Reading International, Inc. Form 10-Q Summary
Business Context and Reporting Period
Reading International, Inc. operates cinema exhibition and real estate businesses in the United States, Australia, and New Zealand. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2020. Results were heavily affected by COVID-19-related closures, capacity restrictions, delayed film releases, reduced attendance, and rent relief provided to tenants.
Financial Results and Key Metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $10.2 million | $70.4 million | $62.8 million | $207.9 million |
| Operating income (loss) | $(17.4) million | $2.8 million | $(46.6) million | $7.2 million |
| Net income (loss) | $(19.4) million | $0.8 million | $(48.2) million | $1.0 million |
| Net loss attributable to RDI shareholders | $(19.2) million | $0.9 million | $(47.8) million | $1.1 million |
| Basic EPS | $(0.88) | $0.04 | $(2.20) | $0.05 |
| Net cash from operating activities | Not separately provided | Not separately provided | $(28.0) million | $10.8 million |
Cinema revenue declined 89% in the quarter and 72% for the nine months. Real estate revenue declined 45% in the quarter and 40% for the nine months. Cinema segment operating loss was $13.4 million in the quarter and $33.3 million for the nine months; real estate segment operating loss was $0.8 million and $1.5 million, respectively.
At September 30, 2020, cash and cash equivalents were $27.8 million, compared with $12.1 million at December 31, 2019. Total borrowings were $274.1 million, compared with $209.2 million at year-end 2019. Total liabilities were $583.2 million and total equity was $90.2 million. Working capital was negative $74.8 million, and the current ratio was 0.36. The debt-to-equity ratio was 3.04, compared with 1.50 at December 31, 2019.
Material Changes Versus the Prior Comparable Period
- Revenue decreased 86% in Q3 and 70% for the nine-month period, primarily because cinemas were closed or operating under restrictions and major studios postponed or removed films from the 2020 release schedule.
- U.S. cinema revenue fell 98% in Q3, Australia declined 80%, and New Zealand declined 71%. Attendance decreased 98%, 84%, and 72%, respectively.
- Operating results shifted from profits to substantial losses in both cinema and real estate segments.
- Operating cash flow changed from $10.8 million provided in the prior-year nine months to $28.0 million used in 2020.
- Financing activities provided $57.3 million in the first nine months, including $87.8 million of borrowings and $28.9 million of repayments, helping offset operating and investing cash uses.
- Capital expenditures and additions to operating and investment properties were $16.3 million, compared with $33.2 million in the prior-year period.
- Equity declined from $139.6 million at December 31, 2019 to $90.2 million, primarily due to accumulated losses and other comprehensive losses.
Liquidity, Debt, Outlook, and Risks
As of the filing date, 13 of 24 U.S. cinemas had reopened, 16 Australian cinemas had reopened, and all New Zealand cinemas except Courtenay Central had reopened. Seven Victorian cinemas were expected to reopen on November 11, 2020, subject to government restrictions. Reopening dates for the remaining U.S. cinemas were not determined.
Management reduced staffing and operating costs, deferred non-essential capital expenditures, negotiated rent abatements and deferrals, and obtained Australian and New Zealand wage subsidies. Subsidies received through September 30, 2020 totaled AU$8.9 million and NZ$1.9 million. The New Zealand program expired in August 2020; the Australian program was expected to continue through March 2021, subject to eligibility.
Management concluded that substantial doubt about the Company’s ability to continue as a going concern had been alleviated by its plans, including refinancing 44 Union Square, potentially borrowing against or selling unencumbered real estate, obtaining further landlord concessions, and preserving cash. Management’s forecast assumes a recovery in the global cinema industry beginning in 2021. The filing emphasizes that these plans and forecasts are uncertain and depend materially on government reopening decisions, film releases, and consumer confidence.
All operating credit facilities were substantially drawn. The Bank of America credit facility had $5.8 million of available capacity at September 30, 2020. The Company obtained covenant modifications or waivers from Bank of America, National Australia Bank, and Westpac and stated that it was in compliance with covenants as modified. The $40.1 million Union Square construction loan had a December 29, 2020 maturity date, and refinancing was being pursued.
No long-lived asset or goodwill impairment was recorded through September 30, 2020, but impairment conclusions depend on highly uncertain COVID-19-related cash-flow forecasts. Key risks include prolonged closures, delayed or direct-to-streaming film releases, reduced attendance, rent and covenant obligations, refinancing execution, foreign currency movements, interest rates, tenant defaults, construction delays, litigation, and potential future impairment.
Other Unusual or Material Items
- The CARES Act generated a tax refund receivable of approximately $5.1 million from a net operating loss carryback and alternative minimum tax credit claim.
- The Company corrected previously reported immaterial sales-tax errors, reducing revised nine-month 2019 revenue by $216,000 and net income by $158,000.
- The Nevada Supreme Court dismissed the Cotter Jr. derivative action; the Company is pursuing approximately $800,000 of approved costs covered by a bond.
- Two California employment matters include putative class and PAGA claims. The cases were in early stages, damages had not been specified, and no reserve was recorded.
- No common stock repurchases occurred in Q3. The Company repurchased 75,157 Class A shares in Q1 for approximately $1.15 million and stated that repurchases would have lower priority during the liquidity constraints.
Investor Verification Points
- Verify the timing and terms of the proposed 44 Union Square refinancing and the December 2020 construction-loan maturity or extension.
- Monitor cinema reopening status, attendance, capacity restrictions, and the availability and timing of major film releases.
- Assess cash burn, operating cash flow, covenant compliance, available borrowing capacity, and debt maturities.
- Evaluate the sustainability of landlord rent abatements, tenant collections, and government wage subsidies.
- Review whether prolonged COVID-19 effects could trigger future impairment charges or additional equity losses.
- Track the Company’s ability to sell or finance unencumbered real estate and to transfer cash between jurisdictions.