Earnings Call Webcast to Discuss 2019 Second
Quarter Financial Results to Post to Corporate Website on
Tuesday, August 13, 2019
Reading International, Inc. (NASDAQ: RDI) today announced
results for the quarter ended June 30, 2019. Our Company reported
Basic Earnings per Share (“EPS”) of $0.10 and $0.01 for the quarter
and six months ended June 30, 2019, respectively, compared to $0.22
and $0.35 in the corresponding prior periods. These results were
principally driven by a 10% decrease in revenue in both the Cinema
and Real Estate business segments combined, offset to some extent
by an 18% reduction in general and administrative expenses.
Consolidated revenue for the second quarter of 2019 decreased by
10%, or $8.2 million, to $76.1 million compared to the second
quarter of 2018. Three factors contributed to this reduction in
revenue compared to the second quarter of 2018: (i) a significantly
softer film slate from both the major studios and specialty
distributors compared to the record breaking slate of 2018, (ii) a
7.5% decline in the Australian dollar and a 6.0% decline in the New
Zealand dollar; and (iii) the temporary continuing closure of our
Reading Cinema and certain retail areas at Courtenay Central in
Wellington, New Zealand in January 2019 due to seismic
concerns.
In addition, during the quarter, we made progress on the
planning of our re-development projects at Courtenay Central in
Wellington, New Zealand and Cannon Park in Townsville, Australia.
We also continued to work with various public and private
stakeholders on the infrastructure work for our 70.4 acre
industrial site in the Manukau/Wiri area of Auckland, New
Zealand.
Ellen Cotter, Chair, President and Chief Executive Officer said,
“We anticipated that the record-setting box office in the second
quarter of 2018 would be hard to repeat. Despite a relatively
softer box office in the second quarter of 2019, the blockbuster
success of films like Avengers: Endgame and Aladdin reassure us
that global audiences will support quality films. We were pleased
with the market performance of certain theaters that benefited from
our renovation strategy during the quarter, and expect that our
cinema investment in recliner seating, TITAN LUXE screens, F&B
and lobby upgrades will continue to pay off through the end of the
year as we expect a more robust box office with highly anticipated
titles like Star Wars: Episode IX, Frozen 2, Joker and Downton
Abbey.”
“And, we were pleased that the 44 Union Square project is
nearing completion, and believe this will unlock the long term
value in this iconic, one-time theatre property in New York City,”
added Cotter.
Under our Stock Repurchase Program, during June and July 2019,
the Company repurchased 207,766 shares of Class A Common Stock at
an average price of $13.19 per share.
The following table summarizes the second quarter and first
half-of-the-year results for 2019 and 2018:
Quarter Ended
Six Months Ended
June 30,
% Change Favorable/
June 30,
% Change Favorable/
(Dollars in millions, except EPS)
2019
2018
(Unfavorable)
2019
2018
(Unfavorable)
Revenue
$
76.1
$
84.2
(10
)%
$
137.6
$
160.1
(14
)%
- US
41.8
47.0
(11
)%
74.8
84.0
(11
)%
- Australia
28.1
29.1
(3
)%
51.9
58.9
(12
)%
- New Zealand
6.2
8.1
(23
)%
10.9
17.2
(37
)%
Operating expense
$
(70.3
)
$
(75.6
)
7
%
$
(133.1
)
$
(145.8
)
9
%
Segment operating income (1)
$
10.6
$
14.4
(26
)%
$
14.4
$
26.4
(45
)%
Net income/(loss)(2)
$
2.4
$
5.0
(52
)%
$
0.3
$
8.1
(96
)%
EBITDA (1)
$
11.8
$
14.4
(18
)%
$
16.1
$
25.5
(37
)%
Adjusted EBITDA (1)
$
12.0
$
15.6
(23
)%
$
16.7
$
28.1
(41
)%
Basic EPS (2)
$
0.10
$
0.22
(55
)%
$
0.01
$
0.35
(97
)%
(1)
Aggregate segment operating
income, earnings before interest expense (net of interest income),
income tax expense, depreciation and amortization expense
(“EBITDA”) and adjusted EBITDA are non-GAAP financial measures. See
the discussion of non-GAAP financial measures that follows.
(2)
Reflect amounts attributable to
stockholders of Reading International, Inc., i.e. after deduction
of noncontrolling interests.
COMPANY HIGHLIGHTS
- Operating Results: For the
quarter ended June 30, 2019, we had worldwide revenue of $76.1
million, a decrease of 10%, or $8.2 million, from the same quarter
in the prior year. Our operating results were negatively impacted
by (i) a decrease in cinema attendance due to a significantly
softer film slate from both the major studios and the specialty
distribution companies in the U.S., (ii) the continuing closure of
a majority of the net rentable area of Courtenay Central in
Wellington (NZ), including our Reading Cinema at that location, due
to seismic concerns, and (iii) the weakening foreign currency
exchange rates. All three cinema circuits in the U.S., Australia
and New Zealand, in their functional currency, set record high
second quarter Food & Beverage (“F&B”) spends per patron
(“SPP”), reflecting the continued improvement in our global F&B
program.
- Capex program: During the
second quarter of 2019, we invested $11.2 million in capital
improvements, including our continued investment in the
redevelopment of 44 Union Square in NYC, as well as the upgrading
of certain of our cinemas: (i) Reading Cinemas in Australia at
Harbour Town, Maitland and Waurn Ponds, (ii) Reading Cinemas at The
Palms in New Zealand, and (iii) Consolidated Theatres in Mililani,
Hawaii. Also, to mitigate the temporary closure of Reading Cinemas
at Courtenay Central, we leased a three screen cinema space in
Lower Hutt, adjacent to Wellington, New Zealand. This cinema, which
will trade as The Hutt Pop Up by Reading Cinemas, began operations
in late June 2019. We converted four screens at our Reading Cinemas
at Maitland and Waurn Ponds in Australia and The Palms in New
Zealand to TITAN LUXE and/or PREMIUM during the second quarter of
2019. And, during June 2019, our Consolidated Theatres in Mililani,
Hawaii, launched a full F&B program with a new chef-driven,
locally inspired menu that also features beer, wine and spirits.
The lobby was also upgraded with artwork from Kamea Hadar, a local
street artist from Honolulu. During the second quarter 2019, we
also worked with our landlord at the Kahala Mall in Honolulu to
complete plans for a full “top-to-bottom” renovation at that
Consolidated Theatres that will include conversion to recliner
seating and an F&B upgrade.
- Cinema Additions and
Pipeline: In early 2019, we purchased a well-established
four-screen cinema in Devonport, Tasmania. And, as described above,
during the second quarter, we worked to complete a lease for The
Hutt Pop Up by Reading Cinemas, a three screen cinema in
Wellington, New Zealand, which opened in late June 2019. These
additions bring our global cinema count to 60 and global screen
count to 483. Also, we currently have signed lease agreements for
four new cinemas in Australia representing an additional 25
screens, which we anticipate opening between now and 2021.
- Building new revenue
sources: We continue to focus on the development of our
self-ticketing capabilities. We achieved a second quarter record
for U.S. online revenue, beating the prior year second quarter
record by 22%. Online sales consisted of 31% of our global box
office revenue, which is a second quarter record and represents a
14% increase from the prior year period. Our continued improvements
to our websites and apps in the U.S. and improved global online
sales infrastructure are enabling us to better serve high sales
volume.
Real estate activities:
- Redevelopment of 44 Union Square (New
York, U.S.) During July 2019, we topped out the steel dome
capping our redevelopment of historic Tammany Hall at 44 Union
Square. We anticipate that the project will be ready for the
commencement of tenant fit-out in the near future, and are in final
negotiations of a long term lease for approximately 90% of the net
rentable area of the building. This lease would be for office use,
and the remaining 7,200 square feet of ground floor space (facing
onto Union Square) continue to be marketed for retail use by our
exclusive broker, Newmark.
- Minetta Lane Theatre (New York,
U.S.) In April, we negotiated an extension through March
2020 (with an option to extend by our licensee for an additional
year through March 2021) of our Minetta Lane Theatre license
agreement with Audible, Inc., a subsidiary of Amazon. Audible will
continue to use our theatre as the location for its production of
various plays featuring one or two actors, to be recorded before a
live theatre audience, and offered on Audible.com.
- Courtenay Central Re-Development in
Wellington, New Zealand – Located in the heart of Wellington
- New Zealand’s capital city – this center is comprised of 161,071
square feet of land situated proximate to the Te Papa Tongarewa
Museum (attracting over 1.5 million visitors annually), across the
street from the site of Wellington’s newly announced convention
center (estimated to open its doors in 2022) and at a major public
transit hub. Damage from the 2016 earthquake necessitated
demolition of our nine-story parking garage at the site. Further,
unrelated seismic issues have caused us to temporarily close the
existing cinema and significant portions of the retail structure
while we reevaluate the property for redevelopment as an
entertainment themed urban center with a major food and grocery
component. Wellington continues to be rated as one of the top
cities in the world in which to live, and we continue to believe
that the Courtenay Central site is located in one of the most
vibrant and growing commercial and entertainment precincts of
Wellington. We are currently working on a comprehensive plan for
the redevelopment of this property featuring a variety of uses to
complement and build upon the “destination quality” of this
location.
SEGMENT RESULTS
The following table summarizes the second quarter and first
half-of-the-year segment operating results for 2019 and 2018:
Quarter Ended
Six Months Ended
June 30,
% Change Favorable/
June 30,
% Change Favorable/
(Dollars in thousands)
2019
2018
(Unfavorable)
2019
2018
(Unfavorable)
Segment revenue
Cinema
United States
$
40,961
$
44,413
(8
) %
$
72,993
$
82,400
(11
) %
Australia
25,599
27,137
(6
) %
47,039
53,854
(13
) %
New Zealand
5,823
8,633
(33
) %
10,336
16,184
(36
) %
Total
$
72,383
$
80,183
(10
) %
$
130,368
$
152,438
(14
) %
Real
estate
United States
$
880
$
952
(8
) %
$
1,868
$
1,605
16
%
Australia
4,052
4,302
(6
) %
7,967
8,456
(6
) %
New Zealand
632
1,171
(46
) %
1,159
2,371
(51
) %
Total
$
5,564
$
6,425
(13
) %
$
10,994
$
12,432
(12
) %
Inter-segment elimination
(1,851
)
(2,346
)
21
%
(3,716
)
(4,737
)
22
%
Total segment revenue
$
76,096
$
84,262
(10
) %
$
137,646
$
160,133
(14
) %
Segment operating income
Cinema
United States
$
3,100
$
4,698
(34
) %
$
2,338
$
7,699
(70
) %
Australia
5,138
6,048
(15
) %
8,239
11,965
(31
) %
New Zealand
1,031
1,748
(41
) %
1,335
3,115
(57
) %
Total
$
9,269
$
12,494
(26
) %
$
11,912
$
22,779
(48
) %
Real
estate
United States
$
(73
)
$
(66
)
(11
) %
$
(47
)
$
(360
)
87
%
Australia
1,442
1,573
(8
) %
2,746
3,088
(11
) %
New Zealand
(24
)
447
(>100
) %
(197
)
906
(>100
) %
Total
$
1,345
$
1,954
(31
) %
$
2,502
$
3,634
(31
) %
Total segment operating income
(1)
$
10,614
$
14,448
(27
) %
$
14,414
$
26,413
(45
) %
(1)
Aggregate segment operating income is a non-GAAP financial
measure. See the discussion of non-GAAP financial measures that
follows.
Cinema Exhibition
Second Quarter Results:
Cinema segment operating income decreased by $3.2 million, or
26%, to $9.3 million for the quarter ended June 30, 2019, compared
to June 30, 2018, primarily driven by a decrease in operating
income in all three circuits. The decrease was due to a significant
decline in attendance. However, such attendance decreases were
offset by increases in average ticket price (“ATP”) and SPP (each
in functional currency) in our U.S., Australia and New Zealand
circuits.
- Revenue in the U.S. decreased by 8%, or $3.5 million, to $41.0
million, due to a 13% decrease in attendance.
- Australia’s cinema revenue decreased by 6%, or $1.5 million, to
$25.6 million primarily due to a 5% decrease in attendance.
- New Zealand’s cinema revenue decreased by 33%, or $2.8 million,
to $5.8 million versus the same period in 2018 due to a 34%
decrease in attendance, driven not only by a weaker film slate, but
also by the temporary closure of the Reading Cinemas at Courtenay
Central due to seismic concerns.
The top three grossing films for the second quarter of 2019 were
Avengers: Endgame, Aladdin, and Toy Story 4, representing
approximately 40% of our worldwide admission revenues for the
quarter. The top three grossing films in the second quarter of 2018
for our worldwide cinema circuits were Avengers: Infinity War,
Deadpool 2 and Incredibles 2, which represented approximately 36%
of our worldwide admission revenues.
Six Month Results:
Cinema segment operating income declined 48%, or $10.9 million,
to $11.9 million for the six months ended June 30, 2019 compared to
June 30, 2018, primarily driven by a 70% operating income decline
in the U.S. market. The decrease was due to a significant decline
in attendance worldwide (principally due to a softer movie slate).
However, such attendance decreases were offset by increases in ATP
and SPP (in functional currency) in each of the U.S., Australia and
New Zealand circuits:
- Revenue in the United States decreased by 11%, or $9.4 million,
to $73.0 million primarily due to a 17% decrease in
attendance.
- Australia’s cinema revenue decreased by 13%, or $6.8 million,
to $47.0 million, primarily due to a 10% decrease in
attendance.
- New Zealand cinema revenue decreased by 36%, or $5.8 million,
to $10.3 million, primarily due to a 36% decrease in attendance,
resulting from a weaker film slate, and the temporary closure of
our Reading Cinemas at Courtenay Central due to seismic
concerns.
The top three grossing films for the first half of 2019 were
Avengers: Endgame, Captain Marvel, and Aladdin representing
approximately 26% of our worldwide admission revenues, compared to
the top three grossing films a year ago: Avengers: Infinity War,
Black Panther, and Deadpool 2, which represented approximately 22%
of our admission revenues for the same period in 2018.
Real Estate
Second Quarter and Six Month Results:
Real estate segment operating income decreased by 31%, or $0.6
million, to $1.3 million for the quarter ended June 30, 2019,
compared to June 30, 2018. Real estate revenue for the second
quarter of 2019, decreased by 13%, or $0.9 million, to $5.6 million
compared to the second quarter of 2018. This was primarily driven
by a decrease in property rental income in New Zealand.
For the six months ended June 30, 2019, the real estate segment
operating income decreased by 31%, or $1.1 million, to $2.5 million
compared to the six months ended June 30, 2018. Real estate revenue
decreased by 12%, or $1.4 million, to $11.0 million, compared to
the same period in 2018. This was primarily attributable to the
partial closure due to seismic concerns of a majority of the net
rentable area of Courtenay Central during the first six months of
2019, compared to same period in 2018 (which had two full quarters
of operations).
CONSOLIDATED AND NON-SEGMENT RESULTS
The second quarter and first half-of-the-year consolidated and
non-segment results for 2019 and 2018 are summarized as
follows:
Quarter Ended
Six Months Ended
June 30,
% Change Favorable/
June 30,
% Change Favorable/
(Dollars in thousands)
2019
2018
(Unfavorable)
2019
2018
(Unfavorable)
Segment operating income
$
10,614
$
14,448
(27
) %
$
14,414
$
26,413
(45
) %
Non-segment income and expenses:
General and administrative expense
(4,670
)
(5,730
)
18
%
(9,710
)
(11,886
)
18
%
Interest expense, net
(2,204
)
(1,790
)
(23
) %
(4,055
)
(3,384
)
(20
) %
Other
271
166
63
223
224
—
%
Total non-segment income and
expenses
$
(6,603
)
$
(7,354
)
10
%
$
(13,542
)
$
(15,046
)
10
%
Income before income taxes
4,011
7,094
(43
) %
872
11,367
(92
) %
Income tax benefit (expense)
(1,654
)
(1,965
)
16
%
(612
)
(3,135
)
80
%
Net income/(loss)
$
2,357
$
5,129
(54
) %
$
260
$
8,232
(97
) %
Less: net income (loss) attributable to
noncontrolling interests
(37
)
102
(>100
)
(53
)
124
(>100
)
Net income (loss) attributable to RDI
common stockholders
$
2,394
$
5,027
(52
) %
$
313
$
8,108
(96
) %
Second Quarter and First
Half-of-the-Year Net Results
Net income attributable to RDI common stockholders declined by
52%, or $2.6 million, to $2.4 million for the quarter ended June
30, 2019, compared to the same period prior year. Basic EPS for the
quarter ended June 30, 2019 decreased by $0.12 to $0.10 from $0.22
the prior-year quarter, mainly attributable to a significant
decrease in revenue from both our Cinema and Real Estate business
segments.
Net income attributable to RDI common stockholders decreased by
96%, or $7.8 million, to $0.3 million for the six months ended June
30, 2019, compared to the same period in the prior year. Basic EPS
for the first half of 2019 decreased by $0.34, to $0.01 from $0.35
from the prior-year period.
Non-Segment General &
Administrative Expenses
Non-segment general and administrative expense for the quarter
ended June 30, 2019 compared to the same period in the prior year
decreased by 18%, or $1.1 million, to $4.7 million. The quarterly
decrease mainly relates to lower legal expenses.
Non-segment general and administrative expense for the six
months ended June 30, 2019, decreased by 18%, or $2.2 million, to
$9.7 million, compared to the six month period ending June 30,
2018, mainly related to lower legal expenses.
Income Tax Expense
Income tax expense for the quarter and six months ended June 30,
2019, decreased by $0.3 million and $2.5 million, respectively,
compared to the equivalent prior-year period. The change between
2019 and 2018 is primarily related to lower pretax income in the
first half of 2019.
OTHER FINANCIAL INFORMATION Balance Sheet
and Liquidity
Total assets increased by $233.8 million, to $672.8 million at
June 30, 2019, compared to $439.0 million at December 31, 2018.
This was primarily driven by the implementation of the lease
accounting standard effective January 1, 2019, which also resulted
in a similar increase in our liabilities. Additionally, assets
increased due to the capital investments relating to major real
estate projects, primarily the redevelopment of 44 Union Square in
New York, and to cinema improvements in (i) the U.S. at our
Consolidated Theatres in Mililani (Hawaii), (ii) New Zealand at the
Reading Cinemas at The Palms, and (iii) Australia at the Reading
Cinemas at Maitland, Waurn Ponds and Harbour Town.
Cash and cash equivalents at June 30, 2019 were $8.5 million,
including approximately $5.6 million in the U.S., $1.9 million in
Australia, and $1.0 million in New Zealand. We manage our cash,
investments and capital structure so we are able to meet short-term
and long-term obligations for our business, while maintaining
financial flexibility and liquidity.
As part of our operating cycle, we utilize cash collected from
(i) our cinema business when selling tickets and F&B items, and
(ii) rental income typically received in advance, to reduce our
long-term borrowings and realize savings on interest charges. We
then settle our operating expenses generally with a lag within
traditional trade terms. This generates a temporary working capital
deficit. We review the maturities of our borrowings and negotiate
for renewals and extensions, as necessary for liquidity purposes.
We believe the cash flow generated from our operations coupled with
our ability to renew and extend our credit facilities will provide
sufficient liquidity in the upcoming year.
OTHER INFORMATION
Stock Repurchase Program
As of June 30, 2019, $13.5 million remained available under our
Stock Repurchase Program. During the six months ended June 30, 2019
we have spent $2.6 million on repurchasing our Class A Common
Stock. The Stock Repurchase Program allows Reading to repurchase
its Class A Common Stock from time to time in accordance with the
requirements of the Securities and Exchange Commission on the open
market, in block trades and in privately negotiated transactions,
depending on market conditions and other factors.
Trust Litigation
In a matter potentially impacting the control of our company,
but to which our Company is not a party (In re: James J. Cotter
Living Trust dated August 1, 2000 (Case No. BP159755) (the “Trust
Case”)), the California Court of Appeals on April 15, 2019, struck
down the California Trial Court’s order appointing a trustee ad
litem to solicit offers for the purchase of a controlling interest
in our Company. The basis for that disposition was the Appeals
Court’s determination that Mr. James J. Cotter, Jr. lacks standing
to seek the appointment of such a trustee ad litem. The Appeals
Court noted that Mr. Cotter, Jr. is neither a trustee of nor a
beneficiary of the trust established to hold such controlling
interest (the “Voting Trust”) and accordingly, determined that he
lacked any standing to bring before the trial court matters
relating to the internal affairs of that trust, such as the
appointment of a trustee ad litem. The Court of Appeals also noted,
in an observation not material to the specific grounds on which the
California Trial Court’s order was struck down, but nevertheless
likely to be given weight by the court below, that “the plain
language [of the Trust Document] appears to show that the settlor
[Mr. Cotter, Sr.] instructed the Trustee [Margaret Cotter] not to
diversify [i.e. not to sell the voting shares held by the Voting
Trust].” The Trust Document directs the Trustee of the Voting Trust
that this voting stock is “to be retained for as long as
possible.”
The Guardian Ad Litem, appointed by the court to protect the
interests of Mr. Cotter Sr.’s grandchildren, has stated his view
that, notwithstanding the above referenced direction to retain the
Voting Stock as long as possible and the Court of Appeals statement
regarding that direction, diversification of the assets of the
Voting Trust would be in the best interests of the
grandchildren.
The Guardian Ad Litem has petitioned to split the Voting Trust
into two separate trusts and to diversify that portion of any
Voting Stock allocated to any separate trust set up for the
children of Mr. Cotter, Jr. and for authority to retain a valuation
expert. The Guardian Ad Litem has no authority to in any way deal
with the Voting Stock to be vested in the Voting Trust. This
authority remains vested with Margaret Cotter as the Sole Trustee
of the Voting Trust and, until the Voting Stock is transferred into
the Voting Trust, in Ellen Cotter and Margaret Cotter as the
Co-Executors of the Estate of James J. Cotter, Sr. and the
Co-Trustees of the Living Trust.
Ellen Cotter and Margaret Cotter, as Trustees of the James J.
Cotter, Sr. Living Trust and Margaret Cotter as Trustee of the
Voting Trust oppose the Guardian Ad Litem’s petitions. They have
also filed to have a new judge appointed to hear the Trust
Litigation and are seeking the removal of the Guardian Ad Litem on
various grounds including conflict of interest.
Ellen Cotter and Margaret Cotter have advised the Company that
while they oppose any sale of the Voting Stock as being
inconsistent with the intentions of Mr. Cotter, Sr., as set out in
the Trust Document, if there is such a sale, they intend to be the
buyers and to retain control of the Company in the Cotter Family.
They have further advised the Issuer that as the Estate is not yet
closed, it is uncertain that any shares of Voting Stock will be
transferred to the Voting Trust in the near term.
The California Superior Court has advised the Trustees that it
intends to consider the Trustees petitions to appoint a new judge
on August 16, 2019. No hearing date has been set for the Guardian
Ad Litem’s petitions to retain a valuation expert or to split the
trust or for the Trustee’s petition to disqualify the Guardian Ad
Litem. If the Court agrees with the Trustees petition to appoint a
new judge, then it is unlikely that he will take any further action
in this matter. The Trustees have further advised that, if the
Court does not grant their motion to appoint a new judge, they will
take an immediate writ to the California Court of Appeals,
challenging that decision.
We are advised that the Estate of James J. Cotter, Sr., has
entered into an agreement with the Internal Revenue Service to pay
its estate taxes over the next ten years. That agreement has been
collateralized through the grant of a security interest in certain
Class A Common Stock currently owned by the Living Trust. It is
anticipated that it may be necessary from time to time for the
Estate or the Living Trust to sell Class A Common Stock to pay that
debt. Also, we are advised that Margaret Cotter is the Trustee of
an operational trust established by her father for the benefit of
her children which is funded entirely with Class A Common Stock
and, accordingly, that it will be necessary for that trust to, from
time to time, sell shares of Class A Common Stock for her
children’s educational, medical and other expenses.
The table below presents the changes in our working capital
position and other relevant information addressing our liquidity as
of and for the six months ended June 30, 2019 and the preceding
four years:
As of and for the 6-Months
Ended
Year Ended December 31
($ in thousands)
June 30, 2019
2018
2017
2016
2015 (2)
Total Resources (cash and
borrowings)
Cash and cash equivalents
(unrestricted)
$
8,516
$
13,127
$
13,668
$
19,017
$
19,702
Unused borrowing facility
101,957
85,886
137,231
117,599
70,134
Restricted for capital projects (1)
18,945
30,318
62,280
62,024
10,263
Unrestricted capacity
83,012
55,568
74,951
55,575
59,871
Total resources at period end
110,473
99,013
150,899
136,616
89,836
Total unrestricted resources at period
end
91,528
68,695
88,619
74,592
79,573
Debt-to-Equity Ratio
Total contractual facility
$
288,594
$
252,929
$
271,732
$
266,134
$
207,075
Total debt (gross of deferred financing
costs)
186,926
167,043
134,501
148,535
130,941
Current
40,576
30,393
8,109
567
15,000
Non-current
146,061
136,650
126,392
147,968
115,941
Finance lease liabilities
289
—
—
—
—
Total book equity
177,697
180,547
181,618
146,890
138,951
Debt-to-equity ratio
1.05
0.93
0.74
1.01
0.94
Changes in Working Capital
Working capital (deficit) (3)
$
(80,376
)
$
(55,270
)
$
(46,971
)
$
6,655
$
(35,581
)
Current ratio
0.26
0.35
0.42
1.10
0.51
Capital Expenditures (including
acquisitions)
$
24,607
$
56,827
$
76,708
$
49,166
$
53,119
(1)
This relates to the construction facilities specifically
negotiated for: (i) 44 Union Square redevelopment project, obtained
in December 2016, and (ii) New Zealand construction projects,
obtained in May 2015. The New Zealand construction loan expired
December 31, 2018.
(2)
Certain 2015 balances included the restatement impact as a
result of a change in accounting principle (see Note 2 – Summary of
Significant Accounting Policies – Accounting Changes). Certain 2017
and 2016 balances included the restatement impact as a result of a
prior period financial statement correction of immaterial errors
(see Note 2 – Summary of Significant Accounting Policies – Prior
Period Financial Statement Correction of Immaterial Errors).
(3)
Typically our working capital (deficit) is negative as we
receive revenue from our cinema business ahead of the time that we
have to pay our associated liabilities. We use the money we receive
to pay down our borrowings in the first instance.
Below is a summary of the available credit facilities as of June
30, 2019:
As of June 30, 2019
(Dollars in thousands)
Available Contractual
Capacity
Capacity Used
Unused Capacity
Restricted for Capital
Projects
Unrestricted Capacity
Bank of America Credit Facility (USA)
$
55,000
$
27,000
$
28,000
$
—
$
28,000
Bank of America Line of Credit (USA)
5,000
1,000
4,000
—
4,000
Union Square Construction Financing
(USA)
57,500
38,555
18,945
18,945
—
NAB Corporate Term Loan (AU) (1)
84,108
44,504
39,604
—
39,604
Westpac Bank Corporate (NZ) (1)
21,475
10,067
11,408
—
11,408
Total
$
223,083
$
121,126
$
101,957
$
18,945
$
83,012
(1)
The borrowings are denominated in foreign currency. The
contractual capacity and capacity used were translated into U.S.
dollars based on the applicable exchange rates as of June 30
2019.
The $18.9 million representing borrowings restricted for capital
projects is wholly composed of the $18.9 million of unused capacity
for the Union Square development and construction.
Our overall global operating strategy is to conduct business
mostly on a self-funding basis by country (except for funds used to
pay an appropriate share of our U.S. corporate overhead). However,
we may, from time to time, move funds between jurisdictions where
circumstances merit such action as part of our goal to minimize our
cost of capital.
Non-GAAP Financial Measures
This earnings release presents aggregate segment operating
income, and EBITDA, which are important financial measures for the
Company, but are not financial measures defined by U.S. GAAP.
These measures should be reviewed in conjunction with the
relevant U.S. GAAP financial measures and are not presented as
alternative measures of EPS, cash flows or net income as determined
in accordance with U.S. GAAP. Aggregate segment operating income
and EBITDA, as we have calculated them, may not be comparable to
similarly titled measures reported by other companies.
Aggregate segment operating income –
We evaluate the performance of our business segments based on
segment operating income, and management uses aggregate segment
operating income as a measure of the performance of operating
businesses separate from non-operating factors. We believe that
information about aggregate segment operating income assists
investors by allowing them to evaluate changes in the operating
results of the Company’s business separate from non-operational
factors that affect net income, thus providing separate insight
into both operations and the other factors that affect reported
results. Refer to “Consolidated and Non-Segment Results” for a
reconciliation of segment operating income to net income.
EBITDA – We use EBITDA in the
evaluation of our Company’s performance since we believe that
EBITDA provides a useful measure of financial performance and
value. We believe this principally for the following reasons:
We believe that EBITDA is an accepted
industry-wide comparative measure of financial performance. It is,
in our experience, a measure commonly adopted by analysts and
financial commentators who report upon the cinema exhibition and
real estate industries, and it is also a measure used by financial
institutions in underwriting the creditworthiness of companies in
these industries. Accordingly, our management monitors this
calculation as a method of judging our performance against our
peers, market expectations and our creditworthiness. It is widely
accepted that analysts, financial commentators and persons active
in the cinema exhibition and real estate industries typically value
enterprises engaged in these businesses at various multiples of
EBITDA. Accordingly, we find EBITDA valuable as an indicator of the
underlying value of our businesses. We expect that investors may
use EBITDA to judge our ability to generate cash, as a basis of
comparison to other companies engaged in the cinema exhibition and
real estate businesses and as a basis to value our company against
such other companies.
EBITDA is not a measurement of financial
performance under generally accepted accounting principles in the
United States of America and it should not be considered in
isolation or construed as a substitute for net income or other
operations data or cash flow data prepared in accordance with
generally accepted accounting principles in the United States for
purposes of analyzing our profitability. The exclusion of various
components, such as interest, taxes, depreciation and amortization,
limits the usefulness of these measures when assessing our
financial performance, as not all funds depicted by EBITDA are
available for management’s discretionary use. For example, a
substantial portion of such funds may be subject to contractual
restrictions and functional requirements to service debt, to fund
necessary capital expenditures and to meet other commitments from
time to time.
EBIT and EBITDA also fail to take into
account the cost of interest and taxes. Interest is clearly a real
cost that for us is paid periodically as accrued. Taxes may or may
not be a current cash item but are nevertheless real costs that, in
most situations, must eventually be paid. A company that realizes
taxable earnings in high tax jurisdictions may, ultimately, be less
valuable than a company that realizes the same amount of taxable
earnings in a low tax jurisdiction. EBITDA fails to take into
account the cost of depreciation and amortization and the fact that
assets will eventually wear out and have to be replaced.
Adjusted EBITDA – using the principles
we consistently apply to determine our EBIDTA, we further adjusted
the EBIDTA for certain items we believe to be external to our
business and not reflective of our costs of doing business or
results of operation. Specifically, we have adjusted for (i) gains
on insurance recoveries, (ii) legal expenses relating to
extraordinary litigation, (iii) adjustments for gains/losses
relating to property sales, and (iv) any other items that can be
considered non-recurring in accordance with the 2-year SEC
requirement for determining an item is non-recurring, infrequent or
unusual in nature.
Reconciliation of EBITDA to net income is presented below:
Quarter Ended June 30,
Six Months Ended June
30,
(Dollars in thousands)
2019
2018
2019
2018
Net Income/(loss)
$
2,394
$
5,027
$
313
$
8,108
Add: Interest expense, net
2,204
1,790
4,054
3,384
Add: Income tax expense
1,654
1,965
612
3,135
Add: Depreciation and amortization
5,572
5,626
11,166
10,877
EBITDA
$
11,824
$
14,408
$
16,145
$
25,504
Adjustments for:
Legal expenses relating to the derivative
ligation, the Cotter employment arbitration and other Cotter
litigation matters
171
1,163
598
2,641
Adjusted EBITDA
$
11,995
$
15,571
$
16,743
$
28,145
Conference Call and Webcast
We plan to post our pre-recorded conference call and audio
webcast on our corporate website on August 13, 2019, that will
feature prepared remarks from Ellen Cotter, Chief Executive
Officer; Gilbert Avanes, Interim Chief Financial Officer; and
Andrzej Matyczynski, Executive Vice President - Global
Operations.
A pre-recorded question and answer session will follow our
formal remarks. Questions and topics for consideration should be
submitted to InvestorRelations@readingrdi.com on August 12,
2019 by 5:00 p.m. Eastern Standard Time. The audio webcast can be
accessed by visiting http://www.readingrdi.com/about/#earnings-call.
About Reading International,
Inc.
Reading International, Inc. (NASDAQ: RDI) is a leading
entertainment and real estate company, engaging in the development,
ownership and operation of multiplex cinemas and retail and
commercial real estate in the United States, Australia, and New
Zealand.
The family of Reading brands includes cinema brands Reading
Cinemas, Angelika Film Centers, Consolidated Theatres, and City
Cinemas; live theatres operated by Liberty Theatres in the United
States; and signature property developments, including Newmarket
Village, Auburn Redyard, and Cannon Park in Australia, Courtenay
Central in New Zealand and 44 Union Square in New York City.
Additional information about Reading can be obtained from the
Company's website: http://www.readingrdi.com.
Forward-Looking
Statements
Our statements in this press release contain a variety of
forward-looking statements as defined by the Securities Litigation
Reform Act of 1995. Forward-looking statements reflect only our
expectations regarding future events and operating performance and
necessarily speak only as of the date the information was prepared.
No guarantees can be given that our expectation will in fact be
realized, in whole or in part. You can recognize these statements
by our use of words such as, by way of example, “may,” “will,”
“expect,” “believe,” and “anticipate” or other similar
terminology.
These forward-looking statements reflect our expectation after
having considered a variety of risks and uncertainties. However,
they are necessarily the product of internal discussion and do not
necessarily completely reflect the views of individual members of
our Board of Directors or of our management team. Individual Board
members and individual members of our management team may have
different views as to the risks and uncertainties involved, and may
have different views as to future events or our operating
performance.
Among the factors that could cause actual results to differ
materially from those expressed in or underlying our
forward-looking statements are the following:
- with respect to our cinema operations:
- the number and attractiveness to moviegoers of the films
released in future periods;
- the amount of money spent by film distributors to promote their
motion pictures;
- the licensing fees and terms required by film distributors from
motion picture exhibitors in order to exhibit their films;
- the comparative attractiveness of motion pictures as a source
of entertainment and willingness and/or ability of consumers (i) to
spend their dollars on entertainment and (ii) to spend their
entertainment dollars on movies in and outside the home
environment;
- the extent to which we encounter competition from other cinema
exhibitors, from other sources of outside-the-home entertainment,
and from inside-the-home entertainment options, such as “home
theaters” and competitive film product distribution technology,
such as, by way of example, cable, satellite broadcast and
Blu-ray/DVD rentals and sales, and so called “movies on
demand”;
- the cost and impact of improvements to our cinemas, such as
improve seating, enhanced food and beverage offerings and other
improvements;
- disruptions during theater improvements;
- the extent to and the efficiency with which we are able to
integrate acquisitions of cinema circuits with our existing
operations; and
- certain of our activities are in geologically active areas,
creating a risk of damage and/or disruption of real estate and/or
cinema businesses from earthquakes.
- with respect to our real estate development and operation
activities:
- the rental rates and capitalization rates applicable to the
markets in which we operate and the quality of properties that we
own;
- the extent to which we can obtain on a timely basis the various
land use approvals and entitlements needed to develop our
properties;
- the risks and uncertainties associated with real estate
development;
- the availability and cost of labor and materials;
- the ability to obtain all permits to construct
improvements;
- the ability to finance improvements;
- the disruptions from construction;
- the possibility of construction delays, work stoppage and
material shortage;
- competition for development sites and tenants;
- environmental remediation issues;
- the extent to which our cinemas can continue to serve as an
anchor tenant that will, in turn, be influenced by the same factors
as will influence generally the results of our cinema
operations;
- the increased depreciation and amortization expense as
construction projects transition to leased real property;
- the ability to negotiate and execute joint venture
opportunities and relationships; and
- certain of our activities are in geologically active areas,
creating a risk of damage and/or disruption of real estate and/or
cinema businesses from earthquakes.
- with respect to our operations generally as an international
company involved in both the development and operation of cinemas
and the development and operation of real estate; and previously
engaged for many years in the railroad business in the United
States:
- our ability to renew, extend or renegotiate our loans that
mature in 2019;
- our ability to grow our Company and provide value to our
stockholders;
- our ongoing access to borrowed funds and capital and the
interest that must be paid on that debt and the returns that must
be paid on such capital;
- expenses, management and Board distraction and other effects of
the litigation efforts mounted by James Cotter, Jr. against the
Company, including his efforts to cause a sale of voting control of
the Company;
- the relative values of the currency used in the countries in
which we operate;
- changes in government regulation, including by way of example,
the costs resulting from the implementation of the requirements of
Sarbanes-Oxley;
- our labor relations and costs of labor (including future
government requirements with respect to pension liabilities,
disability insurance and health coverage, and vacations and
leave);
- our exposure from time to time to legal claims and to
uninsurable risks such as those related to our historic railroad
operations, including potential environmental claims and
health-related claims relating to alleged exposure to asbestos or
other substances now or in the future recognized as being possible
causes of cancer or other health related problems;
- our exposure to cyber-security risks, including
misappropriation of customer information or other breaches of
information security;
- changes in future effective tax rates and the results of
currently ongoing and future potential audits by taxing authorities
having jurisdiction over our various companies; and
- changes in applicable accounting policies and practices.
The above list is not necessarily exhaustive, as business is by
definition unpredictable and risky, and subject to influence by
numerous factors outside of our control, such as changes in
government regulation or policy, competition, interest rates,
supply, technological innovation, changes in consumer taste and
fancy, weather, and the extent to which consumers in our markets
have the economic wherewithal to spend money on beyond-the-home
entertainment.
Given the variety and unpredictability of the factors that will
ultimately influence our businesses and our results of operation,
no guarantees can be given that any of our forward-looking
statements will ultimately prove to be correct. Actual results will
undoubtedly vary and there is no guarantee as to how our securities
will perform, either when considered in isolation or when compared
to other securities or investment opportunities.
In addition to the forward-looking factors set forth above, we
encourage you to review Item 1A. “Risk Factors,” from our Company’s
Annual Report on SEC Form 10-K for the Year Ended December 31,
2018, as well as the risk factors set forth in any other filings
made under the Securities Act of 1934, as amended, including any of
our Quarterly Report of Form 10-Q .
Finally, we undertake no obligation to publicly update or to
revise any of our forward-looking statements, whether as a result
of new information, future events or otherwise, except as may be
required under applicable law. Accordingly, you should always note
the date to which our forward-looking statements speak.
Additionally, certain of the presentations included in this
press release may contain “pro forma” information or “non-U.S. GAAP
financial measures.” In such case, a reconciliation of this
information to our U.S. GAAP financial statements will be made
available in connection with such statements.
Reading International, Inc. and
Subsidiaries
Unaudited Consolidated Statements of
Operations
(Unaudited; U.S. dollars in thousands,
except per share data)
Quarter Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Revenue
Cinema
$
72,383
$
80,183
$
130,368
$
152,438
Real estate
3,713
4,079
7,278
7,695
Total revenue
76,096
84,262
137,646
160,133
Costs and expenses
Cinema
(56,235
)
(60,306
)
(104,564
)
(115,254
)
Real estate
(2,438
)
(2,551
)
(4,883
)
(4,935
)
Depreciation and amortization
(5,572
)
(5,626
)
(11,166
)
(10,877
)
General and administrative
(6,034
)
(7,165
)
(12,518
)
(14,761
)
Total costs and expenses
(70,279
)
(75,648
)
(133,131
)
(145,827
)
Operating income
5,817
8,614
4,515
14,306
Interest expense, net
(2,204
)
(1,790
)
(4,054
)
(3,384
)
Other income (expense)
71
(61
)
50
(143
)
Income (loss) before income tax expense
and equity earnings of unconsolidated joint ventures
3,684
6,763
511
10,779
Equity earnings of unconsolidated joint
ventures
327
331
361
588
Income (loss) before income
taxes
4,011
7,094
872
11,367
Income tax benefit (expense)
(1,654
)
(1,965
)
(612
)
(3,135
)
Net income (loss)
$
2,357
$
5,129
$
260
$
8,232
Less: net income (loss) attributable to
noncontrolling interests
(37
)
102
(53
)
124
Net income (loss) attributable to
Reading International, Inc. common shareholders
$
2,394
$
5,027
$
313
$
8,108
Basic earnings (loss) per share
attributable to Reading International, Inc. shareholders
$
0.10
$
0.22
$
0.01
$
0.35
Diluted earnings (loss) per share
attributable to Reading International, Inc. shareholders
$
0.10
$
0.22
$
0.01
$
0.35
Weighted average number of shares
outstanding–basic
22,894,083
22,933,589
22,901,764
22,979,436
Weighted average number of shares
outstanding–diluted
23,059,733
23,147,373
23,074,673
23,193,220
.
Reading International, Inc. and
Subsidiaries
Consolidated Balance Sheets
(U.S. dollars in thousands, except share
information)
June 30,
December 31,
2019
2018
ASSETS
(unaudited)
Current Assets:
Cash and cash equivalents
$
8,516
$
13,127
Receivables
9,178
8,045
Inventory
1,221
1,419
Prepaid and other current assets
9,847
7,667
Total current assets
28,762
30,258
Operating property, net
255,761
257,667
Operating lease right-of-use assets
224,878
—
Investment and development property,
net
101,766
86,804
Investment in unconsolidated joint
ventures
4,930
5,121
Goodwill
20,621
19,445
Intangible assets, net
3,659
7,369
Deferred tax asset, net
26,336
26,235
Other assets
6,122
6,129
Total assets
$
672,835
$
439,028
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities
$
23,213
$
26,154
Film rent payable
8,234
8,661
Debt - current portion
40,576
30,393
Derivative financial instruments - current
portion
89
41
Taxes payable - current
529
1,710
Deferred current revenue
7,196
9,264
Operating lease liabilities - current
portion
19,658
—
Other current liabilities
9,643
9,305
Total current liabilities
109,138
85,528
Debt - long-term portion
116,503
106,286
Derivative financial instruments -
non-current portion
287
145
Subordinated debt, net
26,172
26,061
Noncurrent tax liabilities
11,903
11,530
Operating lease liabilities - non-current
portion
218,610
—
Other liabilities
12,525
28,931
Total liabilities
495,138
258,481
Commitments and contingencies
Stockholders’ equity:
Class A non-voting common stock, par value
$0.01, 100,000,000 shares authorized,
32,213,025 issued and 21,074,784
outstanding at June 30, 2019 and 33,112,337 issued and 21,194,748
outstanding at December 31, 2018
233
232
Class B voting common stock, par value
$0.01, 20,000,000 shares authorized and
1,680,590 issued and outstanding at June
30, 2019 and December 31, 2018
17
17
Nonvoting preferred stock, par value
$0.01, 12,000 shares authorized and no issued
or outstanding shares at June 30, 2019 and
December 31, 2018
—
—
Additional paid-in capital
147,841
147,452
Retained earnings
47,957
47,616
Treasury shares
(27,853
)
(25,222
)
Accumulated other comprehensive income
5,279
6,115
Total Reading International, Inc.
stockholders’ equity
173,474
176,210
Noncontrolling interests
4,223
4,337
Total stockholders’ equity
177,697
180,547
Total liabilities and stockholders’
equity
$
672,835
$
439,028
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190809005385/en/
Gilbert Avanes, Interim Chief Financial Officer Andrzej
Matyczynski, Executive Vice President for Global Operations Reading
International, Inc. (213) 235-2240
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