<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, 1995
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 1-649
READING COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-6000773
(State of incorporation) (I.R.S. Employer Identification No.)
One Penn Square West
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 4,961,764 shares of Class A Common Stock and 11,530 shares of
Common Stock outstanding as of November 7, 1995.
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INDEX
READING COMPANY AND SUBSIDIARIES
PART I. - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- September 30, 1995
(Unaudited) and December 31, 1994. . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Operations -- Three and
Nine Months Ended September 30, 1995 and 1994 (Unaudited). . . 5
Condensed Consolidated Statements of Cash Flows -- Nine Months
Ended September 30, 1995 and 1994 (Unaudited). . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 7-17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 18-19
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 20
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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PART I - Financial Information
Item 1. Financial Statements
Reading Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
(Unaudited)
September 30, December 31,
1995 1994*
------ -------
ASSETS
Current assets
Cash and cash equivalents $47,469 $9,413
Available-for-sale securities 25 35,523
Amounts receivable 1,606 280
Restricted cash 333 333
Inventories 123 86
Prepayments and other current assets 380 593
Due from insurance companies 327 751
Deferred tax asset 0 132
-------- -------
Total current assets 50,263 47,111
-------- -------
Other investments 464 438
Restricted cash 537 597
Real estate held for sale or development 1,110 1,111
Property and equipment:
Buildings 733 720
Capitalized premises lease 538 538
Leasehold improvements 3,589 3,560
Equipment 2,863 2,811
Construction-in-progress 456 103
-------- -------
8,179 7,732
Less: Accumulated depreciation 1,061 726
-------- -------
7,118 7,006
Intangible assets:
Beneficial leases - net of accumulated
amortization of $1,138 15,770 16,453
in 1995 and $455 in 1994
-------- -------
24,999 25,605
-------- -------
$75,262 $72,716
======== =======
* The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Consolidated Financial Statements.
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Reading Company and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands, except shares and per share amounts)
(Unaudited)
September 30, December 31,
1995 1994*
------ -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $1,367 $1,468
Accrued compensation 247 218
Accrued taxes and other 826 627
Film rent payable 252 359
Other liabilities 904 1,056
------- -------
Total current liabilities 3,596 3,728
------- -------
Capitalized leases, less current portion 523 525
Other liabilities 2,384 2,377
------- -------
Total long term liabilities 2,907 2,902
------- -------
Commitments and contingencies (See Note 10)
Shareholders' equity
Preferred stock, par value $1.00 per share:
Authorized -- 5,000,000 shares
Common stock, par value $.01 per share:
Authorized -- 10,000,000 shares
Issued 1995 -- 12,140 shares; 1994 -- 12,291 shares 1 1
Class A common stock, par value $.01 per share:
Authorized -- 15,000,000 shares
Issued 1995 -- 5,144,551 shares; 1994 -- 5,144,400 51 51
Other capital 56,049 55,057
Unrealized loss on available-for-sale securities 0 (286)
Retained earnings 15,279 13,884
Class A common stock in treasury, at cost:
1995 -- 183,326 shares; 1994 -- 183,250 (2,621) (2,621)
------- -------
Total shareholders' equity 68,759 66,086
------- -------
$75,262 $72,716
======= =======
* The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Consolidated Financial Statements.
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Reading Company and Subsidiaries
Consolidated Statements of Operations
(in thousands, except shares and per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
REVENUES:
Theater:
Admissions $3,524 $3,457 $8,161 $3,457
Concessions 1,366 1,317 3,076 1,317
Advertising and other 189 127 483 127
Real estate management and sales 67 69 203 452
Interest and dividends 684 433 1,787 1,707
Condemnation and other 1,479 34 1,969 76
------ ------ ------ -----
7,309 5,437 15,679 7,136
------ ------ ------ -----
EXPENSES:
Theater costs 3,347 3,212 8,277 3,212
Theater concession costs 212 221 505 221
Depreciation and amortization 337 335 1,007 335
General and administrative 1,311 961 3,312 2,630
Provision for environmental matters 0 1,306 0 1,306
Development expense 0 795 0 795
------ ------ ------ -----
5,207 6,830 13,101 8,499
------ ------ ------ -----
Income (loss) before income taxes 2,102 (1,393) 2,578 (1,363)
Income tax provision 37 0 192 0
------ ------ ------ -----
Net income (loss) $2,065 ($1,393) $2,386 ($1,363)
====== ====== ====== ======
Per share information:
Net income (loss) $0.42 ($0.28) $0.48 ($0.27)
====== ====== ====== ======
Average shares outstanding 4,973,368 4,973,540 4,973,398 4,973,557
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
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Reading Company And Subsidiaries
Condensed Consolidated Statement Of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
September 30,
-----------------
1995 1994
---- ----
OPERATING ACTIVITIES
Net income (loss) $2,386 ($1,363)
Adjustments to reconcile net income (loss) to
net cash provided from operating activities:
Condemnation award (1,146) 0
Gain on sale of other real estate 0 (308)
Depreciation 338 113
Amortization 683 222
Deferred rent expense 124 0
Deferred income tax expense 132 0
Provision for environmental matters 0 1,200
Valuation provision for loan to OREI 0 795
Changes in operating assets and liabilities:
Decrease in note receivable due from officer
of subsidiary 0 1,000
(Increase) decrease in amounts receivable (365) 92
Increase in inventories (37) (1)
Decrease (increase) in prepaids and other current
assets 213 (185)
Decrease in insurance proceeds receivable 424 16
Increase in accounts payable and accrued expenses 127 393
Decrease in film payable (107) (2)
Decrease in other liabilities (269) (227)
Other, net (27) 8
----- -----
Net cash provided from operating activities 2,476 1,753
----- -----
INVESTING ACTIVITIES
Purchase of TAPR (See Note 3) 0 (21,669)
Purchase of property, plant and equipment (449) 0
Net proceeds from real estate joint venture investments 185 138
Net proceeds from sales of real estate 0 572
Decrease (increase) in restricted cash 60 (972)
Purchases of available-for-sale securities (511) (12,108)
Sales and maturities of available-for-sale securities 36,295 35,440
Loan to OREI (See Note 5) 0 (470)
------ ------
Net cash provided from investing activities 35,580 931
------ ------
FINANCING ACTIVITIES
Purchase of treasury stock 0 (1)
------ ------
Net cash used for financing activities 0 (1)
------ ------
Increase in cash and cash equivalents 38,056 2,683
Cash and cash equivalents at beginning of year 9,413 177
------ ------
Cash and cash equivalents at end of year $47,469 $2,860
------ ------
------ ------
See Notes to Condensed Consolidated Financial Statements.
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
NOTE 1 OWNERSHIP AND BASIS OF PRESENTATION
Craig Corporation ("Craig") currently owns approximately 48% of Reading
Company.
The condensed consolidated financial statements of Reading Company and
Subsidiaries ("the Company") include the accounts of Reading Company and its
majority-owned subsidiaries. Significant intercompany transactions and accounts
have been eliminated. Certain amounts in previously issued financial statements
have been reclassified to conform with current classifications.
The Company acquired Theater Acquisitions of Puerto Rico, Inc. ("TAPR")
during 1994. The transaction was effective as of July 1, 1994 and the results
of TAPR have been consolidated with the Company's operating results since that
date (See Note 3). On December 31, 1994, TAPR was merged into its parent
corporation, Reading Cinemas of Puerto Rico, Inc. ("RCPR") with RCPR the
successor corporation and the operating name changed to Cine Vista (unless
otherwise required by the context, TAPR, RCPR, and Cine Vista may be used
interchangeably herein).
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all the 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, 1995 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1995. 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, 1994.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Statement of Cash Flows: For purposes of the
Balance Sheet and Statement of Cash Flows, the Company considers all highly
liquid investments with maturities of three months or less at the time of
acquisition to be cash equivalents. Cash equivalents are stated at cost plus
accrued interest, which approximates market value, and consist primarily of
federal agency securities and short-term money market instruments.
Available-for-Sale Securities: The Company accounts for its debt
securities in accordance with Financial Accounting Standards Board No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Management
has classified the Company's treasury securities with maturities in excess of
three months at the time of purchase as available-for-sale as these investments
are expected to be used to fund expansion of theater operations, acquisition or
other development activities.
The amortized cost of securities available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and the interest related to these securities are included in
"Interest and Dividends" revenues. Any realized gains and losses and declines
in value judged to be other-than-temporary on available-for-sale securities are
included in earnings.
7
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
Inventories: Inventories are comprised of confection goods used in Cine
Vista's operations and are stated at the lower of cost (first-in, first-out
method) or net realizable value.
Net Income (Loss) Per Share: Net income (loss) per share (Common Stock
and Class A Common Stock) is calculated by dividing net income or net loss by
the aggregate of the weighted average shares outstanding during the period and
the dilutive effect, if any, of common stock equivalents that are outstanding.
There were 367,232 and 374,732 Class A Common shares issuable under stock option
plans on September 30, 1995 and 1994, respectively; however, the terms of
exercise were anti-dilutive.
Property and Equipment: Property and equipment is carried at cost.
Depreciation of buildings, capitalized premises lease, leasehold improvements
and equipment is recorded on a straight line basis over the estimated lives of
the assets or, if the assets are leased, the remaining lease term (inclusive of
options, if likely to be exercised), whichever is shorter. The estimated useful
lives are generally as follows:
Building and Improvements 40 years
Equipment 15 years
Furniture and Fixtures 7 years
Leasehold Improvements 20 years
Intangible Assets: Intangible assets are comprised of beneficial theater
leases used in Cine Vista's operations. The amount of the TAPR purchase price
attributed to the beneficial leases was determined by an independent appraiser
by computing the present value of the excess of market rental rates over the
rental rates in effect under TAPR leases at the time of the Company's
acquisition of TAPR and allocating such amount as a component of the purchase
price of TAPR. The beneficial leases are amortized on a straight-line basis over
the remaining term of the underlying leases which approximates 19 years.
NOTE 3 ACQUISITION OF CINE VISTA
Effective July 1, 1994, the Company acquired Cine Vista from Theater
Acquisitions, LP ("TALP") for an aggregate cash purchase price of approximately
$22,700,000, inclusive of acquisition costs of $323,000. The acquisition was
accounted for using the purchase method and Cine Vista's operating results since
July 1, 1994 have been consolidated with the operating results of the Company.
Cine Vista's business is seasonal and the results of Cine Vista included in the
nine-month period ended September 30, 1995 may not be indicative of Cine
Vista's annual operating results.
Cine Vista operates motion picture exhibition theaters in six leased
locations with a total of 36 screens in the Commonwealth of Puerto Rico. Two
additional theaters were under development at the time of the acquisition.
The purchase price is subject to the satisfaction of certain contingencies
in accordance with the provisions of a purchase agreement by and among Cine
Vista, TALP and the Company dated July 1, 1994 (the "Purchase Agreement"). The
landlord of one of Cine Vista's theaters has the right to terminate the lease
relating to space presently housing two screens, subject to six months notice.
Accordingly, $1 million of the purchase price was escrowed and was payable over
36 months provided the landlord did not cancel the lease during such period or
assert other claims relating to the lease, in which case the escrow is available
for set off. This escrow has been classified as "Restricted cash." In June
1995, the Company and TALP agreed to reduce the rate at which payments
8
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
are made to TALP from the escrow pending the outcome of a dispute with a
landlord of Cine Vista (See Note 10). At September 30, 1995, $857,000 remains to
be paid, if all payments are required to be made to TALP, and such amount has
been classified as an "Other liability."
Pro forma operating results are set forth below for the nine months ended
September 30, 1994. Such results include actual operating results for the three
months ended September 30, 1994. For purposes of preparing the pro forma
operating statements, the acquisition of Cine Vista was assumed to be completed
at the beginning of 1994 and certain adjustments have been made, including
amortization of intangibles, depreciation and reductions in "Interest and
dividend" income resulting from payment of the purchase price.
Nine Months
Ended
September 30,
1994
-------------
Revenues $13,160
========
Net loss ($1,719)
========
Per Share:
Net loss ($.35)
========
NOTE 4 FOREIGN DEVELOPMENT / ACQUISITION ACTIVITIES
In furtherance of its business plan to seek out foreign opportunities for
the development and operation of multiplex cinemas, in November the Company
entered into a joint venture agreement with Craig with respect to the
development and operation of multiplex cinemas in Australia. The joint
venture, formed as a limited liability corporation, has been named Reading
International Cinemas, LLC (referred to herein, together with its wholly owned
subsidiaries, as "Reading International").
Reading International has retained the services of several executive
employees who will be providing services to Reading International on a full
time or substantially full time basis and has entered into contracts to acquire
a potential multiplex theater development site in Australia. In addition,
corporate joint venture agreements between Reading International and an existing
owner and operator of cinemas in Australia are currently being documented with
respect to the development and management of certain additional cinema sites.
Reading International is also in negotiation with several developers and
landlords with respect to other potential locations.
The financial results for the three months ended September 30, 1995
include approximately $290,000 of expenses related to such activities. The
contracts with respect to the multiplex site were entered into in November and
are subject to certain Australian governmental approvals and provide for a total
purchase price to Reading International of approximately $6.5 million.
9
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
In May 1995, the Company and Craig submitted joint bids for the
acquisition of two movie exhibition theater circuits located in Europe, both of
which were owned by Credit Lyonnais S.A. The MGM United Kingdom ("MGM-UK")
circuit operates approximately 120 theaters in the United Kingdom and the Irish
Republic. The MGM Netherlands circuit operates 22 theaters in the Netherlands.
In June 1995, a partner of the Company and Craig in the bid for MGM-UK
entered into an agreement to acquire MGM-UK. The Company and Craig elected not
to participate in the acquisition and the Company's partner in the bid for
MGM-UK has agreed to reimburse the Company for certain expenses associated with
the bid.
NOTE 5 LEASES
Cine Vista conducts all of its operations in leased premises. The leases
relate to motion picture theaters with remaining terms of approximately 7.5 to
27 years with certain leases containing options to extend the leases for up to
an additional 30 years. The minimum remaining lease term, inclusive of any
renewal options, for any of Cine Vista's theaters is approximately 18.5 years.
Cine Vista also leases office, warehouse space and various equipment. Certain
theater leases provide for contingent rentals based upon a specified percentage
of theater revenues with a guaranteed minimum. Performance under one lease has
been guaranteed by Reading Company. Substantially all of the leases require the
payment of property taxes, insurance and other costs applicable to the property.
With the exception of one capital lease, all leases are accounted for as
operating leases. Cine Vista determines annual base rent expense by amortizing
total minimum lease obligations on a straight-line basis over the lease terms.
Cine Vista's future minimum lease payments, by year and in the aggregate,
under noncancellable operating leases and the capital lease consist of the
following at September 30:
Capital Operating
Lease Leases
----- ------
1996 $ 95 $ 1,113
1997 95 1,083
1998 95 1,103
1999 95 1,206
2000 95 1,205
Thereafter 1,282 13,846
----- -------
Total net minimum lease payments 1,757 $19,556
=======
Less amount representing interest 1,231
-----
Present value of net minimum lease
payments under capital leases $526
=====
10
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
In May 1995, the Company and a landlord amended a lease originally
executed in July 1994 for a new eight-plex motion picture theater. The amended
lease provides for a ten-year term with an annual base rent of approximately
$196,000 with options to extend the lease up to an additional 30 years. The
lease will be effective after the completion of construction of the new
theater. The Company is responsible for certain construction costs of the
theater which are presently estimated to total approximately $1.6 million.
Completion of construction and commencement of theater operations are
anticipated to occur in early 1996. The lease provides for contingent rentals
based upon a specified percentage of theater revenues with a guaranteed minimum
and requires the payment of property taxes, insurance and other costs applicable
to the property.
In June 1995, the Company entered into a lease agreement for a new
six-plex motion picture theater. The lease provides for a 20-year term with an
annual base rent of approximately $186,000 with options to extend the lease up
to an additional 20 years. The lease will be effective after receipt of
financing and completion of construction of the new theater. The Company is
responsible for certain construction costs of the theater which are presently
estimated to total $1.2 million. Completion of construction and commencement of
theater operations is scheduled to occur in late 1996 or early 1997. The lease
provides for contingent rentals based upon a specified percentage of theater
revenues with a guaranteed minimum and requires the payment of property taxes,
insurance and other costs applicable to the property.
NOTE 6 - OTHER INVESTMENTS
Other investments consisted of the following:
September 30, December 31,
1995 1994
------ ------
Real estate joint ventures $ 54 $ 54
Notes and mortgages 88 90
Railroad stock investments and other 322 294
------ ------
$464 $438
====== ======
11
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
NOTE 7 REAL ESTATE HELD FOR SALE OR DEVELOPMENT
"Real estate held for sale or development" at September 30, 1995 is
carried at the lower of cost or estimated net realizable value. The Company is
exploring development and sale options for its Center City Philadelphia
properties which are adjacent to the Pennsylvania Convention Center site and is
actively seeking buyers for its properties located outside Center City
Philadelphia.
NOTE 8 OTHER LIABILITIES
Other liabilities consisted of the following:
September 30, December 31,
1995 1994
------ ------
Reserve for guarantee obligations of
SWS Industries, Inc. (See Note 10) $ 406 $ 555
Obligations related to past railroad operations
and environmental issues (See Note 10) 1,251 1,489
Reorganization obligations 236 236
Cine Vista deferred purchase price (See Note 3) 857 917
Minimum rent obligations 206 82
Other 334 154
------- -------
3,290 3,433
Less estimated current portion (906) (1,056)
------- -------
$2,384 $2,377
======= =======
The reorganization obligations represent the Company's remaining
liability to reorganization debtholders. In accordance with the provisions of
the Company's Plan of Reorganization, the Company is obligated to repay such
indebtedness if the debtholders present their claims for payment to the Company
on or before December 24, 1995. All claims made to date have been paid in
accordance with the Plan of Reorganization.
NOTE 9 INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standard ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, an income tax provision is recorded in the statement of operations
using the enacted federal rates and the deferred asset, if any, is amortized in
an amount equivalent to the tax provision as the tax benefits are realized.
Effective December 31, 1981, after approval by its shareholders, the Company
eliminated its accumulated deficit by a charge to "Other capital." This quasi-
reorganization did not require the restatement of any assets or liabilities or
any other modification of capital accounts. Tax benefits realized from the
carryforwards of pre-quasi-reorganization losses have been included in the
determination of net income and then reclassified from "Retained earnings" to
"Other capital". Had such tax benefits been excluded from net
12
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Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
income, the Company would have reported net income of $1,396,000 or $.28 per
share for the nine months ended September 30, 1995.
At January 1, 1995, net operating loss carryforwards totalled $166.8
million of which $127.1 million expires at the end of 1996 unless utilized prior
thereto and $39.7 million will expire in various amounts between 1997 and 2008
unless previously utilized.
Carryforwards and temporary differences which give rise to the deferred
tax asset are as follows:
September 30, December 31,
1995 1994
------ ------
Net operating loss carryforwards $ 56,563 $ 56,695
-------- --------
Reserves 1,044 1,044
Other, net 108 108
-------- --------
Gross deferred asset 57,715 57,847
Valuation allowance (57,715) (57,715)
-------- --------
Net deferred asset $ 0 $ 132
======== ========
Based on an analysis of the likelihood of realizing the Company's gross
deferred tax assets (taking into consideration applicable statutory carryforward
periods), the Company concluded that under SFAS No. 109, a valuation allowance
for the entire asset was necessary.
The Company is required to pay federal alternative minimum tax ("AMT").
AMT is calculated separately from the regular federal income tax and is based on
a flat rate applied to a broader tax base. Amounts payable thereunder cannot be
totally eliminated through the application of net operating loss carryforwards.
In addition to AMT expense of $60,000, the Company recorded a deferred income
tax provision of $132,000 in the nine months ended September 30, 1995 coincident
with the related utilization of the Company's tax loss carryforwards.
NOTE 10 COMMITMENTS AND CONTINGENCIES
SWS Industries, Inc.
The Company sold a subsidiary, SWS Industries, Inc. ("SWS") in 1987. SWS
subsequently filed for bankruptcy in 1988. Under the terms of the SWS sales
agreement, the Company remained liable as guarantor on various performance bonds
issued on behalf of SWS. The Company's liability under the performance bond
guarantees has been reduced as the related contracts have been completed or
settled. Management believes the reserve at September 30, 1995 is adequate for
the remaining obligations of the Company.
13
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
Cine Vista
A landlord of Cine Vista has alleged that Cine Vista underpaid rent by
approximately $180,000 for the twelve-month period ended June 30, 1994. The
Company is contesting the landlord's claim and believes the claim to be without
merit. If the landlord were to prevail in its assertion, the Company is
indemnified by TALP. However, the landlord could assert a similar argument
concerning the computation of rent for the period subsequent to June 30, 1994,
which amount would total approximately $240,000 to September 30, 1995. If the
landlord were to assert such a position and prevail, the Company believes it
would be entitled to a reduction in the purchase price of TAPR relating not only
to the fifteen months ended September 30, 1995 but also relating to the 18
future years under the lease.
Historical Railroad Operations
The Company is a defendant in various personal injury legal actions
relating to its railroad operations prior to reorganization and has insurance
coverage relating to such actions. In accordance with the provisions of a 1990
settlement agreement (the "Settlement Agreement") with its insurance carriers,
the Company receives quarterly reimbursement for certain personal injury legal
actions. At September 30, 1995, $327,000 was reimbursable to the Company for
amounts expended in defense and settlement of such actions. This amount has
been classified as "Due from insurance companies." Three participants in the
insurance settlement are insolvent. Unreimbursed claims insured by these
insolvent companies totaled $55,000 from 1992 through September 30, 1995. The
Company believes that it may be entitled to reimbursement of such amounts from
the other parties to the agreement and may file for an arbitration hearing on
such matters. Based upon the backlog of pending personal injury cases and the
Company's experience in settling such cases, the Company has established an
accrual of $148,000 reflecting the potential effect of such insolvencies on
future insurance reimbursement if no recovery is received from either the
insolvent carriers or the other parties to the Settlement Agreement. The
accrual associated with such insolvencies may increase if additional claims are
filed; however, the Company does not believe that such amount will be material.
Environmental
Reading Company ("Reading") and a wholly-owned subsidiary, Reading
Transportation Company ("RTC"), had each been advised by the Environmental
Protection Agency ("EPA") that they were potentially responsible parties
("PRPs") for a site under environmental laws including Federal Superfund
legislation ("Superfund"). The EPA issued an Administrative Order under
Superfund against 34 PRPs requiring the named parties to incinerate materials at
the site pursuant to a June 30, 1989 Record of Decision ("ROD"). The ROD
estimated that the incineration would cost approximately $53 million. Thirty-six
PRPs were also named in a civil action brought by the United States Government
which seeks to recover alleged costs incurred at the site by the United States
Government of approximately $22 million. Reading and RTC have each been named
in a third-party action instituted by the 36 PRPs. The actions instituted
against the Company and approximately 300 PRPs seek to have the parties
contribute to reimbursement for past costs and any costs associated with further
remediation at the site.
During 1994, based upon the Company's and counsel's evaluation of
possible outcomes in the matter, the Company increased its "Provision for
environmental matters" by $1,200,000. On September 14, 1995 the federal district
court judge who presided over Reading's reorganization ruled that all liability
14
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
asserted against Reading relating to the site was discharged pursuant to the
consummation order issued in conjunction with the Company's amended plan of
reorganization on December 31, 1980. On November 13, 1995, the United States
Department of Justice informed the Company that they intend to file an appeal of
the decision. The judge's decision did not affect the potential liability of
RTC for the site. RTC has no assets and therefore cannot fund a settlement or
judgement relating to this matter and the Company believes that the potential
liability of RTC, if any, is not in excess of $300,000. Based upon the United
States' appeal and possible alternate attempts by the PRPs to obtain Reading's
participation in funding for the site as well as the existence of the other
environmental matters set forth below, the Company has not adjusted its
"Provision for environmental matters."
The Company is a party to a consent decree relating to one Superfund site
located on land owned by the Company. Apart from future operation and
maintenance expenses ("O&M"), remediation is complete. During 1994, the Company
paid approximately $106,000 as its estimated share of ten years of O&M and
charged such amount to "Provision for environmental matters" expense. The
Company believes that the amounts expended to date will be adequate to fund O&M
at the site. If additional amounts were required, such amounts would not be
material.
The Company was named as a defendant in an action seeking the recovery of
$3,800,000 of alleged environmental cleanup costs from five defendants under
various provisions of New Jersey law. The action alleged that certain
contamination at the site relates to the prior railroad operations of the
Pennsylvania Reading Seashore Lines in which the Company has a 33 percent
ownership interest. In May 1995, the Company and the involved parties agreed to
settle this matter. The Company's share of the settlement totaled $235,000
which approximates the amount previously accrued by the Company to provide for
its share of the liability.
The Company has also undertaken remediation activities at the site of a
former gasoline filling station owned by the Company. In accordance with an
agreement between the Company and a major oil company, the Company is
responsible for 20 percent of the remediation cost and the balance of such cost
is being paid by the oil company. The Company believes the amounts accrued
related to this matter are adequate to fund the required remediation.
In 1991, the Company filed a lawsuit against the Southeastern Pennsylvania
Transportation Authority, Consolidated Rail Corporation, the City of
Philadelphia, and other parties which seeks to recover costs of approximately
$9,000,000 expended by the Company in conjunction with the cleanup of PCBs in
the Reading Terminal Train Shed and a portion of the Viaduct south of Vine
Street. The action also seeks a declaratory judgement as to future costs which
may be incurred in cleaning up the remaining portions of the Viaduct owned by
the Company.
In 1991, the Company removed six underground storage tanks at a site owned
by the Company and in conjunction with such activities submitted an
environmental assessment of the site to the Pennsylvania Department of
Environmental Protection ("DEP"). DEP has advised the Company that no further
action is required at the site. With the advance knowledge and consent of DEP,
the Company extinguished a fire at a Company-owned site which had been used as a
landfill by the Reading Railroad. The Company neither anticipates nor faces any
administrative action against it by DEP concerning the site.
15
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
Prior to the Company's reorganization, the Company had extensive railroad
and related operations. Such operations could have contributed to environmental
contamination of properties now owned by the Company, previously sold or leased
by the Company, or to which the Company, prior to its reorganization, sent
waste. The ultimate extent of liabilities, if any, with respect to such
matters, as well as the timing of cash disbursements, if any, cannot be
determined. However, management is of the opinion that while the ultimate
liability resulting from such matters could have a material effect upon the
results of operations in a given year, they will not have a material adverse
effect upon the Company's financial position or liquidity.
The following is an analysis of the Company's accrual for environmental
claims:
Balance at January 1, 1993 $ 771
Provisions 241
Payments (676)
------
Balance at December 31, 1993 336
Provisions 1,306
Payments (133)
------
Balance at December 31, 1994 1,509
Provisions 0
Payments (248)
------
Balance at September 30, 1995 $1,261
======
NOTE 11 RELATED PARTY TRANSACTIONS
Robert F. Smerling serves as president of Cine Vista. In accordance with
the terms of Mr. Smerling's employment, he may borrow up to $1,000,000 from the
Company to acquire up to a 4% interest in Cine Vista. Mr. Smerling has not
notified the Company whether or not he intends to exercise this purchase right.
In October 1995, the Company's Board of Directors agreed to waive certain
restrictions related to the Company's Class A Common Stock in order to enable
Craig to acquire up to 49.9 percent of Reading's outstanding capital shares.
NOTE 12 - CONDEMNATION AND OTHER INCOME
On September 29, 1995, the Company and the Commonwealth of Pennsylvania
Department of Transportation ("PennDot") agreed to settle certain litigation
related to the PennDot's 1985 condemnation of a bridge which connected sections
of a right-of-way located which was owned by the Company in center city
Philadelphia. The settlement stipulates that PennDot pay the Company $1,146,000
as delayed compensation on the original condemnation. Accordingly, this amount
is included in "Condemnation and other" income in the Condensed Consolidated
Statement of Operations for the nine months ended September 30, 1995.
16
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
September 30, 1995
(amounts in tables in thousands)
On April 3, 1995, the Company and ARAMARK settled litigation encompassing
disputes relating to ARAMARK's tenancy in One Reading Center, a 32-story office
tower in which the Company conveyed its interest in 1985. The Company received
$425,000 in settlement of its claim, and such amount was included in "Other"
income for the three months ended June 30, 1995. "Other" income for the three
months ended September 30, 1995 also includes $319,000 received in settlement of
two matters relating to the Company's former railroad operations.
NOTE 13 - SUBSEQUENT EVENTS
On November 8, 1995, the Company acquired from a major bank for
approximately $1,285,000 a judgement encumbering, among other things, a
controlling interest in a Manhattan multiplex theater. The judgement has been
acquired as part of the Company's plan to acquire, in conjunction with
Manhattan-based City Cinemas (James J. Cotter, Chairman of the Company has an
ownership interest in City Cinemas), all or at least a controlling interest in
the multiplex theater. Subject to certain conditions, the Company has
separately acquired options to obtain shares representing 5/13ths of the voting
power of the company owning the multiplex theater and to obtain certain other
creditor claims against that company. No assurance can be given that the
Company's plan to acquire the theater will ultimately prove successful.
In October, 1995, Cine Vista received a commitment from a major money
center bank for a $15 million line of credit.
17
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations:
Due to the nature of the Company's historical business activities, revenues
and earnings have varied significantly reflecting the results of real estate and
other asset sales as well as the amount and timing of development activities.
Accordingly, period-to-period comparisons of operating results will not be
indicative of future financial results. In addition, the operating results of
Cine Vista are included in the consolidated operating results of the Company for
the nine months ended September 30, 1995 and the three months ended September
30, 1994 (See Note 3). Cine Vista's business is seasonal and the results of
Cine Vista included in the nine-month period ended September 30, 1995 may not be
indicative of Cine Vista's annual operating results.
Revenues in the nine-month period ended September 30, 1995 increased
$8,543,000 to $15,679,000 from $7,136,000 in the corresponding nine-month period
last year. The increase was due primarily to the inclusion of $11,776,000 in
revenue from Cine Vista in the current nine-month period, versus $4,924,000 in
the prior year period as Cine Vista's purchase was effective July 1, 1994.
Revenues also increased in the current year quarter due to a $1,146,000
condemnation award (See Note 7). In addition, "Condemnation and other income"
for the current nine-month period includes $425,000 received in settlement of
litigation related to an office tower formerly owned by the Company, and
$319,000 received in settlement of two claims relating to the Company's former
railroad operations.
"Theater costs", "Theater concession costs" and "Depreciation and
amortization" reflect the direct theater costs of Cine Vista's operations for
the nine months ended September 30, 1995 and the three months ended September
30, 1994 (due to the July 1, 1994 effective date of the purchase).
"General and administrative" expenses increased $682,000 from $2,630,000 in
the corresponding nine-month period last year. The increase was due to the
addition of approximately $700,000 associated with Cine Vista's general and
administrative expenses versus $154,000 in the prior year nine-month period (due
to the July 1, 1994 effective date of the purchase). "General and
administrative" expenses in the current nine-month period also includes
approximately $290,000 incurred in conjunction with the Company's theater
development activities in Australia and approximately $180,000 of expenses
related to the review of other acquisitions (See Note 4). During the nine
months ended September 30, 1994, "General and administrative" expenses included
$257,000 in acquisition related expenses. During the nine-month period ended
September 30, 1994, the Company fully reserved a $795,000 promissory note from
Oz Resorts and Entertainment, Inc. ("OREI") and classified such expense as
"Development expense" and increased its "Provision for environmental matters"
by $1,306,000 (See Note 10).
In addition to AMT expense of $60,000, the Company recorded a deferred
income tax provision of $132,000 in the nine months ended September 30, 1995
coincident with the related utilization of the Company's tax loss carryforwards
(See Note 9).
The Company recorded net income of $2,386,000 and a net loss of $1,363,000
for the nine months ended September 30, 1995 and 1994, respectively.
Revenues for the three months ended September 30, 1995 increased $1,872,000
to $7,309,000 compared with the three months ended September 30, 1994 due
primarily to the inclusion of a $1,146,000 condemnation settlement and
$319,000 received in settlement of railroad claims. In addition, revenues from
Cine Vista's operations in the current three-month period increased $186,000
from the comparable three-month period last year. The Company also earned
$165,000 more in "Interest and dividends" revenues in the current year quarter
due to higher investment yields.
-18-
<PAGE>
"Theater costs", "Theater concession costs" and "Depreciation and
amortization" reflect the direct theater costs of Cine Vista's operations for
the comparable three month periods. "Theater costs" and "Theater concession
costs" increased $144,000 as a result of higher theater revenues for the current
three-month period.
"General and administrative" expenses increased $350,000 from $961,000 in
the corresponding three month period last year to $1,311,000 primarily as a
result of a $136,000 increase in professional fees and the expenditure of
$290,000 relating to Australia development activities. During the quarter ended
September 30, 1994, the Company fully reserved a $795,000 promissory note from
OREI and classified such expense as "Development expense" and increased its
"Provision for environmental matters" by $1,306,000.
The Company recorded net income of $2,065,000 and a net loss of $1,393,000
for the three months ended September 30, 1995 and 1994, respectively.
Liquidity and Capital Resources:
"Cash and cash equivalents" together with "Available-for-sale securities"
increased $2,558,000 from $44,936,000 at December 31, 1994 to $47,494,000 at
September 30, 1995. While not necessarily indicative of its cash flows
determined under generally accepted accounting principles, Cine Vista's
operating cash flows (income before interest, depreciation, amortization and
non-cash rental expense) of $2,417,000 contributed to the increase in liquid
funds. In addition to Cine Vista's operating cash flow, other significant
sources of liquid funds during this period included "Interest and dividends"
revenue of $1,787,000 and a decrease in insurance proceeds receivable of
$424,000. Principal sources of liquid funds in the prior year nine-month period
included $1,700,000 in "Interest and dividends" revenue, $1,000,000 received
from an officer of a subsidiary as repayment of a loan authorized by the Board
of Directors, and $572,000 in proceeds from sales of real estate.
Principal uses of liquid funds in the current year quarter include $449,000
in purchases of property, plant and equipment by Cine Vista and relate primarily
to Cine Vista's new theater developments (See Note 5). The principal uses of
liquid funds for the nine months ended September 30, 1994, in addition to
operating expenses, were a $470,000 loan to OREI and a net increase of $972,000
in escrowed funds related to the purchase of Cine Vista.
The Company has significant liquidity and no debt outstanding. The Company
intends to expand Cine Vista's existing operations by developing new multiplex
theaters in the Commonwealth of Puerto Rico which will require the expenditure
of additional funds during the next several years. The Company is also pursuing
a number of motion picture theater development and acquisition opportunities,
both domestically and internationally. If the Company were to enter into all of
the currently proposed transactions, the Company would not have adequate working
capital to fund all of the proposals. Therefore, the Company has obtained a
commitment from a major money center bank for a $15 million line of credit with
respect to its Cine Vista operations which line of credit will provide
sufficient funds to complete Cine Vista's new theater development plans and
provide additional liquid funds for the parent company. In addition, the
Company has formed a 50/50 joint venture with Craig, Reading International
Cinemas, LLC ("Reading International"), to exploit such Australian opportunities
as may be developed. The Company is advised that Craig currently has working
capital of approximately $19.5 million. Reading International, in turn, is
currently documenting a further corporate joint venture with an existing owner
and operator of cinemas in Australia to develop and manage cinemas in certain
locations.
No assurances can be given that all, or even a substantial portion of the
projects that the Company is currently pursuing will come to fruition. It is
the Company's intention not to become overly dependent upon debt financing or to
undertake unfunded development obligations and the Company therefore intends to
make use of further joint ventures, including, but not limited to, joint
ventures with Craig and its affiliates, where appropriate to further the
Company's business plan.
-19-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three month
period ended September 30, 1995.
-20-
<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 COMPANY, REGISTRANT
Date: November 13, 1995 By: /s/ James A. Wunderle
---------------------------
James A. Wunderle
Executive Vice President,
Chief Operating Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 13, 1995 By: /s/ Eileen M. Mahady
---------------------------
Eileen M. Mahady
Controller
(Principal Accounting Officer)
-21-
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