manage, please refer to Part I, Item 1 – Our Business of our 2022 Form 10-K. We now present a discussion of recent material developments.

Cinema Additions and Pipeline

The latest additions to our cinema portfolio as of September 30, 2023, were as follows:

Armadale, Western Australia, Australia: On January 13, 2023, we took over an existing six-screen cinema in Armadale, Australia, a suburb of Perth in Western Australia.

South City Square, Brisbane, Australia: On August 24, 2023, we launched our first-ever Angelika Film Center outside of the United States at South City Square in Woolloongabba, Brisbane. The location currently operates as an eight-screen complex, featuring elevated food and beverage offerings (including alcoholic beverages) and recliner seating.

Busselton, Western Australia, Australia: On September 22, 2023, we opened a five-screen complex in the newly expanded Busselton Central Shopping Centre precinct of Busselton, Western Australia. The state-of-the-art complex features a TITAN LUXE screen, elevated food and beverage offerings, and recliner seating.

Our Board has authorized management to proceed with the negotiation of leases for two new state-of-the-art cinemas, one of which is Noosa in Queensland, Australia and the other in New Zealand.

 

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Cinema Upgrades

As of September 30, 2023, the upgrades to our cinema circuits’ film exhibition technology and amenities over the years are as summarized in the following table:

 

Location Count

Screen
Count

Screen Format

Digital (all cinemas in our cinema circuit)

62

507

IMAX

1

1

TITAN XC and LUXE

27

33

Dine-in Service

Gold Lounge (AU/NZ)(1)

11

29

Premium (AU/NZ)(2)

17

45

Spotlight (U.S.)(3)

1

6

Upgraded Food & Beverage menu (U.S.)(4)

18

n/a

Premium Seating (features recliner seating)

33

198

Liquor Licenses (5)

48

n/a

(1)Gold Lounge: This is our "First Class Full Dine-in Service" in our Australian and New Zealand cinemas, which includes an upgraded F&B menu (with alcoholic beverages), luxury recliner seating features (intimate 25-50 seat cinemas) and waiter service.

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

(3)Spotlight Service: Our first dine-in cinema concept in the U.S. at Reading Cinemas in Murrieta, California. Six of our 17 auditoriums at this cinema feature waiter service before the movie begins with a full F&B menu, luxury recliner seating, and laser focus on customer service. Our Spotlight service has been temporarily suspended since the initial COVID-19 shutdown.

(4)Upgraded Food & Beverage Menu: Features an elevated F&B menu including a menu of locally inspired and freshly prepared items that go beyond traditional concessions, which we have worked with former Food Network executives to create. The elevated menu also includes beer, wine and/or spirits at most of our locations.

(5)Liquor Licenses: Licenses are applicable at each cinema location, rather than each cinema auditorium.  As of today, we have liquor licenses in 100% of the cinemas operating in the U.S.  In Australia, we have five liquor licenses pending, and in New Zealand we have two liquor licenses pending.

Recent Enhancements

United States

Renovation Work: As of September 30, 2023, we have converted 110 of our 214 U.S. auditoriums to luxury recliner seating. We have an agreement in place with our landlord at the Dallas Angelika for a complete remodel of that cinema, which we anticipate will be completed in Q1 of 2024.

Australia and New Zealand

Rouse Hill renovation: Reading Cinema Rouse Hill will undergo a lease obligated refurbishment focusing on the foyer, concessions and the addition of another all reclining Premium auditorium. The introduction of the hot food offer and streamlining operations to ensure minimal staffing requirement productivity. The Preliminary drawings have been completed and will develop into a construction set for project/lessor approval, building consents and tender. Siteworks are expected to be completed late Q1 2024.

Angelika Film Centre, South City Square: Australia’s first Angelika Film Centre opened on August 24, 2023 in the Woolloongabba (Queensland) South City Square development. The complex offers eight screens, all reclining seating, and exceptional hot food and liquor offerings. The fit-out project was completed within the allocated budget and time frame.

Other Cinema Upgrades: In addition, during the three-year period 2021 to 2023, we also improved Sunbury and State Cinema in Australia, as well as some non-lease driven renovations at Rouse Hill in New South Wales, Australia.

During 2023, we will continue to focus on the enhancement of our proprietary online ticketing and Food & Beverage capabilities, together with improving and expanding our social media platforms and interfaces. These are intended to enhance the convenience of our offerings and to promote guest affinity with the experiences and products that we are offering.

 

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Cinema Closures

Our cinema in Wellington, New Zealand remains closed due to seismic concerns pending the redevelopment of that ETC. On May 7, 2023, The Hutt Pop-Up in New Zealand was permanently closed due to the expiration of our lease. We chose not to continue the cinema as it was only brought online as a “pop up” to address a temporary opening in the market. As of the date of this report, we have also closed and terminated our lease agreements at two underperforming Consolidated Theatre locations in Hawaii (Koko Marina Center and Queen Kaahumanu Center) and, as of November 1, 2023, a Reading Cinemas in California (Rohnert Park). One cinema was on a month-to-month arrangement and the other two were at the end of their respective terms. The decision to terminate these three venues was based on our belief that none of these locations could be operated profitably in the current environment on any meaningful rent paying basis at the rents being demanded by their respective landlords. Both of the Hawaii locations are currently closed and without replacement tenants. The California location is still in de-fit status.

Real Estate Overview

Through our various subsidiaries, we engage in the real estate business through the development, ownership, rental or licensing to third parties of retail, commercial, and live theatre assets. 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. In addition to owning the fee interests in 10 of our cinemas (as presented in the table under Cinema Exhibition Overview), as of September 30, 2023, we:

own our 44 Union Square property in Manhattan comprised of retail and office space which is currently in the lease-up phase. The cellar, ground floor, and second floor of the building are now fully leased to Petco, which is in occupancy of its premises on a full rent paying basis.

own and operate four ETCs known as Newmarket Village (in a suburb of Brisbane), The Belmont Common (in a suburb of Perth), and Cannon Park (in Townsville) in Australia, and Courtenay Central (in Wellington) in New Zealand;

own and operate our administrative office building in Culver City, California, which is currently being held for sale;

own and operate our administrative office building in South Melbourne, Australia;

own and operate the fee interests in two developed commercial properties in Manhattan improved with live theatres comprised of a single stage in each location;

own a 75% managing member interest in a limited liability company which in turn owns the fee interest in and improvements constituting our Cinemas 1,2,3 located in Manhattan;

own an approximately 26.6-acre property in Williamsport, Pennsylvania, currently leased to Transco Railway Products, Inc and currently being held for sale;

own approximately 201-acres principally in Pennsylvania from our legacy railroad business, including the Reading Viaduct in downtown Philadelphia; and

have exercised our option to purchase the improvements and ground lease comprising our cinema, Village East by Angelika cinema, and headquarters building at 189 Second Avenue in Manhattan, such sale scheduled to close in July 2024.

For a breakdown of our real estate assets, made current by our discussion below, please refer to Part I, Item 1 – Our Business of our 2022 Form 10-K. We now present a discussion of recent material developments.

Value-creating Opportunities

The implementation of most of our Company’s real estate development plans remained delayed due to the effects of the COVID-19 pandemic on the global cinema industry and the need to conserve capital and fund our cinema operation. However, we intend to continue to emphasize the prudent development of our real estate assets as we emerge from the pandemic.

United States:

44 Union Square Redevelopment (New York, N.Y.)On January 27, 2022, we entered a long-term lease with Petco for the cellar, ground floor, and second floor of the building, representing 42% of the leasable area. Petco is in occupancy of its premises on a full rent cash paying basis and opened to the public on June 1, 2023. CBRE is currently engaged as our exclusive broker for the remaining space. While the space was originally designed for office uses, given the dramatic presence of the property on Union Square, the rebound in foot traffic being enjoyed by Union Square and our building’s great branding potential, we are considering, a range of uses beyond traditional office tenants, including short term and special purpose uses. While we cannot guarantee the successful leasing of the remaining space, our leasing team continues to actively pursue potential tenants.

 

30


 

Minetta Lane Theatre (New York, N.Y.) – Prior to COVID-19, our theatre was used by Audible, to present plays featuring a limited cast of one or two characters and special live performance engagements on the Audible streaming service. Due to COVID-19, no shows were presented between March 2020 and October 8, 2021, the date on which public performances resumed, and during this period we provided certain abatements. Audible has resumed full operations at the theatre and extended its license arrangement with us through March 15, 2024. Audible has informed us that they would like to extend another two years with one year option. The parties will be working on an extension agreement in the near future. No assurances can be given that we will be able to enter into such a contract extension on terms acceptable to the Company.

 

Orpheum Theatre (New York, N.Y.)Prior to COVID-19, our theatre was the home to STOMP. Due to COVID-19, no shows were presented between April 2020 and June 2021. Thereafter, performances were intermittent. During this period, we provided certain abatements. STOMP ultimately closed (after 30 years at our theatre) on January 8, 2023. Under our termination agreement with the producers of STOMP, we have certain rights to provide the New York City venue for any future production of that show. Following STOMP’s historic run at the Orpheum, a new show, The Empire Strips Back, ran for approximately three months and Comedian Rachel Bloom will host a short term run for Death, Let Me Do My Show from December 7, 2023, to January 6, 2024. We are also in discussions with other potential shows to license the Orpheum Theatre.

Cinemas 1,2,3 (New York, N.Y.)Currently operated as the Cinemas 123, we have historically treated this property as an asset held for long term development. However, in light of a variety of factors, such as market conditions in Manhattan for real estate assets, cost of capital and demands on our liquidity, we have begun to explore alternatives for this property. These alternatives may include, again by way of example, the bringing in of a capital partner, the entering into a long-term ground lease (which could serve as the basis for medium to long term finance), and/or the sale (in whole or in part) of our interest in the property.

The Philadelphia Viaduct and Adjacent Properties (Philadelphia, Pennsylvania)This continues to be an area of focus for us in 2023. We have, in recent periods, begun the process of demolishing obsolete structures on the Viaduct or on our properties adjacent to the Viaduct. The city is currently considering an ordinance which would allow it to acquire, in whole or in part, our interest in the Viaduct, and we are in discussions with community leaders about ways in which we can work together to bring enhanced value to our holdings.

Australia:

Newmarket Village ETC, (Brisbane, Australia)We continue to work on the expansion and upgrade of our Newmarket Village ETC. Our site includes a 23,250 square foot parcel adjacent to the center, improved with an office building. Over the next few years, we will be evaluating development options for this space. As of the date of this report, the combined center and office building is 99% leased.

Cannon Park Center ETC, (Queensland, Australia) – We own two adjoining properties in Townsville, Queensland, Australia, (Cannon Park City Center and Cannon Park Discount Center) comprising approximately 9.4-acres which we operate as our Cannon Park Center ETC. The total gross leasable area of the two properties is 133,000 square feet. Our multiplex cinema is the anchor tenant. These properties are currently 94% leased.

 

The Belmont Common, (Belmont, Perth, Australia) The total gross leasable area of the Belmont Common is 60,117 square feet. Our multiplex cinema is the anchor tenant with six third-party tenants and our Reading Cinemas, the site is currently 100% leased.

New Zealand:

Courtenay Central Redevelopment (Wellington)Our Wellington property is comprised of three parcels representing approximately 161,082 square feet of land in the entertainment core of Wellington, we anticipate that this redevelopment opportunity will be a principal focus over the next few years. We remain optimistic about the development potential for our Courtenay Central property, in light of, among other things, (i) the successful June 3, 2023 opening of Takina Wellington Convention and Exhibition Center (wcec.co.nz), this capital city’s first premium conference and exhibition space that already has over a hundred conferences and events booked and internationally acclaimed exhibits scheduled, (ii) the loosening of certain height and density restrictions, and (iii) the lack of comparable building sites.

For a complete list of our principal properties, see Part I, Item 2Properties under the heading “Investment and Development Property.”

 

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Corporate Matters

Refer to Part I – Financial Information, Item 1 – Notes to Consolidated Financial Statements-- Note 17 – Stock-Based Compensation and Stock Repurchases for details regarding our stock repurchase program and Board, Executive and Employee stock-based remuneration programs.


 

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Please refer to our 2022 Form 10-K for more details on our cinema and real estate segments.

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, 2023, and September 30, 2022, respectively:

Quarter Ended

% Change

Nine Months Ended

% Change

(Dollars in thousands)

September 30,

2023

September 30,

2022

Fav/
(Unfav)

September 30,

2023

September 30,

2022

Fav/
(Unfav)

SEGMENT RESULTS

Revenue

Cinema exhibition

$

62,688

48,358

30

%

$

165,731

$

147,476

12

%

Real estate

5,056

4,070

24

%

15,338

12,265

25

%

Inter-segment elimination

(1,181)

(1,232)

4

%

(3,644)

(3,833)

5

%

Total revenue

66,563

51,196

30

%

177,425

155,908

14

%

Operating expense

Cinema exhibition

(54,459)

(46,540)

(17)

%

(149,941)

(138,412)

(8)

%

Real estate

(2,281)

(2,352)

3

%

(6,600)

(6,715)

2

%

Inter-segment elimination

1,181

1,232

(4)

%

3,644

3,833

(5)

%

Total operating expense

(55,559)

(47,660)

(17)

%

(152,897)

(141,294)

(8)

%

Depreciation and amortization

Cinema exhibition

(2,784)

(3,161)

12

%

(8,551)

(10,057)

15

%

Real estate

(1,624)

(1,591)

(2)

%

(4,830)

(4,920)

2

%

Total depreciation and amortization

(4,408)

(4,752)

7

%

(13,381)

(14,977)

11

%

General and administrative expense

Cinema exhibition

(1,050)

(794)

(32)

%

(2,983)

(3,360)

11

%

Real estate

(231)

(272)

15

%

(696)

(755)

8

%

Total general and administrative expense

(1,281)

(1,066)

(20)

%

(3,679)

(4,115)

11

%

Impairment expense

Cinema exhibition

-

%

(1,549)

(>100)

%

Total impairment expense

-

%

(1,549)

(>100)

%

Segment operating income

Cinema exhibition

4,395

(2,137)

>100

%

4,256

(5,902)

>100

%

Real estate

920

(145)

>100

%

3,212

(125)

>100

%

Total segment operating income (loss)

$

5,315

$

(2,282)

>100

%

$

7,468

$

(6,027)

>100

%

NON-SEGMENT RESULTS

Depreciation and amortization expense

(172)

(258)

33

%

(527)

(804)

34

%

General and administrative expense

(4,124)

(4,190)

2

%

(12,014)

(13,249)

9

%

Interest expense, net

(5,072)

(3,694)

(37)

%

(14,063)

(10,242)

(37)

%

Equity earnings of unconsolidated joint ventures

217

61

>100

%

443

233

90

%

Gain (loss) on sale of assets

(59)

(>100)

%

(59)

100

%

Other income (expense)

267

5,455

(95)

%

356

8,445

(96)

%

Income before income taxes

(3,569)

(4,967)

28

%

(18,337)

(21,703)

16

%

Income tax benefit (expense)

(896)

(332)

(>100)

%

(313)

(1,492)

79

%

Net income (loss)

(4,465)

(5,299)

16

%

(18,650)

(23,195)

20

%

Less: net income (loss) attributable to noncontrolling interests

(65)

(122)

47

%

(361)

(228)

(58)

%

Net income (loss) attributable to Reading International, Inc.

$

(4,400)

$

(5,177)

15

%

$

(18,289)

$

(22,967)

20

%

Basic earnings (loss) per share

$

(0.20)

$

(0.23)

13

%

$

(0.82)

$

(1.04)

21

%

 

Consolidated and Non-Segment Results:

Third Quarter and Nine Months Net Results

Revenue

Revenue for the quarter ended September 30, 2023, increased by $15.4 million, to $66.6 million, compared to the same period in the prior year, primarily due to (i) increased revenues as a result of a stronger film slate and (ii) rent income from our 44 Union Square property.

Revenue for the nine months ended September 30, 2023, increased by $21.5 million, to $177.4 million, when compared to the same period in the prior year. This increase was attributable to better cinema performances across our worldwide circuit as a result of a stronger film slate and, since November 2022 rent income from our 44 Union Square property.

 

33


Segment Operating Income/(Loss)

Our total segment operating income for the quarter ended September 30, 2023, increased by $7.6 million, from a loss of $2.3 million to an income of $5.3 million, primarily due to (i) improved operating income from our worldwide circuit and (ii) rent received from our tenant at our 44 Union Square property that did not occur in the third quarter of 2022.

Our total segment operating income for the nine months ended September 30, 2023 was $7.5 million, which increased by $13.5 million from a loss of $6.0 million, primarily due to (i) improved cinema performance from a stronger film slate, which resulted in more patrons returning to the theaters, (ii) rent received from our tenant at our 44 Union Square property that did not occur in the third quarter of 2022, (iii) impairment expense of $1.5 million that was incurred in the same period in 2022 that was not incurred in 2023 and (iv) a decrease in depreciation and amortization due to delay in Capex spending.

During the third quarter of 2023, both the Australia and New Zealand dollars devalued against the U.S. dollar. The average Australia dollar exchange rate against the U.S. dollar for the third quarter of 2023 decreased 4.1% compared to the same period in 2022. The average New Zealand dollar exchange rate against the U.S. dollar for the third quarter of 2023 decreased 1.2% compared to the same period in 2022. The devaluation of the Australia and New Zealand currencies negatively impacts segment operating income and positively impacts segment operating loss in U.S. dollar terms.

Net Income/(Loss)

Our net loss attributable to Reading International, Inc. for the quarter ended September 30, 2023, decreased by $0.8 million, from a loss of $5.2 million to a loss of $4.4 million, when compared to the same period in the prior year, due to improved segment revenues, decreased depreciation and amortization expense, partially offset by increased interest expense, decreased other income and increased tax expense.

For the nine months ended September 30, 2023, net loss attributable to Reading International, Inc. decreased by $4.7 million, from a loss of $23.0 million to a loss of $18.3 million, compared to the same period in the prior year primarily due to better segment results, decreased G&A expenses, decreased depreciation and amortization expense, no impairment in 2023, and decreased tax expenses, partially offset by increased interest expense and a decrease in other income.

Income Tax Expense

Income tax expense for the quarter ended September 30, 2023, increased by $0.6 million compared to the equivalent prior-year period.  The change between 2023 and 2022 is primarily related to the increase in reserve for valuation allowance in 2023.

Income tax expense for the nine months ended September 30, 2023, decreased by $1.2 million compared to the equivalent prior-year period. The change between 2023 and 2022 is primarily related to the decrease in reserve for unrecognized tax benefits in 2023.


 

34


Business Segment Results

Cinema Exhibition

The following table details our cinema exhibition segment operating results for the quarter and nine months ended September 30, 2023, and September 30, 2022, respectively:

Quarter Ended

Nine Months Ended

Fav/(Unfav)

(Dollars in thousands)

September 30,

2023

% of Revenue

September 30,

2022

% of Revenue

September 30,

2023

% of Revenue

September 30,

2022

% of Revenue

Quarter
Ended

Nine Months Ended

REVENUE

United States

Admissions revenue

$

19,495

31%

$

13,588

28%

$

50,250

30%

$

39,815

27%

43

%

26

%

Food & beverage revenue

11,663

19%

8,671

18%

31,108

19%

25,436

17%

35

%

22

%

Advertising and other revenue

3,074

5%

2,417

5%

8,700

5%

7,281

5%

27

%

19

%

$

34,232

55%

$

24,676

51%

$

90,058

54%

$

72,532

49%

39

%

24

%

Australia

Admissions revenue

$

14,918

24%

$

12,404

26%

$

39,428

24%

$

39,125

27%

20

%

1

%

Food & beverage revenue

7,856

13%

6,486

13%

21,016

13%

21,007

14%

21

%

-

%

Advertising and other revenue

1,412

2%

1,124

2%

3,894

2%

3,665

2%

26

%

6

%

$

24,186

39%

$

20,014

41%

$

64,338

39%

$

63,797

43%

21

%

1

%

New Zealand

Admissions revenue

$

2,668

4%

$

2,287

5%

$

6,989

4%

$

6,919

5%

17

%

1

%

Food & beverage revenue

1,383

2%

1,191

2%

3,774

2%

3,646

2%

16

%

4

%

Advertising and other revenue

219

0%

192

0%

572

0%

582

0%

14

%

(2)

%

$

4,270

7%

$

3,670

8%

$

11,335

7%

$

11,147

8%

16

%

2

%

Total revenue

$

62,688

100%

$

48,360

100%

$

165,731

100%

$

147,476

100%

30

%

12

%

OPERATING EXPENSE

United States

Film rent and advertising cost

$

(10,876)

17%

$

(7,602)

16%

$

(27,563)

17%

$

(22,430)

15%

(43)

%

(23)

%

Food & beverage cost

(2,908)

5%

(2,352)

5%

(8,039)

5%

(6,552)

4%

(24)

%

(23)

%

Occupancy expense

(6,265)

10%

(6,117)

13%

(18,768)

11%

(18,447)

13%

(2)

%

(2)

%

Other operating expense

(11,722)

19%

(10,489)

22%

(32,513)

20%

(28,403)

19%

(12)

%

(14)

%

$

(31,771)

51%

$

(26,560)

55%

$

(86,883)

52%

$

(75,832)

51%

(20)

%

(15)

%

Australia

Film rent and advertising cost

$

(6,582)

10%

$

(5,642)

12%

$

(17,652)

11%

$

(17,827)

12%

(17)

%

1

%

Food & beverage cost

(1,670)

3%

(1,287)

3%

(4,407)

3%

(4,252)

3%

(30)

%

(4)

%

Occupancy expense

(4,276)

7%

(4,215)

9%

(13,048)

8%

(13,265)

9%

(1)

%

2

%

Other operating expense

(6,576)

10%

(5,625)

12%

(18,104)

11%

(17,344)

12%

(17)

%

(4)

%

$

(19,104)

30%

$

(16,769)

35%

$

(53,211)

32%

$

(52,688)

36%

(14)

%

(1)

%

New Zealand

Film rent and advertising cost

$

(1,190)

2%

$

(1,013)

2%

$

(3,164)

2%

$

(3,086)

2%

(17)

%

(3)

%

Food & beverage cost

(273)

0%

(228)

0%

(731)

0%

(699)

0%

(20)

%

(5)

%

Occupancy expense

(792)

1%

(768)

2%

(2,357)

1%

(2,383)

2%

(3)

%

1

%

Other operating expense

(1,330)

2%

(1,203)

2%

(3,595)

2%

(3,724)

3%

(11)

%

3

%

$

(3,585)

6%

$

(3,212)

7%

$

(9,847)

6%

$

(9,892)

7%

(12)

%

-

%

Total operating expense

$

(54,460)

87%

$

(46,541)

96%

$

(149,941)

90%

$

(138,412)

94%

(17)

%

(8)

%

DEPRECIATION, AMORTIZATION, IMPAIRMENT AND GENERAL AND ADMINISTRATIVE EXPENSE

United States

Depreciation and amortization

$

(1,458)

2%

$

(1,696)

4%

$

(4,518)

3%

$

(5,373)

4%

14

%

16

%

Impairment of long-lived assets

0%

0%

0%

(1,549)

1%

(>100)

%

(>100)

%

General and administrative expense

(672)

1%

(408)

1%

(1,839)

1%

(2,121)

1%

(65)

%

13

%

$

(2,130)

3%

$

(2,104)

4%

$

(6,357)

4%

$

(9,043)

6%

(1)

%

30

%

Australia

Depreciation and amortization

$

(1,192)

2%

$

(1,281)

3%

$

(3,611)

2%

$

(4,034)

3%

7

%

10

%

Impairment expense

0%

0%

0%

0%

-

%

-

%

General and administrative expense

(377)

1%

(387)

1%

(1,144)

1%

(1,239)

1%

3

%

8

%

$

(1,569)

3%

$

(1,668)

3%

$

(4,755)

3%

$

(5,273)

4%

6

%

10

%

New Zealand

Depreciation and amortization

$

(134)

0%

$

(184)

0%

$

(422)

0%

$

(650)

0%

27

%

35

%

Impairment expense

0%

0%

0%

0%

-

%

-

%

General and administrative expense

0%

0%

0%

0%

-

%

-

%

$

(134)

0%

$

(184)

0%

$

(422)

0%

$

(650)

0%

27

%

35

%

Total depreciation, amortization, general and administrative expense

$

(3,833)

6%

$

(3,956)

8%

$

(11,534)

7%

$

(14,966)

10%

3

%

23

%

OPERATING INCOME (LOSS) – CINEMA

United States

$

331

1%

$

(3,988)

(8)%

$

(3,182)

(2)%

$

(12,343)

(8)%

>100

%

74

%

Australia

3,513

6%

1,577

3%

6,372

4%

5,836

4%

>100

%

9

%

New Zealand

551

1%

274

1%

1,066

1%

605

0%

>100

%

76

%

Total Cinema operating income (loss)

$

4,395

7%

$

(2,137)

(4)%

$

4,256

3%

$

(5,902)

(4)%

>100

%

>100

%

Third Quarter and Nine Months Results

Revenue

For the quarter ended September 30, 2023, cinema revenue increased by $14.3 million, to $62.7 million compared to the same period in the prior year. Our worldwide cinema revenue increased by 30%; geographically, U.S., AU and NZ cinema revenue increased by 39%, 21% and 16% respectively.

For the nine months ended September 30, 2023, cinema revenue increased by $18.3 million, to $165.7 million compared to the same period in the prior year.

 

35


The increase in revenues for the quarter and nine months ending September 30, 2023 was primarily driven by increased attendance, increased food and beverage sales and advertising and other revenue as a result of a stronger film slate.

Cinema Segment Operating Income/(Loss)

Cinema segment operating income for the quarter ended September 30, 2023, increased by $6.5 million, from a loss of $2.1 million to an income of $4.4 million when compared to the same period in the prior year, primarily due to a stronger film slate.

Cinema segment operating income for the nine months ended September 30, 2023, increased by $10.2 million, from a loss of $5.9 million to an income of $4.3 million when compared to the same period in the prior year primarily due to (i) improved cinema performance as a result of stronger movie slate and more patrons returning to the theaters, (ii) impairment expense that was incurred in 2022 that was not incurred in 2023 and (iii) a decrease in depreciation and amortization due to delay in Capex spending.

Operating expense

Operating expenses for the quarter ended September 30, 2023, increased by $7.9 million, to $54.5 million, compared to the same quarter in the prior year. Operating expenses for the nine months ended September 30, 2023, increased by $11.5 million, to $149.9 million, compared to the same time period in the prior year. These increases were due to increased film rent expense, increased food and beverage costs and other operating expenses as result of a better segment performance.

Depreciation, amortization, impairment, general and administrative expense

Depreciation, amortization, impairment, and general and administrative expenses for the quarter ended September 30, 2023, decreased by $0.1 million, to $3.8 million, compared to the same quarter in the prior year. Depreciation, amortization, impairment and general and administrative expense for the nine months ended September 30, 2023, decreased by $3.4 million, to $11.5 million, compared to the same period in the prior year. These decreases were due to (i) impairment expense that was incurred in 2022 that did not reoccur in 2023, and (ii) a decrease in depreciation and amortization due to a delay in Capex spending.


 

36


Real Estate

The following table details our real estate segment operating results for the quarter and nine months ended September 30, 2023 and September 30, 2022, respectively:

% Change

Quarter Ended

Nine Months Ended

Fav/(Unfav)

(Dollars in thousands)

September 30,
2023

% of
Revenue

September 30,
2022

% of
Revenue

September 30,
2023

% of
Revenue

September 30,
2022

% of
Revenue

Quarter Ended

Nine Months Ended

REVENUE

United States

Live theatre rental and ancillary income

$

465

9%

$

384

9%

$

1,370

9%

$

1,343

11%

21

%

2

%

Property rental income

1,149

23%

143

4%

3,632

24%

445

4%

>100

%

>100

%

1,614

32%

527

13%

5,002

33%

1,788

15%

>100

%

>100

%

Australia

Property rental income

3,063

61%

3,154

77%

9,191

60%

9,336

76%

(3)

%

(2)

%

New Zealand

Property rental income

380

8%

390

10%

1,145

7%

1,141

9%

(3)

%

-

%

Total revenue

$

5,057

100%

$

4,071

100%

$

15,338

100%

$

12,265

100%

24

%

25

%

OPERATING EXPENSE

United States

Live theatre cost

$

(122)

2%

$

(160)

4%

$

(476)

3%

$

(531)

4%

24

%

10

%

Property cost

(466)

9%

(330)

8%

(1,132)

7%

(894)

7%

(41)

%

(27)

%

Occupancy expense

(260)

5%

(240)

6%

(743)

5%

(750)

6%

(8)

%

1

%

(848)

17%

(730)

18%

(2,351)

15%

(2,175)

18%

(16)

%

(8)

%

Australia

Property cost

(548)

11%

(588)

14%

(1,653)

11%

(1,596)

13%

7

%

(4)

%

Occupancy expense

(505)

10%

(500)

12%

(1,477)

10%

(1,541)

13%

(1)

%

4

%

(1,053)

21%

(1,088)

27%

(3,130)

20%

(3,137)

26%

3

%

-

%

New Zealand

Property cost

(273)

5%

(420)

10%

(810)

5%

(1,085)

9%

35

%

25

%

Occupancy expense

(108)

2%

(116)

3%

(309)

2%

(318)

3%

7

%

3

%

(381)

8%

(536)

13%

(1,119)

7%

(1,403)

11%

29

%

20

%

Total operating expense

$

(2,282)

45%

$

(2,354)

58%

$

(6,600)

43%

$

(6,715)

55%

3

%

2

%

DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE EXPENSE

United States

Depreciation and amortization

$

(824)

16%

$

(745)

18%

$

(2,358)

15%

$

(2,243)

18%

(11)

%

(5)

%

General and administrative expense

(171)

3%

(211)

5%

(507)

3%

(643)

5%

19

%

21

%

(995)

20%

(956)

23%

(2,865)

19%

(2,886)

24%

(4)

%

1

%

Australia

Depreciation and amortization

$

(617)

12%

$

(655)

16%

$

(1,900)

12%

$

(2,042)

17%

6

%

7

%

General and administrative expense

(60)

1%

(60)

1%

(189)

1%

(112)

1%

-

%

(69)

%

(677)

13%

(715)

18%

(2,089)

14%

(2,154)

18%

5

%

3

%

New Zealand

Depreciation and amortization

(183)

4%

(191)

5%

(572)

4%

(635)

5%

4

%

10

%

General and administrative expense

0%

0%

0%

0%

-

%

-

%

(183)

4%

(191)

5%

(572)

4%

(635)

5%

4

%

10

%

Total depreciation, amortization, general and administrative expense

$

(1,855)

37%

$

(1,862)

46%

$

(5,526)

36%

$

(5,675)

46%

-

%

3

%

OPERATING INCOME (LOSS) - REAL ESTATE

United States

$

(229)

(5)%

$

(1,159)

(28)%

$

(214)

(1)%

$

(3,273)

(27)%

80

%

93

%

Australia

1,333

26%

1,351

33%

3,972

26%

4,045

33%

(1)

%

(2)

%

New Zealand

(184)

(4)%

(337)

(8)%

(546)

(4)%

(897)

(7)%

45

%

39

%

Total real estate operating income (loss)

$

920

18%

$

(145)

(4)%

$

3,212

21%

$

(125)

(1)%

>100

%

>100

%

Third Quarter and Nine Months Results

Revenue

Real estate revenue for the quarter ended September 30, 2023, increased by approximately $1.0 million to $5.1 million, compared to the same period in the prior year. This increase was due to the recognition of rental income from our tenant at our 44 Union Square property, which did not occur in the same period of the prior year and increased live theatre rental income.

For the nine months ended September 30, 2023, real estate revenue increased by $3.1 million, to $15.3 million, compared to the same period in the prior year. This increase was driven by the rental income from our 44 Union Square property tenant that did not occur in the same period in the prior year.

Real Estate Segment Income/(Loss)

Real estate segment operating income for the quarter ended September 30, 2023, increased by $1.1 million, to $0.9 million, compared to a slight loss of $0.1 million the same period in the prior year. This change was attributable to rent recognized in the current quarter 2023 from our tenant at our 44 Union Square property, that did not occur in the same period of the prior year.

For the nine months ended September 30, 2023, real estate segment operating income increased by $3.3 million, to $3.2 million, compared to a slight loss of $0.1 million in same period in the prior year. This increase was driven by the rental income from our 44 Union Square property tenant that did not occur in the same prior year period.

 

 

37


LIQUIDITY AND CAPITAL RESOURCES

Our Financing Strategy

Prior to the COVID-19 pandemic, we used cash generated from operations and other excess cash to the extent not needed to fund capital investments contemplated by our business plan, to pay down our loans and credit facilities. This provided us with availability under our loan facilities for future use and thereby, reduced interest charges. On a periodic basis, we reviewed the maturities of our borrowing arrangements and negotiated renewals and extensions where necessary.

However, disruptions to our cinema cash flow caused by the COVID-19 pandemic, government efforts to address the pandemic, and the resulting aftermath of the pandemic and those efforts have made it necessary for us to defer capital expenditures and to rely on borrowings and the proceeds of asset monetizations to cover our costs of operations, pay interest and pay down debt. We have since March 31, 2020 paid down our institutional debt by $54.4 million.

Our bank loans with Bank of America, NAB, and Westpac require that our Company comply with certain covenants. Furthermore, our Company’s use of loan funds from NAB and Westpac is limited due to limitations on the expatriation of funds from Australia and New Zealand to the United States. We believe that our lenders understand that the current situation, relating to the COVID-19 pandemic, is not of our making, that we are doing everything that can reasonably be done, and that, generally speaking, our relationship with our lenders is good.

As our Company enjoys the recovery in the global cinema business, we are still facing macroeconomic headwinds such as increased interest rates, inflation, supply chain issues and increased film rent, labor and operating costs, many of which are beyond our control. While we have been successful in negotiating extensions of $108.3 million in debt scheduled to mature in 2023, we have debt of $41.5 million coming due in the next 12 months.

If our Company is unable to generate sufficient cash flow in the upcoming months, we will be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, monetizing additional assets, restructuring our debt and/or our lease obligations or finding additional sources of liquidity (such as additional borrowings). We have listed as assets held for sale two U.S. properties with a combined book value (the lower of cost or market, as opposed to fair market value) of $11.7 million. These assets were selected since, based on recent appraisals, we believe that they would free up material amounts of cash and that it is unlikely that they would materially increase in value over the next three to five years without significant capital investment.

For more information about our borrowings, please refer to Part I – Financial Information, Item 1 – Notes to Consolidated Financial Statements-- Note 12 – Borrowings. For more information about our efforts to manage our liquidity issues, see Part I- Financial Information, Item 1 – Notes to Consolidated Financial Statements – Note 3 – Impact of COVID-19 Pandemic, Artists Strike and Liquidity.


 

38


The changes in cash and cash equivalents for the nine months ended September 30, 2023, and September 30, 2022, respectively, are discussed as follows:

Nine Months Ended

September 30,

(Dollars in thousands)

2023

2022

% Change

Net cash provided by (used in) operating activities

$

(6,366)

$

(26,114)

76

%

Net cash provided by (used in) investing activities

(6,191)

(6,419)

4

%

Net cash provided by (used in) financing activities

(3,886)

(7,946)

51

%

Effect of exchange rate on cash and restricted cash

(897)

(2,242)

60

%

Increase (decrease) in cash and cash equivalents and restricted cash

$

(17,340)

$

(42,721)

59

%

Operating activities

Cash used in operating activities for the nine months ended September 30, 2023, decreased by $19.7 million, to $6.4 million. This was driven by an improved cinema operating performance compared to the prior year period, receipt of rental income from our tenant, at our 44 Union Square property, which did not occur in the same period of prior year, and increase in operating liabilities primarily in taxes payable and account payable and accrued expenses.

Investing activities

Cash used in investing activities during the nine months ended September 30, 2023, which was $6.2 million, stayed relatively flat compared to the same period of prior year of $6.4 million.

Financing activities

Cash used in financing activities for the nine months ended September 30, 2023, decreased by $4.1 million, to $3.9 million due to a borrowing on an existing facility.

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 third quarter ended September 30, 2023, and preceding four years:

As of and

for the

9-Months

Ended

Year Ended December 31

($ in thousands)

September 30, 2023

2022

2021

2020

2019

Total Resources (cash and borrowings)

Cash and cash equivalents (unrestricted)

$

11,925

$

29,947

$

83,251

$

26,826

$

12,135

Unused borrowing facility

8,160

12,000

12,000

15,490

73,920

Restricted for capital projects

8,160

12,000

12,000

9,377

13,952

Unrestricted capacity

6,113

59,968

Total resources at period end

20,085

41,947

95,251

42,316

86,055

Total unrestricted resources at period end

11,925

29,947

83,251

32,939

72,103

Debt-to-Equity Ratio

Total contractual facility

$

216,749

$

227,633

$

248,948

$

300,449

$

283,138

Total debt (gross of deferred financing costs)

208,589

215,633

236,948

284,959

209,218

Current

41,178

38,026

12,060

42,299

37,380

Non-current

167,411

177,607

224,888

242,660

171,838

Finance lease liabilities

3

28

209

Total book equity

42,055

63,279

105,060

81,173

139,616

Debt-to-equity ratio

4.96

3.41

2.26

3.51

1.50

Changes in Working Capital

Working capital (deficit)(1)

$

(85,664)

$

(74,152)

$

(6,673)

$

(64,140)

$

(84,138)

Current ratio

0.33

0.39

0.94

0.47

0.24

Capital Expenditures (including acquisitions)

$

6,191

$

9,780

$

14,428

$

16,759

$

47,722

(1)Our working capital is reported as a deficit, as we receive revenue from our cinema business ahead of the time that we have to pay our associated liabilities. We use the money we receive to pay down our borrowings in the first instance.

As of September 30, 2023, we had $11.9 million in unrestricted cash and cash equivalents compared to $29.9 million on December 31, 2022. On September 30, 2023, our total outstanding borrowings were $208.6 million compared to $215.6 million on December 31, 2022.

We manage our cash, investments, and capital structure 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. In the past, we 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.

 

39


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, 2023:

(Dollars in thousands)

2023

2024

2025

2026

2027

Thereafter

Total

Debt(1)

$

10,625

$

96,651

$

64,810

$

314

$

7,500

$

$

179,900

Operating leases, including imputed interest

8,149

31,198

29,159

27,283

24,977

139,619

260,385

Finance leases, including imputed interest

3

3

Subordinated debt(1)

190

586

27,913

28,689

Pension liability

171

684 

684 

684 

684 

548

3,455

Estimated interest on debt (2)

4,539

12,297

5,640

3,019

1,362

26,856

Village East purchase option(3)

5,900

5,900 

Total

$

23,677

$

147,316

$

100,293

$

31,300

$

62,436

$

140,167

$

505,188

(1)Information is presented gross 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 ground lease purchase of the Village East Cinema, which on November 4, 2022, we modified to settle on or before July 1, 2024.

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.

Please refer to Part I, Item 3 – Legal Proceedings in our 2022 Form 10-K for more information. There have been no material changes to our litigation since our 2022 Form 10-K, except as set forth in Notes to Consolidated Financial Statements-- Note 15 – Commitments and Contingencies included herein in Part I – Financial Information, Item 1 – Financial Statements on this Quarterly Report on Form 10-Q. This note sets out our litigation accounting policies.

Off-Balance Sheet Arrangements

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

We believe that the application of the following accounting policies requires significant judgments and estimates in the preparation of our Consolidated Financial Statements and hence, are critical to our business operations and the understanding of our financial results:

(i) Impairment of Long-lived Assets (other than Goodwill and Intangible Assets with indefinite lives) – we evaluate our long-lived assets and finite-lived intangible assets using historical and projected data of cash flows as our primary indicator of potential impairment and we take into consideration the seasonality of our business. If the sum of the estimated, undiscounted future cash flows is less than the carrying amount of the asset, then an impairment is recognized for the amount by which the carrying value of the asset exceeds its estimated fair value based on an appraisal or a discounted cash flow calculation. For certain non-income producing properties or for those assets with no consistent historical or projected cash flows, we obtain appraisals or other evidence to evaluate whether there are impairment indicators for these assets.

No impairment losses were recorded for long-lived and finite-lived intangible assets for the third quarter and nine months ended September 30, 2023.

(ii) Impairment of Goodwill and Intangible Assets with indefinite lives – goodwill and intangible assets with indefinite useful lives are not amortized, but instead, tested for impairment at least annually on a reporting unit basis. The impairment evaluation is based on the present value of estimated future cash flows of each reporting unit plus the expected terminal value. There are significant assumptions and estimates used in determining the future cash flows and terminal value. The most significant assumptions include our cost of debt and cost of equity assumptions that comprise the weighted average cost of capital for each reporting unit. Accordingly, actual results could vary materially from such estimates.

No impairment losses were recorded for goodwill and indefinite-lived intangible assets for the third quarter and nine months ended September 30, 2023.

 

40


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Our statements in this quarterly report, including the documents incorporated herein by reference, contain a variety of forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "may," "will," "expect," "believe," "intend," "future," and "anticipate" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding the closures and reopening of our cinemas and theatres, including our expectations regarding renovations and addition of cinemas; our expectations regarding the long-term impacts of the COVID-19 pandemic on customers’ desires for social interaction our expected operating results, including the long-term impact of the COVID-19 pandemic and our ultimate return to pre-pandemic type results; our expectations regarding the recovery and future of the cinema exhibition industry, including the strength of movies anticipated for release in the future; our expectations regarding the effects of the Hollywood Strikes on the cinema industry and the recovery of the industry during the coming years; our expectations regarding the timing of completing the sale of certain assets; our expectations regarding people returning to our theatres and continuing to use discretionary funds on entertainment outside of the home; our expectations regarding our ability to extend the contract with Audible on terms acceptable to us; our expectations regarding the impact of streaming and mobile video services on the cinema exhibition industry; our belief regarding the attractiveness of 44 Union Square to potential tenants and ability to lease space on acceptable terms; our expectations regarding the effects of our enhanced F&B offerings on our operating results; our expectations regarding credit facility covenant compliance and our ability to continue to obtain necessary covenant waivers and loan extensions on terms acceptable to us; and our expectations of our liquidity and capital requirements and the allocation of funds.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

with respect to our cinema and live theatre operations:

reduced consumer demand due to recessionary pressures;

the adverse continuing impact of the COVID-19 pandemic, and other contagious diseases and the adverse effects on our anticipated cinema operations should there be further closings or restrictions mandated as a result of other pandemics or diseases;

the adverse continuing effects of the COVID-19 pandemic or other contagious diseases on our Company’s results from operations, liquidity, cash flows, financial condition, and access to credit markets;

the adverse continuing impact of the COVID-19 pandemic or other contagious diseases on short-term and/or long-term entertainment, leisure and discretionary spending habits and practices of our patrons;

the decrease in attendance at our cinemas and theatres due to a change in consumer behavior in favor of alternative forms or mediums of entertainment;

reduction in operating margins (or negative operating margins) due to the implementation of health and safety protocols;

potentially uninsurable liability exposure to customers and staff should they become (or allege that they have become) infected with COVID-19 or other contagious diseases while at one of our facilities;

unwillingness of employees to report to work due to the adverse effects of contagious diseases or to otherwise conduct work under any revised work environment protocols;

competition from cinema operators who have successfully used debtor laws or government grants to reduce their debt and/or rent exposure;

the disruptions or reductions in the utilization of entertainment, shopping, and hospitality venues, as well as in our operations, due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases or to changing consumer tastes and habits;

the number and attractiveness to moviegoers of the films released in future periods, and potential changes in release dates for motion pictures;

the lack of availability of films in the short- or long-term as a result of (i) major film distributors releasing scheduled films on alternative channels or (ii) disruptions of film production;

the amount of money spent by film distributors to promote their motion pictures;

the licensing fees and terms required by film distributors from motion picture exhibitors in order to exhibit their films;

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; 

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 cinemas” and competitive film product distribution technology, such as, streaming, cable, satellite broadcast, video on demand platforms, and Blu-ray/DVD rentals and sales;

 

41


 

our ability to continue to obtain, to the extent needed, waivers or other financial accommodations from our lenders and landlords;

the impact of major movies being released directly to one of the multitudes of streaming services available;

the impact of certain competitors’ subscription or advance pay programs;

the cost and impact of improvements to our cinemas, such as improved seating, enhanced F&B offerings, and other improvements;

the ability to negotiate favorable rent abatement, deferral and repayment terms with our landlords (which may include lenders who have foreclosed on the collateral held by our prior landlords);

disruptions during cinema improvements;

in the U.S., the impact of the termination and phase-out of the so called “Paramount Decree;”

the risk of damage and/or disruption of cinema businesses from earthquakes as certain of our operations are in geologically active areas;

the impact of protests, demonstrations, and civil unrest on, among other things, government policy, consumer willingness to go to the movies;

labor shortages and increased labor costs related to such shortages and to increasingly costly labor laws and regulations applicable to part time non-exempt workers. Disruptions in film supply and film marketing due to the Hollywood Strikes; and

competition from a newly restructured Regal, which may have lower occupancy costs than we do.

with respect to our real estate development and operation activities:

the increased costs of wages, supplies, services and other development expenses from inflation;

the impact on tenants from recessionary pressures;

the impact of the COVID-19 pandemic or other contagious diseases may continue to affect many of our tenants at our real estate operations in the United States, Australia, and New Zealand, their ability to pay rent, and to stay in business;

the impact of the COVID-19 pandemic or other contagious diseases on real estate valuations in major urban centers, such as New York;

uncertainty as to governmental responses to COVID-19 or other contagious diseases;

the rental rates and capitalization rates applicable to the markets in which we operate and the quality of properties that we own;

the ability to negotiate and execute lease agreements with material tenants;

the extent to which we can obtain on a timely basis the various land use approvals and entitlements needed to develop our properties;

the risks and uncertainties associated with real estate development;

the availability and cost of labor and materials;

the ability to obtain all permits to construct improvements;

the ability to finance improvements, including, but not limited to increased cost of borrowing and tightened lender credit policies;

the disruptions to our business from construction and/or renovations;

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

competition for development sites and tenants;

environmental remediation issues;

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;

the increased depreciation and amortization expense as construction projects transition to leased real property;

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

the risk of damage and/or disruption of real estate businesses from earthquakes as certain of our operations are in geologically active areas;

the disruptions or reductions in the utilization of entertainment, shopping and hospitality venues, as well as in our operations, due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases, or to changing consumer tastes and habits; and

the impact of protests, demonstrations, and civil unrest on government policy, consumer willingness to visit shopping centers.

 

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:

our ability to renew, extend, renegotiate or replace our loans that mature in 2023 and beyond, and the impact of increasing interest rates;

our ability to grow our Company and provide value to our stockholders; 

 

42


 

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, and our ability to borrow funds to help cover the cessation of cash flows we experienced during the COVID-19 pandemic;

our ability to reallocate funds among jurisdictions to meet short-term liquidity needs;

the relative values of the currency used in the countries in which we operate; 

the impact that any discontinuance, modification or other reform of London Inter-Bank Offered Rate (LIBOR), or the establishment of alternative reference rates, may have on our LIBOR-based debt instruments;

changes in government regulation, including by way of example, the costs resulting from the requirements of Sarbanes-Oxley and other increased regulatory requirements;

our labor relations and costs of labor (including future government requirements with respect to minimum wages, shift scheduling, the use of consultants, pension liabilities, disability insurance and health coverage, and vacations and leave);

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, and class actions and private attorney general wage and hour and/or safe workplace-based claims;

our exposure to cybersecurity risks, including misappropriation of customer information or other breaches of information security;

the impact of major outbreaks of contagious diseases;

the availability of employees and/or their ability or willingness to conduct work under any revised work environment protocols;

the increased risks related to employee matters, including increased employment litigation and claims relating to terminations or furloughs caused by cinema and ETC closures;

our ability to generate significant cash flow from operations if our cinemas and/or ETCs continue to experience demand at levels significantly lower than historical levels, which could lead to a substantial increase in indebtedness and negatively impact our ability to comply with the financial covenants, if applicable, in our debt agreements;

our ability to comply with credit facility covenants and our ability to obtain necessary covenant waivers and necessary credit facility amendments;

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;

inflationary pressures on labor and supplies, and supply chain disruptions;

changes in applicable accounting policies and practices;

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;

the impact of the conflict events occurring in Eastern Europe and the threats of potential conflicts in the Asia-Pacific region; and

the impact of the conflict events occurring in Israel and the threats of potential conflicts in the Middle East.

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, earthquakes, pandemics, and the extent to which consumers in our markets have the economic wherewithal to spend money on beyond-the-home entertainment. Refer to Item 1A - Risk Factors, as well as the risk factors set forth in any other filings made under the Securities Act of 1934, as amended, including any of our Quarterly Reports on Form 10-Q, for more information.

Given the variety and unpredictability of the factors that will ultimately influence our businesses and our results of operation, 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.

Forward-looking statements made by us in this quarter report are based only on information currently available to us and are current only as of the date of this Quarterly Report on Form 10-Q for the period ended September 30, 2023. We undertake no obligation to publicly update 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.

 

43


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.

Currency Risk

While we report our earnings and net assets in U.S. dollars, substantial portions of our revenue and of our obligations are denominated in either Australian or New Zealand dollars. The value of these currencies can vary significantly compared to the U.S. dollar and compared to each other. We do not hedge the currency risk, but rather have relied upon the natural hedges that exist as a result of the fact that our film costs are typically fixed as a percentage of the box office, and our local operating costs and obligations are likewise typically denominated in local currencies. However, we do have intercompany debt and our ability to service this debt could be adversely impacted by declines in the relative value of the Australian and New Zealand dollars compared to the U.S. dollar. Also, our use of local borrowings to mitigate the business risk of currency fluctuations has reduced our flexibility to move cash between jurisdictions. Set forth below is a chart of the exchange ratios between these three currencies since 1996:

A graph of exchange rates

Description automatically generated

In recent periods, we have paid material intercompany dividends and have repaid intercompany debt, using these proceeds to fund capital investment in the United States. Accordingly, our debt levels in Australia are higher than they would have been if funds had not been returned for such purposes. On a company wide basis, this means that a reduction in the relative strength of the U.S. dollar versus the Australian dollar and/or the New Zealand dollar would effectively raise the overall cost of our borrowing and capital and make it more expensive to return funds from the United States to Australia and New Zealand.

 

44


Our Company transacts business in Australia and New Zealand and is subject to risks associated with fluctuating foreign currency exchange rates. During the third quarter of 2023, the average Australian dollar and New Zealand dollar weakened against the U.S. dollar by 4.1% and 1.2%, respectively, compared to the same period prior year.

At September 30, 2023, approximately 35.4% and 8.5% of our assets were invested in assets denominated in Australian dollars (Reading Entertainment Australia) and New Zealand dollars (Reading New Zealand), respectively, including approximately $6.4 million in cash and cash equivalents. At December 31, 2022, approximately 34.1% and 8.4% of our assets were invested in assets denominated in Australian dollars (Reading Entertainment Australia) and New Zealand dollars (Reading New Zealand), respectively, including approximately ($14.6) 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 and the current holding of U.S. dollars by certain Australian and New Zealand subsidiaries have 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 a decrease of $1.7 million and $3.0 million for the quarter and nine months ended September 30, 2023, respectively. As we continue to progress our acquisition and development activities in Australia and New Zealand, no assurances can be given 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. As a result, the borrowings in local currencies have provided somewhat of a natural hedge against the foreign currency exchange exposure. We have also historically paid management fees to the U.S. to cover a portion of our domestic overhead. The fluctuations of the Australian and New Zealand currencies, however, may impact our ability to rely on such funding for ongoing support of our domestic overhead.

We record unrealized foreign currency translation gains or losses that could materially affect our financial position. As of September 30, 2023, and December 31, 2022, the balance of cumulative foreign currency translation adjustments were approximately a ($3.7) million loss and ($0.7) million loss, respectively.

Interest Rate Risk

Our exposure to interest rate risk arises out of our long-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 our Company’s policy to enter into interest rate derivative transactions only to the extent considered necessary to meet its objectives as stated above. Our Company does not enter into these transactions or any other hedging transactions for speculative purposes.

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. The negative spread between our borrowing costs and earned interest will exacerbate as we hold cash to provide a safety net to meet our expenses.

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 an approximate $396,000 increase or decrease in our quarterly interest expense.

For further discussion on market risks, please refer to Part I, Item 1A – Risk Factors included on our 2022 Form 10-K.

 

 

45


Item 4 – Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our 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, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no other 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 third quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


 

46


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 Notes to Consolidated Financial Statements-- Note 15 – Commitments and Contingencies included herein in Part I – Financial Information, Item 1 – Financial Statements on this Quarterly Report on Form 10-Q.

For further details on our legal proceedings, please refer to Part I, Item 3 – Legal Proceedings, contained in our 2022 Form 10-K.

Item 1A – Risk Factors

There have been no material changes to the risk factors we previously disclosed in Item 1A of our 2022 Form 10-K other than the potential impact of the Hollywood Strikes on the cinema industry and our business.

We encourage investors to review the risks and uncertainties relating to our business disclosed under the heading Risk Factors or otherwise in the 2022 Form 10-K, as well as those contained in Part I – Forward-Looking Statements thereof, as revised or supplemented by our Quarterly Reports filed with the SEC since the filing of the 2022 Form 10-K.

Item 2 – Sales of Equity Securities and Use of Proceeds

None.

Item 3 – Defaults upon Senior Securities

None.

Item 4 – Mine Safety Disclosure

Not applicable.

Item 5 – Other Information

During the quarter ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408 of Regulation S-K).

 

47


Item 6 – Exhibits

10

1

10.1*

Amendment Deed dated August 13, 2023, by and between Reading Entertainment Australia Pty Ltd, as borrower, and National Australia Bank Limited, as bank.

31.1*

Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32**

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

101

The following material from our Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

___________________

* Filed herewith

** Furnished herewith

 

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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 14, 2023

By: /s/ Ellen M. Cotter

Ellen M. Cotter

President and Chief Executive Officer

Date: November 14, 2023

By: /s/ Gilbert Avanes

Gilbert Avanes

Executive Vice President, Chief Financial Officer and Treasurer

 

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