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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
(Mark One)
[_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2000
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)
NEVADA 23-2859312
(State of incorporation) (I.R.S. Employer Identification No.)
550 South Hope Street, Suite 1825 90071
Los Angeles, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (213) 235-2226
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 ___
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There were 7,449,364 shares of Common Stock outstanding as of November 1, 2000.
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READING ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
Page
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PART I. Financial Information
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999.............................................1
Condensed Consolidated Statements of Operations for the
Three Months and Nine months ended September 30, 2000 and 1999 (Unaudited)...........3
Condensed Consolidated Statements of Cash Flows for the
Nine months ended September 30, 2000 and 1999 (Unaudited)........................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited) ........................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations....................................18
PART II. Other Information
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Item 1. Legal Proceedings ......................................................................24
Item 2. Changes in Securities...................................................................24
Item 3. Defaults Upon Senior Securities.........................................................24
Item 4. Submission of Matters to a Vote of Security Holders.....................................24
Item 5. Other Information.......................................................................24
Item 6. Exhibits and Reports on Form 8-K........................................................25
Signatures..............................................................................26
</TABLE>
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PART I - Financial Information
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Item 1 - Financial Statements
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,528 $ 13,277
Amounts receivable 1,059 409
Restricted cash 1,047 948
Inventories 216 316
Prepayments and other current assets 957 931
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Total current assets 6,807 15,881
Due from affiliate (Note 11) -- 1,000
Investments in unconsolidated affiliates (Note 2) 22,229 13,098
Assets held for sale (Note 5) -- 5,740
Property held for development 26,168 31,624
Property and equipment - net (Note 3) 61,246 57,854
Notes receivable from joint venture partners 391 1,549
Other assets 2,235 1,775
Cost in excess of assets acquired - net 101 9,975
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Total assets $119,177 $138,496
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 5,202 $ 7,486
Accrued taxes 1,270 631
Film rent payable 1,570 1,718
Borrowings 14,984 8,617
Other liabilities 561 1,344
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Total current liabilities 23,587 19,796
Note payable 597 1,035
Other liabilities 6,327 5,918
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Total liabilities 30,511 26,749
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Minority interests 404 2,064
Commitments and contingencies (Note 8)
Convertible Redeemable Series A Preferred Stock, held by
affiliate, par value $.001 per share, stated value $7,000;
Authorized, issued and outstanding - 70,000 shares 7,000 7,000
Stockholders' Equity
Series B Preferred Stock, par value $.001 per share, stated value
$55,000; Authorized, issued and outstanding - 550,000
shares 1 1
Preferred Stock, par value $.001 per share; Authorized -
9,380,000 shares: None issued -- --
Common Stock, par value $.001 per share: Authorized -
25,000,000 shares: Issued and outstanding - 7,449,364 shares
(Note 6) 7 7
Additional paid-in capital 137,407 138,637
Accumulated deficit (38,385) (31,910)
Accumulated other comprehensive loss (Note 9) (17,768) (4,052)
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Total stockholders' equity 81,262 102,683
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Total liabilities and stockholders' equity $119,177 $138,496
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Theater
Admissions $ 7,494 $ 8,156 $ 23,038 $ 20,401
Concessions 2,557 2,476 7,579 6,188
Advertising and other 638 506 1,866 1,212
Real estate 159 265 547 395
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10,848 11,403 33,030 28,196
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Expenses
Theater operating costs (8,644) (8,160) (26,783) (21,197)
Theater concession costs (529) (582) (1,596) (1,384)
Depreciation and amortization (655) (1,195) (2,089) (3,272)
General and administrative (3,110) (3,230) (8,334) (8,563)
Asset impairment charges (1,508) (14,022) (3,233) (14,022)
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(14,446) (27,189) (42,035) (48,438)
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Loss from operations (3,598) (15,786) (9,005) (20,242)
Other revenues (expenses)
Gain on sale of assets 1,221 -- 4,776 --
Interest and dividend revenue 57 313 340 1,751
Equity in (losses) earnings
of unconsolidated affiliates (Note 2) (884) (59) (1,861) 2,555
Interest expense (171) (156) (537) (274)
Other income, net 542 593 1,117 592
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Loss before minority interests and
income taxes (2,833) (15,095) (5,170) (15,618)
Minority interests (5) (45) (97) (223)
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Loss before income taxes (2,838) (15,140) (5,267) (15,841)
Income taxes (Note 4) (396) (186) (867) (674)
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Net loss (3,234) (15,326) (6,134) (16,515)
Less: Preferred stock dividends and
amortization of asset put option (1,007) (1,085) (3,127) (3,250)
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Net loss applicable to common shareholders $ (4,241) $(16,411) $ (9,261) $(19,765)
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Basic and diluted loss per share (Note 7) $ (0.57) $ (2.20) $ (1.24) $ (2.65)
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited-Continued)
(dollars in thousands)
Nine months ended
September 30,
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2000 1999
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Operating Activities
Net loss $(6,134) $(16,515)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Asset impairment charges 3,233 14,022
Depreciation and amortization 2,089 3,272
Equity in loss (earnings) of affiliates 1,861 (2,555)
Minority interests 97 223
Other 189 898
Gain on disposal of assets (4,776) --
Changes in current assets and liabilities:
Increase in current assets (1,816) (342)
Decrease in accounts payable and accrued expenses 622 673
Decrease in film rent payable 236 630
(Decrease) increase in other liabilities (951) 543
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Net cash (used in) provided by operating activities $(5,350) $ 849
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See accompanying notes to condensed consolidated financial statements.
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Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
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2000 1999
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<S> <C> <C>
Investing Activities
Proceeds from sale of assets $ 5,658 $ --
Distributions from (investments in) joint ventures 484 (1,221)
Decrease (increase) in note receivable from joint venture 464 (123)
Purchase of property held for development (158) (1,779)
Decrease in cash due to Angelika deconsolidation (636) --
(Increase) decrease in restricted cash (679) 45
Purchase of property and equipment, net (17,336) (27,118)
Acquisition of the Royal George Theater -- (3,000)
Decrease in purchase commitments -- (3,627)
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Net cash used in investing activities (12,203) (36,823)
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Financing Activities
Proceeds from borrowings 14,603 2,808
Capital contributions from minority interests 28 45
Minority interest distributions (43) (371)
Payment of preferred stock dividends (228) (341)
Proceeds from the New Zealand Joint Venture (486) --
Payments on borrowings (5,245) (704)
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Net cash provided by financing activities 8,629 1,437
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Effect of exchange rate changes on cash and cash equivalents (825) (252)
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Decrease in cash and cash equivalents (9,749) (34,789)
Cash and cash equivalents at beginning of year 13,277 58,593
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Cash and cash equivalents at end of period $ 3,528 $ 23,804
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Supplemental Disclosures
Interest paid $ 345 $ 278
Income taxes paid $ 125 $ 96
</TABLE>
Non-Cash Transaction
Exchange of 50% interest in Angelika for equity investment in National Auto
Credit, Inc. (Note 2)
Debt extinguished as a part of the Royal George Theatre sale. (Note 11)
See accompanying notes to condensed consolidated financial statements.
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Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
--------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
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 theaters in Australia
and New Zealand. The Company also operates multiplex theaters in Puerto Rico and
in the United States. The Company operates its theaters through various
subsidiaries under the Angelika Film Centers and Reading Cinemas names in the
mainland United States ("Domestic Theaters"); through Reading Cinemas of Puerto
Rico, Inc., a wholly-owned subsidiary, under the CineVista name in Puerto Rico
("CineVista" or "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 ("Australia Circuit");
and through Reading New Zealand Limited's (collectively with its subsidiaries
referred to herein as "Reading New Zealand") participation in a theater joint
venture operating under the Berkley Theaters name in New Zealand. The Company's
entertainment center development activities in Australia are also conducted
through Reading Australia and in New Zealand through Reading New Zealand.
The carrying value of Reading Australia's and Reading New Zealand's assets
will fluctuate due to changes in the exchange rate between the U.S. dollar and
the Australian dollar ($0.5415 and $0.6543 were the respective exchange rates of
U.S. dollars per Australian dollar at September 30, 2000 and December 31, 1999)
and the U.S. dollar and the New Zealand dollar ($0.4075 and $0.5215 were the
respective exchange rates of U.S. dollar per New Zealand dollar at September 30,
2000 and December 31, 1999). In the accompanying financial statements, balance
sheet accounts are translated into U.S. dollars at the exchange rates in effect
on the reporting date, and operating results are translated into U.S. dollars at
the average of the exchange rates in effect during each period reported.
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States for interim information and
the rules of the Securities and Exchange Commission and, therefore, 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 three and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999. Certain amounts in previously issued
financial statements have been reclassified to conform with the current period
presentation.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company is
required to adopt SAB 101 in the fourth quarter of 2000. Management believes
that the Company is in compliance with the requirements of SAB 101, and
therefore does not
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expect that the adoption of SAB 101 will have a material effect on the Company's
results of operations or on its financial position.
Note 2 - Investments in Unconsolidated Affiliates
The tables below set forth the carrying values of the Company's equity
investments in unconsolidated affiliates, and the Company's share of their
earnings or losses, for the periods presented.
September 30, December 31,
2000 1999
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(dollars in thousands)
Citadel $ 8,923 $ 10,957
NAC 8,837 --
AFC 3,409 --
NZ JV 1,060 2,141
BRI -- --
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$ 22,229 $ 13,098
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Three Months Ended Nine months Ended
September 30, September 30,
------------ ------------
2000 1999 2000 1999
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(dollars in thousands)
Citadel $(600) $ 187 $ (805) $2,751
NAC (214) -- (883) --
AFC 37 -- 127 --
NZ JV 24 (70) 105 3
WPG (Note 5) (131) (67) (405) (90)
Love Janis -- (109) -- (109)
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$(884) $ (59) $(1,861) $2,555
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Citadel Holding Corporation and Subsidiaries ("Citadel")
Prior to September 2000, the Company owned 31.7% of the common stock of
Citadel, comprised of 1,690,938 shares of Class A Common Stock and 422,734
shares of Class B Common Stock. In September 2000, Citadel issued its common
stock to acquire Off Broadway Theatres, Inc. ("OBI"), diluting the Company's
ownership interest in Citadel to approximately 21.3%. In accordance with the
Securities Exchange Commission's Staff Accounting Bulletin No. 51, the Company
decreased its additional paid-in capital by approximately $1,230,000, to reflect
the dilution in the Company's ownership of Citadel's common stock.
The Company accounts for its investment in Citadel using the equity method.
Citadel's assets and liabilities totaled $61,553,000 and $21,576,000,
respectively, at September 30, 2000, and the carrying value of the Company's
investment in Citadel ($8,923,000) approximated the Company's underlying equity
in Citadel's net assets, adjusted for the Company's percentage interest in the
$1,998,000 loan receivable from Craig Corporation (collectively with its wholly
owned subsidiaries "Craig"), an affiliate of Citadel and the Company (the loan
is deducted from Citadel's shareholders equity for financial reporting
purposes). The closing prices of Citadel's Class A Common Stock and Class B
Common Stock on the American Stock Exchange at September 30, 2000 were $3.000
and $3.125 per share, respectively.
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National Auto Credit, Inc. ("NAC") & Angelika Film Center LLC ("AFC")
On April 5, 2000, the Company sold a 50% interest in AFC to NAC in exchange
for 8,999,900 shares of NAC common stock and 100 shares of NAC preferred stock
(see Note 10). Completion of this transaction (1) gave the Company a 25.9%
ownership interest in NAC, (2) resulted in a gain of $4,797,000 attributable to
the 50% of AFC sold to NAC, approximately $1,242,000 of which was deferred,
representing the gain attributable to the Company's ownership percentage of NAC
common stock, and (3) required that the accounts of AFC be de-consolidated from
those of the Company, with the Company's remaining 33.3% interest in AFC
accounted for by the equity method.
On November 3, 2000, the Company sold 5,277,879 shares of NAC common stock
and its 100 shares of NAC preferred stock to NAC, in exchange for a cash payment
of $8,469,000. Concurrently, NAC purchased 15,863,360 shares of NAC common stock
from Sam Frankino, the controlling shareholder and former Chairman and Chief
Executive Officer of NAC and certain of his affiliates, in exchange for cash
payments totaling $35,521,000 (which amount includes reimbursement of certain
expenses and sundry amounts). Following completion of these concurrent
transactions, the Company owned 27.3% of the outstanding common stock of NAC.
Together with Citadel, which owned 7.75% of NAC common stock at September 30,
2000, the Company owned 35.1% of the outstanding common stock of NAC at
September 30, 2000.
AFC's assets and liabilities totaled $11,097,000 and $1,194,000,
respectively, at September 30, 2000. The carrying value of the Company's
investment in AFC at September 30, 2000 ($3,409,000) approximates the Company's
underlying equity in the net assets of AFC.
New Zealand Joint Ventures ("NZ JV")
Reading New Zealand owns a 50% interest in a joint venture, which in turn
owns two theaters and leases a third theater.
Big 4 Ranch, Inc. ("BRI")
The Company owns 2,226,173 shares of the common stock of BRI, representing
an ownership interest of approximately 33.4%. The Company accounts for its
investment in BRI using the equity method. BRI's net loss for the nine months
ended September 30, 2000 totaled approximately ($883,000). The Company did not
record its share of BRI's loss because the carrying value of its investment in
BRI had previously been reduced to zero and the Company has no obligation to
fund BRI's operating losses.
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Note 3 - Property and Equipment
The table below sets forth the Company's investment in property and
equipment as of the dates indicated.
September 30, December 31,
2000 1999
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(dollars in thousands)
Land $ 2,474 $ 3,015
Buildings 14,189 13,258
Leasehold improvements 28,654 29,674
Equipment 25,242 24,225
Construction-in-progress 15,944 11,137
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86,503 81,309
Accumulated depreciation (7,237) (6,295)
Asset impairment reserve (18,020) (17,160)
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$ 61,246 $ 57,854
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The carrying amount of land includes land associated with operating
theater properties, and excludes land which has yet to be developed, which
amounts are included in "Property held for development" in the Condensed
Consolidated Balance Sheets.
During the three months ended September 30, 2000, management determined
that the Company was unlikely to proceed with one of its developments located in
Australia, because the estimated cost of doing so would be uneconomical.
Accordingly, the Company reduced its carrying value in this asset to zero at
September 30, 2000, recording an impairment charge of $860,000.
Note 4 - Income Taxes
Income tax expense for the nine months ended September 30, 2000 and 1999
includes $252,000 and $67,000, respectively, in current provisions for federal
and state income taxes, and an accrual of $615,000 and $607,000, respectively,
in foreign withholding taxes which are expected to be paid if certain
intercompany loans are repaid.
Note 5 - Assets Held for Sale
Reading Australia owns a 50% interest in the Whitehorse Property Group and
in the unit trust, of which Whitehorse Property Group is the sole trustee
(collectively, "WPG"). The ownership is structured as a joint venture with
Burstone Victoria Pty Limited ("Burstone") which owns the remaining 50% interest
in WPG. WPG owns a shopping center located near Melbourne, Australia.
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Reading Australia paid $1,400,000 for its interest in WPG. In addition,
Reading Australia guaranteed a 50% interest in an existing loan in the amount of
$6,120,000, incurred by WPG in connection with its purchase of the shopping
center ("WPG Loan"), and loaned to the principals of Burstone approximately
$1,400,000 to enable these individuals to buy out certain minority interests in
Burstone ("Burstone Loan"). The Burstone Loan was due and payable on September
28, 2000 and is guaranteed by Burstone and is secured by the borrower's interest
in Burstone and by Burstone's interest in WPG. Reading Australia has also
guaranteed certain obligations of WPG to the City of Whitehorse, the owner of
the land underlying the shopping center, currently estimated at approximately
$621,000 ("WPG City Claims").
In early 2000, WPG determined to sell its shopping center and commenced
marketing the property for sale during the second quarter of 2000. Based upon
then estimates of the potential proceeds which could be expected from a sale of
the shopping center, and WPG's investment in the property, the Company wrote
down its investment in WPG by approximately $1,725,000 during the three months
ended June 30, 2000. WPG has not yet been successful in selling the shopping
center, in part due to the refusal of Burstone to agree to sell at the price
currently being offered by a prospective qualified purchaser, and on September
28, 2000 was unable to repay the WPG Loan when the same became due. In light of
the position taken by Burstone, the Company has (1) commenced an action to
recover the Burstone Loan; (2) entered into direct negotiations with WPG's bank
lender concerning the payment and/or purchase of the WPG Loan, and (3) entered
into negotiations to sell the shopping center to a potential purchaser (subject
to the satisfactory completion of due diligence by that potential purchaser, and
the procurement by Reading Australia of its right to sell the shopping center
over any ongoing objections by Burstone). Based upon the contracted sales price
for the shopping center, and taking into account the obligations of WPG under
the WPG Loan and the WPG City Claims, management determined that the Company's
remaining investment in WPG would not be recoverable. Accordingly, the Company
reduced its investment in WPG to zero as of September 30, 2000, recording a
charge of $343,000 during the three months ended September 30, 2000.
WPG's net losses for the three and nine months ended September 30, 2000
totaled approximately ($131,000) and ($405,000), respectively. Reading
recognized 100% of such losses because it effectively holds 100% of WPG due to
its security interest in the WPG interest owned by Burstone and in the shares of
Burstone owned by the borrowers under the Burstone Loan. These losses have been
included in the Consolidated Statements of Operations for the three and nine
months ended September 30, 2000 as "Equity in (losses) earnings of affiliates".
WPG's assets and liabilities totaled approximately $16,909,000 and $13,144,000,
respectively, at September 30, 2000.
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. 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, after consideration of the proposed transfer, would own (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
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the Company shall have given its prior written approval. The transfer
restrictions will continue until January 1, 2003, unless earlier terminated by
the Company's Board of Directors.
Note 7 - Loss Per Share
The net loss available to common shareholders includes provision for
dividends declared on the Company's Series A Voting Cumulative Convertible
Redeemable Preferred Stock ("Series A Preferred Stock"), and for dividends that
have accumulated but have not been declared on the Series B Voting Cumulative
Convertible Preferred Stock ("Series B Preferred Stock") (collectively, the
"Convertible Preferred Stock") and for amortization of the value of an asset put
option which expired in the second quarter of 2000.
The weighted average number of shares used in the computation of basic loss
per share was 7,449,364 in both 2000 and 1999. The diluted loss per share is
calculated by dividing the Company's net loss by the average common shares
outstanding for the period plus the dilutive effect of stock options,
convertible securities and the asset put option. The asset put option expired
unexercised on May 13, 2000. During the three and nine months ended September
30, 2000, the Company recorded a net loss available to shareholders of
($4,241,000) and ($9,261,000), respectively. Therefore, stock options and the
Convertible Preferred Stock were anti-dilutive.
Note 8 - Commitments and Contingencies
Property Development and Operations
At September 30, 2000, the Company's more significant firm commitments and
contractural obligations included (1) funding commitments over the next 12
months, totaling $7,635,000, in connection with the development of various
cinema-based properties in Australia; (2) three separate bank loans that, by
their current terms, are due and payable in full within 12 months of September
30, 2000 (the Company currently maintains separate bank facilities for each of
Australia, New Zealand, and Puerto Rico); (3) potential liability under its
guarantee of the WPG loan and under the guarantee of the WPG City Claims (see
also Note 5); (4) the potential redemption during a ninety-day period commencing
October 15, 2001, of the Company's Series A Voting Preferred Stock, which has a
stated value of $7,000,000, is held by Citadel and was one dividend payment in
arrears at September 30, 2000; and (5) accumulated dividends of $6,256,000,
covering a period of seven calendar quarters through September 30, 2000, with
respect to the Company's Series B Voting Preferred Stock held by Craig
Corporation, the Company's majority shareholder.
On November 3, 2000, NAC repurchased a portion of the Company's investment
in NAC common stock for cash of $8,469,000, which substantially increased the
Company's cash and equivalents (see also Notes 2 and 12).
The Company intends to satisfy its near term commitments and obligations by
(1) commencing negotiations with two of its bank lenders for extensions of the
maturity dates in connection with existing borrowings, with unpaid principal
totaling $10,476,000 at September 30, 2000, though no assurances can be given
that such negotiations will prove successful; (2) repaying from its available
cash resources the remainder of the outstanding balance of its other bank loan,
with unpaid principal of $1,200,000 at September 30, 2000; and (3) obtaining
from an existing credit facility the funds necessary to complete the
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Company's largest development in Australia (which amount is included in the
aggregate funding commitments described above).
With respect to the Series A Voting Preferred Stock held by Citadel, the
Company intends to commence discussion over the coming months with Citadel to
explore its options with respect to Citadel's repurchase option, though no
assurance can be given that such discussion will result in an extension or
deferral of Citadel's repurchase option. In addition, the Company may determine
to permit quarterly dividend payments on the Series A Voting Preferred Stock to
accumulate for some period of time in order to preserve cash. With respect to
the Series B Voting Preferred Stock held by Craig, the Company generally intends
to allow dividends thereon to accumulate indefinitely.
In addition to the foregoing, the Company owns several undeveloped land
parcels located in Australia. As part of its normal planning process,
management will assess whether such properties can be economically developed, or
whether one or more of these properties should be marketed for sale to third
parties. At present, the Company has no plan to market for sale any of these
properties.
The year ending December 31, 2001 will be the first full year in which the
Company's cinema business will reach substantially stabilized operations.
Exclusive of the costs associated with holding undeveloped land or potentially
developing one or more currently undeveloped properties, management currently
believes that its cinema operations will become cash flow positive by the end of
2001.
Angelika Dallas
The Company sold its lease and development rights to the Angelika Dallas
project to Citadel in September 2000 for $356,000, which approximates the costs
incurred by the Company to that date. The Company has agreed that, in the event
the Angelika Dallas' EBITDA during the last twelve of the first twenty-four
months following the opening of the theater is less than that amount producing a
20% theater level return on Citadel's investment in the theater, then the
Company will reimburse to Citadel that amount of Citadel's investment necessary
to produce such a 20% return for the twelve-month period; provided that, subject
to certain exceptions, Citadel's investment in the theater does not exceed
$2,300,000 (see also Note 11).
Legal Claims
The City of Philadelphia (the "City") has asserted that the Company's North
Viaduct property requires environmental decontamination and that the Company's
share of any such remediation cost would aggregate approximately $3,500,000.
The Company is in discussions with the City involving a possible conveyance of
the property and believes that recorded reserves related to the North Viaduct
will be sufficient to cover the Company's share of the final remediation costs.
On November 3, 2000, the Company settled, without liability, all claims
against it alleged in a certain lawsuit entitled Sam J. Frankino V. David L.
---------------------------
Huber, et al. C.A. No. 17984 brought by Sam J. Frankino in the Court of Chancery
----------------------------
of the State of Delaware. Incident to the settlement, the Company entered into
a Stock Purchase and Standstill Agreement with Craig, Citadel, and NAC, pursuant
to which, among other things, NAC repurchased 5,277,879 shares of NAC common
stock and 100 shares of NAC preferred stock from the Company for an aggregate
purchase price of $8,469,000. The remaining provisions of the Stock Purchase
and Standstill Agreement are discussed in greater detail in Note 12.
-12-
<PAGE>
Tax Audit
The Company's 1996 tax return is under review by the Internal Revenue
Service ("Service"). While the Company believes its reporting position in such
period to be reasonable and the Service has not alleged any deficiencies, no
assurances can be given that the Company's tax reporting position will be
upheld.
Note 9 - Comprehensive Income
The table below sets forth the Company's comprehensive loss (the Company's
net loss plus the effect of the foreign currency translation adjustments) for
the periods shown.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net loss $(3,234) $(15,326) $ (6,134) $(16,515)
Other comprehensive (loss) income (6,587) (1,287) (13,716) 1,749
------------------------------------------------------------------------------------------------------
Comprehensive loss $(9,821) $(16,613) $(19,850) $(14,766)
------------------------------------------------------------------------------------------------------
</TABLE>
Note 10 - Sale of Angelika Interest
On April 5, 2000, the Company sold a 50% interest in AFC to NAC, which
resulted in the reduction of its ownership interest in AFC to 33.3%. AFC is the
owner of the Angelika Film Center & Cafe, located in the Soho district of
Manhattan. The 50% membership interest ("Angelika Interest") in AFC was
conveyed in exchange for 8,999,900 shares of the common stock of NAC,
representing approximately 25.9% of the outstanding common stock of NAC
(calculated after the issuance of such shares), and 100 shares of the Series A
Preferred Stock of NAC, representing 100% of such class ("Angelika
Transaction"). The Series A Preferred Stock has a liquidation preference of
$1.50 per share, is convertible into the common stock of NAC on a share for
share basis, is entitled to a dividend preference equal to any dividends
declared on the NAC common stock (determined on a per share basis), and enjoys
certain special voting rights. As a consequence of that transfer, (1) AFC is
now owned 50% by NAC, 33.3% by the Company and 16.7% by Citadel, and (2) the
Company and its affiliates own approximately 29% of the outstanding common stock
of NAC. NAC Common Stock closed on September 30, 2000 at $0.75 per share.
The Company had a financial statement basis of approximately $4,923,000 in
the Angelika Interest. The sales price was determined to be approximately
$9,720,000 for financial reporting purposes, which was calculated using $1.08
per common stock share, the average per share price of NAC common stock for the
ten trading days prior to April 5, 2000, and the $1.50 per preferred stock share
as specified in the sales agreement. In the contract setting forth the terms
and conditions of the Angelika Transaction, however, the parties valued the
Angelika Interest and the shares issued in the transaction at $13.5 million (or
$1.50 per share), and this valuation has been adopted by the parties for tax
purposes. The sale of the Angelika Interest to NAC resulted in an accounting
gain of approximately $4,797,000, of which approximately $1,242,000, or 25.9%,
was deferred to represent the Company's 25.9% equity interest in NAC. The
deferred gain is included in the Consolidated Balance Sheet at September 30,
2000 in other long-term liabilities.
-13-
<PAGE>
On November 3, 2000, the Company sold to NAC 5,277,879 shares of the NAC
common stock and all 100 shares of the NAC preferred stock issued to it in the
Angelika Transaction for $8,469,000 (or $1.50 per share plus a time value of
money factor of 12% per annum calculated from April 5, 2000). As a result of
this repurchase, and certain other repurchases closed simultaneously with the
repurchase described above, the Company now owns approximately 27% of the
outstanding NAC common stock.
As a result of its sale of the Angelika Interest, the Company's ownership
of AFC was reduced to 33.3%, which required that the Company's remaining
investment in AFC be accounted for by the equity method of accounting from the
date of disposition. Prior to the disposition date, the Company consolidated
AFC. The deconsolidation of AFC in April 2000 resulted in a decrease to the
Consolidated Balance Sheet captions as follows (dollars in thousands):
Cash $ (636)
Other assets (192)
Property, plant and equipment (695)
Cost in excess of net assets acquired (9,840)
Liabilities (1,240)
Minority liability (1,670)
The Consolidated Statements of Operations include the consolidated results
of AFC prior to the Company's sale of the Angelika Interest, as follows:
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
(dollars in thousands)
Theater revenues $ -- $ 2,365 $ 1,506 $ 5,850
Theater costs -- (1,419) (1,068) (3,691)
Depreciation/amortization -- (172) (183) (515)
General and administrative -- (149) (41) (314)
--------------------------------------------------------------------------------
Income from operations -- 625 214 1,330
Minority interest and tax -- (126) (52) (268)
--------------------------------------------------------------------------------
Net earnings $ -- $ 499 $ 162 $ 1,062
--------------------------------------------------------------------------------
NAC is a publicly traded company whose shares are traded in the over-the-
counter market. Historically, NAC has been in the business of originating,
purchasing and servicing sub-prime loans secured by second hand automobiles.
However, in recent periods, NAC has sold substantially all of its inventory of
loans, substantially reduced its work force and, in essence, reduced its assets
to cash and its interest in AFC. The Company is advised by NAC that it is
considering investments in several industries, one of them being domestic
theater exhibition, and that the acquisition of the AFC interest constituted a
possible first step in what may be a substantially larger commitment to that
industry. During the six months ended June 30, 2000, the Company received
$500,000 from NAC for an option that has since expired unexercised. Accordingly,
for the nine months ended September 30, 2000, the Company recorded the $500,000
as other income.
-14-
<PAGE>
Note 11 - Sale of Theater and Live Theater Assets
Consistent with the Company's decision to limit its activities
domestically, and to focus instead on the development of its opportunities in
Australia and New Zealand, the Company consummated a number of transactions
during the nine months ended September 30, 2000, as described below.
Sutton Hill Transaction In December 1998, the Company entered into an
-----------------------
agreement in principal ("Reading Agreement in Principal") with James J.
Cotter and Michael R. Forman providing for a series of transactions which
contemplated the Company's leasing or acquiring various cinemas and live
theatre properties held by entities owned by Messrs. Cotter and Forman. In
connection with the execution and delivery of the Reading Agreement in
Principal, the Company made a $1,000,000 deposit.
In May 2000, the Company, Citadel, and Messrs. Cotter and Forman entered
into an agreement ("Citadel Agreement"), in which the Company assigned its
rights and Citadel assumed the Company's obligations under the Reading
Agreement in Principal, subject to certain modifications agreed to by
Messrs. Cotter and Forman. Under that assignment, Citadel reimbursed the
Company for the $1,000,000 deposit. The transactions contemplated by the
Reading Agreement in Principal, as modified pursuant to negotiations
between Citadel and Messrs. Cotter and Forman, was closed on September 1,
2000, and Reading has no further obligations or liabilities under the
Reading Agreement in Principal.
The Royal George Theatre Complex Transaction In February 1999, the
--------------------------------------------
Company acquired the Royal George Theatre Complex, located in Chicago, for
$3,000,000. On September 22, 2000, the Company transferred to Citadel its
interest in Royal George Theatre LLC ("RGT"), the limited liability company
formed by the Company to acquire and operate the Royal George Theatre
complex, for $3,000,000, less an amount equal to the sum of (1) the long-
term liabilities of RGT and (2) the difference between the short-term
assets and liabilities of RGT. The Company realized net proceeds of
$1,708,000 from the sale of its interest in RGT.
The Angelika Film Center & Cafe Dallas Transaction In 1999, the Company
--------------------------------------------------
entered into a lease of a to-be-constructed theatre in Dallas, known as the
Angelika Film Center and Cafe Dallas ("Angelika-Dallas"). On September 22,
2000, the Company assigned that lease to Citadel. In consideration of the
assignment of the lease, Citadel paid to Reading approximately $356,000 in
reimbursement of its costs incurred to date in acquiring the leasehold and
fitting out the theater, and assumed the Company's obligations under the
lease and under various agreements relating to the fitting out of the
theater. The Company has agreed that, in the event the theater's EBITDA
during the last twelve of the first twenty-four months following the
opening of the theater is less than that amount producing a 20% theater
level return on Citadel's investment in the theater, then the Company will
reimburse to Citadel that amount of Citadel's investment necessary to
produce such a 20% return for the twelve-months period; provided that,
subject to certain exceptions, Citadel's investment in the theater does not
exceed $2,300,000.
-15-
<PAGE>
Note 12 - Subsequent Event
On November 3, 2000 the Company, together with Craig and Citadel, entered
into a stock purchase and standstill agreement (the "Standstill Agreement")
with NAC. NAC is a public company, whose shares are traded in the OTC market
under the symbol NAKD. The Standstill Agreement grows out of the settlement of
a lawsuit brought by NAC against Mr. Sam Frankino ("Frankino") the former
Chairman, Chief Executive Officer and controlling stockholder of NAC, and
certain cross claims brought by Frankino against the Company, certain directors
of NAC, and the financial advisor to NAC ("Frankino Litigation").
Prior to the closing of the transactions contemplated by the Standstill
Agreement, the Company owned 8,999,900 shares of NAC common stock, par value
$0.05, and 100 shares representing the entire convertible preferred stock
issued, par value $0.05, of NAC ("NAC Preferred Stock"). Citadel owned
1,055,100 shares of the NAC common stock and Frankino and certain of his
affiliates (collectively, the "Frankino Parties") owned 15,863,360 shares of the
NAC common stock. These holdings represented approximately 26%, 3%, and 46%,
respectively, of the equity of NAC. The NAC common stock and NAC Preferred
Stock held by the Company was acquired directly from NAC in consideration of the
transfer from the Company to NAC of the Angelika Interest.
As a consequence of the closing of the transactions provided for or
contemplated by the Standstill Agreement,
. NAC repurchased all of the NAC common stock held by the Frankino Parties
("Frankino Shares") for $35,520,522, and 5,277,879 of the shares of NAC
common stock and all 100 shares of the NAC Preferred Stock held by the
Company for $8,468,770.
. The Frankino Litigation was dismissed with prejudice, and
. The Company, Craig and Citadel (collectively referred to in the Standstill
Agreement as the "Stockholders"), have agreed to certain limitations and
restrictions on their rights as stockholders of NAC, in consideration of
contractual assurances that (1) the Stockholders will, at their election,
have representation upon the NAC Board of Directors, (2) that related party
transactions will be subject to approval by the disinterested members of
the NAC Board of Directors and (3) that certain material transactions will
be subject to the approval of the stockholders generally of NAC.
The Standstill Agreement, subject to earlier termination under certain
circumstances, continues through and including August 31, 2003, and provides for
the following:
. Representation on the NAC Board of Directors The Stockholders will be
--------------------------------------------
entitled to two nominees on the NAC Board of Directors ("Stockholder
Nominees").
. Election of Directors In connection with the election of directors, the
---------------------
Stockholders will vote their shares in the same manner and in the same
proportion as the shares by all stockholders of the Company other than the
Stockholders are voted in connection with such election. The Stockholders
will not solicit proxies with respect to any such election, and will not
seek to change the composition of the Board of Directors.
-16-
<PAGE>
. Restrictions on Acquisition and Transfer The Stockholders will not
----------------------------------------
increase their holdings in NAC Common Stock beyond 33%, calculated on a
fully diluted basis, other than pursuant to a tender offer for all of the
outstanding NAC common stock, made on an any and all basis. Also, the
Stockholders will not transfer their NAC common stock except as specified
in the Standstill Agreement. These transfer provisions were specified by
NAC, generally speaking, to prevent a transfer which would cause a change
of control of NAC, except in case of a transfer in response to a tender
offer.
. Restrictions on Solicitation of Proxies Through and including August 31,
---------------------------------------
2001, the Stockholders will not solicit proxies with respect to any
proposal brought before the stockholders of NAC.
. Certain NAC Covenants (1) that until such time as the NAC Board of
---------------------
Directors has prepared, adopted and publicly disclosed a five-year business
plan, NAC will not make any material acquisition or issue any material
amount of securities, (2) NAC will comply with the stockholder approval
requirements imposed upon companies listed on the NASDAQ/NMS with respect
to transactions involving the issuance of securities, and will, in
addition, put to a vote of the stockholders of NAC any transaction pursuant
to which any person is to acquire more than 33% of the NAC's assets; and
(3) all related party transactions will be subject to the review and
approval of the disinterested directors.
. Termination The Standstill Agreement can be terminated by (1) mutual
-----------
written agreement, or (2) by either party (i) in the event of permanent
injunction prohibiting the transactions contemplated by the Standstill
Agreement, (ii) by vote of a majority of the outstanding shares (calculated
without reference to any shares held by the Stockholders), (iii) by vote of
a majority of the independent directors of the Board of Directors of NAC to
terminate the Standstill Agreement, (iv) in the event of a third party
tender offer for more than 15% of the NAC Common Stock, or (v) in the event
the NAC Board of Directors propose a Change of Control Transaction (as
defined in the Standstill Agreement), or (vi) by the Stockholders, in the
event NAC fails to appoint or to continue the Stockholder Nominees as
directors of NAC. In the event of termination under clauses (b)(iii) or
(b)(v), above, the NAC Covenants discussed immediately above, will survive
such termination until immediately following the first annual meeting of
stockholders held more than 120 days after such termination, and in the
event of termination under clause (b)(v) above, NAC covenants described in
subclauses (2) and (3) above and the provision for proportional voting with
respect to the election of directors will likewise continue until
immediately following such annual meeting of stockholders. The Standstill
Agreement automatically terminates in the event that the ownership
interests of the Stockholders in NAC should fall below 10% or exceed 90% of
the outstanding NAC Common Stock.
The parties have agreed in the Standstill Agreement, however, that the
limitations set out in the second and fourth bullets above, are not to be
construed to prevent any of the Stockholders from communicating with any other
holder or holders of NAC common stock, including, without limitation, the
expression of the opinion of the Stockholders with respect to any third party
solicitation of proxies, provided that such Stockholder does not (1) provide to
any holder of NAC common stock a proxy or other authorization permitting the
Stockholder or its designee to vote any NAC common stock on such holder's behalf
or (2) accept from any holder of NAC common stock, a proxy or other
authorization permitting the Stockholder or its designee to vote any NAC common
stock on such holder's behalf.
The Standstill Agreement is attached as Exhibit 10.11 to the Company's
Report on Form 10Q for the period ended September 30, 2000. The above
description is necessarily summary in nature, and is qualified by reference to
the Standstill Agreement as set forth in that exhibit.
-17-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is principally engaged in the business of developing and
operating multiplex theaters in Australia, New Zealand, the United States and
Puerto Rico, and in developing and eventually operating theater based
entertainment centers in Australia and New Zealand.
During the past several years, the Company has been actively engaged in the
construction of state-of-the art multiplexes, principally located in Australia.
Certain of the Company's properties also include a non-cinema retail component.
Though certain Australia-based cinemas commenced operation prior to 1999, a
substantial majority of the Company's current Australia-based cinemas have been
in operation for less than two years. The table below summarizes the number of
cinema screens in operation as of each of the dates indicated.
Australia/
New Zealand Puerto Rico Domestic Total
--------------------------------------------------------------------------------
December 31, 1998 30 44 22 96
September 30, 1999 31 44 42 117
December 31, 1999 76 56 42 174
September 30, 2000 81 56 34 171
In the preceding table, (1) the increase in the number of cinema screens in
Australia and New Zealand is wholly comprised of newly-constructed multiplexes;
(2) the increase in the number of cinema screens in Puerto Rico is represented
by a newly-constructed, 12-screen multiplex that opened in December 1999; (3)
the increase in the number of domestic screens during 1999 resulted from a
newly-constructed, 12-screen multiplex and an existing 8-screen cinema; and (4)
the decrease in the number of domestic screens during 2000 resulted from closure
of the 8-screen cinema acquired during 1999. AFC, with 6 screens, is included
for all periods.
In addition to the growth in the number of screens in operation, the
Company sold the Royal George Theater to Citadel in September 2000. The Royal
George Theatre was originally acquired by the Company in February 1999.
Further, the Company sold the Angelika Interest to NAC in April 2000, requiring
that the results of AFC be subsequently de-consolidated from the Company's
accounts. For these reasons, comparison of the Company's results between
periods may prove difficult.
Results of Operations
The tables and narrative which follow set forth and discuss the results of
operations for the three and nine months ended September 30, 2000 and 1999. In
the tables below, (1) theater revenues consist of admissions, concessions, and
advertising; (2) theater expenses consist of the costs directly attributable to
the operation of each complex (including employee-related, occupancy and
operating costs, and depreciation); and (3) general and administrative expenses
include all other costs attendant to the operation and management of the
Company's affairs. The revenues and expenses generated by the
-18-
<PAGE>
Company's Australian and New Zealand operations have been translated at the
average exchange rates for each period presented (dollars in thousands).
<TABLE>
<CAPTION>
AUS/NZ CineVista Domestic
Theaters Theaters Theaters Corporate Total
----------------------------------------------------------------------------------
Three Months Ended September 30
-------------------------------
2000
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 3,979 $ 4,520 $ 2,190 $ 159 $ 10,848
Expenses (3,549) (3,966) (2,288) (25) (9,828)
General & administrative expenses (1,493) (341) (53) (1,223) (3,110)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations before
asset impairment charge (1,063) 213 (151) (1,089) (2,090)
Asset impairment charge (1,508) -- -- -- (1,508)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations $ (2,571) $ 213 $ (151) $(1,089) $ (3,598)
--------------------------------------------------------------------------------------------------------------------
1999
====================================================================================================================
Revenues $ 2,277 $ 3,828 $ 5,034 $ 264 $ 11,403
Expenses (2,147) (3,579) (4,199) (12) (9,937)
General & administrative expenses (1,195) (255) (204) (1,576) (3,230)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations before
asset impairment charge (1,065) (6) 631 (1,324) (1,764)
Asset impairment charge -- (14,022) -- -- (14,022)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations $ (1,065) $(14,028) $ 631 $(1,324) $(15,786)
--------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30
------------------------------
2000
====================================================================================================================
Revenues $ 13,145 $ 11,640 $ 7,698 $ 547 $ 33,030
Expenses (11,827) (10,748) (7,851) (42) (30,468)
General & administrative expenses (3,657) (719) (187) (3,771) (8,334)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations before
asset impairment charge (2,339) 173 (340) (3,266) (5,772)
Asset impairment charge (3,233) -- -- -- (3,233)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations $ (5,572) $ 173 $ (340) $(3,266) $ (9,005)
--------------------------------------------------------------------------------------------------------------------
1999
====================================================================================================================
Revenues $ 6,211 $ 9,874 $ 11,716 $ 395 $ 28,196
Expenses (5,584) (10,148) (10,085) (36) (25,853)
General & administrative expenses (3,017) (678) (444) (4,424) (8,563)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations before
asset impairment charge (2,390) (952) 1,187 (4,065) (6,220)
Asset impairment charge -- (14,022) -- -- (14,022)
--------------------------------------------------------------------------------------------------------------------
(Loss) income from operations $ (2,390) $(14,974) $ 1,187 $(4,065) $(20,242)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
Industry Overview
The cinema exhibition business as a whole has experienced a noticeable
decline in admissions and gross revenues during 2000 as compared with 1999, the
first such decline in many years. The decline in admissions has been generally
attributed by exhibitors and by distributors to the inconsistent quality of
wide-release films and the absence of highly successful independent films. As a
result, an unusually high percentage of films have experienced truncated
theatrical runs, which has adversely impacted the margins available to
exhibitors. Further, the number of cinema screens in operation in the United
States and in Australia continued to increase during 2000, as they have during
each of the past several years, reducing per screen revenues for exhibitors.
These dual influences have resulted in an increase in the percentage of revenues
absorbed by film rentals due distributors (since film rentals are generally
higher, as a percentage of box office revenues, during the initial period of
theatrical release) and a narrowing of the coverage afforded exhibitors' fixed
costs.
Theater Revenues and Expenses
The growth in theater revenues and expenses generated from the CineVista
and Australia/New Zealand operations generally resulted from an increase in the
number of screens in operation during the 2000 periods as compared with the same
periods during 1999. The decline in theater revenues and expenses generated
from the Company's domestic theaters resulted from the de-consolidation of AFC
after April 5, 2000 and the closure of one location with 8 screens in June 2000.
General and Administrative Expenses
The items below represent the more significant contributors to changes in
general and administrative expenses between the 2000 and 1999 periods:
. The opening of 50 additional screens in Australia/New Zealand since
September 30, 1999 has increased the needed level of infrastructure support
and its cost.
. During the three months ended September 30, 2000, the Company commenced
litigation in Puerto Rico against its principal competitor and against
other parties, the costs of which caused legal expenses to rise during the
2000 periods as compared with the 1999 periods.
. During the first nine months of 2000, the Company closed its Philadelphia
office, and established Los Angeles as the Company's new corporate
headquarters. Cost savings resulting from the closure began to appear
during the three months ended September 30, 2000.
. During each period presented, the Company incurred substantial costs in
connection with various potential and realized transactions. The dollar
amounts of such costs in 1999 was higher than such costs incurred during
the 2000 periods, primarily due to unconsummated transactions involving one
or more of the Company's affiliates.
-20-
<PAGE>
Asset Impairment Charges
During the third and fourth quarters of 1999, the Company determined that
its investment in the CineVista Theaters had been permanently impaired.
Accordingly, cumulative write-downs of $31,330,000 were recorded, with
$14,022,000 of such amount recorded during the three months ended September 30,
1999.
During 2000, the Company determined that its equity investment in WPG, an
Australian joint venture, and its related note receivable from its joint venture
partner, were not recoverable from the proceeds which could reasonably be
expected from the intended disposition of the property by the joint venture.
Accordingly, the Company reduced the carrying value of its aggregate investment
by $342,000 and $2,067,000, respectively, during the three and nine months ended
September 30, 2000. At September 30, 2000, the carrying value of the Company's
investment had been reduced to zero.
During the three months ended September 30, 2000, the Company determined
that it would not proceed with development of one project in Australia. Based
upon this decision, management determined that the Company's investment in this
project was not recoverable and, accordingly, wrote off the Company's investment
of $1,142,000, reducing the Company's investment to zero.
Non-recurring and Other Items
During the three months ended September 30, 2000, the Company sold a land
parcel located in the Philadelphia area in an all-cash transaction, recording a
gain of $1,221,000.
During the three months ended June 30, 2000, the Company sold the Angelika
Interest to NAC, recording a net gain of $3,555,000. An additional gain arising
from this transaction of $1,242,000 was deferred.
Interest and dividend income declined substantially in each of the 2000
periods as compared with the same periods during 1999, primarily due a
significant decline in the Company's liquidity.
The Company's share of the results of its unconsolidated affiliates
produced sizable losses for each of the 2000 periods, as compared with far
superior results recorded during the same periods in 1999. The adverse change
resulted primarily from (1) losses at Citadel during each of the 2000 periods,
which reflected (a) write downs in connection with Citadel's investment in
various agricultural partnerships, and (b) a negative margin produced by
Citadel's theater operations; (2) losses at NAC, which the Company began
accounting for under the equity method in April 2000; and (3) losses in
connection with WPG, an Australian joint venture, and with respect to which the
Company wrote down its entire remaining investment during the three months ended
September 30, 2000 (see above).
Other income includes insurance settlement proceeds of approximately
$949,000 received by CineVista in the third quarter of 2000, and a fee of
$500,000 previously paid by NAC to the Company for a now-expired option.
-21-
<PAGE>
Business Plan, Capital Resources and Liquidity
Since December 31, 1998, the Company's cash and cash equivalents have
decreased from approximately $58,000,000, to approximately $13,000,000 at
December 31, 1999, and to approximately $3,500,000 at September 30, 2000.
During this period the Company has utilized its available liquidity to (1)
acquire land in Australia and New Zealand for the purpose of constructing state-
of-the-art cinemas, or entertainment centers, thereon; (2) fit out newly-
constructed cinema space in Australia, with respect to which the Company is a
tenant under long-term leases; and (3) construct state-of-the-art cinemas on
leased land in the United States (one location) and in Puerto Rico (one
location). As a result of these investments, since 1998 the Company has added
50 theater screens in Australia and New Zealand (5 locations), 12 theater
screens in Puerto Rico (one location), and 12 theater screens in the United
States (one location). Each of the complexes completed and opened since 1998
has been financed solely with the Company's liquidity, except for one project
located in Australia and one in Puerto Rico, with respect to which the costs of
construction were financed with bank borrowings. In addition to its investments
in now-operating cinemas, at September 30, 2000, the Company had a recorded
investment of $26,200,000 (at current exchange rates) in various land parcels,
located in Australia and New Zealand, each of which is intended for future
development. Each of these investments in undeveloped land has been financed
with Company's liquidity.
As further described in Note 8, the Company has various commitments which,
in the aggregate, exceed its current liquidity, or its current liquidity
adjusted for operating cash flows expected to be generated during the next 12
months. However, in November 2000, the Company received $8,469,000 in cash from
its sale of a portion of its investment in NAC common stock to NAC (see Notes 2,
10 and 12). In addition to this cash infusion, management is actively
negotiating with its Australian bank lender for an extension of that loan's
maturity date, which currently is due during the fourth quarter of 2000. Though
no assurances can be given that management will be successful in obtaining the
requested extension of the loan's maturity date, management has received
preliminary indications from its bank lender that an extension is likely to be
granted.
With respect to the Series A Voting Preferred Stock held by Citadel, the
Company intends to commence discussions over the coming months with Citadel, to
explore its options with respect to Citadel's repurchase option, though no
assurance can be given that these discussions will result in an extension or
deferral of Citadel's repurchase option. With respect to the Series B Voting
Preferred Stock held by Craig, the Company intends generally to allow dividends
thereon to accumulate indefinitely.
In addition to the foregoing, the Company owns several land parcels located
in Australia which have yet to be developed. As part of its annual planning
process, management intends to assess whether these properties can be
economically developed, either independently or through joint ventures, or
whether one or more of these properties should be marketed for sale, though at
present, the Company has no intentions of marketing any of these properties.
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.
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<PAGE>
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 1 - Legal Proceedings
For a description of legal proceedings, please refer to Item 3 entitled
"Legal Proceedings" contained in the Company's Form 10-K for the fiscal
year ended December 31, 1999.
Item 2 - Changes in Securities
Not applicable.
Item 3 - Defaults Upon Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
At the Company's 2000 Annual Meeting of Shareholders held on September 12,
2000, the shareholders elected the Company's directors and voted on a non-
binding stockholder proposal to liquidate the Company's assets and
distribute to the shareholders (the "Steiner Proposal"). The results of the
votes were as follows:
Election of Directors For Withheld
--------------------- --- --------
James J. Cotter 12,071,487 5,848
Scott A. Braly 12,071,387 5,948
Robert F. Loeffler 12,071,387 5,948
Kenneth S. McCormick 12,071,387 5,948
Robert F. Smerling 12,071,387 5,948
S. Craig Tompkins 12,071,487 5,848
Stockholder Proposal For Against Abstain/No-Vote
-------------------- --- ------- ---------------
Referred to in the Proxy
Statement as the
"Steiner Proposal". 69,648 11,575,897 431,790
Item 5 - Other Information
Not applicable.
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<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.11 Standstill Agreement
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
READING ENTERTAINMENT, INC. REGISTRANT
--------------------------------------
Date: November 20, 2000 By: /s/ Scott Braly
---------------------------------
Scott Braly
Chief Executive Officer
Date: November 20, 2000 By: /s/ Robert F. Smerling
---------------------------------
Robert F. Smerling
President
Date: November 20, 2000 By: /s/ Andrzej Matyczynski
---------------------------------
Andrzej Matyczynski
Chief Financial Officer
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