See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

Reading International, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)Operations 

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

See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

(1)Certain prior period amounts have been reclassified to conform to the current period presentation.   

Reading International,International, Inc. and Subsidiaries

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

(Unaudited; U.S. dollars in thousands)

See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

Reading International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Unaudited; U.S. dollars in thousands)

See accompanying notesNotes to consolidated financial statements.

Consolidated Financial Statements.

Reading International, Inc. and SubsidiariesREADING INTERNATIONAL, INC.

Notes to Condensed Consolidated Financial Statements NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Nine Months Ended September 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 accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“USU.S. 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, certainthey do not include all information and disclosures typicallyfootnotes required by USU.S. GAAP for complete financial statementsstatements. We believe that we have been condensed or omitted.  The financial information presented in this quarterly report on Form 10-Qincluded all normal recurring adjustments necessary for a fair presentation of the results for the period ended September 30, 2014 (the “September Report”) should be read in conjunction with our Annual Report filed on Form 10-Kinterim period. Operating results 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 nine (“2014 Nine Months”) months ended September 30, 2014 and the three (“2013 Quarter”) and nine (“2013 Nine Months”) months ended September 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 September 30, 2014 and the results of our operations and cash flows for the threequarter and nine months ended September 30, 2014 and 2013 have been made. The results of operations for the three and nine months ended September 30, 20142015 are not necessarily indicative of the results of operations tothat may be expected for the entire year.year ending December 31, 2015.

Out of Period Adjustment

During this quarter, we identified an adjustment of approximately $1.4 millionPlease note that certain prior period amounts have been reclassified to conform to the deferred tax asset that was originated from a transaction we effectuatedcurrent period presentation. These financial statements should be read in Australia in 2013.  The adjustment increasedconjunction with the deferred tax asset with a corresponding increase to other comprehensive income.  We determined that the adjustment did not have a material impact to our current or prior period consolidated financial statements.

Expiring Debt and Liquidity Requirements

Expiring Long-Term Debt

Our New Zealand Corporate Credit Facility matures on March 31, 2015 and as such the balance of $21.8 million (NZ$28.0 million) has been reclassified as a current liability on the consolidated balance sheet as of September 30, 2014.

Additionally, 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 September 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.

Tax Settlement Liability

As indicated in our 2013Company’s 2014 Annual Report in accordance withon Form 10-K.  

Recently Issued and Recently Adopted Accounting Pronouncements

Adopted:

On January 1, 2015, the agreement betweenCompany adopted changes issued by 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.

Liquidity

For the above mentioned liabilities, we believe that we have the required liquidity to meet these obligations either through the extension or replacement of maturing debt or the generation of cash from our operating activities.  Together with our $40.6 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 comprised 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 comprised of goods 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 $51,000 and $55,000 at September 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(FASB) to reporting period.  These investments have a cumulative gain of $7,000 included in accumulated other comprehensive income at September 30, 2014.  For the three and nine months ended September 30, 2014, our net unrealized gain (loss) on marketable securities was ($1,000) and ($2,000), respectively.  For the three and nine months ended September 30, 2013, our net unrealized gain (loss) on marketable securities was ($2,000) and $2,000, respectively.  During the nine months ended September 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 nine months ended September 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. disclosures of disposals of components of an entity. These changes require a disposal of a component to meet a higher threshold in order to be reported as a discontinued operation in an entity’s financial statements. The threshold is defined as a strategic shift that has, or will have, a major effect on an entity’s operations and financial results such as a disposal of a major geographical area or a major line of business. In addition, the following two criteria have been removed from consideration of whether a component meets the requirements for discontinued operations presentation: (i) the operations and cash flows of a disposal component have been or will be eliminated from the ongoing operations of an entity as a result of the disposal transaction, and (ii) an entity will not have any significant continuing involvement in the operations of the disposal component after the disposal transaction. Furthermore, equity method investments now may qualify for discontinued operations presentation. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date, and isdate. The adoption of these changes had no material impact on the Consolidated Financial Statements.

Issued:

In September 2015, the FASB issued Accounting Standards Update ("ASU") 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, effective for the Company on January 1, 2016.  Under the ASU, an acquirer in a business combination transaction must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation or amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively.  The ASU also requires that the acquirer present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.

In April 2015, the FASB issued ASU 2015-03, Interest- Imputation of Interest (Subtopic 835-03) - Simplifying the Presentation of Debt Issuance Costs which requires unamortized debt issuance costs to be presented as a reduction of the corresponding debt liability rather than a separate asset. These changes become effective for the Company on January 1, 2015. However, all entities may adopt2016. The adoption of this standard is not expected to have a material impact on the guidance early for new disposals (or new classifications as held for sale) that have not been reported inCompany's financial statements previously issued or available for issuance.statement disclosures.

In May 2014, the Financial Accounting Standards BoardFASB 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. generally accepted accounting principles.GAAP.  Under the new model, recognition of revenues occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  The new standard isbecomes effective for us beginning in the first quarter of 2017; earlyCompany on January 1, 2018. Early adoption is prohibited.permitted but cannot be earlier than January 1, 2017. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application.  We have not yet selected a transition method nor have we determined the impact of the new standard on our consolidated condensed financial statements.  While we believe the proposed guidance will not have a  material impact on our business because our revenue predominantly comes from movie ticket sales and concession purchases, we plan to complete the analysis to ensure that we are in compliance prior to the effective date.

Note 2 – EquityBusiness Segments

Reported below are the operating segments of the Company for which separate financial information is available and Stock-Based Compensationfor which segment results are evaluated regularly by the Chief Executive Officer.  In addition to the cinema exhibition and real estate activities, we have acquired, and continue to hold, raw land in urban and suburban centers in Australia, New Zealand, and the United States, as part of our real estate activities.  

Stock-Based Compensation

DuringThe tables below summarize the nine months ended September 30, 2014 and 2013, we issued 125,209 and 217,890, respectively, Class A Nonvoting shares to an executive employee associated withresults of operations for each of our business segments for the vesting of his prior years’ stock grants.  During the threequarter and nine months ended September 30, 2015 and 2014, we accrued $300,000 and $900,000, respectively, in compensationrespectively.  Operating expense includes costs associated with the vestingday-to-day operations of executive employee stock grants. During the threecinemas and nine months ended September 30, 2013, we accrued $188,000 and $564,000, respectively, in compensation expense associated with the vestingmanagement of executive employee stock grants.rental properties, including our live theater assets.

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

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 nine months ended September 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.  Unusually, during the nine months ended September 30, 2014, we had forfeitures of 64,000 options for the Class A common stock as a result of employee terminations.  It is the company’s policy,  unless adjusted by the Compensation Committee, to give the terminated employee three months from their termination date to exercise their options.  If the options are not exercised within the three month period, they are considered forfeited.

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 nine months ended September 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:

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 $ 33,000 and $ 102,000 for the three and nine months ended September 30, 2014, respectively, and $77,000 and $130,000 for the three and nine months ended September 30, 2013, respectively.  At September 30, 2014, the total unrecognized estimated compensation cost related to non-vested stock options granted was $385,000, which we expect to recognize over a weighted average vesting period of 1.96 years.  141,100 options were exercised, during the nine months ended September 30, 2014 having an intrinsic value of $285,000 for which we received $890,000 of cash,  and 62,500 options were exercised during the nine months ended September 30, 2013 having an intrinsic value of $132,000 for which we received $249,000 of cash.  The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at September 30, 2014 was $1.1 million of which 66.2% are currently exercisable.

Pursuant to both our 1999 Stock Option Plan and our 2010 Stock Incentive Plan, all stock options expire no later than ten years from 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 September 30, 2014 and December 31, 2013:

The weighted average remaining contractual life of all options outstanding, vested, and expected to vest at September 30, 2014 and December 31, 2013 was approximately 3.51 and 4.70 years, respectively.  The weighted average remaining contractual life of the exercisable options outstanding at September 30, 2014 and December 31, 2013 was approximately 3.45 and 3.63 years, respectively.

Note 3 – Business Segments

We organize our operations into two reportable business segments within the meaning of FASB ASC 280-10 - Segment Reporting.  Our reportable segments are (1) cinema exhibition and (2) real estate.  The cinema exhibition segment is engaged in the development, ownership, and operation of multiplex cinemas.  The real estate segment is engaged in the development, ownership, and operation of commercial properties.  Incident to our real estate operations, we have acquired, and continue to hold, raw land in urban and suburban centers in Australia, New Zealand, and the United States.

The tables below summarize the results of operations for each of our principal business segments for the three months ended September 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):

The tables below summarize the results of operations for each of our principal business segments for the nine months ended September 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):

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 (collectively “foreign operations”) on a self-funding basis.  The carrying valuebasis where we use cash flows generated by foreign operations to pay for the expense of ourforeign operations.  Our Australian and New Zealand assets and liabilities fluctuate dueare translated from their functional currencies of Australian dollar (A$) and New Zealand dollar (NZ$), respectively to U.S. dollar based on the exchange rate as of September 30, 2015. The carrying value of the assets and liabilities of our foreign operations fluctuates as result of changes in the exchange rates between the U.S. dollarfunctional currencies of the foreign operations and the functionalU.S. dollar. The translation adjustments are accumulated in the Accumulated Other Comprehensive Income in the Consolidated Balance Sheets.

Because we intend to conduct business on a self-funding basis (except for funds used to pay on appropriate share of our domestic corporate overhead), we do not believe the currency of Australia (Australian dollar) and New Zealand (New Zealand dollar).  We have nofluctuations present a material risk to the Company.  As such, we  do not use derivative financial instruments to hedge against the risk of foreign currency exposure.

Presented in the table below are the currency exchange rates for Australia and New Zealand as of September 30, 2014 ,2015,  December 31, 20132014 and September 30, 20132014

Note 54 – Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computedcalculated by dividing the net income (loss) attributable to Reading International, Inc.the Company’s common shareholdersstockholders by the weighted average number of common shares outstanding during the period.  Diluted earnings (loss) per shareEPS is computedcalculated by dividing the net income (loss) attributable to Reading International, Inc.the Company’s common shareholdersstockholders by the weighted average number of common and common equivalent 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 undercalculated using the treasury stock method.  method for equity-based compensation awards. 

The following istable sets forth the computation of basic and diluted EPS and a calculationreconciliation of earnings (loss) per share (dollars in thousands, except share data):the weighted average number of common and common equivalent shares outstanding.