Reading International - 10-Q quarterly report FY

Washington, D.C.  20549

__________________________________

(Mark One)

For the quarterly period ended:  June 30, 2009

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 August 7, 2009, there were 21,089,901 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 unaudited condensed consolidated financial statements.

 

See accompanying notes to unaudited condensed 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 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 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 condensed consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2008 (“2008 Annual Report”).  The financial information presented in this quarterly report on Form 10-Q for the period ended June 30, 2009 (the “June Report”) should be read in conjunction with our 2008 Annual Report which contains the latest audited financial statements and related notes.  The periods presented in this document are the three (“2009 Quarter”) and six (“2009 Six Months”) months ended June 30, 2009 and the three (“2008 Quarter”) and six (“2008 Six Months”) months ended June 30, 2008.

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 six months ended June 30, 2009 and 2008 have been made.  The results of operations for the three months and six months ended June 30, 2009 and 2008 are not necessarily indicative of the results of operations to be expected for the entire year.  We have evaluated subsequent events for recognition or disclosure through August 7, 2009, which was the date we filed this Form 10-Q with the SEC.

We had investments in marketable securities of $1.3 million and $3.1 million at June 30, 2009 and December 31, 2008, respectively.  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, as amended by FSP FAS 115-2/124-2 Recognition and Presentation of Other-Than-Temporary Impairments.  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.  During the three and six months ended June 30, 2009, we recorded other-than-temporary losses of $1.3 million and $2.1 million, respectively, and during the three and six months ended June 30, 2008, we recorded losses of $1,000 on certain marketable securities.  Additionally, these investments have a cumulative unrealized loss of $2,000 included in accumulated other comprehensive income at June 30, 2009.  For the three months and six months ended June 30, 2009 our net unrealized gain on marketable securities was

$3,000 and $1,000, respectively.  For the three and six months ended June 30, 2008, our net unrealized gain on marketable securities was $3,000 and $4,000, respectively.

 

For the three and six months ended June 30, 2009, we recorded other losses of $1.9 million and $2.7 million, respectively, compared to an other income of $1.7 million and $3.0 million for the same periods in 2008.  For the three months ended June 30, 2009, the $1.9 million other loss included a $2.2 million loss on foreign currency translation, a $1.3 million other-than-temporary loss on marketable securities, and a $1.5 million gain on a property option termination.  The six months ended June 30, 2009 included the aforementioned items noted for the second quarter of 2009 plus an additional $746,000 other-than-temporary loss on marketable securities.  For the three months ended June 30, 2008, other income of $1.7 million was primarily related to a gain on foreign currency translation of $447,000, a $314,000 receipt related to our Burstone litigation and $910,000 of insurance proceeds related to damage caused by Hurricane George in 1998 to one of our previously owned cinemas in Puerto Rico.  The six months ended June 30, 2009 included the aforementioned items noted for the second quarter of 2008 plus settlements on our Burstone litigation of $836,000 and credit card dispute of $385,000.

Direct costs incurred in connection with obtaining tenants are amortized over the respective term of the lease on a straight-line basis.

Direct costs incurred in connection with financing are amortized over the respective term of the loan using the effective interest method or straight-line method if the result is not materially different.  In addition, interest on loans with increasing interest rates and scheduled principal pre-payments is also recognized using the effective interest method.

Subsequent to the issuance of the 2008 consolidated financial statements, we discovered that there was an error in the 2008 fixed asset impairment analysis related to certain cinema assets held in New Zealand.  As a result of the error, impairment expense and accumulated other comprehensive income for the year ended December 31, 2008 were overstated by $1.7 million and $66,000, respectively, and property and equipment was understated by $1.8 million.  We concluded that the error is not material to the 2008 consolidated financial statements and that the errors will be corrected with the next filing of our annual financial statements.  As a result of this correction, the net loss for the year ended December 31, 2008 was reduced from $18.5 million to $16.8 million and the property and equipment balance as of December 31, 2008 was increased from $171.9

Effective January 1, 2009, the Company adopted the provisions of Statement of Financial Accounting Standards No. 160 “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51” (“SFAS 160”).  SFAS 160 requires that amounts formerly reported as minority interests in the Company’s unaudited condensed consolidated financial statements be reported as noncontrolling interests.  In connection with the issuance of SFAS 160, certain revisions were also made to EITF No. Topic D-98“Classification and Measurement of Redeemable Securities” (“EITF D-98”).  These revisions clarify that noncontrolling interests with redemption provisions outside of the control of the issuer and noncontrolling interests with redemption provisions that permit the issuer to settle in either cash or common shares at the option of the issuer are subject to evaluation under EITF D-98 to determine the appropriate balance sheet classification and measurement of such instruments.  This adoption resulted in modifications to the reporting of noncontrolling interests in the Unaudited Condensed Consolidated Financial Statements.

The adoption of SFAS 160 had an impact on the presentation and disclosure of noncontrolling (minority) interests in our condensed consolidated financial statements.  As a result of the retrospective presentation and disclosure requirements of SFAS 160, the Company will be required to reflect the change in presentation and disclosure for all periods presented in future filings.

 

The principal effect on the prior year balance sheet related to the adoption of SFAS 160 is an increase in total stockholders’ equity of $1.8 million due to the reclassification of the non-controlling interest to a component of stockholders’ equity at December 31, 2008.

Non-controlling interest represents ownership interests not held by Reading International, Inc. in its underlying consolidated subsidiaries.

Effective January 1, 2009, the Company adopted the provisions Statement of Financial Accounting Standards No. 141(R) “Business Combinations”(“SFAS 141(R)”).  SFAS 141(R) requires an acquiring entity to recognize acquired assets and assumed liabilities in a transaction at fair value as of the acquisition date and changes the accounting treatment for certain items, including acquisition costs, which will be required to be expensed as incurred.  SFAS 141(R) is required to be applied on a prospective basis.

The adoption of SFAS 141(R) had a minimal effect on the Company’s unaudited condensed consolidated financial statements, results of operations, or cash flows for the three and six months ended June 30, 2009.  The Company anticipates that the adoption of SFAS 141(R) could have an impact on the cost allocation of future acquisitions and will require the Company to expense acquisition costs for future property acquisitions.  While the Company believes the impact of the adoption of SFAS 141(R) will not be material to the Company in the future based on recent historical acquisition activity, the impact will ultimately depend on future property acquisitions.

Effective April 1, 2009, the Company adopted the provisions of FASB Staff Position SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP SFAS 157-4”). FSP SFAS 157-4 relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales.  It reaffirms what SFAS 157 states, which is that the objective of fair value measurement is to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.  The adoption of FSP SFAS 157-4 did not have a material effect on the Company’s financial statements.

Effective April 1, 2009, the Company adopted the provisions of FASB Staff Position SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP SFAS 107-1” and “APB 28-1”). FSP SFAS 107-1 and APB 28-1 relate to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value.  Prior to the issuance of FSP SFAS 107-1, fair values for these assets and liabilities were only disclosed once a year. FSP SFAS 107-1 now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. FSP SFAS 107-1 and APB 28-1 do not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP SFAS 107-1 and APB 28-1 require comparative disclosures only for periods ending subsequent to initial adoption. The adoption of FSP SFAS 107-1 and APB 28-1 did not have a material effect on the Company’s financial statements (see Note 18 – Fair Value of Financial Instruments).

Effective for the second quarter of 2009, the Company adopted the provisions of Statement of Financial Accounting Standards No. 165 “Subsequent Events” (“SFAS 165”).  SFAS 165 establishes principles and requirements for evaluating and reporting subsequent events and distinguishes which subsequent events should be recognized in the financial statements versus which subsequent events should be disclosed in the financial statements.  SFAS 165 also requires disclosure of the date through which subsequent events are evaluated by management (see Note 1 – Basis of Presentation).  The adoption of SFAS 165 did not have a material impact on the Company’s financial statements.

During the first six months of 2009, the Financial Accounting Standards Board (“FASB”) issued the following Final Staff Positions (“FSPs”) and Statements of Financial Accounting Standards (“SFASs”) that were relevant to our company:

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”) which amends the guidance for identifying the primary beneficiary in variable interest entities, requires ongoing assessments for purposes of identifying the primary beneficiary, and eliminates the scope exception for qualifying special-purpose entities.  SFAS 167 will be

effective for our first quarter 2010.  We are currently assessing the impact, if any, of SFAS 167 on our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position SFAS 141(R)-1 "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies" (“FSP SFAS 141(R)-1”).  FSP SFAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues on the accounting for contingencies in a business combination.  FSP SFAS 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations acquired on or after January 1, 2009.  The adoption of FSP SFAS 141(R)-1 did not have any impact on the Company’s financial statements.

 FSP SFAS 115-2 and SFAS 124-2

In April 2009, the FASB issued FSP SFAS 115-2 and FSP SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP SFAS 115-2 and SFAS 124-2”).  FSP SFAS 115-2 and SFAS 124-2 changes the method for determining whether an other-than-temporary impairment exists for debt securities and the amount of the impairment to be recorded in earnings, as well as expands and increases the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities.  FSP SFAS 115-2 and SFAS 124-2 is effective for fiscal years, and interim periods within those fiscal years, ending after June 15, 2009.  The adoption of FSP SFAS 115-2 and SFAS 124-2 did not have any impact on the Company’s financial statements.

As more fully described in our 2008 Annual Report, we have granted the President of Landplan Property Partners, Pty Ltd (“LPP”), Mr. Doug Osborne, as incentive compensation, a subordinated carried interest in certain property trusts, owned by LPP or its affiliates and formed to acquire and hold LPP’s real property investments.  The estimated value of Mr. Osborne’s incentive interest of $203,000 at June 30, 2009 is included in the noncontrolling interest in these property trusts at June 30, 2009 (see Note 14 – Noncontrolling Interest).  During the three and six months ended June 30, 2009, we expensed $5,000 and $55,000, respectively, and during the three and six months ended June 30, 2008, we expensed $30,000 and $91,000, respectively, associated with Mr. Osborne’s interests.  At June 30, 2009, the total unrecognized compensation expense related to the LPP equity awards was $175,000, which is expected to be recognized over the remaining weighted average period of approximately 21 months.  No amounts, however, will be payable unless the properties held by the property trusts, on a consolidated basis, provide returns on capital in excess of 11%, compounded annually.

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, 2008.  This stock grant has a vesting period of two years and stock grant price of $9.70.

On February 11, 2009 and 2008, $100,000 and $50,000, respectively, of restricted Class A Non-Voting Common Stock vested related to prior year grants.  At June 30, 2009, 16,742 shares related to vested restricted

shares had yet to be issued.  For the three and six months ended June 30, 2009, we recorded compensation expense of $56,000 and $113,000, respectively, and, for the three and six months ended June 30, 2008, we recorded compensation expense of $100,000 and $196,000, respectively, related to the vesting of all our restricted stock grants.

The following table details the grants and vesting of restricted stock to our employees (dollars in thousands):

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 No. 123(R),Accounting for Stock-Based Compensation (“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 months ended June 30, 2009 and 2008, there was no impact to the unaudited condensed consolidated statement of cash flows because there were no recognized tax benefits from stock option exercises during these periods.

SFAS 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 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.

Based on prior years’ assumptions for options which have been granted and in accordance with the SFAS 123(R) modified prospective method, we recorded $58,000 and $218,000, respectively, in compensation expense for the total estimated grant date fair value of stock options that vested during the three and six months ended June 30, 2009, respectively.  We also recorded $160,000 and $320,000 in compensation expense for the total estimated grant date fair value of stock options that vested during the three and six months ended June 30, 2008, respectively.  At June 30, 2009, the total unrecognized estimated compensation cost related to non-vested stock options granted was $17,000, which is expected to be recognized over a weighted average vesting period of 1.8 years.  No options were exercised during the three or six months ended June 30, 2009 and 2008; therefore, no cash was received and no value was realized from the exercise of options during those periods.  During the three and six months ended June 30, 2009, 120,625 options vested having a current intrinsic value of $0 for the period as all the options were “out-of-the-money” at June 30, 2009.  During the three and six months ended June 30, 2008, 120,625 options vested having a current intrinsic value of $0 for the period as all the options were “out-of-the-money” at June 30,

2008.  The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at June 30, 2009 was $366,000 of which 100% 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 June 30, 2009 and December 31, 2008:

The weighted average remaining contractual life of all options outstanding, vested, and expected to vest at June 30, 2009 and December 31, 2008 was approximately 4.98 and 5.22 years, respectively.  The weighted average remaining contractual life of the exercisable options outstanding at June 30, 2009 and December 31, 2008 was approximately 4.96 and 4.61 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.  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.

The tables below summarize the results of operations for each of our principal business segments for the three and six months ended June 30, 2009 and the three and six months ended June 30, 2008, respectively.  Operating expense includes costs associated with the day-to-day operations of the cinemas and live theatres and the management of rental properties (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 and liabilities 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 against the risk of foreign currency exposure.

Presented in the table below are the currency exchange rates for Australia and New Zealand as of June 30, 2009 and December 31, 2008:

 

Basic earnings (loss) per share is computed by dividing the net income (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 the net income (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 and non-vested stock awards 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.  As noted in the table below, due to the small difference between the basic and dilutive weighted average common shares, the basic and dilutive earnings per share are the same for the 2009 Quarter, the 2008 Quarter, the 2009 Six Months, and the 2008 Six Months.  The following is a calculation of earnings (loss) per share (dollars in thousands, except share data):

For the three and six months ended June 30, 2009 and for the three and six months ended June 30, 2008, the exercisable, out-of-the-money options excluded from the computation of diluted earnings per share were 686,753 and 358,898, respectively, because they were anti-dilutive.

As of June 30, 2009 and December 31, 2008, we owned property held for and under development summarized as follows (dollars in thousands):

We recorded capitalized interest related to our properties under development for the three months ended June 30, 2008 of $1.7 million and for the six months ended June 30, 2009 and 2008 of $136,000 and $3.1 million, respectively.  We have curtailed the development activities of our properties under development and not currently capitalizing interest expense.  Therefore, we did not capitalize any interest during the three months ended June 30, 2009.

During the second quarter of 2009, we completed the construction of the building on our Indooroopilly property.  We are currently in the process of negotiating the lease of this property.  Until the property is leased and considered substantially complete, it will remain Property Held For and Under Development.

As of June 30, 2009 and December 31, 2008, we owned investments in property and equipment as follows (dollars in thousands):

Depreciation expense for property and equipment was $2.6 million and $4.7 million for the three months ended June 30, 2009 and 2008, respectively, and $5.8 million and $8.2 million for the six months ended June 30, 2009 and 2008, respectively.

Except as noted below regarding our investment in Malulani Investments, Limited ("MIL"), investments in unconsolidated joint ventures and entities are accounted for under the equity method of accounting, and, as of June 30, 2009 and December 31, 2008, include the following (dollars in thousands):

For the three and six months ended June 30, 2009 and 2008, we recorded our share of equity earnings (loss) from our investments in unconsolidated joint ventures and entities as follows (dollars in thousands):

 

We continue to treat this investment on a cost basis by recognizing earnings as they are distributed to us.  In December 2006, we commenced a lawsuit against certain officers and directors of MIL alleging various direct and derivative claims for breach of fiduciary duty and waste and seeking, among other things, access to various company books and records.  As certain of these claims were brought derivatively, MIL was also named as a defendant in that litigation.  On July 2, 2009, we and Magoon Acquisition and Development, LLC (“Magoon LLC”) entered into a settlement agreement (the “Settlement Terms”) with respect to this lawsuit.  Under the Settlement Terms, we and Magoon LLC will receive $2.5 million in cash, a $6.75 million three-year 6.25% secured promissory note (issued by The Malulani Group (“TMG”)), and a ten year “tail interest” in MIL and TMG which allows us, in effect, to participate in certain distributions made or received by MIL, TMG and/or, in certain cases, the shareholders of TMG.  However, the tail interest continues only for a period of ten years and no assurances can be given that we will in fact receive any distributions with respect to this Tail Interest.  On July 2, 2009, the lawsuit was settled in accordance with the Settlement Terms.  See Note 21 – Subsequent Events.

The remaining retail condominium of our Place 57 joint venture was sold in February 2009 for approximately $4.0 million.  Based on the closing statements of the sale, our share of the sales proceeds was approximately $900,000 and earnings of $304,000.On April 11, 2009, we received $1.2 million relating to our investment in the Place 57 joint venture representing a return of substantially all of our initial investment.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we perform an annual impairment review of our goodwill and other intangible assets on a reporting unit basis, or earlier if changes in circumstances indicate that an asset may be impaired.  As of June 30, 2009 and December 31, 2008, 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; our trade name using an accelerated amortization method over its estimated useful life of 50 years; and our option fee and other intangible assets over 10 years.  For the three months ended June 30, 2009 and 2008, amortization expense totaled $697,000 and $804,000, respectively; and for the six months ended June 30, 2009 and 2008, amortization expense totaled $1.3 million and $1.2 million, respectively.

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

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

 

 

 

Notes payable and subordinated debt (trust preferred securities) are summarized as follows (dollars in thousands):

During May 2009, we extended the term of our New Zealand facility to March 31, 2012 and reduced the available borrowing amount to $29.0 million (NZ$45.0 million).  The drawn balance of this loan was $9.7 million (NZ$15.0 million) at June 30, 2009.  We recorded $29,000 (NZ$45,000) in deferred financing costs associated with this term extension which we will amortize over the remaining life of the loan.

During the first quarter of 2009, we took advantage of current market illiquidity for securities such as our trust preferred securities to repurchase $22.9 million in face value of those securities through an exchange of $11.5 million worth of marketable securities purchased during the period for the express purpose of executing this exchange transaction with the third party holder of these trust preferred securities.  During the six months ended June 30, 2009, $106,000 of discount was amortized to interest income.  On April 30, 2009, we extinguished $22.9 million of these trust-preferred securities, which resulted in a second quarter gain on retirement of subordinated debt (trust preferred securities) of $10.7 million net of loss on the associated deferred loan costs of $749,000.

Our Australian Construction Loan effectively matures on September 30, 2009.  As such, we used our available cash reserves to pay off the loan on July 31, 2009.  See Note 21 – Subsequent Events.

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

Total debt of unconsolidated joint ventures and entities was $870,000 and $785,000 as of June 30, 2009 and December 31, 2008, respectively.  Our share of unconsolidated debt, based on our ownership percentage, was $290,000 and $261,000 as of June 30, 2009 and December 31, 2008, respectively.  This debt is without recourse to us as of June 30, 2009 and December 31, 2008.

In December 2006, we and Magoon LLC  commenced a lawsuit entitled Magoon Acquisition & Development, LLC; a California limited liability company, Reading International, Inc.; a Nevada corporation, and James J. Cotter vs. Malulani Investments, Limited, a Hawaii Corporation, Easton T. Mason; John R. Dwyer, Jr.; Philip Gray; Kenwei Chong (Civil No. 06-1-2156-12 (GWBC)) against certain officers and directors of MIL alleging various direct and derivative claims for breach of fiduciary duty and waste and seeking, among other things, access to various company books and records.  As certain of these claims were brought derivatively, MIL was also named as a defendant in that litigation.

On March 11, 2009, we and Magoon LLC agreed to terms of settlement (the “Settlement Terms”) with respect to that lawsuit, pursuant to which we and Magoon LLC agreed to settle that litigation and to convey our respective interests in MIL and its parent company TMG in consideration of  $2.5 million in cash, a $6.75 million three year 6.25% secured promissory note (issued by TMG), certain releases, and a ten year “tail interest” in MIL and TMG which allows us, in effect, to participate in certain distributions made or received by MIL, TMG and/or, in certain cases, the shareholders of TMG.  The tail interest continues only for a period of ten years and no assurances can be given that we will in fact receive any distributions with respect to this Tail Interest.  The settlement closed on July 2, 2009, in accordance with the Settlement Terms.  See Note 21 – Subsequent Events.

Pursuant to the Settlement Terms, on July 2, 2009, we transferred all of our interests in MIL to TMG and Magoon LLC transferred all of its interest in MIL and TMG to TMG, and there has been a mutual release of claims.  Mr. Cotter, our Chairman, our Chief Executive Officer and our principal shareholder and a director of MIL, simultaneously settled his related claims for mutual general releases and resigned from the Board of Directors of MIL.

Under the terms of our Amended and Restated Shareholder Agreement with Magoon LLC, we are entitled to receive, on a priority basis, 100% of any proceeds from any disposition of the shares in MIL and TMG held by us or Magoon LLC until we (Reading) have recouped substantially all of our litigation costs and the cost of our investment in MIL.  Accordingly, we will receive virtually all of the cash proceeds of the settlement, plus virtually all distribution with respect to the promissory note, until we have recouped both our litigation costs and the cost of our investment.  Thereafter, Magoon LLC will receive some distributions under the promissory note and the Tail Interest (if any) until it has recouped its investment in MIL and TMG.  Thereafter, any distributions under the Tail Interest, if any, will be shared between us and Magoon LLC in accordance with the sharing formula set forth in the Amended and Restated Shareholder Agreement between ourselves and Magoon LLC.  Given the secured nature of the promissory note, we believe that we will recoup the full amount of our litigation costs and our investment in MIL from the proceeds of this settlement.

Noncontrolling interest is composed of the following enterprises:

 

 

 

 

 

 

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

A summary of the changes in controlling and noncontrolling stockholders’ equity are as follows (dollars in thousands):

 

During the six months ended June 30, 2009, we issued 83,568 and 14,461 of Class A Nonvoting shares to Mr. James J. Cotter and to Mr. S. Craig Tompkins, respectively, associated with their prior years’ vested stock bonuses.

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 (loss).  The following table sets forth our comprehensive income (loss) for the periods indicated (dollars in thousands):

 

The following table sets forth the terms of our interest rate swap derivative instruments at June 30, 2009:

In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), we marked our interest rate swap instruments to market on the consolidated balance sheet resulting in a decrease in interest expense of $1.1 million and $710,000 during the three and six months ended June 30, 2009, respectively, and a $754,000 and $815,000 decrease to interest expense during the three and six months ended June 30, 2008, respectively.  At June 30, 2009, we have recorded the fair market value of our interest rate cap of $314,000 as an other long-term asset and our interest rate swaps of $1.0 million as an other long-term liability.  At December 31, 2008, we have recorded the fair market value of our interest rate swaps of $1.4 million as an other long-term liability.  In accordance with SFAS 133, we have not designated any of our current interest rate swap positions as financial reporting hedges.

 

The following items are measured at fair value on a recurring basis subject to the disclosure requirements of SFAS No. 157 (dollars in thousands):

We used the following methods and assumptions to estimate the fair values of the assets and liabilities in the table above:

 

 

 

The following table sets forth the carrying value and the fair value of our financial assets and liabilities at June 30, 2009 and December 31, 2008 (dollars in thousands):

The fair value of notes payable to related party cannot be determined due to the related party nature of the terms of the notes payable.

On September 16, 2008, we entered into a sale option agreement to sell our Auburn real estate property and cinema for $28.5 million (AUS$36.0 million).  During the period ended June 30, 2009, we did not receive the fourth of five options payments from the buyer, but we did receive notice from the buyer that they intended to withdraw from the option agreement.  As a result of termination of the option agreement, we recorded a gain on option termination of $1.5 million (AUS$2.0 million).  As of December 31, 2008, the Auburn property was classified as held for sale; and, as a result of the buyer’s withdrawal from the option agreement, we transferred this property to continuing operations during June 2009.  As a result of the transfer of the previously held for sale real estate to continuing operations, a loss was recorded in the current period in the amount of $549,000 (AUS$685,000) to measure the property at the lower of its carrying amount adjusted for depreciation and

amortization expense that would have been recognized had the asset been continuously classified as continuing operational asset, or its fair value at the date of the decision not to sell.

The real estate held for sale assets were reclassified from assets held for sale to in real estate assets and then adjusted for the loss on transfer at June 30, 2009 as follows (in thousands):

On April 30, 2009, we entered into an agreement to purchase for $2.9 million (NZ$5.2 million) a property adjacent to our Manukau property.  The agreement is conditioned upon us getting regulatory approval and calls for a deposit of $147,000 (NZ$258,000) to be paid immediately which is returnable to us if we are unable to get regulatory approval, a second deposit to be made of $440,000 (NZ$773,000) upon regulatory approval, and the remaining balance to be paid on the settlement date of March 31, 2010.

On July 2, 2009, we settled our lawsuit with MIL and certain of its officers, directors and affiliates.  The terms of that settlement are as described in Note 13 – Commitments and Contingencies.

On August 4, 2009, we moved our stock listings for both our classes of voting and nonvoting stock from the AMEX to the NASDAQ exchange.  The ticker symbols for each of the stocks remained the same, namely RDI for the nonvoting stock and RDIB for the voting stock.

Our Australian Construction Loan effectively matures on September 30, 2009.  As such, we used our available cash reserves to pay off the loan on July 31, 2009.

On July 24, 2009, we signed a lease with the City of Brisbane, Australia to lease our Indooroopilly building to them for an initial three-year period with two three-year options.

We are an internationally diversified company principally focused on the development, ownership, and operation of entertainment and real property assets in the United States, Australia, and New Zealand.  Currently, we operate in two business segments:

 

 

 

We believe that these two business segments can complement one another, as the comparatively consistent cash flows generated by our cinema operations can be used to fund the front-end cash demands of our real estate development business.

 

 

 

We believe cinema exhibition to be a business that will likely continue to generate fairly consistent cash flows in the years ahead.  This is based on our belief that people will continue to spend some reasonable portion of their entertainment dollar on entertainment outside of the home and that, when compared to other forms of outside the home entertainment, movies continue to be a popular and competitively priced option.  In keeping with our business plan of being opportunistic in adding to our existing cinema portfolio, on February 22, 2008, we acquired 15 cinemas with 181 screens in Hawaii and California (the “Consolidated Entertainment” acquisition) and we continue to consider the acquisition of cinema assets currently being offered for sale in Australia, New Zealand, and the United States.  Also, in April 2008 and in August 2008, we opened two leased cinemas in Rouse Hill and Dandenong, Australia with 9 and 6 screens, respectively.  We anticipate that our cinema operations will continue as our main source of cash flow and will support our real estate oriented activities.

In short, while we do have operating company attributes, we see ourselves principally as a hard asset company and intend to add to shareholder value by building the value of our portfolio of tangible assets.

In addition, we may from time to time identify opportunities to expand our existing businesses and asset base, or to otherwise profit, through the acquisition of interests in other publicly traded companies, both in the United States and in the overseas jurisdictions in which we do business.  We may also, in addition to our investments in various private cinema joint ventures, take positions in private companies.

At June 30, 2009, we owned and operated 52 cinemas with 427 screens, had interests in certain unconsolidated joint ventures and entities that own an additional 4 cinemas with 32 screens and managed 2 cinemas with 9 screens.

Although we have curtailed our development activities, we remain opportunistic in our acquisitions of cinema assets, our business plan going forward is to continue the build-out of our existing development properties and to seek out additional, profitable real estate development opportunities while continuing to use and judiciously expand our presence in the cinema exhibition and live theatre business, by identifying, developing, and acquiring cinema and live theatre properties when and where appropriate.  In addition, we will continue to investigate potential synergistic acquisitions that may not readily fall into either of our two currently identified segments.

We continue to acquire, to dispose of, or to reposition assets in accordance with our business plan.  For a description of our acquisitions so far in 2009, see Note 20 – Acquisitions to our June 30, 2009 Condensed Consolidated Financial Statements.