Reading International - 10-Q quarterly report FY

Washington, D.C.  20549

__________________________________

(Mark One)

For the quarterly period ended:  September 30, 2007

OR

For the transition period from _____________ to ___________

Commission file number 1-8625

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (213) 235-2240

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 twelve 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  þ  No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):  Large accelerated filer ¨  Accelerated filer þ  Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of November 6, 2007, there were 20,998,703 shares of Class A Nonvoting Common Stock, $0.01 par value per share and 1,495,490 shares of Class B Voting Common Stock, $0.01 par value per share outstanding.

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See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was founded in 1983 as a Delaware corporation and reincorporated in 1999 in Nevada.  Our businesses consist primarily of:

The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission for interim reporting.  As such, certain information and footnote disclosures typically required by US GAAP for complete financial statements have been condensed or omitted.  There have been no material changes in the information disclosed in the notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 Annual Report”).  The financial information presented in this quarterly report on Form 10-Q for the period ended September 30, 2007 (the “September Report”), including the information under the heading, Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with our 2006 Annual Report which contains the latest audited financial statements and related footnotes.

In the opinion of management, all adjustments of a normal recurring nature considered necessary to present fairly in all material respects our financial position, results of our operations and cash flows as of and for the three months and nine months ended September 30, 2007 have been made.  The results of operations for the three months and nine months ended September 30, 2007 are not necessarily indicative of the results of operations to be expected for the entire year.

We have investments in marketable securities of $4.6 million at September 30, 2007.  These investments are accounted for as available for sale investments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”  In accordance with the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” assessments of potential impairment for these investments are performed for each applicable reporting period.  We have determined that there was no impairment for these investments at September 30, 2007.  These investments have a cumulative unrealized loss of $790,000 included in accumulated other comprehensive income at September 30, 2007.  For the three months ended September 30, 2007, our net unrealized loss on marketable securities was $880,000 and for the nine months ended September 30, 2007 our net unrealized gain on marketable securities was $82,000.  During the three and nine months ended September 30, 2007, we sold $13.4 million and $19.1 million, respectively of our marketable securities resulting in realized gain on sale of $549,000 and $773,000, respectively.

Subsequent to the issuance of our September 30, 2006 consolidated financial statements, we determined that we had overstated our real estate revenue and cinema operating expense by $724,000 and $2.1 million for the three and nine months ended September 30, 2006, respectively, due to an error in the elimination of intercompany rental charges among our international subsidiaries.  We have adjusted our consolidated statements of operations for the three and nine months ended September 30, 2006 to correctly present consolidated real estate revenue and cinema operating expenses.  The effects of the adjustment on our originally reported statements of operations are summarized below (dollars in thousands):

This adjustment had no impact on our operating income, on our losses from continuing operations, or on our net loss for the three and nine months ended September 30, 2006.  These adjustments were not material to the presentation of our consolidated financial statements for the three and nine months ended September 30, 2006.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No. 158).”  SFAS No. 158 requires an employer to recognize the funded status of each pension and other postretirement benefit plan as an asset or liability on their balance sheet with all unrecognized amounts to be recorded in other comprehensive income.  SFAS No. 158 also ultimately requires an employer to measure the funded status of a plan as of the date of the employer’s fiscal year-end statement of financial position.  As required, we adopted the provisions of SFAS No. 158 and initially applied it to the funded status of our defined benefit pension plan as of March 1, 2007 (the inception date of the pension plan).  The adoption of SFAS No. 158 had no effect on net earnings or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.”  FIN 48 prescribes rules for financial statement recognition and measurement of a tax positions taken or expected to be taken in a tax return.  We adopted FIN 48 on January 1, 2007.  As a result, we recognized a $509,000 cumulative increase to reserves for uncertain tax positions, which was accounted for as an adjustment to the beginning balance of accumulated deficit in 2007.  Overall, we had approximately $12.5 million of gross tax benefits unrecognized on the financial statements as of the date of adoption.

In February 2007, the FASB issued SFAS  No. 159 - The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments.  The provisions of SFAS 159 are effective at the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007.  When adopted and if we elect to measure at fair value, we do not anticipate the application of this pronouncement will have a material impact on our results of operations or financial condition.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement(SFAS 157).  SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements.  The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007.  We do not anticipate the application of this pronouncement will have a material impact on our results of operations or financial condition.

As part of his compensation package, Mr. John Hunter, our Chief Operating Officer, was granted $100,000 of restricted Class A Non-Voting Common Stock on February 12, 2007.  This stock grant has a vesting period of two years and a stock grant exercise price of $8.63.  During the three months and nine months ended September 30, 2007, we recorded compensation expense of $59,000 and $178,000, respectively, for the vesting of all our restricted stock grants.  The following table details the grants of restricted stock to our employees (dollars in thousands):

We have formed two new wholly owned subsidiaries, Landplan Property Partners, Pty Ltd and Landplan Property Partners New Zealand, Ltd collectively referred to as Landplan Property Partners (“LPP”), to engage in the real estate development business under the leadership of Mr. Doug Osborne.  We have an agreement with Mr. Osborne pursuant to which he has a contingent interest in certain property trusts, owned by LPP, ranging between 27.5% and 15%, depending on a number of factors including the amount and duration of the investments of LPP.  Mr. Osborne’s interest is subordinated to (i) the repayment of all third party indebtedness, (ii) the repayment of all funds invested or advanced by Reading, and (iii) the realization by Reading of an 11%

annual compounded preferred return on its capital.  Based on SFAS 123(R), we have calculated the fair value of Mr. Osborne’s interest for book purposes at $171,000 with respect to property acquired by LPP in the first quarter.  LPP acquired another property during the third quarter of 2007 for which we estimate Mr. Osborne’s interest for book purposes to be $158,000 (see Note 17 – Acquisitions, Dispositions, and Assets Held for Sale).  During the three and nine months ended September 30, 2007, we expensed $59,000 and $155,000, respectively, associated with Mr. Osborne’s interests.  At September 30, 2007, the total unrecognized compensation expense related to the LPP equity awards was $244,000, which is expected to be recognized over the remaining weighted average period of approximately 36 months.

We have a long-term incentive stock option plan that provides for the grant to eligible employees and non-employee directors of incentive stock options and non-qualified stock options to purchase shares of the Company’s Class A Nonvoting Common Stock.

When the Company’s tax deduction from an option exercise exceeds the compensation cost resulting from the option, a tax benefit is created.  SFAS 123(R) requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows.  For the three and nine months ended September 30, 2007 and 2006, there was no impact to the consolidated statement of cash flows because there were no recognized tax benefits from stock option exercises during these periods.

SFAS No. 123(R) requires companies to estimate forfeitures.  Based on our historical experience and the relative market price to strike price of the options, we do not currently estimate any forfeitures of vested or unvested options.

In accordance with SFAS No. 123(R), we estimate the fair value of our options using the Black-Scholes option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility, and the expected life of the options.  The dividend yield is excluded from the calculation, as it is our present intention to retain all earnings.  We expense the estimated grant date fair values of options issued on a straight-line basis over the vesting period.

We granted 301,250 of options during the nine months ended September 30, 2007.  No options were granted during the three months ended September 30, 2007.  Of the granted options, 70,000 were granted to our directors as fully vested options during the nine months ended September 30, 2007.  Also, there were 20,000 options granted to our employees during the nine months ended September 30, 2006.  We estimated the fair value of these options at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:

Using the above assumptions and in accordance with the SFAS No. 123(R) modified prospective method, we recorded $177,000 and $597,000 in compensation expense for the total estimated grant date fair value of stock options that vested during the three and nine months ended September 30, 2007, respectively.  We also recorded $25,000 and $70,000 in compensation expense for the total estimated grant date fair value of stock options that vested during the three and nine months ended September 30, 2006, respectively.  At September 30, 2007, the total

unrecognized estimated compensation cost related to non-vested stock options granted was $1.0 million, which is expected to be recognized over a weighted average vesting period of 1.36 years.  We recorded cash received from stock options exercised of $25,000 for the three and nine months ended September 30, 2007 and $87,000 for the nine months ended September 30, 2006.  The total realized value of these exercised stock options for the three and nine months ended September 30, 2007 was $37,000 and $131,000 for the nine months ended September 30, 2006.  No options were exercised during the three months ended September 30, 2006; therefore, no cash was received from the exercising of stock options and no value was realized from the exercise of options during that period.  Except for the 70,000 fully vested options granted to our directors during the first quarter, 1,875 and 6,875 options vested during the three and nine months ended September 30, 2007; therefore, the grant date fair value of options vesting during the three and nine months ended September 30, 2007 was $15,000 and $55,000, respectively.  The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at September 30, 2007 was $2.5 million of which 98.7% are currently exercisable.

All stock options granted have a contractual life of 10 years at the grant date.  The aggregate total number of shares of Class A Nonvoting Common Stock and Class B Voting Common Stock authorized for issuance under our 1999 Stock Option Plan is 1,287,150.  At the time that options are exercised, at the discretion of management, we will either issue treasury shares or make a new issuance of shares to the employee or board member.  Dependent on the grant letter to the employee or board member, the required service period for option vesting is between zero and four years.

We had the following stock options outstanding and exercisable as of September 30, 2007 and December 31, 2006:

The weighted average remaining contractual life of all options outstanding, vested and expected to vest, at September 30, 2007 and December 31, 2006 was approximately 6.47 and 3.60 years, respectively.  The weighted average remaining contractual life of the exercisable options outstanding at September 30, 2007 and December 31, 2006 was approximately 4.99 and 3.39 years, respectively.

Our operations are organized into two reportable business segments within the meaning of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.  Our reportable segments are (1) cinema exhibition and(2) real estate.  The cinema segment is engaged in the development, ownership, and operation of multiplex cinemas.  The real estate segment is engaged in the development, ownership, and operation of commercial properties, including ETRC’s in Australia and New Zealand and live theatres in the United States.  Historically, our development projects have included a cinema component.  Incident to our real estate operations we have acquired, and continue to hold, raw land in urban and suburban centers in Australia and New Zealand.

Effective the fourth quarter of 2006, we changed the presentation of our segment reporting such that our intersegment revenues and expenses are reported separately from our segments’ operating activity.  The effect of this change is to include intercompany rent revenues and rent expenses into their respective cinema and real estate business segments.  The revenues and expenses for the nine months ending September 30, 2006 have been adjusted to conform to the current year presentation.  We believe that this presentation more accurately portrays how our operating decision makers’ view the operations, how they assess segment performance, and how they make decisions about allocating resources to the segments.

The tables below summarize the results of operations for each of our principal business segments for the three (“2007 Quarter”) and nine (“2007 Nine Months”) months ended September 30, 2007 and the three (“2006 Quarter”) and nine (“2006 Nine Months”) months ended September 30, 2006, respectively.  Operating expenses include costs associated with the day-to-day operations of the cinemas and live theatres and the management of rental properties.  All operating results from discontinued operations are included in “Gain on sale of a discontinued operation” (dollars in thousands):

We have significant assets in Australia and New Zealand.  To the extent possible, we conduct our Australian and New Zealand operations on a self-funding basis.  The carrying value of our Australian and New Zealand assets fluctuate due to changes in the exchange rates between the US dollar and the functional currency of Australia (Australian dollar) and New Zealand (New Zealand dollar).  We have no derivative financial instruments to hedge foreign currency exposure.

Presented in the table below are the currency exchange rates for Australia and New Zealand as of September 30, 2007 and December 31, 2006:

Basic earnings per share is computed by dividing the net income to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed by dividing the net income to common stockholders by the weighted average number of common shares outstanding during the period after giving effect to all potentially dilutive common shares that would have been outstanding if the dilutive common shares had been issued.  Stock options give rise to potentially dilutive common shares.  In accordance with SFAS No. 128, “Earnings Per Share,” these shares are included in the dilutive earnings per share calculation under the treasury stock method.  The following is a calculation of earnings per share (dollars in thousands, except share data):

For the nine months ended September 30, 2007, we recorded losses from continuing operations.  As such, the incremental shares of 273,327 from stock options to purchase shares of common stock were excluded from the computation of diluted loss per share because they were anti-dilutive in those periods.

Our property held for development increased by $9.3 million during the nine months ended September 30, 2007 due to the acquisition of a 64.0 acre parcel of undeveloped agricultural real estate which we purchased for approximately $9.3 million (NZ$12.1 million) through a Landplan Property Partners property trust (see Note 17 – Acquisitions, Dispositions, and Assets Held for Sale).

As of September 30, 2007 and December 31, 2006, we owned property under development summarized as follows (dollars in thousands):

We recorded capitalized interest related to our properties under development for the three months ended September 30, 2007 and 2006 of $1.1 million and $449,000, respectively, and $3.1 million and $1.2 million for nine months ended September 30, 2007 and 2006, respectively.

Incident to the development of our Burwood property, in late 2006, we began various fill and earth moving operations.  In late February 2007, it became apparent that our cost estimates with respect to site preparation were low, as the extent of the contaminated soil present at the site – a former brickworks – was greater than we had originally believed.  Our previous estimated cost of $500 million included approximately $1.4 million (AUS$1.8 million) of estimated cost to remove the contaminated soil.  As we were not the source of this contamination, we are not currently under any legal obligation to remove this contaminated soil from the site.  However, as a practical matter we intend to address these issues in connection with our planned redevelopment of the site as a mixed-use retail, entertainment, commercial and residential complex.  As of September 30, 2007, we estimate that the total site preparation costs associated with the removal of this contaminated soil will be $7.9 million (AUS$8.9 million) and as of that date we had incurred a total of $7.1 million (AUS$8.0 million) of these costs.  In accordance with EITF 90-8 Capitalization of Costs to Treat Environmental Contamination, contamination clean up costs that improve the property from its original acquisition state are capitalized as part of the property’s overall development costs.

As of September 30, 2007 and December 31, 2006, we owned investments in property and equipment as follows (dollars in thousands):

Depreciation expense for property and equipment was $2.9 million and $3.2 million for the three months ended September 30, 2007 and 2006, respectively, and $8.3 million and $9.3 million for the nine months ended September 30, 2007 and 2006, respectively.

Except as noted below regarding our investment in Malulani Investments, Limited, investments in unconsolidated joint ventures and entities are accounted for under the equity method of accounting, and, as of September 30, 2007 and December 31, 2006, include the following (dollars in thousands):

 

 

For the three months and nine months ended September 30, 2007 and 2006, we recorded our share of equity earnings (loss) from our investments in unconsolidated joint ventures and entities as follows:

 

We continue to treat this investment on a cost basis by recognizing earnings as they are distributed to us.  We are currently in litigation with certain controlling shareholders of Malulani Investments Limited.  We have contractually agreed to share these litigation costs with another minority shareholder.  The outstanding balance for their obligation is included in our other assets as a receivable.

During 2007, this joint venture has been in the process of completing the development of a predominately-residential condominium complex in midtown Manhattan called Place 57.  During the three and nine months ending September 30, 2007, the partnership closed on the sale of one and eight of its remaining residential condominiums resulting in gross sales of $3.4 million and $26.0 million, respectively, which resulted in equity earnings from unconsolidated joint ventures and entities to us of $201,000 and $1.6 million, respectively.  All of the residential condominiums have been sold and only the retail condominium is still available for sale.  The condensed statement of operations for 205-209 East 57th Street Associates, LLC (Unaudited) is as follows:

Subsequent to January 1, 2002, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we do not amortize goodwill.  Instead, we perform an annual impairment review of our goodwill and other intangible assets in the fourth quarter unless changes in circumstances indicate that an asset may be impaired.  As of September 30, 2007 and December 31, 2006, we had goodwill consisting of the following (dollars in thousands):

We have intangible assets other than goodwill that are subject to amortization and are being amortized over various periods.  We amortize our beneficial leases over the lease period, the longest of which is 20 years, and our option fee and other intangible assets over 10 years.  For the three and nine months ended September 30, 2007, amortization expense totaled $139,000 and $614,000, respectively; and for the three and nine months ended September 30, 2006, amortization expense totaled $223,000 and $638,000, respectively.

Intangible assets subject to amortization consist of the following (dollars in thousands):

Prepaid and other assets are summarized as follows (dollars in thousands):

The income tax provision for the three months and nine months ended September 30, 2007 and 2006 was composed of the following amounts (dollars in thousands):

The incremental effects of applying FIN 48 on line items in the accompanying consolidated balance sheet at January 1, 2007 were as follows (dollars in thousands):

Interest and/or penalty related to income tax matters are recorded as part of income tax expense.  Of the total reserve for uncertain tax positions as of the date of adoption, approximately $1.7 million represented accrued interest and penalties.  Approximately $400,000 of additional interest and penalties were accrued for the period January 1, 2007 to September 30, 2007, mostly related to the IRS litigation matter.

Our company and subsidiaries are subject to U.S. federal income tax, income tax in various U.S. states, and income tax in Australia, New Zealand, and Puerto Rico.

Generally, changes to our federal and most state income tax returns for the calendar year 2002 and earlier are barred by statutes of limitations.  Certain domestic subsidiaries filed federal and state tax returns for periods before these entities became consolidated with us.  These subsidiaries were examined by IRS for the years 1996 to 1999 and significant tax deficiencies were assessed for those years.  We are contesting these deficiencies in Tax Court.  Our income tax returns of Australia filed since inception in 1995 are currently open for examination.  The income tax returns filed in New Zealand and Puerto Rico for calendar year 2002 and afterward are also currently open for examination.

We do not anticipate that within 12 months following September 30, 2007 our total unrecognized tax benefits will change significantly because of settlement of audits and expiration of statutes of limitations.

Notes payable are summarized as follows (dollars in thousands):

On June 28, 2007, Sutton Hill Properties LLC (“SHP”), one of our consolidated subsidiaries, entered into a $15.0 million loan that is secured by SHP’s interest in the Cinemas 1, 2, & 3 land and building.  SHP is owned 75% by Reading and 25% by Sutton Hill Capital, LLC (“SHC”), a joint venture indirectly wholly owned by Mr. James J. Cotter, our Chairman and Chief Executive Officer, and Mr. Michael Foreman.  Under the terms of the credit agreement, this loan bears a fixed interest rate of 6.73% per annum payable monthly.  The loan matures on July 1, 2012.  No principal payments are due until maturity.  SHP distributed the proceeds of the loan to Reading and to SHC in the amount of $10.6 million and $3.5 million, respectively.  Because, the cash flows from SHP are currently insufficient, Reading and Sutton Hill Capital, LLC, have agreed to contribute the capital required to service the debt.  Reading will be responsible for 75% and SHC will be responsible for 25% of such capital payments.

During the first nine months of 2007, we retired a portion of our bank indebtedness in Australia of $5.8 million (AUS$7.4 million).  We subsequently drew down $11.9 million (AUS$14.0 million) during 2007.  In October 2007, we negotiated an increase of our total Australia Corporate Credit Facility from $88.6 million (AUS$100.0 million) to $97.4 million (AUS$110.0 million) (see Note 19 – Subsequent Events).

On June 29, 2007, we finalized the renegotiation of our New Zealand Corporate Credit Facility as a $46.4 million (NZ$60.0 million) line of credit.  This renegotiated agreement carries the same terms as noted in our 2006 Consolidated Financial Statements except that it is now a line of credit instead of term debt, the maturity date has been extended by one year to November 23, 2010, the interest rate for the facility will be based on the 90-day Bank Bill Bid Rate (BBBR) plus a 1.00% margin, and a 0.20% line charge will be incurred on the total line of credit of $46.4 million (NZ$60.0 million).  The current interest rate for the outstanding loan balance at September 30, 2007 was 10.00%.

As noted below, we had previously paid off our term debt of this facility of $34.4 million (NZ$50.0 million) as a use of the proceeds from our new Subordinated Notes from Reading International Trust I.  On June 29, 2007, we drew down on this new line of credit by $5.2 million (NZ$6.7 million) to purchase a property in New Zealand and on July 29, 2007 we drew down an additional $9.4 million (NZ$12.2 million) to purchase the Manukau property in New Zealand (see Note 17 – Acquisitions and Dispositions).  On August 2, 2007, we paid down this facility by $12.0 million (NZ$15.7 million) from the proceeds of the sale of certain marketable securities.

In order to finance a portion of our purchases of marketable securities, we had arranged a line of credit (a broker margin account) with UBS Financial Services, Inc. which carried an interest rate of 7.25%.  The line of credit was secured by the marketable securities which we purchased on the account.  Under the line of credit, we were able to borrow approximately 50% of the market value of our securities in our UBS account.  During the second quarter of 2007, we paid off this line of credit in conjunction with our sale of the associated marketable securities.

On February 5, 2007, we issued $51.5 million in 20-year fully subordinated notes to a trust which we control, and which in turn issued $51.5 million in securities.  Of the $51.5 million, $50.0 million in trust preferred securities were issued to unrelated investors in a private placement and $1.5 million of common trust securities were issued by the trust to Reading.  This $1.5 million is shown on our balance sheet as “Investment in Reading International Trust I.”  The interest on the notes and preferred dividends on the trust securities carry a fixed rate for five years of 9.22% after which the interest will be based on an adjustable rate of LIBOR plus 4.00% unless we exercise our right to refix the rate at the current market rate at that time.  There are no principal payments due until maturity in 2027 when the notes and the trust securities are scheduled to be paid in full.  We may pay off the debt after the first five years at 100.0% of the principal amount without any penalty.  The trust is essentially a pass through, and the transaction is accounted for on our books as the issuance of fully subordinated notes.  The credit facility includes a number of affirmative and negative covenants designed to monitor our ability to service the debt.  Currently, the most restrictive covenant of the facility requires that we must maintain a fixed charge coverage ratio at a certain level.  The placement generated $49.9 million in net proceeds, which were used principally to make our investment in the common trust securities of $1.5 million, to retire all of our bank indebtedness in New Zealand of $34.4 million (NZ$50.0 million) and to retire a portion of our bank indebtedness in Australia of $5.8 million (AUS$7.4 million).  During the three and nine months ended September 30, 2007, we paid $1.1 million and $2.2 million, respectively, in preferred dividends to the unrelated investors.  At September 30, 2007, we had preferred dividends payable of $768,000.

Other liabilities are summarized as follows (dollars in thousands):

On March 15, 2007, the Board of Directors of Reading International, Inc. (“Reading”) approved a Supplemental Executive Retirement Plan (“SERP”) pursuant to which Reading has agreed to provide James J. Cotter, its Chief Executive Officer and Chairman of the Board of Directors, supplemental retirement benefits effective March 1, 2007.  Under the SERP, Mr. Cotter will receive a monthly payment of the greater of (i) 40% of the average monthly earnings over the highest consecutive 36-month period of earnings prior to Mr. Cotter’s separation from service with Reading or (ii) $25,000 per month for the remainder of his life, with a guarantee of 180 monthly payments following his separation from service with Reading or following his death.  The

beneficiaries under the SERP may be designated by Mr. Cotter or by his beneficiary following his or his beneficiary’s death.  The benefits under the SERP are fully vested as of March 1, 2007.

The SERP initially will be unfunded, but Reading may choose to establish one or more grantor trusts from which to pay the SERP benefits.  As such, the SERP benefits are unsecured, general obligations of Reading.  The SERP is administered by the Compensation Committee of the Board of Directors of Reading.  In accordance with SFAS 158 - Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R), the initial pension benefit obligation of $2.7 million is included in our other liabilities with a corresponding amount of unrecognized prior service cost included in accumulated other comprehensive income (see Note 16 – Comprehensive Income).  The $2.7 million will be amortized as a prior service cost over the estimated service period of 10 years combined with an annual interest cost.  For the three and nine months ended September 30, 2007, we recognized $39,000 and $91,000, respectively, of interest cost and $76,000 and $177,000, respectively, of amortized prior service cost.  The balance of the other liability for this pension plan was $2.8 million at September 30, 2007 and the accumulated other comprehensive income balance was $2.5 million at September 30, 2007.  The value of the SERP is based on a discount rate of 5.75% and an annual compensation growth rate of 3.50%.

In addition to the aforementioned SERP, Mr. S. Craig Tompkins, our Executive Vice President, Director – Business Affairs, Chief Legal Officer and Corporate Secretary, has a vested interest in the pension plan originally established by Craig Corporation prior to its merger with our company of $181,000, which amount accrues interest at 30 day LIBOR and is maintained as an unfunded Executive Pension Plan obligation included in other liabilities.

As part of the purchase of the real property underlying our leasehold interest in the Cinemas 1, 2, & 3 on June 1, 2005, we granted a purchase option to Sutton Hill Capital, LLC (“SHC”), a limited liability company beneficially owned in equal 50/50 shares by Messrs. James J. Cotter and Michael Forman, to acquire at the acquisition date cost basis, up to a 25% non-managing membership interest in Sutton Hill Properties, LLC (“SHP”).  SHP is the limited liability company that we formed to acquire these interests.  In relation to this option, we estimated, based on a June 2007 property appraisal, the fair value of the option for the three months ending June 30, 2007 remained unchanged and the fair value of the option had increased for the nine months ended September 30, 2007 by $950,000 which was expensed for the nine months ending September 30, 2007.  During 2006, the value of the option at September 30, 2006 increased to approximately $3.6 million, resulting in an expense for the three and nine months ended September 30, 2006 of $100,000 and $1.5 million, respectively.

On June 28, 2007, SHC exercised this option, paying the option exercise price through the application of their $3.0 million deposit plus the assumption of its proportionate share of SHP’s liabilities giving it a 25% non-managing membership interest in SHP.  Upon exercise, the settlement of the previously capitalized option liability of $4.6 million resulted in an increase in additional paid-in-capital of $2.5 million as the transfer of the 25% non-managing membership interest to SHC constituted a transfer of an equity interest between entities under common control.

Total debt of unconsolidated joint ventures and entities was $5.0 million and $4.8 million as of September 30, 2007 and December 31, 2006, respectively.  Our share of unconsolidated debt, based on our ownership percentage, was $2.3 million and $2.2 million as of September 30, 2007 and December 31, 2006, respectively.  This debt is without recourse to Reading as of September 30, 2007 and December 31, 2006.

Minority interest is composed of the following enterprises:

The components of minority interest are as follows (dollars in thousands):

As fully described in our 2006 Consolidated Financial Statements, we have formed two new wholly-owned subsidiaries, Landplan Property Partners, Pty Ltd and Landplan Property Partners New Zealand, Ltd collectively referred to as Landplan Property Partners (“LPP”), to engage in the real estate development business under the leadership of Mr. Doug Osborne.  We have an agreement with Mr. Osborne pursuant to which he has a contingent interest in certain property trusts, owned by LPP, ranging between 27.5% and 15%, depending on a number of factors including the amount and duration of the investments of LPP.  Mr. Osborne’s interest is subject to (i) the repayment of all third party indebtedness, (ii) the repayment of all funds invested or advanced by Reading, and (iii) the realization by Reading of an 11% annual compounded preferred return on its capital.  Based on SFAS 123(R), we have calculated the fair value of Mr. Osborne’s interest for book purposes at $171,000 with respect to property acquired by LPP in the first quarter.  LPP acquired another property during the third quarter of 2007 for which we estimate Mr. Osborne’s interest for book purposes to be $158,000 (see Note 17 – Acquisitions, Dispositions, and Assets Held for Sale).  During the three and nine months ended September 30, 2007, we expensed $59,000 and $155,000, respectively, associated with Mr. Osborne’s interests.  These individual trusts are referred to in this note as the Landplan Property Partners Property Trusts.

On June 28, 2007, SHC exercised its Cinemas 1, 2, & 3 Purchase Option for a cash contribution of $3.0 million plus the assumption of its proportionate share of SHP’s liabilities giving them a 25% non-managing membership interest in SHP.  In July 2007, SHP distributed $3.5 million as an equal distribution to SHC of which $3.0 million was deemed a minority interest distribution and $525,000 was deemed an excess distribution of minority interest which we recorded as an expense to Reading.

As part of his compensation package, Mr. John Hunter, our Chief Operating Officer, was granted $100,000 of restricted Class A Non-Voting Common Stock on February 12, 2007.  This stock grant has a vesting period of two years and a stock grant price of $8.63.

During the third quarter of 2007, we issued for cash to an employee of the corporation under our employee stock option plan 6,250 shares of Class A Nonvoting Common Stock at an exercise price of $4.01 per share.

U.S. GAAP requires that the effect of foreign currency translation adjustments and unrealized gains and/or losses on securities that are available-for-sale (“AFS”) be classified as comprehensive income.  The following table sets forth our comprehensive income for the periods indicated (dollars in thousands):