Reading : Announces 3rd Quarter 2014 Results

Reading International, Inc. (NASDAQ: RDI) announced today results for its quarter and nine months ended September 30, 2014.

2014 Highlights

• Our EBITDA⁽¹⁾ for the 2014 Nine Months was $31.3 million compared to $28.4 million in the 2013 Nine Months, an increase of $2.9 million or 10.2%.
• Our 2014 Quarter worldwide Cinema Box Office Revenue (“BOR”) outperformed the cinema industry for the same period. In the U.S. our BOR decreased by 11.1% compared to the 2013 Quarter, whereas the industry saw a decrease of 12.6%; in Australia and New Zealand our 2014 Quarter BOR increased by 5.1% and 18.1% respectively. The cinema industry for the same period experienced a decrease of 1.6% and an increase of 8.7% respectively.
• In the 2014 Nine Months, we also outperformed the cinema industry. In the US our BOR for the 2014 Nine Months decreased by 2.7% compared to the 2013 Nine Months; however the US cinema industry experienced a 4.7% decrease for the same period. In Australia our BOR decreased by 1.5% while the industry saw a decrease of 0.9% compared to the 2013 Nine Months. In New Zealand, our BOR increased by 8.3%, where the industry saw a 3.8% increase compared to the 2013 Nine Months.
• On July 25, 2014 we opened for business our newest cinema, the Reading Cinema at Dunedin, New Zealand, in a cinema previously leased from us by a competitor.
• On June 27, 2014, we refinanced our existing three-tiered credit facility with NAB. It is comprised of (1) the Bank Bill Discount Facility with a facility limit of AUS$61.3 million an interest rate of 2.35% above the BBSY, and amortization at AUS$2.0 million per year; (2) the Bill Discount Facility – Revolving with a facility limit of AUS$10.0 million and an interest rate of 1.50% above the BBSY on any undrawn portion; and (3) the Bank Guarantee Facility with a facility limit of AUS$5.0 million. We are fully drawn on the Bank Bill Discount Facility, have drawn none of the Bill Discount Facility-Revolving and are utilizing AUS$2.6 million on the Bank Guarantee Facility. All three have an expiration date of June 30, 2019.
• On June 26, 2014, we refinanced our $15 million loan on our Cinema 1,2&3 property, with Santander Bank, N.A. and negotiated a $6.0 million line of credit for the acquisition of rights to add additional density to any redevelopment of the property (“air rights”). The new loan has a 2 year term, payable interest only until maturity.
• Our aggregate indebtedness decreased to $159.7 million at September 30, 2014 from $174.4 million at September 30, 2013, a decrease of $14.7 million or 8.42%.
• On May 16, 2014 the company’s board of directors authorized management, at its discretion, to spend from time to time up to an aggregate of $10.0 million to acquire shares of Reading’s Common Stock. As of September 30, 2014 the company had repurchased 271,000 shares for $2.3 million.
• On May 12, 2014, we entered into a contract to sell our undeveloped 50.6 acre parcel in Burwood, Victoria, Australia, to an affiliate of Australand Holdings Limited for a purchase price of $59.1 million (AUS$65.0 million). Reading received $5.9 million (AUS$6.5 million) on the closing. The balance of the purchase price is due on or before December 31, 2017. This transaction is treated as a sale for tax purposes but not for US GAAP accounting purposes.

⁽¹⁾The Company defines EBITDA as net income (loss) before net interest expense, income tax benefit, depreciation, and amortization. The company defines adjusted EBITDA as EBITDA adjusted for unusual or infrequent events or items that are of a non-cash nature. EBITDA and adjusted EBITDA are presented solely as supplemental disclosures as we believe they are relevant and useful measures to compare operating results among our properties and competitors, as well as measurement tools for the evaluation of operating personnel. EBITDA and adjusted EBITDA are not measures of financial performance under the promulgations of generally accepted accounting principles (“GAAP”). EBITDA and adjusted EBITDA should not be considered in isolation from, or as substitutes for, net loss, operating loss or cash flows from operations determined in accordance with GAAP. Finally, EBITDA and adjusted EBITDA are not calculated in the same manner by all companies and accordingly, may not be appropriate measures for comparing performance among different companies. See the “Supplemental Data” table attached for a reconciliation of EBITDA to net income (loss).

Third Quarter 2014 Discussion

Revenue from operations decreased slightly from $65.5 million in the 2013 Quarter to $65.0 million in the same Quarter in 2014, a decrease of $500,000 or 0.7%.

Our cinema segment revenue decreased by $281,000 or 0.5% in the 2014 Quarter compared to the same period in 2013. This decrease from prior year is primarily related to a strong showing in Australia and New Zealand offset by a decline in the U.S. for the 2014 Quarter. As mentioned above we did outperform the industry in all geographies in terms of BOR for the 2014 Quarter.

The top three grossing films for the 2014 Quarter in our worldwide cinema circuit were “Guardians of the Galaxy,” “Dawn of the Planet of the Apes,” and “Teenage Mutant Ninja Turtles.” These three films accounted for approximately 21.9% of our BOR. The top three grossing films for the 2013 Quarter in our worldwide cinema circuit were “Despicable Me 2,” “Blue Jasmine,” and “We’re the Millers.” These three films accounted for approximately 20.8% of our 2013 Quarter BOR.

Our real estate segment revenue for the 2014 quarter decreased by $122,000 or 2.0% in the 2014 Quarter due to a loss of revenue in New Zealand of approximately $487,000 from the shutdown of our Courtenay Central Car Park resulting from an earthquake in Wellington in July 2013 (the loss in revenue was recovered through insurance proceeds reflected in other income, as mentioned below), as well as the termination of the Hoyts lease at our Dunedin property. We elected not to accept the terms of Hoyts renewal offer, electing instead to refurbish and upgrade the cinema and add it to our operating cinemas. The new Dunedin Cinema opened on July 25, 2014. In addition, live theater income decreased for the 2014 Quarter due to a decrease in live theater productions showing in our venues compared to the 2013 Quarter.

As a percent of revenue, operating expense was 77.8% in the 2014 Quarter compared to 78.6% in the 2013 Quarter due primarily to improved operating efficiencies.

Depreciation expense increased for the 2014 Quarter by $219,000 or 6.1% compared to the 2013 Quarter due to additions of assets.

General and administrative expense decreased by $130,000 for the 2014 Quarter compared to the 2013 Quarter. The decrease in general and administrative expense during the 2014 Quarter was mainly caused by downward adjustments to our pension costs.

The Australian quarterly average exchange rate to the U.S. dollar increased to 0.9247 for the 2014 Quarter from 0.9165 for the 2013 Quarter an increase of 0.9%. The New Zealand quarterly average exchange rate to the U.S. dollar climbed to 0.8419 for the 2014 Quarter from 0.7988 for the 2013 Quarter, an increase of 5.4%. Both had an impact on the individual components of our income statement.

Caused by the above factors, our operating income for the 2014 Quarter increased by $347,000 to an operating income of $6.2 million compared to an operating income of $5.8 million in the 2013 Quarter.

Net interest decreased by $1.4 million for the 2014 Quarter compared to the 2013 Quarter. The decrease was caused primarily by mark to market changes in our interest rate swaps for the 2014 quarter. In addition, debt decreased by $2.9 million, in the U.S. and $10.4 million in Australia.

For the 2014 Quarter we recorded $459,000 in other income from insurance proceeds for the Courtenay Central Car Park business interruption claim related to damages from the July 2013 earthquake in Wellington, New Zealand.

For the 2014 Quarter, our income tax expense increased by $561,000 compared to the 2013 Quarter. The change was the result of improved pretax income for the 2014 Quarter compared to the 2013 Quarter.

As a result of the above, we reported a net income of $3.9 million for the 2014 Quarter compared to a net income of $2.4 million in the 2013 Quarter which increase was caused by the interest expense reduction and better operating profit.

Our EBITDA⁽¹⁾ at $10.5 million for the 2014 Quarter was $923,000 or 9.7% higher than the EBITDA⁽¹⁾ for the 2013 Quarter of $9.6 million. There were no significant adjustments to EBITDA⁽¹⁾ in either the 2014 Quarter or the 2013 Quarter.

Nine Months 2014 Summary

Revenue from operations decreased from $194.7 million in the 2013 Nine Months to $193.0 million in the 2014 Nine Months, a $1.7 million or a 0.9% decrease, caused by reduced revenue from our real estate segment (see below).

Cinema segment revenue decreased by $432,000 or 0.2% in the 2014 Nine Months in comparison to the 2013 Nine Months. However, as mentioned above we outperformed the industry overall in terms of BOR for the 2014 Nine Months compared to prior year.

The top three grossing films for the 2014 Nine Months in our worldwide cinema circuit were “The Lego Movie,” “X-Men: Days of Future Past,” and “Captain America: The Winter Soldier.” These three films accounted for approximately 12.6% of our 2014 Nine Months BOR. The top three grossing films for the 2013 Nine Months were “Iron Man 3,” “Silver Linings Playbook,” and “Oz Great and Powerful.” These three films accounted for approximately 16.3% of our 2013 Nine Months BOR.

Our real estate segment revenue decreased by $1.4 million or 6.9% during the 2014 Nine Months compared to the 2013 Nine Months. The decrease in real estate revenue was caused by a $249,000 decrease in live theater revenue and an estimated loss of revenue of $1.2 million due to the closure for earthquake caused repairs of our Courtenay Central Car Parking structure in Wellington, New Zealand (the loss in revenue was recovered through insurance proceeds reflected in other income, as mentioned below) and the termination of the Hoyts cinema lease at our Dunedin property, following our decision to take over operations of that theater. We anticipate the parking structure will be open in December of this year. Our newly refurbished and enhanced Dunedin cinema opened July 25, 2014.

As a percent of revenue, operating expense was 77.5% in the 2014 Nine Months, compared to 79.1% in the 2013 Nine Months, due to improved operating efficiencies.

General and administrative expense increased by $1.4 million for the 2014 Nine Months, compared to the 2013 Nine Months. The increase in general and administrative expense was due to prior period pension cost increases.

The Australian average exchange rate to the U.S. dollar declined to 0.9183 for the 2014 Nine Months from 0.9821 for the 2013 Nine Months, a decrease of 6.5%. The New Zealand average exchange rate to the U.S. dollar increased to 0.8467 for the 2014 Nine Months from 0.8182 for the 2013 Nine Months, an increase of 3.5%. Both had an impact on the individual components of our income statement.

⁽¹⁾The Company defines EBITDA as net income (loss) before net interest expense, income tax benefit, depreciation, and amortization. The company defines adjusted EBITDA as EBITDA adjusted for unusual or infrequent events or items that are of a non-cash nature. EBITDA and adjusted EBITDA are presented solely as supplemental disclosures as we believe they are relevant and useful measures to compare operating results among our properties and competitors, as well as measurement tools for the evaluation of operating personnel. EBITDA and adjusted EBITDA are not measures of financial performance under the promulgations of generally accepted accounting principles (“GAAP”). EBITDA and adjusted EBITDA should not be considered in isolation from, or as substitutes for, net loss, operating loss or cash flows from operations determined in accordance with GAAP. Finally, EBITDA and adjusted EBITDA are not calculated in the same manner by all companies and accordingly, may not be appropriate measures for comparing performance among different companies. See the “Supplemental Data” table attached for a reconciliation of EBITDA to net income (loss).

Driven by the above factors, our operating income for the 2014 Nine Months increased by $1.1 million to $17.2 million, compared to $16.1 million in the 2013 Nine Months.

Net interest expense decreased by $1.5 million for the 2014 Nine Months compared to the 2013 Nine Months. The decrease in net interest expense was due to the same reasons as for the 2014 Quarter.

Other income for the 2014 Nine Months increased by $1.4 million, primarily due to the receipt of $1.2 million in business interruption insurance proceeds for our Courtenay Central Car Park.

The 2014 Nine Month income tax expense was $4.7 million compared to $3.1 million for the 2013 Nine Months. The year over year change was due to the improved pre-tax income for the 2014 Nine Months compared to the 2013 Nine Months.

As a result of the above, we reported a net income of $8.5 million for the 2014 Nine Months compared to a net income of $5.9 million for the 2013 Nine Months caused by both better operating profit and interest expense reduction.

Our EBITDA⁽¹⁾ at $31.3 million for the 2014 Nine Months was $2.9 or 10.2% higher than the EBITDA⁽¹⁾ for the 2013 Nine Months of $28.4 million. There were no adjustments to EBITDA⁽¹⁾ in either the 2014 or the 2013 Nine Months.

Balance Sheet and Liquidity

Our total assets at September 30, 2014 were $377.7 million compared to $386.8 million at December 31, 2013. The currency exchange rates for Australia and New Zealand to the U.S. dollar as of September 30, 2014 were $0.8737 and $0.7788, respectively, and as of December 31, 2013, these rates were $0.8929 and $0.8229, respectively.

On June 27, 2014, we refinanced our existing three-tiered credit facility with NAB. It is comprised of (1) the Bank Bill Discount Facility with a facility limit of AUS$61.3 million an interest rate of 2.35% above the BBSY, and amortization at AUS$2.0 million per year; (2) the Bill Discount Facility – Revolving with a facility limit of AUS$10.0 million and an interest rate of 1.50% above the BBSY on any undrawn portion; and (3) the Bank Guarantee Facility with a facility limit of AUS$5.0 million. We are fully drawn on the Bank Bill Discount Facility, have drawn none of the Bill Discount Facility-Revolving and are utilizing AUS$2.6 million on the Bank Guarantee Facility. All three have an expiry date of June 30, 2019.

On June 26, 2014, our controlled subsidiary Sutton Hill Properties, LLC, entered into an agreement with Santander Bank, N.A. refinancing the current loan on the property and providing an additional $6.0 million for the acquisition of rights to add additional density to any redevelopment of the property (“air rights”). We replaced an existing term loan of $15.0 million which was scheduled to mature on the following day. The new loan has a 2 year term, amortizing at full term interest only, commencing June 27, 2014. The loan is collateralized by our Cinemas 1,2,3 property (including any air rights that we may acquire). The loan has an interest rate of 3.50% over the 30-day Libor.

⁽¹⁾The Company defines EBITDA as net income (loss) before net interest expense, income tax benefit, depreciation, and amortization. The company defines adjusted EBITDA as EBITDA adjusted for unusual or infrequent events or items that are of a non-cash nature. EBITDA and adjusted EBITDA are presented solely as supplemental disclosures as we believe they are relevant and useful measures to compare operating results among our properties and competitors, as well as measurement tools for the evaluation of operating personnel. EBITDA and adjusted EBITDA are not measures of financial performance under the promulgations of generally accepted accounting principles (“GAAP”). EBITDA and adjusted EBITDA should not be considered in isolation from, or as substitutes for, net loss, operating loss or cash flows from operations determined in accordance with GAAP. Finally, EBITDA and adjusted EBITDA are not calculated in the same manner by all companies and accordingly, may not be appropriate measures for comparing performance among different companies. See the “Supplemental Data” table attached for a reconciliation of EBITDA to net income (loss).

Our cash position at September 30, 2014 was $40.6 million. Of the $40.6 million, $23.7 million was in Australia, $9.3 million was in the U.S., and $7.6 million was in New Zealand. As part of our main credit facilities in Australia, New Zealand and the U.S., we are subject to certain debt covenants which limit the transfer or use of cash outside of the various regional subsidiaries in which the cash is held. As such, at September 30, 2014 we have approximately $11.0 million of cash worldwide that is not restricted by loan covenants.

At September 30, 2014, we had undrawn funds of $8.7 million (AUS$10.0 million) available under our new NAB line of credit in Australia; $9.3 million (NZ$12.0 million) available under our New Zealand Corporate Credit facility; $6.8 million available under our Bank of America loan revolver and line of credit in the U.S. Accordingly, we believe that we have sufficient borrowing capacity under our various credit facilities, together with our $40.6 million cash balance, to meet our anticipated short-term working capital requirements.

Our working capital at September 30, 2014 was a negative $8.6 million compared to a negative $71.8 million at December 31, 2013. This decrease in negative working capital resulted primarily from our Australian NAB Corporate Term Loan and our U.S. Cinemas 1, 2, 3 Term Loan moving from current borrowings to long term borrowings, as discussed above.

Stockholders’ equity was $125.2 million at September 30, 2014 compared to $121.7 million at December 31, 2013, an increase primarily related to our increased profitability, offset by foreign exchange losses due to rate fluctuations in the Australian and New Zealand dollars compared to the U.S. dollar.

About Reading International, Inc.

Reading International (http://www.readingrdi.com) is in the business of owning and operating cinemas and developing, owning and operating real estate assets. Our business consists primarily of:

• the development, ownership and operation of multiplex cinemas in the United States, Australia and New Zealand; and
• the development, ownership, and operation of retail and commercial real estate in Australia, New Zealand, and the United States, including entertainment-themed retail centers (“ETRC”) in Australia and New Zealand and live theater assets in Manhattan and Chicago in the United States.

Reading manages its worldwide cinema business under various different brands:

• in the United States, under the
  • Reading brand (http://www.readingcinemasus.com),
  • Angelika Film Center brand (http://www.angelikafilmcenter.com),
  • Consolidated Theatres brand (http://www.consolidatedtheatres.com),
  • City Cinemas brand (http://www.citycinemas.com),
  • Beekman Theatre brand (http://www.beekmantheatre.com),
  • The Paris Theatre brand (http://www.theparistheatre.com);
  • Liberty Theatres brand (http://www.libertytheatresusa.com); and
  • Village East Cinema brand (http://www.villageeastcinema.com)
• in Australia, under the
  • Reading brand (http://www.readingcinemas.com.au);
  • Newmarket brand (http://www.readingnewmarket.com.au); and
  • Red Yard Entertainment Centre (http://www.redyard.com.au)
• in New Zealand, under the
  • Reading (http://www.readingcinemas.co.nz);
  • Rialto (http://www.rialto.co.nz) brands;
  • Reading Properties brand (http://www.readingproperties.co.nz);
  • Courtenay Central brand (http://www.readingcourtenay.co.nz);
  • Steer n’ Beer restaurant brand (http://www.steernbeer.co.nz); and
  • Taupo Motel brand (http://www.sailstaupo.co.nz).

Forward-Looking Statements

Our statements in this press release contain a variety of forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Forward-looking statements reflect only our expectations regarding future events and operating performance and necessarily speak only as of the date the information was prepared. No guarantees can be given that our expectation will in fact be realized, in whole or in part. You can recognize these statements by our use of words such as, by way of example, “may,” “will,” “expect,” “believe,” and “anticipate” or other similar terminology.

These forward-looking statements reflect our expectation after having considered a variety of risks and uncertainties. However, they are necessarily the product of internal discussion and do not necessarily completely reflect the views of individual members of our Board of Directors or of our management team. Individual Board members and individual members of our management team may have different views as to the risks and uncertainties involved, and may have different views as to future events or our operating performance.

Among the factors that could cause actual results to differ materially from those expressed in or underlying our forward-looking statements are the following:

• With respect to our cinema operations:
  • The number and attractiveness to movie goers of the films released in future periods;
  • The amount of money spent by film distributors to promote their motion pictures;
  • The licensing fees and terms required by film distributors from motion picture exhibitors in order to exhibit their films;
  • The comparative attractiveness of motion pictures as a source of entertainment and willingness and/or ability of consumers (i) to spend their dollars on entertainment and (ii) to spend their entertainment dollars on movies in an outside the home environment; and
  • The extent to which we encounter competition from other cinema exhibitors, from other sources outside of the home entertainment, and from inside the home entertainment options, such as “home theaters” and competitive film product distribution technology such as, by way of example, cable, satellite broadcast, DVD rentals and sales, and so called “movies on demand;”
• With respect to our real estate development and operation activities:
  • The rental rates and capitalization rates applicable to the markets in which we operate and the quality of properties that we own;
  • The extent to which we can obtain on a timely basis the various land use approvals and entitlements needed to develop our properties;
  • The risks and uncertainties associated with real estate development;
  • The availability and cost of labor and materials;
  • Competition for development sites and tenants; and
  • The extent to which our cinemas can continue to serve as an anchor tenant which will, in turn, be influenced by the same factors as will influence generally the results of our cinema operations;
• With respect to our operations generally as an international company involved in both the development and operation of cinemas and the development and operation of real estate; and previously engaged for many years in the railroad business in the United States:
  • Our ongoing access to borrowed funds and capital and the interest that must be paid on that debt and the returns that must be paid on such capital;
  • The relative values of the currency used in the countries in which we operate;
  • Changes in government regulation, including by way of example, the costs resulting from the implementation of the requirements of Sarbanes-Oxley;
  • Our labor relations and costs of labor (including future government requirements with respect to pension liabilities, disability insurance and health coverage, and vacations and leave);
  • Our exposure from time to time to legal claims and to uninsurable risks such as those related to our historic railroad operations, including potential environmental claims and health related claims relating to alleged exposure to asbestos or other substances now or in the future recognized as being possible causes of cancer or other health-related problems;
  • Changes in future effective tax rates and the results of currently ongoing and future potential audits by taxing authorities having jurisdiction over our various companies; and
  • Changes in applicable accounting policies and practices.

The above list is not necessarily exhaustive, as business is by definition unpredictable and risky, and subject to influence by numerous factors outside of our control such as changes in government regulation or policy, competition, interest rates, supply, technological innovation, changes in consumer taste and fancy, weather, and the extent to which consumers in our markets have the economic wherewithal to spend money on beyond-the-home entertainment.

Given the variety and unpredictability of the factors that will ultimately influence our businesses and our results of operation, no guarantees can be given that any of our forward-looking statements will ultimately prove to be correct. Actual results will undoubtedly vary and there is no guarantee as to how our securities will perform either when considered in isolation or when compared to other securities or investment opportunities.

Finally, we undertake no obligation to publicly update or to revise any of our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable law. Accordingly, you should always note the date to which our forward-looking statements speak.

Additionally, certain of the presentations included in this press release may contain “pro forma” information or “non-US GAAP financial measures.” In such case, a reconciliation of this information to our US GAAP financial statements will be made available in connection with such statements.

*EBITDA presented above is net income adjusted for interest expense (net of interest income), income tax expense, depreciation and amortization expense, and an adjustment for discontinued operations (this includes interest expense and depreciation and amortization for the discontinued operations).

Reconciliation of EBITDA to the net income is presented below: