2016 Q3 10Q_Taxonomy2016

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

(Mark One)


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

For the quarterly period ended: September 30, 2016


☐	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

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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 ☑ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 ☑ 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 ☑

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 8, 2016, there were 21,654,302 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.

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 Operations (Unaudited)	4
Consolidated Statements of Comprehensive Income (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3 – Quantitative and Qualitative Disclosure about Market Risk	40
Item 4 – Controls and Procedures	41
PART II – Other Information	42
Item 1 - Legal Proceedings	42
Item 1A - Risk Factors	42
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3 - Defaults Upon Senior Securities	43
Item 5 - Other Information	43
Item 6 - Exhibits	43
SIGNATURES	44
Certifications

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,
	2016		2015(1)
ASSETS	(Unaudited)
Current Assets:
Cash and cash equivalents	$	9,980	$	19,702
Receivables		8,183		10,036
Inventory		1,163		1,122
Investment in marketable securities		55		51
Restricted cash		1,043		160
Prepaid and other current assets		6,224		5,429
Land held for sale – current		--		421
Total current assets		26,648		36,921
Operating property, net		227,919		210,298
Land held for sale – non-current		39,951		37,966
Investment and development property, net		37,490		23,002
Investment in unconsolidated joint ventures and entities		5,504		5,370
Investment in Reading International Trust I		838		838
Goodwill		20,434		19,715
Intangible assets, net		10,187		9,889
Deferred tax asset, net		28,726		25,649
Other assets		3,759		3,615
Total assets	$	401,456	$	373,263
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	21,312	$	23,638
Film rent payable		6,342		9,291
Debt – current, net		8,338		14,887
Taxes payable – current		7,546		5,275
Deferred current revenue		11,938		14,591
Other current liabilities		8,078		7,640
Total current liabilities		63,554		75,322
Debt – long-term, net		106,776		87,101
Subordinated debt, net		27,286		27,125
Noncurrent tax liabilities		16,873		16,457
Other liabilities		30,756		30,062
Total liabilities		245,245		236,067
Commitments and contingencies (Note 13)
Stockholders’ equity:
Class A non-voting common stock, par value $0.01, 100,000,000 shares authorized,
32,831,113 issued and 21,654,302 outstanding at September 30, 2016 and December 31, 2015		229		229
Class B voting common stock, par value $0.01, 20,000,000 shares authorized and
1,680,590 issued and outstanding at September 30, 2016 and December 31, 2015		17		17
Nonvoting preferred stock, par value $0.01, 12,000 shares authorized and no issued
or outstanding shares at September 30, 2016 and December 31, 2015		--		--
Additional paid-in capital		144,263		143,815
Accumulated deficit		(425)		(9,478)
Treasury shares		(13,524)		(13,524)
Accumulated other comprehensive income		21,220		11,806
Total Reading International, Inc. stockholders’ equity		151,780		132,865
Noncontrolling interests		4,431		4,331
Total stockholders’ equity		156,211		137,196
Total liabilities and stockholders’ equity	$	401,456	$	373,263

See accompanying Notes to Unaudited Consolidated Financial Statements.

(1)Certain prior period amounts have been reclassified to conform to the current period presentation (see Note 1 – The Company and Basis of Presentation – Reclassifications)

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Quarter Ended				Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
		2016		2015		2016		2015

Operating revenue
Cinema	$	67,825	$	54,368	$	192,579	$	180,223
Real estate		3,490		3,420		10,443		10,951
Total operating revenue		71,315		57,788		203,022		191,174
Operating expense
Cinema		(52,103)		(44,463)		(148,864)		(140,825)
Real estate		(2,296)		(2,570)		(6,628)		(7,004)
Depreciation and amortization		(4,131)		(3,501)		(11,766)		(10,769)
General and administrative		(6,175)		(4,134)		(18,372)		(13,736)
Total operating expense		(64,705)		(54,668)		(185,630)		(172,334)
Operating income		6,610		3,120		17,392		18,840
Interest income		18		485		74		1,007
Interest expense		(1,571)		(2,379)		(5,264)		(7,077)
Net gain on sale of assets		--		--		393		11,023
Other expense		(12)		(577)		(115)		(667)
Income before income tax expense and equity earnings of unconsolidated joint ventures and entities		5,045		649		12,480		23,126
Equity earnings of unconsolidated joint ventures and entities		200		195		808		915
Income before income taxes		5,245		844		13,288		24,041
Income tax expense		(1,328)		(517)		(4,222)		(4,605)
Net income	$	3,917	$	327	$	9,066	$	19,436
Net (income) loss attributable to noncontrolling interests		(62)		54		(12)		60
Net income attributable to Reading International, Inc. common stockholders	$	3,855	$	381	$	9,054	$	19,496
Basic earnings per share attributable to Reading International, Inc. stockholders	$	0.17	$	0.02	$	0.39	$	0.84
Diluted earnings per share attributable to Reading International, Inc. stockholders	$	0.16	$	0.02	$	0.38	$	0.83
Weighted average number of shares outstanding – basic		23,334,892		23,287,449		23,334,892		23,283,405
Weighted average number of shares outstanding – diluted		23,532,796		23,482,262		23,532,796		23,478,218

See accompanying Notes to Unaudited Consolidated Financial Statements.

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; U.S. dollars in thousands)



		Quarter Ended				Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
		2016		2015		2016		2015
Net income	$	3,917	$	327	$	9,066	$	19,436
Foreign currency translation gain (loss)		5,042		(13,741)		9,310		(27,769)
Unrealized gain (loss) on available for sale investments		2		(4)		2		(3)
Amortization of actuarial loss		52		51		116		155
Comprehensive income (loss)		9,013		(13,367)		18,494		(8,181)
Net (income) loss attributable to noncontrolling interests		(62)		54		(12)		60
Comprehensive income attributable to noncontrolling interests		(8)		(37)		(14)		(59)
Comprehensive income (loss) attributable to Reading International, Inc.	$	8,943	$	(13,350)	$	18,468	$	(8,180)

See accompanying Notes to Unaudited Consolidated Financial Statements.

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; U.S. dollars in thousands)



		Nine Months Ended
		September 30,		September 30,
		2016		2015
Cash flows from Operating Activities
Net income	$	9,066	$	19,436
Adjustments to reconcile net income to net cash provided by operating activities:
Equity earnings of unconsolidated joint ventures and entities		(808)		(915)
Distributions of earnings from unconsolidated joint ventures and entities		779		901
Gain on sale of property		(393)		(11,023)
Change in net deferred tax assets		(3,782)		1,405
Depreciation and amortization		11,766		10,769
Amortization of actuarial loss		116		155
Amortization of beneficial leases		898		344
Amortization of deferred financing costs		653		706
Amortization of straight-line rent		(258)		(370)
Stock based compensation expense		449		222
Net change in:
Receivables		2,092		2,492
Prepaid and other assets		(738)		(85)
Accounts payable and accrued expenses		(2,783)		2,905
Film rent payable		(3,089)		(3,608)
Taxes payable		2,142		(314)
Deferred revenue and other liabilities		(1,594)		(1,653)
Net cash provided by operating activities		14,516		21,367
Cash flows from Investing Activities
Purchases of and additions to property and equipment		(35,682)		(14,411)
Change in restricted cash		(848)		1,256
Distributions of investment in unconsolidated joint ventures and entities		190		--
Proceeds from sale of property		831		21,889
Net cash (used in)/provided by investing activities		(35,509)		8,734
Cash flows from Financing Activities
Repayment of long-term borrowings		(40,802)		(7,347)
Proceeds from borrowings		52,396		--
Capitalized borrowing costs		(785)		(191)
Repurchase of Class A Nonvoting Common Stock		--		(3,109)
Proceeds from the exercise of stock options		--		183
Noncontrolling interest contributions		268		17
Noncontrolling interest distributions		(194)		(139)
Net cash provided by/(used in) financing activities		10,883		(10,586)
Effect of exchange rate changes on cash and cash equivalents		388		(7,682)
Net (decrease)/increase in cash and cash equivalents		(9,722)		11,833
Cash and cash equivalents at the beginning of the period		19,702		50,248
Cash and cash equivalents at the end of the period	$	9,980	$	62,081
Supplemental Disclosures
Interest paid	$	3,053	$	6,582
Income taxes paid		5,288		6,665

See accompanying Notes to Unaudited Consolidated Financial Statements.

READING INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – The Company and 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 incorporated in 1999, and, following the consummation of a consolidation transaction on December 31, 2001, is now the owner of the consolidated businesses and assets of Reading Entertainment, Inc. (“RDGE”), Craig Corporation (“CRG”) and Citadel Holding Corporation (“CDL”). 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.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“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 projections we make regarding the recoverability of our assets, valuations of our interest rate swaps and the recoverability of our deferred tax assets. Actual results may differ from those estimates.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries as well as majority-owned subsidiaries that the Company controls, and should be read in conjunction with the Company’s Annual Report on Form 10-K as of and for the year-ended December 31, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. These were prepared in accordance with the 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 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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Reclassifications

Certain reclassifications have been made in the 2015 comparative information in the consolidated balance sheets and notes to conform to the 2016 presentation. These changes relate to the adoption of Accounting Standards Update (“ASU”) 2015-03 as discussed more fully below. These reclassifications had no significant impact on our 2015 financial position, results of operations and cash flows as previously reported.

Recently Adopted and Issued Accounting Pronouncements

Adopted:

On January 1, 2016, the Company adopted ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, issued by the Financial Accounting Standards Board (“FASB”). This new standard, which became effective for fiscal years beginning after December 15, 2015, required that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The impact of this adoption included reclassification of the deferred financing costs (net of amortization) from “Other Assets” to a reduction in the associated Debt account.

Also, on January 1, 2016, the Company adopted ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. Under this new standard, an acquirer in a business combination transaction must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation or amortization, or other income effects, if any, because of the change to the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively. The ASU also requires that the acquirer present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The adoption of this standard had an impact on the finalization of the purchase price allocation of Cannon Park acquired in December 2015, which was completed during this current third quarter of 2016. Please refer to Note 5 – Property & Equipment for the Cannon Park acquisition discussion.

Issued:

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments covered in this ASU are improvements to current GAAP, as it will provide guidance to eight (8) specific cash flow classification issues, thereby reducing the current and potential future diversity in practice. The new standard becomes effective for the Company on January 1, 2018. Early adoption is permissible. The Company does not anticipate the adoption of ASU 2016-15 to have a material impact on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This new guidance provides simplifications involving several aspects of the accounting for share-based payment transactions, including the income tax consequences (such as excess tax benefits recorded in income tax expense/benefit, rather than additional paid-in capital), classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for the Company on January 1, 2017. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently assessing the impact of this new guidance on the consolidated financial statements and related disclosures.

In addition, in March 2016, the FASB issued ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. This new guidance effectively removes the retroactive application imposed in current guidance when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new standard becomes effective for the Company on January 1, 2017. Early adoption is permissible. The Company does not anticipate the adoption of ASU 2016-07 to have a material impact on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new guidance establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard becomes effective for the Company on January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently assessing the impact of this new guidance on the consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenues occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Subsequently, in March 2016, FASB issued ASU 2016-08 to provide guidance on principal versus agent considerations. The new standard becomes effective for the Company on January 1, 2018. Early adoption is permitted but cannot be earlier than January 1, 2017. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method nor have we determined the impact of the new standard on our consolidated condensed financial statements. While we believe the proposed guidance will not have a material impact on our business because our revenue predominantly comes from movie ticket sales and concession purchases, we plan to complete the analysis to ensure that we are in compliance prior to the effective date.

Note 2 – Business Segments

Reported below are the operating segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer, the chief operating decision-maker of the Company. As part of our real estate activities, we 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 business segments for the quarter and nine months ended September 30, 2016 and 2015, respectively. Operating expense includes costs associated with the day-to-day operations of the cinemas and the management of rental properties, including our live theater assets.


	Quarter Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Revenue:
Cinema exhibition	$	67,825	$	54,368	$	192,579	$	180,223
Real estate		5,390		4,968		15,961		15,908
Inter-segment elimination		(1,900)		(1,548)		(5,518)		(4,957)
	$	71,315	$	57,788	$	203,022	$	191,174
Segment operating income:
Cinema exhibition	$	9,726	$	4,838	$	26,536	$	23,745
Real estate		1,755		1,443		5,844		5,952
	$	11,481	$	6,281	$	32,380	$	29,697

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


	Quarter Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Segment operating income	$	11,481	$	6,281	$	32,380	$	29,697
Unallocated corporate expense
Depreciation and amortization expense		(102)		(86)		(295)		(220)
General and administrative expense		(4,769)		(3,075)		(14,693)		(10,637)
Interest expense, net		(1,553)		(1,894)		(5,190)		(6,070)
Equity earnings of unconsolidated joint ventures and entities		200		195		808		915
Gain on sale of assets		--		--		393		11,023
Other expense		(12)		(577)		(115)		(667)
Income before income tax expense	$	5,245	$	844	$	13,288	$	24,041

Note 3 – Operations in Foreign Currency

We have significant assets in Australia and New Zealand. To the extent possible, we conduct our Australian and New Zealand operations (collectively “foreign operations”) on a self-funding basis where we use cash flows generated by our foreign operations to pay for the expense of foreign operations. Our Australian and New Zealand assets and liabilities are translated from their functional currencies of Australian dollar (“AU$”) and New Zealand dollar (“NZ$”), respectively, to the U.S. dollar based on the exchange rate as of September 30, 2016. 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.

Because we intend to conduct business mostly on a self-funding basis (except for funds used to pay an appropriate share of our U.S. corporate overhead), we do not use derivative financial instruments to hedge against the risk of foreign currency exposure.

Presented in the table below are the currency exchange rates for Australia and New Zealand as of and for the period-ended September 30, 2016, December 31, 2015 and September 30, 2015:


	Foreign Currency / USD
	September 30, 2016		December 31, 2015	September 30, 2015
	As of and for the quarter ended	As of and for the nine months ended	As of and for the twelve months ended	As of and for the quarter ended	As of and for the nine months ended
Spot Rate
Australian Dollar	0.7667		0.7286	0.7020
New Zealand Dollar	0.7290		0.6842	0.6390
Average Rate
Australian Dollar	0.7583	0.7420	0.7524	0.7254	0.7633
New Zealand Dollar	0.7226	0.6926	0.7004	0.6513	0.7117

Note 4 – Earnings Per Share

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

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


	Quarter Ended				Nine Months Ended
(Dollars in thousands, except share data)	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Numerator:
Net income attributable to RDI common stockholders	$	3,855	$	381	$	9,054	$	19,496
Denominator:
Weighted average number of common stock – basic	23,334,892		23,287,449		23,334,892		23,283,405
Weighted average dilutive impact of awards	197,904		194,813		197,904		194,813
Weighted average number of common stock – diluted	23,532,796		23,482,262		23,532,796		23,478,218
Basic EPS attributable to RDI common stockholders	$	0.17	$	0.02	$	0.39	$	0.84
Diluted EPS attributable to RDI common stockholders	$	0.16	$	0.02	$	0.38	$	0.83

Awards excluded from diluted EPS	108,000		100,000		108,000		100,000

Note 5 – Property and Equipment

Operating Property, net

As of September 30, 2016 and December 31, 2015, property associated with our operating activities is summarized as follows:


	September 30,		December 31,
(Dollars in thousands)	2016		2015
Land	$	76,700	$	70,063
Building and improvements		132,446		126,622
Leasehold improvements		47,485		46,874
Fixtures and equipment		117,320		112,423
Construction-in-progress		20,014		7,825
Total cost		393,965		363,807
Less: accumulated depreciation		(166,046)		(153,509)
Operating property, net	$	227,919	$	210,298

Depreciation expense for operating property was $4.0 million and $11.2 million for the quarter and nine months ended September 30, 2016, respectively, and $3.3 million and $10.1 million for the quarter and nine months ended September 30, 2015, respectively.

New Corporate Headquarters in Los Angeles

On April 11, 2016, we purchased a 24,000 square foot Class B office building with 72 parking spaces located at 5995 Sepulveda Boulevard in Culver City, California (a Los Angeles suburb) for $11.2 million. We intend to use approximately 50% of the leasable area for our headquarters offices and to lease the remainder to unaffiliated third parties. We anticipate, when the move is completed at the end of 2016 or early 2017 and the excess space is leased, that we will be able to reduce our headquarters occupancy cost by approximately $350,000 per annum.

Burwood, Australia

On May 12, 2014, we entered into a contract to sell our undeveloped 50.6 acre parcel in Burwood, Victoria, Australia, to Australand Holdings Limited (now known as Frasers Property Australia) for a purchase price of $50.8 million (AU$65.0 million). We received $5.9 million (AU$6.5 million) on May 23, 2014. The remaining purchase price of $44.9 million (AU$58.5 million) is due on December 31, 2017. Refer to Note 18 – Subsequent Events for further information.

Our book value in the property is $40.0 million (AU$52.1 million) and $38.0 (AU$52.1 million) as of September 30, 2016 and December 31, 2015, respectively (the difference being attributable solely to currency fluctuations). While the transaction was treated as a sale for tax purposes in 2014, it does not qualify as a sale under US GAAP until the receipt of the payment of the balance of the purchase price due on December 31, 2017 (or earlier depending upon whether any prepayment obligation is triggered). The asset is classified as long-term land held for sale on the consolidated balance sheets as of September 30, 2016 and December 31, 2015.

Doheny Condo, Los Angeles

On February 25, 2015, we sold our Los Angeles Condo for $3.0 million resulting in a $2.8 million gain on sale.

Taupo, New Zealand

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

Moonee Ponds, Australia

On October 15, 2013, we entered into a definitive purchase and sale agreement to sell this property for a sales price of $17.5 million (AU$23.0 million) payable in full upon closing of the transaction on April 16, 2015. In accordance with the requirements under U.S. GAAP, we recognized a gain on sale of $8.0 million (AU$10.3 million) in the prior-year second quarter upon the receipt of sale proceeds on April 16, 2015.

Cannon Park, Queensland, Australia

On December 23, 2015, we completed a 100% acquisition of two adjoining entertainment-themed centers (“ETCs”) in Townsville, Australia for a total of $24.1 million (AU$33.4 million) in cash. The properties are located approximately 6 miles from downtown Townsville, the second largest city in Queensland, Australia. The total gross leasable area of the two adjoining properties, the Cannon Park City Centre and the Cannon Park Discount Centre, is 133,000 square feet. The Cannon Park City Centre is anchored by Reading Cinemas, which is operated by Reading International’s 75% owned subsidiary, Australia Country Cinemas, and has three mini-major tenants and ten specialty family oriented restaurant tenants. The Cannon Park Discount Centre is anchored by Kingpin Bowling and supported by four other retailers. This acquisition is consistent with our business plan to own, where practical, the land underlying our entertainment assets.

The acquired assets consist primarily of the land and buildings, which, at the time of acquisition, was approximately 98% leased to existing tenants. Tenancies ranged from having 9 months to 8 years left to run on their leases at the time of purchase.

During the quarter ended September 30, 2016, the Company finalized the allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on its estimates of their fair values on the acquisition date. The acquired value components of this real estate acquisition included both tangible and intangible assets. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. The estimates and assumptions include projected timing and amount of future cash flows and discount rates reflecting the risk inherent in the future cash flows. Typical of a real estate acquisition, there was no goodwill recorded as the purchase price did not exceed the fair value estimates of the net acquired assets.

The following table summarizes the final allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of acquisition, as well as adjustments made during the measurement period:


					Measurement
	Preliminary Purchase Price				Period		Final Purchase Price
	Allocation				Adjustments(2)		Allocation
(Dollars in thousands)	US Dollars(1)		AU dollars		AU dollars		US Dollars(1)		AU dollars
Tangible Assets
Operating property:
Land		7,525		10,421	$	721		8,046		11,142
Building and improvements		16,588		22,971		(6,453)		11,928		16,518
Site improvements		--		--		2,321		1,676		2,321
Tenant improvements		--		--		957		691		957
Intangible Assets
Above-market leases		--		--		61		44		61
In-place leases		--		--		2,135		1,542		2,135
Unamortized leasing commissions		--		--		333		240		333
Unamortized legal fees		--		--		55		40		55
Total assets acquired		24,113		33,392		130		24,207		33,522
Liabilities
Below-market leases		--		--		(130)		(94)		(130)
Net assets acquired	$	24,113	$	33,392	$	--	$	24,113		33,392

(1) The balances were translated into U.S. Dollars based on the applicable exchange rate as of the date of acquisition, December 23, 2015.

(2) The measurement period adjustments were mainly due to the finalization of the valuations of the tangible land, building and improvements, site improvements and tenant improvements, as well as valuations of intangible assets and liabilities typically present in an acquisition of a regional mall with existing tenancies. This resulted in a reallocation of the purchase price from Building to other tangible assets (site and tenant improvements), as well as to intangible assets, including above and below market leases, in-place leases and unamortized lease origination costs.

Investment and Development Property

As of September 30, 2016 and December 31, 2015, our investment and development property is summarized below:


	September 30,		December 31,
(Dollars in thousands)	2016		2015
Land	$	24,784	$	21,434
Building		1,900		--
Construction-in-progress		10,806		1,568
Investment and development property	$	37,490	$	23,002

Note 6 – 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. The table below summarizes our investments in unconsolidated joint ventures and entities as of September 30, 2016 and December 31, 2015:


		September 30,		December 31,
(Dollars in thousands)	Interest	2016		2015
Rialto Distribution	33.3%	$	--	$	--
Rialto Cinemas	50.0%		1,378		1,276
Mt. Gravatt	33.3%		4,126		4,094
Total investments		$	5,504	$	5,370

For the quarter and nine months ended September 30, 2016 and 2015, we recorded our share of equity earnings from our investments in unconsolidated joint ventures and entities as follows:


	Quarter Ended				Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)		2016		2015		2016		2015
Rialto Distribution	$	--	$	93	$	--	$	115
Rialto Cinemas		47		(100)		208		35
Mt. Gravatt		153		202		600		765
Total equity earnings	$	200	$	195	$	808	$	915

Note 7 – Goodwill and Intangible Assets

The table below summarizes goodwill by business segment as of September 30, 2016 and December 31, 2015.



(Dollars in thousands)	Cinema		Real Estate		Total
Goodwill as of December 31, 2015	$	14,491	$	5,224	$	19,715
Foreign currency translation adjustment		719		--		719
Goodwill at September 30, 2016	$	15,210	$	5,224	$	20,434

The Company is required to test goodwill and other intangible assets for impairment on an annual basis and, if current events or circumstances require, on an interim basis. Our next annual evaluation of goodwill and other intangible assets is scheduled for the fourth quarter of 2016. To test the impairment of goodwill, the Company compares the fair value of each reporting unit to its carrying amount, including the goodwill, to determine if there is potential goodwill impairment. A reporting unit is generally one level below the operating segment. As of September 30, 2016, we were not aware of any events that made us believe potential impairment of goodwill had occurred.

The tables below summarize intangible assets other than goodwill as of September 30, 2016 and December 31, 2015, respectively.


	As of September 30, 2016
(Dollars in thousands)	Beneficial Leases		Trade Name		Other Intangible Assets		Total
Gross intangible assets	$	28,834	$	7,254	$	766	$	36,854
Less: Accumulated amortization		(21,651)		(4,551)		(465)		(26,667)
Net intangible assets	$	7,183	$	2,703	$	301	$	10,187


	As of December 31, 2015
(Dollars in thousands)	Beneficial Leases		Trade Name		Other Intangible Assets		Total
Gross intangible assets	$	26,793	$	7,254	$	696	$	34,743
Less: Accumulated amortization		(20,108)		(4,300)		(446)		(24,854)
Net intangible assets	$	6,685	$	2,954	$	250	$	9,889

Beneficial leases are amortized over the life of the lease up to 30 years, trade names are amortized based on the accelerated amortization method over its estimated useful life of 45 years, and other intangible assets are amortized over their estimated useful lives of up to 30 years (except for transferrable liquor licenses, which are indefinite-lived assets). The table below summarizes the amortization expense of intangible assets for the quarter and nine months ended September 30, 2016 and September 30, 2015, respectively.


	Quarter Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2016		2015		2016		2015
Beneficial lease amortization	$	578	$	191	$	968	$	574
Other amortization		296		207		845		649
Total intangible assets amortization	$	874	$	398	$	1,813	$	1,223

Note 8 – Prepaid and Other Assets

Prepaid and other assets are summarized as follows:



	September 30,		December 31,
(Dollars in thousands)	2016		2015
Prepaid and other current assets
Prepaid expenses	$	1,792	$	879
Prepaid taxes		3,107		3,160
Prepaid rent		946		1,021
Deposits		379		369
Total prepaid and other current assets	$	6,224	$	5,429
Other non-current assets
Other non-cinema and non-rental real estate assets	$	1,134	$	1,134
Long-term deposits		40		63
Straight-line rent		2,585		2,417
Other		--		1
Total other non-current assets	$	3,759	$	3,615

Note 9 – Income Tax

The provision for income taxes is different from the amount determined by applying the U.S. federal statutory rate to consolidated income before taxes. The differences are attributable to earnings considered indefinitely reinvested in foreign operations, change in valuation allowance, state taxes, unrecognized tax benefits, and foreign withholding tax on interest. Our effective tax rate was 31.8% and 19.2% for the nine months ended September 30, 2016 and 2015, respectively. The rate difference was primarily caused by the Company's determination during the second quarter of 2015 that earnings of Australian subsidiaries are indefinitely invested in foreign operations.

Note 10 – Debt

The Company’s borrowings at September 30, 2016 and December 31, 2015, net of deferred financing costs and including the impact of interest rate swaps on effective interest rates, are summarized below:


		As of September 30, 2016
(Dollars in thousands)		Maturity Date	Contractual Facility		Balance, Gross		Balance, Net (3)		Stated Interest Rate	Effective Interest Rate (1)
Denominated in USD
	Trust Preferred Securities (USA)	April 30, 2027	$	27,913	$	27,913	$	27,286	4.76%	5.20%
	Bank of America Credit Facility (USA)	November 28, 2019		55,000		38,950		38,699	3.27%	3.90%
	Bank of America Line of Credit (USA)	October 31, 2017		5,000		1,000		1,000