READING INTERNATIONAL INC quarterly report, Q2 FY2020

Reading International, Inc. — Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2020. The filing was signed August 10, 2020. Reading operates 60 cinemas with 498 screens in the United States, Australia, and New Zealand, plus retail, commercial, development, and live-theatre real estate assets.

Financial Results and Position

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Total revenue	$3.4 million	$76.0 million	$52.7 million	$137.5 million
Operating income (loss)	$(22.2) million	$5.7 million	$(29.2) million	$4.4 million
Net income (loss)	$(22.9) million	$2.3 million	$(28.8) million	$0.2 million
Net loss attributable to RDI shareholders	$(22.7) million	$2.3 million	$(28.6) million	$0.2 million
Basic EPS	$(1.04)	$0.10	$(1.31)	$0.01
Cash flow from operations	Not separately provided for the quarter	Not separately provided	$(23.1) million	$3.1 million

Cinema revenue was $1.2 million in Q2, down 98%, and $47.5 million for the six months, down 64%. Cinema segment operating loss was $17.3 million in Q2 and $19.9 million for the six months.
Real estate revenue was $2.3 million in Q2, down 59%, and $6.9 million for the six months, down 37%. Real estate segment operating loss was $0.8 million in Q2 and $0.6 million for the six months.
Q2 operating expenses declined 64% to $25.6 million, but costs remained substantially above revenue because occupancy and other costs are partly fixed. Cinema operating expense represented approximately 1,130% of cinema revenue in Q2 and 120% for the six months.
Income tax benefits were $1.6 million in Q2 and $4.6 million for the six months, primarily reflecting CARES Act net operating loss carryback benefits, partly offset by an increased valuation allowance.
Cash and cash equivalents increased to $40.4 million at June 30, 2020 from $12.1 million at December 31, 2019. Cash included $22.9 million in the U.S., $3.8 million in Australia, and $13.7 million in New Zealand.
Investing cash outflow was $14.0 million, including $13.9 million of property additions. Financing cash inflow was $63.2 million, reflecting $87.2 million of borrowings less $22.3 million of repayments.
Total borrowings, including subordinated debt, were $275.9 million at June 30, 2020, compared with $207.0 million at year-end 2019. Total debt-to-equity was 2.61x versus 1.50x.
Working capital was negative $54.9 million and the current ratio was 0.51. The company reported no unrestricted unused borrowing capacity at June 30, although total unused facility capacity was $10.5 million, restricted for capital projects.
Total stockholders’ equity declined to $105.6 million from $139.6 million at year-end 2019. Accumulated retained earnings declined to a deficit of $7.9 million.

Material Changes Versus the Prior Comparable Period

COVID-19 caused all cinemas and live theatres to close temporarily beginning in March 2020. This reduced Q2 revenue by 95% and changed the company from profitable operations in 2019 to substantial operating and net losses.
New Zealand cinemas largely reopened by June 3, except Courtenay Central. Most Australian cinemas reopened in June or July, but all seven Victoria cinemas were closed again by August 5 following renewed restrictions. U.S. cinemas remained closed as of the filing date.
Foreign exchange movements adversely affected results. The Australian and New Zealand dollars weakened against the U.S. dollar, and foreign currency translation reduced accumulated other comprehensive income by $5.1 million during the first six months.
The company reduced labor, operating, and capital expenditures, obtained rent abatements and deferrals, and received Australian and New Zealand wage subsidies. It did not qualify for the U.S. Paycheck Protection Program.
The company repurchased 75,157 Class A shares for approximately $0.7 million during the first quarter; no shares were repurchased in Q2. Management stated that repurchases would likely receive lower priority because of liquidity needs.
Prior-period sales-tax errors were corrected. The correction reduced Q2 2019 revenue by $87,000 and six-month 2019 revenue by $145,000; management concluded the errors were immaterial to the affected prior interim periods.

Guidance, Outlook, Risks, and Unusual Items

Management provided no formal financial guidance. It stated that results will depend on reopening timing, government restrictions, consumer demand, cleaning and social-distancing requirements, and the timing and availability of major film releases.
Management expects continued material adverse effects while cinemas remain closed or operate with reduced capacity. Even after reopening, attendance may remain below historical levels because of consumer caution, unemployment, reduced discretionary spending, and limited film supply.
The company had drawn all available operating debt facilities by June 30 and was evaluating sales of non-core real estate and the use of unencumbered properties as collateral for additional financing.
Debt covenant amendments, waivers, and maturity or interest-rate modifications were obtained from Bank of America, National Australia Bank, and Westpac. Subsequent amendments temporarily suspended or modified certain covenant tests. Future compliance and lender support remain significant liquidity risks.
Westpac requested that the company place $10.3 million in a 30-day term deposit on July 1, 2020. This cash was not available for immediate operating use in New Zealand.
Management identified impairment indicators related to COVID-19 but recorded no impairment of long-lived assets or goodwill as of June 30, based on projected undiscounted cash flows and discounted cash-flow valuations. Actual results may differ materially from those estimates.
The 44 Union Square development was substantially completed and in the leasing phase; the company expected a core-and-shell temporary certificate of occupancy by the end of August 2020. The project’s construction financing had a stated maturity of December 29, 2020.
The company has pending employment-related class and representative-action claims in California. Damages have not been specified, the cases are in early stages, and no loss reserve was recorded.
The Cotter Jr. derivative litigation remained on appeal, with a Nevada Supreme Court hearing scheduled for September 8, 2020. The company incurred approximately $75,000 of related expense during the first six months of 2020, after approximately $925,000 in 2019.

Important Facts for Investors to Verify

Timing and sustainability of cinema reopenings, particularly the 24 U.S. cinemas and the seven Victoria cinemas.
Availability and release timing of major films, including whether delayed releases support recovery in attendance and revenue.
Actual cash burn, liquidity runway, and the ability to refinance or extend debt maturing in 2020 and thereafter.
Compliance with revised debt covenants after temporary waivers expire, including the Bank of America, NAB, and Westpac arrangements.
Terms and timing of landlord rent abatements and deferrals, tenant collections, and potential additional real estate asset sales or collateralized financing.
Potential impairment of cinema, goodwill, development, and real estate assets if management’s COVID-19 recovery assumptions are not achieved.
Future exposure from California employment litigation, Cotter Jr. appellate proceedings, and other legal or environmental claims.
Foreign exchange effects and restrictions on transferring cash between the United States, Australia, and New Zealand.