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RDI > SEC Filings for RDI > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for READING INTERNATIONAL INC

Form 10-Q for READING INTERNATIONAL INC


9-Nov-2012

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

We are an internationally diversified company principally focused on the development, ownership, and operation of entertainment and real property assets in the United States, Australia, and New Zealand. Currently, we operate in two business segments:

cinema exhibition, through our 57 multiplex cinemas; and

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

We believe that these two business segments can complement one another, as we can use the comparatively consistent cash flows generated by our cinema operations to fund the front-end cash demands of our real estate development business.

We manage our worldwide cinema exhibition businesses under various different brands:

in the US, under the Reading, Angelika Film Center, Consolidated Amusements, and City Cinemas brands;

in Australia, under the Reading brand; and

in New Zealand, under the Reading and Rialto brands.

Cinema Activities

We continue to consider opportunities to expand our cinema operations, while at the same time continuing to cull those cinema assets which are underperforming or have unacceptable risk profiles on a go forward basis. During September 2012, we opened an 8-screen art cinema in the Mosaic District in the greater Washington D.C. metropolitan area. Additionally, during 2012, we elected not to renew the leases of our 4-screen Hastings cinema in New Zealand and our 4-screen Kukui cinema in Hawaii. We terminated operations with the Hastings cinema in January 2012 and we anticipate terminating operations for our Kukui cinema in November 2012.

On September 30, 2012, we entered into a long-term agreement with an affiliate of Cinedigm Digital Cinema Corp. designed to allow us to collect Virtual Print Fees ("VPFs")from film distributors with respect to digital content exhibited in our U.S. cinemas. These VPFs are intended to assist exhibitors, such as ourselves, to pay for the cost of converting from film to digital projection, and reflect (to some extent) costs saved by distributors as a result of not needing to produce film prints of their movies.

Real Estate Activities

Although we have curtailed our real estate development activities, we remain opportunistic in our acquisitions of both cinema and real estate assets. Our business plan is to begin the build-out of our existing undeveloped properties and to seek out additional, profitable real estate development opportunities while continuing to use and judiciously expand our presence in the cinema exhibition business by identifying, developing, and acquiring cinema properties when and where we believe to be appropriate. In addition, we will continue to investigate potential synergistic acquisitions that may not readily fall into either of our two currently identified segments.

Table of Contens

-30-

On January 10, 2012, Shadow View Land and Farming, LLC, a limited liability company owned by our Company, acquired a 202-acre property, zoned for the development of up to 843 single-family residential units, located in the City of Coachella, California. The property was acquired at a foreclosure auction for $5.5 million. The property was acquired as a long-term investment in developable land. Half of the funds used to acquire the land were provided by James J. Cotter, our Chairman, Chief Executive Officer and controlling shareholder. Upon the approval of our Conflicts Committee, these funds were converted into a 50% interest in Shadow View Land and Farming, LLC. We are the managing member of this company.

We continue to consider the potential sale of certain of our real estate assets. As part of this business strategy, on February 21, 2012, we sold the three properties in the Taringa area of Brisbane, Australia of approximately 1.1 acres for $1.9 million (AUS$1.8 million). Also, we continue to consider various methods to monetize all or at least the residential portion of our Burwood development site even though it cannot be classified as a property held for sale pursuant to FASB ASC 360-10-45. Additionally, we are currently reevaluating our options for the Cinemas 1, 2, 3 property with an intent to redevelop rather than sell the property.

Effective October 5, 2012, we entered into an agreement to sell our Indooroopilly property for $12.4 million (AUS$12.0 million) (See Note 18 - Subsequent Events to our Condensed Consolidated Financial Statements). The net book value of this property's assets is included in held for sale assets on our Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011 and the operational results are included in income (loss) from discontinued operations on our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2012 and 2011.

Results of Operations

At September 30, 2012, we owned and operated 52 cinemas with 437 screens, had interests in certain unconsolidated joint ventures and entities that own an additional 3 cinemas with 29 screens and managed 2 cinemas with 9 screens. In real estate during the period, we (i) owned and operated four Entertainment Themed Retail Centers ("ETRCs") that we developed in Australia and New Zealand,
(ii) owned the fee interests in four developed commercial properties in Manhattan and Chicago improved with live theaters comprising seven stages and ancillary retail and commercial space, (iii) owned the fee interests underlying one of our Manhattan cinemas, (iv) held for development an additional seven parcels aggregating approximately 129 acres located principally in urbanized areas of Australia and New Zealand, and (v) owned 50% of a 202-acre property, zoned for the development of up to 843 single-family residential units in the U.S. In addition, we continue to hold various properties used in our historic railroad operations.

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. Our year-to-year results of operations were impacted by the fluctuation in the value of the Australian and New Zealand dollars vis--vis the US dollar resulting in an increase in results of operations for our foreign operations for 2012 compared to 2011.

Table of Contens

-31-

The tables below summarize the results of operations for each of our principal business segments for the three ("2012 Quarter") and nine ("2012 Nine Months") months ended September 30, 2012 and the three ("2011 Quarter") and nine ("2011 Nine Months") months ended September 30, 2012, respectively (dollars in thousands):

                                                     Cinema                              Intersegment
Three Months Ended September 30, 2012              Exhibition         Real Estate        Eliminations           Total
Revenue                                          $       59,246      $       6,570     $         (1,882 )   $       63,934
Operating expense                                        50,554              3,153               (1,882 )           51,825
Depreciation and amortization                             2,786              1,108                   --              3,894
General and administrative expense                          653                197                   --                850
Segment operating income                         $        5,253      $       2,112     $             --     $        7,365

                                                     Cinema                              Intersegment
Three Months Ended September 30, 2011              Exhibition         Real Estate        Eliminations           Total
Revenue                                          $       61,867      $       6,354     $         (1,667 )   $       66,554
Operating expense                                        50,310              2,519               (1,667 )           51,162
Depreciation and amortization                             2,966              1,033                   --              3,999
General and administrative expense                          649                130                   --                779
Segment operating income                         $        7,942      $       2,672     $             --     $       10,614



Reconciliation to net income attributable to Reading International, Inc.
shareholders:                                                                            2012 Quarter        2011 Quarter
Total segment operating income                                                         $          7,365     $       10,614
Non-segment:
Depreciation and amortization expense                                                               101                205
General and administrative expense                                                                3,107              3,393
Operating income                                                                                  4,157              7,016
Interest expense, net                                                                            (4,165 )           (7,280 )
Other income                                                                                        182                  6
Gain on sale of assets                                                                               86                  1
Income tax benefit                                                                                  100                 38
Equity earnings of unconsolidated joint ventures and entities                                       277                454
Income (loss) from discontinued operations                                                         (241 )               55
Net income                                                                             $            396     $          290
Net loss attributable to noncontrolling interests                                                   (33 )             (253 )
Net income attributable to Reading International, Inc. common shareholders             $            363     $           37

                                               Cinema                                Intersegment
Nine Months Ended September 30, 2012         Exhibition          Real Estate        Eliminations          Total
Revenue                                    $      174,636     $        20,324     $          (5,647 )   $ 189,313
Operating expense                                 147,117               8,479                (5,647 )     149,949
Depreciation and amortization                       8,349               3,331                    --        11,680
General and administrative expense                  2,137                 522                    --         2,659
Segment operating income                   $       17,033     $         7,992     $              --     $  25,025

                                                Cinema                               Intersegment
Nine Months Ended September 30, 2011         Exhibition          Real Estate        Eliminations           Total
Revenue                                    $      173,577     $        18,981     $          (5,000 )   $ 187,558
Operating expense                                 143,352               7,430                (5,000 )     145,782
Depreciation and amortization                       8,869               3,358                    --        12,227
General and administrative expense                  1,930                 524                    --         2,454
Segment operating income                   $       19,426     $         7,669     $              --     $  27,095

Table of Contens

-32-

Reconciliation to net income attributable                      2012 Nine      2011 Nine
to Reading International, Inc. shareholders:                     Months         Months
Total segment operating income                                 $   25,025     $   27,095
Non-segment:
Depreciation and amortization expense                                 336            216
General and administrative expense                                 10,042         10,709
Operating income                                                   14,647         16,170
Interest expense, net                                             (13,608 )      (16,616 )
Other income                                                          202             79
Gain (loss) on sale of assets                                          84            (66 )
Income tax benefit (expense)                                       (1,784 )       13,177
Equity earnings of unconsolidated joint ventures and
entities                                                            1,090          1,087
Income (loss) from discontinued operations                           (121 )          170
Gain on sale of discontinued operation                                 --          1,656
Net income                                                     $      510     $   15,657
Net income attributable to noncontrolling interests                  (149 )         (667 )
Net income attributable to Reading International, Inc.
common shareholders                                            $      361     $   14,990

Cinema Exhibition Segment

Included in the cinema exhibition segment above is revenue and expense from the operations of 52 cinema complexes with 437 screens during the 2012 Quarter and 52 cinema complexes with 433 screens during the 2011 Quarter and management fee income from 2 cinemas with 9 screens in both years. These results reflect the purchase of a U.S. cinema in August 2011 of an existing cinema from a third party, the sale of a cinema in Australia April 2011, and the closing of a New Zealand cinema in January 2012. The following tables detail our cinema exhibition segment operating results for the three months ended September 30, 2012 and 2011, respectively (dollars in thousands):

Three Months Ended September 30, 2012       United States       Australia       New Zealand        Total
Admissions revenue                         $        19,111     $    18,111     $       3,458     $  40,680
Concessions revenue                                  7,795           6,596             1,092        15,483
Advertising and other revenues                       1,378           1,467               238         3,083
Total revenues                                      28,284          26,174             4,788        59,246

Cinema costs                                        24,416          19,473             3,743        47,632
Concession costs                                     1,364           1,298               260         2,922
Total operating expense                             25,780          20,771             4,003        50,554

Depreciation and amortization                        1,592             942               252         2,786
General and administrative expense                     475             178                --           653
Segment operating income                   $           437     $     4,283     $         533     $   5,253

Table of Contens

-33-

Three Months Ended September 30, 2011       United States       Australia       New Zealand        Total
Admissions revenue                         $        19,103     $    21,101     $       3,459     $  43,663
Concessions revenue                                  7,400           6,527               950        14,877
Advertising and other revenues                       1,509           1,606               212         3,327
Total revenues                                      28,012          29,234             4,621        61,867

Cinema costs                                        23,159          20,677             3,658        47,494
Concession costs                                     1,198           1,366               252         2,816
Total operating expense                             24,357          22,043             3,910        50,310

Depreciation and amortization                        1,581           1,101               284         2,966
General and administrative expense                     481             168                --           649
Segment operating income                   $         1,593     $     5,922     $         427     $   7,942

Cinema revenue decreased for the 2012 Quarter $2.6 million or 4.2% compared to the same period in 2011. The 2012 Quarter decrease was primarily due to a decrease in Australian box office admissions of 120,000 and a decrease in the average price per ticket of $0.68, related to the available film product in 2012 compared to the same period in 2011. Our New Zealand and U.S. box office admissions increased by 70,000 resulting in an increase in revenue of $439,000 primarily as a result of the reopening an earthquake damaged New Zealand multiplex in early January 2012 and the acquisition of a U.S. cinema from a third party operator in August 2011. Both the Australian and New Zealand results were affected by a decrease in the value of the Australian and New Zealand dollars compared to the U.S. dollar (see below).

Operating expense increased for the 2012 Quarter $244,000 or 0.5% compared to the same period in 2011. Cinema operating expense increased in our U.S. cinemas by $1.4 million primarily associated with opening of a new cinema in the U.S. in September 2012, the acquisition in 2011 of an existing cinema from a third party, and the anticipated closing of an older cinema in the U.S. These costs were offset by $1.3 million in costs decreases from our Australian circuit which followed the decreased revenues noted above associated with the overall decrease in box office admissions, assisted by a decrease in the value of the Australian and New Zealand dollars compared to the U.S. dollar (see below). Overall, our operating expense as a percent of gross revenue increased from 81.3% to 85.3% primarily due to the aforementioned operating cost increases coupled with the decrease in box office admissions which increased our labor per admit costs and from our fixed property rent costs relative to the aforementioned decrease in revenue.

Depreciation expense decreased for the 2012 Quarter by $180,000 or 6.1% compared to the same period in 2011 due to certain Australian and New Zealand cinema assets coming to the end of their depreciable lives in 2011.

For our statement of operations, the Australian and New Zealand quarterly average exchange rates decreased by 1.0% and 2.8%, respectively, since the 2011 Quarter, which had an impact on the individual components of our income statement.

Because of the above, and driven by the decreased revenue, the cinema exhibition segment income decreased for the 2012 Quarter by $2.7 million or 33.9% compared to the same period in 2011.

Table of Contens

-34-

The following tables detail our cinema exhibition segment operating results for the nine months ended September 30, 2012 and 2011, respectively (dollars in thousands):

Nine Months Ended September 30, 2012        United States       Australia       New Zealand        Total
Admissions revenue                         $        57,772     $    52,786     $      10,123     $ 120,681
Concessions revenue                                 23,579          18,506             3,050        45,135
Advertising and other revenues                       3,927           4,234               659         8,820
Total revenues                                      85,278          75,526            13,832       174,636

Cinema costs                                        71,068          56,724            11,001       138,793
Concession costs                                     3,888           3,687               749         8,324
Total operating expense                             74,956          60,411            11,750       147,117

Depreciation and amortization                        4,891           2,710               748         8,349
General and administrative expense                   1,599             538                --         2,137
Segment operating income                   $         3,832     $    11,867     $       1,334     $  17,033

Nine Months Ended September 30, 2011        United States       Australia       New Zealand        Total
Admissions revenue                         $        54,870     $    57,904     $       9,724     $ 122,498
Concessions revenue                                 21,182          18,147             2,595        41,924
Advertising and other revenues                       4,032           4,578               545         9,155
Total revenues                                      80,084          80,629            12,864       173,577

Cinema costs                                        66,728          58,408            10,317       135,453
Concession costs                                     3,365           3,875               659         7,899
Total operating expense                             70,093          62,283            10,976       143,352

Depreciation and amortization                        4,807           3,205               857         8,869
General and administrative expense                   1,488             442                --         1,930
Segment operating income                   $         3,696     $    14,699     $       1,031     $  19,426

Despite the somewhat weak 2012 Quarter, cinema revenue still increased for the 2012 Nine Months by $1.1 million or 0.6% compared to the same period in 2011. The 2012 Nine Months increase was primarily due to an increase in U.S. and New Zealand box office admissions of 447,000 and 127,000, respectively. The uplift in box office admissions in the U.S. was primarily from the improved film product noted in the first quarter of 2012 and from the acquisition of a cinema from a third party in August 2011 while the increase in New Zealand was primarily as a result of the reopening of an earthquake damaged New Zealand multiplex in early January 2012. These changes resulted in an increase in box office revenue from our U.S. and New Zealand circuits of $3.3 million and an increase in concessions and other revenue of $2.9 million. Our New Zealand revenue was also impacted by an increase in the value of the New Zealand dollar compared to the U.S. dollar (see below) for the 2012 Nine Months compared to the same period in 2011. Our Australian cinema revenue decreased by $5.1 million primarily relating to an 184,000 decrease in box office admissions coupled with a $0.54 decrease in the average ticket price per admission. This decrease included the temporary closure of a cinema in Australia due to renovations during the second quarter. As noted below, there was only a nominal change in the Australian dollar compared to the U.S. dollar for the comparable periods.

Table of Contens

-35-

Operating expense increased for the 2012 Nine Months by $3.8 million or 2.6% compared to the same period in 2011. This increase mainly followed the increased revenues noted above primarily relating to the improved film product in the first quarter of 2012 compared to 2011. The operating expense was also impacted by the increase in the value of the New Zealand dollar compared to the U.S. dollar (see below). Overall, our operating expense as a percent of gross revenue increased from 82.6% during the 2011 Nine Months to 84.2% for the 2012 Nine Months.

Depreciation expense decreased for the 2012 Nine Months by $520,000 or 5.9% compared to the same period in 2011 due to certain Australian and New Zealand cinema assets coming to the end of their depreciable lives in 2011.

General and administrative costs increased for the 2012 Nine Months by $207,000 or 10.7% compared to the same period in 2011 due to an increase in payroll and travel related costs for our U.S. and Australian cinema circuits.

For our statement of operations, the Australian average exchange rates decreased by 0.4% for the 2012 Nine Months while the New Zealand average exchange rates increased 1.3% for the 2012 Nine Months, compared to the 2011 Nine Months, which had an impact on the individual components of our income statement.

Because of the above, the cinema exhibition segment income decreased for the 2012 Nine Months by $2.4 million or 12.3% compared to the same period in 2011 principally related to the decrease Australian cinema box office admissions.

Real Estate Segment

The following tables detail our real estate segment operating results for the
three months ended September 30, 2012 and 2011, respectively (dollars in
thousands):

Three Months Ended September 30, 2012       United States       Australia       New Zealand        Total
Live theater rental and ancillary income   $           669     $        --     $          --     $     669
Property rental income                                 434           3,601             1,866         5,901
Total revenues                                       1,103           3,601             1,866         6,570

Live theater costs                                     490              --                --           490
Property rental cost                                   273           1,859               531         2,663
Total operating expense                                763           1,859               531         3,153

Depreciation and amortization                           74             706               328         1,108
General and administrative expense                      51             133                13           197
Segment operating income                   $           215     $       903     $         994     $   2,112

Table of Contens

-36-

Three Months Ended September 30, 2011       United States       Australia       New Zealand        Total
Live theater rental and ancillary income   $           678              --     $          --     $     678
Property rental income                                 398           3,362             1,916         5,676
Total revenues                                       1,076           3,362             1,916         6,354

Live theater costs                                     471              --                --           471
Property rental cost                                   101           1,417               530         2,048
Total operating expense                                572           1,417               530         2,519

Depreciation and amortization                           82             724               227         1,033
General and administrative expense                      (7 )           119                18           130
Segment operating income                   $           429     $     1,102     $       1,141     $   2,672

Real estate revenue increased for the 2012 Quarter by $216,000 or 3.4% compared to the same period in 2011 primarily related to higher rents and occupancy associated with our Australian retail properties in 2012 compared to the same period in 2011. Both the Australian and New Zealand results were also affected by a decrease in the value of the Australian and New Zealand dollars . . .

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