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, 1999
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, 1999.
INDEX
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
PART I. - FINANCIAL INFORMATION PAGE
- ------------------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 1999
(Unaudited) and December 31, 1998...................................................... 3-4
Condensed Consolidated Statements of Operations -- Three Months and Six Months
Ended June 30, 1999 and 1998 (Unaudited)............................................... 5
Condensed Consolidated Statements of Cash Flows -- Six Months
Ended June 30, 1999 and 1998 (Unaudited)............................................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited).......................... 7-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 13-20
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K...................................................... 21-22
Signatures...................................................................................... 23
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,
1999 1998 *
- -------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $36,388 $58,593
Amounts receivable 541 575
Restricted cash 976 904
Inventories 229 236
Prepayments and other current assets 859 532
- -------------------------------------------------------------------------------------------------------------------
Total current assets 38,993 60,840
- -------------------------------------------------------------------------------------------------------------------
Investments in unconsolidated affiliates 16,807 12,819
Net investment in leased equipment 2,125 2,125
Property held for development 30,080 32,949
Property and equipment - net 57,048 32,534
Notes receivable from joint venture partners 3,191 2,883
Other assets 3,046 4,729
Intangible assets:
Beneficial leases - net of accumulated amortization of $4,568
in 1999 and $4,111 in 1998 12,340 12,797
Cost in excess of assets acquired - net of accumulated
amortization of $1,744 in 1999 and $1,426 in 1998 11,725 10,611
- -------------------------------------------------------------------------------------------------------------------
136,362 111,447
- -------------------------------------------------------------------------------------------------------------------
$175,355 $172,287
===================================================================================================================
* The balance sheet at December 31, 1998 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
Consolidated Balance Sheets (continued)
(in thousands, except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1999 1998 *
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,368 $3,031
Accrued taxes 368 418
Accrued property costs and other 4,554 1,734
Film rent payable 2,268 1,347
Note payable 1,931 743
Purchase commitments 4,234 8,066
Other liabilities 256 123
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 14,979 15,462
- ------------------------------------------------------------------------------------------------------------------------------
Note payable 2,392 920
Other liabilities 5,090 4,606
- ------------------------------------------------------------------------------------------------------------------------------
Total long term liabilities 7,482 5,526
- ------------------------------------------------------------------------------------------------------------------------------
Minority interests 1,904 1,927
Reading Entertainment Convertible Redeemable Series A Preferred Stock, par value $.001 7,000 7,000
per 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 8,309 9,727
Accumulated other comprehensive income (2,964) (6,000)
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 143,990 142,372
- ------------------------------------------------------------------------------------------------------------------------------
$175,355 $172,287
==============================================================================================================================
* The balance sheet at December 31, 1998 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 (Unaudited)
(in thousands, except shares and per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Theater:
Admissions $ 6,716 $ 6,187 $ 12,245 $ 12,597
Concessions 2,085 1,874 3,712 3,930
Advertising and other 393 328 706 565
Real estate 80 170 129 212
Interest and dividends 700 1,154 1,438 2,482
- ---------------------------------------------------------------------------------------------------------------------------------
9,974 9,713 18,230 19,786
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Theater costs 7,234 6,130 13,037 12,357
Theater concession costs 435 420 802 857
Depreciation and amortization 1,091 894 2,077 1,742
General and administrative 2,971 2,357 5,333 4,474
- ---------------------------------------------------------------------------------------------------------------------------------
11,731 9,801 21,249 19,430
- ---------------------------------------------------------------------------------------------------------------------------------
(Loss) income from operations (1,757) (88) (3,019) 356
Equity in earnings of affiliates 2,524 (8) 2,614 110
Other (expense) income, net (121) 185 (119) (447)
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interests and
income taxes 646 89 (524) 19
Minority interests 113 65 178 159
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) income before income taxes 533 24 (702) (140)
Income taxes 266 214 488 407
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 267 (190) (1,190) (547)
Less: Preferred stock dividends and amortization
of asset put option (1,082) (1,076) (2,165) (2,155)
- ---------------------------------------------------------------------------------------------------------------------------------
Net (loss) applicable to common
shareholders ($815) ($1,266) ($3,355) ($2,702)
=================================================================================================================================
Basic and diluted (loss) per share ($0.11) ($0.17) ($0.45) ($0.36)
=================================================================================================================================
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,
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss ($1,190) ($547)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 1,302 970
Amortization 775 772
Deferred rent expense 161 56
Write off of capitalized acquisition and development costs 479 0
Loss on disposal of assets 0 423
Equity in earnings of affiliates (2,614) (110)
Minority interests 178 158
Changes in operating assets and liabilities:
Decrease (increase) in amounts receivable 43 (314)
Decrease (increase) in inventories 12 (43)
(Increase) decrease in prepayments and other current assets (269) 430
Decrease in accounts payable and accrued expenses (593) (1,835)
Increase (decrease) in film rent payable 907 (40)
(Decrease) increase in other liabilities (287) 118
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,096) 38
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property held for development (385) 0
Purchase of property and equipment (15,812) (16,644)
Decrease in restricted cash 29 3,474
(Decrease) increase in purchase committment (6,665) 3,056
Investment in Joint Ventures (650) (3,508)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,483) (13,622)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of preferred stock dividends (228) (1,121)
Minority interest distributions (207) (161)
Note receivable from New Zealand joint venture (109) 0
Payments of notes payable (133) (574)
Net proceeds from notes payable 2,712 0
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities 2,035 (1,856)
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 339 (155)
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (22,205) (15,595)
Cash and cash equivalents at beginning of year 58,593 92,870
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $36,388 $77,275
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
-6-
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(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, Australia, and New Zealand and of developing,
and eventually operating cinema based entertainment centers in Australia and New
Zealand. 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"); through Reading Entertainment Australia Pty.,
Limited (collectively with its subsidiaries referred to herein as "Reading
Australia") under the Reading Cinemas name in Australia (the "Australia
Circuit") and through Reading New Zealand Limited's ("Reading New Zealand")
participation in a cinema joint venture operating under the Berkley Cinemas name
in New Zealand. The Company's entertainment center development activities in
Australia are also conducted through Reading Australia, under the Reading
Station name and in New Zealand under the Reading New Zealand Limited name. In
addition, the Company has recently expanded into the live theater business and
currently owns one live theater, consisting of four auditoriums in Chicago, and
has licensed rights to operate a second live theater located in San Francisco.
The Company is also a participant in two real estate joint ventures in
Philadelphia, Pennsylvania, 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, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. 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, 1998.
Certain amounts in previously issued financial statements have been
reclassified to conform with the current period presentation.
NOTE 2 -- ACQUISITION ACTIVITIES
On March 18, 1999, the Company acquired a four auditorium live theater
complex in Chicago which operates under the name "The Royal George Theatre" for
approximately $2,800,000 of which $1,182,000 of the purchase price was financed
with a purchase money mortgage due in May 2000. Also, in March 1999, the Company
entered into an agreement to license the use of the Marines Theater in San
Francisco through May 2001.
In December 1998, the Company entered into an Agreement in Principle
(the "Agreement in Principle") to lease and operate four cinemas located in
Manhattan and to acquire three live "Off Broadway" theaters also located in
Manhattan and the 16.7% interest in the Angelika Film Center in Manhattan not
already owned by it and certain management rights with respect to three other
cinemas located in Manhattan (collectively the "City Cinemas transaction"). This
transaction is under ongoing review by the Company. It is anticipated that the
transaction will close by the end of the current year.
In connection with the City Cinemas transaction, the Company made a
deposit of approximately $1,000,000, which amount is included as "Other assets"
in the Company's Consolidated Balance Sheet at June 30, 1999. The assets to be
leased or acquired under the City Cinemas transaction are owned jointly by James
J. Cotter, the Chairman of the Board of the Company, and Michael Forman, a
major shareholder of Craig Corporation, which corporation owns approximately 78%
of the Company's voting stock. Responsibility for the review and approval of the
City Cinemas transaction has been delegated to an independent committee of the
REI Board of Directors, and, as that transaction continues to be under the
review of that committee, no assurances may be given that the transaction will
be completed. However, the Company is continuing to work with City Cinemas with
the goal of consummating the transaction by the end of the year.
-7-
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
NOTE 3 -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company owned 2,113,673 shares of common stock of Citadel Holding
Corporation (together with its wholly-owned subsidiaries "Citadel") representing
an ownership interest of approximately 31.7% at June 30, 1999. The Company
accounts for its investment in the Citadel common stock by the equity method.
Citadel's net earnings for the six months ended June 30, 1999 were $8,474,000
and the Company's share of such earnings was $2,564,000, which amount is
included in the Condensed Consolidated Statement of Operations for the six
months ended June 30, 1999 as "Equity in earnings of affiliate." Citadel's
assets and liabilities totaled $34,912,000 and $566,000, respectively, at June
30, 1999. The carrying value of the Company's investment at June 30, 1999
approximates the Company's underlying equity in the net assets of Citadel. The
closing price of Citadel's common stock on the American Stock Exchange at June
30, 1999 was $4.75 per share.
The Company owns 2,226,173 shares of common stock of Big 4 Ranch, Inc.
("BRI") representing an ownership interest of approximately 33.4%. BRI owns a
40% interest in three agricultural partnerships which own agricultural land
located in California. A company controlled and owned by the Chairman of the
Board of the Company and certain members of his family owns a 20% interest in
the partnerships and Citadel owns the remaining 40% interest in the
partnerships. The Company accounts for its investment in the BRI common stock by
the equity method. BRI's net loss for the six months ended June 30, 1999 totaled
$113,000. The Company did not record its share of such loss as the carrying
value of its investment in BRI had previously been reduced to $0. The Company
has no obligation to fund BRI's operating losses.
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 loss for the six months ended June 30, 1999 totaled approximately
$46,000 and the Company's $23,000 share of the loss has been included in the
Condensed Consolidated Statement of Operations for the six months ended June 30,
1999 as "Equity in earnings of affiliate." WPG's assets and liabilities totaled
$11,225,000 and $8,209,000, respectively, at June 30, 1999. Reading Australia
has guaranteed one-half of WPG's total of approximately $7,500,000 of bank debt,
which amount totals approximately $3,750,000. The carrying amount of the
Company's 50% interest approximates half of the estimated value of WPG.
At June 30, 1999, Reading New Zealand owned a 50% interest in two joint
ventures, (the "NZ JVs"), one with a cinema operator and one with a property
developer in New Zealand. The assets of the NZ JVs consisted of two multiplex
cinemas (a five screen cinema on owned land and a four screen leased cinema), a
1.764 acre property located in Wellington, which was acquired as a possible
entertainment center site and a parcel on which a four screen cinema is being
constructed and is expected to open during the third quarter of 1999. The
Wellington joint venture property is subject to a $1,192,000 loan, one-half of
which was borrowed by a wholly-owned subsidiary of Reading New Zealand. In July
1999, Reading New Zealand acquired 100% ownership in the Wellington property by
acquiring the interest held by the Company's joint venture partner for
approximately $1,616,000. In addition to the property interest, the Company's
joint venture partner relinquished rights to acquire a 50% interest in certain
other properties owned by Reading New Zealand in Wellington. The Company's share
of the earnings of the NZ JV's totaled $73,000 for the six months ended June 30,
1999.
Reading New Zealand has entered into contracts to acquire a .215 acre site
adjacent to the Wellington property and a 16-acre site which the Company
acquired as a possible entertainment center site. The aggregate purchase
-8-
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
commitment of the Company under these agreements is $4,234,000. In June 1999,
Reading New Zealand completed the purchase of a 1,086 stall parking garage
located adjacent to the Wellington property for $7,261,000.
The carrying value of each of the Company's equity investments was as
follows:
(Unaudited)
June 30, 1999 December 31, 1998
---------------- -----------------
Citadel $10,723 $ 8,159
BRI 0 0
WPG/1/ 1,578 1,483
NZ JVs/2/ 4,506 3,177
---------------- -----------------
Total $16,807 $12,819
================ =================
The carrying value of the Company's foreign currency denominated assets
will fluctuate due to changes in the exchange rates between the Australian, New
Zealand and U.S. dollars.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following: (Unaudited)
June 30, 1999 December 31, 1998
--------------- --------------------
Land/3/ $ 2,622 $ 378
Buildings 8,306 1,858
Leasehold improvements 27,575 20,522
Equipment 11,447 8,792
Construction-in-progress and property development costs 13,192 5,714
--------------- -------------
63,142 37,264
Less: Accumulated depreciation (6,094) (4,730)
--------------- -------------
$57,048 $32,534
=============== =============
_______________________________
/1/ Does not include a loan to the joint venture partner of approximately
$1,967,000 and $1,769,000 at June 30, 1999 and December 31, 1998, respectively.
/2/ Does not include a loan to the joint venture partner of approximately
$1,224,000 and $1,114,000 at June 30, 1999 and December 31, 1998, respectively.
/3/ Does not include land held for development of $30,080,000 and $32,949,000 at
June 30, 1999 and December 31, 1998, respectively, which is included in
"Property held for development" in the Condensed Consolidated Balance Sheets.
-9-
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
The carrying value of Reading Australia's and Reading New Zealand's assets
will fluctuate due to changes in the exchange rate between the Australian, New
Zealand and U.S. dollar.
NOTE 5 -- INCOME TAXES
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.
For the six months ended June 30, 1999 and 1998, the provision for income taxes
includes AMT expense of $23,000 and $0, $42,000 and $31,000 in state and local
income tax expense, related to earnings from the Domestic Cinemas and $423,000
and $376,000, related to foreign withholding taxes which will be paid if certain
intercompany 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 carry forwards 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 PER SHARE
Net loss available to common 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 for dividends
that have accumulated but have not been declared on the 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
per share were 7,449,364 for both the three and six months ended June 30, 1998
and 1999. Diluted loss 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, 1999 and 1998 the Company
recorded net losses applicable to common shareholders of $815,000, $3,355,000,
$1,266,000 and $2,702,000, respectively. Therefore, the stock options, the
Convertible Preferred Stock and the Asset Put Option, were anti-dilutive.
NOTE 8 -- PURCHASE COMMITMENTS
At June 30, 1999, the Company had commitments for major capital
expenditures, property purchase commitments and purchase money debt commitments
for 1999 and thereafter which totaled approximately $62,000,000 inclusive of
approximately $55,200,000 related to Australia and New Zealand projects.
Included in this amount are expenditures of approximately $35,000,000
(inclusive of accrued expenses of $3,600,000) in 1999, consisting of $26,500,000
to complete construction of eight cinemas with a total of 77 screens which are
anticipated to commence
-10-
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
operations in 1999 (inclusive of a new domestic 12-screen cinema which commenced
operations in May 1999 and a five screen cinema in Australia which commenced
operation in June 1999), $1,700,000 for the construction of a 50% owned three
screen cinema, $1,400,000 for property purchase commitments and $5,400,000 for
entertainment center site preparation costs. With respect to periods subsequent
to 1999, the Company has a development commitment of approximately $21,100,000
relating to an entertainment center in Australia, a $2,900,000 purchase
commitment and a $1,200,000 purchase money mortgage due in May 2000 and other
projects anticipated to aggregate approximately $1,800,000. The totals set forth
above do not include commitments associated with the City Cinemas transaction,
which transaction requires the commitment of up to $36,500,000, eighteen months
after closing.
The U.S. dollar cost of such Australia and New Zealand projects was based
on a conversion rate of .6619 U.S. dollars to each Australian dollar and a
conversion rate of .5299 U.S. dollars to each New Zealand dollar. At June 30,
1999, the Company has not utilized forward contracts to hedge or offset exposure
to market risks arising from changes to foreign exchange rates. Accordingly,
amounts reflected as commitments may fluctuate based upon foreign exchange rates
at the time of payments.
Under the terms of the joint venture agreement with WPG (see Note 3), the
Company has guaranteed approximately $3,750,000 of WPG's $7,500,000 debt which
matured in June 1999. The lender has extended the maturity date to October 1999.
WPG is presently seeking replacement financing. No assurances can be given that
such refinancing will be available from third party sources.
NOTE 9 -- 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 following sets forth the Company's comprehensive (loss) income for the
periods shown:
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------------------------- ------------------------------
Net income (loss) $ 267 ($190) ($1,190) ($547)
Other comprehensive income (loss) net of tax 1,953 (2,088) 3,036 (1,594)
------------------------- ------------------------------
Comprehensive income (loss) $2,220 ($2,278) $1,846 ($2,141)
========================= ==============================
-11-
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Financial Statements (unaudited)
June 30, 1999
(amounts in tables in thousands)
NOTE 10 -- SEGMENT INFORMATION
The following sets forth certain information concerning the Company's two
segments, real estate development and cinema operations, for the three and six
months ended June 30, 1999:
Corporate
Real Estate Cinema and
Three months ended June 30: Development Operations Eliminations Consolidated
-------------------------- -------------------------------------------------------------
1999
----
Revenues $ 0 $ 9,194 $ 780 $ 9,974
Operating loss ($956) ($24) ($777) ($1,757)
1998
----
Revenue $ 0 $ 8,389 $ 1,324 $ 9,713
Operating (loss) income ($535) ($402) $ 45 ($88)
Corporate
Real Estate Cinema and
Six Months ended June 30: Development Operations Eliminations Consolidated
---------------------------- ------------------------------------------------------------
1999
----
Revenues $ 0 $16,663 $ 1,567 $ 18,230
Operating (loss) ($1,704) ($221) ($1,094) ($3,019)
1998
----
Revenues $ 0 $17,092 $ 2,694 $ 19,786
Operating (loss) income ($1,106) $ 977 $ 485 $ 356
-12-
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, Australia, and New Zealand, and the development and operation in
Australia and New Zealand of entertainment centers typically consisting of a
multiplex cinema, complementary restaurant and retail uses, and self contained
parking. In addition, the Company recently expanded into the live theater
business and owns one live theater in Chicago and has licensed rights to operate
a second theater in San Francisco.
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, and the results
of operations of eight new cinemas opened since the fourth quarter of 1997,
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 development approvals have been secured.
Management believes that historical financial results may not be indicative of
future operating results.
Theater Revenues are comprised of Admissions, Concessions and Advertising
and other revenues. "Theater costs" and "Theater concession costs," collectively
"Theater Operating Expenses," reflect the direct theater costs of CineVista, the
Domestic Cinemas and Reading Australia's cinemas. "General and Administrative"
expenses are presented without consideration of intercompany management fees.
Six Months Ended June 30, 1999 and 1998
---------------------------------------
Theater Revenues, Theater Operating Expenses, and General and
Administrative expenses for the six month periods ended June 30 1999 and 1998,
were as follows:
Six months ended June 30:
DOMESTIC
1999 CINE VISTA CINEMAS/1/ AUSTRALIA CORPORATE/2/ TOTAL
- ---- --------------------------------------------------------------------------
Theater Revenue $6,047,000 $6,682,000 $ 3,934,000 $ 0 $ 16,663,000
Theater Operating Expense 5,531,000 5,259,000 3,049,000 0 13,839,000
Depreciation and Amortization 1,038,000 627,000 388,000 24,000 2,077,000
General & Administrative 423,000 240,000 1,822,000/ 3/ 2,848,000 5,333,000
--------------------------------------------------------------------------
($945,000) $ 556,000 ($1,325,000) ($2,872,000) ($4,586,000)
==========================================================================
DOMESTIC
1998 CINE VISTA CINEMAS AUSTRALIA CORPORATE TOTAL
- ----- --------------------------------------------------------------------------
Theater Revenue $8,275,000 $5,529,000 $ 3,288,000 $ 0 $ 17,092,000
Theater Operating Expense 6,480,000 4,297,000 2,437,000 0 13,214,000
Depreciation and Amortization 875,000 509,000 344,000 14,000 1,742,000
General & Administrative 608,000 288,000 1,383,000 2,195,000 4,474,000
--------------------------------------------------------------------------
$ 312,000 $ 435,000 ($876,000) ($2,209,000) ($2,338,000)
==========================================================================
_________________
/1/ Domestic Cinemas operations includes the results of the Royal George Theatre
subsequent to acquisition on March 13, 1999.
/2/ Corporate operations include the non-joint venture operations of Reading New
Zealand and corporate overhead. For the six month and three month periods ending
June 30, 1999, New Zealand expenses totaled $212,000 and $130,000, respectively.
/3/ Includes $1,473,419 and $1,106,338 of General and Administrative expense
associated with Reading Australia's real estate development segment for the six
months ended June 30, 1999 and 1998, respectively.
-13-
CineVista
- ---------
CineVista's Theater Revenues decreased approximately 26.9% or $2,228,000 to
$6,047,000 in the six months ended June 30, 1999 from $8,275,000 in the
corresponding prior year period. The decrease is due in part to more favorable
film product in the first quarter of 1998 and an $800,000 reduction in the
current year as a result of the effect of the closing of a six screen cinema in
1998, the closing of four screens at two other locations in the first quarter of
1998, offset by the opening of an eight screen cinema in the second quarter of
1998. This new cinema contributed an additional $529,000 in revenues in the six
months ended June 30, 1999 versus the contribution in the prior year period.
CineVista is constructing a twelve screen cinema on a leased property in the San
Juan metropolitan area which is expected to open in the fourth quarter of 1999.
CineVista is also in negotiations to build an additional ten screen cinema at an
existing location. At June 30, 1999 and 1998, CineVista operated 44 screens at
seven locations and 50 screens at eight locations, respectively.
CineVista's Theater Operating Expenses decreased approximately 14.7% or
$949,000 to $5,531,000 for the six months ended June 30, 1999, from $6,480,000
in the corresponding prior year period. The decrease from the prior year period
is attributable to expense items which vary directly with the Theater Revenue
(cost of concession and film rental as a percentage of revenues decreased
approximately .9% in the current six month period) and a reduction in fixed
costs associated with the operation of one less site.
CineVista's General and Administrative expenses decreased approximately
30.4% or $185,000 to $423,000 for the six months ended June 30, 1999, from
$608,000 in the corresponding prior year period. General and Administrative
expenses for the six months ended June 30, 1998 included a $165,000 charge
relating to the closing of four screens during the period. The charge was
comprised of a $395,000 loss on leasehold improvements net of a reversal of a
$230,000 provision for deferred rent.
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater Revenues increased approximately 20.9% or
$1,153,000 to $6,682,000 for the six months ended June 30, 1999, from $5,529,000
in the corresponding prior year period in part due to the inclusion in the
current year period of the results of the Tower Theater in Sacramento,
California which commenced operations in November 1998, the inclusion of the
results of the Royal George live theater which was acquired in March 1999, the
inclusion of the results of a new twelve screen cinema located in Manville, New
Jersey, which opened May 16, 1999 and increased revenues at the Company's
cinemas in Houston and Minneapolis. The Company has leased an additional eight
screen cinema in Buffalo, New York which cinema commenced operations July 1999.
At June 30, 1999 and 1998, the Domestic Cinemas operated 34 screens at five
locations and 19 screens at three locations respectively.
Theater Operating Expenses increased approximately 22.4% or $962,000 to
$5,259,000 for the six months ended June 30, 1999, from $4,297,000 in the
corresponding prior year period, primarily as a result of the inclusion of the
newly opened cinemas and theater in the current period.
The Domestic Cinemas' General and Administrative expenses were $48,000 less
in the six months ended June 30, 1999 than in the year prior period six month
period due primarily to reduced management fees paid to operate certain domestic
cinemas.
Australia
- ---------
Theater Revenues for Australian operations increased approximately 19.7% or
$646,000 to $3,934,000 for the six months ended June 30, 1999 from $3,288,000 in
the corresponding prior year period. Approximately $450,000 of the increase
resulted from the contribution of two new cinemas in the current six month
period, a five screen cinema which opened in November 1998 and a five screen
cinema which commenced operations in June 1999. Reading Australia is currently
constructing an entertainment center on land owned by the Company. The complex
will include a ten screen cinema and entertainment related retail space with
operations expected to commence in the fourth quarter of 1999. Reading
Australia is also constructing 35 screens at four leased locations with a five
screen cinema expected to commence operations in the third quarter 1999, and the
remainder expected to commence operation in the fourth quarter
-14-
1999. At June 30, 1999 and 1998, Reading Australia operated 26 screens at five
locations and 16 screens at three locations, respectively.
Theater Operating Expenses for Australian operations increased
approximately 25.1% or $612,000 to $3,049,000 for the six months ended June 30,
1999 from $2,437,000 in the corresponding prior year period. Operating expense
categories which vary proportionately with revenues increased, as a percentage
of revenues, by approximately 6.8% due primarily to increased film rent. Fixed
operating costs increased as a result of the addition of the two new cinemas in
the six months ended June 30, 1999.
General and Administrative costs increased approximately 31.7% or $439,000
to $1,822,000 for the six months ended June 30, 1999 from $1,383,000 in the
corresponding prior year period. The increase primarily related to increased
payroll costs of approximately $280,000 and an increase in development cost
write-offs of $200,000 offset slightly by expense reductions in certain other
expense categories.
Corporate
- ---------
General and Administrative costs (net of $212,000 associated with the New
Zealand operations in the six months ending June 30, 1999) increased
approximately 20.1% or $441,000 to $2,636,000 for the six months ended June 30,
1999 from $2,195,000 in the corresponding prior year period primarily as a
result of the writeoff of $479,000 in acquisition and development expenses in
1999.
Real Estate
- -----------
Real estate revenues include rental income and the net proceeds of sales of
the Company's real estate in the United States which the Company is liquidating.
Such revenues are not included in the results of the Company's real estate
segment (see Note 10). Future real estate revenues may increase as larger
properties are sold.
Interest and Dividends
- ----------------------
Interest and dividend revenues were as follows in each of the six month
periods ended June 30.
1999 1998
---- ----
$1,438,000 $2,482,000
The decrease in "Interest and dividend" revenues is primarily a result of a
reduction in average investable fund balances in the six months ended June 30,
1999 as compared to the corresponding prior year period due to increasing
investment in the Company's development projects.
Equity in Earnings of Affiliates
- --------------------------------
"Equity in earnings of affiliates" include earnings from the Company's
investment in Citadel, BRI, WPG and the NZ JVs. "Equity in earnings of
affiliate" increased $2,504,000 from $110,000 in the six months ended June 30,
1999 from the prior year six month period. In the first six months of 1999,
"Equity in earnings of affiliate" included equity earnings of $2,564,000 from
the Company's investment in Citadel, $73,000 from the NZ JV's and a loss of
$23,000 from WPG. Citadel's pre-tax earnings of $14,038,000 in the six months
ended June 30, 1999 include a $13,400,000 pre-tax gain from a sale of real
estate. In the six months ended June 30, 1998 "Equity in earnings of affiliate"
included equity earnings of $91,000 from the Company's investment in Citadel,
$54,000 from WPG and a loss of $35,000 from BRI.
Other (Expense) Income
- ----------------------
"Other expense" totaled $119,000 in the six months ended June 30, 1999
versus "Other expense" of $447,000 in the corresponding prior year period.
Other expense in the prior year was comprised primarily of losses on foreign
currency derivative contracts. The Company does not presently have any foreign
currency derivative positions.
-15-
Minority Interests
- ------------------
"Minority interests" for the six months ended June 30, 1999 and 1998
includes $178,000 and $159,000, respectively, from minority shares in a Domestic
Cinema and a Reading Australia cinema.
Income Tax Provision
- --------------------
Income tax expense in the current six month period includes an accrual for
foreign withholding taxes of $423,000 which will be paid if certain intercompany
loans are repaid, state and local taxes of $41,000 and a provision of $24,000
for federal alternative minimum tax. The provision in the six months ended June
30, 1998 totaled $407,000.
Net loss
- --------
As a result of the above described factors the Company recorded a "Net
loss" of $1,190,000 and $547,000 for the six months ending June 30, 1999 and
1998, respectively, an increase in the loss of approximately $643,000. The
increase is comprised primarily of a decrease in Theater Operating Income of
$1,389,000 (Theater Revenues less Theater Operating Expenses and Depreciation
and Amortization), a $1,044,000 reduction in "Interest and dividend" revenue, a
$859,000 increase in "General and Administrative" expenses and a decrease of
$328,000 in "Other expense," offset by a $2,504,000 increase in equity earnings.
Net Income Applicable to Common Stockholders
- --------------------------------------------
In each of the six month periods ended June 30, 1999, "Net loss applicable
to common stockholders" has been increased by the 6.5% per annum dividend on the
$62,000,000 stated value of the Company's Convertible Preferred Stock and
amortization of an asset put option issued to Citadel. The provision for
"Preferred stock dividends and amortization of an asset put option" includes
approximately $1,788,000 of accumulated dividends on the Company's Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). No
dividend with respect to the Series B Preferred Stock has been declared for the
six months ended June 30, 1999 and no decision has been made as to when such
accumulated dividends will be paid. All of the Series B Preferred Stock is held
by Craig Corporation, which corporation owns approximately 78% of the Company's
voting stock.
-16-
Three Months Ended June 30, 1999 and 1998
-----------------------------------------
Theater Revenues, Theater Operating Expenses, and General and
Administrative expenses for the three month periods ended June 30 1999 and 1998,
were as follows:
Three month period ended June 30:
- ---------------------------------
DOMESTIC
1999 CINE VISTA CINEMAS/1/ AUSTRALIA CORPORATE/2/ TOTAL
- ---- --------------------------------------------------------------------
Theater Revenue $3,326,000 $3,728,000 $2,140,000 $ 0 $ 9,194,000
Theater Operating Expense 3,013,000 3,026,000 1,630,000 0 7,669,000
Depreciation and Amortization 518,000 355,000 206,000 12,000 1,091,000
General & Administrative 238,000 107,000 998,000 1,628,000 2,971,000
--------------------------------------------------------------------
($443,000) $ 240,000 ($694,000) ($1,640,000) ($2,537,000)
====================================================================
DOMESTIC
1998 CINE VISTA CINEMAS AUSTRALIA CORPORATE TOTAL
- ---- ------------------------------------------------------------------
Theater Revenue $3,903,000 $2,865,000 $1,621,000 $ 0 $ 8,389,000
Theater Operating Expense 3,221,000 2,116,000 1,213,000 0 6,550,000
Depreciation and Amortization 455,000 258,000 174,000 7,000 894,000
General & Administrative 216,000 155,000 720,000 1,266,000 2,357,000
------------------------------------------------------------------
$ 11,000 $ 336,000 ($486,000) ($1,273,000) ($1,412,000)
==================================================================
CineVista
- ---------
Theater revenues decreased 14.8% or $577,000 to $3,326,000 for the three
months ended June 30, 1999 from $3,903,000 in the prior three months period last
year due to the decreased screen count and the competitive effect of newly
opened cinemas in certain CineVista markets. Theater Operating Expenses
decreased approximately 6.5% or $208,000 to $3,013,000 in the three months ended
June 30, 1999 from $3,221,000 in the corresponding prior year period. The
decrease from the prior year period is attributable to expense items which vary
directly with the Theater Revenue (cost of concession and film rental as a
percentage of revenues decreased) and a reduction in fixed costs associated with
the operation of one less site. General and Administrative expenses increased
approximately 10.2% or $22,000 to $238,000 for the three months ended June 30,
1999 from $216,000 in the corresponding prior year period.
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater Revenues increased approximately 30.1% or
$863,000 to $3,728,000 for the three months ended June 30, 1999 from $2,865,000
in the corresponding prior year period in part due to the inclusion in the
current year period of the results of the Tower Theater, the inclusion of the
results of the Royal George live theater, the inclusion of the results of the
Manville Cinema from May 16, 1999 and increased revenues at the Company's cinema
in Minneapolis. Theater Operating Expenses increased approximately 43% or
$910,000 to $3,026,000 for the three months ended June 30, 1999 from $2,116,000
in the corresponding prior year period, primarily as a result of the inclusion
of the newly opened cinemas and live theater in the current three month period.
Domestic Cinemas' General and Administrative expenses were $48,000 less in the
three months ended June 30, 1999 than in the year prior three month period due
primarily to reduced management fees paid to operate certain domestic cinemas.
Australia
- ---------
Theater Revenues for Australian operations increased approximately 32% or
$519,000 to $2,140,000 for the three months ended June 30, 1999 from $1,621,000
in the corresponding prior year period due to the contribution of two new
cinemas in the current three month period. Theater Operating Expenses increased
approximately 34.4% or $417,000 to $1,630,000 for the three months ended June
30, 1999 from $1,213,000 in the corresponding prior year
-17-
period due to increased film rent and additional fixed operating costs as a
result of the addition of the two new cinemas in the three months ended June 30,
1999. General and Administrative expense increased approximately 38.6% or
$278,000 to $998,000 for the three months ended June 30, 1999 from $720,000 in
the corresponding prior year period. The increase primarily related to increased
development cost write-offs in the current period versus last year's three month
period.
Corporate
- ---------
General and Administrative expenses (net of $130,000 associated with the
New Zealand operations in the three months ending June 30, 1999) increased
approximately 18.3% or $232,000 to $1,498,000 for the three months ended June
30, 1999 from $1,266,000 in the corresponding prior year period as a result of
the write-off of $466,000 in development expenses in 1999.
Real Estate
- -----------
Real estate revenues include rental income and the net proceeds of sales of
the Company's real estate in the United States which the Company is liquidating.
Such revenues are not included in the results of the Company's real estate
segment (see Note 10). Future real estate revenues may increase as larger
properties are sold.
Interest and Dividends
- ----------------------
Interest and dividend revenues were as follows in each of the three month
periods ended June 30.
1999 1998
---------- ----------
$700,000 $1,154,000
The decrease in "Interest and dividend" revenues is primarily a result of a
reduction in average investable fund balances for the three months ended June
30, 1999 as compared to the corresponding prior year period due to increasing
investment in the Company's development projects.
Equity in Earnings of Affiliates
- --------------------------------
"Equity in earnings of affiliate" increased $2,532,000 to $2,524,000 for
the three months ended June 30, 1999 from a loss of $8,000 in the corresponding
prior year period. For the quarter ended June 30, 1999 components include
equity earnings of $2,476,000 from the Company's investment in Citadel and
$73,000 from the NZ JV's and a loss of $25,000 from WPG.
Other (Expense) Income
- ----------------------
"Other expense" totaled $121,000 in the three months ended June 30, 1999
versus $185,000 of other income in the corresponding prior year period.
Minority Interests
- ------------------
"Minority interests" for the three months ended June 30, 1999 and 1998
includes $113,000 and $65,000, respectively, from minority shares in a Domestic
Cinema and a Reading Australia cinema.
Income Tax Provision
- --------------------
Income tax expense in the current three month period totaled $266,000 in
the three months ended June 30, 1999 versus $214,000 in the corresponding period
last year.
-18-
Net Income (loss)
- -----------------
As a result of the above described factors the Company recorded Net income
of $267,000 for the three months ended June 30, 1999 versus a net loss of
$190,000 for the corresponding period in 1998.
Net Loss Applicable to Common Stockholders
- ------------------------------------------
Net Loss applicable to common shareholders in the three months ended June
30, 1999 totaled $815,000 versus a Net loss applicable to common stockholders of
$1,266,000 for the same three month period last year after consideration of
preferred stock dividends of $1,007,000 ($114,000 of which were paid and the
balance of which have accumulated) and $75,000 for amortization of an asset put.
Liquidity and Capital Resources
At June 30, 1999, the Company had cash and cash equivalents of $36,388,000
all of which are anticipated to be deployed in furtherance of the Company's
cinema and entertainment center development programs. The Company's total
commitments exceed the Company's available liquid funds. However, the Company
believes that it has sufficient funds and bank credit lines to complete the
projects currently scheduled for completion in 1999. This includes the
anticipated addition of 45 screens in Australia (increasing the screen count in
that market from 26 at June 30, 1999 to 71 screens), eight screens in the United
States (increasing the screen count from 34 at June 30, 1999 to 42 screens),
twelve screens in Puerto Rico (increasing the screen count from 44 to 56
screens) and four screens in New Zealand (increasing the screen count from 9 to
13 screens). The Company plans to leverage these assets as they commence
operations, and to use the proceeds from such financings to continue the
development program in the year 2000. The Company estimates that the total
development cost of all of its cinema and entertainment center projects will
exceed $230,000,000. In the event that debt financing cannot be obtained on
terms acceptable to the Company, consideration will be given to seeking joint
venture partners, issuing debt or equity securities, delaying development of
certain projects and/or selling land currently held for development, or other
assets. The Company is in discussions with various lenders concerning the
possibility of securing lines of credit to finance construction and other
development obligations. The Company does not currently consider any of its
development assets to be held for sale.
At June 30, 1999, the Company had total commitments of approximately
$62,000,000. Of this amount, it is currently anticipated that approximately
$35,000,000 will be funded in 1999. Post-1999 commitments include a contractual
obligation to construct an entertainment center in Australia, at an estimated
remaining cost of $21,100,000 (currently anticipated to be completed in late
2000 or early 2001), a $2,900,000 obligation to acquire additional land in New
Zealand, a $1,200,000 purchase money mortgage due in May 2000 and other projects
anticipated to aggregate approximately $1,800,000. The totals set forth above
do not include commitments associated with the City Cinemas transaction, which
transaction requires the commitment of up to $36,500,000, eighteen months after
closing.
The following summarizes the major sources and uses of cash funds in the
six months ended June 30:
1999:
- ----
"Unrestricted cash and cash equivalents" decreased $22,205,000 from
$58,593,000 at December 31, 1998 to $36,388,000 at June 30, 1999 as the Company
paid $15,812,000 to acquire property and equipment and reduced purchase
commitments by $6,665,000. Working capital decreased $21,364,000 from
$45,378,000 at December 31, 1998 to $24,014,000 at June 30, 1999.
While not necessarily indicative of its results of operations determined
under generally accepted accounting principles, CineVista's, the Domestic
Cinemas and Reading Australia's operating cash flow (income or loss before
depreciation and amortization and consideration of general and administrative
expenses) of $2,824,000 contributed to the Company's liquid funds for the six
months ended June 30, 1999. Other principal sources of liquid funds in the
current year were $1,438,000 in "Interest and dividend" income and an increase
in notes payable of $2,712,000.
-19-
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, Cine Vista's, The Domestic Cinemas'
and Reading Australia's operating cash flow (income or loss before depreciation
and amortization and general and administrative expenses) of $3,878,000
contributed to the Company's liquid funds for the six months ended June 30,
1998. Other principal sources of liquid funds in the current year six-month
period were $2,482,000 in "Interest and 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.
Year 2000
As reasonably necessary and appropriate, the Company is conducting an audit
of the software and hardware components that it uses to assess whether such
components will properly recognize the dates beyond December 31, 1999 ("Year
2000 Compliance"). The Company is also conducting a review of its major
suppliers of goods and services ("service providers") to understand their level
of compliance with Year 2000 issues. Both of these reviews are expected to be
completed by September 30, 1999.
Based on its review to date, the Company does not believe that material
problems exist relative to the internal hardware and software utilized, as the
Company uses current versions of software provided by major software vendors,
and hardware that is less than a year old, for the most part. The Company has
adequate financial resources to replace any hardware and/or software that is
determined not to be Year 2000 compliant. The costs of addressing Year 2000
compliance has not been, nor is expected to be, material to the Company's
financial condition or results of operations.
Based on responses received to date, the Company believes that most of its
service providers will represent that they are Year 2000 compliant or that
formal programs are in place to ensure that they will be Year 2000 compliant. If
in its survey of significant service providers, the Company becomes concerned
that one or more providers is not Year 2000 compliant or has what the Company
believes to be inadequate programs to become Year 2000 compliant, the Company
will take action to reduce or eliminate its reliance upon such service providers
or suppliers.
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.
-20-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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. (Incorporated
by reference to Exhibit 3 (ii) to Reading Entertainment, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.)
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.
(Incorporated by reference to Exhibit 10.1 to Reading
Entertainment, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.)
10.2 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.)
10.3 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.)
10.4 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.)
10.5 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.)
10.6 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.)
10.7 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.)
10.8 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.)
-21-
10.9* 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.)
10.10* 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.)
10.11 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.)
10.12 Agreement by and among Public Transport Corporation, Reading
Properties Pty Ltd, and Mackie Group Pty Ltd for development at
the Frankston Railway Station dated May 28, 1998. (Incorporated
by reference to Exhibit 10.1 to Reading Entertainment, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.)
10.13 Agreement in Principle between Reading Entertainment, Inc. and
City Cinemas dated December 2, 1998. (Incorporated by reference
to Exhibit 10.22 to Reading Entertainment, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998.)
27.1 Financial Data Schedule for the quarter ended June 30, 1999.
*These exhibits represent the executive compensation plans and arrangements
of the Company.
(b) Reports on Form 8-K
The Company filed a Form 8-K on June 7, 1999 and Form 8-K/A on June 15,
1999, to report an event under Item 4. (Changes in Registrant's Certifying
Accountant).
-22-
SIGNATURE
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 ENTERTAINMENT, INC. REGISTRANT
Date: August 16, 1999 By: /s/ Robert F. Smerling
----------------- --------------------------------------
Robert F. Smerling
President
(Duly Authorized Officer)
Date: August 16, 1999 By: /s/ James A. Wunderle
----------------- --------------------------------------
James A. Wunderle
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
-23-