10-Q 1 rdi-20200331x10q.htm 10-Q 2020 Q1_Taxonomy2019

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 endedMarch 31, 2020

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)

5995 Sepulveda Boulevard,  Suite 300

Culver City,  CA

(Address of principal executive offices)

 

90230

(Zip Code)



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



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

 

NASDAQ

Class B Voting Common Stock, $0.01 par value

 

RDIB

 

NASDAQ



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   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   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   Smaller Reporting Company   Emerging Growth Company 



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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of June 24, 2020, there were 20,067,635 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


 

EXPLANATORY NOTE



As previously disclosed in the Current Report on Form 8-K filed by Reading International, Inc. (the “Company”) with the Securities and Exchange Commission (“SEC”) on April 29, 2020, the filing of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 (the “Form 10-Q”) was delayed due to circumstances related to the novel coronavirus outbreak (“COVID-19”). Between March 15, 2020 and March 17, 2020, we closed, on a temporary basis, all of the Company’s cinemas and live theatres in the United States in accordance with the directions and recommendations of the relevant local, state and federal authorities. We likewise, on March 22, 2020 and March 23, 2020, closed on a temporary basis all of our Australia and New Zealand cinemas as of the date of this report, however, certain of our Australian cinemas and all of our New Zealand cinemas have re-opened, with the exception of the ongoing closure of Reading Cinemas at Courtenay Central which remains closed due to seismic concerns. With respect to the Company’s real estate operations in Australia and New Zealand (which include the following centers: Newmarket Village (Queensland), Auburn Redyard (New South Wales), Cannon Park (Queensland), The Belmont Common (Western Australia) and Courtenay Central (New Zealand)), trading restrictions enforced by the local governments affected many of our tenants, which remained open for trading through the COVID-19 pandemic. In light of the temporary closures discussed above, and due to the continued uncertainty in the market due to COVID-19, the Company's management has devoted significant time and attention to address the impact of COVID-19 and related events on the Company’s operations and financial position and to develop operational and financial plans to preserve the Company's financial resources and flexibility, which has diverted management resources from completing tasks necessary to file the Form 10-Q by the original due date. The Company relied on the SEC’s Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) to delay the filing of this Form 10-Q.

 

2


 

READING INTERNATIONAL, INC. AND SUBSIDIARIES



TABLE OF CONTENTS





 



Page

PART I - Financial Information

Item 1 – Financial Statements

Consolidated Balance Sheets (Unaudited)

Consolidated Statements of Income (Unaudited)

Consolidated Statements of Comprehensive Income (Unaudited)

Consolidated Statements of Cash Flows (Unaudited)

Notes to Consolidated Financial Statements (Unaudited)

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

32 

Item 3 – Quantitative and Qualitative Disclosure about Market Risk

54 

Item 4 – Controls and Procedures

55 

PART II – Other Information

56 

Item 1 – Legal Proceedings

56 

Item 1A – Risk Factors

56 

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

56 

Item 3 – Defaults Upon Senior Securities

57 

Item 4 – Mine Safety Disclosure

57 

Item 5 – Other Information

57 

Item 6 – Exhibits

58 

SIGNATURES

59 

Certifications

 

 

 

3


 

PART 1 – FINANCIAL INFORMATION

Item 1 - Financial Statements

READING INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

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





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2020

 

2019

ASSETS

 

(unaudited)

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,893 

 

$

12,135 

Receivables

 

 

2,865 

 

 

7,085 

Inventory

 

 

1,355 

 

 

1,674 

Prepaid and other current assets

 

 

10,305 

 

 

6,105 

Total current assets

 

 

69,418 

 

 

26,999 

Operating property, net

 

 

236,907 

 

 

258,138 

Operating lease right-of-use assets

 

 

213,907 

 

 

229,879 

Investment and development property, net

 

 

116,163 

 

 

114,024 

Investment in unconsolidated joint ventures

 

 

4,290 

 

 

5,069 

Goodwill

 

 

24,306 

 

 

26,448 

Intangible assets, net

 

 

4,421 

 

 

4,320 

Deferred tax asset, net

 

 

2,592 

 

 

3,444 

Other assets

 

 

5,718 

 

 

6,668 

Total assets

 

$

677,722 

 

$

674,989 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

24,420 

 

$

29,436 

Film rent payable

 

 

3,599 

 

 

8,716 

Debt - current portion

 

 

171,426 

 

 

36,736 

Subordinated debt - current portion

 

 

651 

 

 

644 

Derivative financial instruments - current portion

 

 

199 

 

 

109 

Taxes payable - current

 

 

85 

 

 

140 

Deferred current revenue

 

 

9,726 

 

 

11,324 

Operating lease liabilities - current portion

 

 

19,717 

 

 

20,379 

Other current liabilities

 

 

3,310 

 

 

3,653 

Total current liabilities

 

 

233,133 

 

 

111,137 

Debt - long-term portion

 

 

59,252 

 

 

140,602 

Derivative financial instruments - non-current portion

 

 

358 

 

 

233 

Subordinated debt, net

 

 

29,058 

 

 

29,030 

Noncurrent tax liabilities

 

 

12,520 

 

 

12,353 

Operating lease liabilities - non-current portion

 

 

207,697 

 

 

223,164 

Other liabilities

 

 

18,304 

 

 

18,854 

Total liabilities

 

 

560,322 

 

 

535,373 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

32,982,873 issued and 20,046,762 outstanding at March 31, 2020 and

32,963,489 issued and 20,102,535 outstanding at December 31, 2019

 

 

231 

 

 

231 

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

 

 

 

 

 

 

1,680,590 issued and outstanding at March 31, 2020 and December 31, 2019

 

 

17 

 

 

17 

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

 

 

 

 

 

 

or outstanding shares at March 31, 2020 and December 31, 2019

 

 

 —

 

 

 —

Additional paid-in capital

 

 

148,908 

 

 

148,602 

Retained earnings

 

 

14,772 

 

 

20,647 

Treasury shares

 

 

(40,407)

 

 

(39,737)

Accumulated other comprehensive income

 

 

(10,290)

 

 

5,589 

Total Reading International, Inc. stockholders’ equity

 

 

113,231 

 

 

135,349 

Noncontrolling interests

 

 

4,169 

 

 

4,267 

Total stockholders’ equity

 

 

117,400 

 

 

139,616 

Total liabilities and stockholders’ equity

 

$

677,722 

 

$

674,989 



See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

4


 

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

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





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2020

 

2019

Revenue

 

 

 

 

 

 

Cinema

 

$

46,310 

 

$

57,927 

Real estate

 

 

2,918 

 

 

3,565 

Total revenue

 

 

49,228 

 

 

61,492 

Costs and expenses

 

 

 

 

 

 

Cinema

 

 

(42,292)

 

 

(48,329)

Real estate

 

 

(2,760)

 

 

(2,445)

Depreciation and amortization

 

 

(5,270)

 

 

(5,594)

General and administrative

 

 

(5,945)

 

 

(6,484)

Total costs and expenses

 

 

(56,267)

 

 

(62,852)

Operating income (loss)

 

 

(7,039)

 

 

(1,360)

Interest expense, net

 

 

(1,789)

 

 

(1,852)

Other income (expense)

 

 

(218)

 

 

(20)

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

 

 

(9,046)

 

 

(3,232)

Equity earnings of unconsolidated joint ventures

 

 

78 

 

 

34 

Income (loss) before income taxes

 

 

(8,968)

 

 

(3,198)

Income tax benefit (expense)

 

 

3,013 

 

 

1,057 

Net income (loss)

 

$

(5,955)

 

$

(2,141)

Less: net income (loss) attributable to noncontrolling interests

 

 

(80)

 

 

(16)

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

 

$

(5,875)

 

$

(2,125)

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

 

$

(0.27)

 

$

(0.09)

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

 

$

(0.27)

 

$

(0.09)

Weighted average number of shares outstanding–basic

 

 

21,752,371 

 

 

22,920,486 

Weighted average number of shares outstanding–diluted

 

 

22,119,621 

 

 

23,124,106 



See accompanying Notes to the Unaudited Consolidated Financial Statements. 

 

5


 

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; U.S. dollars in thousands)





 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,



2020

 

2019

Net income (loss)

$

(5,955)

 

$

(2,141)

Foreign currency translation gain (loss)

 

(15,698)

 

 

1,526 

Gain (loss) on cash flow hedges

 

(214)

 

 

(69)

Other

 

33 

 

 

53 

Comprehensive income (loss)

 

(21,834)

 

 

(631)

Less: net income (loss) attributable to noncontrolling interests

 

(80)

 

 

(16)

Less: comprehensive income (loss) attributable to noncontrolling interests

 

(18)

 

 

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

$

(21,736)

 

$

(616)



See accompanying Notes to the Unaudited Consolidated Financial Statements

 

6


 

READING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; U.S. dollars in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2020

 

2019

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

(5,955)

 

$

(2,141)

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

 

 

 

 

 

 

Equity earnings of unconsolidated joint ventures

 

 

(78)

 

 

(34)

Distributions of earnings from unconsolidated joint ventures

 

 

229 

 

 

249 

Amortization of operating leases

 

 

5,028 

 

 

5,895 

Amortization of finance leases

 

 

39 

 

 

41 

Change in operating lease liabilities

 

 

(4,833)

 

 

(5,754)

Interest on hedged derivatives

 

 

 —

 

 

(5)

Change in net deferred tax assets

 

 

471 

 

 

(166)

Depreciation and amortization

 

 

5,270 

 

 

5,594 

Other amortization

 

 

217 

 

 

341 

Stock based compensation expense

 

 

335 

 

 

280 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

3,867 

 

 

993 

Prepaid and other assets

 

 

(4,027)

 

 

(1,957)

Payments for accrued pension

 

 

(171)

 

 

(171)

Accounts payable and accrued expenses

 

 

(3,552)

 

 

(2,145)

Film rent payable

 

 

(4,821)

 

 

(2,132)

Taxes payable

 

 

(49)

 

 

(1,151)

Deferred revenue and other liabilities

 

 

(642)

 

 

(1,579)

Net cash provided by (used in) operating activities

 

 

(8,672)

 

 

(3,842)

Investing Activities

 

 

 

 

 

 

Purchases of and additions to operating and investment properties

 

 

(9,804)

 

 

(11,476)

Acquisition of business combinations

 

 

 —

 

 

(1,380)

Change in restricted cash

 

 

 —

 

 

243 

Net cash provided by (used in) investing activities

 

 

(9,804)

 

 

(12,613)

Financing Activities

 

 

 

 

 

 

Repayment of long-term borrowings

 

 

(22,733)

 

 

(6,113)

Repayment of finance lease principal

 

 

(40)

 

 

(41)

Proceeds from borrowings

 

 

84,648 

 

 

22,349 

Capitalized borrowing costs

 

 

(270)

 

 

 —

Repurchase of Class A Nonvoting Common Stock

 

 

(671)

 

 

(9)

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

 

 

(29)

 

 

(259)

Noncontrolling interest contributions

 

 

 —

 

 

18 

Noncontrolling interest distributions

 

 

 —

 

 

(27)

Net cash provided by (used in) financing activities

 

 

60,905 

 

 

15,918 

Effect of exchange rate changes on cash and cash equivalents

 

 

329 

 

 

57 

Net increase (decrease) in cash and cash equivalents

 

 

42,758 

 

 

(480)

Cash and cash equivalents at January 1

 

 

12,135 

 

 

13,127 

Cash and cash equivalents at March 31

 

$

54,893 

 

$

12,647 

Supplemental Disclosures

 

 

 

 

 

 

Interest paid

 

$

2,381 

 

$

2,304 

Income taxes paid

 

 

1,426 

 

 

1,883 

Non-Cash Transactions

 

 

 

 

 

 

Additions to operating and investing properties through accrued expenses

 

 

5,671 

 

 

3,423 



See accompanying Notes to the Unaudited Consolidated Financial Statements. 

 

7


 

READING INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Note 1 – Description of Business and Segment Reporting



The Company

Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company,” “Reading,” and “we,” “us,” or “our”) was incorporated in 1999.  Our businesses consist primarily of:

·

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

·

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



Business Segments

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



The table below summarizes the results of operations for each of our business segments for the quarter ended March 31, 2020 and 2019, 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.





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(Dollars in thousands)

 

2020

 

2019

Revenue:

 

 

 

 

 

 

  Cinema exhibition

 

$

46,310 

 

$

57,927 

  Real estate

 

 

4,602 

 

 

5,431 

  Inter-segment elimination

 

 

(1,684)

 

 

(1,866)



 

$

49,228 

 

$

61,492 

Segment operating income (loss):

 

 

 

 

 

 

  Cinema exhibition

 

$

(2,654)

 

$

2,583 

  Real estate

 

 

187 

 

 

1,159 



 

$

(2,467)

 

$

3,742 



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





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(Dollars in thousands)

 

2020

 

2019

Segment operating income (loss)

 

$

(2,467)

 

$

3,742 

Unallocated corporate expense

 

 

 

 

 

 

    Depreciation and amortization expense

 

 

(192)

 

 

(61)

    General and administrative expense

 

 

(4,380)

 

 

(5,041)

    Interest expense, net

 

 

(1,789)

 

 

(1,852)

Equity earnings of unconsolidated joint ventures

 

 

78 

 

 

34 

Other income (expense)

 

 

(218)

 

 

(20)

Income (loss) before income tax expense

 

$

(8,968)

 

$

(3,198)

 

Note 2 – Summary of Significant Accounting Policies



Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries as well as majority-owned subsidiaries that the Company controls, and should be read in conjunction with the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2019 (“2019 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

 

8


 

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 ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.



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, (v) allocation of insurance proceeds to various recoverable components, and (vi) 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.



Recently Adopted and Issued Accounting Pronouncements



Adopted:



1)

On January 1, 2020, we adopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This new guidance removes the second step of the two-step impairment test for measuring goodwill and is to be applied on a prospective basis only. Adoption of this standard has no material effect on our consolidated financial statements.



2)

On January 1, 2020, we adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). This new guidance replaces the incurred loss impairment methodology under prior GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We have no history of significant bad debt losses and as such adoption of this standard has no material effect on our consolidated financial statements.



3)

On January 1, 2019, we adopted ASU 2016-02 Leases (Topic 842) using the current adjustment method. We recognized the cumulative effect of initially applying the new leasing standard as an adjustment to the opening balance of retained earnings. The comparative information was not restated. Adoption of this standard has no material effect on our consolidated financial statements.



Issued:



v

ASUs Effective 2020 and Beyond

 

1)

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. ASC 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements. 



Prior period financial statement correction of immaterial errors



Sales tax

During the fourth quarter of 2019, we identified immaterial errors related to the accounting for sales tax on certain products sold from cinemas dating back to 2017. These errors resulted in an overstatement of revenue for certain periods.



We assessed the materiality of these errors on our financial statements for prior periods in accordance with the SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements, and concluded that they were not material to any prior annual or interim periods. However, the aggregate amount of $993,000 related to the prior period immaterial errors through September 30, 2019, would have been material to the full year Consolidated Statement of Operations to December 31, 2019, presented within the December 31, 2019, Form 10-K. Consequently, in accordance with ASC 250 (specifically SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we have corrected these errors for all prior periods presented by revising the consolidated financial statements and other financial information included herein.



 

9


 

The following is a summary of the previously issued financial statement line items for all periods and statements included in this Form 10-Q report affected by the correction.



Consolidated Statements of Operations:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31, 2019

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

Adjustment

 

As Revised

Cinema revenue

 

 

 

 

 

 

 

 

 

 

 

$

57,986 

 

 

(59)

 

 

57,927 

Total revenue

 

 

 

 

 

 

 

 

 

 

 

 

61,551 

 

 

(59)

 

 

61,492 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

(1,301)

 

 

(59)

 

 

(1,360)

Income (loss) before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

(3,139)

 

 

(59)

 

 

(3,198)

Income tax (expense) benefit

 

 

 

 

 

 

 

 

 

 

 

 

1,042 

 

 

15 

 

 

1,057 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

(2,097)

 

 

(44)

 

 

(2,141)

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

 

 

 

 

 

 

 

 

 

 

 

 

(2,081)

 

 

(44)

 

 

(2,125)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

$

(0.09)

 

 

(0.00)

 

 

(0.09)

Diluted earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

(0.09)

 

 

(0.00)

 

 

(0.09)



Consolidated Balance Sheets:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Summary of Equity

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

Adjustment

 

As Revised

Equity at January 1, 2019

 

 

 

 

 

 

 

 

 

 

 

$

180,547 

 

$

(568)

 

$

179,979 

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

 

 

 

 

 

 

 

 

 

 

 

 

(2,097)

 

 

(44)

 

 

(2,141)

Equity at March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

179,946 

 

 

(612)

 

 

179,334 



Consolidated Statements of Cash Flows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31, 2019

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

Adjustment

 

As Revised

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

$

(2,097)

 

$

(44)

 

$

(2,141)

Change in net deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

(151)

 

 

(15)

 

 

(166)

Accounts payable and accrued expenses

 

 

 

 

 

 

 

 

 

 

 

 

(2,204)

 

 

59 

 

 

(2,145)

Net cash provided by operating activities

 

 

 

 

 

 

 

 

 

 

 

 

(3,842)

 

 

 —

 

 

(3,842)

 





 

10


 

Note 3 – Impact of COVID-19 Pandemic and Liquidity



On March 11, 2020, the World Health Organization (“WHO”) declared the recent spread of the novel coronavirus, COVID-19, a global pandemic. Since the date of this declaration, a number of nations have, either voluntarily or through government legislation, gone into various states of self-isolation in order to slow the spread of COVID-19. These measures involved closure of all business deemed ‘non-essential’, and that all ‘non-essential’ workers, and all members of the public, remain in their homes until further notice. These measures are widely expected to continue, in one form or another, until the COVID-19 spread is considered contained. There is no reliable estimate as to how long this may be. Recently, several jurisdictions have begun relaxing these measures but principally due to pressure on their economies, rather than material containment of the COVID-19 virus. As a result of COVID-19 and the associated local government legislation, beginning in March 2020 and continuing through and beyond the end of the first quarter of 2020, we temporarily closed all of our live theatres and cinema operations in the U.S., Australia and New Zealand. Trading restrictions enforced by the local governments in Australia and New Zealand have also affected many of our tenants at our centers, most of which remained open for trading through the COVID-19 crisis. As of the date of this Form 10-Q, all of our New Zealand cinemas are open with no social distancing measures, and approximately half our Australian cinemas are open, albeit with social distancing measures in place. We expect that, for a period of time, the number of patrons returning to our cinemas will be lower than that experienced before COVID-19.



The repercussions of COVID-19 resulted in a significant decrease in the Company’s revenues and earnings in the first quarter of 2020. During the period in which our cinemas and theaters are closed, we will continue to experience a significant decline in earnings. Our cinema and live theatre operations will generate effectively no revenue while they are closed to the public. Our real estate revenue and earnings will be affected by the closure of a number of our tenants’ businesses and the potential need to issue certain tenants with abatements in order to assist them through this period.  



The Company may continue to be significantly impacted by COVID-19 even after some or all of our theaters are re-opened. The global economic impact of COVID-19 has led to high levels of unemployment in our operating jurisdictions and may lead to lower consumer spending in the near term. The timing of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay our ability to produce financial results at pre-COVID-19 levels until such time as consumer spending recovers.



As discussed below in Note 11 – Debt, due to the matters noted above, there is uncertainty regarding our ability to continue to meet future debt covenants per our lending agreements with Bank of America and National Australia Bank. While we have to date been able to obtain waivers of these covenants, the determination whether to grant or not grant such waivers is in the hands of our lenders.  Accordingly, as mandated by U.S. GAAP, we have classified a portion of our debt as current. As of March 31, 2020, the Company had negative working capital of $163.7 million. In response to the uncertainties associated with COVID-19, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, reducing employee hours and deferring all non-essential capital expenditures to minimum levels. The Company has successfully negotiated rent abatements and deferrals with a number of its landlords and continues to pursue additional concessions. The Company has also successfully secured access to government wage subsidy programs in Australia and New Zealand. The Company continues to review and apply for additional financial support where appropriate, but there can be no guarantee that the Company will be successful, or the degree that it may be successful, in its applications for such support. Management has drawn down in full the debt facilities available to the Company and has reviewed the potential sale of certain non-core real estate assets or the use of our unencumbered properties to provide collateral to support current or new financings in order to meet future liquidity demands.   



The Company considers that the events and factors described above constitute impairment indicators under ASC 360 Property, Plant and Equipment.  The Company performed a quantitative recoverability test of the carrying values of all of its asset groups. The Company estimated the undiscounted future cash flows expected to result from the use of these asset groups and determined that there was no impairment as of March 31, 2020. The cash flow estimates used in this review are consistent with budgetary revisions performed by management in response to COVID-19. The realization of these forecasts is dependent on a number of variables and conditions, many of which are due to the uncertainties associated with COVID-19 and as a result, actual results may materially differ from management’s estimates.



The Company considers that the events and factors described above constitute impairment indicators under ASC 350 Intangibles – Goodwill and Other. The Company performed a quantitative goodwill impairment test and determined that its goodwill was not impaired as of March 31, 2020. The test was performed at 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. The realization of these forecasts is dependent on a number of variables and conditions, many of which are due to the uncertainties associated with COVID-19 and as a result, actual results may materially differ from management’s estimates.





 

 

11


 

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 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 March 31, 2020. 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.  However, in certain circumstances, we move funds between jurisdictions where circumstances encouraged us to do so from an overall economic standpoint. Going forward, particularly in light of recent tax law changes, we intend to take a more global view of our financial resources, and to be more 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
twelve months
ended

 

As of and
for the
quarter
ended

 



March 31, 2020

December 31, 2019

 

March 31, 2019

Spot Rate

 

 

 

 

 

 

Australian Dollar

0.6139

0.7030

 

0.7104

New Zealand Dollar

0.5959

0.6745

 

0.6820

Average Rate

 

 

 

 

 

 

Australian Dollar

0.6578

 

0.6954

 

0.7123

 

New Zealand Dollar

0.6349

 

0.6593

 

0.6816

 

 

Note 5 – 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 is 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:







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(Dollars in thousands, except share data)

 

2020

 

2019

Numerator:

 

 

 

 

 

 

Net income (loss) attributable to RDI common stockholders

 

$

(5,875)

 

$

(2,125)

Denominator:

 

 

 

 

 

 

Weighted average number of common stock – basic

 

 

21,752,371 

 

 

22,920,486 

Weighted average dilutive impact of awards

 

 

367,250 

 

 

203,620 

Weighted average number of common stock – diluted

 

 

22,119,621 

 

 

23,124,106 

Basic earnings (loss) per share attributable to RDI common stockholders

 

$

(0.27)

 

$

(0.09)

Diluted earnings (loss) per share attributable to RDI common stockholders

 

$

(0.27)

 

$

(0.09)

Awards excluded from diluted earnings (loss) per share

 

 

678,377 

 

 

496,089 



Our weighted average number of common stock - basic decreased, primarily as a result of the repurchase of shares of Class A Non-Voting Common Stock pursuant to our current stock repurchase program offset by the vesting of restricted stock units. During the first three months of 2020, we repurchased 75,157 shares of Class A Non-Voting Common Stock at an average price of $8.92 per share.

 

 

12


 

Note 6 – Property and Equipment



Operating Property, net



As of March 31, 2020 and December 31, 2019, property associated with our operating activities is summarized as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(Dollars in thousands)

 

2020

 

2019

Land

 

$

70,006 

 

$

75,663 

Building and improvements

 

 

132,704 

 

 

149,852 

Leasehold improvements

 

 

55,563 

 

 

56,912 

Fixtures and equipment

 

 

173,802 

 

 

186,949 

Construction-in-progress

 

 

10,430 

 

 

5,484 

Total cost

 

 

442,505 

 

 

474,860 

Less: accumulated depreciation

 

 

(205,598)

 

 

(216,722)

Operating property, net

 

$

236,907 

 

$

258,138 



Depreciation expense for operating property was $5.2 million for the quarter ended March 31, 2020 and $5.4 million for the quarter ended March 31, 2019.  



Investment and Development Property, net



As of March 31, 2020 and December 31, 2019, our investment and development property is summarized below:





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(Dollars in thousands)

 

2020

 

2019

Land

 

$

23,098 

 

$

24,446 

Building

 

 

1,900 

 

 

1,900 

Construction-in-progress (including capitalized interest)

 

 

91,165 

 

 

87,678 

Investment and development property

 

$

116,163 

 

$

114,024 



Construction-in-Progress – Operating and Investing Properties



Construction-in-Progress balances are included in both our operating and development properties. The balances of our major projects along with the movements for the three months ended March 31, 2020 are shown below:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Balance,

December 31,

2019

 

Additions during the period(1)

 

Completed
during the
period

 

Foreign
currency
translation

 

Balance,

March 31,

2020

Union Square development

 

$

81,934 

 

$

4,075 

 

$

 —

 

$

 —

 

$

86,009 

Courtenay Central development

 

 

6,364 

 

 

345 

 

 

 —

 

 

(762)

 

 

5,947 

Cinema developments and improvements

 

 

3,032 

 

 

5,426 

 

 

(616)

 

 

(111)

 

 

7,731 

Other real estate projects

 

 

1,832 

 

 

491 

 

 

(234)

 

 

(181)

 

 

1,908 

Total

 

$

93,162 

 

$

10,337 

 

$

(850)

 

$

(1,054)

 

$

101,595 



(1)

Includes capitalized interest of $0.9 million for the quarter ended March 31, 2020.



Real Estate Transactions



Exercise of Option to Acquire Ground Lessee’s interest in Ground Lease and Improvements Constituting the Village East Cinema – On August 28, 2019, we exercised our option to acquire the ground lessee’s interest in the ground lease underlying and the real property assets constituting our Village East Cinema in Manhattan. The purchase price under the option is $5.9 million. It is anticipated that the transaction will close on or about May 31, 2021.

 

 

13


 

Note 7 – 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 March 31, 2020 and December 31, 2019:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

March 31,

 

December 31,

(Dollars in thousands)

 

Interest

 

2020

 

2019

Rialto Cinemas

 

50.0%

 

$

994 

 

$

1,175 

Mt. Gravatt

 

33.3%

 

 

3,296 

 

 

3,894 

Total investments

 

 

 

$

4,290 

 

$

5,069 



For the quarter ended March 31, 2020 and 2019, the recognized share of equity earnings from our investments in unconsolidated joint ventures are as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(Dollars in thousands)

 

2020

 

2019

Rialto Cinemas

 

$

(14)

 

$

(56)

Mt. Gravatt

 

 

92 

 

 

90 

Total equity earnings

 

$

78 

 

$

34 

 

Note 8 – Goodwill and Intangible Assets



The table below summarizes goodwill by business segment as of March 31, 2020 and December 31, 2019.  







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Cinema

 

Real Estate

 

Total

Balance at December 31, 2019

 

$

21,224 

 

$

5,224 

 

$

26,448 

Change in goodwill due to a purchase of a business combination

 

 

107 

 

 

 —

 

 

107 

Foreign currency translation adjustment

 

 

(2,249)

 

 

 —

 

 

(2,249)

Balance at March 31, 2020

 

$

19,082 

 

$

5,224 

 

$

24,306 



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.  The Company has performed an interim goodwill assessment as described in Note 3 – Impact of COVID-19 Pandemic and Liquidity. Our next annual evaluation of goodwill and other intangible assets is scheduled during the fourth quarter of 2020. 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 March 31, 2020, 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. 



The tables below summarize intangible assets other than goodwill, as of March 31, 2020 and December 31, 2019, respectively.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

As of March 31, 2020

(Dollars in thousands)

 

Beneficial
Leases

 

Trade
Name

 

Other
Intangible
Assets

 

Total

Gross carrying amount

 

$

12,044 

 

$

9,062 

 

$

4,314 

 

$

25,420 

Less: Accumulated amortization

 

 

(10,032)

 

 

(7,148)

 

 

(3,819)

 

 

(20,999)

Net intangible assets other than goodwill

 

$

2,012 

 

$

1,914 

 

$

495 

 

$

4,421 



 

14


 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2019

(Dollars in thousands)

 

Beneficial
Leases

 

Trade
Name

 

Other
Intangible
Assets

 

Total

Gross carrying amount

 

$

15,048 

 

$

7,258 

 

$

3,145 

 

$

25,451 

Less: Accumulated amortization

 

 

(14,496)

 

 

(5,449)

 

 

(1,186)

 

 

(21,131)

Net intangible assets other than goodwill

 

$

552 

 

$

1,809 

 

$

1,959 

 

$

4,320 



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 ended March 31, 2020.  







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(Dollars in thousands)

 

2020

 

2019

Beneficial lease amortization

 

$

25 

 

$

79 

Other amortization

 

 

76 

 

 

22 

Total intangible assets amortization

 

$

101 

 

$

101 

 

Note 9 – Prepaid and Other Assets



Prepaid and other assets are summarized as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(Dollars in thousands)

 

2020

 

2019

Prepaid and other current assets

 

 

 

 

 

 

Prepaid expenses

 

$

2,443 

 

$

2,163 

Prepaid rent

 

 

39 

 

 

1,093 

Prepaid taxes

 

 

791 

 

 

912 

Income taxes receivable

 

 

6,767 

 

 

1,669 

Deposits

 

 

234 

 

 

214 

Investment in marketable securities

 

 

24 

 

 

47 

Restricted cash

 

 

 

 

Total prepaid and other current assets

 

$

10,305 

 

$

6,105 

Other non-current assets

 

 

 

 

 

 

Straight-line rent

 

 

3,738 

 

 

4,689 

Other non-cinema and non-rental real estate assets

 

 

1,134 

 

 

1,134 

Investment in Reading International Trust I

 

 

838 

 

 

838 

Long-term deposits

 

 

 

 

Total other non-current assets

 

$

5,718 

 

$

6,668 

 

Note 10 – Income Taxes



The U.S. Coronavirus Aid, Relief, and Economic Security Act (the CARES Act”) was enacted on March 27, 2020 to provide, among other things, tax relief to companies impacted by the COVID-19 pandemic. The CARES Act includes, among other items, provisions for net operating loss carryback, modifications to the business interest expense deduction, a technical correction to tax depreciation methods for qualified improvement property, and alternative minimum tax credit refunds. During the quarter ended March 31, 2020, we recorded a tax benefit arising from the carryback of the net operating loss generated in the taxable year ended December 31, 2019.



The interim provision for income taxes is different from the amount determined by applying the U.S. federal statutory rate to consolidated income before taxes.  The differences are attributable to foreign tax rate differential, unrecognized tax benefits, and foreign tax credit. Our effective tax rate was 33.6% and 33.1% for the three months ended March 31, 2020 and 2019, respectively.  The change between 2020 and 2019 is primarily related to tax benefits from the carryback of the Company’s 2019 net operating loss, as a result of the CARES Act, to 2015 and 2016 tax years where the federal tax rate was 35%, offset by an increase in valuation allowance in 2020.  The forecasted effective tax rate is updated each quarter as new information becomes available.

 

15


 

Note 11 – Debt



The Company’s borrowings at March 31, 2020 and December 31, 2019, net of deferred financing costs and including the impact of interest rate derivatives on effective interest rates, are summarized below:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of March 31, 2020

(Dollars in thousands)

 

Maturity Date

 

Contractual
Facility

 

Balance,
Gross

 

Balance,
Net(1)

 

Stated
Interest Rate

 

Effective
Interest
Rate

Denominated in USD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust Preferred Securities (USA)

 

April 30, 2027

 

$

27,913 

 

$

27,913 

 

$

26,340 

 

5.77%

 

5.77%

Bank of America Credit Facility (USA)

 

March 6, 2023

 

 

55,000 

 

 

55,000 

 

 

54,986 

 

3.99%

 

3.99%

Bank of America Line of Credit (USA)

 

March 6, 2023

 

 

5,000 

 

 

5,000 

 

 

5,000 

 

3.99%

 

3.99%

Cinemas 1, 2, 3 Term Loan (USA)

 

April 1, 2022

 

 

25,000 

 

 

25,000 

 

 

24,504 

 

4.25%

 

4.25%

Minetta & Orpheum Theatres Loan (USA)(2)

 

November 1, 2023

 

 

8,000 

 

 

8,000 

 

 

7,894 

 

3.63%

 

5.15%

U.S. Corporate Office Term Loan (USA)

 

January 1, 2027

 

 

9,199 

 

 

9,199 

 

 

9,096 

 

4.64% / 4.44%

 

4.61%

Purchase Money Promissory Note

 

September 18, 2024

 

 

3,204 

 

 

3,204 

 

 

3,204 

 

5.00%

 

5.00%

Union Square Construction Financing (USA)

 

December 29, 2020

 

 

50,000 

 

 

36,947 

 

 

36,782 

 

5.50%

 

5.50%

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