Reading International - 10-Q quarterly report FY

 

 

OR

(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.

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     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 5, 2005, there were 20,971,708 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.

 

 

See accompanying notes to consolidated financial statements.

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 (“RII” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was incorporated in 1999 as Citadel Holding Corporation (“CDL”), and was renamed Reading. Our businesses consist primarily of:

     The accompanying unaudited condensed 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. Other than the disclosure of discontinued operations, there have been no material changes in the information disclosed in the notes to the condensed consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2004 (“2004 Annual Report”). The financial information presented in this quarterly report on Form 10-Q for the period ended June 30, 2005 (the “June 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 2004 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 for the three months and six months ended June 30, 2005 have been made. The results of operations for the six months ended June 30, 2005 are not necessarily indicative of the results of operations to be expected for the entire year. Certain amounts in previously issued financial statements have been reclassified to conform to the 2005 presentation.

     In our Consolidated Statement of Cash Flows for the six months ended June 30, 2005, we changed the classification of returns of earnings from unconsolidated joint ventures to present such changes and returns as an operating activity. We previously presented such amounts as an investing activity. We reclassified changes in returns of earnings from unconsolidated joint ventures to be consistent with our 2005 presentation which resulted in a net decrease to investing cash flows for the six months ended June 30, 2004 of approximately $625,000 and a corresponding net increase to operating cash flows from the amounts previously reported.

     On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the Act). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. We do not expect to have material current or accumulated earnings in controlled foreign corporations at December 31 2005, and therefore expect no opportunity to make distributions that qualify for the tax benefits

under the Act. Accordingly, we do not expect the Act to have a material impact on our financial position or results of operations.

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 – Revised, “Share Based Payment.” The statement establishes the standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. The statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Public companies may apply the standard on a modified prospective method. Under this method, a company records compensation expense for all awards it grants after the date it adopts the standard. In addition, public companies are required to record compensation expense for the unvested portion of previously granted awards that remain outstanding at the date of adoption. During 2005, the Securities and Exchange Commission deferred the effective date of this statement until the first annual period beginning after June 15, 2005. The financial statement impact of adopting of this statement has not yet been estimated.

     In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29” (SFAS 153). The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions”, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005. We do not believe that the adoption of SFAS 153 will have a material impact on our results of operations or financial position.

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (SFAS 154). SFAS 154 requires retrospective application to prior periods’ financial statements of voluntary changes in accounting principle. It also requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. The statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS 154 to have a material effect on our consolidated financial position or results of operations.

     We have a stock based compensation plan for certain employees and non-employee directors which is fully described in the 2004 Annual Report. We account for the plan under the recognition and measurement principles of APB Opinion (“APBO”) No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Under APBO No. 25, no stock-based employee compensation cost has been reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. APBO No. 25 does not apply to non-employees and would require that we record compensation expense for non-employees. However, APBO No. 25 applies to non-employee directors when stock options are granted in connection with the non-employee directors’ board services.

     Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS Nos. 123 and 148”) established disclosure requirements using the fair value basis method of accounting for stock-based compensation. As permitted by SFAS Nos. 123 and 148, we have elected to continue using the intrinsic value method of accounting prescribed under APBO No. 25. The following table

illustrates the effect on net loss and loss per share as if we had applied the fair value provisions of SFAS Nos. 123 and 148 to measure stock-based compensation (dollars in thousands):

     During the first quarter of 2005, we issued 20,000 shares of Class A Non-Voting Common Stock with an exercise price of $2.76 per share pursuant to the exercise by a former director of fully vested and then currently exercisable stock options. The exercise price was paid in the form of a promissory note in the amount of $55,000. Additionally, during the second quarter of 2005, we issued 5,850 shares and 5,000 shares of Class A Non-Voting Common Stock at exercise prices of $4.97 and $2.76 per share, respectively, to an employee of the corporation under our stock based compensation plan. The exercise price was paid in the form of a cash payment in the amount of $43,000.

     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 theaters in the United States. Historically, our development projects have included a cinema component.

     Corporate results include interest income earned with respect to cash balances, interest expense, general and administrative expense, minority interest income (expense) and other income (expense). All operating results from discontinued operations are included in “(Loss) income from discontinued operations.” “(Loss) income from discontinued operations” from the Puerto Rico operations and the Glendale building is presented separately from “gain on disposal of business operations.”

     Information about our cinema and real estate segments operations for the three and six months ended June 30, 2005 and 2004 is presented in the following tables (dollars in thousands):

     As fully described in our 2004 Annual Report, we have cinema and real estate operations with 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 June 30, 2005 and December 31, 2004.

     Basic earnings (loss) per share is computed by dividing net earnings (loss) to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) 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.

     For the three months ended June 30, 2005 and 2004, respectively, we recorded net operating losses. As such, the incremental shares of 632,159 and 693,255 in 2005 and 2004, respectively, 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.

     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):

     As of June 30, 2005 and December 31, 2004, we had investments in rental property and property and equipment as follows (dollars in thousands):

     As part of construction-in-progress, we recorded $1.0 million in capitalized interest for the period ended June 30, 2005. There was no capitalized interest during the period ended December 31, 2004.

     As of 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. As of June 30, 2005 and December 31, 2004, we had goodwill consisting of the following (dollars in thousands):

     We have intangible assets other than goodwill which are subject to amortization and are being amortized over various periods. We amortize our beneficial lease over 20 years and our option fees and acquisition costs over 10 years. For the three and six months ended June 30, 2005, the amortization expense totaled $307,000 and $611,000, respectively.

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

     The income tax provision for the three and six months ended June 30, 2005 and 2004 was composed of the following amounts (dollars in thousands), respectively:

     As of June 30 2005, approximately $3.1 million in taxable temporary differences exist from the sale of the Glendale office building and its replacement with the Cinemas 1, 2 & 3 fee interest. Any future taxable income which may be related to the transaction is offset by approximately $20.0 million in future deductible temporary differences arising from available U.S. operating loss carry forwards. Accordingly, no deferred tax provision has been recorded.

     Minority interest is composed of the following enterprises:

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

     During the first half of 2005, we drew down $15.3 million (AUS$17.4 million) on our Australian credit facilities consisting of $3.7 million (AUS$4.8 million) from our Australian General Corporate Credit Facility and $11.6 million (AUS$15.0 million) from our Newmarket Loan. We used these funds primarily to finance the construction of our Newmarket development in Brisbane, Australia. These borrowings were partially offset by the assumption by the buyer of the Glendale Building of the $10.1 million mortgage loan on the property. The estimated fair value of our notes payable at June 30, 2005 and December 31, 2004 were approximately $85.9 million and $73.0 million, respectively.

     In accordance with SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets, we report as discontinued operations real estate assets that meet the definition of a component of an entity and have been sold or meet the criteria to be classified as held for sale under SFAS 144. We included all results of these discontinued operations, less applicable income taxes, in a separate component of income on the consolidated statements of income under the heading “discontinued operations.” This treatment resulted in reclassifications of the 2004 financial statement amounts to conform to the 2005 presentation.

     Glendale Building. On May 17, 2005, we sold our Glendale office building in Glendale, California for $10.3 million cash and $10.1 million of assumed debt resulting in a $12.0 million gain. All the cash proceeds from the sale were used in the purchase for $12.2 million of the Cinemas 1, 2 & 3 fee interest and of the landlord’s interest in the ground lease, encumbering that land, as part of a tax deferred exchange under Section 1031 of the Internal Revenue Code.

     The assets and liabilities of the Glendale building were as follows:

The 2005 and 2004 quarterly results for the Glendale Property are as follows:

     Puerto Rico Cinema Operations. As of June 8, 2005, we sold our assets and certain liabilities associated with our Puerto Rico cinema operations for $2.3 million resulting in a $1.6 million gain. Net losses of $169,000 and $113,000 were included in the loss from discontinued operations for the six months ending 2005 and 2004, respectively, relate to these operations. No material income tax provision arises from this transaction.

     The assets and liabilities of the Puerto Rico operations were as follows:

     The 2005 and 2004 quarterly results for the Puerto Rico discontinued operations are as follows:

     Cinemas 1, 2 & 3 Fee Interest. In June 2005, we purchased the approximately 7,840 square-foot fee interest underlying our current sub-leasehold interest in the Cinemas 1, 2 & 3 property located in Manhattan on 3^rd Avenue between 59^th Street and 60^th Street for $12.2 million. Funding for this purchase came primarily from the net funds received from the sale of the Glendale office building. On May 17, 2005, we sold our Glendale office building in Glendale, California for $10.3 million cash and $10.1 million of assumed debt resulting in a $12.0 million gain. All the cash proceeds from the sale were used in the purchase for $12.2 million of the Cinemas 1, 2 & 3 fee interest and of the landlord’s interest in the ground lease, encumbering that land, as part of a tax deferred exchange under Section 1031 of the Internal Revenue Code. We have identified the acquisition of the tenant’s interest in that same ground lease for a further $9.0 million in order to utilize the remainder of the proceeds for the purpose of that tax deferred exchange. Assuming that this acquisition closes prior to the November 13, 2005 cut-off date for the closing of such an exchange, no material income tax provision will arise from the transaction. If for any reason we should fail to acquire the tenant’s interest in the ground lease by November 13, 2005, then approximately $8.8 million of the gain from the sale of our Glendale office building would not be deferred, but would be offset against our outstanding net operating losses. Accordingly, we do not currently anticipate that the sale of our Glendale office building will result in the payment of any material Federal or State income taxes for 2005.

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

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

     The following is an update of our commitments and contingencies set forth in our 2004 Annual Report.

     On October 30, 2000, we commenced litigation in the Supreme Court of Victoria at Melbourne, Commercial and Equity Division, against our joint venture partner and the controlling stockholders of our joint venture partner in the Whitehorse Shopping Center. That action is entitled Reading Entertainment Australia PTY, LTD vs. Burstone Victoria PTY, LTD and May Way Khor and David Frederick Burr, and was brought to collect on a promissory note (the “K/ B Promissory Note”) evidencing a loan that we made to Ms. Khor and Mr.

Burr and that was guaranteed by Burstone Victoria PTY, LTD (“Burstone” and collectively with Ms. Khor and Mr. Burr, the “Burstone Parties”). The Burstone Parties asserted in defense certain set-offs and counterclaims, alleging, in essence, that we had breached our alleged obligations to proceed with the development of the Whitehorse Shopping Center, causing the Burstone Parties substantial damages. Following trial, the trial court not only affirmed the liability of the Burstone Parties on the K/B Promissory Note but also determined that we had breached certain obligations owed to WPG (the joint venture in which we own a 50% interest and in which Burstone owns the remaining 50% interest). The trial court did not, however, find us in breach of any direct obligations to any one or more of the Burstone Parties.

     The trial court has entered judgment against us and in favor of WPG in the amount of $3.4 million (AUS$4.5 million). The trial court has also entered judgment against the Burstone Parties and in our favor in the amount of $3.2 million (AUS$4.2 million). Further, the trial court has found us responsible to reimburse the Burstone Parties for 65% of their out-of-pocket legal fees, an amount not yet determined but estimated at approximately $457,000 (AUS$600,000). In addition, we have settled various ancillary claims against us for an additional $305,000 (AUS$400,000), which has now been paid to WPG.

     As discussed in greater detail below, we have given timely notice of our intention to appeal the judgment entered against us by the trial court and intend to vigorously prosecute that appeal. The Burstone Parties failed to give a timely notice of any appeal, and, consequently, will only be permitted to appeal if leave is granted by the court. The Burstone Parties has now sought such approval to appeal.

     A provisional liquidator has been appointed for WPG, and that company is now in the process of being wound up. As a consequence of our 50% interest in WPG, in the event that we are not successful in our appeal, we currently anticipate that we will ultimately receive liquidating distributions from WPG in an amount equal to approximately $1.7 million (AUS$2.3 million). Accordingly, we believe, assuming that the Burstone Parties have the wherewithal to satisfy the judgment against them, that even if we do not prevail on appeal, we will still net in the range of $1.1 million (AUS$1.4 million) from the litigation, less such attorney’s fees as may be assessed against us when the final accounting for such fees is made.

     We are advised by senior Queen’s Counsel after conducting an independent review of the evidence submitted at trial and the trial court’s opinion that, in his opinion, the trial court erred in a number of critical aspects, and that we should have no liability to WPG or any of the Burstone Parties. Accordingly, we have appealed that part of the trial court’s determination. Since Ms. Khor and Mr. Burr do not contest their liability under the K/B Promissory Note, and since we are advised that there is no right on the part of the Burstone Parties to set off against their liability on the K/B Promissory Note WPG’s judgment against us pending appeal, we currently intend to pursue collection of the principal and interest owed on the K/ B Promissory, whether or not the Burstone Parties seek to appeal portions of the trial court’s judgment against us. At the end of July 2005, the Burstone Parties made a partial payment of $229,000 (AUS $300,000) against the judgement against them in favor of us.

     During the second quarter we reached settlement with SONY and its affiliate Columbia Pictures on terms which will, in our view, enhance our ability to obtain first run film for our Village East cinema. We have now reached settlement with all of the original defendants other than Regal Entertainment and Paramount Pictures.

     We are currently under contract to acquire for $4.5 million a 50% interest in an unincorporated joint venture that owns 20 screens. During the period, we made a deposit of $700,000 with respect to the completion of the transaction. In order to complete the sale, both parties need to clear certain contingencies that are part of the sales agreement. As such, we can not give any assurance that we will complete this acquisition.

     During the first quarter of 2005, we issued 20,000 shares of Class A Non-Voting Common Stock with an exercise price of $2.76 per share pursuant to the exercise by a former director of fully vested and then currently exercisable stock options. The exercise price was paid in the form of a promissory note in the amount of $55,000. Additionally, during the second quarter of 2005, we issued 5,850 shares and 5,000 shares of Class A Non-Voting Common Stock at exercise prices of $4.97 and $2.76 per share, respectively, to an employee of the corporation under our stock based compensation plan.

     As noted in our 2004 Annual Report, the sellers of the Movieland Circuit were given non-transferable options to put to us the Class A Common Stock issued to them in connection with the acquisition of that circuit, at a put price of NZ$11.94 at any time during January 2006. For the period ended June 30, 2005, the put option is recorded as a liability on our books for $184,000. We remeasure this liability each period through the end of the option life in January 2006.

     The following table sets forth the terms of our interest rate swap derivative instruments at June 30, 2005:

     In accordance with SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, we marked our Australian interest swap instruments to market on the consolidated balance sheet resulting in an $492,000 (AUS$640,000) increase and $21,000 (AUS$27,000) increase to interest expense during the three months and six months ended June 30, 2005, respectively. We have recorded the fair market value of our interest rate swaps of $820,000 (AUS$1.1 million) as an other long-term liability. The swap with a notional amount of $12,436,000 does not have a “Receive Variable Rate” because the instrument will not be effective until March 31, 2006. In accordance with SFAS No. 133, we have not designated any of our current interest rate swap positions as financial reporting hedges.

     Investments in and advances to unconsolidated joint ventures are accounted for under the equity method of accounting, and as of June 30, 2005 and December 31, 2004 include the following (dollars in thousands):

     205-209 East 57^th Street Associates, LLC. During the first quarter of 2005, we increased our investment by $963,000 in the 205-209 East 57^th Street Associates, LLC, a limited liability company formed to redevelop our former cinema site at 205 East 57^thStreet in Manhattan. The increase in our investment was done to maintain our 25% equity ownership in the joint venture in light of increased budgeted construction costs.

     Cinema Joint Ventures. For the three and six months ending June 30, 2005, we recorded equity earnings from Mt. Gravatt of $83,000 and $218,000, respectively, and from Berkeley Cinemas of $103,000 and $372,000, respectively.

     Stock Issuance Upon Exercise of Employees Stock Options. On July 11, 2005, we issued 925,000 shares of Class A Non-Voting Common Stock at an exercise price of $3.80 per share to Mr. James J. Cotter, our Chairman of the Board and Chief Executive Officer, in connection with options issued to him under our stock based compensation plan. Mr. Cotter paid the exercise price by surrendering 486,842 shares of Class A Non-Voting Common Stock, resulting in a net increase in the number of shares of Class A Non-Voting Common Stock outstanding of 438,158 shares.

     Cinemas 1, 2 & 3 Ground Lease. On August 3, 2005, our Board’s Audit and Conflicts Committee, comprised entirely of outside independent directors, approved management’s proposal to acquire from Sutton Hill Capital LLC (“SHC”) for $9.0 million, its tenant’s interest in the ground lease estate that is currently sandwiched between (i) our fee ownership of the underlying land and (ii) our current possessory interest as the tenant in the building and improvements constituting the Cinemas 1, 2 & 3 in Manhattan. We are advised that the transactional documentation has been approved by SHC, and it is currently anticipated that we should be able to close the transaction before the end of August. The Cinemas 1, 2 & 3 are located on 3^rd Avenue between 59^th and 60^st Streets. Closing is subject to finalization of the necessary transactional documentation. Accordingly, no assurances can be given at this time that the above referenced transaction will ultimately close on the terms described above, or at all.

     As Reading International, Inc. (“Reading” and “we,” “us” or “our”), we consider ourselves to be essentially a cinema exhibition and live theater operating company with a strong focus on the development and holding of real estate assets. Our business operations include:

     We currently operate 32 cinemas with 212 screens, have investments in certain unconsolidated joint ventures in which we have varying interests and which own an additional six cinemas with 45 screens and manage three cinemas with 14 screens. Shortly before the end of the quarter, we completed our previously disclosed plan to leave the Puerto Rican cinema market by selling all of our cinemas in Puerto Rico for $2.3 million. The assets were previously operated by us under the Cine Vista brand.

     Our business plan going forward is to continue to identify, develop and acquire cinema and live theater properties, focusing on those opportunities where we can acquire either the fee interest underlying the operating assets, or long term leases, which we believe provide flexibility with respect to the usage of such leasehold assets and to focus on the development of our existing real estate. In the near term, we are focusing principally on the operation of our existing cinema assets and in the development of five parcels of undeveloped real estate in Melbourne, Brisbane, and Sydney in Australia and in Wellington in New Zealand while taking advantage of those opportunities that may present themselves from time to time to strategically expand our existing cinema circuits. Consistent with that intention to be opportunistic in our acquisition of additional cinemas, during the quarter we entered into a contract to acquire a 50% unconsolidated joint venture interest in 5 cinemas with 20 screens.

     During the second quarter, our efforts on the real estate side of our business were focused in large part on the entitlements process for our 50 acre Burwood site, the construction and finalization of the lease-up of our 4.1 acre Newmarket site, and the sale of our Glendale building, which lacked any entertainment components, as a part of a tax deferred exchange to fund the acquisition of the fee and ground lease interest underlying our Cinema 1, 2 & 3 property in Manhattan.

     A significant portion of our business is conducted in Australia and New Zealand, and as such, we are subject to a certain degree of currency risk. We do not engage in currency hedging activities. Rather, to the extent possible, we operate our Australian and New Zealand operations on a self-funding basis. Our policy in Australia and New Zealand is to match revenues and expenses, whenever possible, in local currencies. As a result, a majority of our expenses in Australia and New Zealand have been procured in local currencies. Due to the developing

nature of our operations in Australia and New Zealand, our revenues are not yet significantly greater than our operating expenses. The resulting natural operating hedge has led to a negligible foreign currency effect on our earnings. As we continue to progress with our acquisition and development activities in Australia and New Zealand, we cannot assure you that the foreign currency effect on our earnings will be insignificant in the future.

     We continue to acquire, to dispose of or to reposition assets in accordance with our business plan as follows:

     Up until the sale of our Puerto Rico cinemas effective June 8, 2005, for most of the quarter ended June 30, 2005, we directly operated 38 cinemas with 260 screens, had unconsolidated joint ventures in which we have varying interests, with an additional six cinemas with 45 screens and managed three cinemas with 14 screens. Regarding real estate, we own and operated during the quarter three ETRC’s that we developed in Australia and New Zealand; own the fee interests in four developed commercial properties in Manhattan and Chicago, all of which are improved with live theaters comprising seven stages and, in two cases, ancillary retail and commercial space; own the fee interests underlying one of our Manhattan cinemas and hold for development an additional five parcels (aggregating approximately 60 acres) in urbanized areas of Australia and New Zealand. Two of these parcels (comprising approximately 55 acres) are in areas designated by the provincial government of Victoria, Australia as “major activity centers,” and we are currently in the land use planning phases of their development.

     The tables below summarize the results of operations for each of our principal business segments for the three (“2005 Quarter”) and six (“2005 Six Months”) months ended June 30, 2005 and the three (“2004 Quarter”) and six (“2004 Six Months”) months ended June 30, 2004, respectively. Operating expenses include costs associated with the day-to-day operations of the cinemas and live theaters and the management of rental properties. All operating results from discontinued operations are included in “(Loss) income from discontinued operations.” “(Loss) income from discontinued operations” from the Puerto Rico operations and the Glendale building is presented separately from “gain on disposal of business operations.”