Reading International, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Reading International operates multiplex cinemas and commercial, retail, and live-theater real estate in the United States, Australia, and New Zealand. The filing covers the three and nine months ended September 30, 2013, compared with the corresponding 2012 periods. At September 30, 2013, the company operated 51 cinemas with 429 screens, had interests in three unconsolidated cinemas with 29 screens, and managed two cinemas with nine screens.
Financial Performance and Key Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Total revenue | $65.5 million, versus $63.9 million | $194.7 million, versus $189.3 million |
| Operating income | $5.8 million, versus $4.2 million | $16.1 million, versus $14.6 million |
| Net income attributable to common shareholders | $2.4 million, versus $0.4 million | $5.9 million, versus $0.4 million |
| Basic and diluted EPS | $0.10, versus $0.02 | $0.25, versus $0.02 |
| Cash flow from operations | Not separately presented | $16.2 million, versus $12.5 million |
- Revenue increased approximately 2.4% in the quarter and 2.8% year to date. Operating margin was approximately 8.9% in the quarter and 8.3% year to date, compared with approximately 6.5% and 7.7%, respectively, in the prior-year periods.
- Cinema revenue increased 3.3% in the quarter and 3.4% year to date. Cinema segment operating income increased 36.0% in the quarter to $7.1 million and 10.1% year to date to $18.8 million.
- Real estate revenue decreased 6.3% in the quarter and 2.8% year to date, while real estate segment operating income increased 9.1% in the quarter to $2.3 million and 0.7% year to date to $8.0 million.
- Interest expense declined to $2.9 million in the quarter and $8.5 million year to date, compared with $4.3 million and $14.1 million, respectively, in 2012. The decline reflected lower debt balances, lower borrowing rates, and favorable changes in the fair value of interest-rate derivatives.
- Total assets were $393.0 million at September 30, 2013, compared with $428.6 million at December 31, 2012. Cash and cash equivalents were $37.8 million, compared with $38.5 million at year-end; restricted cash was $0.8 million.
- Total debt, including subordinated debt, was approximately $202.3 million. Notes payable were $174.4 million, including $77.6 million classified as current, and subordinated debt was $27.9 million.
- Operating cash flow of $16.2 million was partly offset by $12.7 million of property and equipment additions, $25.1 million of debt repayments, and $2.1 million of distributions to noncontrolling interests. Cash decreased $0.7 million during the nine months.
Material Changes Versus the Prior Comparable Period
- U.S. cinema revenue increased substantially, supported by 383,000 additional admissions and a 1.7% increase in average ticket price during the quarter. Year to date, U.S. admissions increased by 428,000 and average ticket price increased 2.6%.
- Australian cinema results were pressured by lower admissions, lower average ticket prices, and the weaker Australian dollar. New Zealand benefited from improved performance at a previously earthquake-damaged multiplex.
- Cinema operating expense as a percentage of gross revenue improved to 82.7% from 85.3% in the quarter and to 83.9% from 84.2% year to date.
- General and administrative expense increased 10.7% in the quarter and 4.9% year to date, primarily due to higher labor, pension, and audit costs.
- The 2012 comparative periods included $0.2 million and $0.1 million of losses from discontinued operations related to the previously sold Indooroopilly property; no such loss was recorded in 2013.
- Accumulated other comprehensive income declined by approximately $12.5 million year to date, primarily because of a $13.0 million foreign-currency translation loss. The company reported a $5.8 million translation gain in the third quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects its $37.8 million of cash, operating cash generation, and available borrowing capacity to meet anticipated short-term working-capital needs, but this depends partly on refinancing or extending maturing debt.
- The $61.4 million Australian NAB Corporate Term Loan and the $15.0 million U.S. Cinema 1, 2, 3 Term Loan mature in June 2014. Management was negotiating extensions or replacement financing and stated that no assurance could be given that refinancing would be completed.
- The company is obligated to make tax-settlement payments of approximately $290,000 per month, or $3.5 million annually. Total accrued tax liabilities were $21.7 million at September 30, 2013, including $2.4 million of unrecognized tax benefits.
- On July 21, 2013, an earthquake damaged and closed the Wellington parking structure. The company recorded a $257,000 casualty loss, accrued a $944,000 insurance receivable, and estimated repair costs of approximately $1.6 million, partially covered by insurance.
- On October 15, 2013, the company entered into an agreement to sell its Moonee Ponds, Australia property for AUS$23.0 million, payable April 16, 2015, subject to Australian Foreign Investment Review Board approval. The property had a $11.6 million carrying value at September 30, 2013.
- The company is installing digital projection equipment in Australia and New Zealand at estimated costs of $9.0 million and $2.8 million, respectively, using cash on hand. It recorded net digital projection lease charges of $132,000 in the quarter and $370,000 year to date.
- Foreign-exchange exposure is significant: approximately 52% of assets were denominated in Australian dollars and 20% in New Zealand dollars. The company does not hedge currency exposure. A 10% currency movement was estimated to change Australian and New Zealand assets by $13.3 million and $3.9 million, respectively.
- A 1% change in short-term interest rates was estimated to change quarterly interest expense by approximately $166,000 after considering swaps and caps. Interest-rate derivatives had a $4.2 million liability at September 30, 2013.
- Management reported no material changes in previously disclosed risk factors or litigation exposure, no defaults upon senior securities, and no material off-balance-sheet arrangements.
Most Important Facts to Verify
- Progress and final terms of refinancing or extending the $76.4 million of debt maturing in June 2014.
- Liquidity after funding Australian and New Zealand digital projection installations, tax-settlement payments, capital expenditures, and scheduled debt obligations.
- Completion, regulatory approval, deposit terms, and ultimate collection of the AUS$23.0 million Moonee Ponds sale proceeds.
- Insurance recovery and repair costs related to the Wellington parking structure closure.
- Foreign-currency effects on reported earnings, comprehensive income, asset values, and debt capacity.
- Future cinema attendance, film product quality, concession trends, and the sustainability of improved U.S. cinema margins.
- Resolution and potential increases in uncertain tax positions, including management’s estimated $0.9 million to $1.8 million increase in reserves within the following 12 months.