NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Description of Business and Segment Reporting
The Company
Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company”, “Reading” and “we”, “us”, or “our”), was incorporated in 1999. Our businesses consist primarily of:
|
·
|
|
the operation, development and ownership of multiplex cinemas in the United States, Australia, and New Zealand; and,
|
|
·
|
|
the development, ownership, operation and/or rental of retail, commercial and live venue real estate assets in Australia, New Zealand, and the United States.
|
Business Segments
Reported below are the operating segments of the Company for which separate financial information is available and evaluated regularly by the Chief Executive Officer, the chief operating decision-maker of the Company. As part of our real estate activities, we hold undeveloped land in urban and suburban centers in Australia, New Zealand, and the United States.
The table below summarizes the results of operations for each of our business segments for the quarter ended
March 31, 2019
and
2018
, respectively. Operating expense includes costs associated with the day-to-day operations of the cinemas and the management of rental properties, including our live theater assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Revenue:
|
|
|
|
|
|
|
Cinema exhibition
|
|
$
|
57,986
|
|
$
|
72,255
|
Real estate
|
|
|
5,431
|
|
|
6,008
|
Inter-segment elimination
|
|
|
(1,866)
|
|
|
(2,391)
|
|
|
$
|
61,551
|
|
$
|
75,872
|
Segment operating income (loss):
|
|
|
|
|
|
|
Cinema exhibition
|
|
$
|
2,642
|
|
$
|
10,285
|
Real estate
|
|
|
1,159
|
|
|
1,681
|
|
|
$
|
3,801
|
|
$
|
11,966
|
A reconciliation of segment operating income to income before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Segment operating income (loss)
|
|
$
|
3,801
|
|
$
|
11,966
|
Unallocated corporate expense
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
(61)
|
|
|
(117)
|
General and administrative expense
|
|
|
(5,041)
|
|
|
(6,156)
|
Interest expense, net
|
|
|
(1,852)
|
|
|
(1,594)
|
Equity earnings of unconsolidated joint ventures
|
|
|
34
|
|
|
257
|
Other income (expense)
|
|
|
(20)
|
|
|
(82)
|
Income (loss) before income tax expense
|
|
$
|
(3,139)
|
|
$
|
4,274
|
Note 2 – Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries as well as majority-owned subsidiaries that the Company controls, and should be read in conjunction with the Company’s Annual Report on Form 10-K as of and for the year ended
December 31, 2018
(“
2018
Form 10-K”). All significant intercompany balances and transactions have been eliminated on consolidation. These consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). As such, they do not include
all information and footnotes required by U.S. GAAP for complete financial statements. We believe that we have included all normal and recurring adjustments necessary for a fair presentation of the results for the interim period.
Operating results for the quarter ended
March 31, 2019
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2019
.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Significant estimates include (i) projections we make regarding the recoverability and impairment of our assets (including goodwill and intangibles), (ii) valuations of our derivative instruments, (iii) recoverability of our deferred tax assets, (iv) estimation of breakage and redemption experience rates, which drive how we recognize breakage on our gift card and gift certificates, and revenue from our customer loyalty program, and (v) allocation of insurance proceeds to various recoverable components. Actual results may differ from those estimates.
Recently Adopted and Issued Accounting Pronouncements
Adopted:
Accounting Standards Update (“ASU”)
2016-02
Leases
: In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard, ASC 842
Leases
, to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available
.
On January 1, 2019, we adopted the new accounting standard
Accounting Standards Codification (“
ASC
”)
842
Leases
using the modified retrospective method. We recognized the cumulative effect of initially applying the new leasing standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The standard had a material impact on our consolidated balance sheets, but not on our consolidated income statements or statements of cash flow.
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Balance at
December 31,
2018
|
|
Adjustments
due to ASC
842
|
|
Balance at
January 1,
2019
|
Assets
|
|
|
|
|
|
|
|
|
|
Operating property, net
|
|
$
|
257,667
|
|
$
|
370
|
|
$
|
258,037
|
Operating lease right-of-use assets
|
|
|
—
|
|
|
232,319
|
|
|
232,319
|
Intangible assets, net
|
|
|
7,369
|
|
|
(3,542)
|
|
|
3,827
|
Deferred tax asset, net
|
|
|
26,235
|
|
|
82
|
|
|
26,317
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
$
|
—
|
|
$
|
245,280
|
|
$
|
245,280
|
Other non-current liabilities
|
|
|
28,931
|
|
|
(16,033)
|
|
|
12,898
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
$
|
4,337
|
|
$
|
(46)
|
|
$
|
4,291
|
Retained earnings
|
|
|
47,616
|
|
|
28
|
|
|
47,644
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended March 31, 2019
|
(Dollars in thousands)
|
|
As Reported,
March 31, 2019
|
|
Balances
Without
Adoption of
ASC 842
|
|
Effect of
change
Higher /
(Lower)
|
Cinema costs and expenses
|
|
$
|
48,329
|
|
$
|
48,334
|
|
$
|
(5)
|
Depreciation and amortization
|
|
|
5,594
|
|
|
5,552
|
|
|
42
|
General and administrative
|
|
|
6,484
|
|
|
6,528
|
|
|
(44)
|
Interest expense, net
|
|
|
1,852
|
|
|
1,849
|
|
|
3
|
Income tax (benefit) expense
|
|
|
1,042
|
|
|
1,041
|
|
|
1
|
Net income (loss)
|
|
$
|
(2,097)
|
|
$
|
(2,094)
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
As Reported,
March 31, 2019
|
|
Balances
Without
Adoption of
ASC 842
|
|
Effect of
change
Higher /
(Lower)
|
Assets
|
|
|
|
|
|
|
|
|
|
Operating property, net
|
|
$
|
257,402
|
|
$
|
257,072
|
|
$
|
330
|
Intangible assets
|
|
|
3,694
|
|
|
7,151
|
|
|
(3,457)
|
Operating lease right-of-use assets
|
|
|
229,266
|
|
|
—
|
|
|
229,266
|
Deferred tax asset, net
|
|
|
26,483
|
|
|
26,400
|
|
|
83
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
9,525
|
|
$
|
9,363
|
|
$
|
162
|
Operating lease liabilities, current
|
|
|
19,797
|
|
|
—
|
|
|
19,797
|
Other non-current liabilities
|
|
|
12,346
|
|
|
28,643
|
|
|
(16,297)
|
Operating lease liabilities, non-current
|
|
|
222,594
|
|
|
—
|
|
|
222,594
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
$
|
45,563
|
|
$
|
45,585
|
|
$
|
(22)
|
|
1)
|
|
ASU 2014-09
Revenue from Contracts with Customers:
On January 1, 2018, we adopted the new accounting standard ASC 606
Revenue from Contracts with Customers
using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information was not restated. Adoption of this standard has no material effect on our consolidated financial statements.
|
|
2)
|
|
On January 1, 2018, the Company adopted
ASU 2016-18, Statement of Cash Flows
(
Topic 230
)
: Restricted Cash, a consensus of the FASB Emerging Issues Task Force
. This standard requires that
amounts generally described as restricted cash and cash equivalents should be combined with unrestricted cash and cash equivalents when reconciling the beginning and end of period balances on the statement of cash flows.
Adoption of this standard has no material effect on our consolidated statement of cash flows.
|
|
3)
|
|
On January 1, 2018, the Company adopted
ASU 2
016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments).
The standard applies to eight (8) specific cash flow classification issues, reducing the current and potential future diversity in the presentation of certain cash flows. Adoption of this standard has no material effect on our consolidated statement of cash flows.
|
|
4)
|
|
On January 1, 2018, the Company adopted
ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. This standard (i) requires that an employer disaggregate the service cost component from the other components of net benefit cost, and (ii) specifies how to present the service cost component and the other components of net benefit cost in the income statement and (iii) allows only the service cost component of net benefit cost to be eligible for capitalization. Adoption of this standard has no material impact on our consolidated financial statements.
|
|
5)
|
|
On January 1, 2018, the Company adopted
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
. This ASU provides that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset is not a “business”, thus reducing the number of transactions that need further evaluation for business combination. The standard has no material impact on our current consolidated financial statements, and we do not expect it
to be applicable to our consolidated financial statements in the near term unless we enter into a definitive business acquisition transaction.
|
Issued:
|
v
|
|
ASUs Effective 2019 and Beyond
|
|
·
|
|
Goodwill Impairment Simplification
(
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment)
|
Issued by FASB in January 2017, this standard removes the second step of the two-step impairment test for measuring goodwill and is to be applied on a prospective basis only. The new standard is effective for the Company on January 1, 2020, including interim periods within the year of adoption. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. It is not anticipated that adoption of this standard will have any material impact on our consolidated financial statements.
Prior period financial statement correction of immaterial errors
During the third quarter of 2018, we identified immaterial errors related to the accounting for straight line rent receivable from tenants in our real estate operations dating back to 2015. These errors resulted in an understatement of real estate revenue.
We assessed the materiality of these errors on our financial statements for prior periods in accordance with the SEC Staff Accounting Bulletin (
“
SAB
”
) No. 99, Materiality, codified in
ASC
250, Presentation of Financial Statements, and concluded that they were not material to any prior annual or interim periods. However, the aggregate amount of
$440
k related to the prior period immaterial errors through June 30, 2018, would have been material to the quarterly accounts with our current Consolidated Statements of Income. Consequently, in accordance with ASC 250 (specifically SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we have corrected these errors for all prior periods presented by revising the consolidated financial statements and other financial information included herein.
The following is a summary of the previously issued financial statement line items for all periods and statements included in this report.
Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
(Dollars in thousands)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Real estate revenue
|
|
$
|
3,567
|
|
$
|
50
|
|
$
|
3,617
|
Total revenue
|
|
|
75,822
|
|
|
50
|
|
|
75,872
|
Operating income (loss)
|
|
|
5,643
|
|
|
50
|
|
|
5,693
|
Income before income taxes
|
|
|
4,224
|
|
|
50
|
|
|
4,274
|
Income tax benefit (expense)
|
|
|
(1,155)
|
|
|
(15)
|
|
|
(1,170)
|
Net income (loss)
|
|
|
3,069
|
|
|
35
|
|
|
3,104
|
Net income (loss) attributable to Reading International, Inc. common shareholders
|
|
|
3,047
|
|
|
35
|
|
|
3,082
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.13
|
|
$
|
—
|
|
$
|
0.13
|
Diluted earnings (loss) per share
|
|
|
0.13
|
|
|
—
|
|
|
0.13
|
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Equity
|
(Dollars in thousands)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Equity at January 1, 2018
|
|
$
|
176,910
|
|
$
|
377
|
|
$
|
177,287
|
Net income (loss)
|
|
|
3,047
|
|
|
35
|
|
|
3,082
|
Equity at March 31, 2018
|
|
$
|
179,423
|
|
$
|
412
|
|
$
|
179,835
|
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
(Dollars in thousands)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Net income (loss)
|
|
$
|
3,069
|
|
$
|
35
|
|
$
|
3,104
|
Change in net deferred tax assets
|
|
|
157
|
|
|
15
|
|
|
172
|
Prepaid and other assets
|
|
|
(2,259)
|
|
|
(50)
|
|
|
(2,309)
|
Net cash provided by operating activities
|
|
$
|
2,452
|
|
$
|
—
|
|
$
|
2,452
|
Note 3 – Operations in Foreign Currency
We have significant assets in Australia and New Zealand. Historically, we have conducted our Australian and New Zealand operations (collectively “foreign operations”) on a self-funding basis where we use cash flows generated by our foreign operations to pay for the expense of foreign operations. Our Australian and New Zealand assets and liabilities are translated from their functional currencies of Australian dollar (“AU$”) and New Zealand dollar (“NZ$”), respectively, to the U.S. dollar based on the exchange rate as of
March 31, 2019
. The carrying value of the assets and liabilities of our foreign operations fluctuates as a result of changes in the exchange rates between the functional currencies of the foreign operations and the U.S. dollar. The translation adjustments are accumulated in the Accumulated Other Comprehensive Income in the Consolidated Balance Sheets.
Due to the natural-hedge nature of our funding policy, we have not historically used derivative financial instruments to hedge against the risk of foreign currency exposure. However, in certain circumstances, we move funds between jurisdictions where circumstances encouraged us to do so from an overall economic standpoint. Going forward, particularly in light of recent tax law changes, we intend to take a more global view of our financial resources, and to be more flexible in making use of resources from one jurisdiction in other jurisdictions.
Presented in the table below are the currency exchange rates for Australia and New Zealand:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency / USD
|
|
As of and
for the
quarter
ended
|
|
As of and
for the
twelve months
ended
|
|
As of and
for the
quarter
ended
|
|
|
March 31, 2019
|
December 31, 2018
|
|
March 31, 2018
|
Spot Rate
|
|
|
|
|
|
|
Australian Dollar
|
0.7104
|
0.7046
|
|
0.7690
|
New Zealand Dollar
|
0.6820
|
0.6711
|
|
0.7239
|
Average Rate
|
|
|
|
|
|
|
Australian Dollar
|
0.7123
|
|
0.7479
|
|
0.7861
|
|
New Zealand Dollar
|
0.6816
|
|
0.6930
|
|
0.7275
|
|
Note 4 – Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing the net income attributable to the Company’s common
stockholders
by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by dividing the net income attributable to the Company’s common
stockholders
by the weighted average number of common and common equivalent shares outstanding during the period and is calculated
using the treasury stock method for equity-based compensation awards
.
The following table sets forth the computation of basic and diluted
EPS and a reconciliation of the weighted average number of common and common equivalent shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands, except share data)
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) attributable to RDI common stockholders
|
|
$
|
(2,081)
|
|
$
|
3,082
|
Denominator:
|
|
|
|
|
|
|
Weighted average number of common stock – basic
|
|
|
22,920,486
|
|
|
22,967,237
|
Weighted average dilutive impact of awards
|
|
|
203,620
|
|
|
165,752
|
Weighted average number of common stock – diluted
|
|
|
23,124,106
|
|
|
23,132,989
|
Basic earnings (loss) per share attributable to RDI common stockholders
|
|
$
|
(0.09)
|
|
$
|
0.13
|
Diluted earnings (loss) per share attributable to RDI common stockholders
|
|
$
|
(0.09)
|
|
$
|
0.13
|
Awards excluded from diluted earnings (loss) per share
|
|
|
496,089
|
|
|
—
|
Our weighted average number of common stock - basic decreased
, primarily as a result of the repurchase of shares of Class A Non-Voting Common Stock pursuant to our current stock repurchase program offset by the issuance of shares due to the exercise of share options and vesting of restricted stock units.
Note 5 – Property and Equipment
Operating Property, net
As of
March 31, 2019
and
December 31, 2018
, property associated with our operating activities is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Land
|
|
$
|
76,110
|
|
$
|
75,689
|
Building and improvements
|
|
|
151,525
|
|
|
149,734
|
Leasehold improvements
|
|
|
56,160
|
|
|
55,299
|
Fixtures and equipment
|
|
|
171,674
|
|
|
167,943
|
Construction-in-progress
|
|
|
3,185
|
|
|
3,478
|
Total cost
|
|
|
458,654
|
|
|
452,143
|
Less: accumulated depreciation
|
|
|
(201,252)
|
|
|
(194,476)
|
Operating property, net
|
|
$
|
257,402
|
|
$
|
257,667
|
Depreciation expense for operating property was
$5.4
million for the quarter ended
March 31, 2019
and
$4.7
million for the quarter ended
March 31, 2018
.
Investment and Development Property, net
As of
March 31, 2019
and
December 31, 2018
, our investment and development property is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Land
|
|
$
|
24,310
|
|
$
|
24,371
|
Building
|
|
|
1,900
|
|
|
1,900
|
Construction-in-progress (including capitalized interest)
|
|
|
68,946
|
|
|
60,533
|
Investment and development property
|
|
$
|
95,156
|
|
$
|
86,804
|
Construction-in-Progress – Operating and Investing Properties
Construction-in-Progress balances are included in both our operating and development properties. The balances of our major projects along with the movements for the
three
months ended
March 31, 2019
are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Balance,
December 31,
2018
|
|
Additions during the period
(1)
|
|
Completed
during the
period
|
|
Foreign
currency
translation
|
|
Balance,
March 31,
2019
|
Union Square development
|
|
$
|
55,634
|
|
$
|
7,724
|
|
$
|
—
|
|
$
|
(1)
|
|
$
|
63,357
|
Newmarket Property development
|
|
|
9
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
13
|
Courtenay Central development
|
|
|
5,571
|
|
|
234
|
|
|
—
|
|
|
94
|
|
|
5,899
|
Cinema developments and improvements
|
|
|
1,664
|
|
|
3,551
|
|
|
(3,997)
|
|
|
4
|
|
|
1,222
|
Other real estate projects
|
|
|
1,133
|
|
|
528
|
|
|
(27)
|
|
|
6
|
|
|
1,640
|
Total
|
|
$
|
64,011
|
|
$
|
12,041
|
|
$
|
(4,024)
|
|
$
|
103
|
|
$
|
72,131
|
|
(1)
|
|
Includes capitalized interest of
$1.3
million for the quarter ended
March 31, 2019
.
|
Real Estate Transactions
Purchase of Income Producing Property at Auburn/Redyard, Australia
–
On June 29, 2018, we added
20,870
square feet of land, improved with a
16,830
square foot
office building, to our Auburn/Redyard ETC. The property was acquired at auction for
$3.5
million (
AU$4.5
million) and is bordered by our existing ETC on three sides. The property is leased to Telstra through July 2022. This will allow us time to plan for the efficient integration of the property into our ETC. With this acquisition, Auburn/Redyard now represents approximately
519,992
square feet (
48,309
square meters) of land, with approximately
1,620
feet (
498
meters) of uninterrupted frontage to Parramatta Road, a major Sydney arterial motorway
.
Purchase of Land at Cannon Park in Townsville, Australia
– On June 13, 2018, we acquired a
163,000
square foot (
15,150
square meter) parcel of land at our Cannon Park ETC, in connection with the restructuring of our relationship with the adjacent land owner. Prior to the restructuring, this parcel was commonly owned by us and the adjoining land owner. In the restructuring, the adjoining land owner conveyed to us its interest in the parcel for
AU$1
. We granted the adjoining land owner certain access rights with respect to that parcel.
Note 6 – Investments in Unconsolidated Joint Ventures
Our investments in unconsolidated joint ventures are accounted for under the equity method of accounting.
The table below summarizes our active investment holdings in two (2) unconsolidated joint ventures as of
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
Interest
|
|
2019
|
|
2018
|
Rialto Cinemas
|
|
50.0%
|
|
$
|
1,224
|
|
$
|
1,260
|
Mt. Gravatt
|
|
33.3%
|
|
|
3,734
|
|
|
3,861
|
Total investments
|
|
|
|
$
|
4,958
|
|
$
|
5,121
|
For the
quarter
ended
March 31, 2019
and
2018
, the recognized share of equity earnings from our investments in unconsolidated joint ventures are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Rialto Cinemas
|
|
$
|
(56)
|
|
$
|
70
|
Mt. Gravatt
|
|
|
90
|
|
|
187
|
Total equity earnings
|
|
$
|
34
|
|
$
|
257
|
Note 7 – Goodwill and Intangible Assets
The table below summarizes goodwill by business segment as of
March 31, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cinema
|
|
Real Estate
|
|
Total
|
Balance at, December 31, 2018
|
|
$
|
14,221
|
|
$
|
5,224
|
|
$
|
19,445
|
Change in goodwill due to a purchase of business combination
|
|
|
1,248
|
|
|
—
|
|
|
1,248
|
Foreign currency translation adjustment
|
|
|
143
|
|
|
—
|
|
|
143
|
Balance at, March 31, 2019
|
|
$
|
15,612
|
|
$
|
5,224
|
|
$
|
20,836
|
The Company is required to test goodwill and other intangible assets for impairment on an annual basis and, if current events or circumstances require, on an interim basis. Our next annual evaluation of goodwill and other intangible assets is scheduled during the fourth quarter of
2019
. To test the impairment of goodwill, the Company compares the fair value of each reporting unit to its carrying amount, including the goodwill, to determine if there is potential goodwill impairment. A reporting unit is generally one level below the operating segment. As of
March 31, 2019
, we were not aware that any events indicating potential impairment of goodwill had occurred.
The tables below summarize intangible assets other than goodwill as of
March 31, 2019
and
December 31, 2018
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
(Dollars in thousands)
|
|
Beneficial
Leases
|
|
Trade
Name
|
|
Other
Intangible
Assets
|
|
Total
|
Gross carrying amount
|
|
$
|
15,069
|
|
$
|
7,255
|
|
$
|
1,999
|
|
$
|
24,323
|
Less: Accumulated amortization
|
|
|
(14,260)
|
|
|
(5,269)
|
|
|
(1,100)
|
|
|
(20,629)
|
Net intangible assets other than goodwill
|
|
$
|
809
|
|
$
|
1,986
|
|
$
|
899
|
|
$
|
3,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
(Dollars in thousands)
|
|
Beneficial
Leases
|
|
Trade
Name
|
|
Other
Intangible
Assets
|
|
Total
|
Gross carrying amount
|
|
$
|
28,592
|
|
$
|
7,254
|
|
$
|
1,951
|
|
$
|
37,797
|
Less: Accumulated amortization
|
|
|
(24,145)
|
|
|
(5,207)
|
|
|
(1,076)
|
|
|
(30,428)
|
Net intangible assets other than goodwill
|
|
$
|
4,447
|
|
$
|
2,047
|
|
$
|
875
|
|
$
|
7,369
|
Beneficial leases were amortized over the life of the lease up to
30
years up until January 1, 2019, when under ASC
842 they
we
re incorporated into the relevant right-of-use asset. Trade names are amortized based on the accelerated amortization method over their estimated useful life of
30
years, and other intangible assets are amortized over their estimated useful lives of up to
30
years (except for transferrable liquor licenses, which are indefinite-lived assets). The table below summarizes the amortization expense of intangible assets for the quarter ended
March 31, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Beneficial lease amortization
|
|
$
|
79
|
|
$
|
207
|
Other amortization
|
|
|
22
|
|
|
93
|
Total intangible assets amortization
|
|
$
|
101
|
|
$
|
300
|
Note 8 – Prepaid and Other Assets
Prepaid and other assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Prepaid and other current assets
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
2,105
|
|
$
|
1,761
|
Prepaid rent
|
|
|
1,020
|
|
|
930
|
Prepaid taxes
|
|
|
1,026
|
|
|
646
|
Income taxes receivable
|
|
|
4,106
|
|
|
2,704
|
Deposits
|
|
|
242
|
|
|
242
|
Investment in marketable securities
|
|
|
44
|
|
|
42
|
Restricted cash
|
|
|
1,099
|
|
|
1,342
|
Total prepaid and other current assets
|
|
$
|
9,642
|
|
$
|
7,667
|
Other non-current assets
|
|
|
|
|
|
|
Straight-line rent
|
|
|
4,219
|
|
|
4,150
|
Other non-cinema and non-rental real estate assets
|
|
|
1,134
|
|
|
1,134
|
Investment in Reading International Trust I
|
|
|
838
|
|
|
838
|
Long-term deposits
|
|
|
8
|
|
|
7
|
Long-term restricted cash
|
|
|
—
|
|
|
—
|
Total other non-current assets
|
|
$
|
6,199
|
|
$
|
6,129
|
Note 9 – Income Taxes
The interim provision for income taxes is different from the amount determined by applying the U.S. federal statutory rate to consolidated income before taxes. The differences are attributable to foreign tax rate differential, unrecognized tax benefits, and foreign tax credits. Our effective tax rate
was
33.2%
and
27.3%
for the three months ended March 31, 2019 and 2018, respectively.
The change between 2019 and 2018 is primarily related to decrease in benefits from foreign tax credits and increase in valuation allowance related to our foreign operation.
Note 10 – Debt
The Company’s borrowings at
March 31, 2019
and
December 31, 2018
, net of deferred financing costs and including the impact of interest rate derivatives on effective interest rates, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
(Dollars in thousands)
|
|
Maturity Date
|
|
Contractual
Facility
|
|
Balance,
Gross
|
|
Balance,
Net
(1)
|
|
Stated
Interest Rate
|
|
Effective
Interest
Rate
(2)
|
Denominated in USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Securities (USA)
|
|
April 30, 2027
|
|
$
|
27,913
|
|
$
|
27,913
|
|
$
|
26,116
|
|
6.75%
|
|
6.75%
|
Bank of America Credit Facility (USA)
|
|
May 1, 2020
|
|
|
55,000
|
|
|
30,000
|
|
|
30,000
|
|
5.02%
|
|
5.02%
|
Bank of America Line of Credit (USA)
|
|
October 31, 2019
|
|
|
5,000
|
|
|
3,500
|
|
|
3,500
|
|
5.52%
|
|
5.52%
|
Banc of America digital projector loan (USA)
|
|
December 28, 2019
|
|
|
1,979
|
|
|
1,979
|
|
|
1,979
|
|
5.00%
|
|
5.00%
|
Cinema 1, 2, 3 Term Loan (USA)
|
|
September 1, 2019
|
|
|
18,978
|
|
|
18,978
|
|
|
18,768
|
|
3.25%
|
|
3.25%
|
Minetta & Orpheum Theatres Loan (USA)
|
|
November 1, 2023
|
|
|
8,000
|
|
|
8,000
|
|
|
7,864
|
|
4.54%
|
|
4.54%
|
U.S. Corporate Office Term Loan (USA)
|
|
January 1, 2027
|
|
|
9,437
|
|
|
9,437
|
|
|
9,319
|
|
4.64% / 4.44%
|
|
4.61%
|
Union Square Construction Financing (USA)
|
|
December 29, 2019
|
|
|
57,500
|
|
|
33,934
|
|
|
32,463
|
|
6.76% / 12.51%
|
|
8.02%
|
Denominated in foreign currency ("FC")
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAB Corporate Term Loan (AU)
|
|
December 31, 2023
|
|
|
85,248
|
|
|
40,138
|
|
|
40,111
|
|
2.70%
|
|
2.70%
|
Westpac Bank Corporate (NZ)
|
|
December 31, 2023
|
|
|
21,824
|
|
|
9,889
|
|
|
9,889
|
|
3.80%
|
|
3.80%
|
|
|
|
|
$
|
290,879
|
|
$
|
183,768
|
|
$
|
180,009
|
|
|
|
|
|
(1)
|
|
Net of deferred financing costs amounting to
$3.8
million.
|
|
(2)
|
|
Both interest rate derivatives associated with the Trust Preferred Securities and Bank of America Credit Facility expired in October 2017 so the effective interest rate no longer applies as of
March 31, 2019
.
|
|
(3)
|
|
The contractual facilities a
nd outstanding balances of the foreign currency
denominated borrowings were translated into U.S. dollars based on the applicable exchange rates as of
March 31, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
(Dollars in thousands)
|
|
Maturity Date
|
|
Contractual
Facility
|
|
Balance,
Gross
|
|
Balance,
Net
(1)
|
|
Stated
Interest
Rate
|
|
Effective
Interest
Rate
(2)
|
Denominated in USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Securities (USA)
|
|
April 30, 2027
|
|
$
|
27,913
|
|
$
|
27,913
|
|
$
|
26,061
|
|
6.52%
|
|
6.52%
|
Bank of America Credit Facility (USA)
|
|
May 1, 2020
|
|
|
55,000
|
|
|
25,000
|
|
|
25,000
|
|
5.02%
|
|
5.02%
|
Bank of America Line of Credit (USA)
|
|
October 31, 2019
|
|
|
5,000
|
|
|
—
|
|
|
—
|
|
5.48%
|
|
5.48%
|
Banc of America digital projector loan (USA)
|
|
December 28, 2019
|
|
|
2,604
|
|
|
2,604
|
|
|
2,604
|
|
5.00%
|
|
5.00%
|
Cinema 1, 2, 3 Term Loan (USA)
|
|
September 1, 2019
|
|
|
19,086
|
|
|
19,086
|
|
|
18,838
|
|
3.25%
|
|
3.25%
|
Minetta & Orpheum Theatres Loan (USA)
|
|
November 1, 2023
|
|
|
8,000
|
|
|
8,000
|
|
|
7,857
|
|
4.88%
|
|
4.88%
|
U.S. Corporate Office Term Loan (USA)
|
|
January 1, 2027
|
|
|
9,495
|
|
|
9,495
|
|
|
9,373
|
|
4.64% / 4.44%
|
|
4.61%
|
Union Square Construction Financing (USA)
|
|
December 29, 2019
|
|
|
57,500
|
|
|
27,182
|
|
|
25,280
|
|
6.76% / 12.51%
|
|
8.35%
|
Denominated in foreign currency ("FC")
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAB Corporate Loan Facility (AU)
|
|
December 31, 2023
|
|
|
46,856
|
|
|
37,696
|
|
|
37,660
|
|
3.05%
|
|
3.05%
|
Westpac Corporate Credit Facility (NZ)
|
|
December 31, 2023
|
|
|
21,475
|
|
|
10,067
|
|
|
10,067
|
|
3.80%
|
|
3.80%
|
|
|
|
|
$
|
252,929
|
|
$
|
167,043
|
|
$
|
162,740
|
|
|
|
|
|
(1)
|
|
Net of deferred financing costs amounting to
$4.3
million.
|
|
(2)
|
|
Both interest rate derivatives associated with the Trust Preferred Securities and Bank of America Credit Facility expired in October 2017 so the effective interest rate no longer applies as of December 31, 2018.
|
|
(3)
|
|
The contractual facilities and outstanding balances of the
foreign currency
denominated borrowings were translated into U.S. dollars based on the applicable exchange rates as of
December 31, 2018
.
|
Our loan arrangements are presented, net of the deferred financing costs, on the face of our consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Balance Sheet Caption
|
|
2019
|
|
2018
|
Debt - current portion
|
|
$
|
40,077
|
|
$
|
30,393
|
Debt - long-term portion
|
|
|
113,816
|
|
|
106,286
|
Subordinated debt
|
|
|
26,116
|
|
|
26,061
|
Total borrowings
|
|
$
|
180,009
|
|
$
|
162,740
|
Minetta and Orpheum Theatres Loan
On October 12, 2018, we refinanced our
$7.5
million loan with Santander Bank, which is secured by our Minetta and Orpheum Theatres, with a loan for a
five
year term of
$8.0
million. Such modification was not considered to be substantial under US GAAP.
Banc of America Digital Projector Loan
On February 5, 2018, we purchased our U.S. digital cinema projectors, which had previously been held on operating leases, using a
$4.6
million loan from Banc of America. We made further U.S. digital projector purchases, of projectors similarly held on other operating leases, in March and April 2018, increasing this loan to
$4.9
million. This loan carries an interest rate of
5%
and is due and payable December 28, 2019.
Bank of America Credit Facility
On March 3, 2016, we amended our
$55.0
million credit facility with Bank of America to permit real property acquisition loans. This amendment reduces the applicable consolidated leverage ratio covenant by
0.25%
and modifies the term of the facility based on the earlier of the
eighteen
months from the date of such borrowing or the maturity date of the credit agreement. Such modification was not considered substantial in accordance with U.S. GAAP. On March 5, 2019, this Credit Facility was extended for
six
(6) months to
May 1, 2020
.
44
Union Square Construction Financing
On December 29, 2016, we closed on our new construction finance facilities totaling
$57.5
million to fund the non-equity portion of the anticipated construction costs of the redevelopment of our property at 44 Union Square in New York City. The combined facilities consist of
$50.0
million in aggregate loans (comprised of
three
loan tranches) from Bank of the Ozarks (“BOTO”), and a
$7.5
million mezzanine loan from Tammany Mezz Investor, LLC, an affiliate of Fisher Brothers. At December 31, 2016, Bank of the Ozarks advanced
$8.0
million to repay the then existing
$8.0
million loan with East West Bank. As of
March 31, 2019
, an additional
$26.4
million had been advanced under the senior loan facility, along with the full
$7.5
million available under the mezzanine loan facility.
U.S. Corporate Office Term Loan
On December 13, 2016, we obtained a
ten
-year
$8.4
million mortgage loan on our new Los Angeles Corporate Headquarters at a fixed annual interest rate of
4.64%
. This loan provided for a second loan upon completion of certain improvements. On June 26, 2017, we obtained a further
$1.5
million under this provision at a fixed annual interest rate of
4.44%
.
Bank of America Line of Credit
In October 2016, the term of this $5.0 million line of credit was extended to October 31, 2019. Such modification was not considered to be substantial under US GAAP.
Cinema 1,2,3 Term Loan
On August 31, 2016, Sutton Hill Properties LLC (“SHP”), a
75%
subsidiary of RDI, refinanced its
$15.0
million Santander Bank term loan with a new lender, Valley National Bank. This new
$20.0
million loan is collateralized by our Cinema 1,2,3 property and bears an interest rate of
3.25%
per annum, with principal installments and accruing interest paid monthly. The new loan matures on
September 1, 2019
, with a
one
-time option to extend maturity date for another year. The Company presently intends to exercise that option and to extend the maturity date until September 1, 2020.
Westpac Bank Corporate Credit Facility (NZ)
On December 20, 2018, we restructured our Westpac Corporate Credit Facilities. The maturity of the 1
st
tranche (general/non-construction credit line) was extended to
December 31, 2023
, with the available facility being reduced from
NZ$35.0
million to
NZ$32.0
million. The facility bears an interest rate of
1.75%
above the Bank Bill Bid Rate on the drawn down balance and a
1.1%
line of credit charge on the entire facility. The 2
nd
tranche (construction line) with a facility of
NZ$18.0
million was not renewed.
Australian NAB Corporate Term Loan (AU)
On March 15, 2019, we amended our Revolving Corporate Markets Loan Facility with National Australia Bank (“NAB”) from a facility comprised of (i) a
AU$66.5
million loan facility with an interest rate of
0.95%
above the Bank Bill Swap Bid Rate (“BBSY”) and a maturity date of
June 30, 2019
and (ii) a bank guarantee of
AU$5.0
million at a rate of
1.90%
per annum into a (i)
AU$120.0
million Corporate Loan facility at rates of
0.85%
-
1.30%
above BBSY depending on certain ratios with a due date of
December 31, 2023
, of which
AU$80.0
million is revolving and
AU$40.0
million is core and (ii) a Bank Guarantee Facility of
AU$5.0
million at a rate of
1.85%
per annum. Prior to this, on June 12, 2018, we had extended the maturity of these facilities from June 30, 2019, to December 31, 2019. Such modifications of this particular term loan were not considered to be substantial under US GAAP.
Note 11 – Other Liabilities
Other liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Current liabilities
|
|
|
|
|
|
|
Lease liability
|
|
$
|
5,900
|
|
$
|
5,900
|
Liability for demolition costs
|
|
|
2,664
|
|
|
2,630
|
Accrued pension
|
|
|
684
|
|
|
684
|
Security deposit payable
|
|
|
88
|
|
|
84
|
Finance lease liabilities
|
|
|
162
|
|
|
—
|
Other
|
|
|
27
|
|
|
7
|
Other current liabilities
|
|
$
|
9,525
|
|
$
|
9,305
|
Other liabilities
|
|
|
|
|
|
|
Straight-line rent
|
|
$
|
—
|
|
$
|
16,362
|
Lease make-good provision
|
|
|
5,722
|
|
|
5,614
|
Accrued pension
|
|
|
4,544
|
|
|
4,670
|
Environmental reserve
|
|
|
1,656
|
|
|
1,656
|
Deferred revenue - real estate
|
|
|
9
|
|
|
32
|
Acquired leases
|
|
|
47
|
|
|
91
|
Finance lease liabilities
|
|
|
169
|
|
|
—
|
Other
|
|
|
199
|
|
|
506
|
Other liabilities
|
|
$
|
12,346
|
|
$
|
28,931
|
On August 29, 2014, the Supplemental Executive Retirement Plan (“SERP”) that has been effective since March 1, 2007, was ended and replaced in accordance with the terms of a pension annuity. As a result of the termination of the SERP program, the accrued pension liability of
$7.6
million was reversed and replaced with this pension annuity liability of
$7.5
million. The valuation of the liability is based on the present value of
$10.2
million discounted at a rate of
4.25%
over a
15
-
year term, resulting in a monthly payment of
$57,000
. The discount rate of 4.25% has been applied since 2014 to determine the net periodic benefit cost and plan benefit obligation and is expected to be used in future years. The discounted value of
$2.7
million (which is the difference between the estimated payout of $10.2 million and the present value of $7.5 million) as of August 29, 2014 will be amortized and expensed based on the 15-year term. In addition, the accumulated actuarial loss of
$3.1
million recorded, as part of other comprehensive income will also be amortized based on the
15
-
year term.
In February 2018 we made a payment of
$2.4
million relating to the annuity representing payments for the
42
months outstanding at the time. Monthly ongoing payments of $57,000 are now being made.
As a result of the above, included in our current and non-current liabilities are accrued pension costs of
$5.2
million at
March 31, 2019
. The benefits of our pension plan are fully vested and
therefore
no
service costs were recognized for the
quarter ended
March 31, 2019
and
2018
. Our pension plan is unfunded.
During the quarter ended
March 31, 2019
, the interest cost was
$51,000
and actuarial loss was
$51,000
. During the quarter ended
March 31, 2018
, the interest cost was
$45,000
and actuarial loss was
$52,000
.
Note 12 – Accumulated Other Comprehensive Income
The following table summarizes the changes in each component of accumulated other comprehensive income attributable to RDI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Foreign
Currency
Items
|
|
Unrealized
Gain (Losses)
on Available-
for-Sale
Investments
|
|
Accrued
Pension
Service Costs
|
|
Hedge
Accounting
Reserve
|
|
Total
|
Balance at January 1, 2019
|
$
|
8,687
|
|
$
|
3
|
|
$
|
(2,438)
|
|
$
|
(137)
|
|
$
|
6,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change related to derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in hedge fair value recorded in Other Comprehensive Income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(81)
|
|
|
(81)
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
12
|
Net change related to derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(69)
|
|
|
(69)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
1,526
|
|
|
2
|
|
|
51
|
|
|
(69)
|
|
|
1,510
|
Balance at March 31, 2019
|
$
|
10,213
|
|
$
|
5
|
|
$
|
(2,387)
|
|
$
|
(206)
|
|
$
|
7,625
|
Note 13 – Commitments and Contingencies
Litigation General
We are currently involved in certain legal proceedings and, as required, have accrued estimates of probable and estimable losses for the resolution of these claims, including legal costs.
|
·
|
|
Where we are a
plaintiff
, we accrue legal fees as incurred on an on-going basis and make no provision for any potential settlement amounts until received. In Australia, the prevailing party is usually entitled to recover its attorneys’ fees, which recoveries typically work out to be approximately 60% of the amounts actually spent where first-class legal counsel is engaged at customary rates. Where we are a plaintiff, we have likewise made no provision for the liability for the defendant’s attorneys' fees in the event we are determined not to be the prevailing party.
|
|
·
|
|
Where we are a
defendant
, we accrue for probable damages that insurance may not cover as they become known and can be reasonably estimated. In our opinion, any claims and litigation in which we are currently involved are not reasonably likely to have a material adverse effect on our business, results of operations, financial position, or liquidity. I
t is possible, however, that future results of the operations for any particular quarterly or annual period could be materially affected by the ultimate outcome of the legal proceedings.
From time-to-time, we are involved with claims and lawsuits arising in the ordinary course of our business that may include contractual obligations, insurance claims, tax claims, employment matters, and anti-trust issues, among other matters.
|
All of these matters require significant judgments based on the facts known to us. These judgments are inherently uncertain and can change significantly when additional facts become known. We provide accruals for matters that have probable likelihood of occurrence and can be properly estimated as to their expected negative outcome. We do not record expected gains until the proceeds are received by us. However,
we typically make no accruals for potential costs of defense, as such amounts are inherently uncertain and dependent upon the scope, extent and aggressiveness of the activities of the applicable plaintiff.
Environmental and Asbestos Claims on Reading Legacy Operations
Certain of our subsidiaries were historically involved in railroad operations, coal mining, and manufacturing. Also, certain of these subsidiaries appear in the chain-of-title of properties that may suffer from pollution. Accordingly, certain of these subsidiaries have, from time-to-time, been named in and may in the future be named in various actions brought under applicable environmental laws. Also, we are in the real estate development business and may encounter from time-to-time unanticipated environmental conditions at properties that we have acquired for development. These environmental conditions can increase the cost of such projects and adversely affect the value and potential for profit of such projects. We do not currently believe that our exposure under applicable environmental laws is material in amount.
From time to time, there are claims brought against us relating to the exposure of former employees of our railroad operations to asbestos and coal dust. These are generally covered by an insurance settlement reached in September 1990 with our insurance providers. However, this insurance settlement does not cover litigation by people who were not our employees and who may claim second-hand exposure to asbestos, coal dust and/or other chemicals or elements now recognized as potentially causing cancer in humans. Our known exposure to these types of claims, asserted or probable of being asserted, is not material.
Cotter Jr. Derivative Litigation
This action was originally brought by James J. Cotter, Jr. (“Cotter Jr.”) in June, 2015 in the Nevada District Court against all of the Directors of the Company and against the Company as a nominal defendant:
James J. Cotter, Jr., individually and derivatively on behalf of Reading International, Inc. vs. Margaret Cotter, et al.”
Case No,: A-15-719860-V. Summary judgment has been entered against Cotter, Jr., and in favor of all defendants and a
$1.55
million cost judgment has been entered against Cotter, Jr., and in favor of our Company. Cotter, Jr. has appealed both judgements. Our application for
$5.9
million in attorney’s fees was denied, and we have appealed that determination. The issues on appeal are currently being briefed. No date for oral argument has been set. It is unlikely that any hearing will be held this year. As the Directors and Officers Liability Insurance Policy covering Cotter, Jr.’s claims in the Derivative Case (
$10.0
million) has been exhausted, the financial burden of defending our Directors against these claims, as required by applicable Nevada Law, has fallen upon our Company. During 2018, out-of-pocket third party costs in the amount of approximately
$3.5
million were incurred by our Company in defending against these claims. In the quarter ended March 31, 2019, an additional
$387,000
had been accrued, relating principally to the preparation of appellate briefs with respect to the Derivative Litigation.
Note 14 – Non-controlling Interests
These are composed of the following enterprises:
|
·
|
|
Australia Country Cinemas Pty Ltd.
- 25%
noncontrolling interest owned by Panorama Cinemas for 21st Century Pty Ltd.;
|
|
·
|
|
Shadow View Land and Farming, LLC -
50%
noncontrolling membership interest owned by either the estate of Mr. James J. Cotter, Sr. (the “Cotter Estate”) and/or the James J. Cotter, Sr. Living Trust (the “Cotter Trust”); and,
|
|
·
|
|
Sutton Hill Properties, LLC -
25%
noncontrolling interest owned by Sutton Hill Capital, LLC (which in turn is
50%
owned by the Cotter Estate and/or the Cotter Trust).
|
The components of noncontrolling interests are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Australian Country Cinemas, Pty Ltd
|
|
$
|
27
|
|
$
|
89
|
Shadow View Land and Farming, LLC
|
|
|
2,156
|
|
|
2,153
|
Sutton Hill Properties, LLC
|
|
|
2,084
|
|
|
2,095
|
Noncontrolling interests in consolidated subsidiaries
|
|
$
|
4,267
|
|
$
|
4,337
|
The components of income attributable to noncontrolling interests are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Australian Country Cinemas, Pty Ltd
|
|
$
|
9
|
|
$
|
41
|
Shadow View Land and Farming, LLC
|
|
|
(14)
|
|
|
(13)
|
Sutton Hill Properties, LLC
|
|
|
(11)
|
|
|
(6)
|
Net income (loss) attributable to noncontrolling interests
|
|
$
|
(16)
|
|
$
|
22
|
Summary of Controlling and Noncontrolling Stockholders’ Equity
A summary of the changes in controlling and noncontrolling stockholders’ equity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Controlling
Stockholders’
Equity
|
|
Noncontrolling
Stockholders’
Equity
|
|
Total
Stockholders’
Equity
|
Equity at January 1, 2019
|
|
$
|
176,210
|
|
$
|
4,337
|
|
$
|
180,547
|
Adjustments to opening retained earnings on adoption of ASC 842
|
|
|
28
|
|
|
(46)
|
|
|
(18)
|
Net income (loss)
|
|
|
(2,081)
|
|
|
(16)
|
|
|
(2,097)
|
Increase in additional paid in capital
|
|
|
21
|
|
|
—
|
|
|
21
|
Treasury stock purchased
|
|
|
(9)
|
|
|
—
|
|
|
(9)
|
Contributions from noncontrolling stockholders
|
|
|
—
|
|
|
18
|
|
|
18
|
Distributions to noncontrolling stockholders
|
|
|
—
|
|
|
(27)
|
|
|
(27)
|
Accumulated other comprehensive income
|
|
|
1,510
|
|
|
1
|
|
|
1,511
|
Equity at March 31, 2019
|
|
$
|
175,679
|
|
$
|
4,267
|
|
$
|
179,946
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Controlling
Stockholders’
Equity
|
|
Noncontrolling
Stockholders’
Equity
|
|
Total
Stockholders’
Equity
|
Equity at January 1, 2018
|
|
$
|
177,287
|
|
$
|
4,331
|
|
$
|
181,618
|
Adjustments to opening retained earnings on adoption of ASC 606
|
|
|
194
|
|
|
(2)
|
|
|
192
|
Net income (loss)
|
|
|
3,082
|
|
|
22
|
|
|
3,104
|
Increase in additional paid in capital
|
|
|
339
|
|
|
—
|
|
|
339
|
Treasury stock purchased
|
|
|
(317)
|
|
|
—
|
|
|
(317)
|
Contributions from noncontrolling stockholders
|
|
|
—
|
|
|
27
|
|
|
27
|
Distributions to noncontrolling stockholders
|
|
|
—
|
|
|
(43)
|
|
|
(43)
|
Accumulated other comprehensive loss
|
|
|
(750)
|
|
|
(3)
|
|
|
(753)
|
Equity at March 31, 2018
|
|
$
|
179,835
|
|
$
|
4,332
|
|
$
|
184,167
|
Note 15 – Stock-Based Compensation and Stock Repurchases
Employee and Director Stock Option Plan
The Company may grant stock options and other share-based payment awards of our Common Stock to eligible employees, directors, and consultants under the 2010 Stock Incentive Plan (the “Plan”). The aggregate total number of shares of the Common Stock authorized for issuance under the Plan is
2,197,460
.
During the Company’s 2017 Annual Stockholders’ Meeting held on November 7, 2017, the Company's stockholders, upon recommendation of the Board of Directors, approved an amendment to the Plan to increase the number of shares of common stock issuable under the Plan by an additional
947,460
shares. The effect of the increase is to restore the amount of shares of Common Stock available under the Plan from the
302,540
shares available as of September 30, 2017, back up to its original reserve of
1,250,000
shares. As of
March 31, 2019
, we had
789,869
shares remaining for future issuances.
Since the adoption of the Plan in 2010, the Company has granted awards primarily in the form of stock options. In the 1
st
quarter of 2016, the Company started to award restricted stock units (“RSUs”) to directors and certain members of management. Stock options are generally granted at exercise prices equal to the grant-date market prices and typically expire no later than five years from the grant date. In contrast to a stock option where the grantee buys the Company’s share at an exercise price determined on grant date, an RSU entitles the grantee to receive one share for every RSU based on a vesting plan. At the discretion of our Compensation and Stock Options Committee, the vesting period of stock options and RSUs granted to employees ranges from
zero
to
four
years. Grants to directors and certain executive officers are subject to Board approval. At the time the options are exercised or RSUs vest and are settled, at the discretion of management, we will issue treasury shares or make a new issuance of shares to the option or RSU holder.
Stock Options
We estimate the grant-date fair value of our stock options using the Black-Scholes option-valuation model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility, and the expected life of the options. We expense the estimated grant-date fair values of options over the vesting period on a straight-line basis. Based on our
historical experience, the “deemed exercise” of expiring in-the-money options and the relative market price to strike price of the options, we have not hereto estimated any forfeitures of vested or unvested options.
There were
219,408
stock options issued in the quarter ended
March 31, 2019
. The weighted average assumptions used in the option-valuation model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Stock option exercise price
|
|
$
|
16.12
|
|
$
|
—
|
Risk-free interest rate
|
|
|
2.42%
|
|
|
0.00%
|
Expected dividend yield
|
|
|
—
|
|
|
—
|
Expected option life in years
|
|
|
3.75
|
|
|
—
|
Expected volatility
|
|
|
23.32%
|
|
|
0.00%
|
Weighted average fair value
|
|
$
|
3.50
|
|
$
|
—
|
For the quarter
s
ended
March 31, 2019
and
2018
, we recorded compensation expense of
$70,000
and
$85,000
, respectively.
At
March 31, 2019
, the total unrecognized estimated compensation expense related to non-vested stock options was
$1.5
million, which we expect to recognize over a weighted average vesting period of
2.11
years. The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at
March 31, 2019
was
$2.0
million, of
which
91%
are
currently exercisable.
The following table summarizes the number of options outstanding and exercisable as of
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Stock Options - Class A Shares
|
|
|
Number
of Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Years of
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
|
Class A
|
|
Class A
|
|
Class A
|
|
Class A
|
Balance - December 31, 2017
|
|
524,589
|
|
$
|
12.50
|
|
3.15
|
|
$
|
3,054,325
|
Granted
|
|
126,840
|
|
|
16.40
|
|
—
|
|
|
—
|
Exercised
|
|
(60,000)
|
|
|
6.02
|
|
—
|
|
|
610,249
|
Forfeited
|
|
(4,960)
|
|
|
12.08
|
|
—
|
|
|
—
|
Balance - December 31, 2018
|
|
586,469
|
|
$
|
14.01
|
|
2.88
|
|
$
|
1,530,528
|
Granted
|
|
219,408
|
|
|
16.12
|
|
—
|
|
|
—
|
Exercised
|
|
(67,500)
|
|
|
13.42
|
|
—
|
|
|
185,175
|
Forfeited
|
|
(25,000)
|
|
|
13.42
|
|
—
|
|
|
—
|
Balance - March 31, 2019
|
|
713,377
|
|
$
|
14.74
|
|
3.53
|
|
$
|
1,993,628
|
Restricted Stock Units
We estimate the grant-date fair values of our RSUs using the Company’s stock price at grant-date and record such fair values as compensation expense over the vesting period on a straight-line basis. The following table summarizes the status of the RSUs granted to-date as of
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Restricted Stock Units
|
|
|
RSU Grants (in units)
|
|
|
|
Vested,
|
|
Unvested,
|
|
Forfeited,
|
Grant Date
|
|
Directors
|
|
Management
|
|
Total
Grants
|
|
March 31,
2019
|
|
March 31,
2019
|
|
March 31,
2019
|
March 10, 2016
|
|
35,147
|
|
27,381
|
|
62,528
|
|
55,684
|
|
6,844
|
|
|
April 11, 2016
|
|
—
|
|
5,625
|
|
5,625
|
|
2,815
|
|
2,293
|
|
517
|
March 23, 2017
|
|
30,681
|
|
32,463
|
|
63,144
|
|
46,919
|
|
16,225
|
|
|
August 29, 2017
|
|
—
|
|
7,394
|
|
7,394
|
|
3,698
|
|
3,696
|
|
|
January 2, 2018
|
|
29,393
|
|
—
|
|
29,393
|
|
29,393
|
|
—
|
|
|
April 12, 2018
|
|
—
|
|
29,596
|
|
29,596
|
|
—
|
|
29,596
|
|
|
April 13, 2018
|
|
—
|
|
14,669
|
|
14,669
|
|
—
|
|
14,669
|
|
|
July 6, 2018
|
|
—
|
|
932
|
|
932
|
|
—
|
|
—
|
|
932
|
November 7, 2018
|
|
23,010
|
|
—
|
|
23,010
|
|
—
|
|
23,010
|
|
|
March 13, 2019
|
|
—
|
|
24,366
|
|
24,366
|
|
—
|
|
24,366
|
|
|
March 14, 2019
|
|
—
|
|
23,327
|
|
23,327
|
|
—
|
|
23,327
|
|
|
Total
|
|
118,231
|
|
165,753
|
|
283,984
|
|
138,509
|
|
144,026
|
|
1,449
|
RSU awards to management vest
25%
at the end of each year for
4
years. Prior to November 7, 2018,
RSU
awards to directors vested
100%
in
January of the following year in which such RSUs were gra
nted. At the November 7, 2018 Board
meeting, it was determined that it would be more appropriate for the vesting of RSUs to align with the directors’ term of office. Accordingly, the RSUs granted on November 7, 2018, will vest upon the earlier of (i) the first anniversary of grant and (ii) the date of the next annual meeting of
stockholders. This means that on the date of the
annual meeting of stockholder
s
on May 7, 2019, the RSUs granted to directors on November 7, 2018
vested.
Due to the fact that the Company has moved up its annual meeting of stockholders from November to May this year, this
c
reate
d
a shorter than normal vesting period for the RSUs issued on November 7, 2018. In order to adjust for this factor, the directors have determined that the award of RSUs to be made immediately following the 2019 Annual Meeting of Stockholders will be
$35,000
or one half of la
st year's annual grant.
For the quarter ended
March 31, 2019
and
2018
, we recorded compensation expense of
$209,000
and
$294,000
, respectively. The total unrecognized compensation expense related to the non-vested RSUs was
$1.9
million as of
March 31, 2019
, which we expect to recognize over a weighted average vesting period of
1.1
years.
Stock Repurchase Program
On March 2, 2017, the Company's Board of Directors authorized management, at its discretion, to spend up to an aggregate of
$25.0
million to acquire shares of Reading’s Class A
Common
Stock. The previously approved stock repurchase program, which allowed management to spend up to an aggregate of
$10.0
million to acquire shares of Reading’s Class A Common Stock, was completed as of December 31, 2016. On March 14, 2019, the Board of Directors extended this stock buy-back program for
two
years, through
March 2, 2021. The Board of Directors did not
increase the authorized amount which was
$16.2
million at March 31, 2019.
The repurchase program allows Reading to repurchase its shares in accordance with the requirements of the SEC on the open market, in block trades and in privately negotiated transactions, depending on market conditions and other factors. All purchases are subject to the availability of shares at prices that are acceptable to Reading, and accordingly, no assurances can be given as to the timing or number of shares that may ultimately be acquired pursuant to this authorization.
Under the stock repurchase program, as of
March 31, 2019
, the Company has reacquired
559,627
shares of Class A
Common
Stock for
$8.8
million at an average price of
$15.81
per share (excluding transaction costs) to-date.
566
shares
of Class A Common Stock
were purchased during the quarter ended March 31, 2019 at an average price of
$16.08
per share. This leaves
$16.2
million available under the March 2, 2017 program, as extended, for repurchase as of March 31, 2019.
Note 16 - Leases
In all leases, whether we are the lessor or lessee, we define lease term as the non-cancellable term of the lease plus any renewals covered by renewal options that are reasonably certain of exercise based on our assessment of economic factors relevant to the lessee. The non-cancellable term of the lease commences on the date the lessor makes the underlying property in the lease available to the lessee, irrespective of when lease payments begin under the contract.
As Lessee
We have operating leases for certain cinemas and corporate offices, and finance leases for certain equipment assets. Our leases have remaining lease terms of
1
to
20
years, with certain leases having options to extend to up to a further
20
years.
Contracts are analyzed in accordance with the criteria set out in ASC 842 to determine if there is a lease present. For contracts that contain an operating lease, we account for the lease component and the non-lease component together as a single component. For contracts that contain a finance lease we account for the lease component and the non-lease component separately in accordance with ASC 842.
In leases where we are the lessee, we recognize a right of use asset and lease liability at lease commencement, which is measured by discounting lease payments using our incremental borrowing rate applicable to the lease term and currency of the lease as the discount rate. Subsequent amortization of the right of use asset and accretion of the lease liability for an operating lease is recognized as a single lease cost, on a straight line basis, over the term of the lease. A finance lease right-of-use asset is depreciated on a straight line basis over the lesser of the useful life of the leased asset or the lease term. Interest on each finance lease liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability. Property taxes and other non-lease costs are accounted for on an accrual basis.
Lease payments for our cinema operating leases consist of fixed base rent, and for certain leases, variable lease payments consisting of contracted percentages of revenue, changes in the relevant CPI, and/or other contracted financial metrics.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Lease cost
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
—
|
Amortization of right-of-use assets
|
|
$
|
41
|
|
$
|
—
|
Interest on lease liabilities
|
|
|
3
|
|
|
—
|
Operating lease cost
|
|
|
7,921
|
|
|
—
|
Variable lease cost
|
|
|
105
|
|
|
—
|
Total lease cost
|
|
$
|
8,070
|
|
$
|
—
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Cash flows relating to lease cost
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
44
|
|
$
|
—
|
Operating cash flows from operating leases
|
|
|
7,780
|
|
|
—
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
|
—
|
|
|
—
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
|
2,181
|
|
|
—
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Operating leases
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
229,266
|
|
$
|
—
|
Operating lease liabilities - current portion
|
|
|
19,797
|
|
|
—
|
Operating lease liabilities - non-current portion
|
|
|
222,594
|
|
|
—
|
Total operating lease liabilities
|
|
$
|
242,391
|
|
$
|
—
|
Finance leases
|
|
|
|
|
|
|
Property plant and equipment, gross
|
|
|
372
|
|
|
—
|
Accumulated depreciation
|
|
|
(41)
|
|
|
—
|
Property plant and equipment, net
|
|
$
|
331
|
|
$
|
—
|
Other current liabilities
|
|
|
162
|
|
|
—
|
Other long-term liabilities
|
|
|
169
|
|
|
—
|
Total finance lease liabilities
|
|
$
|
331
|
|
$
|
—
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
Weighted-average remaining lease term - finance leases
|
|
|
3
|
|
|
—
|
Weighted-average remaining lease term - operating leases
|
|
|
11
|
|
|
—
|
Weighted-average discount rate - finance leases
|
|
|
5.05%
|
|
|
—
|
Weighted-average discount rate - operating leases
|
|
|
4.97%
|
|
|
—
|
Maturity of leases were as follows:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Operating
leases
|
|
Finance
leases
|
2019
|
|
$
|
23,566
|
|
$
|
133
|
2020
|
|
|
31,434
|
|
|
101
|
2021
|
|
|
31,717
|
|
|
53
|
2022
|
|
|
31,901
|
|
|
43
|
2023
|
|
|
31,018
|
|
|
28
|
Thereafter
|
|
|
169,221
|
|
|
—
|
Total lease payments
|
|
$
|
318,857
|
|
$
|
358
|
Less imputed interest
|
|
|
(76,466)
|
|
|
(27)
|
Total
|
|
$
|
242,391
|
|
$
|
331
|
As of
March 31, 2019
, we have additional operating leases, primarily for cinemas, that have not yet commenced of approximately
$26.0
million. These operating leases will commence between fiscal year 2019 and fiscal year 2021 with lease terms of
15
to
20
years.
As Lessor
The Company has entered into various leases as a lessor for our owned real estate properties. These leases vary in length between
1
and
20
years, with certain leases containing options to extend at the behest of the applicable tenants. Lease components consist of fixed base rent, and for certain leases, variable lease payments consisting of contracted percentages of revenue, changes in the relevant CPI, and/or other contracted financial metrics. No terms exist by which a lessee is able to purchase the underlying asset.
We recognize lease payments for operating leases as property revenue on a straight-line basis over the lease term. Lease incentive payments we make to lessees are amortized as a reduction in property revenue over the lease term.
Lease income relating to operating lease payments was as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Components of lease income
|
|
|
|
|
|
|
Lease payments
|
|
$
|
2,229
|
|
$
|
2,423
|
Variable lease payments
|
|
|
265
|
|
|
80
|
Total lease income
|
|
$
|
2,494
|
|
$
|
2,503
|
The book value of underlying assets under operating leases from owned assets was as follows:
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
Building and improvements
|
|
|
|
|
|
|
Gross balance
|
|
$
|
68,483
|
|
$
|
67,887
|
Accumulated depreciation
|
|
|
(18,375)
|
|
|
(17,709)
|
Net Book Value
|
|
$
|
50,108
|
|
$
|
50,178
|
Maturity of leases were as follows:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Operating
leases
|
2019
|
|
|
|
|
$
|
6,470
|
2020
|
|
|
|
|
|
7,439
|
2021
|
|
|
|
|
|
6,830
|
2022
|
|
|
|
|
|
5,961
|
2023
|
|
|
|
|
|
5,187
|
Thereafter
|
|
|
|
|
|
10,295
|
Total
|
|
|
|
|
$
|
42,182
|
Note 17 – Hedge Accounting
As of
March 31, 2019
and
March 31, 2018
, the Company held interest rate derivatives in the total notional amount of
$8.0
million and
$nil
, respectively.
The derivatives are recorded on the balance sheet at fair value and are included in the following line items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
(Dollars in thousands)
|
|
Balance sheet location
|
|
Fair value
|
|
Balance sheet location
|
|
Fair value
|
Interest rate contracts
|
|
Derivative financial instruments - current portion
|
|
$
|
52
|
|
Derivative financial instruments - current portion
|
|
$
|
41
|
|
|
Derivative financial instruments - non-current portion
|
|
|
203
|
|
Derivative financial instruments - non-current portion
|
|
|
145
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
255
|
|
|
|
$
|
186
|
Total derivatives
|
|
|
|
$
|
255
|
|
|
|
$
|
186
|
We have
no
derivatives designated as hedging instruments which are in asset positions.
The changes in fair value are recorded in Other Comprehensive Income and released into interest expense in the same period(s) in which the hedged transactions affect earnings. In the quarter to
March 31, 2019
and
March 31, 2018
, respectively, the derivative instruments affected Comprehensive Income as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Location of Loss Recognized in Income on Derivatives
|
|
Amount of Loss Recognized in Income on Derivatives
|
|
|
|
|
|
2019
|
|
|
2018
|
Interest rate contracts
|
|
Interest expense, net
|
|
$
|
12
|
|
$
|
—
|
Total
|
|
|
|
$
|
12
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Recognized in OCI on Derivatives (Effective Portion)
|
|
Loss Reclassified from OCI into Income (Effective Portion)
|
|
Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
|
(Dollars in thousands)
|
|
Amount
|
|
Line Item
|
|
Amount
|
|
Line Item
|
|
Amount
|
|
|
2019
|
|
2018
|
|
|
|
2019
|
|
2018
|
|
|
|
2019
|
|
2018
|
Interest rate contracts
|
|
$
|
81
|
|
$
|
—
|
|
Interest expense, net
|
|
$
|
12
|
|
$
|
—
|
|
Interest expense, net
|
|
$
|
—
|
|
$
|
—
|
Total
|
|
$
|
81
|
|
$
|
—
|
|
|
|
$
|
12
|
|
$
|
—
|
|
|
|
$
|
—
|
|
$
|
—
|
Note 18 – Fair Value Measurements
ASC 820,
Fair Value Measurement
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
|
·
|
|
Level 1: Quoted market prices in active markets for identical assets or liabilities;
|
|
·
|
|
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and,
|
|
·
|
|
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
As of
March 31, 2019
and
December 31, 2018
material financial assets and financial liabilities were carried and measured at fair value on a recurring basis.
The following tables summarize our financial liabilities that are carried at cost and measured at fair value on a non-recurring basis as of
March 31, 2019
and
December 31, 2018
, by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at March 31, 2019
|
(Dollars in thousands)
|
|
Carrying
Value
(1)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Notes payable
|
|
$
|
155,855
|
|
$
|
—
|
|
$
|
—
|
|
$
|
159,871
|
|
$
|
159,871
|
Subordinated debt
|
|
|
27,913
|
|
|
—
|
|
|
—
|
|
|
19,162
|
|
|
19,162
|
|
|
$
|
183,768
|
|
$
|
—
|
|
$
|
—
|
|
$
|
179,033
|
|
$
|
179,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2018
|
(Dollars in thousands)
|
|
Carrying
Value
(1)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Notes payable
|
|
$
|
139,130
|
|
$
|
—
|
|
$
|
—
|
|
$
|
143,564
|
|
$
|
143,564
|
Subordinated debt
|
|
|
27,913
|
|
|
—
|
|
|
—
|
|
|
18,895
|
|
|
18,895
|
|
|
$
|
167,043
|
|
$
|
—
|
|
$
|
—
|
|
$
|
162,459
|
|
$
|
162,459
|
|
(1)
|
|
These
balances
are presented before any deduction for deferred financing costs.
|
Following is a description of the valuation methodologies used to estimate the fair value of our financial assets and liabilities. There have been no changes in the methodologies used at
March 31, 2019
and
December 31, 2018
.
|
·
|
|
Level 1
investments in marketable securities primarily consist of investments associated with the ownership of marketable securities in U.S. and New Zealand. These investments are valued based on observable market quotes on the last trading date of the reporting period.
|
|
·
|
|
Level 2
derivative financial instruments are valued based on discounted cash flow models that incorporate observable inputs such as interest rates and yield curves from the derivative counterparties. The credit valuation adjustments associated with our non-performance risk and counterparty credit risk are incorporated in the fair value estimates of our derivatives. As of
March 31, 2019
and
December 31, 2018
, we concluded that the credit valuation adjustments were not significant to the overall valuation of our derivatives.
|
|
·
|
|
Level 3
borrowings include our secured and unsecured notes payable, trust preferred securities and other debt instruments. The borrowings are valued based on discounted cash flow models that incorporate appropriate market discount rates. We calculated the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or LIBOR for variable-rate debt, for maturities that correspond to the maturities of our debt, adding appropriate credit spreads derived from information obtained from third-party financial institutions. These credit spreads take into account factors such as our credit rate, debt maturity, types of borrowings, and the loan-to-value ratios of the debt.
|
The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values due to their short maturities. Additionally, there were
no
transfers of assets and liabilities between levels 1, 2, or 3 during the quarter ended
March 31, 2019
and
March 31, 2018
.
Note 19 – Business Combination
On January 30, 2019, we purchased the tenant’s interest and other operating assets of an established four-screen cinema in Devonport,
Tasmania,
Australia, for $1.4 million (AU$1.95 million). We commenced trading from this new cinema site on January 30, 2019.
The total purchase price was allocated to the identifiable assets acquired based on our preliminary estimates of their fair values on the acquisition date. There were no liabilities
assumed. As of March 31, 2019, the Company is still finalizing its allocation and this may result in potential adjustments within the one-year measurement period from acquisition date. The determination of the fair values of the acquired assets (and the related determination of their estimated lives) requires significant judgment.
Our preliminary purchase price allocation is as follows:
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Preliminary Purchase Price
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Allocation
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(Dollars in thousands)
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US Dollars
(1)
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AU dollars
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Tangible Assets
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Operating property:
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Fixtures and equipment
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$
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153
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$
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213
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Intangible Assets
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Goodwill
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1,248
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1,734
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Total assets acquired
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1,401
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1,947
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Net assets acquired
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$
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1,401
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$
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1,947
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(1)
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The balances were translated into U.S. Dollars based on the applicable exchange rate as of the date of acquisition, January 30, 2019.
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This MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements included in Part I, Item 1 (Financial Statements). The foregoing discussions and analyses contain certain forward-looking statements. Please refer to the “Forward Looking Statements” included at the conclusion of this section and our “Risk Factors” set forth in our
2018
Form 10-K, Part 1, Item 1A and the Risk Factors set out below.