<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............... to ...............
COMMISSION FILE NUMBER 333-13413
READING ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2859312
(State of incorporation) (I.R.S. Employer Identification No.)
30 SOUTH FIFTEENTH STREET, SUITE 1300
PHILADELPHIA, PENNSYLVANIA 19102-4813
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: 215-569-3344
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
There were 7,449,364 shares of Common Stock outstanding as of November 10, 1999.
<PAGE>
INDEX
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
PART I. - FINANCIAL INFORMATION PAGE
- ------------------------------- ----
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets -- September 30, 1999
(Unaudited) and December 31, 1998........................................................ 3 - 4
Condensed Consolidated Statements of Operations -- Three Months and Nine Months
Ended September 30, 1999 and 1998 (Unaudited)............................................ 5
Condensed Consolidated Statements of Cash Flows -- Nine Months
Ended September 30, 1999 and 1998 (Unaudited)............................................ 6
Notes to Condensed Consolidated Financial Statements (Unaudited)........................... 7 - 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 15 - 23
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K....................................................... 24 - 25
Signatures...................................................................................... 26
</TABLE>
-2-
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
September 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $23,804 $58,593
Amounts receivable 534 575
Restricted cash 947 904
Inventories 226 236
Prepayments and other current assets 955 532
- ----------------------------------------------------------------------------------------------------------------
Total current assets 26,466 60,840
- ----------------------------------------------------------------------------------------------------------------
Investments in unconsolidated affiliates 15,555 12,819
Net investment in leased equipment 2,125 2,125
Property held for development 32,916 32,949
Property and equipment - net 66,536 32,534
Notes receivable from joint venture partners 3,095 2,883
Other assets 2,995 4,729
Intangible assets:
Beneficial leases - net of accumulated amortization of $109
in 1999 and $3,882 in 1998 273 12,797
Cost in excess of assets acquired - net of accumulated
amortization of $1,903 in 1999 and $1,264 in 1998 10,134 10,611
- ----------------------------------------------------------------------------------------------------------------
133,629 111,447
- ----------------------------------------------------------------------------------------------------------------
$160,095 $172,287
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
September 30, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $1,404 $3,031
Accrued taxes 335 418
Accrued property costs and other 5,310 1,734
Film rent payable 1,989 1,347
Note payable 4,121 743
Purchase commitments 1,482 8,066
Other liabilities 485 123
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,126 15,462
- --------------------------------------------------------------------------------------------------------------------------
Note payable 3,615 920
Other liabilities 5,086 4,606
- --------------------------------------------------------------------------------------------------------------------------
Total long term liabilities 8,701 5,526
- --------------------------------------------------------------------------------------------------------------------------
Minority interests 2,003 1,927
Reading Entertainment Convertible Redeemable Series A Preferred Stock, par value $.001 7,000 7,000
per share, stated value $7,000; Authorized, issued and outstanding - 70,000 shares
Shareholders' Equity
Reading Entertainment Series B Preferred Stock, par value $.001 per share,
stated value $55,000; Authorized, issued and outstanding - 550,000 shares 1 1
Reading Entertainment preferred stock, par value $.001 per share:
Authorized -9,380,000 shares: None issued 0 0
Reading Entertainment common stock, par value $.001 per share:
Authorized - 25,000,000 shares: Issued and outstanding -7,449,364 shares 7 7
Other capital 138,637 138,637
Accumulated (deficit) retained earnings (7,129) 9,727
Accumulated other comprehensive income (4,251) (6,000)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 127,265 142,372
- --------------------------------------------------------------------------------------------------------------------------
$160,095 $172,287
==========================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Theater:
Admissions $8,156 $6,510 $20,401 $19,107
Concessions 2,476 1,940 6,188 5,870
Advertising and other 506 325 1,212 890
Real estate 265 45 395 257
Interest and dividends 313 1,096 1,751 3,578
- ------------------------------------------------------------------------------------------
11,716 9,916 29,947 29,702
- ------------------------------------------------------------------------------------------
EXPENSES:
Theater costs 8,160 6,279 21,197 18,636
Theater concession costs 582 425 1,384 1,282
Depreciation and amortization 1,195 968 3,272 2,710
General and administrative 3,230 2,425 8,563 6,899
Asset impairment charge 14,022 0 14,022 0
- ------------------------------------------------------------------------------------------
27,189 10,097 48,438 29,527
- ------------------------------------------------------------------------------------------
(Loss) income from operations (15,473) (181) (18,491) 175
Equity in (loss) earnings of affiliates (59) (114) 2,555 (4)
Other income (expense), net 593 (97) 592 (513)
Interest expense 156 12 274 43
- ------------------------------------------------------------------------------------------
Loss before minority interests and
income taxes (15,095) (404) (15,618) (385)
Minority interests 45 104 223 263
- ------------------------------------------------------------------------------------------
Loss before income taxes (15,140) (508) (15,841) (648)
Income taxes 186 355 674 762
- ------------------------------------------------------------------------------------------
Net loss (15,326) (863) (16,515) (1,410)
Less: Preferred stock dividends and amortization
of asset put option 1,085 1,078 3,250 3,233
- ------------------------------------------------------------------------------------------
Net loss applicable to common
shareholders ($16,411) ($1,941) ($19,765) ($4,643)
==========================================================================================
Basic and diluted loss per share ($2.20) ($0.26) ($2.65) ($0.62)
==========================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
- ---------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($16,515) ($1,410)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,272 2,710
Deferred rent expense 266 137
Write off of capitalized acquisition and development costs 360 0
Loss on disposal of assets 272 395
Asset impairment charge 14,022 0
Equity in (earnings) loss of affiliates (2,555) 4
Minority interests 223 263
Changes in operating assets and liabilities:
Decrease in amounts receivable 47 1,070
Decrease (increase) in inventories 24 (22)
(Increase) decrease in prepayments and other current assets (413) 278
Increase (decrease) in accounts payable and accrued expenses 673 (3,122)
Increase (decrease) in film rent payable 630 (391)
Increase (decrease) in other liabilities 543 (61)
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 849 (149)
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property held for development (1,779) (11,744)
Purchase of property and equipment, net (27,118) (5,026)
Acquisition of the Royal George Theater (105) 0
Decrease in restricted cash 45 3,673
Decrease in purchase committments (6,522) (3,408)
Purchase of Citadel and Big 4 Ranch common stock 0 (2,211)
Investment in joint ventures (1,221) (3,179)
Note receivable from New Zealand joint venture (123) (557)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (36,823) (22,452)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of preferred stock dividends (341) (3,023)
Minority interest distributions (371) (292)
Payments of notes payable (704) (627)
Capital contributions from Minority interest 45 0
Net proceeds from notes payable 2,808 0
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,437 (3,942)
- ---------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (252) (336)
- ---------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (34,789) (26,879)
Cash and cash equivalents at beginning of year 58,593 92,840
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $23,804 $65,961
===================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
NOTE 1 -- BASIS OF PRESENTATION
Reading Entertainment, Inc. ("REI" or "Reading Entertainment" and
collectively, with its subsidiaries and predecessors, "Reading" or the
"Company") is in the business of developing and operating multiplex cinemas in
the United States, Puerto Rico, Australia, and New Zealand and of developing,
and eventually operating cinema based entertainment centers in Australia and New
Zealand. The Company operates its cinemas through various subsidiaries under
the Angelika Film Centers and Reading Cinemas names in the mainland United
States (the "Domestic Cinemas"); through Reading Cinemas of Puerto Rico, Inc., a
wholly-owned subsidiary, under the CineVista name in Puerto Rico ("CineVista" or
the "Puerto Rico Circuit"); through Reading Entertainment Australia Pty.,
Limited (collectively with its subsidiaries referred to herein as "Reading
Australia") under the Reading Cinemas name in Australia (the "Australia
Circuit") and through Reading New Zealand Limited's ("Reading New Zealand")
participation in a cinema joint venture operating under the Berkley Cinemas name
in New Zealand. The Company's entertainment center development activities in
Australia are also conducted through Reading Australia, under the Reading
Station name and in New Zealand under the Reading New Zealand Limited name. In
addition, the Company owns one live theater, consisting of four auditoriums in
Chicago. The Company is also a participant in two real estate joint ventures in
Philadelphia, Pennsylvania, holds certain property for sale located primarily in
Philadelphia and owns certain equipment which it leases to third parties.
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim information. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments of a recurring nature considered necessary for a
fair presentation of the results for the interim periods presented have been
included. Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
Certain amounts in previously issued financial statements have been
reclassified to conform with the current period presentation.
NOTE 2 -- ACQUISITION ACTIVITIES
On March 18, 1999, the Company acquired a four auditorium live theater
complex in Chicago which operates under the name "The Royal George Theatre" for
approximately $2,800,000 of which $1,180,000 of the purchase price was financed
with a purchase money mortgage due in May 2000.
In December 1998, the Company entered into an Agreement in Principle (the
"Agreement in Principle") to lease and operate four cinemas located in Manhattan
and to acquire a) three live "Off Broadway" theatres also located in Manhattan,
b) the 16.7% interest not already owned by it in the Angelika Film Center in
Manhattan and c) certain management rights with respect to two other cinemas
located in Manhattan and currently managed by City Cinemas (collectively the
"City Cinemas Transaction"). In connection with this transaction, the Company
has made a deposit of $1,000,000 which amount is included as "Other assets" in
the Company's Consolidated Balance Sheet at September 30, 1999. The assets to
be leased or acquired in the transaction are owned jointly by James J. Cotter
and Michael Forman. Messrs Cotter and Forman are the principal stockholders of
Craig Corporation ("Craig"), which owns approximately 78% of the Company's
voting stock.
-7-
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
Responsibility for the review and approval of the City Cinemas Transaction
has been delegated to an independent committee of the Board of Directors,
comprised entirely of outside directors who are independent of Craig and of
Messrs. Cotter and Forman (the "Independent Committee"), and who were not
involved in the negotiation or approval of the Agreement in Principle.
Consummation of the City Cinemas Transaction is subject to certain conditions
precedent, including the receipt of a fairness opinion and the review and
approval of final transactional documentation by the Independent Committee.
Accordingly, no assurances may be given that the City Cinemas Transaction will
ultimately be consummated.
The Company is currently reviewing the transaction in the context of an
overall reevaluation of its business plan. While the Company continues to be of
the view that the City Cinemas Transaction would be complementary to and enhance
the overall value of its current domestic cinema and live theater holdings, the
Company is reassessing its commitment to domestic cinema exhibition in light of
the scope and extent of its cinema exhibition and real estate development
commitments in Australia and New Zealand. While no final determination has been
made by the Board of Directors, management currently believes that, given the
assets available to the Company, it would be in the best interests of the
Company to focus primarily upon its overseas operations and the opportunities
available to it in Australia and New Zealand and to either bring in a capital
partner with respect to its domestic operations and/or to dispose of those
operations (together with the Company's rights under the Agreement in Principle)
in an orderly manner. Accordingly, it is unlikely that the City Cinemas
Transaction would be consummated prior to the end of the first quarter of 2000.
NOTE 3 -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company owned 2,113,673 shares of common stock of Citadel Holding
Corporation (together with its wholly-owned subsidiaries "Citadel") representing
an ownership interest of approximately 31.7% at September 30, 1999. The Company
accounts for its investment in the Citadel common stock by the equity method.
Citadel's net earnings for the nine months ended September 30, 1999 were
$9,229,000 and the Company's share of such earnings was $2,751,000, which amount
is included in the Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1999 as "Equity in earnings of affiliate." Citadel's
assets and liabilities totaled $34,823,000 and $1,836,000, respectively, at
September 30, 1999. The carrying value of the Company's Citadel investment at
September 30, 1999 approximates the Company's underlying equity in the net
assets of Citadel. The closing price of Citadel's common stock on the American
Stock Exchange at September 30, 1999 was $4.00 per share.
The Company owns 2,226,173 shares of common stock of Big 4 Ranch, Inc.
("BRI") representing an ownership interest of approximately 33.4%. BRI owns a
40% interest in three agricultural partnerships which own agricultural land
located in California. A company controlled and owned by the Chairman of the
Board of the Company and certain members of his family owns a 20% interest in
the partnerships and Citadel owns the remaining 40% interest in the
partnerships. The Company accounts for its investment in the BRI common stock
by the equity method. BRI's net loss for the nine months ended September 30,
1999 totaled $260,000. The Company did not record its share of such loss as the
carrying value of its investment in BRI had previously been reduced to $0. At
September 30, 1999 BRI had a retained deficit of $126,000. The Company has no
obligation to fund BRI's operating losses.
Reading Australia owns a 50% interest in the Whitehorse Property Group Unit
Trust ("WPG"). WPG owns a shopping center located near Melbourne, Australia.
Reading Australia also loaned its joint venture partners $1,942,000 secured by
the joint venture partner's interest in WPG. WPG's net loss for the nine months
ended September 30, 1999 totaled approximately $115,000 and the Company recorded
a loss of $90,000 for the nine months ended September 30, 1999 as "Equity in
earnings of affiliate." The Company has recognized 100% of WPG's loss in excess
of WPG's retained earnings in order to avoid the aggregate carrying value of WPG
to be in excess of WPG's total net asset value.
-8-
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
WPG's assets and liabilities totaled $11,100,000 and $8,100,000, respectively,
at September 30, 1999. Reading Australia has guaranteed one-half of WPG's total
of approximately $7,400,000 of bank debt, which amount totals approximately
$3,700,000. The bank loan matured on November 29,1999 (after extension of the
original June maturity date), and WPG is currently working to restructure or
refinance the loan pending a possible sale of WPG's shopping center. Management
believes that the carrying amount of the Company's 50% interest approximates
half of the estimated value of WPG.
At September 30, 1999, Reading New Zealand owned a 50% interest in a joint
venture which operates three cinemas in New Zealand (the "NZ JV"). The assets
of the NZ JV consisted of three multiplex cinemas (a five screen and a four
screen cinema on owned land and a four screen leased cinema). The Company's
share of the earnings of the NZ JV totaled $3,000 for the nine months ended
September 30, 1999. During the quarter ended September 30, 1999, Reading New
Zealand acquired 100% ownership of a 1.764 acre parcel in Wellington through the
purchase of a partner's 50% interest in the site.
During the third quarter of 1999, the Company invested $109,000 to acquire
a 25% interest in a live theater production of the play "Love, Janis" which
played in the Company's Royal George Theatre. The play ran from August through
November 1999 and the Company wrote off the investment of $109,000 in Love Janis
(Chicago) LLC ("Love, Janis"), during the quarter ended September 30, 1999, and
included such loss in "Equity in earnings of affiliates" in the three months
ended September 30, 1999. The Royal George Theatre received $128,000 in income
from the Love Janis production in the nine months ended September 30, 1999.
The carrying value of each of the Company's equity investments was as
follows:
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1999 December 31, 1998
----------------------------------------
<S> <C> <C>
Citadel $10,910 $ 8,159
BRI 0 0
WPG/1/ 1,491 1,483
NZ JV/2/ 3,155 3,177
----------------------------------------
Total $15,555 $12,819
----------------------------------------
The carrying value of the Company's foreign currency denominated
assets will fluctuate due to changes in the exchange rates between Australian,
New Zealand and U.S. dollars.
- ---------------------
</TABLE>
/1/Does not include a loan to the joint venture partner of approximately
$1,884,000 and $1,769,000 at September 30, 1999 and December 31, 1998,
respectively.
/2/Does not include a loan to the joint venture partner of approximately
$1,209,000 and $1,114,000 at September 30, 1999 and December 31, 1998,
respectively.
-9-
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
NOTE 4 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consisted of the following: (Unaudited)
September 30, 1999 December 31, 1998
----------------------------------------
<S> <C> <C>
Land/1/ $ 2,863 $ 378
Buildings 16,523 1,858
Leasehold improvements 16,961 20,522
Equipment 13,698 8,792
Construction-in-progress and property development costs 22,393 5,714
----------------------------------------
72,438 37,264
Less: Accumulated depreciation (5,902) (4,730)
----------------------------------------
$66,536 $32,534
========================================
</TABLE>
The carrying value of Reading Australia's and Reading New Zealand's
assets will fluctuate due to changes in the exchange rate between the
Australian, New Zealand and U.S. dollar.
NOTE 5 -- INCOME TAXES
For the respective nine month periods ended September 30, 1999 and 1998,
the provision for income taxes included Federal alternative minimum tax of $0
and $122,000, state and local income tax expense of $68,000 and $56,000, and
foreign withholding taxes of $607,000 and $584,000 which withholding tax will be
paid if certain intercompany loans are repaid.
NOTE 6 -- COMMON STOCK TRANSFER RESTRICTIONS
REI common stock (par value $.001) ("Common Stock") is traded on the Nasdaq
National Market under the symbol RDGE and the Philadelphia Stock Exchange under
the symbol RDG. The Company's Articles of Incorporation include restrictions on
the transfer of Common Stock which are intended to reduce the risk that an
"ownership change" within the meaning of Section 382(g) of the Internal Revenue
Code of 1986, as amended, will occur, which change could reduce the amount of
federal tax net loss carry forwards available to offset taxable income. The
restrictions provide that any attempted sale, transfer, assignment or other
disposition of any shares of Common Stock to any person or group who, prior to
the transfer, owns (within the meaning of the Code and such regulations) shares
of Common Stock or any other securities of REI which are considered "stock" for
purposes of Section 382, having a fair market value equal to or greater than
4.75% of the value of all outstanding shares of REI "stock" shall be void ab
initio, unless the Board of Directors of the Company shall have given its prior
written approval. The transfer restrictions will continue until January 1, 2003
(unless earlier terminated by the Company's Board of Directors).
- --------------
/1/Does not include land held for development of $32,916,000 and $32,949,000
at September 30, 1999 and December 31, 1998, respectively, which is classified
as "Property held for development" in the Condensed Consolidated Balance Sheets.
-10-
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
NOTE 7 -- LOSS PER SHARE
Net loss available to common shareholders reflects the reduction for
dividends declared on the Company's Series A Voting Cumulative Convertible
Redeemable Preferred Stock (the "Series A Preferred Stock"), and for dividends
that have accumulated but have not been declared on the Series B Voting
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock")
(collectively, the "Convertible Preferred Stock") and for amortization of the
value of an estimate of the value of an asset put option (the "Asset Put
Option").
The weighted average number of shares used in the computation of basic loss
per share were 7,449,364 for both the three and nine months ended September 30,
1998 and 1999. Diluted loss per share is calculated by dividing net loss income
by the weighted average common shares outstanding for the period plus the
dilutive effect of stock options, convertible securities and the Asset Put
Option. During the three and nine month periods ending September 30, 1999 and
1998 the Company recorded Net losses applicable to common shareholders of $2.20,
$.26, $2.65 and $.62, respectively. Therefore, the stock options, the
Convertible Preferred Stock and the Asset Put Option, were anti-dilutive.
NOTE 8 -- PURCHASE COMMITMENTS
At September 30, 1999, the Company had commitments for major capital
expenditures, property purchase commitments and purchase money debt commitments
for 1999 and thereafter which totaled approximately $54,000,000 inclusive of
approximately $43,000,000 related to Australia and New Zealand projects.
Included in this amount are expenditures of approximately $16,300,000 (inclusive
of Accrued property and other costs of $3,350,000) in 1999 and the first quarter
of 2000, consisting of $13,200,000 to complete construction of five cinemas with
a total of 52 screens which are anticipated to commence operations in 1999 and
the first quarter of 2000, $1,500,000 for property purchase commitments and
$1,600,000 for completion costs associated with three cinemas with a total of 25
screens which opened in 1999 prior to September 30, 1999. With respect to
periods subsequent to 1999, the Company has a development commitment of
approximately $23,400,000 relating to an entertainment center in Australia, a
$2,800,000 purchase commitment and a $1,180,000 purchase money mortgage, both
due in May 2000, and other projects anticipated to aggregate approximately
$7,000,000. The totals set forth above do not include commitments associated
with the City Cinemas transaction, which transaction, if consummated in its
present form, would require the commitment of up to $36,500,000, eighteen months
after closing.
The U.S. dollar cost of such Australia and New Zealand projects was based
on a conversion rate of .6535 U.S. dollars to each Australian dollar and a
conversion rate of .5164 US dollars to each New Zealand dollar at September 30,
1999. The Company has not utilized forward contracts to hedge or offset exposure
to market risks arising from changes to foreign exchange rates. Accordingly,
amounts reflected as commitments may fluctuate based upon foreign exchange rates
at the time of payments.
NOTE 9 -- CONTINGENCIES
Under the terms of the joint venture agreement with WPG (see Note 3), the
Company has guaranteed approximately $3,700,000 of WPG's $7,400,000. This debt
originally matured in June 1999 and the maturity was subsequently extended to
November 29, 1999. WPG is presently seeking replacement financing and is in
discussions with the lender concerning extensions to the maturity of the debt
pending a possible sale of the shopping center or a
-11-
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
refinancing. No assurances can be given that such refinancing will be possible
or available from third party sources or that a sale of the shopping center can
be completed at an acceptable price.
CineVista incurred property damage and a business interruption as a result
of Hurricane Georges in September 1998. During the third quarter of 1999,
CineVista finalized a portion of the property claim and recognized a gain of
$523,000 which amount has been classified as "Other income" in the Consolidated
Statement of Operations. CineVista anticipates completing adjustment of its
business interruption claim in the fourth quarter of 1999 and anticipates
recognition of additional income from such claim.
A landlord of CineVista's has asserted that CineVista has underpaid rent in
the aggregate amount of approximately $455,000. The Company disputes the
landlord's claim and believes such claim is without merit and intends to defend
its position vigorously if the landlord takes legal action relating to such
allegation.
A screen advertising company has alleged that CineVista violated the terms
of an agreement which provided the screen advertiser with a right-of-first
refusal under certain circumstances as a result of CineVista's award of a screen
advertising contract to a competing advertising company. Discovery in the
action is underway and CineVista believes it has meritorious defenses in this
matter.
NOTE 10 -- BANK CREDIT FACILITIES
In November 1999 CineVista restructured its line of credit with a major
bank. Pursuant to the terms of the restructuring, CineVista is permitted to
borrow up to $5 million at a rate of LIBOR plus 2.25%. The line of credit
matures in December 2000.
Reading Australia is presently evaluating a proposal from a major bank for
a line of credit for approximately $49 million in order to fund development of
projects scheduled for completion in late 2000 and thereafter. No assurances
can be made that such financing can be concluded and be available to the
Company. In the event that debt financing cannot be obtained on terms
acceptable to the Company, consideration will be given to seeking joint venture
partners, issuing debt or equity securities, delaying development of certain
projects or selling land currently held of development or other assets.
NOTE 11 -- ASSET IMPAIRMENT CHARGE
CineVista operates a leased eight screen cinema at the Plaza Las Americas
Mall (the "Plaza Cinema") and was of the view that it had reached agreement with
the landlord as to the terms of a lease with respect to the opening of a second
ten screen cinema at another location in the mall. However, CineVista has been
advised recently by the landlord that the landlord has in fact entered into a
lease with a third party with respect to this new cinema complex. The Company
intends to pursue its remedies with respect to this matter. However, in view of
the anticipated adverse change in the Plaza Cinema's business environment which
will occur upon the opening of a competing cinema in the Plaza Las Americas Mall
and the uncertainty as to whether the Company will be able to obtain adequate
redress, the Company has determined that the carrying value of the Plaza Cinema
has been impaired in the amount of $13,884,000 which amount represents the total
carrying value of the Plaza Cinema. In addition, the Company has determined to
close in the fourth quarter of 1999 a four screen leased cinema, resulting in a
total impairment loss of $14,022,000 for the period ended September 30, 1999.
-12-
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
NOTE 12-- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes guidance for the reporting and presentation of
comprehensive income and its components. SFAS 130 requires foreign currency
translation adjustments which, prior to adoption, were reported separately in
shareholders' equity to be included in other comprehensive income.
The following sets forth the Company's comprehensive (loss) income for the
periods shown:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-----------------------------------------
<S> <C> <C> <C> <C>
Net loss ($15,326) ($863) ($16,515) ($1,410)
Other comprehensive income (loss) net of tax (1,287) (1,213) 1,749 (2,807)
-----------------------------------------
Comprehensive loss ($16,613) ($2,076) ($14,766) ($4,217)
=========================================
</TABLE>
NOTE 13 -- BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The following sets forth certain information concerning the Company's two
segments, real estate development and cinema operations, for the three and nine
months ended September 30, 1999:
<TABLE>
<CAPTION>
Corporate
Real Estate Cinema and
THREE MONTHS ENDED SEPTEMBER 30: Development Operations Eliminations Consolidated
- ---------------------------------------------------------------------------------------------
1999
- ----
<S> <C> <C> <C> <C>
Revenues $ 0 $ 11,139 $ 577 $ 11,716
Operating loss ($964) ($13,335) ($1,174) ($15,473)
1998
- ----
Revenue $ 0 $ 8,775 $ 1,141 $ 9,916
Operating (loss) income ($726) $ 582 ($37) ($181)
Corporate
Real Estate Cinema and
NINE MONTHS ENDED SEPTEMBER 30: Development Operations Eliminations Consolidated
- ---------------------------------------------------------------------------------------------
1999
- ----
Revenues $ 0 $ 27,802 $ 2,145 $ 29,947
Operating (loss) ($2,668) ($13,556) ($2,267) ($18,491)
1998
- ----
Revenues $ 0 $ 25,867 $ 3,835 $ 29,702
Operating (loss) income ($1,832) $ 1,559 $ 448 $ 175
</TABLE>
-13-
<PAGE>
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
September 30, 1999
(amounts in tables in thousands)
The following table indicates the relative amounts of revenues from
operations and property, plant and equipment of the Company by geographic area.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
-------------------------------
<S> <C> <C>
Revenues/1/
Mainland United States $11,716 $ 8,417
Puerto Rico 9,875 12,733
Australia 6,211 4,717
New Zealand 150 0
Property, plant & equipment
Mainland United States $18,391 $ 6,821
Puerto Rico 19,098 18,466
Australia 22,106 27,710
New Zealand 6,941 0
</TABLE>
- --------------
/1/ Revenues are exclusive of Interest revenues and corporate real estate
management and sales activity in the United States.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has elected to focus its theater development and related real
estate development activities in two principal areas, the development and
operation of state of the art multiplex cinemas in Puerto Rico, the United
States, Australia, and New Zealand, and the development and operation in
Australia and New Zealand of entertainment centers typically consisting of a
multiplex cinema, complementary restaurant and retail uses, and self contained
parking.
RESULTS OF OPERATIONS
---------------------
Due to the nature of the Company's development and acquisition activities
and the timing associated with the results of such activities, and the results
of operations of ten new cinemas opened since the fourth quarter of 1997,
historical revenues and earnings have varied significantly. Generally speaking,
the Company's entertainment center developments are in the early stage of
development and are not anticipated to produce income or cash flow for at least
eighteen to twenty-four months from the time that all development approvals have
been secured. Management believes that historical financial results may not be
indicative of future operating results.
Theater Revenues are comprised of Admissions, Concessions and Advertising
and other revenues. "Theater costs" and "Theater concession costs,"
collectively "Theater Operating Expense," reflect the direct theater costs of
CineVista, the Domestic Cinemas and Reading Australia's cinemas. "General and
Administrative" expenses are presented without consideration of intercompany
management fees.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
---------------------------------------------
Theater Revenues, Theater Operating Expenses, General and Administrative
expenses and Asset impairment charge for the nine month periods ended September
30 1999, and 1998, were as follows:
NINE MONTHS ENDED SEPTEMBER 30:
<TABLE>
<CAPTION>
DOMESTIC
1999 CINE VISTA CINEMAS/1/ AUSTRALIA CORPORATE/2/ TOTAL
- ----
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Theater revenue $ 9,875,000 $11,716,000 $ 6,211,000 $ 0 $ 27,802,000
Theater operating expense 8,590,000 9,058,000 4,933,000 0 22,581,000
Depreciation & amortization 1,558,000 1,027,000 651,000 37,000 3,273,000
General & administrative 678,000 444,000 3,017,000 4,424,000 8,563,000
Asset impairment charge 14,022,000 0 0 0 0
---------------------------------------------------------------------------
($14,973,000) $ 1,187,000 ($2,390,000) ($4,461,000) ($20,637,000)
===========================================================================
- -----------------
</TABLE>
/1/Domestic Cinemas operations include the results of the Royal George
Theatre subsequent to acquisition on March 13, 1999.
/2/Corporate operations include the non-joint venture operations of Reading
New Zealand and corporate overhead. For the nine month and the three month
periods ending September 30, 1999, New Zealand expenses totaled $323,000 and
$111,000, respectively. No expenses were recorded for New Zealand activities in
the nine months ended September 30, 1998.
-15-
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30:
DOMESTIC
1998 CINE VISTA CINEMAS AUSTRALIA CORPORATE TOTAL
- -----
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Theater revenue $ 12,733,000 $ 8,417,000 $ 4,717,000 $ 0 $ 25,867,000
Theater operating expense 10,081,000 6,317,000 3,521,000 0 19,919,000
Depreciation & amortization 1,407,000 776,000 502,000 25,000 2,710,000
General & administrative 811,000 436,000 2,265,000/3/ 3,387,000 6,899,000
---------------------------------------------------------------------------
$ 434,000 $ 888,000 ($1,571,000) ($3,412,000) ($3,661,000)
===========================================================================
</TABLE>
CineVista
- ---------
CineVista's Theater Revenues decreased approximately 22.5% or $2,858,000 to
$9,875,000 in the nine months ended September 30, 1999 from $12,733,000 in the
corresponding prior year period. The decrease is due in part to more favorable
film product in the first quarter of 1998 and an $877,000 reduction in the
current year as a result of the effect of the closing of a six screen cinema in
1998, the closing of four screens at two other locations in the first quarter of
1998, offset by the opening of an eight screen cinema in the second quarter of
1998. This new cinema contributed an additional $376,000 in revenues in the nine
months ended September 30, 1999 versus the contribution in the prior year
period. CineVista is constructing a twelve screen cinema on a leased property in
the San Juan metropolitan area which is expected to open in November 1999. At
September 30, 1999 and 1998, CineVista operated 44 screens at seven locations.
CineVista's Theater operating expense decreased approximately 14.8% or
$1,491,000 to $8,590,000 for the nine months ended September 30, 1999, from
$10,081,000 in the corresponding prior year period. The decrease from the prior
year period is attributable to expense items which vary directly with the
Theater revenue (cost of concession and film rental as a percentage of revenues
decreased approximately 1.9% in the current nine month period) and a reduction
in fixed costs associated with the operation of one less site. Depreciation and
amortization expense increased $181,000 in the nine months ended September 30,
1999 as a result of the inclusion of the new eight screen cinema for the full
period in the current year.
CineVista's General and administrative expenses decreased approximately
16.4% or $133,000 to $678,000 for the nine months ended September 30, 1999, from
$811,000 in the corresponding prior year period. General and Administrative
expenses for the nine months ended September 30, 1998 included a $165,000 charge
relating to the closing of four screens during the period. The charge was
comprised of a $395,000 loss on leasehold improvements net of a reversal of a
$230,000 provision for deferred rent.
CineVista recorded an Impairment loss of $14,022,000 in the nine months
ended September 30, 1999 as a result of the anticipated competitive effect of a
competing cinema to be opened in a mall where CineVista presently operates an
eight screen cinema and a decision to close a four screen cinema in the fourth
quarter of 1999 (see Note 11).
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater revenues increased approximately 39.2% or
$3,299,000 to $11,716,000 for the nine months ended September 30, 1999, from
$8,417,000 in the corresponding prior year period in part due to the inclusion
in the current year period of the results of the Tower Theater in Sacramento,
California which commenced operations in November 1998, the inclusion of the
results of the Royal George live theater which was acquired in March 1999, the
inclusion of the results of a new twelve screen cinema located in Manville, New
Jersey, which opened May 16, 1999 and
- ---------
/3/Includes $2,310,000 and $1,832,000 of General and Administrative expenses
associated with Reading Australia's real estate development segment for the nine
months ended September 30, 1999 and 1998, respectively.
-16-
<PAGE>
the inclusion of an eight screen cinema located in Buffalo, New York which
opened July 16, 1999, and increased revenues at the Company's cinemas in Houston
and Minneapolis. At September 30, 1999 and 1998, Domestic Cinemas operations
included 42 screens at six locations and 19 screens at three locations,
respectively.
Theater Operating Expenses increased approximately 43.4% or $2,741,000 to
$9,058,000 for the nine months ended September 30, 1999, from $6,317,000 in the
corresponding prior year period, primarily as a result of the inclusion of the
newly opened cinemas and theater in the current period. Expense items which vary
directly with Theater revenues decreased approximately .5% in the nine months
ended September 30, 1999 from the corresponding period in 1998. Depreciation and
amortization increased from $776,000 in the nine months period last year to
$1,027,000 in the nine months ended September 30, 1999 as a result of the
increased number of facilities in the current period. The Domestic Cinemas'
General and administrative expenses increased $8,000 in the nine months ended
September 30, 1999 over such expense in the prior nine month period.
Australia
- ---------
Theater revenues for Australian operations increased approximately 31.7% or
$1,494,000 to $6,211,000 for the nine months ended September 30, 1999 from
$4,717,000 in the corresponding prior year period. Approximately $1,160,000 of
the increase resulted from the contribution of three new five screen cinemas
which opened in November 1998, June 1999 and September 1999. Reading Australia
is currently constructing an entertainment center on land owned by the Company
in New South Wales. The complex will include a ten screen cinema and
entertainment related retail space with operations expected to commence in the
fourth quarter of 1999. Reading Australia is also constructing 30 screens at
three leased locations two of which are expected to commence operation in the
fourth quarter of 1999 and one of which is expected to commence operations in
the first quarter of 2000. At September 30, 1999 and 1998, Reading Australia
operated 31 screens at six locations and 16 screens at three locations,
respectively.
Theater operating expenses for Australian operations increased
approximately 40.1% or $1,412,000 to $4,933,000 for the nine months ended
September 30, 1999 from $3,521,000 in the corresponding prior year period.
Operating expense categories which vary proportionately with revenues increased,
as a percentage of revenues, by approximately 3.0%. Fixed operating costs
increased as a result of the addition of the three new cinemas in the nine
months ended September 30, 1999. Depreciation and amortization expense which
increased from $502,000 in the nine months ended September 30, 1998 to $651,000
in the current nine month period as a result of the increased number of
facilities in the current period.
General and administrative costs increased approximately 33.2% or $752,000
to $3,017,000 for the nine months ended September 30, 1999 from $2,265,000 in
the corresponding prior year period. The increase was primarily related to
increased payroll costs of approximately $594,000 and an increase in development
cost write-offs of $386,000 offset slightly by expense reductions in certain
other expense categories.
Corporate
- ---------
General and Administrative costs (net of $323,000 associated with the New
Zealand operations in the nine months ending September 30, 1999) increased
approximately 21.1% or $714,000 to $4,101,000 for the nine months ended
September 30, 1999 from $3,387,000 in the corresponding prior year period
primarily as a result of the write off of $453,000 in acquisition and
development expenses in 1999.
Real Estate
- -----------
Real estate revenues include rental income and the net proceeds of sales of
the Company's historic real estate in the United States which the Company is
liquidating. Such revenues are not included in the results of the Company's
real estate segment (see Note 13). Future real estate revenues may increase as
larger properties are sold.
-17-
<PAGE>
Interest and Dividends
- ----------------------
Interest and dividend revenues were as follows in each of the nine month
periods ended September 30.
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C>
$1,837,000 $3,578,000
</TABLE>
The decrease in "Interest and dividend" revenues is primarily a result of a
reduction in average investable fund balances in the nine months ended September
30, 1999 as compared to the corresponding prior year period due to increasing
investment in the Company's development projects.
Equity in Earnings of Affiliates
- --------------------------------
"Equity in earnings of affiliates" include earnings from the Company's
investment in Citadel, BRI, Love Janis, WPG and the NZ JV. "Equity in earnings
of affiliate" increased $2,559,000 from a loss of $4,000 in the nine months
ended September 30, 1998 to income of $2,555,000 in the current nine month
period. In the first nine months of 1999, "Equity in earnings of affiliate"
included equity earnings of $2,751,000 from the Company's investment in Citadel,
$3,000 from the NZ JV, a loss of $109,000 from Love Janis and a loss of $90,000
from WPG. Citadel's pre-tax earnings of $9,229,000 in the nine months ended
September 30, 1999 include a $13,400,000 pre-tax gain from a sale of real
estate. In the nine months ended September 30, 1998 "Equity in earnings of
affiliate" included equity earnings of $116,000 from the Company's investment in
Citadel, a loss of $50,000 from WPG and a loss of $70,000 from BRI.
Other Income
- ------------
"Other income" totaled $592,000 in the nine months ended September 30, 1999
versus "Other expense" of $513,000 in the corresponding prior year period.
Other income in the current period includes a $523,000 gain from a CineVista
insurance settlement (See Note 10). Other expense in the prior year was
comprised primarily of losses on foreign currency derivative contracts. The
Company does not presently have any foreign currency derivative positions.
Interest Expense
- ----------------
Interest expense increased from $43,000 in the nine months ended September
30, 1998 to $274,000 in the current nine month period due to interest on the New
Zealand property purchase mortgage, the CineVista line of credit and the Royal
George purchase note, none of which were outstanding in last year's nine month
period.
Minority Interests
- ------------------
"Minority interests" for the nine months ended September 30, 1999 and 1998
includes $223,000 and $263,000, respectively, from minority shares in a Domestic
Cinema and two Reading Australia cinemas.
Income Tax Provision
- --------------------
Income tax expense in the current nine month period includes an accrual for
foreign withholding taxes of $607,000 which will be paid if certain intercompany
loans are repaid and state and local taxes of $67,000 for federal alternative
minimum tax. The provision in the nine months ended September 30, 1998 totaled
$762,000.
-18-
<PAGE>
Net loss
- --------
As a result of the above described factors the Company recorded a "Net
loss" of $16,515,000 and $1,410,000 for the nine months ended September 30,
1999 and 1998. The increase is comprised primarily of an asset impairment
charge of $14,022,000, a decrease in Theater Operating Income of $1,291,000
(Theater Revenues less Theater Operating Expenses and Depreciation and
Amortization), a $1,741,000 reduction in "Interest and dividend" revenue, a
$1,689,000 increase in "General and Administrative" expenses offset by an
increase of $1,105,000 in "Other income," and a $2,588,000 increase in equity
earnings.
Net Income Applicable to Common Stockholders
- --------------------------------------------
In each of the nine month periods ended September 30, 1999, "Net loss
applicable to common stockholders" includes the 6.5% per annum dividend on the
$62,000,000 stated value of the Company's Convertible Preferred Stock and
amortization of an asset put option issued to Citadel. The provision for
"Preferred stock dividends and amortization of an asset put option" includes
approximately $2,681,000 of accumulated dividends on the Company's Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). No
dividend with respect to the Series B Preferred Stock has been declared for the
nine months ended September 30, 1999 and no decision has been made as to when
such accumulated dividends will be paid. All of the Series B Preferred Stock is
held by Craig, which corporation owns approximately 78% of the Company's voting
stock.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
----------------------------------------------
Theater Revenues, Theater operating expenses, and General and
administrative expenses for the three month periods ended September 30, 1999 and
1998, were as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SEPTEMBER 30:
- ------------------------------------------------------------------------------------------------------
DOMESTIC
1999 CINE VISTA CINEMAS AUSTRALIA CORPORATE TOTAL
- ----
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Theater revenue $ 3,828,000 $5,034,000 $ 2,277,000 $ 0 $ 11,139,000
Theater operating expense 3,059,000 3,799,000 1,884,000 0 8,742,000
Depreciation & amortization 520,000 400,000 263,000 13,000 1,196,000
General & administrative 255,000 204,000 1,195,000 1,576,000 3,230,000
Asset impairment charge ($14,022,000) 0 0 0 0
-------------------------------------------------------------------------
($14,028,000) $ 631,000 ($1,065,000) ($1,589,000) ($16,051,000)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC
1998 CINE VISTA CINEMAS AUSTRALIA CORPORATE TOTAL
- ----
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Theater revenue $4,458,000 $2,888,000 $1,429,000 $ 0 $ 8,775,000
Theater operating expense 3,601,000 2,020,000 1,084,000 0 6,705,000
Depreciation & amortization 532,000 267,000 158,000 11,000 968,000
General & administrative 203,000 148,000 882,000 1,192,000 2,425,000
------------------------------------------------------------------
$ 122,000 $ 453,000 ($695,000) ($1,181,000) ($1,323,000)
==================================================================
</TABLE>
CineVista
- ---------
Theater revenues decreased 16.5% or $630,000 to $3,828,000 for the three
months ended September 30, 1999 from $4,458,000 in the prior three months period
last year due to the decreased average screen count and the competitive effect
of newly opened cinemas in certain CineVista markets. Theater operating
expenses decreased approximately 15.1% or $542,000 to $3,059,000 in the three
months ended September 30, 1999 from $3,601,000 in the corresponding
-19-
<PAGE>
prior year period. The decrease from the prior year period is attributable to a
decrease in expense items which vary directly with Theater revenue (cost of
concession and film rental as a percentage of revenues) and a reduction in fixed
costs associated with the operation of one less site. General and administrative
expenses increased approximately 25.6% or $52,000 to $255,000 in the three
months ended September 30, 1999 from $230,000 in the corresponding prior year
period due primarily to increased professional fees. Deprecation and
amortization expense increased from $532,000 to $520,000 in the current three
month period as a result of the operation of one fewer cinema.
CineVista recorded an asset impairment charge of $14,022,000 in the three
months ended September 30, 1999.
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater revenues increased approximately 74.3% or
$2,146,000 to $5,034,000 for the three months ended September 30, 1999 from
$2,888,000 in the corresponding prior year period in part due to the inclusion
in the current year period of the results of the Tower Theater, the inclusion of
the results of the Royal George live theater, the inclusion of the results of
the Manville cinema from May 16, 1999, the inclusion of the Buffalo Angelika
from July 16, 1999, and increased revenues at the Company's cinemas in Houston
and Minneapolis. Theater operating expenses increased approximately 88.1% or
$1,779,000 to $3,799,000 for the three months ended September 30, 1999 from
$2,020,000 in the corresponding prior year period, primarily as a result of the
inclusion of the newly opened cinemas and live theater in the current three
month period and the increased fixed costs of operating more facilities.
Domestic Cinemas' General and administrative expenses were $56,000 higher in the
three months ended September 30, 1999 than in the year prior three month period
due primarily to the increased number of cinemas operated.
Australia
- ---------
Theater revenues for Australian operations increased approximately 59.3% or
$848,000 to $2,277,000 for the three months ended September 30, 1999 from
$1,429,000 in the corresponding prior year period due to the contribution of
three new cinemas in the current three month period. Theater Operating Expenses
increased approximately 73.8% or $800,000 to $1,884,000 for the three months
ended September 30, 1999 from $1,084,000 in the corresponding prior year period
due to increased film rent and additional fixed operating costs as a result of
the addition of the three new cinemas in the three months ended September 30,
1999. General and administrative expense increased approximately 35.5% or
$313,000 to $1,195,000 for the three months ended September 30, 1999 from
$882,000 in the corresponding prior year period. The increase was primarily
related to increased development cost write-offs in the current period versus
last year's three month period.
Corporate
- ---------
General and administrative expenses (net of $193,000 associated with the
New Zealand operations in the three months ending September 30, 1999) increased
approximately 16.0% or $191,000 to $1,383,000 for the three months ended
September 30, 1999 from $1,192,000 in the corresponding prior year period
primarily as a result of the write-off of $114,000 in development expenses in
1999.
Real Estate
- -----------
Real estate revenues include rental income and the net proceeds of sales of
the Company's historic real estate in the United States which the Company is
liquidating. Such revenues are not included in the results of the Company's
real estate segment (see Note 13). Future real estate revenues may increase as
larger properties are sold.
-20-
<PAGE>
Interest and Dividends
- ----------------------
Interest and dividend revenues were as follows in each of the three month
periods ended September 30.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C>
$399,000 $1,096,000
</TABLE>
The decrease in "Interest and dividend" revenues is primarily a result of a
reduction in average investable fund balances for the three months ended
September 30, 1999 as compared to the corresponding prior year period due to
increasing investment in the Company's development projects.
Equity in Earnings of Affiliates
- --------------------------------
"Equity in earnings of affiliate" decreased from a loss of $114,000 in the
three months ended September 30, 1998 to a loss of $60,000 in the current
period. For the quarter ended September 30, 1999 components include equity
earnings of $187,000 from the Company's investment in Citadel, a loss of $70,000
from the NZ JV, a loss of $67,000 from WPG and a loss of $109,000 from Love
Janis.
Other Income (Expense)
- ----------------------
"Other income" totaled $593,000 in the three months ended September 30,
1999 due to insurance settlement in the quarter versus $97,000 of "Other
expense" in the corresponding prior year period.
Interest Expense
- ----------------
Interest expense increased from $12,000 in the three months ended September
30, 1998 to $156,000 in this year's corresponding period due to the increased
amount of debt outstanding in 1999 versus the prior year period.
Minority Interests
- ------------------
"Minority interests" for the three months ended September 30, 1999 and 1998
includes $45,000 and $105,000, respectively, from minority shares in a Domestic
Cinema and two Reading Australia cinemas.
Income Tax Provision
- --------------------
Income tax expense in the current three month period totaled $186,000 in
the three months ended September 30, 1999 versus $355,000 in the corresponding
period last year.
Net Income (loss)
- -----------------
As a result of the above described factors the Company recorded a Net loss
of $15,326,000 for the three months ended September 30, 1999 versus a net loss
of $863,000 for the corresponding period in 1998.
Net Loss Applicable to Common Stockholders
- ------------------------------------------
Net Loss applicable to common shareholders in the three months ended
September 30, 1999 totaled $16,411,000 versus a Net loss applicable to common
stockholders of $1,941,000 for the same three month period last
-21-
<PAGE>
year after consideration in the current year of preferred stock dividends of
$1,085,000 ($114,000 of which were paid and the balance of which have
accumulated) and $78,000 for amortization of an asset put in the current three
month period and Preferred stock dividends and amortization of $1,078,000 in the
three months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash and cash equivalents of
$23,804,000 all of which are anticipated to be deployed in furtherance of the
Company's cinema and entertainment center development programs. The Company's
total commitments exceed the Company's available liquid funds. However, the
Company believes that it has sufficient funds and bank credit lines to complete
the projects currently scheduled for completion in 1999 and the first quarter of
2000. This includes the anticipated addition of 40 screens in Australia
(increasing the screen count in that market from 31 at September 30, 1999 to 71
screens), and twelve screens in Puerto Rico (increasing the screen count from 40
to 52 screens (after the anticipated closing of one four screen facility in the
fourth quarter of 1999). The Company plans to leverage these assets as they
commence operations, and to use the proceeds from such financings to continue
the development program in the year 2000. The Company estimates that the total
remaining development cost of all of its cinema and entertainment center
projects could exceed $200,000,000 (inclusive of amounts to be expended on
projects now under construction).
Reading Australia is presently evaluating a proposal from a major bank for
a line of credit for approximately $49 million to fund development of projects
scheduled for completion in late 2000 and thereafter. No assurances can be made
that such financing can be concluded and be available to the Company. In the
event that debt financing cannot be obtained on terms acceptable to the Company,
consideration will be given to seeking joint venture partners, issuing debt or
equity securities, delaying development of certain projects and/or selling land
currently held for development, or other assets. The Company does not currently
consider any of its development assets to be held for sale.
At September 30, 1999, the Company had total commitments of approximately
$54,000,000. Of this amount, it is currently anticipated that approximately
$16,300,000 will be funded in 1999 and early 2000. Thereafter commitments
include a contractual obligation to construct an entertainment center in
Australia, at an estimated remaining cost of $23,400,000 (currently anticipated
to be completed in the first half of 2001), a $2,800,000 obligation to acquire
additional land in New Zealand, a $1,180,000 purchase money mortgage due in May
2000 and other projects anticipated to aggregate approximately $7,000,000. The
totals set forth above do not include commitments associated with the City
Cinemas transaction, which transaction, if consummated, requires the commitment
of up to $36,500,000, eighteen months after closing.
The following summarizes the major sources and uses of cash funds in the
nine months September 30:
1999:
- ----
"Unrestricted cash and cash equivalents" decreased $34,798,000 from
$58,593,000 at December 31, 1998 to $23,804,000 at September 30, 1999 as the
Company paid $27,118,000 to acquire property and equipment $1,779,000 to acquire
Property held for development and reduced purchase commitments by $6,522,000.
Working capital decreased $34,038,000 from $45,378,000 at December 31, 1998 to
$11,340,000 at September 30, 1999.
While not necessarily indicative of its results of operations determined
under generally accepted accounting principles, CineVista's, the Domestic
Cinemas' and Reading Australia's theater operating cash flow (income or loss
before Interest, Taxes, Depreciation and Amortization, General and
administrative expenses and Asset impairment charges) of $5,220,000 contributed
to the Company's liquid funds for the nine months ended September 30, 1999.
Other principal sources of liquid funds in the current year nine month period
were $1,751,000 in "Interest and dividend" income and increased cash from
financing activities of $1,437,000.
1998:
- ----
"Unrestricted cash and cash equivalents" decreased $26,879,000 from
$92,840,000 at December 31, 1997 to $65,961,000 at September 30, 1998. Working
capital decreased $24,185,000 from $87,126,000 at December 31, 1997 to
$62,941,000 at September 30, 1998.
-22-
<PAGE>
While not necessarily indicative of results of operations determined under
generally accepted accounting principles, CineVista's, the Domestic Cinemas' and
Reading Australia's theater operating cash flow (income or loss before interest,
taxes, depreciation and amortization and General and administrative expenses)
totaled $5,949,000 in the nine months ended September 30, 1998. Other principal
sources of liquid funds in the current year nine-month period were $3,578,000 in
"Interest and dividend" income, a net decrease in "Amounts Receivable" of
$1,070,000 and a net decrease in "Restricted cash" of $3,673,000
In addition to other General and administrative expenses, uses of liquid
funds in the nine months ended September 30, 1998 included $16,770,000 of
property and equipment purchases, a net decrease in "Accounts payable and
accrued expenses" of $3,122,000, an investment in joint ventures (inclusive of
loans to joint venture partners) of $3,736,000, payment of preferred stock
dividends of $3,023,000, a net decrease in "Purchase commitments" of $3,408,000,
investments in common stock of $2,211,000, and a net decrease in "Notes payable"
of $627,000.
YEAR 2000
The Company has conducted a review of the software and hardware components
and its non-information system equipment that it uses in its operations to
assess whether such components will properly recognize the dates beyond December
31, 1999 ("Year 2000 Compliance"). As a result of this review remedies for non-
compliant components relating to systems material to the Company's operations
have been enacted and/or planned for installation prior to year-end. Manual
systems are available as backup for most of the Company's critical cinema
operating activities.
The Company is also conducting a review of its major suppliers of goods and
services ("service providers") to understand their level of compliance with Year
2000 issues. Based upon responses received to date, the Company believes that
substantially all of its service providers will represent that they are Year
2000 compliant or that formal programs are in place to ensure that they will be
Year 2000 compliant.
The costs of addressing Year 2000 compliance has not been, nor is expected
to be, material to the Company's financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements
are subject to certain risks, trends, and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases and permits for new multiplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and other risks associated with the Company's investment
activities and other factors described herein.
-23-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Certificate of Incorporation of Reading Entertainment, Inc., as
amended. (Incorporated by reference to Exhibit B to the Proxy
Statement/Prospectus included in Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
3(ii) By-laws of Reading Entertainment, Inc., as amended. (Incorporated
by reference to Exhibit 3 (ii) to Reading Entertainment, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.)
4.1 Certificate of Designations, Preferences and Rights of Series A Voting
Cumulative Convertible Preferred Stock and Series B Voting Cumulative
Convertible Preferred Stock of Reading Entertainment, Inc.
(Incorporated by reference to Exhibit G to the Proxy
Statement/Prospectus included in Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
10.1* Reading Company 1992 Nonqualified Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.1 to Reading Entertainment,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.)
10.2 Asset Put and Registration Rights Agreement dated October 15, 1996 by
and among Reading Entertainment, Inc., Citadel Holding Corporation,
and Citadel Acquisition Corp., Inc. (Incorporated by reference to
Exhibit 10.15 to Reading Entertainment, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1996.)
10.3 Limited Liability Company Agreement between Angelika Cinemas, Inc.
and Sutton Hill Associates dated August 27, 1996. (Incorporated by
reference to Exhibit 10.32 to Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
10.4 Management Agreement dated as of August 27, 1996 between Angelika
Film Centers, LLC and City Cinemas Corporation. (Incorporated by
reference to Exhibit 10.33 to Reading Entertainment, Inc.'s
Registration Statement on Form S-4, File No. 333-13413.)
10.5 Purchase Agreement between Equipment Leasing Associates 1995-VI
Limited Partnership and FA, Inc. effective December 20, 1996.
(Incorporated by reference to Exhibit 10.27 to Reading Entertainment,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996.)
10.6 Master Lease Agreement between FA, Inc. and Equipment Leasing
Associates 1995-VI Limited Partnership dated December 20, 1996.
(Incorporated by reference to Exhibit 10.28 to Reading Entertainment,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996.)
10.7 Nonrecourse Promissory Note between FA, Inc. and Equipment Leasing
Associates 1995-VI Limited Partnership effective December 20, 1996.
(Incorporated by reference to Exhibit 10.29 to Reading Entertainment,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996.)
10.8 Lease Rental Purchase Agreement between FA, Inc. and Ralion Financial
Services, Inc. dated December 31, 1996. (Incorporated by reference to
Exhibit 10.30 to Reading
-24-
<PAGE>
Entertainment, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996.)
10.9* Non-Qualified Stock Option Agreement dated April 18, 1997 by and
between Reading Entertainment, Inc. and James J. Cotter.
(Incorporated by reference to Exhibit 10.1 to Reading Entertainment,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.)
10.10* Reading Entertainment, Inc. 1997 Equity Incentive Plan.
(Incorporated by reference to Exhibit A to Reading Entertainment,
Inc.'s Definitive Proxy Statement on Schedule 14A as filed with the
Securities and Exchange Commission on August 21, 1997.)
10.11 Master Management Agreement between Angelika Holding, Inc. and City
Cinemas Corporation dated November 26, 1997. (Incorporated by
reference to Exhibit 10.29 to Reading Entertainment, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997.)
10.12 Agreement by and among Public Transport Corporation, Reading
Properties Pty Ltd, and Mackie Group Pty Ltd for development at the
Frankston Railway Station dated May 28, 1998. (Incorporated by
reference to Exhibit 10.1 to Reading Entertainment, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.)
10.13 Agreement in Principle between Reading Entertainment, Inc. and City
Cinemas dated December 2, 1998. (Incorporated by reference to Exhibit
10.22 to Reading Entertainment, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1998.)
27 Financial Data Schedule for the quarter ended September 30, 1999.
*These exhibits represent the executive compensation plans and arrangements
of the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1999.
-25-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
READING ENTERTAINMENT, INC. REGISTRANT
Date: November 15, 1999 By:/s/ Robert F. Smerling
------------------- -------------------------------------
Robert F. Smerling
President
(Duly Authorized Officer)
Date: November 15, 1999 By:/s/ James A. Wunderle
------------------- -------------------------------------
James A. Wunderle
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
-26-
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,804
<SECURITIES> 0
<RECEIVABLES> 534
<ALLOWANCES> 0
<INVENTORY> 226
<CURRENT-ASSETS> 26,466
<PP&E> 72,438
<DEPRECIATION> 5,902
<TOTAL-ASSETS> 160,095
<CURRENT-LIABILITIES> 15,126
<BONDS> 3,615
7,000
1<F1>
<COMMON> 7
<OTHER-SE> 127,257
<TOTAL-LIABILITY-AND-EQUITY> 160,095
<SALES> 6,188
<TOTAL-REVENUES> 29,947
<CGS> 1,384
<TOTAL-COSTS> 25,853
<OTHER-EXPENSES> 22,585
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<INTEREST-EXPENSE> 274
<INCOME-PRETAX> (15,841)
<INCOME-TAX> 674
<INCOME-CONTINUING> (16,515)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,515)
<EPS-BASIC> ($2.65)
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