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:  June 30, 2014

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  ☑  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 August 11, 2014, there were 22,252,416 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

	Page
PART I - Financial Information	3
Item 1 – Financial Statements	3
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Income (Unaudited)	4
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
Condensed Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3 – Quantitative and Qualitative Disclosure about Market Risk	47
Item 4 – Controls and Procedures	49
PART II – Other Information	50
Item 1 - Legal Proceedings	50
Item 1A - Risk Factors	50
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3 - Defaults Upon Senior Securities	50
Item 5 - Other Information	50
Item 6 - Exhibits	51
SIGNATURES	52
Certifications	53

2

PART 1 - Financial Information

Item 1 - Financial Statements

Reading International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(U.S. dollars in thousands)

	June 30, 2014		December 31, 2013
ASSETS
Current Assets:
Cash and cash equivalents	$	42,647	$	37,696
Receivables		10,696		9,087
Inventory		838		941
Investment in marketable securities		57		55
Restricted cash		783		782
Deferred tax asset		1,586		3,273
Prepaid and other current assets		3,693		3,283
Land held for sale		11,745		--
Total current assets		72,045		55,117
Operating property, net		195,924		191,660
Land held for sale		46,756		11,052
Investment and development property, net		31,701		74,230
Investment in unconsolidated joint ventures and entities		7,052		6,735
Investment in Reading International Trust I		838		838
Goodwill		23,026		22,159
Intangible assets, net		12,433		13,440
Deferred tax asset, net		5,590		5,566
Other assets		6,449		6,010
Total assets	$	401,814	$	386,807
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	18,079	$	18,608
Film rent payable		7,920		6,438
Notes payable – current		34,791		75,538
Taxes payable - current		3,474		8,308
Deferred current revenue		11,155		11,864
Other current liabilities		6,205		6,155
Total current liabilities		81,624		126,911
Notes payable – long-term		104,234		65,009
Subordinated debt		27,913		27,913
Noncurrent tax liabilities		12,142		12,478
Other liabilities		40,256		32,749
Total liabilities		266,169		265,060
Commitments and contingencies (Note 13)
Stockholders’ equity:
Class A non-voting common stock, par value $0.01, 100,000,000 shares authorized,
32,456,908 issued and 21,885,238 outstanding at June 30, 2014 and 32,254,199
issued and 21,890,029 outstanding at December 31, 2013		226		225
Class B voting common stock, par value $0.01, 20,000,000 shares authorized and
1,495,490 issued and outstanding at June 30, 2014 and at December 31, 2013		15		15
Nonvoting preferred stock, par value $0.01, 12,000 shares authorized and no issued
or outstanding shares at June30, 2014 and December 31, 2013		--		--
Additional paid-in capital		138,412		137,849
Accumulated deficit		(53,410)		(57,952)
Treasury shares		(6,307)		(4,512)
Accumulated other comprehensive income		52,073		41,515
Total Reading International, Inc. stockholders’ equity		131,009		117,140
Noncontrolling interests		4,636		4,607
Total stockholders’ equity		135,645		121,747
Total liabilities and stockholders’ equity	$	401,814	$	386,807

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 June 30,				Six Months Ended June 30,
		2014		2013		2014		2013
Operating revenue
Cinema	$	65,854	$	64,659	$	119,278	$	119,429
Real estate		4,068		4,983		8,697		9,780
Total operating revenue		69,922		69,642		127,975		129,209
Operating expense
Cinema		49,933		51,095		93,723		97,130
Real estate		2,259		2,730		5,234		5,399
Depreciation and amortization		3,865		3,650		7,670		7,640
General and administrative		5,366		4,401		10,267		8,738
Total operating expense		61,423		61,876		116,894		118,907
Operating income		8,499		7,766		11,081		10,302
Interest income		147		199		226		248
Interest expense		(2,977)		(2,835)		(5,352)		(5,557)
Loss on sale of assets		--		--		--		(7)
Other income		646		113		1,388		128
Income  before income tax expense and equity earnings of unconsolidated joint ventures and entities		6,315		5,243		7,343		5,114
Income tax (expense)		(1,842)		(1,500)		(3,435)		(2,389)
Income before equity earnings of unconsolidated joint ventures and entities		4,473		3,743		3,908		2,725
Equity earnings of unconsolidated joint ventures and entities		301		432		611		779
Net Income	$	4,774	$	4,175	$	4,519	$	3,504
Net (income) loss attributable to noncontrolling interests		(15)		(40)		23		(36)
Net income attributable to Reading International, Inc. common shareholders	$	4,759	$	4,135	$	4,542	$	3,468
Basic earnings  per share attributable to Reading International, Inc. shareholders	$	0.20	$	0.18	$	0.19	$	0.15
Diluted earnings per share attributable to Reading International, Inc. shareholders	$	0.20	$	0.18	$	0.19	$	0.15
Weighted average number of shares outstanding–basic		23,471,776		23,344,057		23,480,429		23,305,466
Weighted average number of shares outstanding–diluted		23,775,923		23,447,250		23,784,576		23,408,659

See accompanying notes to consolidated financial statements.

Reading International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

4

(U.S. dollars in thousands)

		Three Months Ended June 30,				Six Months Ended June 30,
		2014		2013		2014		2013
Net income	$	4,774	$	4,175	$	4,519	$	3,504
Foreign currency translation gain (loss)		2,443		(19,874)		10,064		(18,863)
Unrealized gain (loss) on available for sale investments		(1)		6		(1)		5
Amortization of pension prior service costs		235		165		471		330
Comprehensive income		7,451		(15,528)		15,053		(15,024)
Net (income) loss attributable to noncontrolling interests		(15)		(40)		23		(36)
Comprehensive income attributable to noncontrolling interests		109		71		28		72
Comprehensive income attributable to Reading International, Inc.	$	7,545	$	(15,497)	$	15,104	$	(14,988)

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 June 30,
		2014		2013
Operating Activities
Net income	$	4,519	$	3,504
Adjustments to reconcile net income to net cash used in operating activities:
Gain (loss) recognized on foreign currency transactions		22		33
Equity earnings of unconsolidated joint ventures and entities		(611)		(779)
Distributions of earnings from unconsolidated joint ventures and entities		623		600
Loss on sale of assets		--		7
Change in net deferred tax assets		2,094		1,007
Depreciation and amortization		7,670		7,640
Amortization of prior service costs		471		330
Amortization of above and below market leases		171		183
Amortization of deferred financing costs		114		563
Amortization of straight-line rent		(403)		406
Stock based compensation expense		68		130
Changes in assets and liabilities:
Increase in receivables		(1,237)		(569)
(Increase) decrease in prepaid and other assets		(579)		(692)
Decrease in accounts payable and accrued expenses		(1,002)		(1,600)
Increase (decrease) in film rent payable		1,317		3,492
Decrease in taxes payable		(5,193)		(2,070)
Increase (decrease) in deferred revenue and other liabilities		1,165		(2,697)
Net cash provided by operating activities		9,209		9,488
Investing Activities
Purchases of and additions to property and equipment		(3,899)		(3,424)
Change in restricted cash		19		1,657
Proceeds from notes receivable		--		2,000
Distributions of investment in unconsolidated joint ventures and entities		212		59
Deposit from sale of property		6,423		--
Proceeds of time deposits		--		8,000
Net cash provided by investing activities		2,755		8,292
Financing Activities
Repayment of long-term borrowings		(6,127)		(22,097)
Proceeds from borrowings		--		12,500
Capitalized borrowing costs		--		(103)
Repurchase of Class A Nonvoting Common Stock		(1,795)		--
Proceeds from the exercise of stock options		495		200
Noncontrolling interest contributions		125		263
Noncontrolling interest distributions		(101)		(2,016)
Net cash (used in) financing activities		(7,403)		(11,253)
Effect of exchange rate on cash		390		(2,696)
Increase (decrease) in cash and cash equivalents		4,951		3,831
Cash and cash equivalents at the beginning of the period		37,696		38,531
Cash and cash equivalents at the end of the period	$	42,647	$	42,362
Supplemental Disclosures
Cash paid during the period for:
Interest on borrowings	$	5,083	$	5,981
Income taxes		3,997		3,961
Non-Cash Transactions
Noncontrolling interest contribution in exchange for debt reduction - related party	$	--	$	2,250
Acquisition of noncontrolling interest		--		101

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, 2014

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, 2014 (the “June Report”) should be read in conjunction with our Annual Report filed on Form 10-K for the year ended December 31, 2013 (our “2013 Annual Report”) which contains the latest audited financial statements and related notes.  The periods presented in this document are the three (“2014 Quarter”) and six (“2014Six Months”) months ended June 30, 2014 and the three (“2013 Quarter”) and six (“2013Six Months”) months ended June 30, 2013.

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, 2014 and the results of our operations and cash flows for the three and six months ended June 30, 2014 and 2013 have been made.  The results of operations for the three and six months ended June 30, 2014 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

The term of our Union Square Theatre Term Loan matures on May 1, 2015.  Accordingly, the outstanding balance of this debt of $6.5 million has been classified as a current liability on the consolidated balance sheet as of June 30, 2014.

Additionally, the New Zealand Corporate Credit Facility matures on March 31, 2015 and as such the balance of $24.5 million (NZ$28.0 million) has been reclassified as a current liability on the consolidated balance sheet as of June 30, 2014.

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

Tax Settlement Liability

As indicated in our 2013 Annual Report, in accordance with the agreement between the U.S. Internal Revenue Service and our subsidiary, Craig Corporation, it is obligated to pay $290,000 per month, $3.5 million per year, in settlement of its tax liability for the tax year ended June 30, 1997.

For the abovementioned liabilities, we believe that we have the required liquidity to meet the obligations either through the extension or replacement of maturing debt or the generation of cash from our operating activities. Together with our $42.6 million of cash and cash equivalents, we expect to meet our anticipated short-term working capital requirements for the next twelve months.

Receivables

Our receivables balance is composed primarily of credit card receivables, representing the purchase price of tickets, concessions or coupon books sold at our various businesses.  Sales charged on customer credit cards are collected when the credit card transactions are processed.  The remaining receivables balance is primarily made up of good and services tax (“GST”) refunded receivables from our Australian taxing authorities, management fee receivables from the managed cinemas and business interruption insurance recovery proceeds.

Marketable Securities

We had investments in marketable securities of $57,000 and $55,000 at June 30, 2014 and December 31, 2013, 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 $8,000 included in accumulated other comprehensive income at June 30, 2014.  For the three and six months ended June 30, 2014, our net unrealized gain (loss) on marketable securities was ($1,000) and ($1,000), respectively.  For the three and six months ended June 30, 2013, our net unrealized gain (loss) on marketable securities was $6,000 and $5,000, respectively.  During the six months ended June 30, 2014 and 2013, we did not buy or sell any marketable securities.

Deferred Leasing Costs

We amortize direct costs incurred in connection with obtaining tenants for our properties 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 2014

No new pronouncements were adopted during the six months ended June 30, 2014.

New Accounting Pronouncements

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the criteria for determining which disposals can be presented as discontinued operations and modify related disclosure requirements. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date, and is effective for the Company as of January 1, 2015. However, all entities may early adopt the guidance for new disposals (or new classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance.

8

In May 2014, the Financial Accounting Standards Board issued a new standard 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. general accepted accounting principles.  Under the new model, recognition of revenues occurs when a customer obtains control of promised good 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.  The new standard is effective for us beginning in the first quarter of 2017, early adoption is prohibited.  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.

Note 2 – Equity and Stock Based Compensation

Stock-Based Compensation

During the six months ended June 30, 2014 and 2013, we issued 125,209 and 217,890, 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, 2014, we accrued $300,000 and $600,000, respectively, in compensation expense associated with the vesting of executive employee 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.

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, 2014 and 2013, 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 20,000 and 50,000 options granted during the six months ended June 30, 2014 and 2013, 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: 

9

	2014	2013
Stock option exercise price	$7.40	$5.89
Risk-free interest rate	2.88%	2.26%
Expected dividend yield	--	--
Expected option life in years	4	5
Expected volatility	30.65%	31.89%
Weighted average fair value	$2.46	$1.89

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 $ 34,000 and

$68,000 for the three and six months ended June 30, 2014, respectively, and $77,000 and $130,000 for the three and six months ended June 30, 2013, respectively.  At June 30, 2014, the total unrecognized estimated compensation cost related to non-vested stock options granted was $438,000, which we expect to recognize over a weighted average vesting period of 2.15 years.  77,500 options were exercised during the six months ended June 30, 2014 having an intrinsic value of $156,000 for which we received

$494,712 of cash and50,000 options were exercised during the six months ended June 30, 2013 having an intrinsic value of $99,500 for which we received $200,500 of cash.  The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at June 30, 2014 was $1.4 million of which 62.0% are currently exercisable.

Pursuant to both our 1999 Stock Option Plan and our 2010 Stock Incentive Plan, all stock options expire not later thanten 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, 2014 and December 31, 2013:

			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 - December 31, 2013	709,850	185,100	$	6.24	$	9.90	490,350	185,100	$	6.85	$	9.90
Granted	20,000	--	$	7.40	$	--	--	--		--		--
Exercised	(500)	--	$	6.23	$	--	--	--		--		--
Outstanding - March 31, 2014	729,350	185,100	$	6.68	$	9.90	510,350	185,100	$	6.87	$	9.90
Granted	--	--				--	--	--		--		--
Exercised	(77,000)	--		6.38	$	--	--	--		--		--
Outstanding - June 30, 2014	652,350	185,100	$	6.53	$	9.90	435,350	185,100	$	6.95	$	9.90

The weighted average remaining contractual life of all options outstanding, vested, and expected to vest at June 30, 2014 and December 31, 2013 was approximately 4.44 and 4.70 years, respectively.  The weighted average remaining contractual life of the exercisable options outstanding at June 30, 2014 and December 31, 2013 was approximately 3.36 and 3.63 years, respectively.

10

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 months ended June 30, 2014 and 2013, respectively.  Operating expenses include 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, 2014	Cinema Exhibition		Real Estate		Intersegment Eliminations		Total
Revenue	$	65,854	$	5,782	$	(1,714)	$	69,922
Operating expense		51,647		2,259		(1,714)		52,192
Depreciation and amortization		2,817		956		--		3,773
General and administrative expense		1,203		260		--		1,463
Segment operating income	$	10,187	$	2,308	$	--	$	12,495
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

Reconciliation to net income attributable to Reading International, Inc. shareholders:		2014 Quarter		2013 Quarter
Total segment operating income	$	12,495	$	11,262
Non-segment:
Depreciation and amortization expense		91		110
General and administrative expense		3,903		3,386
Operating income		8,499		7,766
Interest expense, net		(2,830)		(2,636)
Other income		646		113
Income tax expense		(1,842)		(1,500)
Equity earnings of unconsolidated joint ventures and entities		301		432
Net income	$	4,774	$	4,175
Net (income) attributable to noncontrolling interests		(15)		(40)
Net income attributable to Reading International, Inc. common shareholders	$	4,759	$	4,135

The tables below summarize the results of operations for each of our principal business segments for the six months ended June 30, 2014 and 2013, respectively.  Operating expenses include 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):

11

Six Months Ended June 30, 2014	Cinema Exhibition		Real Estate		Intersegment Eliminations		Total
Revenue	$	119,278	$	12,361	$	(3,664)	$	127,975
Operating expense		97,387		5,234		(3,664)		98,957
Depreciation and amortization		5,613		1,875		--		7,488
General and administrative expense		2,101		434		--		2,535
Segment operating income	$	14,177	$	4,818	$	--	$	18,995
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

Reconciliation to net income attributable		2014 Six		2013 Six
to Reading International, Inc. shareholders:		Months		Months
Total segment operating income	$	18,995	$	17,356
Non-segment:
Depreciation and amortization expense		182		221
General and administrative expense		7,732		6,833
Operating income		11,081		10,302
Interest expense, net		(5,126)		(5,309)
Other income		1,388		128
Gain (loss) on sale of assets		--		(7)
Income tax expense		(3,435)		(2,389)
Equity earnings of unconsolidated joint ventures and entities		611		779
Loss from discontinued operations		--		--
Net income	$	4,519	$	3,504
Net (income) loss attributable to noncontrolling interests		23		(36)
Net income attributable to Reading International, Inc. common shareholders	$	4,542	$	3,468

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.

Presented in the table below are the currency exchange rates for Australia and New Zealand as of June 30, 2014,December 31, 2013 and June 30, 2013:

	U.S. Dollar
	June 30, 2014	December 31, 2013	June 30, 2013
Australian Dollar	0.9427	0.8929	0.9165
New Zealand Dollar	0.8755	0.8229	0.7755

12

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 June 30,				Six Months Ended June 30,
		2014		2013		2014		2013
Net income from continuing operations	$	4,759	$	4,135	$	4,542	$	3,468
Net income attributable to Reading International, Inc. common shareholders		4,759		4,135		4,542		3,468
Basic earnings  per share attributable to Reading International, Inc. shareholders	$	0.20	$	0.18	$	0.19	$	0.15
Diluted earnings per share attributable to Reading International, Inc. shareholders	$	0.20	$	0.18	$	0.19	$	0.15
Weighted average shares of common stock – basic		23,471,776		23,344,057		23,480,429		23,305,466
Weighted average shares of common stock – diluted		23,775,923		23,447,250		23,784,576		23,408,659

For the three and six months ended June 30, 2014, the weighted average common stock – diluted included 304,147 of common stock compensation and in-the-money incremental stock options and 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.  In addition, 695,946 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, 2014, and 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.

Note 6 – Property and Equipment

Operating Property, net

As of June 30, 2014and December 31, 2013, property associated with our operating activities is summarized as follows (dollars in thousands):

Operating Property		June 30, 2014		December 31, 2013
Land	$	67,517	$	65,578
Building and improvements		129,225		123,061
Leasehold interests		48,975		46,330
Fixtures and equipment		112,909		106,099

13

Total cost		358,626		341,068
Less: accumulated depreciation		(162,702)		(149,408)
Operating property, net	$	195,924	$	191,660

Depreciation expense for property and equipment was $3.6 million and $7.0 million for the three and six months ended June 30, 2014, respectively, and $3.5 million and $7.1 million for the three and six months ended June 30, 2013, respectively.

Land Held for Sale – Moonee Ponds

On October 15, 2013, we entered into a definitive purchase and sale agreement to sell this property for a sale price of $21.9 million (AUS$23.0 million) payable in full upon closing of that transaction on April 16, 2015.  The property has a book value of $11.7 million (AUS $12.4 million) and while the transaction was treated as a current sale for tax purposes, it does not qualify as a sale under US GAAP until the close of the transaction on April 16, 2015.  As the scheduled closing date, is less than one year away, this asset has been listed as a current asset.

Land Held for Sale – Burwood

On May 12, 2014, we entered into a contract to sell our undeveloped 50.6 acre parcel in Burwood, Victoria, Australia, to an affiliate of Australand Holdings Limited for a purchase price of $59.1 million (AUS$65.0 million). 

Reading received$5.9 million (AUS$6.5 million) on the May 12, 2014 closing.  The balance of the purchase price is due on December 31, 2017.  The agreement provides for mandatory pre-payments in the event that any of the land is sold by the buyer, any such prepayment being in an amount equal to the greater of (a) 90% of the net sale price or (b) the balance of the purchase price multiplied by a fraction the numerator of which is the square footage of property being sold by the buyer and the denominator of which is the original square footage of the property being sold to the buyer.  The agreement does not provide for the payment of interest on the balance owed.  

Our book basis in the property is $46.8 million (AUS$52.1 million) and whilethe transaction was treated as a current sale for tax purposes, 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 has been listed as a long term asset.

Investment and Development Property

As of June 30, 2014 and December 31, 2013, our investment and development property is summarized as follows (dollars in thousands):

Investment and Development Property		June 30, 2014		December 31, 2013
Land	$	25,506	$	59,550
Construction-in-progress (including capitalized interest)		6,195		14,680
Investment and development property	$	31,701	$	74,230

The decrease of $42.5 million is substantially due to the reclassification of the Burwood property costs from the Investment and Development property category to Land Held for Sale under non-current assets on the balance sheet. 

14

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, 2014 and December 31, 2013, included the following (dollars in thousands):

	Interest		June 30, 2014		December 31, 2013
Rialto Distribution	33.3%	$	--	$	--
Rialto Cinemas	50.0%		1,818		1,571
205-209 East 57th Street Associates, LLC	25.0%		--		--
Mt. Gravatt	33.3%		5,234		5,164
Total investments		$	7,052	$	6,735

For the three and six months ended June 30, 2014 and 2013, we recorded our share of equity earnings from our investments in unconsolidated joint ventures and entities as follows (dollars in thousands):

		Three Months Ended June 30,				Six Months Ended June 30,
		2014		2013		2014		2013
Rialto Distribution	$	13	$	20	$	13	$	41
Rialto Cinemas		217		40		355		68
205-209 East 57th Street Associates, LLC		--		--		--		(1)
Mt. Gravatt		71		372		243		671
Total equity earnings	$	301	$	432	$	611	$	779

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 2014 Quarter and 2014 Six Month period.  As of June 30, 2014 and December 31, 2013, we had goodwill consisting of the following (dollars in thousands):

		Cinema		Real Estate		Total
Balance as of December 31, 2013	$	16,935	$	5,224	$	22,159
Foreign currency translation adjustment		867		--		867
Balance at June 30, 2014	$	17,802	$	5,224	$	23,026

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, 2014, the amortization expense of intangibles totaled $511,000 and $1.1 million, respectively, and, for the three and six months ended June 30, 2013, the amortization expense of intangibles totaled $457,000 and $1.0 million, respectively.  The accumulated amortization of intangibles includes $446,000 and $517,000 of the amortization of acquired leases which are recorded in operating expense for the six months ended June 30, 2014 and 2013, respectively.

Intangible assets subject to amortization consist of the following (dollars in thousands):

As of June 30, 2014		Beneficial Leases		Trade name		Other Intangible Assets		Total
Gross carrying amount	$	24,295	$	7,254	$	459	$	32,008

15

Less: Accumulated amortization		15,393		3,723		459		19,575
Total, net	$	8,902	$	3,531	$	--	$	12,433
As of December 31, 2013		Beneficial Leases		Trade name		Other Intangible Assets		Total
Gross carrying amount	$	24,223	$	7,254	$	455	$	31,932
Less: Accumulated amortization		14,520		3,517		455		18,492
Total, net	$	9,703	$	3,737	$	--	$	13,440

Note 9 – Prepaid and Other Assets

Prepaid and other assets are summarized as follows (dollars in thousands):

		June 30, 2014		December 31, 2013
Prepaid and other current assets
Prepaid expenses	$	1,559	$	1,079
Prepaid taxes		671		623
Prepaid rent		1,092		1,210
Deposits		368		368
Other		3		3
Total prepaid and other current assets	$	3,693	$	3,283
Other non-current assets
Other non-cinema and non-rental real estate assets	$	1,134	$	1,134
Long-term deposits		132		144
Deferred financing costs, net		2,172		1,833
Interest rate cap at fair value		34		75
Tenant inducement asset		526		512
Straight-line rent asset		2,451		2,310
Other		--		2
Total Other non-current assets	$	6,449	$	6,010

Note 10 – Income Tax

The provision for income taxes is different from the amount computed by applying U.S. statutory rates to consolidated losses before taxes.  The significant reason for these differences is as follows (dollars in thousands):

16

		Three Months Ended June 30,				Six Months Ended June 30,
		2014		2013		2014		2013
Expected tax provision	$	2,310	$	1,951	$	2,792	$	2,028
Increase (decrease) in tax expense resulting from:
Change in valuation allowance, other		(2,023)		(1,846)