FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1995
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 1-649
READING COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-6000773
(State of incorporation) (I.R.S. Employer Identification No.)
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 215-569-3344
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 [X] No [ ]
There were 4,961,150 shares of Class A Common Stock and 12,217 shares of
Common Stock outstanding as of May 5, 1995.
INDEX
READING COMPANY AND SUBSIDIARIES
PAGE
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 1995
(Unaudited) and December 31, 1994............................................................... 3-4
Condensed Consolidated Statements of Operations -- Three Months
Ended March 31, 1995 and 1994 (Unaudited)....................................................... 5
Condensed Consolidated Statements of Cash Flows -- Three Months
Ended March 31, 1995 and 1994 (Unaudited)....................................................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17-18
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................................... 19
Signatures.................................................................................................. 20
-2-
PART I -- Financial Information
Item 1. Financial Statements
Reading Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
- - -----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, DECEMBER 31,
1995 1994*
- - -----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 21,537 $ 9,413
Available-for-sale treasury securities 23,743 35,523
Amounts receivable 123 280
Restricted cash 333 333
Inventories 75 86
Prepayments and other current assets 517 593
Due from insurance companies 382 751
Deferred tax asset 0 132
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Total current assets 46,710 47,111
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Other investments 436 438
Restricted cash 597 597
Real estate held for sale or development 1,111 1,111
Property and equipment:
Buildings 718 720
Capitalized premises lease 538 538
Leasehold improvements 3,585 3,560
Equipment 2,821 2,811
Construction-in-progress 172 103
----------- ------------
7,834 7,732
Less: Accumulated depreciation 837 726
----------- ------------
6,997 7,006
Intangible assets:
Beneficial leases -- net of accumulated amortization of $682 in 1995 and $455 in
1994 16,226 16,453
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25,367 25,605
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$ 72,077 $ 72,716
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- - -----------------------------------------------------------------------------------------------------------------
* The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
-3-
Reading Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
- - -----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, DECEMBER 31,
1995 1994*
- - -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,064 $ 1,468
Accrued compensation 220 218
Accrued taxes and other 556 627
Film rent payable 138 359
Other liabilities 964 1,056
- - -----------------------------------------------------------------------------------------------------------------
Total current liabilities 2,942 3,728
- - -----------------------------------------------------------------------------------------------------------------
Capitalized lease, less current portion 524 525
Other liabilities 2,417 2,377
Commitments and contingencies (See Note 10)
Shareholders' Equity
Preferred stock, par value $1.00 per share:
Authorized -- 5,000,000 shares
Common stock, par value $.01 per share:
Authorized -- 10,000,000 shares
Issued 1995 -- 12,218 shares; 1994 -- 12,291 shares 1 1
Class A common stock, par value $.01 per share:
Authorized -- 15,000,000 shares
Issued 1995 -- 5,144,473 shares; 1994 -- 5,144,400 shares 51 51
Unrealized loss on available-for-sale securities (99) (286)
Other capital 55,107 55,057
Retained earnings 13,756 13,884
Class A common stock in treasury, at cost:
1995 -- 183,287 shares; 1994 -- 183,250 (2,621) (2,621)
- - -----------------------------------------------------------------------------------------------------------------
66,194 66,086
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$ 72,077 $ 72,716
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
* The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
-4-
Reading Company and Subsidiaries
Consolidated Statements of Operations
(in thousands, except shares and per share amounts)
THREE MONTHS ENDED
MARCH 31,
- - ----------------------------------------------------------------------------------------------------------------
1995 1994
- - ----------------------------------------------------------------------------------------------------------------
REVENUES:
Theater:
Admissions $ 2,262 $ 0
Concessions 809 0
Advertising and other 134 0
Real estate management and sales 68 85
Interest and dividends 508 645
Other 27 25
- - ----------------------------------------------------------------------------------------------------------------
3,808 755
- - ----------------------------------------------------------------------------------------------------------------
EXPENSES:
Theater costs, including depreciation and amortization of $376 in 1995 2,665 0
Theater concession costs 140 0
General and administrative 941 880
- - ----------------------------------------------------------------------------------------------------------------
3,746 880
- - ----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 62 (125)
Income tax provision 141 0
- - ----------------------------------------------------------------------------------------------------------------
Net loss $ (79) $ (125)
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
Per share information:
Net loss $ (0.02) $ (0.03)
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
Average shares outstanding 4,973,429 4,973,575
------------------------
------------------------
See Notes to Condensed Consolidated Financial Statements.
-5-
Reading Company and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
- - -----------------------------------------------------------------------------------------------------------------
1995 1994
- - -----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (79) $ (125)
Adjustments to reconcile net loss to net cash provided from (used for) operating
activities:
Gain on sale of other real estate 0 (43)
Depreciation 111 3
Amortization 268 0
Deferred income tax expense 132 0
Changes in operating assets and liabilities:
Increase in accounts receivable (28) (16)
Decrease in inventories 11 0
Decrease in prepaids and other current assets 76 36
Decrease (increase) in insurance proceeds receivable 369 (225)
(Decrease) increase in accounts payable and accrued expenses (473) 301
Decrease in film payable (221) 0
Decrease in other liabilities (93) (48)
Other, net 3 (29)
- - -----------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) operating activities 76 (146)
- - -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (104) 0
Net proceeds from real estate joint venture investments 185 138
Net proceeds from sales of real estate 0 58
Purchases of available-for-sale securities (283) (10,854)
Sales and maturities of available-for-sale securities 12,250 12,708
Loan to OREI (See Note 5) 0 (470)
- - -----------------------------------------------------------------------------------------------------------------
Net cash provided from investing activities 12,048 1,580
- - -----------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 12,124 1,434
Cash and cash equivalents at beginning of year 9,413 177
- - -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 21,537 $ 1,611
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
-6-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated financial statements of Reading Company and
Subsidiaries ("the Company") include the accounts of Reading Company and its
majority-owned subsidiaries. Significant intercompany transactions and accounts
have been eliminated. Certain amounts in previously issued financial statements
have been reclassified to conform with current classifications. The Company
acquired Theater Acquisitions of Puerto Rico, Inc. ("TAPR") during 1994. The
transaction was effective as of July 1, 1994 and the results of TAPR have been
consolidated with the Company's operating results for the three months ended
March 31, 1995 (See Note 3). On December 31, 1994, TAPR was merged into its
parent corporation, Reading Cinemas of Puerto Rico, Inc. ("RCPR") with RCPR the
successor corporation and the operating name changed to Cine Vista (unless
otherwise required by the context, TAPR and RCPR, and Cine Vista may be used
interchangeably herein).
The financial statements have been prepared in accordance with
generally accepted accounting principles for interim information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments of a recurring nature considered necessary for a
fair presentation of the results for the interim periods presented have been
included. Operating results for the three months ending March 31, 1995 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Statement of Cash Flows: For purposes of the
Balance Sheet and Statement of Cash Flows, the Company considers all highly
liquid investments with maturities of three months or less at the time of
acquisition to be cash equivalents. Cash equivalents are stated at cost plus
accrued interest, which approximates market value, and consist primarily of
federal agency securities and short-term money market instruments.
Available-for-Sale Securities: The Company accounts for its debt
securities in accordance with Financial Accounting Standards Board No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Management
has classified the Company's treasury securities with maturities in excess of
three months at the time of purchase as available-for-sale as these investments
are expected to be used to fund expansion of theater operations, acquisition or
other development activities.
The amortized cost of securities available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and the interest related to these securities are included in
"Interest and Dividends" revenues. Any realized gains and losses and declines in
value judged to be other-than-temporary on available-for-sale securities are
included in earnings.
Inventories: Inventories are comprised of confection goods used in Cine
Vista's operations and are stated at the lower of cost (first-in, first-out
method) or net realizable value.
Loss Per Share: Loss per share (Common Stock and Class A Common
Stock) is calculated by dividing the aggregate of the weighted average
shares outstanding during the period and the dilutive effect, if any, of
-7-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
common stock equivalents that are outstanding. Class A Common shares
outstanding under employee stock option plans were 374,732 on March 31, 1995
and 1994.
Property and Equipment: Property and equipment is carried at cost.
Depreciation of buildings, capitalized premises lease, leasehold improvements
and equipment is recorded on a straight line basis over the estimated lives of
the assets or, if the assets are leased, the remaining lease term (inclusive of
options, if likely to be exercised), whichever is shorter. The estimated useful
lives are generally as follows:
Building and Improvements 40 years
Equipment 15 years
Furniture and Fixtures 7 years
Leasehold Improvements 20 years
Intangible Assets: Intangible assets are comprised of beneficial
theater leases used in Cine Vista's operations. The amount of the TAPR purchase
price ascribed to the beneficial leases was determined by an independent
appraiser by computing the present value of the excess of market rental rates
over the rental rates in effect under TAPR's leases at the time of the Company's
acquisition of TAPR and allocating such amount as a component of the purchase
price of TAPR. The beneficial leases are amortized on a straight-line basis over
the remaining term of the underlying leases which approximates 19 years.
NOTE 3 -- ACQUISITIONS
Cine Vista:
Effective July 1, 1994, the Company acquired from Theater Acquisitions,
LP ("TALP") TAPR for an aggregate cash purchase price of approximately
$22,700,000, inclusive of acquisition costs of $323,000. The acquisition was
accounted for using the purchase method and TAPR's operating results since July
1, 1994 have been consolidated with the operating results of the Company. TAPR's
business is seasonal and the three months ended March 31 has historically
provided less than a proportionate share of annual revenues and earnings.
Accordingly, the results of TAPR included in the three-month period ended March
31, 1995 may not be indicative of TAPR's annual operating results.
Cine Vista operates motion picture exhibition theaters in six leased
locations with a total of 36 screens in the Commonwealth of Puerto Rico. Two
additional theaters were under development at the time of the acquisition.
The purchase price is subject to the satisfaction of certain
contingencies in accordance with the provisions of a purchase agreement by and
among TAPR, TALP and the Company dated July 1, 1994 (the "Purchase Agreement").
The landlord of one of Cine Vista's theaters has the right to terminate the
lease relating to space presently housing two screens, subject to six months
notice. Accordingly, $1 million of the purchase price was escrowed and is
payable over 36 months provided the landlord does not cancel the lease during
such period or assert other claims relating to the lease, in which case the
escrow is available for set off. This escrow has been classified as "Restricted
cash." At March 31, 1995, $917,000 is owed to TALP under this arrangement and
has been classified as an "Other liability." Another portion of the purchase
price ($250,000) has been escrowed and is available for set off of certain
claims by the Company against TALP relating to the acquisition.
-8-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
Pro forma operating results are set forth below for the three months
ended March 31, 1994. For purposes of preparing the pro forma operating
statements, the acquisition of TAPR was assumed to be completed at the beginning
of 1994 and certain adjustments have been made, including amortization of
intangibles, depreciation and reductions in "Interest and dividend" income
resulting from payment of the purchase price.
Three Months
Ended
March 31, 1994
--------------------------
Revenues $3,844
==========================
Net loss ($138)
==========================
Per Share:
Net loss ($ .03)
==========================
Other:
On February 21, 1995, the Company and Pacific Theatres Corporation
("Pacific") announced that the Company and Pacific had terminated their
partnership to develop multiplex cinemas in California and Hawaii. James J.
Cotter, Chairman of the Company, is also an officer and director of Pacific.
NOTE 4 -- LEASES
Cine Vista conducts all of its operations in leased premises. The
leases relate to motion picture theaters with remaining terms of 8.5 to 28 years
with certain leases containing options to extend the leases for up to an
additional 30 years. Cine Vista also leases office and warehouse space and
various equipment. Certain theater leases provide for contingent rentals based
upon a specified percentage of theater revenues with a guaranteed minimum.
Performance under one lease has been guaranteed by Reading Company.
Substantially all of the leases require the payment of property taxes, insurance
and other costs applicable to the property. All of these premises leases, except
for one, are accounted for as operating leases. Cine Vista determines annual
rent expense by amortizing total minimum lease obligations on a straight-line
basis over the lease terms.
-9-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
Cine Vista's future minimum lease payments, by year and in the
aggregate, under noncancellable operating leases and a capital lease consist of
the following at March 31:
Capital Operating
Lease Leases
----- ------
1996 $ 95 $ 1,142
1997 95 1,095
1998 95 1,070
1999 95 1,170
2000 95 1,205
1,330 14,451
----- -------
Total net minimum lease payments 1,805 $20,133
=======
Less amount representing interest 1,277
-----
Present value of net minimum lease payments
under capital leases $ 528
=====
NOTE 5 -- OTHER INVESTMENTS
Other investments consisted of the following:
March 31, December 31,
1995 1994
---------------------- ----------------------
Real estate joint ventures $ 54 $ 54
Notes and mortgages 88 90
Railroad stock investments and other 294 294
---------------------- ----------------------
$ 436 $ 438
====================== ======================
Notes and mortgages are predominately comprised of two interest bearing
notes receivable maturing in 1997 and 1999 with interest rates of 6.5% and 7.5%.
The Company loaned Oz Resorts and Entertainment, Inc. ("OREI") a total
of $795,000 during 1993 and 1994. The loans were made as part of a transaction
intended to result in the acquisition by the Company of a controlling interest
in OREI, which owns the rights to The Wonderful World of Oz Theme Park and
Family Resort (the "Oz Resort"), a planned destination theme park, hotel and
golf complex in Kansas City, Kansas. In May 1994, the Company entered into an
agreement with OREI which provides that the Company has a right, but no
obligation, to participate in future debt or equity offerings by OREI. The loan
is convertible into stock of OREI at the election of the Company. In 1994, the
Company elected to fully reserve the loan due to the developmental nature of the
project.
-10-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
NOTE 6 -- REAL ESTATE HELD FOR SALE OR DEVELOPMENT
"Real estate held for sale or development" at March 31, 1995 is carried
at the lower of cost or estimated net realizable value. The Company is exploring
development and sale options for its Center City Philadelphia properties which
are adjacent to the Pennsylvania Convention Center site and is actively seeking
buyers for its properties located outside Center City Philadelphia.
NOTE 7 -- AVAILABLE-FOR-SALE SECURITIES
The adjustment for unrealized holding losses on available-for-sale
securities, included as a separate component of shareholders' equity, totaled
$99,000 as of March 31, 1995. The contractual maturities for all
"available-for-sale securities" as of March 31, 1995 are four months or less for
which the amortized cost and estimated fair value are $23,554,000 and
$23,455,000 respectively.
Accrued interest as of March 31, 1995 and December 31, 1994 was
$288,000 and $478,000, respectively and is included in "available-for-sale
securities" on the balance sheet.
NOTE 8 -- OTHER LIABILITIES
Other liabilities consisted of the following:
March 31, December 31,
1995 1994
------------------------ ----------------------
Reserve for guarantee obligations of
SWS Industries, Inc. (See Note 10) $ 461 $ 555
Obligations related to past railroad operations
and environmental issues (See Note 10) 1,488 1,489
Reorganization obligations 236 236
Cine Vista deferred purchase price (See Note 3) 917 917
Minimum rent liability 123 82
Other 156 154
------------------------ ----------------------
3,381 3,433
Less estimated current portion (964) (1,056)
------------------------ ----------------------
$2,417 $ 2,377
======================== ======================
The reorganization obligations represent the Company's remaining
liability to reorganization debtholders. In accordance with the provisions of
the Company's Plan of Reorganization, the Company is obligated to repay such
indebtedness if the debtholders present their claims for payment to the Company
on or before December 24, 1995. All claims made to date have been paid in
accordance with the Plan of Reorganization.
-11-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
NOTE 9 -- INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standard ("SFAS") No. 109 "Accounting for Income Taxes." Under SFAS
No. 109, an income tax provision is recorded in the statement of operations
using the enacted federal rates and the deferred asset is amortized in an amount
equivalent to the tax provision as the tax benefits are realized. Effective
December 31, 1981, after approval by its shareholders, the Company eliminated
its accumulated deficit by a charge to "Other capital." This
quasi-reorganization did not require the restatement of any assets or
liabilities or any other modification of capital accounts. Tax benefits realized
from the carryforwards of pre-quasi-reorganization losses have been included in
the determination of net income and then reclassified from "Retained earnings"
to "Other capital". Had such tax benefits been excluded from net income, the
Company would have reported a net loss of $132,000 for the three months ended
March 31, 1995.
At January 1, 1995, net operating loss carryforwards totalled $166.8
million of which $127.1 million will expire at the end of 1996 unless utilized
prior thereto and $39.7 million will expire in various amounts between 1997 and
2008 unless previously utilized.
Carryforwards and temporary differences which give rise to the deferred
tax asset are as follows:
March 31, December 31,
1995 1994
---------------------- ----------------------
Net operating loss carryforwards $56,563 $56,695
Reserves 1,044 1,044
Other, net 108 108
---------------------- ----------------------
Gross deferred asset 57,715 57,847
Valuation allowance (57,715) (57,715)
---------------------- ----------------------
Net deferred asset $ 0 $ 132
====================== ======================
Based on an analysis of the likelihood of realizing the Company's gross
deferred tax assets (taking into consideration applicable statutory carryforward
periods), the Company concluded that under SFAS No. 109, a valuation allowance
for substantially the entire amount was necessary.
The Company is required to pay federal alternative minimum tax ("AMT").
AMT is calculated separately from the regular federal income tax and is based on
a flat rate applied to a broader tax base. Amounts payable thereunder cannot be
totally eliminated through the application of net operating loss carryforwards.
The Company recorded AMT expense of $8,800 for the three months ended March 31,
1995 and recorded no AMT expense for the three months ended March 31, 1994.
-12-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
SWS Industries, Inc.
The Company sold a subsidiary, SWS Industries, Inc. ("SWS") in 1987.
SWS subsequently filed for bankruptcy in 1988. Under the terms of the SWS sales
agreement, the Company remained liable as guarantor on various performance bonds
issued on behalf of SWS. The Company's liability under the performance bond
guarantees has been reduced as the related contracts have been completed or
settled. Completion activities will continue through 1995. Management believes
the remaining reserves at March 31, 1995 are adequate for the remaining
obligations of the Company.
Cine Vista
A landlord of Cine Vista has alleged that Cine Vista underpaid rent by
approximately $180,000 for the twelve-month period ended June 30, 1994. The
Company is contesting the landlord's claim and believes the claim to be without
merit. If the landlord were to prevail in its assertion, the Company is
indemnified by TALP for such deficiency during said period. However, the
landlord could assert a similar argument concerning the computation of rent for
the period subsequent to June 30, 1994, which amount would total approximately
$120,000. If the landlord were to assert such a position and prevail, the
Company believes it would be entitled to an appropriate reduction in the
purchase price of TAPR relating not only to the nine months ended March 31, 1995
but also relating to the 18 1/2 future years under the lease.
Historical Railroad Operations
The Company is a defendant in various personal injury legal actions
relating to its railroad operations prior to reorganization and has insurance
coverage relating to such actions. In accordance with the provisions of a 1990
settlement agreement (the "Settlement Agreement") with its insurance carriers,
the Company receives quarterly reimbursement for certain personal injury legal
actions. At March 31, 1995, $382,000 was reimbursable to the Company for amounts
expended in defense and settlement of such actions. This amount has been
classified as "Due from insurance companies." Three participants in the
insurance settlement are insolvent. Unreimbursed claims insured by these
insolvent companies totaled $45,000 from 1992 through March 31, 1995. The
Company believes that it may be entitled to reimbursement of such amounts from
the other parties to the agreement and may file for an arbitration hearing on
such matters. Based upon the backlog of pending personal injury cases and the
Company's experience in settling such cases, the Company has established an
accrual of $147,000 reflecting the potential effect of such insolvencies on
future insurance reimbursement if no recovery is received from either the
insolvent carriers or the other parties to the Settlement Agreement. The accrual
associated with such insolvencies may increase if additional claims are filed;
however, the Company does not believe that such amount will be material.
-13-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
Environmental
Reading Company ("Reading") and a wholly-owned subsidiary, Reading
Transportation Company ("RTC"), have each been advised by the Environmental
Protection Agency ("EPA") that they are potentially responsible parties ("PRPs")
for a site under environmental laws including Federal Superfund legislation
("Superfund"). The EPA issued an Administrative Order under Superfund against 34
PRPs requiring the named parties to incinerate materials at the site pursuant to
a June 30, 1989 Record of Decision ("ROD"). Thirty-six PRPs were also named in a
civil action brought by the United States Government which seeks to recover
alleged costs incurred at the site by the United States Government of
approximately $22 million. Reading and RTC have each been named in a third-party
action instituted by the 36 PRPs. The actions instituted against the Company and
approximately 300 PRPs seek to have the parties contribute to reimbursement for
past costs and any costs associated with further remediation at the site. The
Company believes Reading has meritorious defenses to the claims, including, but
not limited to, its bankruptcy filing, and has sought injunctive relief which,
if granted, would dismiss Reading from all liability now asserted at the site.
RTC has no assets and therefore cannot fund a settlement or judgement relating
to this matter. EPA estimates that the incineration required by the ROD will
cost approximately $53 million. Certain PRPs believe that the cost of the remedy
specified by the ROD will exceed EPA's estimates and proposed an alternative
remedy which was estimated to cost less that $53 million, which alternative was
rejected by EPA in April 1994.
Based upon the RTC's insolvency and the defense available to Reading,
the fact that the future costs established in the ROD are $53 million, the
existence of alternative remedies which cost less than the estimated costs of
the ROD, the Company's counsel estimates the likely range of possible outcomes
of the matter to be from $0 (if the bankruptcy defense is upheld) to $3,000,000
(if the bankruptcy defense is not upheld). The Company increased its "Provision
for environmental matters" by $1,200,000 in 1994 for the potential exposure of
the Company to this matter.
The Company is a party to a consent decree relating to one Superfund
site located on land owned by the Company. Apart from future operation and
maintenance expenses ("O&M"), remediation is complete. During 1994, the Company
paid approximately $106,000 as its estimated share of ten years of O&M and
charged such amount to "Provision for environmental matters" expense. The
Company believes that the amounts expensed to date will be adequate to fund O&M
at the site. If additional amounts were required, such amounts would not be
material.
The Company was named as a defendant in an action seeking the recovery
of $3,800,000 of alleged environmental cleanup costs from five defendants under
various provisions of New Jersey law. The action alleged that certain
contamination at the site relates to the prior railroad operations of the
Pennsylvania Reading Seashore Lines in which the Company has a 33 percent
ownership interest. In May 1995, the Company and the involved parties agreed to
settle this matter. The Company's share of the settlement totaled $235,000 which
approximates the amount previously accrued by the Company to provide for its
share of the liability.
The Company has also undertaken remediation activities at the site of a
former gasoline filling station owned by the Company. In accordance with an
agreement between the Company and a major oil company, the Company is
responsible for 20 percent of the remediation cost and the balance of such cost
is being paid by the oil company. The Company believes the amounts accrued
related to this matter are adequate to fund the required remediation.
-14-
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
In 1991, the Company filed a lawsuit against the Southeastern
Pennsylvania Transportation Authority, Consolidated Rail Corporation, the City
of Philadelphia, and other parties which seeks to recover costs of approximately
$9,000,000 expended by the Company in conjunction with the cleanup of PCBs in
the Reading Terminal Train Shed and a portion of the Viaduct south of Vine
Street. The action also seeks a declaratory judgement as to future costs which
may be incurred in cleaning up the remaining portions of the Viaduct owned by
the Company.
In 1991, the Company removed six underground storage tanks at a site
owned by the Company and in conjunction with such activities submitted an
environmental assessment of the site to the Pennsylvania Department of
Environmental Resources ("PADER"). PADER has advised the Company that no further
action is required at the site. With the advance knowledge and consent of PADER,
the Company extinguished a fire at a Company-owned site which had been used as a
landfill by the Reading Railroad. The Company neither anticipates nor faces any
administrative action against it by PADER concerning the site.
Prior to the Company's reorganization, the Company had extensive
railroad and related operations. Such operations could have contributed to
environmental contamination of properties now owned by the Company, previously
sold or leased by the Company, or to which the Company, prior to its
reorganization, sent waste. The ultimate extent of liabilities, if any, with
respect to such matters, as well as the timing of cash disbursements, if any,
cannot be determined. However, management is of the opinion that while the
ultimate liability resulting from such matters could have a material effect upon
the results of operations in a given year, they will not have a material adverse
effect upon the Company's financial position or liquidity.
At March 31, 1995, the Company has a general environmental accrual of
$63,000 in addition to the specific provisions set forth above. The following is
an analysis of the Company's accrual for environmental claims:
Balance at January 1, 1993 $ 771,000
Provisions 241,000
Payments (676,000)
----------
Balance at December 31, 1993 336,000
Provisions 1,306,000
Payments (133,000)
----------
Balance at December 31, 1994 1,509,000
Provisions 0
Payments (11,000)
----------
Balance at March 31, 1995 $1,498,000
==========
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
March 31, 1995
(amounts in tables in thousands)
NOTE 11 -- RELATED PARTY TRANSACTIONS
Robert F. Smerling serves as president of Cine Vista. In accordance
with the terms of Mr. Smerling's employment, he may borrow up to $1,000,000 from
the Company to acquire up to a 4% interest in Cine Vista. Mr. Smerling has not
notified the Company whether or not he intends to exercise this purchase right.
NOTE 12 -- SUBSEQUENT EVENTS
On April 3, 1995, Reading and ARAMARK (formerly ARA Services, Inc.
"ARA") settled litigation encompassing disputes relating to ARA's tenancy in One
Reading Center, a 32-story office building in which the Company sold its
partnership interest in 1985. (These disputes included matters relating to a
lease assumption agreement whereby Reading undertook certain obligations under
ARA's prior lease and the calculations of certain amounts prepaid under the
Reading/ARA lease.) In settlement of the litigation, the parties exchanged
general releases and the Company received $425,000. This amount will be recorded
as income in the Consolidated Statement of Operations for the three months ended
June 30, 1995.
On May 12, 1995, the Company and Craig Corporation ("Craig") submitted
joint bids for the acquisition of two movie exhibition theater circuits
located in Europe, both of which are owned by Credit Lyonnais S.A. ("CL").
The MGM United Kingdom ("MGM-UK") circuit operates approximately 120
theaters in the United Kingdom and the Irish Republic and would be acquired
by a newly formed company owned in part by the Company, Craig, TCW Special
Credits Fund (The Principal Fund), and Virgin Communications, a member of
the Virgin Group of Companies. The MGM Netherlands ("MGM-NL") circuit
operates 22 theaters in the Netherlands. The Company believes that it is
one of six groups which were selected by CL to submit bids on MGM-UK and
one of several groups selected to submit bids on MGM-NL. The bids are
independent of one another. Even if the Company has submitted the highest
bids for the circuits, no assurances can be given that either of the bids
will be selected by CL or that either of the circuits will be acquired.
Ultimate acquisitions of the circuits are subject to, among other things,
further negotiations, due diligence and documentation and the approval of
the French government. If the MGM-UK and MGM-NL acquisitions are completed,
the Company would be required to utilize substantially all of its liquid
funds and also be required to obtain additional corporate funding in order
to fund its share of the acquisition price.
-16-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
Due to the nature of the Company's historical business activities,
revenues and earnings have varied significantly reflecting the results of real
estate and other asset sales. Accordingly, period-to-period comparisons of
operating results will not be indicative of future financial results. In
addition, the operating results of Cine Vista are only included in the
consolidated operating results of the Company for the current three months ended
March 31, 1995 (See Note 3). Additionally, TAPR's business is seasonal and the
three months ended March 31 has historically provided less than a proportionate
share of annual revenues and earnings. Accordingly, the results of TAPR included
in the three-month period ended March 31, 1995 may not be indicative of TAPR's
annual operating results.
Revenues in the three month period ended March 31, 1995 increased
$3,053,000 to $3,808,000 from $755,000 in the corresponding period last year.
This was due primarily to the inclusion of $3,233,000 in revenue from Cine Vista
in the current three month period. The increase in revenues was offset somewhat
in the three months ended March 31, 1995 by a decrease in "Interest and
dividends" revenue of $137,000 due to lower investable fund balances (due mainly
to the $22,700,000 cash purchase of Cine Vista) in the current three months,
offset somewhat by higher interest yields in the current period.
"General and administrative" expenses increased $61,000 from $880,000
in the corresponding three month period last year. This was due to the addition
of approximately $281,000 (net of management fees) associated with Cine Vista's
general and administrative expenses offset somewhat by a reduction in
professional fees of approximately $52,000 and a $148,000 decrease in
development expenses related to the Oz Resort totaling $186,000 which were
included in the prior year "General and administrative" expenses. "Theater
costs" and "Theater concession costs" reflect the direct theater costs of Cine
Vista's operations for the quarter ended March 31, 1995.
In addition to AMT expense, the Company recorded a deferred income tax
provision of $132,000 in the three months ended March 31, 1995. The deferred tax
asset was amortized for the same amount as the tax benefits were realized.
The Company recorded a net loss of $79,000 and $125,000 for the three
months ended March 31, 1995 and March 31, 1994, respectively.
In addition to the recently completed acquisition of Cine Vista, the
Company continues to seek additional theater acquisition opportunities both
internationally and domestically. The Company has recently made bids to
acquire two theater circuits locatedin Europe (see Note 12).
Liquidity and Capital Resources:
"Cash and cash equivalents" together with "Available-for-sale
securities" increased $344,000 from $44,936,000 at December 31, 1994 to
$45,280,000 at March 31, 1995. While not necessarily indicative of its cash
flows determined under generally accepted accounting principles, Cine Vista's
operating cash flows (income before depreciation and amortization) of $522,000
contributed to the liquid funds in the three months ended March 31, 1995. In
addition to Cine Vista's operating cash flow, other significant sources of
liquid funds during this period included "Interest and dividends" revenue of
$508,000 and a decrease in insurance proceeds receivable of $369,000. Principal
sources of liquid funds in the prior year three month period included $645,000
in "Interest and dividends" revenue and a $301,000 increase in "Accounts payable
and accrued expenses".
In addition to operating expenses, principal uses of liquid funds
during the current three month period included a decrease in "Accounts payable
and accrued expenses" of $473,000 (due to a pay-down of an annual insurance
contract) and a decrease in "Film payable" of $221,000 due to timing. The
principal use of liquid funds for the three months ended March 31, 1994, in
addition to operating expenses, was a $470,000 loan to OREI (See Note 5).
-17-
The Company has significant liquidity and no debt outstanding. The
Company intends to expand Cine Vista's existing operations by developing new
multiplex theaters in the Commonwealth of Puerto Rico which will require
the expenditure of additional funds during the next several years. The
Company is currently in discussions with a major bank for a line of credit
for Cine Vista which will permit the Company to increase its liquid funds
available for acquisition and development activities and also provide
sufficient liquidity to fund Cine Vista's new theater development plans. No
assurances can be made that the Company will be successful in obtaining
financing for Cine Vista. However, even if financing is not obtained, the
Company's existing financial resources are more than adaquate to fund the
Company's existing operations and expansion plans for Cine Vista.
On May 12, 1995, the Company and Craig submitted joint bids for the
acquisition of two movie exhibition theater circuits located in Europe, both
of which are owned by Credit Lyonnais S.A. ("CL") (See Note 12). The bids
are independent of one another. Ultimate acquisition of the circuits are
subject to, among other things, further negotiations, due diligence and
documentation and the approval of the French government. If the MGM-UK and
MGM-NL acquisitions are completed, the Company would be required to utilize
substantially all of its liquid funds and also be required to obtain
additional corporate funding in order to fund its share of the acquisition
price.
-18-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three month
period ended March 31, 1995.
-19-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
READING COMPANY, REGISTRANT
Date: May 15, 1995 By: /s/ James A. Wunderle
-------------------- ---------------------------------------------
James A. Wunderle
Executive Vice President,
Chief Operating Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1995 By: /s/ Eileen M. Mahady
-------------------- ---------------------------------------------
Eileen M. Mahady
Controller
(Principal Accounting Officer)
-20-