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 June 30, 1998
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 333-13413
READING ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2859312
(State of incorporation) (I.R.S. Employer Identification No.)
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 7,449,364 shares of Common Stock outstanding as of August 10, 1998.
INDEX
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
PART I. - FINANCIAL INFORMATION PAGE
- ------------------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 1998
(Unaudited) and December 31, 1997.......................................................... 3-4
Condensed Consolidated Statements of Operations -- Three Months and Six Months
Ended June 30, 1998 and 1997 (Unaudited)................................................... 5
Condensed Consolidated Statements of Cash Flows -- Six Months
Ended June 30, 1998 and 1997 (Unaudited)................................................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited).............................. 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 12-16
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K.............................................................. 17
Signatures.............................................................................................. 20
-2-
PART I - Financial Information
Item 1. Financial Statements
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1998 1997*
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $77,275 $92,870
Amounts receivable 1,528 1,195
Restricted cash 1,191 4,755
Inventories 234 194
Note receivable 0 721
Prepayments and other current assets 861 568
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 81,089 100,303
- --------------------------------------------------------------------------------------------------------------------------------
Investments in unconsolidated affiliates 9,497 6,511
Net investment in leased equipment 2,127 2,125
Property and equipment - net 54,118 40,312
Notes receivable from joint venture partners 2,314 1,771
Other assets 2,048 2,033
Intangible assets:
Beneficial leases - net of accumulated amortization of $3,654
in 1998 and $3,197 in 1997 13,254 13,711
Cost in excess of assets acquired - net of accumulated
amortization of $1,106 in 1998 and $791 in 1997 10,931 11,246
- --------------------------------------------------------------------------------------------------------------------------------
94,289 77,709
- --------------------------------------------------------------------------------------------------------------------------------
$175,378 $178,012
================================================================================================================================
* The balance sheet at December 31, 1997 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 Consolidated Financial Statements.
-3-
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(in thousands, except share and per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1998 1997*
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,396 $2,464
Accrued taxes 247 657
Accrued property costs and other 1,904 3,319
Film rent payable 1,590 1,637
Note payable 145 645
Purchase commitments 6,264 3,516
Other liabilities 1,020 939
Dividends Payable 894 0
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 14,460 13,177
- ---------------------------------------------------------------------------------------------------------------------------
Capitalized lease, less current portion 506 509
Note payable 1,005 1,100
Other liabilities 4,079 3,735
- ---------------------------------------------------------------------------------------------------------------------------
Total long term liabilities 5,590 5,344
- ---------------------------------------------------------------------------------------------------------------------------
Minority interests 1,999 2,006
Reading Entertainment Convertible Redeemable Series A Preferred Stock, par value $.001 per 7,000 7,000
share, stated value $7,000; Authorized, issued and outstanding - 70,000 shares
Shareholders' Equity
Reading Entertainment Series B Preferred Stock, par value $.001 per share,
stated value $55,000; Authorized, issued and outstanding - 550,000 shares 1 1
Reading Entertainment preferred stock, par value $.001 per share:
Authorized -9,380,000 shares: None issued 0 0
Reading Entertainment common stock, par value $.001 per share:
Authorized -25,000,000 shares: Issued and outstanding -7,449,364 shares 7 7
Other capital 138,637 138,637
Retained earnings 13,601 16,163
Accumulated other comprehensive income (5,917) (4,323)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 146,329 150,485
- --------------------------------------------------------------------------------------------------------------------------
$175,378 $178,012
==========================================================================================================================
* The balance sheet at December 31, 1997 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 Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except shares and per share amounts)
Three Months Ended Six Months Endedd
June 30, June 30,
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Theater:
Admissions $6,187 $4,807 $12,597 $9,059
Concessions 1,874 1,542 3,930 2,852
Advertising and other 328 223 565 433
Real estate 170 63 212 100
Interest and dividends 1,154 2,429 2,482 4,864
- --------------------------------------------------------------------------------------------------------------------------------
9,713 9,064 19,786 17,308
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Theater costs 6,130 4,769 12,357 9,145
Theater concession costs 420 328 857 626
Depreciation and amortization 894 616 1,742 1,233
General and administrative 2,358 2,655 4,474 4,273
- --------------------------------------------------------------------------------------------------------------------------------
9,802 8,368 19,430 15,277
- --------------------------------------------------------------------------------------------------------------------------------
Income from operations (88) 696 356 2,031
Equity in earnings of affiliates (8) 70 110 136
Other income (expense), net 185 9 (447) 238
- --------------------------------------------------------------------------------------------------------------------------------
Income before minority interests and
income taxes 89 775 19 2,405
Minority interests 65 58 159 104
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 24 717 (140) 2,301
Income taxes 214 162 407 321
- --------------------------------------------------------------------------------------------------------------------------------
Net (loss) income (190) 555 (547) 1,980
Less: Preferred stock dividends and amortization
of asset put option (1,076) (1,077) (2,155) (2,153)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common
shareholders ($1,266) ($522) ($2,702) ($173)
================================================================================================================================
Basic and diluted per share information:
- --------------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common shareholders
after preferred stock dividends
and amortization of asset put option ($0.17) ($0.07) ($0.36) ($0.02)
================================================================================================================================
Weighted average common shares outstanding 7,449,364 7,449,364 7,449,364 7,449,364
See Notes to Condensed Consolidated Financial Statements.
-5-
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
June 30,
- -------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) income ($547) $1,980
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation 970 462
Amortization 772 771
Deferred rent expense 56 484
Loss (Gain) on disposal of assets 423 (26)
Equity in earnings of affiliates (110) (136)
Minority interests 158 104
Changes in operating assets and liabilities:
(Increase) decrease in amounts receivable (314) 1,906
Increase in dividends receivable 0 (3,788)
Increase in inventories (43) (5)
Decrease (increase) in prepayments and other current assets 430 (176)
Decrease in accounts payable and accrued expenses (1,835) (5,464)
(Decrease) increase in film rent payable (40) 352
Increase (decrease) in other liabilities, net 118 (3)
Other, net 0 (151)
- -------------------------------------------------------------------------------------------------------------
Net cash (provided by) operating activities 38 (3,690)
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net proceeds from sale of real estate 0 30
Purchase of property and equipment (16,644) (2,244)
Decrease in restricted cash 3,474 1,596
Decrease in due to affiliate 0 (156)
Increase in purchase commitment 3,056 0
Investment in Joint Venture (3,508) 0
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,622) (774)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of Stock Transactions issuance costs 0 (366)
Minority interest distributions (161) (181)
Decrease in note payable (574) (1,500)
Payment of preferred stock dividends (1,121) (2,153)
- -------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,856) (4,200)
- -------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (155) (1,039)
- -------------------------------------------------------------------------------------------------------------
(Decrease) in cash and cash equivalents (15,595) (9,703)
Cash and cash equivalents at beginning of year 92,870 48,680
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $77,275 $38,977
=============================================================================================================
See Notes to Condensed Consolidated Financial Statements.
-6-
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1998
(amounts in tables in thousands)
NOTE 1 -- BASIS OF PRESENTATION
Reading Entertainment, Inc. ("REI" or "Reading Entertainment" and
collectively, with its subsidiaries and predecessors, "Reading" or the
"Company") is in the business of developing and operating multiplex cinemas in
the United States, Puerto Rico, and Australia and of developing, and eventually
operating, entertainment centers in Australia. The Company operates its cinemas
through various subsidiaries under the Angelika Film Centers and Reading Cinemas
names in the mainland United States (the "Domestic Cinemas"); through Reading
Cinemas of Puerto Rico, Inc., a wholly owned subsidiary, under the CineVista
name in Puerto Rico ("CineVista" or the "Puerto Rico Circuit"); and through
Reading Australia Pty., Limited (collectively with its subsidiaries referred to
herein as "Reading Australia") under the Reading Cinemas name in Australia (the
"Australia Circuit"). The Company's entertainment center development activities
in Australia are also conducted through Reading Australia, under the Reading
Station name.
In April 1998, the Company entered the New Zealand market through
investments representing a fifty percent ownership in certain joint ventures
("NZ JV's") for approximately $2,930,000. The Company is also a participant in
two real estate joint ventures in Philadelphia, Pennsylvania and holds certain
property for sale located primarily in Philadelphia and owns certain leased
equipment which it leases to third parties.
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim information. Accordingly, they do
not include all 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 six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997.
Certain amounts in previously issued financial statements have been
reclassified to conform with the current period presentation.
NOTE 2 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes rules for the reporting and presentation of comprehensive
income and its components. SFAS 130 requires foreign currency translation
adjustments which, prior to adoption, were reported separately in shareholders'
equity to be included in other comprehensive income. The accumulated foreign
currency translation adjustment as of December 31, 1997 has been reclassified to
conform to the requirements of SFAS 130 and has been reflected as "Accumulated
other comprehensive income" in the Condensed Consolidated Balance Sheets. The
adoption of SFAS 130 did not impact the Company's net loss or total
shareholders' equity.
-7-
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1998
(amounts in tables in thousands)
The following sets forth the Company's comprehensive (loss) income for the
periods shown:
Three Months Ended Six Months
June 30, Ended
June 30,
1998 1997 1998 1997
-------------------------------------------------------------
Net (loss) income $ (190) $ 555 $ (547) $ 1,980
Other comprehensive loss net of tax (2,088) (1,058) (1,594) (1,383)
--------------------------------------------------------------
Comprehensive income $(2,278) $ (503) $(2,141) $ 597
=============================================================
NOTE 3 -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company owns 1,564,473 shares of common stock of Citadel Holding
Corporation (together with its consolidated subsidiaries "Citadel") which
represented an ownership interest of approximately 23.5% at June 30, 1998 and
1997, respectively. In December, 1997 Citadel distributed 100% of the stock in
Big 4 Ranch, Inc. ("BRI") to its shareholders. The Company received 1,564,473
shares of BRI representing an ownership interest of approximately 23.5%. BRI
owns a 40% interest in three agricultural partnerships which own agricultural
land located in California. Citadel also owns 40% of the partnerships. The
Company accounts for its investment in the Citadel and BRI common stock by the
equity method. Citadel's net earnings for the six months ended June 30, 1998
were $563,000 and the Company's share of such earnings was $90,000, which amount
is included in the Condensed Consolidated Statement of Operations for the six
months ended June 30, 1998 as "Equity in earnings of affiliates." Citadel's
assets and liabilities totaled $29,340,000 and $10,724,000, respectively, at
June 30, 1998. BRI's net loss for the six months ended June 30, 1998 totaled
$147,000, and the Company's share of such loss, $34,000, has been included in
the Condensed Consolidated Statement of Operations for the six months ended June
30, 1998 as "Equity in earnings of affiliates." BRI's assets and liabilities
totaled $1,064,000 and $10,000, respectively, at June 30, 1998. The closing
price of Citadel's common stock on the American Stock Exchange at June 30, 1998
was $4.94 per share, approximately $2,770,000 in excess of the carrying value at
June 30, 1998. Management believes that the June 30, 1998 carrying value of the
BRI investment approximates its fair value.
Reading Australia owns a 50% interest in the Whitehorse Property Group Unit
Trust ("WPG"). WPG owns a shopping center located near Melbourne, Australia.
WPG's net earnings for the six months ended June 30, 1998 were $108,000 and the
Company's $54,000 share of the net earnings has been included in the Condensed
Consolidated Statement of Operations for the six months ended June 30, 1998 as
"Equity in earnings of affiliate." WPG's assets and liabilities totaled
$10,611,000 and $7,621,000, respectively, at June 30, 1998. The carrying
amount of the Company's 50% interest approximates half of the appraised value of
WPG.
During the second quarter of 1998, the Company formed certain 50/50 joint
ventures with two companies doing business in New Zealand (the "NZ JVs"). These
joint ventures either operate existing cinemas, own land on which existing
cinemas are currently operating, or own land (or options to acquire land) on
which it is currently anticipated that cinemas or entertainment centers will be
constructed. In connection with one of these real estate joint ventures, the
Company has made a loan to one of its joint venture partners of $578,000. The
results of operations of these joint ventures were immaterial for the three and
six month period ending June 30, 1998.
-8-
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1998
(amounts in tables in thousands)
The carrying value of each of the Company's equity investments was as
follows:
(Unaudited)
June 30, December 31,
1998 1997
----------------- -------------------
Citadel $4,731 $4,640
BRI 228 263
WPG* 1,608 1,608
NZ JV's** 2,930 0
------ ------
Total $9,497 $6,511
====== ======
* Does not include loan to joint venture partner of approximately $1,736,000.
** Does not include loan to joint venture partner of approximately $578,000.
The carrying value of the Company's foreign currency denominated assets
will fluctuate due to changes in the exchange rate between the Australian, New
Zealand and U.S. dollars.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
(Unaudited)
June 30, December 31,
1998 1997
--------------------- ---------------------
Land - Cinemas $ 382 $ 0
Property under development 7,890 4,137
Land held for development 15,633 10,978
Buildings 1,878 1,959
Capitalized premises lease 538 538
Leasehold improvements 20,811 13,480
Equipment 8,807 7,611
Construction-in-progress and property development costs 1,996 4,599
------- -------
57,935 43,302
Less: Accumulated depreciation (3,817) (2,990)
------- -------
$54,118 $40,312
======= =======
-9-
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1998
(amounts in tables in thousands)
The carrying value of Reading Australia's assets will fluctuate due to
changes in the exchange rate between the Australian and U.S. dollar.
NOTE 5 -- INCOME TAXES
The Company recorded $31,000 and $100,000 in state and local income tax
expense for the six months ended June 30, 1998 and 1997, respectively, related
to earnings from the Domestic Cinemas. The Company recorded tax provisions of
$376,000 and $221,000 for the six months ended June 30, 1998 and 1997,
respectively, related to foreign withholding taxes which will be paid if certain
inter-company loans are repaid.
NOTE 6 -- COMMON STOCK TRANSFER RESTRICTIONS
REI common stock (par value $.001) ("Common Stock") is traded on the NASDAQ
National Market under the symbol RDGE and the Philadelphia Stock Exchange under
the symbol RDG. The Company's Articles of Incorporation include restrictions on
the transfer of Common Stock which are intended to reduce the risk that an
"ownership change" within the meaning of Section 382(g) of the Internal Revenue
Code of 1986, as amended, will occur, which change could reduce the amount of
federal tax net loss carryforwards available to offset taxable income. The
restrictions provide that any attempted sale, transfer, assignment or other
disposition of any shares of Common Stock to any person or group who, prior to
the transfer owns (within the meaning of the Code and such regulations) shares
of Common Stock or any other securities of REI which are considered "stock" for
purposes of Section 382, having a fair market value equal to or greater than
4.75% of the value of all outstanding shares of REI "stock" shall be void ab
initio, unless the Board of Directors of the Company shall have given its prior
written approval. The transfer restrictions will continue until January 1, 2003
(unless earlier terminated by the Company's Board of Directors).
NOTE 7 -- (LOSS ) EARNINGS PER SHARE
Net (loss) applicable to common stock shareholders reflects the reduction
for dividends declared on the Company's Series A Voting Cumulative Convertible
Redeemable Preferred Stock (the "Series A Preferred Stock") and Series B Voting
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"),
collectively the "Convertible Preferred Stock" and for amortization of the value
of an estimate of an asset put option (the "Asset Put Option").
The weighted average number of shares used in the computation of basic
(loss) earnings per share were 7,449,364 for both the three and six months ended
June 30, 1998 and 1997. Diluted (loss) earnings per share is calculated by
dividing net (loss) income by the weighted average common shares outstanding for
the period plus the dilutive effect of stock options, convertible securities and
the Asset Put Option. During the three and six-month periods ending June 30,
1998, the Company recorded a net loss applicable to shareholders of $1,268,000
and $2,702,000, respectively, and therefore, stock options, the Convertible
Preferred Stock and the Asset Put Option were anti-dilutive. During the three
months and six months ended June 30, 1997, the Company recorded a net loss
applicable to common shareholders of $522,000 and $173,000, respectively, and
therefore, stock options, the Convertible Preferred Stock and the Asset Put
Option were anti-dilutive.
-10-
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1998
(amounts in tables in thousands)
NOTE 8 -- COMMITMENTS
In April, 1998, Reading Australia entered into a purchase agreement to
acquire a twelve acre site in the Melbourne metropolitan area for a total
purchase price of approximately $7 million. Pursuant to the sale agreement, a
deposit has been made and closing is scheduled to occur in September, 1998.
Under the provisions of the purchase agreement, all risks of ownership have
passed to Reading Australia. Accordingly, the land has been reflected in the
Company's June 30, 1998 Condensed Consolidated Balance Sheet as "Property Under
Development" with the remaining purchase price of approximately $6,264,000
presented as "Purchase Commitment" in the Condensed Consolidated Balance Sheet.
In May, 1998, Reading Australia entered into an agreement with a
transportation authority pursuant to which Reading Australia agreed to make
certain infrastructure improvements to the Frankston Train Station located in
the Melbourne, Australia metropolitan area. Reading Australia has been granted
the right to construct a combination 12 screen cinema and retail entertainment
center together with certain parking facilities on the site and will receive a
permanent license to use, or title to, a 350-space parking garage adjacent to
the site upon completion of the improvements. Pursuant to its agreement with the
authority, Reading Australia is required to post a letter of credit totaling
approximately $3 million to guarantee completion of the improvements.
In addition to the Frankston Train Station construction commitment the
Company has six committed lease agreements for theater facilities with a total
of approximately 60 screens which were then under construction or for which
construction is anticipated to be completed no later than mid 2000. The
aggregate anticipated costs remaining to complete construction for the seven
facilities totaled approximately $55 million.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company has elected to focus its theater development and related real
estate development activities in two principal areas: the development and
operation of state of the art multiplex cinemas in Puerto Rico, the United
States, New Zealand and Australia; and the development and operation in
Australia of entertainment centers typically consisting of a multiplex cinema,
complementary restaurant and retail uses, and self-contained parking.
RESULTS OF OPERATIONS
Due to the nature of the Company's development and acquisition activities
and the timing associated with the results of such activities, the effect of
litigation awards and settlements and the results of operations of six new
cinemas opened in the last two years, historical revenues and earnings have
varied significantly. The Company's entertainment center developments are in the
early stage of development and generally will not produce income or cash flow
for at least eighteen to twenty-four months from the time that all land use
approvals have been secured. Management believes that historical financial
results may not be indicative of future operating results.
Revenue
- -------
Theater Revenue is comprised of Admissions, Concessions and Advertising and
other revenues and totaled the amounts set forth below in each of the three six-
month periods ended June 30, inclusive of minority interest:
1998 1997
---- ----
Six Months $17,092,000 $12,344,000
Three Months $ 8,390,000 $ 6,572,000
CineVista's Theater Revenues increased approximately 15% to $8,275,000 in
the six months ended June 30, 1998 from $7,173,000 in the corresponding prior
year period, primarily as a result of more favorable film product in the first
quarter of 1998. CineVista's Theater Revenue decreased approximately 5% to
$3,903,000 in the three months ended June 30, 1998 from $4,128,000 in the
corresponding prior year period. The decrease in the current year quarter
resulted from a decrease of approximately $608,000 or 15% due to the closure of
four screens during the second quarter of 1997, and the closure of four
additional screens during the first quarter of 1998; offset by an increase in
Theater Revenue of $254,000 or 6% related to the opening of a new eight-plex
theater in June, 1998 and an increase of $146,000 or 4% in cinemas open
throughout each of the respective periods. CineVista is presently in
negotiations to build an additional 10 screens at an existing location and will
commence construction activities for a new leased 12 screen multiplex in the San
Juan metropolitan area in the third quarter of 1998. At June 30, 1998 and 1997,
CineVista operated 50 screens at 8 locations and 44 screens at 7 locations,
respectively.
Domestic Cinemas' Theater Revenues increased approximately 54% to
$5,512,000 for six months ended June 30, 1998 from $3,569,000 in the
corresponding prior year period. Two Domestic cinemas commenced operations in
December, 1997 and accounted for 41% of the increase with the other 13% increase
resulting from more favorable film product at the cinema which was open
throughout the respective periods. These same reasons attributed to an increase
in Theater Revenues of approximately 74% to $2,854,000 for the three months
ended June 30, 1998 from $1,643,000 in the corresponding prior year period.
Reading is currently constructing a new 12 screen cineplex in New Jersey,
scheduled to open in the second quarter of 1999. At June 30, 1998 and 1997
Reading operated 19 screens at 3 locations and 6 screens at 1 location,
respectively.
Theater Revenues for Australian operations increased in excess of 100% to
$3,288,000 for the six months ended June 30, 1998 from $1,602,000 in the
corresponding prior year period, primarily as a result of Reading Australia's
acquisition of a four screen cinema in July, 1997 and the opening of an
additional six screen cinema in December, 1997. These same reasons primarily
contributed to an increase in Theater Revenues in excess of 100% to $1,621,000
for the
-12-
three months ended June 30, 1998 from $801,000 in the corresponding prior year
period. Reading Australia currently has 54 screens at 6 locations under
development in Australia.
Real estate revenues include rental income and the net proceeds of sales of
the Company's historic railroad related real estate in the United States which
the Company is liquidating. Future real estate revenues may increase as larger
properties are sold, however, the Company anticipates its total revenues from
such sales will not be material.
"Interest and dividend" revenues were as follows in each of the three and
six-month periods ended June 30.
1998 1997
---- ----
Six Months $2,482,000 $4,864,000
Three Months $1,154,000 $2,429,000
"Interest and dividend" revenues decreased for both the three and six-month
periods ended June 30, 1998, as compared to the corresponding prior year
periods, primarily as a result of reduced yields realized on the proceeds of the
Stater Bros. Holdings Corporation Series B Preferred Stock (the "Stater
Preferred Stock") which preferred stock was owned by the Company during the
three and six-month periods ended June 30, 1997. The Stater Preferred Stock
accumulated dividends at a rate of 10.5% on the par value of $69,365,000. Upon
redemption of the Stater Preferred Stock in the third quarter of 1997, the
proceeds, par value plus accumulated dividends, were invested in money market
instruments which provided an average yield of approximately 5.5% in the three
and six-month periods ended June 30, 1998.
Expenses
- --------
"Theater costs," "Theater concession costs" and "Depreciation and
amortization," collectively "Theater Operating Expenses," reflect the direct
theater costs of CineVista, the Domestic Cinemas and Reading Australia's theater
operations. Theater Operating Expenses increased approximately 36% to
$14,956,000 for the six months ended June 30, 1998 from $11,004,000 in the
corresponding prior year period, due primarily to the inclusion in the current
year of approximately $3,275,000 of Theater Operating Expenses associated with
two Domestic cinemas which opened in December, 1997 and the two Australian
cinemas which opened in July, 1997 and December, 1997. The remaining increase of
$677,000 is attributable to expense items which vary in proportion to the
increased Theater Revenues. Theater Operating Expenses increased approximately
30% to $7,444,000 in the three-month period ended June 30, 1998 from $5,713,000
in the corresponding prior year period, due primarily to the inclusion in the
current year quarter of Theater Operating Expenses associated with the two
additional Domestic Cinemas and the two additional theaters in Australia.
Theater Operating Expenses as a percentage of Theater Revenues remained constant
for the three and six months ended June 30, 1998 as compared to the
corresponding prior year period.
"General and administrative" expenses for the three and six-month periods
ended June 30, 1998 and 1997 include the following components:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
----------------------------- ------------------------------
CineVista $ 216,000 $ 161,000 $ 608,000 $ 385,000
Domestic Cinemas 155,000 125,000 288,000 251,000
Australia 720,000 1,214,000 1,383,000 1,555,000
Other 1,266,000 1,155,000 2,195,000 2,082,000
---------- ---------- --------- ----------
Total $2,357,000 $2,655,000 $4,474,000 $4,273,000
========== ========== ========== ==========
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CineVista's "General and administrative" expenses in the six-month period
ended June 30, 1998 include a $165,000 charge relating to the closing of four
screens during the period. The charge is comprised of a $395,000 loss on
leasehold improvements net of the reversal of a $230,000 provision for deferred
rent.
Australia's "General and administrative" expenses decreased 11% to
$1,383,000 in the six-month period ended June 30, 1998 from $1,555,000 in the
corresponding prior year period, primarily due to a decrease of approximately
$400,000 in write-offs of previously capitalized property development costs
offset by increased payroll costs, office expenses and carrying costs of land
held for development associated with the continued expansion of operations and
development activities in Australia. Development costs are expensed upon
management's determination that development of the related theater locations
will not be pursued to completion. These same reasons primarily contributed to a
decrease in general and administrative expenses of approximately 41% to $720,000
in the three months ended June 30, 1998 from $1,214,000 in the corresponding
prior year period.
"General and administrative" expenses for the Domestic Cinemas and the
"Other" remained consistent with prior year.
Equity in Earnings of Affiliate
- -------------------------------
"Equity in earnings of affiliates" include earnings from the Company's
investment in Citadel, BRI, WPG and the NZ JV's. The investments in WPG and the
NZ JV's were made in the fourth quarter of 1997 and second quarter of 1998,
respectively, and the Company received its investment in BRI in December 1997;
"Equity in earnings of affiliates" decreased 19% or $26,000 to $110,000 in the
six months ended June 30, 1998 from $136,000 in the corresponding prior year
period primarily due to a decrease in Citadel's net income. "Equity in earnings
of affiliates" decreased in excess of 100% to a loss $8,000 for the three-month
period ended June 30, 1998 from income of $70,000 for the corresponding prior
year period. The results of operations of the NZ JV's were immaterial for the
three and six month period ended June 30, 1998.
Other (expense) Income
- ----------------------
"Other expense" totaled $447,000 in the six months ended June 30, 1998, as
compared to "other income" of $238,000 for the six-month period ended June 30,
1997. Other expense in the current year is comprised primarily of losses on
foreign currency derivative contracts. The Company does not presently have any
foreign currency derivative positions. "Other income" in the six-month period
ended June 30, 1997 was comprised primarily of amounts received from a third
party as reimbursement of certain acquisition related expenditures which were
expensed by the Company in prior periods.
Minority Interests
- ------------------
"Minority interests" for the three and six months ended June 30, 1998
include $65,000 and $159,000, respectively, from minority shares in a Domestic
Cinema's net income, and from minority interests in a Reading Australia cinema's
net income. "Minority interests" for the three and six months ended June 30,
1997 include $58,000 and $104,000, respectively, which reflects minority shares
in a Domestic Cinema's net income and minority interests in a Reading Australia
cinema's net income.
Income Tax Provision
- --------------------
Income tax expense in the six-month period ended June 30, 1998 includes an
accrual for foreign withholding taxes of $376,000 which will be paid if certain
intercompany loans are repaid and state and local taxes of $31,000. Income tax
expense in the six-month period ended June 30, 1997 includes a $222,000
provision for foreign withholding taxes and $100,000 for state and local taxes.
Income tax expense in the three-month period ended June 30, 1998 includes an
accrual for foreign withholding taxes of $197,000 and state and local taxes of
$17,000. Income tax expense
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in the three-month period ended June 30, 1997 includes an accrual for foreign
withholding taxes of $112,000 and state and local taxes of $50,000.
Net loss
- --------
As a result of the above described factors, the Company recorded a "Net
loss" of $547,000 for the six months ending June 30, 1998 and "Net income" of
$1,980,000 in the corresponding prior year period, a reduction in income of
approximately $2,527,000 comprised primarily of an increase in Theater Operating
Income of $796,000 (Theater Revenues less Theater Operating Expenses), less a
$2,382,000 reduction in "Interest and dividend" revenue and a decrease of
$749,000 in "Other income."
Comprehensive Income
- --------------------
The Company had losses in Comprehensive income (Note 3) of $2,088,000 and
$1,594,000 in the three and six month periods ended June 30, 1998. The losses
in the corresponding periods last year were $1,058,000 and $1,383,000,
respectively. The losses reflect the change in Shareholder's equity resulting
from changes in the exchange rate between the U.S. and Australian dollar.
Foreign currency exchange rates in general and in the Pacific Rim countries in
particular (including Australia, New Zealand) have been subject to significant
weakness and volatility during 1998 due to the currency crisis in South East
Asia. The Company's business and operating results may be impacted by the
effects of future foreign currency fluctuations.
In the past the Company has utilized derivative contracts in order
to offset the weakening Australian dollar. No such positions are presently in
place or contemplated by management. The Company's foreign investments are long
term in nature and not readily hedged under normal means. Management believes
that the foreign denominated investments which are presently comprised primarily
of undeveloped real assets are currently hedged by the anticipated foreign
dollar investments which will be required to develop the assets to income
producing levels and that no further hedging is required at this time.
Net Income Applicable to Common Stockholders
- --------------------------------------------
In the three and six-month periods ended June 30,1998 and 1997,
respectively, "Net (loss) income applicable to common stockholders" has been
reduced by the 6.5% per annum dividend on the $62,000,000 stated value of the
Company's convertible preferred stock outstanding and amortization of an asset
put option issued to Citadel.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had liquid funds of $77,275,000. If the
Company is successful in its efforts to develop all of the projects which it is
presently considering in Australia, New Zealand, Puerto Rico and the domestic
market, its capital requirements over the next two years will exceed its
existing cash balances and existing borrowing arrangements. However, the
Company believes that additional funding could be realized through, among other
things, bank borrowings, sale-leaseback transactions and the issuance/sale of
additional equity either of Reading Entertainment, Inc., or at a subsidiary or
the project level. The Company does not presently have property purchase or
development commitments which exceed its liquid funds.
At June 30, 1998, the Company has a construction commitment and six
committed lease agreements for theater facilities with a total of approximately
60 screens which were then under construction or for which construction is
anticipated to be completed no later than mid 2000. The aggregate anticipated
costs remaining to complete construction for the seven facilities totaled
approximately $55 million.
The following summarizes the major sources and uses of cash funds in the
six months ended June 30:
1998:
- ----
"Unrestricted cash and cash equivalents" decreased $15,595,000 from
$92,870,000 at December 31, 1997 to $77,275,000 at June 30, 1998. Working
capital decreased $20,497,000 from $87,126,000 at December 31, 1997 to
$66,629,000 at June 30, 1998.
While not necessarily indicative of results of operations determined under
generally accepted accounting principles, Theater Revenues less direct theater,
general and administrative expenses before interest, depreciation and
amortization ("Theater EBITDA") (inclusive of income from minority interest of
$159,000) totaled $2,820,000 in the six months ended June 30, 1998 versus
Theater EBITDA of $1,705,000 in the corresponding six-month prior year period.
Other principal sources of liquid funds in the current year six-month period
were $2,482,000 in "Interest and
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dividend" income, a net decrease in "Prepayments and other current assets" of
$430,000, a net decrease in "Restricted cash" of $3,474,000 and a net increase
in "Purchase commitments" of $3,056,000.
In addition to other General & Administrative expenses, other uses of
liquid funds in the six months ended June 30, 1998 included $16,644,000 of
property and equipment purchases, a net decrease in "Accounts payable and
accrued expenses" of $1,835,000, an investment in joint ventures (inclusive of
loans to joint venture partners) of $3,508,000, payment of preferred stock
dividends of $1,121,000, and a net decrease in "Notes payable" of $574,000.
1997:
- ----
"Unrestricted cash and cash equivalents" decreased $9,703,000 from
$48,680,000 at December 31, 1996 to $38,977,000 at June 30, 1997. Working
capital increased $66,162,000 from $42,729,000 at December 31, 1996 to
$108,891,000 at June 30, 1997 largely as a result of the reclassification of the
Stater Preferred Stock investment from non-current assets to current assets at
June 30, 1997.
Theater EBITDA (inclusive of minority interest of $104,000) of $1,705,000
contributed to the Company's liquid funds for the six months ended June 30,
1997. Other principal sources of liquid funds in the current year six-month
period were $1,009,000 in "Interest and dividend" income, a net decrease in
"Amounts receivable" of $1,906,000, and a net decrease in restricted cash of
$1,596,000.
In addition to other General & Administrative expenses, other uses of
liquid funds in the six months ended June 30, 1997 included $2,244,000 of
property and equipment purchases, a net decrease in "Accounts payable and
accrued expenses," of $5,464,000, a net increase in "Dividends receivable" of
$3,788,000, payment of preferred stock dividends of $2,153,000, and a net
decrease in "Notes payable" of $1,500,000.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements are
subject to certain risks, trends, and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases and permits for new multiplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and other risks associated with the Company's investment
activities and other factors described herein.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger Among Reading Company, Reading
Entertainment, Inc., and Reading Merger Co. (Incorporated by
reference to Exhibit A to the Proxy Statement/Prospectus included in
Reading Entertainment, Inc.'s Registration Statement on Form S-4,
File No. 333-13413.)
3(i) Certificate of Incorporation of Reading Entertainment, Inc., as
amended. (Incorporated by reference to Exhibit B to the Proxy
Statement/Prospectus included in Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
3(ii) By-laws of Reading Entertainment, Inc., as amended.
4.1 Certificate of Designations, Preferences and Rights of Series A
Voting Cumulative Convertible Preferred Stock and Series B Voting
Cumulative Convertible Preferred Stock of Reading Entertainment, Inc.
(Incorporated by reference to Exhibit G to the Proxy
Statement/Prospectus included in Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
10.1* Reading Company 1992 Nonqualified Stock Option Plan, as amended.
10.2* Service Deed between Australia Cinema Management Pty Limited and
John Rochester dated May 7, 1996. (Incorporated by reference to
Exhibit 10.20 to Reading Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.)
10.3 Exchange Agreement among Reading Company, Reading Entertainment Inc.,
Craig Corporation, Craig Management Inc., Citadel Holding
Corporation, and Citadel Acquisition Corp., Inc. (Incorporated by
reference to Exhibit F to the Proxy Statement/Prospectus included in
Reading Entertainment, Inc.'s Registration Statement on Form S-4,
File No. 333-13413.)
10.4 Asset Put and Registration Rights Agreement dated October 15, 1996 by
and among Reading Entertainment, Inc., Citadel Holding Corporation,
and Citadel Acquisition Corp., Inc. (Incorporated by reference to
Exhibit 10.15 to Reading Entertainment, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1996.)
10.5 Certificate of Designation of the Series B 3% Cumulative Voting
Convertible Preferred Stock of Citadel Holding Corporation.
(Incorporated by reference to Exhibit 10.16 to Reading Entertainment,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996.)
10.6 Preferred Stock Purchase Agreement dated November 10, 1994, between
Citadel Holding Corporation and Craig Corporation. (Incorporated by
reference to Exhibit 2 to Citadel Holding Corporation's Report on
Form 8-K dated November 14, 1994.)
10.7 The Sale Agreement dated as of July 1, 1996, by and among Reading
Investment Company, Inc., as Purchaser, AFCI, as Seller, and Houston
Cinema, Inc., with all Exhibits and Schedules omitted. (Incorporated
by reference to Exhibit 2(a) to Reading Company's Report on Form 8-K
dated August 27, 1996.)
10.8 Amendment to the Sale Agreement made and entered into as of July 27,
1996 by and among Reading Investment Company, Inc., AFCI and Houston
Cinema, Inc. (Incorporated by reference to Exhibit 2(b) to Reading
Company's Report on Form 8-K dated August 27, 1996.)
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10.9 $2,000,000.00 Non-Negotiable Secured Promissory Note dated as of
August 27, 1996 (the "Holdback Note") by AFC, as Maker, to AFCI, as
Payee. (Incorporated by reference to Exhibit 2(c) to Reading
Company's Report on Form 8-K dated August 27, 1996.)
10.10 Pledge Agreement dated August 27, 1996 by and among AFCI, as Secured
Party, and AFC, as Debtor, concerning the cash security for the
Holdback Note. (Incorporated by reference to Exhibit 2(d) to Reading
Company's Report on Form 8-K dated August 27, 1996.)
10.11 Limited Liability Company Agreement between Angelika Cinemas, Inc.
and Sutton Hill Associates dated August 27, 1996. (Incorporated by
reference to Exhibit 10.32 to Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
10.12 Management Agreement dated as of August 27, 1996 between Angelika
Film Centers, LLC and City Cinemas Corporation. (Incorporated by
reference to Exhibit 10.33 to Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
10.13 Purchase Agreement between Equipment Leasing Associates 1995-VI
Limited Partnership and FA, Inc. effective December 20, 1996.
(Incorporated by reference to Exhibit 10.27 to Reading Entertainment,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996.)
10.14 Master Lease Agreement between FA, Inc. and Equipment Leasing
Associates 1995-VI Limited Partnership dated December 20, 1996.
(Incorporated by reference to Exhibit 10.28 to Reading Entertainment,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996.)
10.15 Nonrecourse Promissory Note between FA, Inc. and Equipment Leasing
Associates 1995-VI Limited Partnership effective December 20, 1996.
(Incorporated by reference to Exhibit 10.29 to Reading Entertainment,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996.)
10.16 Lease Rental Purchase Agreement between FA, Inc. and Ralion
Financial Services, Inc. dated December 31, 1996. (Incorporated by
reference to Exhibit 10.30 to Reading Entertainment, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1996.)
10.17*Non-Qualified Stock Option Agreement dated April 18, 1997 by and
between Reading Entertainment, Inc. and James J. Cotter.
(Incorporated by reference to Exhibit 10.1 to Reading Entertainment,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.)
10.18*Reading Entertainment, Inc. Incentive Compensation Plan.
(Incorporated by reference to Exhibit 10.1 to Reading Entertainment,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.)
10.19*Reading Entertainment, Inc. 1997 Equity Incentive Plan.
(Incorporated by reference to Exhibit A to Reading Entertainment,
Inc.'s Definitive Proxy Statement on Schedule 14A as filed with the
Securities and Exchange Commission on August 21, 1997.)
10.20 Master Management Agreement between Angelika Holding, Inc. and City
Cinemas Corporation dated November 26, 1997. (Incorporated by
reference to Exhibit 10.29 to Reading Entertainment, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997.)
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10.21 Agreement by and among Pubic Transport Corporation, Reading
Properties Pty Ltd, and Mackie Group Pty Ltd for development at the
Frankston Railway Station dated May 28, 1998.
10.22 Contract for Sale of Land in Auburn, New South Wales, Australia,
between Nissan Motor Co. (Australia) Pty Limited and Reading
Properties Pty Limited dated April 17, 1998.
27 Financial Data Schedule for the quarter ended June 30, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the reporting period.
* These exhibits constitute the executive compensation plans and arrangements of
the Company.
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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 hereunto duly authorized.
READING ENTERTAINMENT, INC. REGISTRANT
Date: August 14, 1998 By: /s/ James A. Wunderle
--------------- -------------------------------------------
James A. Wunderle
Executive Vice President, Chief Financial
Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 1998 By: /s/ David J. Brown
--------------- -------------------------------------------
David J. Brown
Controller
(Principal Accounting Officer)
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