UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
(Mark One)
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2013
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-8625
READING INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
|
NEVADA (State or other jurisdiction of incorporation or organization) |
95-3885184 (IRS Employer Identification No.) |
|
6100 Center Drive, Suite 900 Los Angeles, CA (Address of principal executive offices) |
90045 (Zip Code) |
Registrant’s telephone number, including area code: (213) 235-2240
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 8, 2013, there were 21,890,029 shares of Class A Nonvoting Common Stock, $0.01 par value per share and 1,495,490 shares of Class B Voting Common Stock, $0.01 par value per share outstanding.
1
READING INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
PART 1 - Financial Information
Reading International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(U.S. dollars in thousands)
|
|
|
|
|
|
|
|
June 30, |
December 31, 2012 |
||
|
ASSETS |
|
|
|
|
|
Current Assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
42,362 |
$ |
38,531 |
|
Time deposits |
|
-- |
|
8,000 |
|
Receivables |
|
8,548 |
|
8,514 |
|
Inventory |
|
810 |
|
918 |
|
Investment in marketable securities |
|
58 |
|
55 |
|
Restricted cash |
|
788 |
|
2,465 |
|
Deferred tax asset |
|
3,324 |
|
3,659 |
|
Prepaid and other current assets |
|
3,409 |
|
3,576 |
|
Assets held for sale |
|
11,344 |
|
-- |
|
Total current assets |
|
70,643 |
|
65,718 |
|
|
|
|
|
|
|
Operating property, net |
|
184,547 |
|
202,778 |
|
Investment and development property, net |
|
74,119 |
|
94,922 |
|
Investment in unconsolidated joint ventures and entities |
|
7,013 |
|
7,715 |
|
Investment in Reading International Trust I |
|
838 |
|
838 |
|
Goodwill |
|
21,702 |
|
22,898 |
|
Intangible assets, net |
|
14,521 |
|
15,661 |
|
Deferred tax asset, net |
|
6,920 |
|
8,989 |
|
Other assets |
|
6,661 |
|
9,069 |
|
Total assets |
$ |
386,964 |
$ |
428,588 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
16,309 |
$ |
18,909 |
|
Film rent payable |
|
9,699 |
|
6,657 |
|
Notes payable – current portion |
|
79,406 |
|
19,714 |
|
Notes payable to related party – current portion |
|
-- |
|
9,000 |
|
Income taxes payable |
|
13,398 |
|
15,234 |
|
Deferred current revenue |
|
9,383 |
|
11,587 |
|
Other current liabilities |
|
6,132 |
|
6,032 |
|
Total current liabilities |
|
134,327 |
|
87,133 |
|
|
|
|
|
|
|
Notes payable – long-term portion |
|
67,352 |
|
139,970 |
|
Subordinated debt |
|
27,913 |
|
27,913 |
|
Noncurrent tax liabilities |
|
8,803 |
|
8,859 |
|
Other liabilities |
|
31,835 |
|
33,759 |
|
Total liabilities |
|
270,230 |
|
297,634 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
Class A non-voting common stock, par value $0.01, 100,000,000 shares authorized, |
|
|
|
|
|
32,241,699 issued and 21,877,529 outstanding at June 30, 2013 and 31,951,945 |
|
|
|
|
|
issued and 21,587,775 outstanding at December 31, 2012 |
|
224 |
|
223 |
|
Class B voting common stock, par value $0.01, 20,000,000 shares authorized and |
|
|
|
|
|
1,495,490 issued and outstanding at June 30, 2013 and at December 31, 2012 |
|
15 |
|
15 |
|
Nonvoting preferred stock, par value $0.01, 12,000 shares authorized and no issued |
|
|
|
|
|
or outstanding shares at June 30, 2013 and December 31, 2012 |
|
-- |
|
-- |
|
Additional paid-in capital |
|
136,984 |
|
136,754 |
|
Accumulated deficit |
|
(63,525) |
|
(66,993) |
|
Treasury shares |
|
(4,512) |
|
(4,512) |
|
Accumulated other comprehensive income |
|
42,913 |
|
61,369 |
|
Total Reading International, Inc. stockholders’ equity |
|
112,099 |
|
126,856 |
|
Noncontrolling interests |
|
4,635 |
|
4,098 |
|
Total stockholders’ equity |
|
116,734 |
|
130,954 |
|
Total liabilities and stockholders’ equity |
$ |
386,964 |
$ |
428,588 |
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
Reading International, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(U.S. dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
|
|
|
|
|
|
|
|
Cinema |
$ |
64,659 |
$ |
57,988 |
$ |
119,429 |
$ |
115,390 |
|
Real estate |
|
4,983 |
|
4,959 |
|
9,780 |
|
9,988 |
|
Total operating revenue |
|
69,642 |
|
62,947 |
|
129,209 |
|
125,378 |
|
|
|
|
|
|
|
|
|
|
|
Operating expense |
|
|
|
|
|
|
|
|
|
Cinema |
|
51,095 |
|
46,465 |
|
97,130 |
|
92,798 |
|
Real estate |
|
2,730 |
|
2,582 |
|
5,399 |
|
5,326 |
|
Depreciation and amortization |
|
3,650 |
|
3,917 |
|
7,640 |
|
8,021 |
|
General and administrative |
|
4,401 |
|
4,326 |
|
8,738 |
|
8,746 |
|
Total operating expense |
|
61,876 |
|
57,290 |
|
118,907 |
|
114,891 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
7,766 |
|
5,657 |
|
10,302 |
|
10,487 |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
199 |
|
193 |
|
248 |
|
393 |
|
Interest expense |
|
(2,835) |
|
(5,876) |
|
(5,557) |
|
(9,836) |
|
Net loss on sale of assets |
|
-- |
|
(2) |
|
(7) |
|
(2) |
|
Other income |
|
113 |
|
68 |
|
128 |
|
23 |
|
Income before income tax expense and equity earnings of unconsolidated joint ventures and entities |
|
5,243 |
|
40 |
|
5,114 |
|
1,065 |
|
Income tax expense |
|
(1,500) |
|
(259) |
|
(2,389) |
|
(1,884) |
|
Income (loss) before equity earnings of unconsolidated joint ventures and entities |
|
3,743 |
|
(219) |
|
2,725 |
|
(819) |
|
Equity earnings of unconsolidated joint ventures and entities |
|
432 |
|
399 |
|
779 |
|
812 |
|
Income (loss) before discontinued operations |
|
4,175 |
|
180 |
|
3,504 |
|
(7) |
|
Income from discontinued operations, net of tax |
|
-- |
|
44 |
|
-- |
|
120 |
|
Net income |
$ |
4,175 |
$ |
224 |
$ |
3,504 |
$ |
113 |
|
Net (income) loss attributable to noncontrolling interests |
|
(40) |
|
15 |
|
(36) |
|
(116) |
|
Net income (loss) attributable to Reading International, Inc. common shareholders |
$ |
4,135 |
$ |
239 |
$ |
3,468 |
$ |
(3) |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to Reading International, Inc. shareholders: |
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
(0.01) |
|
Earnings from discontinued operations, net |
|
0.00 |
|
0.00 |
|
0.00 |
|
0.01 |
|
Basic earnings per share attributable to Reading International, Inc. shareholders |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share attributable to Reading International, Inc. shareholders: |
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
(0.01) |
|
Earnings from discontinued operations, net |
|
0.00 |
|
0.00 |
|
0.00 |
|
0.01 |
|
Diluted earnings per share attributable to Reading International, Inc. shareholders |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
0.00 |
|
Weighted average number of shares outstanding–basic |
|
23,344,057 |
|
23,009,209 |
|
23,305,466 |
|
22,969,392 |
|
Weighted average number of shares outstanding–diluted |
|
23,447,250 |
|
23,177,815 |
|
23,408,659 |
|
22,969,392 |
See accompanying notes to consolidated financial statements.
4
Reading International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(U.S. dollars in thousands)
|
|
|
|
|
|
||||
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Net income |
$ |
4,175 |
$ |
224 |
$ |
3,504 |
$ |
113 |
|
Foreign currency translation gain (loss) |
|
(19,874) |
|
(3,206) |
|
(18,863) |
|
789 |
|
Realized gain on available for sale investments |
|
-- |
|
-- |
|
-- |
|
(109) |
|
Unrealized gain on available for sale investments |
|
6 |
|
3 |
|
5 |
|
102 |
|
Amortization of pension prior service costs |
|
165 |
|
76 |
|
330 |
|
152 |
|
Comprehensive loss |
|
(15,528) |
|
(2,903) |
|
(15,024) |
|
1,047 |
|
Net (income) loss attributable to noncontrolling interest |
|
(40) |
|
15 |
|
(36) |
|
(116) |
|
Comprehensive income attributable to noncontrolling interest |
|
71 |
|
9 |
|
72 |
|
4 |
|
Comprehensive loss attributable to Reading International, Inc. |
$ |
(15,497) |
$ |
(2,879) |
$ |
(14,988) |
$ |
935 |
See accompanying notes to consolidated financial statements.
5
Reading International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(U.S. dollars in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended |
||
|
|
|
2013 |
|
2012 |
|
Operating Activities |
|
|
|
|
|
Net income |
$ |
3,504 |
$ |
113 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Gain (loss) recognized on foreign currency transactions |
|
33 |
|
(19) |
|
Equity earnings of unconsolidated joint ventures and entities |
|
(779) |
|
(812) |
|
Distributions of earnings from unconsolidated joint ventures and entities |
|
600 |
|
911 |
|
Loss on sale of assets |
|
7 |
|
2 |
|
Change in valuation allowance on net deferred tax assets |
|
1,007 |
|
373 |
|
Gain on sale of marketable securities |
|
-- |
|
(109) |
|
Depreciation and amortization |
|
7,640 |
|
8,204 |
|
Amortization of prior service costs |
|
330 |
|
152 |
|
Amortization of above and below market leases |
|
183 |
|
204 |
|
Amortization of deferred financing costs |
|
563 |
|
657 |
|
Amortization of straight-line rent |
|
406 |
|
395 |
|
Stock based compensation expense |
|
130 |
|
213 |
|
Changes in assets and liabilities: |
|
|
|
|
|
(Increase) decrease in receivables |
|
(569) |
|
232 |
|
(Increase) decrease in prepaid and other assets |
|
(692) |
|
170 |
|
Decrease in accounts payable and accrued expenses |
|
(1,600) |
|
(302) |
|
Increase (decrease) in film rent payable |
|
3,492 |
|
(222) |
|
Decrease in taxes payable |
|
(2,070) |
|
(1,921) |
|
Decrease in deferred revenue and other liabilities |
|
(2,697) |
|
(1) |
|
Net cash provided by operating activities |
|
9,488 |
|
8,240 |
|
Investing Activities |
|
|
|
|
|
Acquisition of property |
|
-- |
|
(5,510) |
|
Purchases of and additions to property and equipment |
|
(3,424) |
|
(3,188) |
|
Change in restricted cash |
|
1,657 |
|
33 |
|
Purchase of notes receivable |
|
-- |
|
(1,800) |
|
Proceeds from notes receivable |
|
2,000 |
|
-- |
|
Sale of marketable securities |
|
-- |
|
2,974 |
|
Distributions of investment in unconsolidated joint ventures and entities |
|
59 |
|
132 |
|
Proceeds from sale of property |
|
-- |
|
1,862 |
|
Purchase of time deposits |
|
-- |
|
(8,000) |
|
Proceeds of time deposits |
|
8,000 |
|
-- |
|
Net cash provided by (used in) investing activities |
|
8,292 |
|
(13,497) |
|
Financing Activities |
|
|
|
|
|
Repayment of long-term borrowings |
|
(22,097) |
|
(22,510) |
|
Proceeds from borrowings |
|
12,500 |
|
15,945 |
|
Capitalized borrowing costs |
|
(103) |
|
(445) |
|
Proceeds from the exercise of stock options |
|
200 |
|
308 |
|
Noncontrolling interest contributions |
|
263 |
|
3,275 |
|
Noncontrolling interest distributions |
|
(2,016) |
|
-- |
|
Net cash used in financing activities |
|
(11,253) |
|
(3,427) |
|
Effect of exchange rate on cash |
|
(2,696) |
|
(235) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
3,831 |
|
(8,919) |
|
Cash and cash equivalents at the beginning of the period |
|
38,531 |
|
31,597 |
|
Cash and cash equivalents at the end of the period |
$ |
42,362 |
$ |
22,678 |
|
Supplemental Disclosures |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
Interest on borrowings |
$ |
5,981 |
$ |
7,912 |
|
Income taxes |
|
3,961 |
|
3,706 |
|
Non-Cash Transactions |
|
|
|
|
|
Noncontrolling interest contribution in exchange for debt reduction - related party |
$ |
2,250 |
$ |
-- |
|
Acquisition of noncontrolling interest |
|
101 |
|
-- |
|
Noncontrolling interest contribution from bonus accrual |
|
-- |
|
255 |
See accompanying notes to consolidated financial statements.
6
Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the Six Months Ended June 30, 2013
Note 1 – Basis of Presentation
Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was founded in 1983 as a Delaware corporation and reincorporated in 1999 in Nevada. Our businesses consist primarily of:
|
· |
the development, ownership, and operation of multiplex cinemas in the United States, Australia, and New Zealand; and |
|
· |
the development, ownership, and operation of retail and commercial real estate in Australia, New Zealand, and the United States. |
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”) for interim reporting. As such, certain information and disclosures typically required by US GAAP for complete financial statements have been condensed or omitted. The financial information presented in this quarterly report on Form 10-Q for the period ended June 30, 2013 (the “June Report”) should be read in conjunction with our Annual Report filed on Form 10-K for the year ended December 31, 2012 (our “2012 Annual Report”) which contains the latest audited financial statements and related notes. The periods presented in this document are the three (“2013 Quarter”) and six (“2013 Six Months”) months ended June 30, 2013 and the three (“2012 Quarter”) and six (“2012 Six Months”) months ended June 30, 2012.
In the opinion of management, all adjustments of a normal recurring nature considered necessary to present fairly in all material respects our financial position as of June 30, 2013 and our results of our operations and cash flows for the three and six months ended June 30, 2013 and 2012 have been made. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results of operations to be expected for the entire year.
Expiring Debt and Liquidity Requirements
Expiring Long-Term Debt
As indicated in our 2012 Annual Report, the term of our Australian NAB Corporate Term Loan matures on June 30, 2014. Accordingly, the outstanding balance of this debt of $62.3 million (AUS$68.0 million) is classified as current on our June 30, 2013 balance sheet. The Australian NAB Corporate Term Loan is secured by the majority of our theater and entertainment-themed retail center (“ETRC”) properties in Australia.
Additionally, the term of our US Cinema 1, 2, 3 Term Loan matures on June 27, 2014. Accordingly, the outstanding balance of this debt of $15.0 million is classified as current on our June 30, 2013 balance sheet.
We are currently in the process of renegotiating these loans with our current lenders while also seeking possible replacement loans with other lenders. While no assurances can be given that we will be successful, we currently anticipate that these loans will either be extended or replaced prior to their maturities.
7
Liberty Theatre Term Loans
On May 29, 2013, we replaced our Liberty Theater Term Loan with a loan securitized by our Orpheum and Minetta Lane theaters with a note balance of $7.5 million. For more details on this new loan, see Note 11 – Notes Payable.
Tax Settlement Liability
As indicated in our 2012 Annual Report, in accordance with the agreement between the U.S. Internal Revenue Service and our subsidiary, Craig Corporation, we are obligated to pay $290,000 per month, $3.5 million per year, in settlement of our tax liability for the tax year ended June 30, 1997.
For the abovementioned liabilities, we believe that we have sufficient borrowing capacity under our various credit facilities, together with our $42.4 million of cash and cash equivalents, to meet our anticipated short-term working capital requirements for the next twelve months.
Marketable Securities
We had investments in marketable securities of $58,000 and $55,000 at June 30, 2013 and December 31, 2012, respectively. We account for these investments as available for sale investments. We assess our investment in marketable securities for other-than-temporary impairments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10 for each applicable reporting period. These investments have a cumulative gain of $14,000 included in accumulated other comprehensive income at June 30, 2013. For the three and six months ended June 30, 2013, our net unrealized gain on marketable securities was $6,000 and $5,000, respectively. For the three and six months ended June 30, 2012, our net unrealized gain (loss) on marketable securities was $3,000 and ($7,000), respectively. During the six months ended June 30, 2012, we sold $3.0 million of our marketable securities with a realized gain of $3,000. During the six months ended June 30, 2013, we did not buy or sell any marketable securities.
Deferred Leasing Costs
We amortize direct costs incurred in connection with obtaining tenants over the respective term of the lease on a straight-line basis.
Deferred Financing Costs
We amortize direct costs incurred in connection with obtaining financing over the term of the loan using the effective interest method, or the straight-line method, if the result is not materially different. In addition, interest on loans with increasing interest rates and scheduled principal pre-payments, is also recognized using the effective interest method.
Accounting Pronouncements Adopted During 2013
No new pronouncements were adopted during the six months ended June 30, 2013.
New Accounting Pronouncements
No new pronouncements were made pertaining to our Company’s accounting during the six months ended June 30, 2013.
8
Note 2 – Equity and Stock Based Compensation
Stock-Based Compensation
During the six months ended June 30, 2013 and 2012, we issued 217,890 and 155,925, respectively, of Class A Nonvoting shares to an executive employee associated with the vesting of his prior years’ stock grants. During the three and six months ended June 30, 2013, we accrued $188,000 and $376,000, respectively, in compensation expense associated with the vesting of executive employee stock grants. During the three and six months ended June 30, 2012, we accrued $238,000 and $476,000, respectively, in compensation expense associated with the vesting of executive employee stock grants.
Employee/Director Stock Option Plan
We have a long-term incentive stock option plan that provides for the grant to eligible employees, directors, and consultants of incentive or nonstatutory options to purchase shares of our Class A Nonvoting Common Stock and Class B Voting Common Stock. Currently we issue options under our 2010 Stock Incentive Plan.
When the Company’s tax deduction from an option exercise exceeds the compensation cost resulting from the option, a tax benefit is created. FASB ASC 718-20 relating to Stock-Based Compensation (“FASB ASC 718-20”), requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows. For the three and six months ended June 30, 2013 and 2012, there was no impact to the unaudited condensed consolidated statement of cash flows because there were no recognized tax benefits from stock option exercises during these periods.
FASB ASC 718-20 requires companies to estimate forfeitures. Based on our historical experience and the relative market price to strike price of the options, we do not currently estimate any forfeitures of vested or unvested options.
In accordance with FASB ASC 718-20, we estimate the fair value of our options using the Black-Scholes option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility, and the expected life of the options. As we intend to retain all earnings, we exclude the dividend yield from the calculation. We expense the estimated grant date fair values of options issued on a straight-line basis over the vesting period.
For the 50,000 and 40,000 options granted during the six months ended June 30, 2013 and 2012, respectively, we estimated the fair value of these options at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
2013 |
2012 |
|
|
|
Stock option exercise price |
$5.89 |
$4.99 |
|
|
|
Risk-free interest rate |
2.260% |
1.710% |
|
|
|
Expected dividend yield |
-- |
-- |
|
|
|
Expected option life in years |
5 |
10 |
|
|
|
Expected volatility |
31.89% |
31.87% |
|
|
|
Weighted average fair value |
$1.89 |
$2.19 |
|
Based on the above calculation and prior years’ assumptions, and, in accordance with the FASB ASC 718-20, we recorded compensation expense for the total estimated grant date fair value of $77,000 and $130,000 for the three and six months ended June 30, 2013, respectively, and $89,000 and $169,000 for the three and six months ended June 30, 2012, respectively. At June 30, 2013, the total unrecognized estimated compensation cost related to non-vested stock options granted was $241,000, which we expect to recognize over a weighted average vesting period of 2.16 years. 50,000 options were exercised during the six months ended June 30, 2013 having an intrinsic value of $99,500 for which we received $200,500
9
of cash and 95,000 options were exercised during the six months ended June 30, 2012 having an intrinsic value of $136,000 for which we received $308,000 of cash. Additionally, 75,000 options were exercised during the six months ended June 30, 2013 having an intrinsic value of $124,000 for which we did not receive any cash but the employee elected to exchange 53,136 personally owned shares of the company at a market price of $5.66 per share for the 75,000 shares based on an exercise price of $4.01 for the related options. The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at June 30, 2013 was $372,000 of which 92.8% are currently exercisable.
Pursuant to both our 1999 Stock Option Plan and our 2010 Stock Incentive Plan, all stock options expire within ten years of their grant date. The aggregate total number of shares of Class A Nonvoting Common Stock and Class B Voting Common Stock authorized for issuance under our 2010 Stock Incentive Plan is 1,250,000. At the discretion of our Compensation and Stock Options Committee, the vesting period of stock options is usually between zero and four years.
We had the following stock options outstanding and exercisable as of June 30, 2013 and December 31, 2012:
|
|
|
|
Weighted |
|
|
|
Weighted Average |
|||||
|
|
Common Stock |
Average Exercise |
Common Stock |
|
Price of |
|||||||
|
|
Options |
Price of Options |
Exercisable |
|
Exercisable |
|||||||
|
|
Outstanding |
Outstanding |
Options |
|
Options |
|||||||
|
|
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
||||
|
Outstanding - January 1, 2012 |
622,350 | 185,100 |
$ |
5.65 |
$ |
9.90 | 544,383 | 167,550 |
$ |
5.86 |
$ |
10.05 |
|
Granted |
206,000 |
-- |
$ |
5.94 |
$ |
-- |
|
|
|
|
|
|
|
Exercised |
(136,000) |
-- |
$ |
4.68 |
$ |
-- |
|
|
|
|
|
|
|
Expired |
(20,000) |
-- |
$ |
3.75 |
$ |
-- |
|
|
|
|
|
|
|
Outstanding - December 31, 2012 |
672,350 | 185,100 |
$ |
6.24 |
$ |
9.90 | 546,350 | 185,100 |
$ |
6.26 |
$ |
9.90 |
|
Granted |
50,000 |
-- |
$ |
5.89 |
$ |
-- |
|
|
|
|
|
|
|
Exercised |
(125,000) |
-- |
$ |
4.01 |
$ |
-- |
|
|
|
|
|
|
|
Outstanding - June 30, 2013 |
597,350 | 185,100 |
$ |
6.67 |
$ |
9.90 | 471,350 | 185,100 |
$ |
6.81 |
$ |
9.90 |
The weighted average remaining contractual life of all options outstanding, vested, and expected to vest at June 30, 2013 and December 31, 2012 was approximately 5.19 and 5.32 years, respectively. The weighted average remaining contractual life of the exercisable options outstanding at June 30, 2013 and December 31, 2012 was approximately 3.99 and 4.28 years, respectively.
Note 3 – Business Segments
We organize our operations into two reportable business segments within the meaning of FASB ASC 280-10 - Segment Reporting. Our reportable segments are (1) cinema exhibition and (2) real estate. The cinema exhibition segment is engaged in the development, ownership, and operation of multiplex cinemas. The real estate segment is engaged in the development, ownership, and operation of commercial properties. Incident to our real estate operations we have acquired, and continue to hold, raw land in urban and suburban centers in Australia, New Zealand, and the United States.
The tables below summarize the results of operations for each of our principal business segments for the three and six months ended June 30, 2013 and 2012, respectively. Operating expense includes costs associated with the day-to-day operations of the cinemas and the management of rental properties including our live theater assets (dollars in thousands):
|
Three Months Ended June 30, 2013 |
Cinema Exhibition |
Real Estate |
Intersegment Eliminations |
Total |
||||
|
Revenue |
$ |
64,659 |
$ |
6,896 |
$ |
(1,913) |
$ |
69,642 |
|
Operating expense |
|
53,008 |
|
2,730 |
|
(1,913) |
|
53,825 |
|
Depreciation and amortization |
|
2,525 |
|
1,015 |
|
-- |
|
3,540 |
|
General and administrative expense |
|
801 |
|
214 |
|
-- |
|
1,015 |
|
Segment operating income |
$ |
8,325 |
$ |
2,937 |
$ |
-- |
$ |
11,262 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2012 |
Cinema Exhibition |
Real Estate |
Intersegment Eliminations |
Total |
||||
|
Revenue |
$ |
57,988 |
$ |
6,841 |
$ |
(1,882) |
$ |
62,947 |
|
Operating expense |
|
48,347 |
|
2,582 |
|
(1,882) |
|
49,047 |
|
Depreciation and amortization |
|
2,733 |
|
1,087 |
|
-- |
|
3,820 |
|
General and administrative expense |
|
782 |
|
146 |
|
-- |
|
928 |
|
Segment operating income |
$ |
6,126 |
$ |
3,026 |
$ |
-- |
$ |
9,152 |
10
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net income attributable to Reading International, Inc. shareholders: |
|
|
|
|
|
2013 Quarter |
|
2012 Quarter |
|
Total segment operating income |
|
|
|
|
$ |
11,262 |
$ |
9,152 |
|
Non-segment: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
110 |
|
97 |
|
General and administrative expense |
|
|
|
|
|
3,386 |
|
3,398 |
|
Operating income |
|
|
|
|
|
7,766 |
|
5,657 |
|
Interest expense, net |
|
|
|
|
|
(2,636) |
|
(5,683) |
|
Other income |
|
|
|
|
|
113 |
|
68 |
|
Loss on sale of assets |
|
|
|
|
|
-- |
|
(2) |
|
Income tax expense |
|
|
|
|
|
(1,500) |
|
(259) |
|
Equity earnings of unconsolidated joint ventures and entities |
|
|
|
|
|
432 |
|
399 |
|
Income from discontinued operations |
|
|
|
|
|
-- |
|
44 |
|
Net income |
|
|
|
|
$ |
4,175 |
$ |
224 |
|
Net (income) loss attributable to noncontrolling interests |
|
|
|
|
|
(40) |
|
15 |
|
Net income attributable to Reading International, Inc. common shareholders |
|
|
|
|
$ |
4,135 |
$ |
239 |
11
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013 |
Cinema Exhibition |
Real Estate |
Intersegment Eliminations |
Total |
||||
|
Revenue |
$ |
119,429 |
$ |
13,606 |
$ |
(3,826) |
$ |
129,209 |
|
Operating expense |
|
100,956 |
|
5,399 |
|
(3,826) |
|
102,529 |
|
Depreciation and amortization |
|
5,285 |
|
2,134 |
|
-- |
|
7,419 |
|
General and administrative expense |
|
1,571 |
|
334 |
|
-- |
|
1,905 |
|
Segment operating income |
$ |
11,617 |
$ |
5,739 |
$ |
-- |
$ |
17,356 |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2012 |
Cinema Exhibition |
Real Estate |
Intersegment Eliminations |
Total |
||||
|
Revenue |
$ |
115,390 |
$ |
13,753 |
$ |
(3,765) |
$ |
125,378 |
|
Operating expense |
|
96,563 |
|
5,326 |
|
(3,765) |
|
98,124 |
|
Depreciation and amortization |
|
5,563 |
|
2,222 |
|
-- |
|
7,785 |
|
General and administrative expense |
|
1,484 |
|
325 |
|
-- |
|
1,809 |
|
Segment operating income |
$ |
11,780 |
$ |
5,880 |
$ |
-- |
$ |
17,660 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net income attributable |
|
|
|
|
|
2013 Six |
|
2012 Six |
|
to Reading International, Inc. shareholders: |
|
|
|
|
|
Months |
|
Months |
|
Total segment operating income |
|
|
|
|
$ |
17,356 |
$ |
17,660 |
|
Non-segment: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
221 |
|
236 |
|
General and administrative expense |
|
|
|
|
|
6,833 |
|
6,937 |
|
Operating income |
|
|
|
|
|
10,302 |
|
10,487 |
|
Interest expense, net |
|
|
|
|
|
(5,309) |
|
(9,443) |
|
Other income |
|
|
|
|
|
128 |
|
23 |
|
Loss on sale of assets |
|
|
|
|
|
(7) |
|
(2) |
|
Income tax expense |
|
|
|
|
|
(2,389) |
|
(1,884) |
|
Equity earnings of unconsolidated joint ventures and entities |
|
|
|
|
|
779 |
|
812 |
|
Income from discontinued operations |
|
|
|
|
|
-- |
|
120 |
|
Net income |
|
|
|
|
$ |
3,504 |
$ |
113 |
|
Net income attributable to noncontrolling interests |
|
|
|
|
|
(36) |
|
(116) |
|
Net income (loss) attributable to Reading International, Inc. common shareholders |
|
|
|
|
$ |
3,468 |
$ |
(3) |
Note 4 – Operations in Foreign Currency
We have significant assets in Australia and New Zealand. To the extent possible, we conduct our Australian and New Zealand operations on a self-funding basis. The carrying value of our Australian and New Zealand assets and liabilities fluctuate due to changes in the exchange rates between the U.S. dollar and the functional currency of Australia (Australian dollar) and New Zealand (New Zealand dollar). We have no derivative financial instruments to hedge against the risk of foreign currency exposure.
12
Presented in the table below are the currency exchange rates for Australia and New Zealand as of June 30, 2013 and December 31, 2012:
|
|
|
|
|
|
U.S. Dollar |
|
|
|
June 30, |
December 31, 2012 |
|
Australian Dollar |
0.9165 |
1.0393 |
|
New Zealand Dollar |
0.7755 |
0.8267 |
Note 5 – Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to Reading International, Inc. common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing the net income (loss) attributable to Reading International, Inc. common shareholders by the weighted average number of common shares outstanding during the period after giving effect to all potentially dilutive common shares that would have been outstanding if the dilutive common shares had been issued. Stock options and non-vested stock awards give rise to potentially dilutive common shares. In accordance with FASB ASC 260-10 - Earnings Per Share, these shares are included in the diluted earnings per share calculation under the treasury stock method. The following is a calculation of earnings (loss) per share (dollars in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Net income (loss) from continuing operations |
$ |
4,135 |
$ |
195 |
$ |
3,468 |
$ |
(123) |
|
Income from discontinued operations |
|
-- |
|
44 |
|
-- |
|
120 |
|
Net income (loss) attributable to Reading International, Inc. common shareholders |
|
4,135 |
|
239 |
|
3,468 |
|
(3) |
|
Basic earnings (loss) per common share attributable to Reading International, Inc. shareholders: |
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
(0.01) |
|
Earnings from discontinued operations, net |
|
0.00 |
|
0.00 |
|
0.00 |
|
0.01 |
|
Basic earnings per share attributable to Reading International, Inc. shareholders |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
0.00 |
|
Diluted earnings (loss) per common share attributable to Reading International, Inc. shareholders: |
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
(0.01) |
|
Earnings from discontinued operations, net |
|
0.00 |
|
0.00 |
|
0.00 |
|
0.01 |
|
Diluted earnings per share attributable to Reading International, Inc. shareholders |
$ |
0.18 |
$ |
0.01 |
$ |
0.15 |
$ |
0.00 |
|
Weighted average shares of common stock – basic |
|
23,344,057 |
|
23,009,209 |
|
23,305,466 |
|
22,969,392 |
|
Weighted average shares of common stock – diluted |
|
23,447,250 |
|
23,177,815 |
|
23,408,659 |
|
22,969,392 |
13
For the three and six months ended June 30, 2013, the weighted average common stock – diluted included 103,193 of common stock compensation and in-the-money incremental stock options and for the three months ended June 30, 2012, the weighted average common stock – diluted included 168,606 of common stock compensation and in-the-money incremental stock options. For the six months ended June 30, 2012, we recorded losses from continuing operations; therefore, we excluded 168,606 of in-the-money incremental stock options from the computation of diluted loss per share because they were anti-dilutive. In addition, 741,861 of out-of-the-money stock options were excluded from the computation of diluted earnings (loss) per share for the three and six months ended June 30, 2013, and 692,789 of out-of-the-money stock options were excluded from the computation of diluted earnings (loss) per share for the three and six months ended June 30, 2012.
Note 6 – Property and Equipment
Acquisitions
Coachella, California Land Acquisition
On January 10, 2012, Shadow View Land and Farming, LLC, a limited liability company owned by our Company, acquired a 202-acre property, zoned for the development of up to 843 single-family residential units, located in the City of Coachella, California. The property was acquired at a foreclosure auction for $5.5 million which currently has a net carrying value of $4.0 million. The property was acquired as a long-term investment in developable land. Half of the funds used to acquire the land were provided by Mr. James J. Cotter, our Chairman, Chief Executive Officer and controlling shareholder. Upon the approval of our Conflicts Committee, these funds were converted on January 18, 2012 into a 50% interest in Shadow View Land and Farming, LLC. We are the managing member of this company.
Disposals
Indooroopilly Sale
On November 20, 2012, we sold our Indooroopilly property for $12.4 million (AUS$12.0 million). This property’s operational results are included in income (loss) from discontinued operations on our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012. The condensed statement of operations for Indooroopilly is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Revenue |
$ |
-- |
$ |
196 |
$ |
-- |
$ |
418 |
|
Less: operating expense |
|
-- |
|
152 |
|
-- |
|
298 |
|
Income (loss) from discontinued operations, net of tax |
$ |
-- |
$ |
44 |
$ |
-- |
$ |
120 |
Taringa Sale
On February 21, 2012, we sold our three properties in the Taringa area of Brisbane, Australia consisting of approximately 1.1 acres for $1.9 million (AUS$1.8 million).
Property Held for Sale – Moonee Ponds
In May 2013, we announced our intent to sell and began actively marketing our 3.3-acre Moonee Pond property in Australia. The current carrying value of this property on our books is $11.3 million (AUS$12.4 million) which has been reclassified from property held for development to land held for sale on our June 30, 2013 condensed consolidated balance sheet.
14
Operating Property
As of June 30, 2013 and December 31, 2012, property associated with our operating activities is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
Operating property |
|
June 30, |
|
December 31, 2012 |
|
Land |
$ |
65,582 |
$ |
69,370 |
|
Building and improvements |
|
124,507 |
|
136,225 |
|
Leasehold interests |
|
43,762 |
|
45,391 |
|
Fixtures and equipment |
|
101,806 |
|
108,169 |
|
Total cost |
|
335,657 |
|
359,155 |
|
Less: accumulated depreciation |
|
(151,110) |
|
(156,377) |
|
Operating property, net |
$ |
184,547 |
$ |
202,778 |
Depreciation expense for property and equipment was $3.5 million and $7.1 million for the three and six months ended June 30, 2013, respectively, and $4.0 million and $7.5 million for the three and six months ended June 30, 2012, respectively.
Investment and Development Property
As of June 30, 2013 and December 31, 2012, our investment and development property is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
Investment and Development Property |
|
June 30, |
|
December 31, 2012 |
|
Land |
$ |
59,869 |
$ |
77,020 |
|
Construction-in-progress (including capitalized interest) |
|
14,250 |
|
17,902 |
|
Investment and development property |
$ |
74,119 |
$ |
94,922 |
At the beginning of 2010, we curtailed the development activities of our properties under development and are not currently capitalizing interest expense. As a result, we did not capitalize any interest during the three and six months ended June 30, 2013 or 2012.
Note 7 – Investments in Unconsolidated Joint Ventures and Entities
Our investments in unconsolidated joint ventures and entities are accounted for under the equity method of accounting except for Rialto Distribution, which is accounted for as a cost method investment, and, as of June 30, 2013 and December 31, 2012, included the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
Interest |
|
June 30, |
|
December 31, 2012 |
|
Rialto Distribution |
33.3% |
$ |
-- |
$ |
-- |
|
Rialto Cinemas |
50.0% |
|
1,528 |
|
1,561 |
|
205-209 East 57th Street Associates, LLC |
25.0% |
|
-- |
|
60 |
|
Mt. Gravatt |
33.3% |
|
5,485 |
|
6,094 |
|
Total investments |
|
$ |
7,013 |
$ |
7,715 |
For the three and six months ended June 30, 2013 and 2012, we recorded our share of equity earnings from our investments in unconsolidated joint ventures and entities as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Rialto Distribution |
$ |
20 |
$ |
51 |
$ |
41 |
$ |
112 |
|
Rialto Cinemas |
|
40 |
|
26 |
|
68 |
|
57 |
|
205-209 East 57th Street Associates, LLC |
|
-- |
|
-- |
|
(1) |
|
-- |
|
Mt. Gravatt |
|
372 |
|
322 |
|
671 |
|
643 |
|
Total equity earnings |
$ |
432 |
$ |
399 |
$ |
779 |
$ |
812 |
15
Note 8 – Goodwill and Intangible Assets
In accordance with FASB ASC 350-20-35, Goodwill - Subsequent Measurement and Impairment, we perform an annual impairment review in the fourth quarter of our goodwill and other intangible assets on a reporting unit basis, or earlier if changes in circumstances indicate an asset may be impaired. No such circumstances existed during the 2013 Quarter. As of June 30, 2013 and December 31, 2012, we had goodwill consisting of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Cinema |
|
Real Estate |
|
Total |
|
Balance as of December 31, 2012 |
$ |
17,674 |
$ |
5,224 |
$ |
22,898 |
|
Foreign currency translation adjustment |
|
(1,196) |
|
-- |
|
(1,196) |
|
Balance at June 30, 2013 |
$ |
16,478 |
$ |
5,224 |
$ |
21,702 |
We have intangible assets other than goodwill that are subject to amortization, which we amortize over various periods. We amortize our beneficial leases over the lease period, the longest of which is 30 years; our trade name using an accelerated amortization method over its estimated useful life of 45 years; and our other intangible assets over 10 years. For the three and six months ended June 30, 2013, the amortization expense of intangibles totaled $457,000 and $1.0 million, respectively, and, for the three and six months ended June 30, 2012, the amortization expense of intangibles totaled $572,000 and $1.2 million, respectively. The accumulated amortization of intangibles includes $517,000 and $540,000 of the amortization of acquired leases which are recorded in operating expense for the six months ended June 30, 2013 and 2012, respectively.
Intangible assets subject to amortization consist of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013 |
|
Beneficial Leases |
|
Trade name |
|
Other Intangible Assets |
|
Total |
|
Gross carrying amount |
$ |
24,185 |
$ |
7,254 |
$ |
453 |
$ |
31,892 |
|
Less: Accumulated amortization |
|
13,631 |
|
3,288 |
|
452 |
|
17,371 |
|
Total, net |
$ |
10,554 |
$ |
3,966 |
$ |
1 |
$ |
14,521 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012 |
|
Beneficial Leases |
|
Trade name |
|
Other Intangible Assets |
|
Total |
|
Gross carrying amount |
$ |
24,284 |
$ |
7,254 |
$ |
458 |
$ |
31,996 |
|
Less: Accumulated amortization |
|
12,873 |
|
3,059 |
|
403 |
|
16,335 |
|
Total, net |
$ |
11,411 |
$ |
4,195 |
$ |
55 |
$ |
15,661 |
Note 9 – Prepaid and Other Assets
Prepaid and other assets are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
June 30, |