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 June 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 4,961,150 shares of Class A Common Stock and 12,215 shares of
Common Stock outstanding as of August 4, 1995.
<PAGE>
INDEX
READING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 1995
(Unaudited) and December 31, 1994............................................................... 3-4
Condensed Consolidated Statements of Operations -- Three and Six Months
Ended June 30, 1995 and 1994 (Unaudited)........................................................ 5
Condensed Consolidated Statements of Cash Flows -- Six Months
Ended June 30, 1995 and 1994 (Unaudited)........................................................ 6
Notes to Condensed Consolidated Financial Statements (Unaudited)................................... 7-16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................................... 17-18
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................... 19
Signatures.................................................................................................. 20
</TABLE>
-2-
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
Reading Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1995 1994*
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $36,222 $ 9,413
Available-for-sale treasury securities 10,196 35,523
Amounts receivable 433 280
Restricted cash 333 333
Inventories 82 86
Prepayments and other current assets 448 593
Due from insurance companies 237 751
Deferred tax asset 0 132
------- -------
Total current assets 47,951 47,111
------- -------
Other investments 464 438
Restricted cash 537 597
Real estate held for sale or development 1,111 1,111
Property and equipment:
Buildings 728 720
Capitalized premises lease 538 538
Leasehold improvements 3,585 3,560
Equipment 2,854 2,811
Construction-in-progress 286 103
------- -------
7,991 7,732
Less: Accumulated depreciation 948 726
------- -------
7,043 7,006
Intangible assets:
Beneficial leases - net of accumulated amortization of $910
in 1995 and $455 in 1994 15,998 16,453
------- -------
25,153 25,605
------- -------
$73,104 $72,716
======= =======
</TABLE>
* 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.
-3-
<PAGE>
Reading Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1995 1994*
------ -------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,178 $ 1,468
Accrued compensation 239 218
Accrued taxes and other 580 627
Film rent payable 592 359
Other liabilities 972 1,056
------- -------
Total current liabilities 3,561 3,728
------- -------
Capitalized lease, less current portion 525 525
Other liabilities 2,337 2,377
------- -------
Total long term liabilities 2,862 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 -- 12,215 shares; 1994 -- 12,291 shares 1 1
Class A common stock, par
value $.01 per share:
Authorized -- 15,000,000 shares
Issued 1995 -- 5,144,476 shares; 1994 -- 5,144,400 shares 51 51
Unrealized loss on available-for-sale securities (13) (286)
Other capital 55,422 55,057
Retained earnings 13,841 13,884
Class A common stock in treasury, at cost:
1995 -- 183,326 shares; 1994 -- 183,250 (2,621) (2,621)
------- -------
Total shareholders' equity 66,681 66,086
------- -------
$ 73,104 $ 72,716
======= =======
</TABLE>
* 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.
-4-
<PAGE>
Reading Company and Subsidiaries
Consolidated Statements of Operations
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Theater:
Admissions $2,376 $ 0 $4,637 $ 0
Concessions 901 0 1,710 0
Advertising and other 150 0 294 0
Real estate management and sales 68 298 135 383
Interest and dividends 594 629 1,103 1,274
Other 472 18 490 43
------ ------ ------ ------
4,561 945 8,369 1,700
------ ------ ------ ------
EXPENSES:
Theater costs, including depreciation
and amortization of $336 and $671
in 1995 2,922 0 5,587 0
Theater concession costs 153 0 293 0
General and administrative 1,071 787 2,012 1,667
------ ------ ------ ------
4,146 787 7,892 1,667
------ ------ ------ ------
Income before income taxes 415 158 477 33
Income tax provision 14 11 155 11
------ ------ ------ ------
Net income $ 401 $ 147 $ 322 $ 22
====== ====== ====== ======
Per share information:
Net income $ 0.08 $ 0.03 $ 0.06 $ 0.00
====== ====== ====== ======
Average shares outstanding 4,973,368 4,973,557 4,973,398 4,973,566
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
Reading Company and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 322 $ 22
Adjustments to reconcile net income to
net cash provided from operating activities:
Gain on sale of other real estate 0 (308)
Depreciation 231 6
Amortization 455 0
Deferred rent expense 82 0
Deferred income tax expense 132 11
Changes in operating assets and liabilities:
Decrease in note receivable due from officer of subsidiary 0 1,000
(Increase) decrease in amounts receivable (338) 11
Decrease in inventories 4 0
Decrease (increase) in prepaids and other current assets 145 (208)
Decrease (increase) in insurance proceeds receivable 514 (210)
(Decrease) increase in accounts payable and accrued expenses (316) 39
Increase in film payable 233 0
Decrease in other liabilities (206) (138)
Other, net (24) 10
-------- --------
Net cash provided from operating activities 1,234 235
-------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (270) 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 (1,001)
Purchases of available-for-sale securities (451) (11,422)
Sales and maturities of available-for-sale securities 26,051 21,295
Loan to OREI (See Note 5) 0 (470)
-------- --------
Net cash provided from investing activities 25,575 9,112
-------- --------
Increase in cash and cash equivalents 26,809 9,347
Cash and cash equivalents at beginning of year 9,413 177
-------- --------
Cash and cash equivalents at end of year $ 36,222 $ 9,524
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-6-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
NOTE 1--BASIS OF PRESENTATION
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 for the six months ended June
30, 1995 (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 six months ending June 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.
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.
-7-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
Net income Per Share: Net income per share (Common Stock and Class A
Common Stock) is calculated by dividing the aggregate of the weighted average
shares outstanding during the period and the dilutive effect, if any, of common
stock equivalents that are outstanding. Class A Common shares issuable under
stock option plans were 374,732 on June 30, 1995 and 1994, but 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
ascribed 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--ACQUISITIONS
Cine Vista:
Effective July 1, 1994, the Company acquired from Theater Acquisitions, LP
("TALP") TAPR 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 TAPR's operating results since July 1, 1994 have
been consolidated with the operating results of the Company. TAPR's business is
seasonal and the six months ended June 30 has historically provided less than a
proportionate share of annual revenues and earnings. Accordingly, the results of
TAPR included in the six-month period ended June 30, 1995 may not be indicative
of TAPR'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 TAPR,
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 are made to
TALP from the escrow pending the outcome of a dispute with a landlord of Cine
Vista (See Note 10).
-8-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
At June 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 six months ended
June 30, 1994. For purposes of preparing the pro forma operating statements, the
acquisition of TAPR 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.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1994
-------------
<S> <C>
Revenues $7,723
=============
Net loss ($424)
=============
Per Share:
Net loss ($.09)
=============
</TABLE>
Other:
In May 1995, the Company and Craig Corporation ("Craig") submitted joint
bids for the acquisition of two movie exhibition theater circuits located in
Europe, both of which are owned by Credit Lyonnais S.A. ("CL"). The MGM United
Kingdom ("MGM-UK") circuit operates approximately 120 theaters in the United
Kingdom and the Irish Republic. The MGM Netherlands ("MGM-NL") circuit operates
22 theaters in the Netherlands.
In June 1995, CL selected a bid from a group other than the Company to
proceed with the acquisition of the MGM-NL circuit and the Company determined
not to participate in the acquisition of the MGM-UK circuit. The Company's
partner in the bid for MGM-UK has agreed to reimburse the Company for certain
expenses associated with the bids.
NOTE 4--LEASES
Cine Vista conducts all of its operations in leased premises. The leases
relate to motion picture theaters with remaining terms of approximately 8 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 18.75 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
-9-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
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 June 30:
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
----- ------
<S> <C> <C>
1996 $ 95 $1,136
1997 95 1,090
1998 95 1,067
1999 95 1,208
2000 95 1,205
Thereafter 1,306 14,150
----- ------
Total net minimum lease payments 1,781 $19,856
======
Less amount representing interest 1,254
-----
Present value of net minimum lease
payments under capital leases $527
=====
</TABLE>
In May 1995, the Company and a landlord amended a lease originally executed
in July 1994 for a new 8-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 1997. The lease provides for contingent rentals
based upon a specified percentage of
-10-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
theater revenues with a guaranteed minimum and requires the payment of property
taxes, insurance and other costs applicable to the property.
NOTE 5 - OTHER INVESTMENTS
Other investments consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Real estate joint ventures $ 54 $ 54
Notes and mortgages 88 90
Railroad stock investments and other 322 294
---- ----
$464 $438
==== ====
</TABLE>
Notes and mortgages are predominately comprised of two interest bearing
notes receivable maturing in 1997 and 1999 with interest rates of 6.5% and 7.5%.
The Company loaned Oz Resorts and Entertainment, Inc. ("OREI") a total of
$795,000 during 1993 and 1994. The loans were made as part of a transaction
intended to result in the acquisition by the Company of a controlling interest
in OREI, which owns the rights to The Wonderful World of Oz Theme Park and
Family Resort (the "Oz Resort"), a planned destination theme park, hotel and
golf complex in Kansas City, Kansas. In May 1994, the Company entered into an
agreement with OREI which provides that the Company has a right, but no
obligation, to participate in future debt or equity offerings by OREI. The loan
is convertible into stock of OREI at the election of the Company. In 1994, the
Company elected to fully reserve the loan due to the developmental nature of the
project.
NOTE 6--REAL ESTATE HELD FOR SALE OR DEVELOPMENT
"Real estate held for sale or development" at June 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 7--AVAILABLE-FOR-SALE SECURITIES
The adjustment for unrealized holding losses on available-for-sale
securities, included as a separate component of shareholders' equity, totaled
$13,000 as of June 30, 1995. The contractual maturities for all
"available-for-sale securities" as of June 30,1995 are one month or less for
which the amortized cost and estimated fair value are $10,033,000 and
$10,020,000 respectively.
Accrued interest as of June 30, 1995 and December 31, 1994 was $176,000 and
$478,000, respectively and is included in "available-for-sale securities" on the
balance sheet.
-11-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
NOTE 8--OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Reserve for guarantee obligations of
SWS Industries, Inc. (See Note 10) $ 461 $ 555
Obligations related to past railroad operations
and environmental issues (See Note 10) 1,253 1,489
Reorganization obligations 236 236
Cine Vista deferred purchase price (See Note 3) 857 917
Minimum rent obligations 164 82
Other 338 154
------- -------
3,309 3,433
Less estimated current portion (972) (1,056)
------- -------
$ 2,337 $ 2,377
======= =======
</TABLE>
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 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 income, the
Company would have reported a net loss of $43,000 or $.01 per share for the six
months ended June 30, 1995.
At January 1, 1995, net operating loss carryforwards totalled $166.8
million of which $127.1 million will expire 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:
-12-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
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
======== ========
</TABLE>
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 substantially the entire amount 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.
The Company recorded AMT expense of $23,000 and $11,000 for the six months ended
June 30, 1995 and 1994, respectively.
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. Completion activities will continue through 1995. Management believes
the remaining reserves at June 30, 1995 are adequate for the remaining
obligations of the Company.
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 for such deficiency during said period. 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
$190,000. 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 twelve months ended June 30, 1995 but also
relating to the 18 future years under the lease.
-13-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
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 June 30, 1995, $237,000 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 June 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 $141,000 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"), have each been advised by the Environmental
Protection Agency ("EPA") that they are 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"). 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. The
Company believes Reading has meritorious defenses to the claims, including, but
not limited to, its bankruptcy filing, and has sought injunctive relief which,
if granted, would dismiss Reading from all liability now asserted at the site.
RTC has no assets and therefore cannot fund a settlement or judgement relating
to this matter. EPA estimates that the incineration required by the ROD will
cost approximately $53 million. Certain PRPs believe that the cost of the remedy
specified by the ROD will exceed EPA's estimates and proposed an alternative
remedy which was estimated to cost less that $53 million, which alternative was
rejected by EPA in April 1994.
Based upon the RTC's insolvency and the defense available to Reading, the
fact that the future costs established in the ROD are $53 million, the existence
of alternative remedies which cost less than the estimated costs of the ROD, the
Company's counsel estimates the likely range of possible outcomes of the matter
to be from $0 (if the bankruptcy defense is upheld) to $3,000,000 (if the
bankruptcy defense is not upheld). The Company increased its "Provision for
environmental matters" by $1,200,000 in 1994 for the potential exposure of the
Company to this matter.
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 expensed to date will be adequate to fund O&M
at the site. If additional amounts were required, such amounts would not be
material.
-14-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
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 Resources ("PADER"). PADER has advised the Company that no further
action is required at the site. With the advance knowledge and consent of PADER,
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 PADER concerning the site.
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.
-15-
<PAGE>
Reading Company and Subsidiaries
Notes to Condensed Financial Statements
June 30, 1995
(amounts in tables in thousands)
At June 30, 1995, the Company has a general environmental accrual of $63,000 in
addition to the specific provisions set forth above. The following is an
analysis of the Company's accrual for environmental claims:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1993 $ 771,000
Provisions 241,000
Payments (676,000)
-----------
Balance at December 31, 1993 336,000
Provisions 1,306,000
Payments (133,000)
-----------
Balance at December 31, 1994 1,509,000
Provisions 0
Payments (246,000)
-----------
Balance at June 30, 1995 $ 1,263,000
===========
</TABLE>
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.
NOTE 12 - OTHER INCOME
On April 3, 1995, the Company and ARAMARK (formerly ARA Services, Inc.
"ARA") settled litigation encompassing disputes relating to ARA's tenancy in One
Reading Center, a 32-story office tower in which the Company conveyed its
interest in 1985. (These disputes included matters relating to a lease
assumption agreement whereby the Company undertook certain obligations under
ARA's prior lease and the calculations of certain amounts prepaid under the ARA
lease.) In settlement of the litigation, the parties exchanged general releases
and the Company received $425,000. This amount was recorded as "Other income" in
the Consolidated Statement of Operations for the three months ended June 30,
1995.
-16-
<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. 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 only included in the consolidated operating
results of the Company for the six months ended June 30, 1995 (See Note 3). Cine
Vista's business is seasonal and the six months ended June 30 has historically
provided less than a proportionate share of annual revenues and earnings.
Accordingly, the results of Cine Vista included in the six-month period ended
June 30, 1995 may not be indicative of Cine Vista's annual operating results.
Revenues in the six-month period ended June 30, 1995 increased $6,669,000
to $8,369,000 from $1,700,000 in the corresponding six-month period last year.
The increase was due primarily to the inclusion of $6,641,000 in revenue from
Cine Vista in the current six-month period and a $425,000 litigation settlement
(See Note 10). The increase in revenues in the current six-month period was
offset somewhat by a decrease in real estate sales of $248,000 from the
comparable six-month period in the prior year.
"General and administrative" expenses increased $345,000 from $1,667,000
in the corresponding six-month period last year. The increase was due to the
addition of approximately $511,000 (net of management fees) associated with Cine
Vista's general and administrative expenses and expenses incurred in connection
with the review of acquisitions. The increase in general and administrative
expenses in the current six-month period was offset somewhat by a reduction in
professional fees of $105,000 and a $179,000 decrease in development expenses
related to Oz Resorts and Entertainment, Inc. ("Oz Resort") from the comparable
period last year.
In addition to AMT expense, the Company recorded a deferred income tax
provision of $132,000 in the six months ended June 30, 1995 coincident with the
related utilization of the Company's tax loss carryforwards (See Note 9).
The Company recorded net income of $322,000 and $22,000 for the six months
ended June 30, 1995 and 1994, respectively.
Revenues for the three months ended June 30, 1995 increased $3,616,000 to
$4,561,000 compared with the three months ended June 30, 1994. This was due
primarily to the inclusion of $3,427,000 in revenue from Cine Vista in the
current three month period and $425,000 received in settlement of certain
litigation (See Note 10). The increase in revenues was offset somewhat by a
decrease of $230,000 in sales of real estate from the three months ended June
30, 1994.
"General and administrative" expenses increased $284,000 from $787,000 in
the corresponding three month period last year. The increase was due to the
addition of approximately $230,000 (net of management fees) associated with Cine
Vista's general and administrative expenses and the inclusion of certain
expenses incurred with the review of acquisitions. The increase in general and
administrative expenses was offset somewhat by a $53,000 reduction in
professional fees and a $31,000 decrease in development expenses related to the
Oz Resort from the prior year quarter ended June 30, 1995. "Theater costs" and
"Theater concession costs" reflect the direct theater costs of Cine Vista's
operations for the quarter ended June 30, 1995.
The Company recorded net income of $401,000 and $147,000 for the three
months ended June 30, 1995 and 1994, respectively.
-17-
<PAGE>
Liquidity and Capital Resources:
"Cash and cash equivalents" together with "Available-for-sale securities"
increased $1,482,000 from $44,936,000 at December 31, 1994 to $46,418,000 at
June 30, 1995. While not necessarily indicative of its cash flows determined
under generally accepted accounting principles, Cine Vista's operating cash
flows (income before depreciation, amortization and non-cash rental expense) of
$1,029,000 contributed to the increase in liquid funds in the six months ended
June 30, 1995. In addition to Cine Vista's operating cash flow, other
significant sources of liquid funds during this period included "Interest and
dividends" revenue of $1,103,000 and a decrease in insurance proceeds receivable
of $514,000. Principal sources of liquid funds in the prior year six-month
period included $1,274,000 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.
In addition to operating expenses, principal uses of liquid funds during
the current six-month period included a decrease in "Accounts payable and
accrued expenses" of $316,000 (due to timing and a pay-down of an annual
insurance contract) offset by accrued expenses related to due diligence of
acquisitions. Principal uses of liquid funds in the current six month period
also include an increase of $338,000 in amounts receivable related mainly to the
anticipated reimbursement of certain expenses related to the MGM acquisition
(See Note 3) and $270,000 in purchases of property, plant and equipment for Cine
Vista's operations. The principal use of liquid funds for the six months ended
June 30, 1994, in addition to operating expenses, was a $470,000 loan for the Oz
Project (See Note 5). The Company also escrowed $1,001,000 in the quarter ended
June 30, 1994 in accordance with a Letter of Intent with Theater Acquisitions
L.P. 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. In addition, the Company
continues to seek additional theater acquisition and development opportunities
both domestically and internationally. The Company is currently in discussions
with a major bank for a line of credit for Cine Vista which will permit the
Company to increase its liquid funds available for domestic and international
acquisition and development activities and provide sufficient liquidity to fund
Cine Vista's new theater development plans. No assurances can be made that the
Company will be successful in obtaining financing for Cine Vista. However, even
if financing is not obtained, the Company's existing financial resources are
more than adequate to fund the Company's existing operations and expansion plans
for Cine Vista.
-18-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) The Company filed a Form 8-K on June 12, 1995.
-19-
<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: August 14, 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: August 14, 1995 By: /s/ Eileen M. Mahady
-------------------- ---------------------------------------------
Eileen M. Mahady
Controller
(Principal Accounting Officer)
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Condensed
Consolidated Statements of Operation for the Six Months Ended March 31, 1995
and the Condensed Consolidated Balance Sheet as of June 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 36,222
<SECURITIES> 10,196<F2>
<RECEIVABLES> 433
<ALLOWANCES> 0
<INVENTORY> 82
<CURRENT-ASSETS> 47,951
<PP&E> 7,991
<DEPRECIATION> 948
<TOTAL-ASSETS> 73,104
<CURRENT-LIABILITIES> 3,561
<BONDS> 525
<COMMON> 52
0
0
<OTHER-SE> 66,629
<TOTAL-LIABILITY-AND-EQUITY> 73,104
<SALES> 1,710
<TOTAL-REVENUES> 8,369
<CGS> 293
<TOTAL-COSTS> 5,880
<OTHER-EXPENSES> 2,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 477
<INCOME-TAX> 155
<INCOME-CONTINUING> 322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 322
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<FN>
<F2>
See Note 2.
</FN>
</TABLE>
