Discontinued Operations and Properties Held for Sale

In accordance with ASC 360-15, the revenue, expenses and net gain on dispositions of operating properties and the revenue and expenses on properties classified as held for sale are reported in the consolidated statements of operations as discontinued operations for all periods presented through the date of the respective disposition.  The net gain (loss) on disposition is included in the period the property is sold.  In determining whether the income and loss and net gain on dispositions of operating properties is reported as discontinued operations, we evaluate whether we have any significant continuing involvement in the operations, leasing or management of the sold property in accordance with FASB ASC 205-20 – Presentation of Financial Statements – Di scontinued Operations (“ASC 205-20”).  If we were to determine that there was any significant continuing involvement, the income and loss and net gain on dispositions of the operating property would not be recorded in discontinued operations.

A property is classified as held for sale when certain criteria, as set forth under ASC 360-15, are met.  At such time, we present the respective assets and liabilities related to the property held for sale separately on the balance sheet and cease to record depreciation and amortization expense.  Properties held for sale are reported at the lower of their carrying value or their estimated fair value less the estimated costs to sell.  We had one property in Australia previously classified as held for sale as of and for the year ended December 31, 2008.  However, that property was ultimately not sold, and as we have determined to continue to operate the property for the foreseeable future, it is no longer classified as held for sale (see Note 9 – Transfer of Held for Sale Real Estate to Continuing Operations and Related Items).  The reclassified results for this transfer of held for sale to operating are reflected in our December 31, 2009, 2008, and 2007 Statement of Operations.

 

 

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Revenue Recognition

Revenue from cinema ticket sales and concession sales are recognized when sold.  Revenue from gift certificate sales is deferred and recognized when the certificates are redeemed.  Rental revenue is recognized on a straight-line basis in accordance with FASB ASC 840-20-25 – Leases Having Both Scheduled Rent Increases and Contingent Rents (“ASC 840-20-25”).

Deferred Leasing/Financing Costs

Direct costs incurred in connection with obtaining tenants and/or financing are amortized over the respective term of the lease or loan on a straight-line basis.  Direct costs incurred in connection with financing are amortized over the respective term of the loan utilizing 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 are also recognized on the effective interest method.

General and Administrative Expense

For the years ended December 31, 2009, 2008, and 2007, we booked gains on the settlement of litigation of $3.3 million, $2.5 million, and $523,000, respectively, included in other income, as a recovery of legal expenses previously included in general and administrative expenses.

Depreciation and Amortization

Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives are generally as follows:

Building and improvements	15-40 years
Leasehold improvement	Shorter of the life of the lease or useful life of the improvement
Theater equipment	7 years
Furniture and fixtures	5 – 10 years

Translation of Non-U.S. Currency Amounts

The financial statements and transactions of our Australian and New Zealand cinema and real estate operations are reported in their functional currencies, namely Australian and New Zealand dollars, respectively, and are then translated into U.S. dollars.  Assets and liabilities of these operations are denominated in their functional currencies and are then translated at exchange rates in effect at the balance sheet date.  Revenue and expenses are translated at the average exchange rate for the reporting period.  Translation adjustments are reported in “Accumulated Other Comprehensive Income,” a component of Stockholders’ Equity.

The carrying value of our Australian and New Zealand assets fluctuates due to changes in the exchange rate between the U.S. dollar and the Australian and New Zealand dollars.  The exchange rates of the U.S. dollar to the Australian dollar were $0.8979 and $0.6983 as of December 31, 2009 and 2008, respectively.  The exchange rates of the U.S. dollar to the New Zealand dollar were $0.7255 and $0.5815 as of December 31, 2009 and 2008, respectively.

Income Taxes

We account for income taxes under FASB ASC 740-10 – Income Taxes (“ASC 740-10”), which prescribes an asset and liability approach.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.  Income tax expense (benefit) is the tax payable (refundable) for the period and the change during the period in deferred tax assets and liabilities.

 

 

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Earnings per Share

Basic earnings per share is calculated using the weighted average number of shares of Class A and Class B Stock outstanding during the years ended December 31, 2009, 2008, and 2007, respectively.  Diluted earnings per share is calculated by dividing net earnings available to common stockholders by the weighted average common shares outstanding plus the dilutive effect of stock options and unvested restricted stock.  We had unissued restricted stock of 143,462 shares as of the year ended December 31, 2009 and stock options to purchase 589,750, 577,850, and 577,850, shares of Class A Common Stock were outstanding at December 31, 2009, 2008, and 2007, respectively, at a weighted average exercise price of $5.51, $5.60, and $5.60 per share, respectively.  Stock options to purchase 150,000, 185,100, and 185,100 shares of Class B Common Stock were outstanding at the years ended December 31, 2009, 2008, and 2007, respectively, at a weighted average exercise price of $10.24, $9.90, and $9.90 per share, respectively.  In accordance with FASB ASC 260-10 – Earnings Per Share (“ASC 260-10”), as we had recorded a loss from continuing operations before discontinued operations for the years ended December 31, 2008 and 2007, the effect of the stock options and restricted stock was anti-dilutive and accordingly excluded from the diluted earnings per share computation.

Real Estate Purchase Price Allocation

We allocate the purchase price to tangible assets of an acquired property (which includes land, building and tenant improvements) based on the estimated fair values of those tangible assets assuming the building was vacant.  Estimates of fair value for land are based on factors such as comparisons to other properties sold in the same geographic area adjusted for unique characteristics.  Estimates of fair values of buildings and tenant improvements are based on present values determined based upon the application of hypothetical leases with market rates and terms.

We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease.  We amortize any capitalized above-market lease values as a reduction of rental income over the remaining non-cancelable terms of the respective leases.  We amortize any capitalized below-market lease values as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.

We measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant.  Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis).  Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases.  We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the tangible and intangible assets acquired.  0;In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods.  Management also estimates costs to execute similar leases including leasing commissions, legal, and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  Characteristics considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

We amortize the value of in-place leases to expense over the initial term of the respective leases.  The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event may the amortization period for intangible assets exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense.

 

 

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These assessments have a direct impact on net income and revenue.  If we assign more fair value to the in-place leases versus buildings and tenant improvements, assigned costs would generally be depreciated over a shorter period, resulting in more depreciation expense and a lower net income on an annual basis.  Likewise, if we estimate that more of our leases in-place at acquisition are on terms believed to be above the current market rates for similar properties, the calculated present value of the amount above market would be amortized monthly as a direct reduction to rental revenue and ultimately reduce the amount of net income.

Business Acquisition Valuations

The assets and liabilities of businesses acquired are recorded at their respective preliminary fair values as of the acquisition date in accordance with FASB ASC 805-10 – Business Combinations (“ASC 805-10”).  Upon the acquisition of real properties, we allocate the purchase price of such properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases, based in each case on their fair values.  We use independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building).  We also perform valuatio ns and physical counts of property, plant and equipment, valuations of investments and the involuntary termination of employees, as necessary.  Costs in excess of the net fair values of assets and liabilities acquired are recorded as goodwill.

We record and amortize above-market and below-market operating leases assumed in the acquisition of a business in the same way as those under real estate acquisitions.

The fair values of any other intangible assets acquired are based on the expected discounted cash flows of the identified intangible assets.  Finite-lived intangible assets are amortized using the straight-line method of amortization over the expected period in which those assets are expected to contribute to our future cash flows.  We do not amortize indefinite lived intangibles and goodwill.

Fair Value of Financial Instruments

Effective January 1, 2008, we adopted FASB ASC 820-10 – Fair Value Measurements and Disclosures (“ASC 820-10”).  ASC 820-10 defines fair value, establishes a framework for measuring fair value in GAAP and provides for expanded disclosure about fair value measurements.  ASC 820-10 applies prospectively to all other accounting pronouncements that require or permit fair value measurements.  The adoption of ASC 820-10 did not have a material impact on our consolidated financial statements since we generally do not record our financial assets and liabilities in our consolidated financial statements at fair value.

Effective January 1, 2008, we also adopted, on a prospective basis, FASB ASC 825-10 – Financial Instruments (“ASC 825-10”).  ASC 825-10 permits entities to choose to measure many financial instruments and certain other items at fair value.  The adoption of ASC 825-10 did not have a material impact on our consolidated financial statements since we elected not to apply the fair value option for any of our eligible financial instruments or other items.

The fair value of our financial assets and liabilities are disclosed in Note 16 – Fair Value of Financial Instruments to our consolidated financial statements.  We generally determine or calculate the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments while estimating for non-performance and liquidity risk.  These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow.

The financial assets and liabilities recorded at fair value in our consolidated financial statements are marketable securities and interest rate swaps.  The carrying amounts of our cash and cash equivalents, restricted cash and accounts payable approximate fair value due to their short-term maturities.  The remaining financial assets and liabilities that are only disclosed at fair value are comprised of notes payable, TPS, and other debt instruments.  We estimated the fair value of our secured mortgage notes payable, our unsecured notes payable, TPS and other debt instruments by performing discounted cash flow analyses using an appropriate market discount rate.  We calculated the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or LIBOR rates for variable-rate deb t, for maturities that correspond to the maturities of our debt adding an appropriate credit spreads derived from information obtained from third-party financial institutions.  These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt.

 

 

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We adopted ASC 820-10 for our non-financial assets and non-financial liabilities on January 1, 2009.  The adoption of ASC 820-10 did not have a material impact to our consolidated financial statements.  Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820-10 applies include:

 

·	Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination;

 

·	Long-lived assets measured at fair value due to an impairment assessment under ASC 360-15; and

 

·	Asset retirement obligations initially measured under FASB ASC 410-20 – Asset Retirement Obligations (“ASC 410-20”).

Accounting Pronouncements Adopted During 2009

SFAS 168 – FASB Accounting Standards Codification

In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168 – The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162.  SFAS No. 168 made the FASB Accounting Standards Codification (the “Codification”) the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants.  The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements.  Therefore, we have changed our former references to U.S. GAAP to be in conformity with the Codification standards.

 
 

FASB ASC 810-10 – Noncontrolling Interests

Effective January 1, 2009, the Company adopted the provisions of FASB Accounting Standards Codification (“ASC”) 810-10 (“ASC 810-10”), which requires that amounts formerly reported as minority interests in the Company’s unaudited condensed consolidated financial statements be reported as noncontrolling interests.  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 ASC 810-10 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 Consolidated Financial Statements for all periods presented.

The adoption of ASC 810-10 had an impact on the presentation and disclosure of noncontrolling (minority) interests in our consolidated financial statements.  Because of the retrospective presentation and disclosure requirements of ASC 810-10, the Company reflected the change in presentation and disclosure for all periods presented in these consolidated financial statements.

The effect of the reclassification of the noncontrolling interest on our prior year’s income statement related to the adoption of ASC 810-10 is a decrease in the net income and an increase in loss before equity earnings of unconsolidated joint ventures and entities of $620,000 and $1.0 million for the years ended December 31, 2008 and 2007, respectively.

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

FASB ASC 855-10 – Subsequent Events

Effective for the second quarter of 2009, the Company adopted the provisions of FASB ASC 855-10 – Subsequent Events (“ASC 855-10”), as amended by Accounting Standard Update 2010-09.  ASC 855-10 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.  The adoption of ASC 855-10 did not have a material impact on our financial statements.

 

 

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FASB ASC 805-10-65 - Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies

In April 2009, the FASB issued FASB ASC 805-10-65 relating to accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies (“ASC 805-10-65”).  ASC 805-10-65 addresses application issues on the accounting for contingencies in a business combination.  ASC 805-10-65 is effective for assets or liabilities arising from contingencies in business combinations acquired on or after January 1, 2009.  The adoption of ASC 805-10-65 did not have any impact on the Company’s financial statements.

FASB ASC 320-10-65 – Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued FASB ASC 320-10-65 relating to the recognition and presentation of other-than-temporary impairments (“ASC 320-10-65”).  ASC 320-10-65 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.  ASC 320-10-65 is effective for fiscal years, and interim periods within those fiscal years, ending after June 15, 2009.  The adoption of FASB ASC 320-10-65 did not have any impact on the Company’s financial statements.

 

New Accounting Pronouncements

FASB ASC 810-10-15 – Variable Interest Entities

In June 2009, an update was made to FASB ASC 810-10-15 related to variable interest entities.  This update changes the calculation for determining entities that have a controlling financial interest in a variable interest entity (“VIE”) from a quantitative based risks and rewards calculation to a qualitative approach.  The qualitative approach identifies which entities have the power to direct the activities that most significantly affect the VIE’s economic performance, have the obligation to absorb losses of the VIE, or have the right to receive benefits from the VIE.  The update also requires ongoing assessments as to whether an entity is the primary beneficiary of a VIE (previously, reconsideration was only required upon the occurrence of specific events), modifies the presentation of consolidated VIE assets and liabilities, and requires additional disclosures about a company’s involvement in VIEs.  This update will be effective for our company beginning January 1, 2010.  We determined that the effect of this adoption will be immaterial to our consolidated financial position and results of operations on the January 1, 2010 effective date.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period.  Actual results could differ from those estimates.

Note 3 – Stock Based Compensation and Employee Stock Option Plan

Stock Based Compensation

 

As part of his compensation package, Mr. James J. Cotter, our Chairman of the Board and Chief Executive Officer, was granted $500,000, $500,000, and $350,000, of restricted class A non-voting common stock (“Class A Stock”) for each of the years ending December 31, 2009, 2008 and 2007.  The 2009 and 2008 stock grants of 125,945 and 66,050 shares, respectively, were granted fully vested with a stock grant prices of $3.97 and $7.57, respectively.  The 2007 stock grants had a vesting period of two years, stock grant price of $9.99, and no unrealized gain in market value at December 31, 2009.  During the year ended December 31, 2009, one-half of his 2007 stock grant vested, representing 17,518 of Class A Stock with a stock grant price of $9.99 and fair market value of $71,000.  As of Dece mber 31, 2009, these shares along with his 2009 stock grant had not yet been issued to Mr. Cotter.  During 2009, we issued to Mr. Cotter 66,050, and 17,518 shares of Class A Stock, for his 2008 and 2007, respectively, vested stock grants which had a stock grant price of $7.57 and $9.99 per share and fair values of $268,000 and $71,000, respectively.

On August 21, 2008, as part of their executive compensation, 37,388 shares of fully vested restricted Class A Stock were granted to three of our executives as stock bonuses having a grant date fair value of $340,000.  During 2009, these shares were issued to these executives.

 

 

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As part of his compensation package, Mr. John Hunter, our Chief Operating Officer, was granted $100,000 of restricted Class A Stock on February 12, 2008 and 2007 in the amounts of 10,309 and 11,587 shares, respectively.  These stock grants have vesting periods of two years and stock grant prices of $9.70 and $8.63, respectively.  On February 11, 2009, $100,000 of restricted Class A Stock vested related to Mr. Hunter’s 2008 and 2007 grant.  During 2009, we issued to Mr. Hunter 16,742 shares related to his 2008 and 2007 vested stock compensation.  In July 2008, Mr. Jay Laifman started with the Company as our Corporate General Counsel.  As part of his compensation package, Mr. Laifman was granted $100,000 of Class A Stock or 10,638 shares with stock grant price of $9.40 upon accepta nce of his employment agreement.  This stock grant had an employment-vesting period of two years.  Upon his departure from our company during 2009, Mr. Laifman forfeited the unvested portion of this grant in the amount of 5,319 shares.

During the years ended December 31, 2009, 2008 and 2007, we recorded compensation expense of $725,000 $896,000, and $238,000, respectively, for 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):

		Non-Vested Restricted Stock				Weighted Average Fair Value at Grant Date
Outstanding – January 1, 2007			46,313			$	312
Granted			46,623				450
Vested			(31,180	)			(238	)
Outstanding – December 31, 2007			61,756				524
Granted			124,385				1040
Vested			(152,520	)			(990	)
Outstanding – December 31, 2008			33,621				574
Granted			125,945				500
Vested			(159,566	)			(1,074	)
Outstanding – December 31, 2009			--			$	--

In 2006, we formed Landplan Property Partners, Ltd (“Reading Landplan”), to identify, acquire and develop or redevelop properties on an opportunistic basis.  In connection with the formation of Reading Landplan, we entered into an agreement with Mr. Doug Osborne pursuant to which (i) Mr. Osborne will serve as the chief executive officer of Reading Landplan and (ii) Mr. Osborne’s affiliate, Landplan Property Group, Ltd (“LPG”), will perform certain property management services for Reading Landplan.  The agreement provides for Mr. Osborne to hold an equity interest in the entities formed to hold these properties; such equity interest to be (i) subordinate to our right to an 11% compounded return on investment and (ii) subject to adjustment depending upon various factors including the ter m of the investment and the amount invested.  In general, this equity interest will range from 27.5% to 15% of excess free cash flows after returns of all capital plus an 11% compounded preferred return to senior equity investors is paid.

Using our Reading Landplan investment vehicle, we acquired or entered into agreements to acquire four parcels in Taringa, Brisbane, Australia during 2008, acquired the two properties called the Lake Taupo Motel and the Manukau property during 2007 in New Zealand, and acquired one property in Indooroopilly, Brisbane, Australia during 2006.  With the purchase of these properties, based on FASB ASC 718-10 – Compensation—Stock Compensation (“ASC 718-10”), we calculated the fair value of Mr. Osborne’s equity interest in our various trusts to be $117,000 at December 31, 2008.  Due to the impact of the economic downturn in New Zealand during 2009, one of our operating properties was impaired by $3.2 million.  As a result of th is impairment, the estimated fair value of Mr. Osborne’s equity interest was determined to be zero at December 31, 2009.  During the years ended December 31, 2009, 2008, and 2007, we expensed ($157,000) ($59,000), and $214,000, respectively, associated with Mr. Osborne’s interests.

Employee Stock Option Plan

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 Stock.  The 1999 Stock Option Plan expired in November 2009.  We are currently involved in creating a new plan in 2010.  For the stock options exercised during the years ended December 31, 2009 and 2007, we issued for cash to an employee of the corporation under this stock based compensation plan, 3,000 and 6,250 shares of Class A Stock at exercise prices of $3.80 and $4.01, respectively.  During the year ended December 31, 2008, we did not issue any shares under this stock based compensation plan.

 

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Effective January 1, 2006, we adopted ASC 718-10.  ASC 718-10 requires that all stock-based compensation be recognized as an expense in the financial statements and that such costs be measured at the fair value of the award.  This statement was adopted using the modified prospective method, which requires that we recognize compensation expense on a prospective basis for all newly granted options and any modifications or cancellations of previously granted awards.  Therefore, prior period consolidated financial statements have not been restated.  Under this method, in addition to reflecting compensation expense for new share-based payment awards, modifications to awards, and cancellations of awards, expense is also recognized to reflect the remaining vesting period of awards that had been include d in pro-forma disclosures in prior periods.  We estimate the valuation of stock based compensation using a Black-Scholes option-pricing model.

When our tax deduction from an option exercise exceeds the compensation cost resulting from the option, a tax benefit is created.  ASC 718-10 requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows.  Had we previously adopted ASC 718-10, there would have been no impact on our presentation of the consolidated statement of cash flows because there were no recognized tax benefits relating to any of the years in the periods ended December 31, 2006.  For the years ended December 31, 2009, 2008, and 2007, there was also no impact to the consolidated statements of cash flows because there were no recognized tax benefits during these periods.

ASC 718-10 requires companies to estimate forfeitures.  Based on our historical experience, we did not estimate any forfeitures for the granted options during the years ended December 31, 2009, 2008 and 2007.

In accordance with ASC 718-10, 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 estimated the expected stock price volatility based on our historical price volatility measured using daily share prices back to the inception of the Company in its current form beginning on December 31, 2001.  We estimate the expected option life based on our historical share option exercise experience during this same period.  We expense the estimated grant date fair values of options issued on a str aight-line basis over their vesting periods.

No options were granted during 2008.  For the 50,000 and 301,250 options granted during 2009 and 2007, respectively, 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:

 

	2009	2007
Stock option exercise price	$4.01	$8.35 – $10.30
Risk-free interest rate	3.309%	4.636 – 4.824%
Expected dividend yield	--	--
Expected option life	9.60 yrs	9.60 – 9.96 yrs
Expected volatility	33.74%	33.64 – 45.47%
Weighted average fair value	$1.98	$4.42 – $4.82

 

Using the above assumptions and in accordance with the ASC 718-10 modified prospective method, we recorded $241,000, $640,000, and $756,000 in compensation expense for the total estimated grant date fair value of stock options that vested during the years ended December 31, 2009, 2008, and 2007, respectively.  The effect on earnings per share of the compensation charge was $0.01, $0.03, and $0.03 per share for the years ended December 31, 2009, 2008, and 2007, respectively.  At December 31, 2009 and 2008, the total unrecognized estimated compensation cost related to non-vested stock options granted was $93,000 and $236,000, respectively, which is expected to be recognized over a weighted average vesting period of 1.83 and 0.52 years, respectively.  No options were exercised in 2008.  The total r ealized value of stock options exercised during the years ended December 31, 2009 and 2007 was $1,000, and $37,000, respectively.  The grant date fair value of options that vested during the years ending December 31, 2009, 2008, and 2007 was $241,000, $640,000, and $756,000, respectively.  We recorded cash received from stock options exercised of $11,000 and $25,000 during the years ended December 31, 2009 and 2007, respectively.  The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at December 31, 2009 and 2008 was $205,000 and $177,000, respectively, of which 99.0% and 100.0%, respectively, were 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 Stock and class B voting common stock authorized for issuance under our 1999 Stock Option Plan is 1,284,150.  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.

 

 

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We had the following stock options outstanding and exercisable:

		Common Stock Options Outstanding								Weighted Average Exercise Price of Options Outstanding								Common Stock Exercisable Options								Weighted Average Price of Exercisable Options
		Class A				Class B				Class A				Class B				Class A				Class B				Class A				Class B
Outstanding- January 1, 2007			514,100				185,100			$	5.21			$	9.90				488,475				185,100			$	5.06			$	9.90
Granted			151,250				150,000			$	9.37			$	10.24
Exercised			(6,250	)			--			$	4.01			$	--
Expired			(81,250	)			(150,000	)		$	10.25			$	10.24
Outstanding-December 31, 2007			577,850				185,100			$	5.60			$	9.90				477,850				35,100			$	4.72			$	8.47
No activity during the period			--				--			$	--			$	--
Outstanding-December 31, 2008			577,850				185,100			$	5.60			$	9.90				525,350				110,100			$	5.19			$	9.67
Granted			50,000				--			$	4.01			$	--
Exercised			(3,000	)			--			$	3.80			$	--
Expired			(35,100	)			(35,100	)		$	5.13			$	8.47
Outstanding-December 31, 2009			589,750				150,000			$	5.51			$	10.24				534,750				150,000			$	5.62			$	10.24

The weighted average remaining contractual life of all options outstanding, vested and expected to vest, at December 31, 2009 and 2008 were approximately 5.05 and 5.22 years, respectively.  The weighted average remaining contractual life of the exercisable options outstanding at December 31, 2009 and 2008 was approximately 4.70 and 4.61, respectively.

Note 4 – Earnings (Loss) Per Share

For the three years ended December 31, 2009, we calculated the following earnings (loss) per share (dollars in thousands, except per share amounts):

		2009				2008				2007
Income (loss) from continuing operations		$	6,094			$	(16,809	)		$	(4,015	)
Income from discontinued operations			--				--				1,912
Net income (loss) attributable to Reading International, Inc. common shareholders			6,094				(16,809	)			(2,103	)
Weighted average shares of common stock – basic			22,580,942				22,477,471				22,478,145
Weighted average shares of common stock – diluted			22,767,735				22,477,471				22,478,145
Earnings (loss) per share:
Earnings (loss) from continuing operations – basic and diluted		$	0.27			$	(0.75	)		$	(0.18	)
Earnings from discontinued operations – basic and diluted		$	0.00			$	0.00			$	0.09
Earnings (loss) per share – basic and diluted		$	0.27			$	(0.75	)		$	(0.09	)

For the year ended December 31, 2009, the weighted average common stock – dilutive only included 186,793 incremental shares of exercisable in-the-money stock options and unissued restricted Class A Stock.  For the years ended December 31, 2008 and 2007, we recorded losses from continuing operations.  As such, the incremental shares of 152,520 shares of restricted Class A Stock and 233,760 of exercisable in-the-money stock options in 2008 and the 278,376 of exercisable in-the-money stock options in 2007 were excluded from the computation of diluted loss per share because they were anti-dilutive in those periods.  In addition, 696,419, 529,190, and 484,574 of out-of-the-money stock options were excluded from the computation of diluted earnings (loss) per share for the years ended December 31, 2009, 20 08, and 2007, respectively.  The total number of in-the-money stock options, out-of-the-money stock options, and unissued restricted Class A Stock that could potentially dilute basic earnings per share is 883,212, 915,470, and 762,950, for the years ended December 31, 2009, 2008, and 2007, respectively.

 

 

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Note 5 – Prepaid and Other Assets

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

		December 31,
		2009				2008
Prepaid and other current assets
Prepaid expenses		$	1,333			$	518
Prepaid taxes			686				546
Deposits			146				307
Other			913				953
Total prepaid and other current assets		$	3,078			$	2,324
Other non-current assets
Other non-cinema and non-rental real estate assets		$	1,134			$	1,140
Long-term deposits			269				209
Deferred financing costs, net			3,661				5,773
Interest rate swap at fair value			766				--
Other receivables			6,750				1,586
Tenant inducement asset			1,135				35
Straight-line rent asset			1,074				557
Other			118				1
Total non-current assets		$	14,907			$	9,301

Note 6 – Property Held For and Under Development

Property held for and under development is summarized as follows (dollars in thousands):

		December 31,
		2009				2008
Land		$	45,629			$	37,383
Construction-in-progress (including capitalized interest)			33,047				31,633
Property Held For and Under Development		$	78,676			$	69,016

The amount of capitalized interest for our properties under development was $136,000, $5.7 million, and $4.4 million for the three years ending December 31, 2009, 2008, and 2007, respectively.  Subsequent to the year-ended December 31, 2008, we decided to curtail our current development progress on certain Australian and New Zealand land development projects.  As a result, we did not capitalize interest on these projects during 2009 and we will not capitalize interest for these projects until the development work recommences.  In addition, during 2008, we recorded an impairment expense relating to these projects totaling $4.0 million as reported in our real estate segment operating income.  During 2009, we recorded a contractual commitment loss of $1.1 million associated with a property for which we are under contract to purchase in 2010.  The impairments and contractual commitment loss are primarily related to the impact of the economic downturn in the Australian and New Zealand economies and the timing of our purchases of those assets.

 

Included in the fourth quarter 2009 the contractual commitment loss of $1.1 million is an out-of-period adjustment in connection with the recording of this loss.  The adjustment decreased other assets by approximately $771,000, increased other liabilities by approximately $321,000, and increased other operating expense by approximately $1.1 million in the fourth quarter of 2009, which decreased net income by $1.1 million in the fourth quarter of 2009.  Had the amount been reflected during the third quarter of 2009, in the period in which it arose, other operating expense would have increased by $1.1 million and net income would have decreased by the same amount during that period.  Based upon an evaluation of all relevant quantitative and qualitative factors , and after considering the provisions of ASC 250-10, Accounting Changes and Error Corrections, and SAB Nos. 99 and 108, we believe this correcting adjustment was not material to our full year results for 2009 or the trend of earnings.  In addition, we do not believe the correcting adjustment is material to the amounts reported in the previous quarter.

 

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Note 7 – Property and Equipment

Property and equipment is summarized as follows (dollars in thousands):

		December 31,
Property and Equipment		2009				2008
Land		$	61,110			$	55,865
Building and improvements			122,784				90,791
Leasehold interests			33,716				32,198
Construction-in-progress			1,807				487
Fixtures and equipment			85,235				67,965
Total cost			304,652				247,306
Less accumulated depreciation			(103,903	)			(73,644	)
Property and equipment, net		$	200,749			$	173,662

Depreciation expense for property and equipment was $12.4 million, $16.3 million, and $11.1 million, for the three years ending December 31, 2009, 2008, and 2007, respectively.

 

During 2008, the downturn in the Australia and New Zealand economies resulted in an impairment charge of $351,000.  In 2009, the slower recovery in New Zealand led to a further impairment charge to one of our operating properties of $3.2 million as reported in our segment operating income.

Note 8 – Acquisitions and Property Development

2009 Acquisition and Property Development

Manukau Land Purchase

On April 30, 2009, we entered into an agreement to purchase for $3.8 million (NZ$5.2 million) a property adjacent to our Manukau property.  An initial deposit of $26,000 (NZ$50,000) was paid upon signing of the agreement, a second deposit of $175,000 (NZ$258,000) was paid in the second quarter of 2009 and a third deposit of $531,000 (NZ$773,000) was paid in August 2009.  The remaining balance is due on the settlement date of March 31, 2010.  As a result of a decrease in the value of this property, we recorded a $1.1 million (NZ$1.5 million) expense as a write off of our purchase deposits of $771,000 and as an other liability of $321,000 at December 31, 2009.

2008 Acquisitions and Property Development

Consolidated Entertainment Cinemas Acquisitions

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) from Pacific Theatres Exhibition Corp. and its affiliates (collectively, the “Sellers”) for $70.2 million.  The purchase price was subsequently adjusted to $63.7 million as described below under post closing adjustments, which were applied to reduce the principal amount owed under financing provided by an affiliate of the Sellers (the “Nationwide Note 1”).  The financing of the transaction included $48.4 million of debt from GE Capital, net of deferred financing costs of $1.6 million, a loan of $21.0 m illion as evidenced by the Nationwide Note 1, and $800,000 of cash from Reading (see Note 12 – Notes Payable for a more complete explanation of the GE debt and the Nationwide Note 1).

The theaters and assets are located in California and Hawaii.  We acquired the theaters and other assets through certain special purpose entities formed by us for this purpose.  The acquired assets consist primarily of the buildings and leasehold interests in fourteen of the theaters; a management agreement with the Sellers under which we will manage one other theater (but pursuant to which we effectively bear the risk and are entitled to the benefits associated with the ownership of that theater), and furniture, fixtures, equipment and miscellaneous inventory at the theaters.  The theaters contain a total of 181 screens, which compares to 286 total screens owned or operated by us immediately prior to the acquisition. The leasehold interests have current terms ranging from approximately 2 to 12 years, subject in some cases to favorable renewal options.  The management agreement relating to the managed theater is for a term of approximately 4 years and entitles us to a management fee equal to the cash flow of the theater.

 

 

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During the fourth quarter of 2008, we finalized our estimates of the value of the assets and liabilities acquired from this acquisition in accordance with FASB ASC 805-10 – Business Combinations (“ASC 805-10”).  These fair value estimates of the cinema assets acquired have been allocated to the acquired tangible assets, identified intangible assets and liabilities, consisting of the value of above and below-market leases, if any, based in each case on their respective fair values at the date of acquisition.  Goodwill was recorded to the extent the purchase price including certain acquisition and close costs exceeded the fair value estimates of the net acquired assets.

As of December 31, 2008, the initial aggregate purchase price was adjusted down by $6.3 million.  A further purchase price reduction of $226,000 was recorded during 2009 which aggregates to a net purchase price of $63.7 million.  This purchase price is subject to further additional adjustments based upon post-closing matters relating to the possible opening of competing theater projects in the vicinity of certain acquired theaters.  These additional acquisition price reductions can range from $0 to as much as the full amount of the Nationwide Note 1 as adjusted to date, if all contingencies were met.  Pursuant to the $6.5 million reductions in purchase price, the Nationwide Note 1 was correspondingly reduced by $6.3 million during the second quarte r of 2008 and decreased further by $226,000 during the first quarter of 2009.  This loan was increased in July 2008 by $3.0 million in accordance with the Sales and Purchase Agreement of Consolidated Entertainment (see Note 12 – Notes Payable).  Therefore, the reduction in purchase price results in a permanent reduction in the aggregate $24.0 million debt obligation to $17.5 million at December 31, 2009.  On February 12, 2010, the purchase price was further adjusted by $4.2 million resulting in a corresponding reduction in the note payable (see Note 27 – Subsequent Events).

Our finalized purchase price allocation and 2009 purchase price reductions are presented as follows (dollars in thousands):

		Final Allocation				2009 Purchase Price Adjustment				Adjusted Purchase Price
Inventory		$	271			$	--			$	271
Prepaid assets			543				--				543
Property & Equipment:
Leasehold improvements			19,940				--				19,940
Furniture and equipment			9,167				--				9,167
Intangibles:
Trade name			7,220				--				7,220
Non-compete agreement			400				--				400
Below market leases			11,831				--				11,831
Goodwill			18,864				(226	)			18,638
Trade payables			(123	)			--				(123	)
Above market leases			(4,164	)			--				(4,164	)
Total Purchase Price		$	63,949			$	(226	)		$	63,723

The unaudited pro forma results, assuming the above noted acquisition had occurred as of January 1 for purposes of the 2008 and 2007 pro forma disclosures, are presented below.  These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as increased depreciation and amortization expenses as a result of tangible and intangible assets acquired in the acquisition, as well as higher interest expense as a result of the debt incurred to finance the acquisition.  These unaudited pro forma results do not purport to be indicative of what operating results would have been had the acquisition occurred on January 1, 2008 and January 1, 2007, respectively, and may not be indicative of future operating results (dollars in thousands, except share data):

 

 

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		2008				2007
Revenue		$	201,399			$	203,102
Operating income			1,750				908
Net loss from continuing operations			(13,610	)			(14,128	)
Basic and diluted loss per share from continuing operations			(0.61	)			(0.63	)
Weighted average number of shares outstanding – basic			22,477,471				22,478,145
Weighted average number of shares outstanding – dilutive			22,477,471				22,478,145

Taringa Land

During the first quarter of 2008, we acquired or entered into agreements to acquire four contiguous properties of approximately 50,000 square feet, which we intend to develop.  The aggregate purchase price of these properties is $12.3 million (AUS$13.7 million), of which $2.5 million (AUS$2.8 million) relates to the three properties that have been acquired and $9.8 million (AUS$10.9 million) relates to the one property that is under contract to be acquired.  As part of the agreement to purchase the one property under contact, we paid a refundable deposit of $209,000 (AUS$300,000) associated with the purchase of the fourth property.  Our obligation to close on this fourth property is subject to certain conditions (which we may waive) including a rezoning.

2007 Acquisitions and Property Development

New Zealand Property Acquisitions

On July 27, 2007, we purchased a 64.0 acre parcel of undeveloped agricultural real estate for approximately $9.3 million (NZ$12.1 million).  We intend to rezone the property from its current agricultural use to commercial use, and thereafter to redevelop the property in accordance with its new zoning.  No assurances can be given that such rezoning will be achieved, or if achieved, that it will occur in the near term.

On June 29, 2007, we acquired a commercial property for $5.9 million (NZ$7.6 million), rented to an unrelated third party, to be held for current income and long-term appreciation.  We have completed our purchase price allocation for this property and the related acquired operating lease in accordance with ASC 805-10.  The purchase price allocation was based on the assets acquired from the seller.  The purchase price allocation for this acquisition is $1.2 million (NZ$1.6 million) allocated to land and $4.7 million (NZ$6.1 million) allocated to building.

On February 14, 2007, we acquired a 1.0 acre parcel of commercial real estate for approximately $4.9 million (NZ$6.9 million).  A portion of this property includes unimproved land that we do not intend to develop.  This land was determined to have a fair value of $1.8 million (NZ$2.6 million) at the time of purchase and was previously included on our balance sheet as land held for sale.  The remaining property and its cost basis of $3.1 million (NZ$4.3 million) was included in property under development.  During 2008, the land was transferred from held for sale to held for future development and a write-down of $1.0 million (NZ$1.6 million) to fair value was recognized at the date of transfer.  We have completed our purchase price allocation for this property in accordance with ASC 805 - -10.

Cinemas 1, 2 & 3 Building

On June 28, 2007, we purchased the building associated with our Cinemas 1, 2 & 3 for $100,000 from Sutton Hill Capital (“SHC”).  Our option to purchase that building has been previously disclosed, and was granted to us by SHC at the time that we acquired the underlying ground lease from SHC on June 1, 2005.  As SHC is a related party to our corporation, our Board’s Audit and Conflicts Committee, comprised entirely of outside independent directors, and subsequently our entire Board of Directors, unanimously approved the purchase of the property.  The Cinemas 1, 2 & 3 is located on 3rd Avenue between 59th and 60th Streets in New York City.

Tower Ground Lease

On February 8, 2007, we purchased the tenant’s interest in the ground lease underlying the building lease for one of our domestic cinemas.  The purchase price of $493,000 was paid in two installments; $243,000 was paid on February 8, 2007 and $250,000 was paid on June 28, 2007.  The purchase price for the ground lease is being amortized to rent expense over the remaining ground lease term.

 

 

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Note 9 – Transfer of Held for Sale Real Estate to Continuing Operations and Related Items

2009 Transactions

On September 16, 2008, we entered into a sale option agreement to sell our Auburn property for $28.5 million (AUS$36.0 million).  During 2009, we received notice from the buyer that they intended to withdraw from the option agreement.  Because of the 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, we classified our Auburn property as held for sale, and, because 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 asset from held for sale to continuing operations, we recorded a loss for 2009 of $549,000 (AUS$685,000) to measure the property at the lower of its carrying amount, adjusted for depre ciation and amortization expense that would have been recognized had the asset been continuously classified as a 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 real estate assets and then adjusted for the loss on transfer during 2009 as follows (in thousands):

		December 31, 2008				Loss Adjustment				December 31, 2009
Assets
Land		$	7,395			$	--			$	7,395
Building			13,131				(286	)			12,845
Equipment and fixtures			7,364				(263	)			7,101
Less: Accumulated depreciation			(7,771	)			--				(7,771	)
Total assets held for sale transferred to continuing operations		$	20,119			$	(549	)		$	19,570

2008 Transactions

On June 6, 2008, we sold the Botany Downs Cinema to our joint venture partner for $3.3 million (NZ$4.3 million) resulting in a net gain on sale of an unconsolidated entity of $2.5 million (NZ$3.2 million).  With the sale of the cinema, our unconsolidated joint venture debt decreased by $3.2 million (NZ$4.2 million).  We continue to have certain outstanding, contingent claims related to interest and working capital, which may or may not increase the total sales price of the cinema.

2007 Transactions

In June 2007, upon the fulfillment of our commitment, we recorded the release of a deferred gain on the sale of a discontinued operation of $1.9 million associated with a previously sold property.

Note 10 – Goodwill and Intangible Assets

Goodwill associated with our asset acquisitions is tested for impairment at the beginning of the fourth quarter with continued evaluation through the end of the fourth quarter of every year.  Based on the projected profits and cash flows of the related assets, it was determined that there is no impairment to our goodwill as of December 31, 2009 or 2008.  Goodwill increased during 2008 primarily due to the acquisitions discussed in Note 8 – Acquisitions and Property Development.  At December 31, 2009 and 2008, our goodwill consisted of the following (dollars in thousands):

2009		Cinema				Real Estate				Total
Balance as of January 1, 2009		$	29,740			$	5,224			$	34,964
Change in goodwill due to a purchase price adjustment			(226	)			--				(226	)
Foreign currency translation adjustment			2,673				--				2,673
Balance at December 31, 2009		$	32,187			$	5,224			$	37,411

 

 

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2008		Cinema				Real Estate				Total
Balance as of January 1, 2008		$	13,876			$	5,224			$	19,100
Goodwill acquired during 2008			18,949				--				18,949
Foreign currency translation adjustment			(3,085	)			--				(3,085	)
Balance at December 31, 2008		$	29,740			$	5,224			$	34,964

Goodwill is tested for impairment annually or more frequently whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  Historically, we have performed our annual goodwill impairment test at the beginning of the fourth quarter for all of our reporting units except for the US Cinemas reporting unit.  The goodwill included in the US Cinemas reporting unit, which was created in the first quarter of 2008 as part of the Pacific Theater cinemas acquisition, was tested as of the anniversary date of such acquisition, February 22, 2009, and no impairment was indicated.  During the fourth quarter of 2009, we changed the date on which we perform our annual goodwill impairment test for the US Cinemas reporting unit from February 22 to the first day of the fourth quarter to better align the annual goodwill impairment tests for our US Cinemas reporting unit with our other reporting units and our budgeting and forecasting process.  We believe this change in accounting principle is to an alternative accounting principle that is preferable under the circumstances.  The change in our annual goodwill impairment test date for the US Cinemas reporting unit is not intended to nor does it delay, accelerate or avoid an impairment charge nor does the change have any impact on our financial position, results of operations, or cash flows for any prior periods when applied retrospectively.  During the testing of our Live Theater (Real Estate) segment, we noted that its estimated fair value was not substantially in excess of its $5.2 million carrying value at October 1, 2009.  This did not affect our conclusion that goodwill was not impaired at December 31, 2009 .

We have intangible assets subject to amortization consisting of the following (dollars in thousands):

As of December 31, 2009		Beneficial Leases				Trade name				Option Fee				Other Intangible Assets				Total
Gross carrying amount		$	24,079			$	7,220			$	2,773			$	451			$	34,523
Less: Accumulated amortization			6,924				2,051				2,710				183				11,868
Total, net		$	17,155			$	5,169			$	63			$	268			$	22,655

As of December 31, 2008		Beneficial Leases				Trade name				Option Fee				Other Intangible Assets				Total
Gross carrying amount		$	23,815			$	7,220			$	2,773			$	440			$	34,248
Less: Accumulated amortization			5,743				678				2,616				93				9,130
Total, net		$	18,072			$	6,542			$	157			$	347			$	25,118

We have intangible assets other than goodwill that are subject to amortization which are being amortized over various periods.  We amortize our beneficial leases over the lease period, the longest of which is approximately 30 years; our trade name using an accelerated amortization method over its estimated useful life of 45 years; and our option fee and other intangible assets over 10 years.  For the years ended December 31, 2009, 2008 and 2007, our amortization expense totaled $2.7 million, $2.3 million, and $836,000, per year, respectively.  The estimated amortization expense in the five succeeding years and thereafter is as follows (dollars in thousands):

Year Ending December 31,
2010		$	2,541
2011			2,415
2012			2,345
2013			2,180
2014			1,934
Thereafter			11,240
Total future amortization expense		$	22,655

 

 

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Note 11 – Investments in and Advances to Unconsolidated Joint Ventures and Entities

Investments in and advances to unconsolidated joint ventures and entities are accounted for under the equity method of accounting except for Malulani Investments, Limited as described below.  As of December 31, 2009 and 2008, these investments in and advances to unconsolidated joint ventures and entities include the following (dollars in thousands):

						December 31,
		Interest				2009				2008
Malulani Investments			29.3	%		$	--			$	1,800
Rialto Distribution			33.3	%			--				896
Rialto Cinemas			50.0	%			4,475				3,763
205-209 East 57th Street Associates, LLC			25.0	%			207				1,216
Mt. Gravatt			33.3	%			5,050				3,968
Total						$	9,732			$	11,643

For the years ending December 31, 2009, 2008, and 2007, we recorded our share of equity earnings (loss) from our unconsolidated joint ventures and entities as follows (dollars in thousands):

		December 31,
		2009				2008				2007
Rialto Distribution		$	(1,065	)		$	66			$	250
Rialto Cinemas			138				(301	)			(101	)
205-209 East 57th Street Associates, LLC			153				157				1,329
Mt. Gravatt			891				834				793
Berkeley Cinemas – Palms & Botany			--				44				274
Other			--				(303	)			--
Total		$	117			$	497			$	2,545

Malulani Investments, Limited

On June 26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real estate company.  On July 2, 2009, Magoon Acquisition and Development, LLC (“Magoon LLC”) and we entered into a settlement agreement (the “Settlement Terms”) with respect to a lawsuit against certain officers and directors of Malulani Investments, Limited (“MIL”).  Under the Settlement Terms, Magoon LLC and we received $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 in exchange for the transfer of all ownership interests in MIL and TMG held by both Magoon, LLC and RDI and for the release of all claims against the defendants in this matter.  A gain on t he transfer of our ownership interest in MIL of $268,000 was recognized during 2009 as a result of this transaction.  The tail interest allows us to participate in certain distributions made or received by MIL, TMG, and in certain cases, the shareholders of TMG.  The tail interest, however, continues only for a period of ten years and we cannot assure that we will receive any distributions from this tail interest.

Rialto Distribution

Effective October 1, 2005, we purchased for $694,000 (NZ$1.0 million) a 1/3 interest in Rialto Distribution.  Rialto Distribution, an unconsolidated joint venture, is engaged in the business of distributing art film in New Zealand and Australia.  We own an undivided 1/3 interest in the assets and liabilities of the joint venture.  We treat our interest as an equity method interest in an unconsolidated joint venture.  However, during 2009, the reporting company of Rialto Distribution reported a net loss of $2.2 million (NZ$3.2 million).  Our share of this loss was $734,000 (NZ$1.1 million).  Due to this significant loss, we determined that the goodwill associated with Rialto Distribution’s investment in the film distribution business was fully impaired.  Theref ore, we recorded our share of the impairment loss of $331,000 (NZ$434,000) as a part of our equity losses resulting in a net zero balance at December 31, 2009.

Rialto Cinemas

Effective October 1, 2005, we purchased, indirectly, beneficial ownership of 100% of the stock of Rialto Entertainment for $4.8 million (NZ$6.9 million).  Rialto Entertainment was at the time of purchase a 50% joint venture partner with Village and Sky in Rialto Cinemas, the largest art cinema circuit in New Zealand.  The Village and Sky ownership interest have subsequently been sold to Greater Union, an Australian based cinema chain operator.  We own an undivided 50% interest in the assets and liabilities of the joint venture and treat our interest as an equity method interest in an unconsolidated joint venture.  As of December 31, 2009, following the closure of two cinemas with 6 screens, the joint venture owned three cinemas with 22 screens in the New Zealand cities of Auckland, Christchurch, and Dunedin.

 

 

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205-209 East 57th Street Associates, LLC

We own a non-managing 25% membership interest in 205-209 East 57th Street Associates, LLC a limited liability company formed to redevelop our former cinema site at 205 East 57th Street in Manhattan.

In 2006, the joint venture closed on the sales of 59 condominiums resulting in gross sales of $117.7 million and equity earnings from unconsolidated joint venture to us of $8.3 million.  During 2007, this joint venture sold the remaining eight condominiums resulting in gross sales of $25.4 million and net equity earnings from this unconsolidated joint venture of $1.3 million.  The remaining retail condominium was sold in February 2009 for approximately $3.8 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.  Due to our continuing investment in the manager’s condominium, we expect to continue to receive nominal earnings from this investment in the future.  The condensed balance sheet and statement of operations of 205-209 East 57th Street Associates, LLC are as follows (dollars in thousands):

205-209 East 57th Street Associates, LLC Condensed Balance Sheet Information:

		December 31,
		2009				2008
Current assets		$	591			$	2,198
Noncurrent assets			634				3,092
Current liabilities			25				157
Noncurrent liabilities			152				45
Members’ equity			1,048				5,088

205-209 East 57th Street Associates, LLC Condensed Statements of Operations Information:

		December 31,
		2009				2008				2007
Total revenue		$	4,052			$	728			$	25,673
Net income			612				833				6,805

Mt. Gravatt

We own an undivided 1/3 interest in Mt. Gravatt, an unincorporated joint venture that owns and operates a 16-screen multiplex cinema in Australia.  The condensed balance sheet and statement of operations of Mt. Gravatt are as follows (dollars in thousands):

Mt. Gravatt Condensed Balance Sheet Information:

		December 31,
		2009				2008
Current assets		$	1,010			$	799
Noncurrent assets			2,966				2,406
Current liabilities			780				561
Noncurrent liabilities			54				46
Members’ equity			3,142				2,598

Mt. Gravatt Condensed Statements of Operations Information:

		December 31,
		2009				2008				2007
Total revenue		$	11,244			$	10,989			$	10,603
Net income			2,629				2,273				2,381

 

 

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Berkeley Cinemas – Botany

We previously had investments in three joint ventures with Everard Entertainment Ltd in New Zealand.  On June 6, 2008, we sold our last investment in these joint ventures of the Botany Downs Cinema to our joint venture partner for $3.3 million (NZ$4.3 million) resulting in a net gain on sale of an unconsolidated entity of $2.5 million (NZ$3.2 million).  With the sale of the cinema, our unconsolidated joint venture debt decreased by $3.2 million (NZ$4.2 million).  We continue to have certain outstanding, contingent claims related to interest and working capital, which may or may not increase the total sales price of the cinema.  The cinema had revenue of $1.6 million (NZ$2.0 million) and $5.9 million (NZ$8.0 million) and net income of $178,000 (NZ$2 26,000) and $520,000 (NZ$706,000) for the years ended December 31, 2008 and 2007, respectively.

Combined Condensed Financial Information

The combined condensed financial information for all of the above unconsolidated joint ventures and entities accounted for under the equity method is as follows; therefore, this only excludes Malulani Investments (dollars in thousands):

Condensed Balance Sheet Information:

		December 31,
		2009				2008
Current assets		$	3,151			$	7,795
Noncurrent assets			6,826				8,463
Current liabilities			1,529				2,788
Noncurrent liabilities			1,186				898
Member’s equity			7,262				12,572

Condensed Statements of Operations Information:

		December 31,
		2009				2008				2007
Total revenue		$	23,512			$	24,370			$	53,440
Net income			3,726				3,973				10,247

Note 12 - Notes Payable

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

		December 31,												December 31,
Name of Note Payable or Security		2009 Interest Rate				2008 Interest Rate				Maturity Date				2009 Balance				2008 Balance
Australian Corporate Credit Facility			5.58	%			5.54	%		June 30, 2011				$	90,239			$	70,179
Australian Shopping Center Loans			--				--			2010-2013					786				733
Australian Construction Loan			--				6.26	%		July 31, 2009					--				3,458
New Zealand Corporate Credit Facility			4.35	%			6.10	%		March 31, 2012					10,882				8,723
Trust Preferred Securities			9.22	%			9.22	%		April 30, 2027					27,913				51,547
US Euro-Hypo Loan			6.73	%			6.73	%		July 11, 2012					15,000				15,000
US GE Capital Term Loan			6.35	%			6.82	%		February 21, 2013					32,700				41,000
US Liberty Theaters Term Loans			6.20	%			6.20	%		April 1, 2013					6,862				6,990
US Nationwide Loan 1			7.50 - 8.50	%			6.50 - 7.50	%		February 21, 2013					20,021				18,857
US Nationwide Loan 2			8.50	%			8.50	%		February 21, 2011					1,693				1,559
US Sutton Hill Capital Note 1 – Related Party			10.25	%			10.34	%		December 31, 2010					5,000				5,000
US Sutton Hill Capital Note 2 – Related Party			8.25	%			8.25	%		December 31, 2010					9,000				9,000
US Union Square Theatre Term Loan			6.26	%			6.26	%		April 1, 2010					6,897				7,116
Total														$	226,993			$	239,162

 

 

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Australia

Australian Corporate Credit Facility

                During June 2008, we extended the term of our $98.8 million (AUS$110.0 million) Australian facility to June 30, 2011.  Besides the extended term, the only other changes to the original agreement was that the loan requires interest only payments and our interest margin increased from 1.00% to 1.25%.  At December 31, 2009, we had drawn $90.2 million (AUS$100.5 million) against this facility and issued lease guarantees of $3.6 million (AUS$4.0 million) leaving an available undrawn balance of $5.0 million (AUS$5.5 million) from our total borrowing limit of $98.8 million (AUS$110.0 million).

This credit facility is secured by substantially all of our cinema assets in Australia and is only guaranteed by several of our wholly owned Australian subsidiaries.  The credit facility includes a number of affirmative and negative covenants designed to protect the Bank’s security interests.  The most restrictive covenant of the facility is a limitation on the total amount that we are able to drawdown based on the total assets that are securing the loan.  Our Australian Credit Facility provides for floating interest rates based on the Bank Bill Swap Bid Rate (BBSY bid rate), but requires that not less than 70% of the loan be swapped into fixed rate obligations.  For further information regarding our swap agreements, see Note 13 – Der ivative Instruments.  All interest rates above include a 1.25% interest rate margin.

Australian Shopping Center Loans

As part of the acquisition of the Anderson Circuit, in July 2004, we assumed the three loans on the properties of Epping, Rhodes, and West Lakes.  The total amount assumed on the transaction date was $1.5 million (AUS$2.1 million) and the loans carry no interest as long as we make timely principal payments of approximately $180,000 (AUS$200,000) per year.  The balance of these loans at December 31, 2009 and 2008 was $786,000 (AUS$875,000) and $733,000 (AUS$1.1 million), respectively.  Early repayment is possible without penalty.  The only recourse on default of these loans is the security on the properties.  During 2009, 2008, and 2007, we have not paid $22,000 (AUS$25,000), $140,000 (AUS$200,000) and $88,000 (AUS$100,000), respectively, of principal payments on the West Lakes loan due to a dispute that we have with the landlord.  We are currently in the process of resolving this dispute.

Australian Construction Loan

              During 2008, we negotiated with an Australian bank a construction line of credit on our Indooroopilly property of $6.1 million (AUS$8.7 million).  As of December 31, 2008, we had drawn $3.5 million (AUS$5.0 million) on this credit facility.  Upon completion of the project, this loan was to effectively mature on September 30, 2009.  As such, we used our available cash to pay off the loan on July 31, 2009 in the amount of $6.1 million (AUS$7.3 million).

 
 

New Zealand

New Zealand Corporate Credit Facility

During May 2009, we extended the term of our New Zealand facility to March 31, 2012 and reduced the available borrowing amount to $32.6 million (NZ$45.0 million).  The drawn balance of this loan was $10.9 million (NZ$15.0 million) at December 31, 2009.  We recorded $33,000 (NZ$45,000) in deferred financing costs associated with this term extension which we will amortize over the remaining life of the loan.  The margin on the facility was increased to 1.45% from 1.00% and the line of credit charge increased to 0.30% from 0.20% line charge.  The loan comes due on March 31, 2012.  The facility is secured by substantially all of our New Zealand assets, but has not been guaranteed by any entity other than several of our New Zealand subsidiaries.  The facility includes various affi rmative and negative financial covenants designed to protect the bank’s security, limits capital expenditures and the repatriation of funds out of New Zealand without the approval of the bank.  Also included in the restrictive covenants of the facility is the restriction of transferring funds from subsidiary to parent.  Interest payments for this loan are required on a monthly basis.

On December 23, 2008, we drew down $6.8 million (NZ$11.8 million) and used it to partially repay Reading International, Inc. Trust Preferred Notes during the first quarter 2009.  As of December 31, 2009, we have drawn $10.9 million (NZ$15.0 million) leaving an available undrawn balance of $21.8 million (NZ$30.0 million).

 

 

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During the February 2007, we 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 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 8 – Acquisitions and Property Development).  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.

Domestic

Trust Preferred Securities

On February 5, 2007, we issued $51.5 million in 20-year fully subordinated notes to a trust that we control, which in turn issued $51.5 million in securities.  Of the $51.5 million, $50.0 million in TPS 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 $838,000 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 n otes 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.  The most restrictive covenant of the facility requires that we must maintain a fixed charge coverage ratio at a certain level.  However, on December 31, 2008, we secured a waiver of all financial covenants with respect to our TPS for a period of nine years in consideration of payments totaling $1.6 million, consisting of an initial payment of $1.1 million paid on January 2, 2009 and a contractual obligation to pay $270,000 in December 2011 and $270,000 in December 2014.

The private 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 years ended December 31, 2009, 2008, and 2007, we paid $3.6 million, $4.6 million, and $3.4 million, respectively, in preferred dividends to the unrelated investors that are included in interest expense.  At December 31, 2009 and 2008, we had preferred dividends payable of $416,000 and $768,000, respectively.  Interest payments for this loan are required every three months.

During the first quarter of 2009, we took advantage of the then current market illiquidity for securities such as our TPS 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 TPS.  During the twelve months ended December 31, 2009, we amortized $106,000 of discount to interest income.  On April 30, 2009, we extinguished $22.9 million of these TPS, which resulted in a gain on retirement of subordinated debt (TPS) of $10.7 million net of loss on the associated write-off of deferred loan costs of $749,000.

Euro-Hypo Loan

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 Forman.  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 11, 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 f lows from SHP are currently insufficient to cover its obligations, 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.  Interest payments for this loan are required on a monthly basis.

 

 

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GE Capital Term Loan

 

In connection with the Consolidated Entertainment acquisition described in Note 8 - Acquisitions and Property Development, on February 21, 2008, our wholly-owned subsidiary, Consolidated Amusement Theatres, Inc., (now renamed Consolidated Entertainment, Inc.) as borrower (“Borrower”), and Consolidated Amusement Holdings, Inc. (“Holdings”) entered into a Credit Agreement with General Electric Capital Corporation (“GE”) as lender and administrative agent, and GE Capital Markets, Inc. as lead arranger, which provides Borrower with a senior secured credit facility of up to $55.0 million in the aggregate, including a revolving credit facility of up to $5.0 million and a $1.0 million sub-limit for letters of credit  (the “Credit Faci lity”).  The initial borrowings under the Credit Facility were used to finance, in part, our acquisition of the theaters and other assets described in Note 8 - Acquisitions and Property Development.  We may borrow additional amounts under the Credit Facility for other acquisitions as permitted under the Credit Facility (and to pay any related transaction expenses), and for ordinary working capital and general corporate needs of Borrower, subject to the terms of the Credit Facility.  We incurred deferred financing costs of $2.6 million related to our borrowings under this Credit Facility.  The Credit Facility expires on February 21, 2013 and is secured by substantially all the assets of Borrower and Holdings.

The following table sets forth the terms of our interest rate swap derivative instruments at December 31, 2009:

Type of Instrument		Notional Amount				Pay Fixed Rate				Receive Variable Rate			Maturity Date
Interest rate swap		$	35,500,000				2.854	%			0.250	%	April 1, 2011
Interest rate swap		$	43,306,000				4.550	%			4.328	%	December 31, 2011
Interest rate cap		$	23,318,000				4.550	%			4.328	%	December 31, 2011

In accordance with FASB ASC 815-20 – Derivatives and Hedging, we marked our interest swap instruments to market on the consolidated balance sheet resulting in a $1.4 million decrease to interest expense during 2009, $2.1 million increase to interest expense during 2008, and a $320,000 decrease to interest expense during 2007.  At December 31, 2009, we recorded the fair market value of an interest rate swap and a cap of $766,000 as other long-term assets and an interest rate swap of $785,000 as an other long-term liability.  At December 31, 2008, we recorded the fair market value of our interest rate swaps at $1.4 million as an other long-term liability.  In accordance with FASB ASC 815-20, we have not designated any of our current interest rat e swap positions as financial reporting hedges.

 

 

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Note 14 - Income Taxes

Income (loss) before income tax expense includes the following (dollars in thousands):

		Year Ended December 31,
		2009				2008				2007
United States		$	10,870			$	(12,521	)		$	1,393
Foreign			(2,821	)			(4,516	)			(3,000	)
Income (loss) before income tax expense and equity earnings of unconsolidated joint ventures and entities		$	8,049			$	(17,037	)		$	(1,607	)
Net income attributable to noncontrolling interests:
United States			(359	)			(501	)			(656	)
Foreign			(29	)			(119	)			(347	)
Equity earnings and gain on sale of unconsolidated subsidiary:
United States			421				(146	)			1,328
Foreign			(36	)			3,093				1,217
Income (loss) before income tax expense		$	8,046			$	(14,710	)		$	(65	)

Significant components of the provision for income taxes are as follows (dollars in thousands):

		Year Ended December 31,
		2009				2008				2007
Current income tax expense
Federal		$	690			$	900			$	510
State			320				187				511
Foreign			942				1,012				1,017
Total			1,952				2,099				2,038
Deferred income tax expense
Federal			--				--				--
State			--				--				--
Foreign			--				--				--
Total			--				--				--
Total income tax expense		$	1,952			$	2,099			$	2,038

Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by the relevant tax rate.  The components of the deferred tax assets and liabilities are as follows (dollars in thousands):

 

 

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		December 31,
Components of Deferred Tax Assets and Liabilities		2009				2008
Deferred Tax Assets:
Net operating loss carry forwards		$	45,980			$	39,168
Impairment reserves			3,415				2,469
Alternative minimum tax carry forwards			3,752				3,752
Installment sale of cinema property			5,070				5,070
Deferred revenue and expense			2,245				6,101
Other			21				8,310
Total Deferred Tax Assets			60,483				64,870
Deferred Tax Liabilities:
Acquired and option properties			880				4,932
Net deferred tax assets before valuation allowance			59,603				59,938
Valuation allowance			(59,603	)			(59,938	)
Net deferred tax asset		$	--			$	--

 

In accordance with FASB ASC 740-10 – Income Taxes (“ASC 740-10”), we record net deferred tax assets to the extent we believe these assets will more likely than not be realized.  In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance.  ASC 740-10 presumes that a valuation allowance is required when there is substantial negative evidence about realization of deferred tax assets, such as a pattern of losses in recent years, coupled with facts that suggest such losses may continue.  Because of such negative evidence available for the U.S. and other countrie s, as of December 31, 2009 we recorded a full valuation allowance of $59.6 million.

As of December 31, 2009, we had the following U.S. net operating loss carry forwards (dollars in thousands):

Expiration Date		Amount
2018		$	4
2019			1,320
2021			198
2022			1,495
2025			28,345
2028			1,196
2029			12,604
Total net operating loss carry forwards		$	45,162

In addition to the above net operating loss carry forwards having expiration dates, we have the following carry forwards that have no expiration date at December 31, 2009:

 

·	approximately $3.7 million in alternative minimum tax credit carry forwards;

 

·	approximately $57.2 million in Australian loss carry forwards; and

 

·	approximately $6.4 million in New Zealand loss carry forwards.

We disposed of our Puerto Rico operations during 2005 and plan no further investment in Puerto Rico for the foreseeable future.  We have approximately $22.0 million in Puerto Rico loss carry forwards expiring no later than 2016.  No material future tax benefits from Puerto Rico loss carry forwards can be recognized by the Company unless it re-enters the Puerto Rico market.

We expect no other substantial limitations on the future use of U.S. or foreign loss carry forwards except for reductions in unused U.S. loss carry forwards that may occur in connection with the 1996 Tax Audit described in Note 19 - Commitments and Contingencies.

 

 

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U.S. income taxes have not been recognized on the temporary differences between book value and tax basis of investment in foreign subsidiaries.  These differences become taxable upon a sale of the subsidiary or upon distribution of assets from the subsidiary to U.S. shareholders.  We expect neither of these events will occur in the foreseeable future for any of our foreign subsidiaries.

The provision for income taxes is different from amounts computed by applying U.S. statutory rates to consolidated losses before taxes.  The significant reason for these differences follows (dollars in thousands):

		Year Ended December 31,
		2009				2008				2007
Expected tax provision (benefit)		$	2,817			$	(5,149	)		$	(23	)
Reduction (increase) in taxes resulting from:
Change in valuation allowance			(4,509	)			4,179				(768	)
Expired foreign loss carry forward			1,847				2,283				1,760
Foreign tax provision			942				1,012				1,017
Tax effect of foreign tax rates on current income			528				(464	)			(60	)
State and local tax provision			320				187				511
Other items			7				51				(399	)
Actual tax provision		$	1,952			$	2,099			$	2,038

Pursuant to ASC 740-10, a provision should be made for the tax effect of earnings of foreign subsidiaries that are not permanently invested outside the United States.  Our intent is that earnings of our foreign subsidiaries are not permanently invested outside the United States.  No current or cumulative earnings were available for distribution in the Reading New Zealand consolidated group of subsidiaries or in the Puerto Rico subsidiary as of December 31, 2009.  The Reading Australia consolidated group of subsidiaries generated earnings in 2009, but had no cumulative earnings available for distribution.  We have provided $453,000 in foreign withholding taxes connected with these current retained earnings.

 
 

We have accrued $12.0 million in income tax liabilities as of December 31, 2009, of which $5.0 million has been classified as income taxes payable and $7.0 million have been classified as non-current tax liabilities.  As part of non-current tax liabilities, we have accrued $6.1 million in accordance with the cumulative probability approach prescribed by FASB ASC 740-10-25 – Income Taxes - Uncertain Tax Positions in connection with the “Appeal of IRS Deficiency Notices” and we believe that the possible total settlement amount will be between $6.1 million and $63.1 million (see Note 19 – Commitments and Contingencies).  We believe these amounts represent an adequate provision for o ur income tax exposures, including income tax contingencies related to foreign withholding taxes described in Note 15 – Other Liabilities.

The following table is a summary of the activity related to unrecognized tax benefits, excluding interest and penalties, for the years ending December 31, 2009, December 31, 2008, and December 31, 2007 (dollars in thousands):

 

		Year Ended December 31, 2009				Year Ended December 31, 2008				Year Ended December 31, 2007
Unrecognized tax benefits – gross beginning balance		$	11,271			$	11,417			$	10,857
Gross increases – prior period tax provisions			92				--				47
Gross decreases – prior period tax positions			--				(146	)			--
Gross increases – current period tax positions			219				--				513
Settlements			--				--				--
Statute of limitations lapse			(170	)			--				--
Unrecognized tax benefits – gross ending balance			11,412				11,271				11,417

 

We adopted FASB ASC 740-10-25 – Income Taxes - Uncertain Tax Positions (“ASC 740-10-25”) 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.  As of that date, we also reclassified approximately $4.0 million in reserves from current taxes liabilities to noncurrent tax liabilities.  Interest and/or penalties related to income tax matters are recorded as part of income tax expense.  We had approximately $10.8 million of gross tax benefits and $1.7 million of tax interest unrecognized on the financial statements as of the date of adoption, mostly reflecting opera ting loss carry forwards and the IRS litigation matter described below.  Of the $12.5 million total gross unrecognized tax benefits at January 1, 2007, $4.5 million would impact the effective tax rate if recognized.  The remaining balance consists of items that would not impact the effective tax rate due to the existence of the valuation allowance.  We recorded an increase to our gross unrecognized tax benefits of approximately $0.6 million and an increase to tax interest of approximately $0.6 million during the period January 1, 2007 to December 31, 2007.  Of the $11.3 million gross unrecognized tax benefit at December 31, 2008, $3.1 million would impact the effective rate if recognized.  We further recorded a decrease to our gross unrecognized tax benefits of approximately $0.1 million and an increase to tax interest of approximately $0.9 million during the period January 1, 2008 to December 31, 2008, and the total balance at December 31, 2008 was approxima tely $14.5 million (of which approximately $3.2 million represents IRS interest).  We further recorded an increase to our gross unrecognized tax benefits of approximately $0.2 million and an increase to tax interest of approximately $0.6 million during the period January 1, 2009 to December 31, 2009, and the total balance at December 31, 2009 was approximately $15.3 million (of which approximately $3.8 million represents IRS interest).  Of the $11.4 million gross unrecognized tax benefit at December 31, 2009, $3.2 million would impact the effective tax rate if recognized.

 

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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 2005 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 open for examination.  The income tax returns filed in New Zealand and Puerto Rico for calendar year 2004 and afterward generally remain open for examination as of December 31, 2009.  The income tax returns of certain New Zealand subsidiaries had been und er examination for years 2002 through 2004 but the examination has concluded with no material tax assessment.

 

We anticipate that within 12 months following December 31, 2009 our gross unrecognized tax benefits will decrease by approximately $8.2 million, reflecting a reduction in available loss carryforwards related to the 1996 Tax Audit described in Note 19 – Commitments and Contingencies.  Because of valuation allowances, the decrease will not impact the effective tax rate.  We anticipate no other significant change to our gross unrecognized tax benefits caused by settlement of audits or expiration of statutes of limitations.

 

Note 15 – Other Liabilities

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

		December 31,
		2009				2008
Current liabilities
Security deposit payable		$	143			$	210
Contractual commitment loss			321				--
Other			(7	)			(9	)
Other current liabilities		$	457			$	201
Other liabilities
Foreign withholding taxes		$	5,944			$	5,748
Straight-line rent liability			6,199				5,022
Option liability			--				1,117
Environmental reserve			1,656				1,656
Accrued pension			3,912				2,946
Interest rate swap			785				1,439
Acquired leases			4,042				4,612
Other payable			2,603				--
Other			711				1,064
Other liabilities		$	25,852			$	23,604

Note 16 – Fair Value of Financial Instruments

In September 2006, the Financial Accounting Standards Board (FASB) issued FASB ASC 820-10 – Fair Value Measurements and Disclosures (“ASC 820-10”).  ASC 820-10 does not establish requirements for any new fair value measurements, but it does apply to existing accounting pronouncements in which fair value measurements are already required.  ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.  We adopted the provisions of ASC 820-10 as of January 1, 2008, for financial instruments.  Although the adoption of ASC 820-10 has not materially impacted our financial con dition, results of operations, or cash flow, we are now required to provide additional disclosures as part of our financial statements.

 

 

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ASC 820-10 (see Note 2 –Summary of Significant Accounting Policies) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

We use appropriate valuation techniques based on the available inputs to measure the fair values of our assets and liabilities.  When available, we measure fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.

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

Level 1 Fair Value Measurements – are based on market quotes of our marketable securities.

Level 2 Fair Value Measurements –

Investment in Marketable Securities in an Inactive Market – At December 31, 2008, our investment in Available For Sale Securities includes common shares in an Australian Company that were subject to a tender offer from a publicly traded Company in Australia that is actively traded.  Based on the exchange ratio provided for the open tender offer and the related market quote on December 31, 2008, the fair value of our Available for Sale Securities was derived.

Interest Rate Swaps – The fair value of interest rate swaps are estimated using internal discounted cash flow calculations based upon forward interest rate curves, which are corroborated by market data, and quotes obtained from counterparties to the agreements.

Level 3 Fair Value Measurements – we do not have any assets or liabilities that fall into this category.

As of December 31, 2009, we held certain items that are required to be measured at fair value on a recurring basis.  These included cash equivalents, available for sale securities, and interest rate derivative contracts.  Cash equivalents consist of short-term, highly liquid, income-producing investments, all of which have maturities of 90 days or less.  Derivative instruments are related to our economic hedge of interest rates.  Our available-for-sale securities primarily consist of investments associated with the ownership of marketable securities in Australia.

The fair values of the interest rate swap agreements are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rate fell above the strike rate of the interest rate cap agreement.  The variable interest rates used in the calculation of projected receipts on the interest rate swap and cap agreements are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.  To comply with the provisions of ASC 820-10, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.  Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties.  However, as of December 31, 2009, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.  We have consistently applied these valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivative contracts we hold.

 

 

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The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 at December 31, 2009 and 2008, respectively (dollars in thousands):

						Book Value								Fair Value
Financial Instrument		Level				2009				2008				2009				2008
Investment in marketable securities			1			$	3,120			$	141			$	3,120			$	141
Investment in marketable securities in an inactive market			2			$	--			$	2,959			$	--			$	2,959
Interest rate swaps asset			2			$	766			$	--			$	766			$	--
Interest rate swaps liability			2			$	785			$	1,439			$	785			$	1,439

Financial Instruments Disclosed at Fair Value

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

		Book Value								Fair Value
Financial Instrument		2009				2008				2009				2008
Cash		$	24,612			$	30,874			$	24,612			$	30,874
Accounts receivable		$	9,458			$	7,868			$	9,458			$	7,868
Restricted cash		$	321			$	1,656			$	321			$	1,656
Accounts and film rent payable		$	22,199			$	20,485			$	22,199			$	20,485
Notes payable		$	185,080			$	173,615			$	172,946			$	169,634
Notes payable to related party		$	14,000			$	14,000			$	N/A			$	N/A
Subordinated debt		$	27,913			$	51,547			$	20,416			$	39,815
Investment in Marketable Securities		$	3,120			$	3,100			$	3,120			$	3,100
Interest rate swaps asset		$	766			$	--			$	766			$	--
Interest rate swaps liability		$	785			$	1,439			$	785			$	1,439

For purposes of this fair value disclosure, we based our fair value estimate for notes payable and subordinated debt on our internal valuation that includes a representative sample of our lenders’ market interest rate quotes as of December 31, 2009 for debt with similar risk characteristics and maturities.

Note 17 – Lease Agreements

Most of our cinemas conduct their operations in leased facilities.  Fourteen of our nineteen operating multiplexes in Australia, five of our nine cinemas in New Zealand, and all but one of our cinemas in the United States are in leased facilities.  These cinema leases have remaining terms inclusive of options of 3 to 40 years.  Certain of our cinema leases provide for contingent rentals based upon a specified percentage of theater revenue with a guaranteed minimum.  Substantially all of our leases require the payment of property taxes, insurance, and other costs applicable to the property.  We also lease office space and equipment under non-cancelable operating leases.  All of our leases are accounted for as operating leases and accordingly, we have no leases of facilities th at require capitalization.

We determine the annual base rent expense of our cinemas by amortizing total minimum lease obligations on a straight-line basis over the lease terms.  Base rent expense and contingent rental expense under the operating leases totaled approximately $27.5 million and $794,000 for 2009, respectively; $26.0 million and $346,000 for 2008, respectively; and $11.9 million and $515,000 for 2007, respectively.  Future minimum lease payments by year and, in the aggregate, under non-cancelable operating leases consisted of the following at December 31, 2009 (dollars in thousands):

 

 

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		Minimum Ground Lease Payments				Minimum Premises Lease Payments				Total Minimum Lease Payments
2010		$	22,758			$	2,792			$	25,550
2011			22,482				2,489				24,971
2012			21,006				2,489				23,495
2013			18,608				2,535				21,143
2014			16,698				1,569				18,267
Thereafter			58,727				5,411				64,138
Total minimum lease payments		$	160,279			$	17,285			$	177,564

Since approximately $70.3 million of our total minimum lease payments of $177.6 million as of December 31, 2009 consisted of lease obligations denominated in Australian and New Zealand dollars, the U.S dollar amounts of these obligations will fluctuate in accordance with the relative values of these currencies.

Note 18 – Pension Liabilities

Supplemental Executive Retirement Plan

In March 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 benefi ciaries 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 FASB ASC 715-30-05 – Defined Benefit Pension Plans (“ASC 715-30-05”), the initial pension benefit obligation of $2.7 million was included in our other liabilities with a corresponding amount of unrecognized prior service cost included in accumulated other comprehensive income on March 1, 2007 (see Note 24 – Co mprehensive Income).  The initial benefit obligation was based on a discount rate of 5.75% and a compensation increase rate of 3.5%.  The $2.7 million is being amortized as a prior service cost over the estimated service period of 10 years combined with an annual interest cost.  For the years ended December 31, 2009, 2008 and 2007, we recognized $160,000, $153,000, and $129,000, respectively, of interest cost and $304,000, $304,000, and $253,000, respectively, of amortized prior service cost.  For the years ended December 31, 2009 and 2008, we recognized $20,000 and $18,000, respectively, of amortized net gain.  The balance of the other liability for this pension plan was $3.4 million and $2.6 million at December 31, 2009 and 2008, respectively, and the accumulated unrecognized prior service costs included in other comprehensive income balance was $2.1 million and $1.7 million at December 31, 2009 and 2008, respectively.  The December 31, 200 9 and 2008 values of the SERP are each based on a discount rate of 6.25% and an annual compensation growth rate of 3.50%.

The change in the SERP pension benefit obligation and the funded status for the year ending December 31, 2009 and 2008 are as follows (dollars in thousands):

Change in Benefit Obligation		For the year ending December 31, 2009
Benefit obligation at January 1, 2009		$	2,566
Service cost			--
Interest cost			160
Actuarial loss			702
Benefit obligation at December 31, 2009			3,428
Plan assets			--
Funded status at December 31, 2009		$	(3,428	)

 

 

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Change in Benefit Obligation		For the year ending December 31, 2008
Benefit obligation at January 1, 2008		$	2,445
Service cost			--
Interest cost			153
Actuarial gain			(32	)
Benefit obligation at December 31, 2008			2,566
Plan assets			--
Funded status at December 31, 2008		$	(2,566	)

Amount recognized in balance sheet consists of (dollars in thousands):

		At December 31, 2009				At December 31, 2008
Noncurrent assets		$	--			$	--
Current liabilities			7				6
Noncurrent liabilities			3,421				2,560

Items not yet recognized as a component of net periodic pension cost consist of (dollars in thousands):

		At December 31, 2009				At December 31, 2008
Unamortized actuarial (gain) loss		$	323			$	(399	)
Prior service costs			1,840				2,144
Accumulated other comprehensive loss			2,163				1,745

The components of the net periodic benefit cost and other amounts recognized in other comprehensive income are as follows (dollars in thousands):

Net periodic benefit cost		From January 1, 2009 to December 31, 2009				From January 1, 2008 to December 31, 2008
Service cost		$	--			$	--
Interest cost			160				153
Expected return on plan assets			--				--
Amortization of prior service costs			304				304
Amortization of net gain			(20	)			(18	)
Net periodic benefit cost		$	444			$	439
Other changes in plan assets and benefit obligations recognized in other comprehensive income
Net (gain) loss		$	702			$	(32	)
Prior service cost			--				--
Amortization of prior service cost			(304	)			(304	)
Amortization of net gain			20				18
Total recognized in other comprehensive income		$	418			$	(318	)
Total recognized in net periodic benefit cost and other comprehensive income		$	862			$	121

The estimated net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year will be $0 and $304,000, respectively.

 

 

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The following weighted average assumptions were used to determine the plan benefit obligations at December 31, 2009 and 2008:

	2009	2008
Discount rate	5.85%	6.25%
Rate of compensation increase	3.50%	3.50%

The following weighted-average assumptions were used to determine net periodic benefit cost for the year ended December 31, 2009 and 2008:

	2009	2008
Discount rate	6.25%	6.25%
Expected long-term return on plan assets	0.00%	0.00%
Rate of compensation increase	3.50%	3.50%

The benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the following periods (dollars in thousands):

		Pension Payments
2010		$	7
2011			15
2012			23
2013			32
2014			40
Thereafter			3,795
Total pension payments		$	3,912

Other Pension Liabilities

In addition to the aforementioned SERP, Mr. S. Craig Tompkins has a vested interest in the pension plan originally established by Craig Corporation prior to its merger with our company of $192,000 and $188,000 at December 31, 2009 and 2008, respectively.  The balance accrues interest at 30 day LIBOR and is maintained as an unfunded Executive Pension Plan obligation included in other liabilities.  Additionally, as part of his employment agreement, Mr. John Hunter, our Chief Operating Officer, has a vested interest in a pension plan that currently accrues $100,000 per year and has a balance of $292,000.

Note 19 - Commitments and Contingencies

Unconsolidated Joint Venture Loans

The following section describes any loans associated with our investments in unconsolidated joint ventures.  As these investments are unconsolidated, any associated bank loans are not reflected in our Consolidated Balance Sheet at December 31, 2009.  Each loan is without recourse to any assets other than our interests in the individual joint venture.

Rialto Distribution.  We are the 33.3% co-owners of the assets of Rialto Distribution.  At December 31, 2009 and 2008, the total line of credit was $1.5 million (NZ$2.0 million) and $1.2 million (NZ$2.0 million), respectively, and had an outstanding balance of $979,000 (NZ$1.4 million) and $785,000 (NZ$1.4 million), respectively.  This loan is guaranteed by one of our subsidiaries to the extent of our ownership percentage.

Construction Commitments

During 2008, associated with the development of our Indooroopilly, Brisbane, Australia property, we had entered into a construction agreement related to its redevelopment.  Obligations under this agreement were contingent upon the completion of the services within the guidelines specified in the agreement.  During 2009, we paid off the entire balance of this construction debt facility (see Note 12 - Notes Payable).

 

 

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Tax Audit/Litigation

The Internal Revenue Service (the “IRS”) completed its audits of the tax return of Reading Entertainment Inc. (RDGE) for its tax years ended December 31, 1996 through December 31, 1999 and the tax return of Craig Corporation (CRG) for its tax year ended June 30, 1997.  These companies are each now wholly owned subsidiaries of RDI, but for the time periods under audit, were not consolidated with RDI for tax purposes.  With respect to both of these companies, the principal focus of these audits was the treatment of the contribution by RDGE to our wholly owned subsidiary, Reading Australia, and thereafter the subsequent repurchase by Stater Bros. Inc. from Reading Australia, of certain preferred stock in Stater Bros. Inc. (the “Stater Stock”).  The Stater Stock was received by RDGE fr om CRG as a part of a private placement of securities by RDGE, which closed in October 1996.  A second issue involving an equipment-leasing transaction entered into by RDGE (discussed below) has been conceded by RDGE resulting in a net tax refund.  

By letters dated November 9, 2001, the IRS issued reports of examination proposing changes to the tax returns of RDGE and CRG for the years in question (the “Examination Reports”).  The Examination Report for each of RDGE and CRG proposed that the gains on the disposition by RDGE of Stater Stock, reported as taxable on the RDGE return, should be allocated to CRG.  As reported, the gain resulted in no additional tax to RDGE inasmuch as the gain was entirely offset by a net operating loss carry forward of RDGE.  This proposed change would result in an additional tax liability for CRG of approximately $20.9 million plus interest of approximately $25.5 million as of December 31, 2009.  In addition, this proposal would result in California tax liability of approximately $5.4 million plus interest of approximately $7.3 million as of December 31, 2009.  Accordingly, this proposed change represented, as of December 31, 2009, an exposure of approximately $59.1 million.

Moreover, California has “amnesty” provisions imposing additional liability on taxpayers who are determined to have materially underreported their taxable income.  While these provisions have been criticized by a number of corporate taxpayers to the extent that they apply to tax liabilities that are being contested in good faith, no assurances can be given that these new provisions will be applied in a manner that would mitigate the impact on such taxpayers.  Accordingly, these provisions may cause an additional $4.0 million exposure to CRG, for a total exposure of approximately $63.1 million.  We have accrued $6.1 million in accordance with the cumulative probability approach prescribed in ASC 740-10-25 in relation to this exposure and believe that the possible total settlement amount will be between $6.1 million and $63.1 million.

In early February 2005, we had a mediation conference with the IRS concerning this proposed change.  The mediation was conducted by two mediators, one of whom was selected by the taxpayer from the private sector and one of whom was an employee of the IRS.  In connection with this mediation, we and the IRS each prepared written submissions to the mediators setting forth our respective cases.  In its written submission, the IRS noted that it had offered to settle its claims against us at 30% of the proposed change, and reiterated this offer at the mediation.  This offer constituted, in effect, an offer to settle for a payment of $5.0 million federal tax, plus interest, for an aggregate settlement amount of approximately $8.0 million.  Based on advice of counsel given after reviewing the materials submitted by the IRS to the mediation panel, and the oral presentation made by the IRS to the mediation panel and the comments of the mediators (including the IRS mediator), we determined not to accept this offer.

Notices of deficiency (“N/D”) dated June 29, 2006 were received with respect to each of  RDGE and CRG determining proposed deficiencies of $20.9 million for CRG and a total of $349,000 for RDGE for the tax years 1997, 1998 and 1999.

We intend to litigate aggressively the Stater matter in the U.S. Tax Court.  A case was filed with the court on September 26, 2006 for each respective N/D.  While there are always risks in litigation, we believe that a settlement at the level currently offered by the IRS would substantially understate the strength of our position and the likelihood that we would prevail in a trial of these matters.  We have filed a motion for summary judgment in the matter.  The trial previously scheduled for March 2010 has been postponed, pending the outcome of our summary judgment motion, and as of this date, no new trial date has been fixed.  It is assumed, however, that if our summary judgment motion is not granted, the case will go to trial in midyear.

Since these tax liabilities relate to time periods prior to the Consolidation of CDL, RDGE, and CRG into Reading International, Inc. and since RDGE and CRG continue to exist as wholly owned subsidiaries of RDI, it is expected that any adverse determination would be limited in recourse to the assets of RDGE or CRG, as the case may be, and not to the general assets of RDI.  At the present time, the assets of these subsidiaries are comprised principally of RDI securities.  Accordingly, we do not anticipate, even if there were to be an adverse judgment in favor of the IRS that the satisfaction of that judgment would interfere with the internal operation or result in any levy upon or loss of any of our material operating assets.  However, the satisfaction of any such adverse judgment would result in a material dilution to existing stockholder interests.

 

 

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The N/D issued to RDGE was conceded by RDGE in August 2008.  The net result related to the equipment leasing transaction entered into by RDGE is expected to be a refund of approximately $750,000 in federal alternative minimum tax for the year 1996, along with a payment of payment of approximately $600,000 in  federal and state income taxes, for the years 1997-99, plus interest.

Environmental and Asbestos Claims

Certain of our subsidiaries were historically involved in railroad operations, coal mining, and manufacturing.  Also, certain of these subsidiaries appear in the chain of title of properties that may suffer from pollution.  Accordingly, certain of these subsidiaries have, from time to time, been named in and may in the future be named in various actions brought under applicable environmental laws.  Also, we are in the real estate development business and may encounter from time to time unanticipated environmental conditions at properties that we have acquired for development.  These environmental conditions can increase the cost of such projects, and adversely affect the value and potential for profit of such projects.  We do not currently believe that our exposure under applicable env ironmental laws is material in amount.

From time to time, we have claims brought against us relating to the exposure of former employees of our railroad operations to asbestos and coal dust.  These are generally covered by an insurance settlement reached in September 1990 with our insurance carriers.  However, this insurance settlement does not cover litigation by people who were not our employees and who may claim second hand exposure to asbestos, coal dust and/or other chemicals or elements now recognized as potentially causing cancer in humans.

We are in the process of remediating certain environmental issues with respect to our 50-acre Burwood site in Melbourne.  That property was at one time used as a brickworks and we have discovered petroleum and asbestos at the site.  During 2007, we developed a plan for the remediation of these materials, in some cases through removal and in other cases through encapsulation.  As of December 31, 2009, we estimate that the total site preparation costs associated with the removal of this contaminated soil will be $8.6 million (AUS$9.6 million) and as of that date we had incurred a total of $6.6 million (AUS$7.4 million) of these costs.  We do not believe that this has added materially to the overall development cost of the site, as much of the work is being done in connection with the excavation an d other development activity already contemplated for the property.

Mackie Litigation

On November 7, 2005, we were sued in the Supreme Court of Victoria at Melbourne by a former construction contractor with respect to the discontinued development of an ETRC at Frankston, Victoria.  The action is entitled Mackie Group Pty Ltd v. Reading Properties Pty Ltd, and in it the former contractor seeks payment of a claimed fee in the amount of $898,000 (AUS$1.0 million).  We do not believe that any such fee is owed, and are contesting the claim.  Discovery has now been completed by both parties.  We have offered in settlement an amount of $781,000 (AUS$870,000) and they have countered with an amount of $1.1 million (AUS$1.2 million).  In relation to this claim, we have accrued a litigation related loss of $781,000 (AUS$870,000) at D ecember 31, 2009.

In a hearing conducted on November 22 and 29, 2006, we successfully defended an application for summary judgment brought by Mackie and were awarded costs for part of the preparation of our defense to the application.  A bill of costs has been prepared by a cost consultant in the sum of $20,000 (AUS$25,000) (including disbursements).  On April 27, 2007, we received payment for those costs in the sum of $17,000 (AUS$19,000).

Attempts to mediate the dispute have not been successful.  The trial date on this matter is set for March 17, 2010.  We believe that we have adequate support for our position and that a reserve for these claims is not required as the likelihood of an unfavorable outcome is not probable and reasonably capable of being estimated.

 
 

Malulani Investments Litigation

In December 2006, we and Magoon Acquisition and Development, LLC, another noncontrolling shareholder in Malulani Investments, Limited (“MIL”) 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.  That case was brought in the Circuit Court of the First Circuit Hawaii, in Honolulu, and is called Magoon Acquisition & Development, LLC; a California limited liability company, Reading International, Inc.; a Nevada corporation, an d 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).

 

 

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On July 2, 2009, Magoon LLC and we entered into a settlement agreement (the “Settlement Terms”) with respect to the MIL Litigation.  Under the Settlement Terms, Magoon LLC and we received $2.5 million in cash, a $6.75 million three-year 6.25% secured promissory note issued by The Malulani Group (“TMG”), the parent company of MIL, and a ten-year “tail interest” in MIL and TMG in exchange for the transfer of all ownership interests in MIL and TMG held by both Magoon, LLC and RDI and for the release of all claims against the defendants in this matter.  The tail interest allows us to participate in certain distributions made by MIL or TMG, and in certain cases, the distributions received by shareholders of MIL or TMG.  The tai l interest, however, continues only for a period of ten years and we cannot assure that we will in fact receive any distributions from this tail interest.  As a result of this transaction, during 2009, we recorded a $268,000 gain on the transfer of our ownership interest in MIL and $2.6 million of other operating income for the recovery of previously expensed litigation costs.

Pursuant to the Settlement Terms, 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 was a mutual release of claims.  Mr. Cotter, our Chairman, Chief Executive Officer and 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 were entitled to all of the cash proceeds of the settlement, plus we are entitled to distributions with respect to the promissory note until we recoup both our litigation costs and the cost of our investment.  Thereafter, Magoon LLC will receive distributions under the promissory note and the tail interest (if any) until it has recouped its investment in MIL and TMG.  Thereafter, distributions under the ta il interest, if any, will be shared between Magoon LLC and us in accordance with the sharing formula set forth in the Amended and Restated Shareholder Agreement between Magoon LLC and us.

Note 20 – Noncontrolling interests

Noncontrolling interests in our consolidated subsidiaries are comprised of the following:

 

·	50% of membership interest in Angelika Film Center LLC (“AFC LLC”) owned by a subsidiary of iDNA

 

·	25% noncontrolling interest in Australian Country Cinemas by 21st Century Pty, Ltd

 

·	33% noncontrolling interest in the Elsternwick joint venture by Champion Pictures Pty Ltd

 

·	15% to 27.5% subordinated noncontrolling interest in the Landplan Property Partners, Ltd by Landplan Property Group, Ltd

 

·	25% noncontrolling interest in the Sutton Hill Properties, LLC owned by Sutton Hill Capital, LLC

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

		December 31,
		2009				2008
AFC LLC		$	1,135			$	1,529
Australian Country Cinemas			255				142
Elsternwick unincorporated joint venture			139				114
Landplan Property Partners			--				117
Sutton Hill Properties			(155	)			(85	)
Noncontrolling interests in consolidated subsidiaries		$	1,374			$	1,817

 

 

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The components of income attributable to noncontrolling interests are as follows (dollars in thousands):

		December 31,
		2009				2008				2007
AFC		$	606			$	622			$	742
Australian Country Cinemas			152				146				112
Elsternwick unincorporated joint venture			34				31				21
Landplan Property Partners			(157	)			(59	)			214
Sutton Hill Properties			(247	)			(120	)			(86	)
Net income attributable to noncontrolling interests		$	388			$	620			$	1,003

Effective January 1, 2009, the Company adopted the provisions of FASB ASC 810-10-65 – Noncontrolling Interests (“ASC 810-10-65”).  ASC 810-10-65 requires that amounts formerly reported as minority interests in the Company’s consolidated financial statements be reported as noncontrolling interests.  This adoption resulted in modifications to the reporting of noncontrolling interests in the Consolidated Financial Statements.

The adoption of ASC 810-10-65 had an impact on the presentation and disclosure of noncontrolling (minority) interests in our consolidated financial statements.  As a result of the retrospective presentation and disclosure requirements of ASC 810-10-65, the Company is required to reflect the change in presentation and disclosure for all periods presented retrospectively.

A summary of the effect of retrospective adjustments on controlling and noncontrolling stockholders’ equity are as follows (dollars in thousands):

		Reading International, Inc. Stockholders’ Equity				Noncontrolling Stockholders’ Equity				Total Stockholders’ Equity
Equity at – January 1, 2007		$	107,659			$	2,603			$	110,262
Net income (loss)			(2,103	)			1,003				(1,100	)
Increase in additional paid in capital			3,531				3,050				6,581
Distributions to noncontrolling stockholders			--				(3,870	)			(3,870	)
Adjustment to accumulated deficit for adoption of ASC 740-10-25			(509	)			--				(509	)
Accumulated other comprehensive income			12,784				49				12,833
Equity at – December 31, 2007		$	121,362			$	2,835			$	124,197
Net income (loss)			(16,809	)			620				(16,189	)
Increase in additional paid in capital			1,976				--				1,976
Distributions to noncontrolling stockholders			--				(1,585	)			(1,585	)
Accumulated other comprehensive income			(38,899	)			(53	)			(38,952	)
Equity at – December 31, 2008		$	67,630			$	1,817			$	69,447
Net income			6,094				388				6,482
Increase in additional paid in capital			929				175				1,104
Distributions to noncontrolling stockholders			--				(1,147	)			(1,147	)
Accumulated other comprehensive income			34,236				141				34,377
Equity at – December 31, 2009		$	108,889			$	1,374			$	110,263

Landplan Property Partners, Ltd

In 2006, we formed Landplan Property Partners, Ltd, referred to as “Reading Landplan,” to identify, acquire and develop or redevelop properties on an opportunistic basis.  In connection with the formation of Reading Landplan, we entered into an agreement with Mr. Doug Osborne pursuant to which (i) Mr. Osborne will serve as the chief executive officer of Reading Landplan and (ii) Mr. Osborne’s affiliate, Landplan Property Group, Ltd (“LPG”), will perform certain property management services for Reading Landplan.  The agreement provides for Mr. Osborne to hold an equity interest in the entities formed to hold these properties; such equity interest to be (i) subordinate to our right to an 11% compounded return on investment and (ii) subject to adjustment depending upon various factors inc luding the term of the investment and the amount invested.  Generally speaking, this equity interest will range from 27.5% to 15%.  During 2006, Reading Landplan acquired one property in Indooroopilly, Brisbane, Australia.  During 2007, Reading Landplan acquired two properties in New Zealand; the first called the Lake Taupo Motel and the other is a parcel of land called the Manukau property.  During 2008, Reading Landplan acquired or entered into agreements to acquire four contiguous properties of approximately 50,000 square feet, which we intend to develop.  During 2009, Reading Landplan entered into an agreement to acquire an adjoining parcel of land to our Manukau property.  Due to the impact of the economic downturn in New Zealand, the value of Mr. Osborne’s equity interest was determined to be zero at December 31, 2009.

 

 

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Note 21 - Common Stock

Our common stock trades on the NASDAQ under the symbols RDI and RDIB which are our Class A (non-voting) and Class B (voting) stock, respectively.  Our Class A (non-voting) has preference over our Class B (voting) share upon liquidation.  No dividends have ever been issued for either share class.

2009 Common Stock Activity

During the 2009, we issued 146,017 shares of Class A Stock to certain executive employees associated with their prior years’ stock bonuses.  Additionally, 98,949 shares of Class A Stock which were previously held as treasury shares were canceled during 2009.

For the stock options exercised during 2009, we issued for cash to an employee of the corporation under our employee stock option plan 3,000 shares of Class A Stock at an exercise price of $3.80 per share.

2007 Common Stock Activity

On December 31, 2007, in recognition of the vesting of one-half of his 2006 and one-half of his 2005 stock grants, we issued to Mr. Cotter 15,133 and 16,047 shares, respectively, of Class A Stock, which had a stock grant price of $8.26 and $7.79 per share and fair market values of $151,000 and $160,000, respectively.

For the stock options exercised during 2007, we issued for cash to an employee of the corporation under our employee stock option plan 6,250 shares of Class A Stock at an exercise price of $4.01 per share.

Note 22 – Business Segments and Geographic Area Information

The table below sets forth certain information concerning our cinema operations and our real estate operations (which includes information relating to both our real estate development, retail rental and live theater rental activities) for the three years ended December 31, 2009 (dollars in thousands):

Year Ended December 31, 2009		Cinema Exhibition				Real Estate				Intersegment Eliminations				Total
Revenue		$	201,388			$	25,269			$	(9,643	)		$	217,014
Operating expense			165,707				11,994				(9,643	)			168,058
Depreciation & amortization			10,816				3,686				--				14,502
Loss on transfer of real estate held for sale to continuing operations			--				549				--				549
Impairment expense			--				3,217				--				3,217
Contractual commitment loss			--				1,092				--				1,092
General & administrative expense			2,645				1,063								3,708
Segment operating income		$	22,220			$	3,668			$	--			$	25,888

 

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Year Ended December 31, 2008		Cinema Exhibition				Real Estate				Intersegment Eliminations				Total
Revenue		$	181,188			$	23,694			$	(7,828	)		$	197,054
Operating expense			153,064				9,791				(7,828	)			155,027
Depreciation & amortization			13,702				4,200				--				17,902
Impairment expense			351				3,968				--				4,319
General & administrative expense			3,834				1,121				--				4,955
Segment operating income		$	10,237			$	4,614			$	--			$	14,851
Year Ended December 31, 2007		Cinema Exhibition				Real Estate				Intersegment Eliminations				Total
Revenue		$	103,467			$	21,887			$	(6,119	)		$	119,235
Operating expense			83,875				8,324				(6,119	)			86,080
Depreciation & amortization			6,942				4,418				--				11,360
General & administrative expense			3,195				831				--				4,026
Segment operating income		$	9,455			$	8,314			$	--			$	17,769

Reconciliation to net income (loss):		2009				2008				2007
Total segment operating income		$	25,888			$	14,851			$	17,769
Non-segment:
Depreciation and amortization expense			666				656				561
General and administrative expense			13,851				16,483				12,059
Other operating income			(2,551	)			--				--
Operating income (loss)			13,922				(2,288	)			5,149
Interest expense, net			(14,572	)			(15,740	)			(8,163	)
Other income (expense)			(2,015	)			991				(505	)
Gain on disposal of discontinued operations			--				--				1,912
Income tax expense			(1,952	)			(2,099	)			(2,038	)
Equity earnings of unconsolidated joint ventures  and entities			117				497				2,545
Gain on sale of unconsolidated joint venture			268				2,450				--
Gain on extinguishment of debt			10,714				--				--
Net income (loss)		$	6,482			$	(16,189	)		$	(1,100	)
Net income attributable to noncontrolling interests			(388	)			(620	)			(1,003	)
Net income (loss) attributable to Reading International, Inc. common shareholders		$	6,094			$	(16,809	)		$	(2,103	)

Summary of assets:		2009				2008
Segment assets		$	375,628			$	345,585
Corporate assets			30,789				26,285
Total Assets		$	406,417			$	371,870

Summary of capital expenditures:		2009				2008				2007
Segment capital expenditures		$	5,584			$	74,951			$	42,244
Corporate capital expenditures			102				216				170
Total capital expenditures		$	5,686			$	75,167			$	42,414

 

 

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The cinema results shown above include revenue and operating expense directly linked to our cinema assets.  The real estate results include rental income from our properties and live theaters and operating expense directly linked to our property assets.

The following table sets forth the book value of our property and equipment by geographical area (dollars in thousands):

		December 31,
		2009				2008
Australia		$	101,918			$	73,637
New Zealand			36,278				33,869
United States			62,553				66,156
Total property and equipment		$	200,749			$	173,662

The following table sets forth our revenue by geographical area (dollars in thousands):

		December 31,
		2009				2008				2007
Australia		$	80,848			$	73,527			$	63,657
New Zealand			22,775				23,739				24,371
United States			113,391				99,788				31,207
Total Revenue		$	217,014			$	197,054			$	119,235

Note 23 – Unaudited Quarterly Financial Information (dollars in thousands, except per share amounts)

		First				Second				Third(1)				Fourth(1)
2009		Quarter				Quarter				Quarter				Quarter
Revenue		$	47,078			$	54,422			$	56,067			$	59,447
Net income (loss)		$	(3,155	)		$	9,980			$	3,276			$	(3,619	)
Net income (loss) attributable to Reading International, Inc. shareholders		$	(3,393	)		$	9,890			$	3,143			$	(3,546	)
Basic earnings (loss) per share		$	(0.15	)		$	0.44			$	0.14			$	(0.16	)
Diluted earnings (loss) per share		$	(0.15	)		$	0.44			$	0.14			$	(0.16	)
2008
Revenue		$	39,726			$	53,752			$	57,891			$	45,685
Net income (loss)		$	116			$	102			$	(1,977	)		$	(14,430	)
Net income (loss) attributable to Reading International, Inc. shareholders		$	(226	)		$	284			$	(2,061	)		$	(14,806	)
Basic earnings (loss) per share		$	(0.01	)		$	0.01			$	(0.09	)		$	(0.66	)
Diluted earnings (loss) per share		$	(0.01	)		$	0.01			$	(0.09	)		$	(0.66	)

(1) The out of period adjustments noted in Note 2 – Summary of Significant Accounting Policies and Note 6 –Property Held For and Under Development results in a net immaterial change to both net income (loss) and to net income (loss) attributable to Reading International, Inc. shareholders for the third and fourth quarters of 2009.

Note 24 - Comprehensive Income (Loss)

US GAAP requires us to classify unrealized gains and losses on equity securities as well as our foreign currency adjustments as comprehensive income.  The following table sets forth our comprehensive income for the periods indicated (in thousands):

 

 

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		Years Ended December 31,
		2009				2008				2007
Net unrealized gains/(losses) on investments
Reclassification of realized gain on available for sale investments included in net income (loss)		$	1,047			$	607			$	779
Unrealized gain/(loss) on available for sale investments			(523	)			(628	)			(663	)
Net unrealized gains/(losses) on investments			524				(21	)			116
Net income (loss)			6,482				(16,189	)			(1,100	)
Cumulative foreign currency adjustment			34,271				(39,249	)			14,780
Accrued pension service (benefit) costs			(418	)			318				(2,063	)
Comprehensive income (loss)		$	40,859			$	(55,141	)		$	11,733
Net income attributable to noncontrolling interests			(388	)			(620	)			(1,003	)
Comprehensive income attributable to noncontrolling interests			(141	)			53				(49	)
Comprehensive income (loss) attributable to Reading International, Inc.		$	40,330			$	(55,708	)		$	10,681

Note 25 - Future Minimum Rental Income

Real estate revenue amounted to $15.6 million, $15.9 million, and $15.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.  For the year ended December 31, 2009, rental revenue includes the revenue from all of our Australia and New Zealand real estate properties and our U.S. properties of the Union Square Theatre and the Royal George Theatre.

Future minimum rental income under all contractual operating leases is summarized as follows (dollars in thousands):

Year Ending December 31,
2010		$	9,095
2011			7,377
2012			6,008
2013			4,344
2014			3,164
Thereafter			25,608
Total future minimum rental income		$	55,596

Note 26 – Related Parties and Transactions

Sutton Hill Capital

In 2001, we entered into a transaction with Sutton Hill Capital, LLC (“SHC”) regarding the leasing with an option to purchase of certain cinemas located in Manhattan.  In connection with that transaction, we also agreed to lend certain amounts to SHC, to provide liquidity in its investment, pending our determination whether or not to exercise our option to purchase and to manage the 86th Street Cinema on a fee basis.  SHC is a limited liability company owned in equal shares by James J. Cotter and Michael Forman and of which Mr. Cotter is the managing member.  During 2009, 2008, and 2007, we paid rent to SHC in the amount of $487,000, $487,000 and $491,000, respectively, and we owed SHC $5.0 million (due December 31, 2010) with respect to the borrowing used principally to finance the acquisitio n of our interest in the limited liability company currently developing the Sutton Cinema site and $9.0 million on the Purchase Money Promissory Note (due December 31, 2010), for an aggregate liability of $14.0 million.  These two notes and their respective interest rates are further discussed in Note 12 – Notes Payable.

In 2005, we acquired from a third party the fee interest and from SHC its interest in the ground lease estate underlying the Cinemas 1, 2 & 3 in Manhattan.  In connection with that transaction, we agreed to grant to SHC an option to acquire a 25% interest in the special purpose entity formed to acquire these interests at cost.  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.

 

 

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OBI Management Agreement

Pursuant to a Theater Management Agreement (the “Management Agreement”), our live theater operations are managed by OBI LLC (“OBI Management”), which is wholly owned by Ms. Margaret Cotter who is the daughter of James J. Cotter and a member of our Board of Directors.

The Management Agreement generally provides that we will pay OBI Management a combination of fixed and incentive fees, which historically have equated to approximately 20% of the net cash flow received by us from our live theaters in New York.  Since the fixed fees are applicable only during such periods as the New York theaters are booked, OBI Management receives no compensation with respect to a theater at any time when it is not generating revenue for us.  This arrangement provides an incentive to OBI Management to keep the theaters booked with the best available shows, and mitigates the negative cash flow that would result from having an empty theater.  In addition, OBI Management manages our Royal George live theater complex in Chicago on a fee basis based on theater cash flow.  In 2009, OB I Management earned $325,000, which was 28.3% of net cash flows for the year.  In 2008, OBI Management earned $428,000, which was 23.8% of net cash flows for the year.  In 2007, OBI Management earned $377,000, which was 19.9% of net cash flows for the year.  In each year, we reimbursed travel related expenses for OBI Management personnel with respect to travel between New York City and Chicago in connection with the management of the Royal George complex.

OBI Management conducts its operations from our office facilities on a rent-free basis, and we share the cost of one administrative employee of OBI Management.  Other than these expenses and travel-related expenses for OBI Management personnel to travel to Chicago as referred to above, OBI Management is responsible for all of its costs and expenses related to the performance of its management functions.  The Management Agreement renews automatically each year unless either party gives at least six months’ prior notice of its determination to allow the Management Agreement to expire.  In addition, we may terminate the Management Agreement at any time for cause.

Live Theater Play Investment

From time to time, our officers and directors may invest in plays that lease our live theaters.  During 2004, an affiliate of Mr. James J. Cotter and Michael Forman have a 25% investment in the play, I Love You, You’re Perfect, Now Change, playing in one of our auditoriums at our Royal George Theatre until March 2006.  We similarly had a 25% investment in the play.  The play has earned for us $0, $2,000, and, $27,000 during the years ended December 31, 2009, 2008 and 2007, respectively.  This investment received board approval from our Conflicts Committee on August 12, 2002.

During 2008, we had a 37.4% investment in a show that played at our Minetta Lane Theatre from February to July 2008.  The operations from the play resulted in a net loss to us of $304,000.  No changes to this investment were recorded during 2009.

The play STOMP has been playing in our Orpheum Theatre since prior to the time we acquired the theater in 2001.  Messrs. James J. Cotter and Michael Forman own an approximately 5% interest in that play, an interest that they have held since prior to our acquisition of the theater.

Note 27 – Subsequent Events

Reading Stock Repurchase

Due to a perceived low price to our common shares, during the first quarter of 2010, we have purchased 62,375 shares for a total cost of $250,000.

Nationwide Note 1 Adjustment

On February 12, 2010, Nationwide Theaters Corp. (the Sellers note above associated with the Consolidated Cinemas acquisition) and Reading agreed to reduce the seller’s note, Nationwide Note 1, by $4.2 million pursuant to the original sale and purchase agreement.  This reduction in the note effectively adjusts the original purchase price of the Consolidated Cinemas by $4.2 million.

 

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Mosaic Lease

On February 12, 2010, we entered into a lease for an approximately 33,000 square foot 8-screen art cinema to be built as a part of the Mosaic District in the Greater Washington DC area.

 

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Schedule II – Valuation and Qualifying Accounts

Description		Balance at beginning of year				Additions charged to costs and expenses				Deductions				Balance at end of year
Allowance for doubtful accounts
Year-ended December 31, 2009 – Allowance for doubtful accounts		$	397			$	142			$	332			$	207
Year-ended December 31, 2008 – Allowance for doubtful accounts		$	382			$	115			$	100			$	397
Year-ended December 31, 2007 – Allowance for doubtful accounts		$	473			$	62			$	153			$	382
Tax valuation allowance
Year-ended December 31, 2009 – Tax valuation allowance		$	59,938			$	--			$	335			$	59,603
Year-ended December 31, 2008 – Tax valuation allowance		$	57,210			$	2,728			$	--			$	59,938
Year-ended December 31, 2007 – Tax valuation allowance		$	56,218			$	992			$	--			$	57,210
Non-current tax liability for the year ended December 31, 2009		$	6,347			$	621			$	--			$	6,968

 

 

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Item 9 – Change in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

 

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Item 9A — Controls and Procedures

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f), including maintenance of (i) records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, and (ii) policies and procedures that provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, (b) our receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors and (c) we will prevent or timely detect unauthorized acquisition, use, or disposition of our assets that could h ave a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of the inherent limitations of any system of internal control.  Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses of judgment and breakdowns resulting from human failures.  Internal control over financial reporting also can be circumvented by collusion or improper overriding of controls.  As a result of such limitations, there is risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.  However, these inherent limitations are known features of the financial reporting process.  Therefore, it is possible to design in to the process safeguards to reduce, though not eliminate, this risk.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework  issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.  Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2009, due to a material weakness, as described below.

Our controls related to the recording of infrequent and non-routine transactions in our foreign operations failed to prevent or detect errors in our accounts, which were identified by Deloitte & Touche, LLP, our independent registered public accounting firm.  As a result, we identified the following material weakness in the operation of our internal control as of December 31, 2009:

·	The Company did not effectively apply internal control procedures relating to the review and analysis of the supporting documentation for non-routine transactions which resulted in the misapplication of generally accepted accounting principles in the United States of America for two transactions.

This material weakness in internal control did not result in an actual misstatement of our consolidated financial statements at December 31, 2009 because the errors were detected and corrected prior to the issuance of our consolidated financial statements for the year ended December 31, 2009.  We plan to remediate this deficiency in the operating effectiveness of internal control over financial reporting by effectively applying our review and analysis controls over the supporting documentation of non-routine transactions as such transactions occur during 2010.  Our consolidated financial statements also disclose in Note 2 – Summary of Significant Accounting Policies, Note 6 – Property Held For and Under Development, and Note 23 – Unaudited Quarterly Financial Information the out of period impact of recording these two transactions in the quarter ended December 31, 2009.

 

Disclosure Controls and Procedures

We have formally adopted a policy for disclosure controls and procedures that provides guidance on the evaluation of disclosure controls and procedures and is designed to ensure that all corporate disclosure is complete and accurate in all material respects and that all information required to be disclosed in the periodic reports submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods and in the manner specified in the Securities and Exchange Commission’s rules and forms.  As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures.  A Disclosure Committee consisting of the principal accounting officer, senior officers of each significant business line and other select employees assisted the Chief Executive Officer and the Chief Financial Officer in this evaluation.  Based upon that evaluation, as required by the Securities Exchange Act Rule 13a-15(c) as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to a material weakness existing in our internal controls as of December 31, 2009.

 

 

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Changes in Internal Controls Over Financial Reporting

No changes in internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are likely to materially affect, our internal control over financial reporting.

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Reading International, Inc.

Commerce, California

We have audited Reading International, Inc. and subsidiaries' (the "Company's") internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control over financial reporting based on ou r audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on that risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.  The following material weakness has been identified and included in management's assessment:  the Company did not effectively apply internal control procedures relating to the review and analysis of the supporting documentation for non-routine transactions which resulted in the misapplication of generally accepted accounting principles in the United States of America for two transactions.  This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2009, of the Company and this report does not affect our report on such financial statements and financial statement schedule.  In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2009, of the Company and our report dated March 12, 2010 expressed an unqualified opinion on those financial statements and financial statement schedule.

 

/s/    DELOITTE & TOUCHE LLP 

 

Los Angeles, California

March 12, 2010

 

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PART III

 

Items 10, 11, 12, 13 and 14

Information required by Part II (Items 10, 11, 12, 13 and 14) of this From 10-K is herby incorporated by reference from the Reading International, Inc.’s definitive Proxy Statement for its 2009 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year.

 

 

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PART IV

Item 15 – Exhibits, Financial Statement Schedules

(a)           The following documents are filed as a part of this report:

1.           Financial Statements

The following financial statements are filed as part of this report under Item 8 – Financial Statements and Supplementary Data.

 

Description	Page
Report of Independent Registered Accounting Firm	56
Consolidated Balance Sheets as of December 31, 2009 and 2008	57
Consolidated Statements of Operations for the Three Years Ended December 31, 2009	58
Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31, 2009	59
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2009	60
Notes to Consolidated Financial Statements	61

 

2.           Financial Statement Schedules for the years ended December 31, 2009, 2008 and 2007

 

	Page
Schedule II – Valuation and Qualifying Accounts	104
Financial Statements of 205-209 EAST 57TH STREET ASSOCIATES, LLC	114
Financial statements of Mt. Gravatt Cinemas Joint Venture	125
3.           Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K)	144

 

(b)	Exhibits Required by Item 601 of Regulation S-K

See Item (a)3. above.

(c)	Financial Statement Schedule

See Item (a)2. above.

 

 

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Following are financial statements and notes of 205-209 EAST 57th STREET ASSOCIATES, LLC for the periods indicated.  We are required to include in our Report on Form 10-K unaudited financial statements for the years ended December 31, 2009 and 2008 and audited financial statements for the year ended December 31, 2007.

205-209 East 57th Street Associates, LLC

Balance Sheets

December 31, 2009 and 2008

(U.S. dollars in thousands)

		December 31,
		2009 (unaudited)				2008 (unaudited)
ASSETS
Real Estate:
Commercial unit (net of depreciation and amortization)		$	--			$	2,446
Residential manager’s apartment (net of depreciation)			634				646
Total real estate			634				3,092
Other Assets:
Cash and cash equivalents			564				1,513
Deferred leasing commissions			--				267
Insurance recovery receivable			--				338
Security deposits			--				8
Prepaid income taxes			27				57
Other assets			--				15
Total other assets			591				2,198
Total assets		$	1,225			$	5,290
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities		$	25			$	155
Due to affiliate			--				2
Deferred rent			152				45
Total liabilities			177				202
Commitments and Contingencies (Note 13)
Members’ Equity			1,048				5,088
Total Liabilities And Members’ Equity		$	1,225			$	5,290

 

The accompanying notes are an integral part of these financial statements.

 

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205-209 East 57th Street Associates, LLC

Statements of Operations

For The Three Years Ended December 31, 2009, 2008 and 2007

(U.S. dollars in thousands)

		Years Ended December 31,
		2009 (Unaudited)				2008 (Unaudited)				2007
Revenue:
Sales – condominium units		$	3,900			$	--			$	25,401
Contract termination income			--				340				--
Dividends and interest			9				74				168
Rental income – manager’s unit			86				82				--
Rental income – commercial unit			57				232				104
Total revenue			4,052				728				25,673
Expenses:
Costs of sales of condominium units			3,125				(344	)			16,987
Selling costs			120				--				1,369
Marketing and advertising			--				1				184
Sponsor common charges			--				10				70
Utilities			--				--				9
Depreciation			16				33				21
Amortization			2				14				--
New York state filing fees			5				1				--
Miscellaneous			8				--				46
Professional fees			133				133				--
Real estate taxes			1				1				--
New York City unincorporated business tax			30				46				182
Total expenses			3,440				(105	)			18,868
Net income		$	612			$	833			$	6,805

 

The accompanying notes are an integral part of these financial statements.

 

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205-209 East 57th Street Associates, LLC

Statements of Changes in Members’ Equity

For the Three Years Ended December 31, 2009, 2008, and 2007

(U.S. dollars in thousands)

		PGA Clarett 1, LLC				PGA Clarett 2, LLC				PGA Clarett 3, LLC				PGA Clarett 4, LP				Clarett Partners, LLC				CC Sutton Manager, LLC				Citadel Cinemas, Inc.				Total
Members equity – January 1, 2007		$	249			$	243			$	26			$	210			$	8,768			$	6,072			$	5,189			$	20,757
Member distributions			(280	)			(272	)			(29	)			(236	)			(9,846	)			(6,817	)			(5,827	)			(23,307	)
Net income			82				79				8				69				2,875				1,990				1,702				6,805
Members equity – December 31, 2007			51				50				5				43				1,797				1,245				1,064				4,255
Member distributions (Unaudited)			--				--				--				--				--				--				--				--
Net income (Unaudited)			131				127				14				110				--				243				208				833
Members equity – December 31, 2008 (Unaudited)		$	182			$	177			$	19			$	153			$	1,797			$	1,488			$	1,272			$	5,088
Member distributions (Unaudited)			(137	)			(134	)			(14	)			(116	)			(1,728	)			(1,360	)			(1,163	)			(4,652	)
Net income (Unaudited)			96				93				10				81				--				179				153				612
Members equity – December 31, 2009 (Unaudited)		$	141			$	136			$	15			$	118			$	69			$	307			$	262			$	1,048

 

The accompanying notes are an integral part of these financial statements.

 

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205-209 East 57th Street Associates, LLC

Statements of Cash Flows

For the Three Years Ended December 31, 2009, 2008 and 2007

(U.S. dollars in thousands)

		Year Ended December 31,
		2009 (Unaudited)				2008 (Unaudited)				2007
Cash flows from operating activities
Net income		$	612			$	833			$	6,805
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Costs of sales of condominium units			2,755				69				16,987
Amortization of deferred rent			(86	)			(275	)			(103	)
Depreciation			16				33				21
Amortization			2				14				--
Changes in assets and liabilities:
Additions to land, construction and development costs			(48	)			(69	)			(1,223	)
Decrease (increase) in prepaid taxes			30				291				(347	)
Decrease in security deposits			8				--				--
Decrease (increase) in insurance recovery receivable			338				(338	)			--
Decrease (increase) in other assets			16				2				(17	)
Increase (decrease) in accounts payable and accrued expenses			(131	)			(285	)			100
Increase (decrease) in income taxes payable			--				--				(860	)
Decrease in retainage payable			--				--				(751	)
Decrease in deferred rent			193				--				--
Increase (decrease) in due to affiliates			(2	)			(415	)			179
Net cash provided by (used in) operating activities			3,703				(140	)			20,791
Cash flows from financing activities
Member distributions			(4,652	)			--				(23,307	)
Net cash used in financing activities			(4,652	)			--				(23,307	)
Cash flows from investing activities
Increase in deferred leasing commissions			--				(280	)			--
Net cash used in investing activities			--				(280	)			--
Net (decrease) increase in cash and cash equivalents			(949	)			(420	)			(2,516	)
Cash and cash equivalents – beginning of year			1,513				1,933				4,449
Cash and cash equivalents – end of year		$	564			$	1,513			$	1,933
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes		$	--			$	--			$	1,390

 

The accompanying notes are an integral part of these financial statements.

 

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205-209 East 57th Street Associates, LLC

Notes to Financial Statements

Information as of December 2009 and 2008 and for the Years Then Ended Are Unaudited

Note 1 - Organization and Business Purpose

205-209 East 57th Street Associates, LLC (“the Company”) was formed as a limited liability company under the laws of the State of Delaware.  The Company was formed to acquire, finance, develop, own, operate, lease, and sell property located at 205-209 East 57th Street, New York, New York.  The Company completed construction of the property, known as “Place 57,” a 143,000 square foot, thirty-six story building comprised of 68 residential condominium units and one commercial condominium unit.  The company did not sell and still owns the manager’s residential unit.  The manager’s residential unit is leased to the condominium association (Place 57) as discussed in Note 8.

From September 3, 2003 (the “inception date”) through September 14, 2004, the Company was a single member limited liability company with Clarett Capital, LLC (“Clarett Capital”) as the sole member.  Effective September 14, 2004, the operating agreement (“the Agreement”) was amended and restated to provide for the admission of the following new members: Citadel Cinemas, Inc. (“Citadel”) 25%, CC Sutton Manager, LLC (“CC Sutton”) 29.25%,  PGA Clarett 1, LLC (“PGA 1”) 8.352%, PGA Clarett 2, LLC (“PGA 2”) 15%, PGA Clarett 3, LLC (“PGA 3”) 21.648% and Clarett Partners, LLC (“Clarett Partners”) 0.75%.

Effective December 30, 2004 PGA Clarett 1, LLC assigned 28.820% of its percentage interest and PGA 3, assigned 80.791% of its percentage interest to a new member, PGA Clarett 4, LP (“PGA 4”).

Net income or loss and distributions are allocated to the members in accordance with the terms of the Company’s operating agreement.  The members of a limited liability company are generally not individually liable for the obligations of the limited liability company.

Note 2 - Summary of Significant Accounting Policies

(a)	Income Taxes

 

The Company was formed as a limited liability company and has elected to be taxed as a partnership.  Components of the Company’s net income or loss are taxable to the members.  Accordingly, no provision for federal or state income taxes is provided for in the accompanying financial statements.

 

The construction project is located in the City of New York where an entity level income tax is imposed on unincorporated businesses, which, for the years ended December 31, 2009 (unaudited), 2008 (unaudited), and 2007 amounted to approximately $30,000, $47,132, and $182,502, respectively.

 

Effective in 2009, the Company adopted the provisions of ASC 740 related to accounting for uncertainty in income taxes, which prescribes a recognition threshold and related measurement model for recognizing tax positions.  For those tax benefits to be recognized, a tax position must more likely than not be sustained upon examination by the taxing authorities.  The principal impact on the Company is where it is required to file entity-level income tax returns.  The adoption did not have a material effect on the Company's financial statements, and the Company does not expect the change will have a significant impact on its results of operations or financial position in the next year.  The Company's income tax returns are subject to examination by the taxing authorities, and its tax returns for ye ars subsequent to 2005 are currently subject to examination.

(b)	Use of Estimates in Financial Statement Presentation

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies, if any, at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.  Significant estimates include the allocation of costs to units sold, determination of remaining costs to complete and estimated sales prices of unsold units.

 

 

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(c)	Revenue Recognition

Revenue has been recognized upon the closing of each condominium unit.  Rents are recognized over the non-cancelable term of the related leases on a straight-line basis

 

(d)	Marketing and Advertising

 

Marketing and advertising costs are charged to operations when incurred.  The Company expensed $0, $596, and $184,122 of marketing and promotion costs for the years ended December 31, 2009 (unaudited), 2008 (unaudited), and 2007, respectively.

 

(e)	Capitalized Costs

The Company capitalized all costs associated with the development project.  Capitalized costs include, but are not limited to, construction and development costs, construction period interest, real estate taxes and architect, development and professional fees.

 

(f)	Costs of Sales of Condominium Units

 

In connection with the sale of condominium units, land, capitalized construction and development costs and negotiable certificates for real estate tax abatements have been expensed based on the total costs incurred and the estimated costs to complete, multiplied by the relative sales value of units sold.  In addition, included in costs of sales of condominium units for the year ended December 31, 2007 is the imputed fair value for the rental of the residential manager unit of $423,506.

 

(g)	Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  Cash equivalents consist of an interest-bearing money fund account.

(h)	Depreciation

Depreciation of the residential manager’s apartment and the commercial unit are provided using the straight-line method over the estimated useful life of forty years.  Depreciation expense on the residential manager’s apartment amounted to $12,421, $12,421, and $20,702 for the years ended December 31, 2009 (unaudited), 2008 (unaudited), and 2007.  Depreciation expense on the commercial unit amounted to $3,420, $20,518 and $20,702 for the years ended December 31, 2009 (unaudited), 2008 (unaudited), and 2007, respectively.

(i)	Amortization

In 2003, the Company purchased negotiable certificates to obtain real estate tax abatements (see Note 5).  The costs of these certificates allocated to the unsold residential manager unit is amortized over the useful life of the certificates which is ten years.

During 2008 (unaudited), the Company paid a leasing commission of $280,017 related to the rental of the commercial unit.  This commission was amortized over ten years which is the life of the lease.  The commercial unit was sold February 2009.  Accordingly, the unamortized balance of the leasing commission of $264,716 was written off and included with costs of sales on the accompanying statements of income.

Amortization for both the negotiable certificates combined amounted to $2,429, $13,539, and $0 for the years ended December 31, 2009 (unaudited), 2008 (unaudited), and 2007, respectively.

 

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Note 3 - Land

At December 31, 2009 (unaudited) and 2008 (unaudited), land was comprised of the following (dollars in thousands):

		Year Ended December 31,
		2009 (Unaudited)				2008 (Unaudited)
Direct purchase cost		$	15,339			$	15,339
Air rights			6,925				6,925
Mortgage recording tax			1,953				1,953
Brokerage fees			500				500
Demolition costs			600				600
Title insurance			256				256
Total land			25,573				25,573
Less:  costs allocated to condominium units sold			25,391				24,611
Less:  cost allocated to residential manager’s apartment			182				182
Less:  cost allocated to commercial unit			--				780
Net land value		$	--			$	--

Note 4 - Construction and Development Costs

Construction and development costs include direct and indirect construction costs.  Direct construction costs (“Hard costs”) include those costs directly related to the construction of the development project.  Indirect costs (“Soft costs”) include costs that have been capitalized, such as construction period interest and financing costs, real estate and recording taxes, insurance, development fees, and architect fees.

At December 31, 2009 (unaudited) and 2008(unaudited), construction and development costs are comprised of the following (dollars in thousands):

		Year Ended December 31,
		2009 (Unaudited)				2008 (Unaudited)
Hard costs		$	49,426			$	49,426
Soft costs			18,588				18,588
Total construction and development costs			68,014				68,014
Less:  costs allocated to condominium units sold			67,528				65,887
Less:  cost allocated to residential manager’s apartment			486				486
Less:  cost allocated to commercial unit			--				1,641
Net construction and development costs		$	--			$	--

Note 5 - Negotiable Certificates

In December 2003, the Company entered into an agreement to purchase 61 negotiable certificates under Section 421a of the New York State Real Property tax law in order to obtain real estate tax abatements.  Section 421a provides that property constructed north of 14th Street in Manhattan, on vacant or underutilized land, is eligible for partial real estate tax abatements.  Abatements are for ten years and provide for limited real estate tax reductions.  The agreement contained an option to purchase an additional seven certificates which the Company exercised in March 2004.  The final purchase price was $863,083, which is equal to the sum of $793,083 for the original 61 certificates plus $10,000 for each of the seven additional certificates.

In February 2006, the Company purchased an additional 17 negotiable 421a certificates for $340,000.

 

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In May 2006, the Company paid a Preliminary Certificate of Eligibility Fee to The City of New York for $302,681, which is required to be paid in conjunction with these negotiable certificates.

At December 31, 2009 (unaudited) and 2008 (unaudited) negotiable certificates is comprised of the following (dollars in thousands):

		Year Ended December 31,
		2009 (Unaudited)				2008 (Unaudited)
421a certificates		$	1,203			$	1,203
Preliminary certificate of eligibility fee			303				303
Total negotiable certificates			1,506				1,506
Less:  costs allocated to condominium units sold			1,495				1,449
Less:  cost allocated to residential manager’s apartment			11				11
Less:  cost allocated to commercial unit			--				46
Net negotiable certificates		$	--			$	--

Note 6 - Air Rights

In 2003, the Company purchased 25,550 square feet of inclusionary air rights in order to generate an inclusionary building bonus (air rights) under The Inclusionary Housing Program, as defined in the Zoning Resolution of the City of New York.  The purchase price was $2,499,750, which has been capitalized and is included in land.

On July 21, 2004, the Company entered into an exchange agreement with Joseph E. Marx Company, Inc. (“Marx”) to exchange like-kind property.  The Company exchanged previously acquired land located at 957 Third Avenue, New York, New York, plus cash of $1,300,000, for excess floor area rights (“air rights”) having an agreed value of $4,410,000.  The value of the air rights has been capitalized and is included in land.

127,391 square feet out of a total of 128,560 square feet of Inclusionary air rights were utilized to build the condominium development project.  The Company estimates that the remaining 1,169 square feet of development air rights will not be able to be sold separately and, accordingly, are included in costs of sales of condominium units.

Note 7 - Condominium Sales

In 2004, the Company initiated a condominium offering plan, which obtained the necessary approvals in 2005 and 2006.  The condominium consists of 68 residential units and one commercial unit.  As of December 31, 2009 (unaudited), 67 residential units and the commercial unit had been sold.  The commercial unit was sold in February 2009.

Note 8 - Residential Manager’s Apartment

At December 31, 2009 (unaudited) and 2008 (unaudited), the residential manager’s apartment is comprised of the following (dollars in thousands):

		Year Ended December 31,
		2009 (Unaudited)				2008 (Unaudited)
Land		$	183			$	183
Hard and soft construction costs			486				486
Negotiable certificates			11				11
			680				680
Less: accumulated depreciation			46				33
Total cost		$	634			$	647

 

 

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The company is leasing the residential manager’s unit to the condominium association at one dollar per year for use by its residential manager.  This unit is leased for a five-year period, which commenced with the date of the first unit closing.  The condominium association is responsible for real estate taxes, common charges, and other operating expenses for this unit.

Note 9 – Commercial Unit

At December 31, 2009 (unaudited) and 2008 (unaudited), the commercial unit is comprised of the following (dollars in thousands):

		Year Ended December 31,
		2009 (Unaudited)				2008 (Unaudited)
Land		$	780			$	780
Hard and soft costs			1,687				1,641
Negotiable certificates			46				46
			2,513				2,467
Less: accumulated depreciation			25				21
		$	2,488			$	2,446
Less: costs allocated to unit sold			2,488				--
Total		$	--			$	2,446

On July 15, 2008, the Company entered into a ten-year rental agreement for the commercial unit.  The rental agreement provided for 150 days of free rent beginning on the lease commencement date of July 15, 2008.  The base rent was $466,875 for years one through three, $508,894 for years four through six, $554,694 for years seven through nine and $604,617 for year ten.

In February 2009, the Company sold the commercial unit.  The contract price was $4,000,000 which was then reduced to $3,900,000.  Capitalized and unamortized costs allocated to the commercial unit in the amount of $2,488,104 were written off to costs of sales of condominium units.

Note 10 - Deferred Rent

The Company recognized deferred rent on the below market lease of the residential manager’s unit as discussed in Note 8.  The Company estimates the fair value of the rent to be approximately $7,000 per month, which over the life of the lease amounts to approximately $420,000.  Rental income recognized in connection with this below market lease was $85,908 and $81,817 in 2009 (unaudited) and 2008 (unaudited), respectively.  The deferred rent liability amounted to $152,312 and $44,733 for the years ended December 31, 2009 (unaudited) and 2008 (unaudited), respectively, and approximately $104,000 for the year ended 2007.

The Company recognized rental income from the commercial unit on a straight-line basis.  The tenant received 150 days of free rent that concluded on December 11, 2008.  In 2008 (unaudited), the Company amortized $57,107 of deferred rent into rental income.  In February 2009, the commercial unit was sold.  As a result, the remaining unamortized deferred rent of $250,594 was written off to costs of sales of condominium units.

Note 11 - Selling Costs

At December 31, 2009 (unaudited), 2008 (unaudited), and 2007, selling costs are comprised of the following (dollars in thousands):

		2009 (Unaudited)				2008 (Unaudited)				2007
Broker fees		$	120			$	--			$	755
Commissions			--				--				614
Total selling costs		$	120			$	--			$	1,369

 

 

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Note 12 - Related Party Transactions

(a)  Due to Affiliate

At December 31, 2008 (unaudited), the Company owed $2,000 to The Clarett Group (“Clarett Group”) for marketing commissions and other reimbursable expenses paid on behalf of the Company.  Members of the Company are also members in Clarett Group.

 

(b)  Commissions

Clarett Group had been designated as the exclusive sales agent for selling residential units pursuant to a Sales Agreement.  The Sales Agreement provides for a commission equal to four percent of the gross sales price of each unit sold and a sales commission of two percent when sales involve a third-party broker.  No commissions were paid to the Clarett Group in 2009 (unaudited) and 2008 (unaudited) and $614,080 of commissions were paid to the Clarett Group for the year ended December 31, 2007.

Note 13 - Commitments and Contingencies

(a)  Sponsor Common Charges

The Company was the sponsor for the condominium and was obligated to pay all common charges, special assessments, and real estate taxes allocated to any unsold residential units or commercial units in accordance with the provisions of the By-Laws.  During the years ended December 31, 2009 (unaudited), 2008 (unaudited) and 2007, the Company incurred $0, $10,248, $69,799, respectively, of sponsor common charges, which is reflected in the accompanying statements of income.

(b)  Estimated Costs to Complete

At December 31, 2009, the Company estimates that there will be no additional significant costs associated with construction of the development project.

Note 14 - Construction Manager Incentive

The construction management agreement provided for an incentive fee to be paid to the construction manager in the event that the total cost of construction, as defined, is less than the guaranteed maximum price of $49,217,811, as defined.  Total project costs exceeded the original projected cost of construction.  Accordingly, no construction manager fee was paid.

Note 15 - Concentrations of Risk

The Company maintained cash balances which at times exceeded the federally insured limit.

Note 16 – Subsequent Events

In May 2009, the FASB issued guidance on subsequent events which is included in ASC 855 “Subsequent Events” (“ASC 855”), to be effective for financial statements with years ending after June 15, 2009.  The objective of this statement is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  In particular, this Statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company has evaluated all events that occurred after December 31, 2009 but before the financial statements were available to be issued, March 12, 2010, to determine if they must be reported.  Management determined that there were no reportable subsequent events to be disclosed.

 

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Report of Independent Auditors

To the Members of

205-209 East 57th Street Associates, LLC:

In our opinion, the accompanying statements of operations, changes in members' equity, and cash flows present fairly, in all material respects, the results of operations and cash flows of 205-209 East 57th Street Associates, LLC (the "Company") for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financia l statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

 

/s/ PRICEWATERHOUSECOOPERS LLP

New York, New York

February 11, 2008

 

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Following are financial statements and notes of Mt. Gravatt Cinemas Joint Venture for the periods indicated.  We are required to include in our Report on Form 10-K unaudited financial statements for the years ended December 31, 2009 and 2008 and audited financial statements for the year ended December 31, 2007.

Mt. Gravatt Cinemas Joint Venture

Income Statement

For the Year Ended December 31, 2009

In AUS$		Note				2009 (unaudited)				2008 (unaudited)				2007
Revenue from rendering services			7			$	10,459,016			$	9,229,454			$	9,095,218
Revenue from sale of concession							3,732,980				3,664,757				3,546,654
Total Revenue						$	14,191,996			$	12,894,211			$	12,641,872
Film expenses							(4,181,253	)			(3,628,015	)			(3,549,246	)
Cost of concession							(963,084	)			(1,022,055	)			(893,473	)
Depreciation and amortization expenses			10				(613,175	)			(682,943	)			(653,342	)
Personnel expenses			8				(1,963,946	)			(1,858,654	)			(1,839,730	)
Occupancy expenses							(1,399,618	)			(1,436,093	)			(1,248,608	)
House expenses							(1,075,082	)			(909,990	)			(973,931	)
Advertising and marketing costs							(244,086	)			(297,594	)			(285,455	)
Management fees							(273,958	)			(237,635	)			(223,043	)
Repairs and maintenance expense							(175,338	)			(187,539	)			(167,877	)
Results for operating activities						$	3,302,456			$	2,633,693			$	2,807,167
Finance income							16,047				33,400				44,340
Finance expense							--				--				--
Net finance income(expense)			9			$	16,047			$	33,400			$	44,340
Profit for the period						$	3,318,503			$	2,667,093			$	2,851,507

The accompanying notes are an integral part of these financial statements.

 

 

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Mt. Gravatt Cinemas Joint Venture

Statement of Changes in Members’ Equity

For the Year Ended December 31, 2009

 

In AUS$		Reading Exhibition Pty Ltd				Village Roadshow Exhibition Pty Ltd				Birch Carroll & Coyle Limited				Total
Members’ Equity – January 1, 2007		$	1,620,559			$	1,620,559			$	1,620,560			$	4,861,678
Member distributions			(1,050,000	)			(1,050,000	)			(1,050,000	)			(3,150,000	)
Net profit			950,502				950,502				950,503				2,851,507
Members’ Equity –  December 31, 2007		$	1,521,061			$	1,521,061			$	1,521,063			$	4,563,185
Member distributions			(1,170,000	)			(1,170,000	)			(1,170,000	)			(3,510,000	)
Net profit			889,031				889,031				889,031				2,667,093
Members’ Equity – December 31, 2008 (Unaudited)		$	1,240,092			$	1,240,092			$	1,240,094			$	3,720,278
Member distributions			(1,180,000	)			(1,180,000	)			(1,180,000	)			(3,540,000	)
Net profit			1,106,168				1,106,168				1,106,167				3,318,503
Members’ Equity – December 31, 2009 (Unaudited)		$	1,166,260			$	1,166,260			$	1,166,261			$	3,498,781

 

The accompanying notes are an integral part of these financial statements.

 

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Mt. Gravatt Cinemas Joint Venture

Balance Sheet

As of December 31, 2009

In AUS$		Note				2009 (unaudited)				2008 (unaudited)
ASSETS
Current Assets
Cash and cash equivalents			13			$	779,300			$	935,623
Trade receivables			12				97,359				91,712
Inventories			11				138,682				115,630
Other assets			12				109,099				914
Total current assets						$	1,124,440			$	1,143,879
Property, plant and equipment			10				3,302,760				3,446,083
Total non-current assets						$	3,302,760			$	3,446,083
Total assets						$	4,427,200			$	4,589,962
Current Liabilities
Payables			15				691,224				680,470
Employee benefits			14				70,218				57,082
Deferred revenue			16				106,816				63,529
Total current liabilities						$	868,258			$	801,081
Employee benefits			14				60,161				68,603
Total non-current liabilities						$	60,161			$	68,603
Total liabilities						$	928,419			$	869,684
Net assets						$	3,498,781			$	3,720,278
Equity
Contributed equity						$	202,593			$	202,593
Retained earnings							3,296,188				3,517,685
Total equity						$	3,498,781			$	3,720,278

The accompanying notes are an integral part of these financial statements.

 

 

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Mt. Gravatt Cinemas Joint Venture

Statement of Cash Flows

For the Year Ended December 31, 2009

In AUS$		Note				2009 (unaudited)				2008 (unaudited)				2007
Cash flows from operating activities
Cash receipts from customers						$	14,170,302			$	12,866,696			$	12,617,843
Cash paid to suppliers and employees							(10,332,820	)			(9,697,703	)			(8,881,633	)
Cash generated from operations						$	3,837,482			$	3,168,993			$	3,736,210
Interest received			9				16,047				33,400				44,340
Interest paid			9				--				--				--
Net cash from operating activities			20			$	3,853,529			$	3,202,393			$	3,780,550
Cash flows from investing activities
Acquisition of property, plant and equipment			10				(469,852	)			(231,156	)			(456,537	)
Net cash from investing activities						$	(469,852	)		$	(231,156	)		$	(456,537	)
Cash flows from financing activities
Distributions to Joint Venturers							(3,540,000	)			(3,510,000	)			(3,150,000	)
Payment of finance lease liability							--				--				--
Net cash from financing activities						$	(3,540,000	)		$	(3,510,000	)		$	(3,150,000	)
Net increase (decrease) in cash and cash equivalents							(156,323	)			(538,763	)			174,013
Cash and cash equivalents at January 1							935,623				1,474,386				1,300,373
Cash and cash equivalents at December 31			13			$	779,300			$	935,623			$	1,474,386

The accompanying notes are an integral part of these financial statements.

 

 

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Mt. Gravatt Cinemas Joint Venture

Notes to Financial Statements

December 31, 2009

1.           Reporting Entity

Mt. Gravatt Cinemas Joint Venture (the “Joint Venture”) is a legal joint venture between Birch Carroll & Coyle Limited, Village Roadshow Exhibition Pty Ltd and Reading Exhibition Pty Ltd.  The Joint Venture is domiciled and provides services solely in Australia.  The address of the Joint Venture’s registered office is 49 Market Street, Sydney NSW 2000.  The Joint Venture primarily is involved in the exhibition of motion pictures in cinemas.

 
 

The joint venture is to continue in existence until the Joint Venture is terminated and associated underlying assets have been sold and the proceeds of sale distributed upon agreement of the members.  All distributions of earnings are required to be agreed upon and distributed evenly to the three Joint Venturers.  The three Joint Venturers will evenly contribute any future required contributions.

For local reporting purposes, the Joint Venture has been deemed a non-reporting entity within the framework of Australian Accounting Standards (AASBs).

2.           Basis of Presentation

(a)  Statement of Compliance

These financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board.

The financial year end of the Joint Venture is 30 June.  For purposes of the use of these financial statements by one of the Joint Venturers, these financial statements have been prepared on a 12-month period basis ending on 31 December.

(b) Basis of Measurement

The financial statements have been prepared on the historical cost basis.  The methods used to measure fair values are discussed further in note 4.

(c) Functional and Presentation Currency

These financial statements are presented in Australian dollars, which is also the Joint Venture’s functional currency.

(d) Use of Estimates and Judgments

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in note 17 financial instruments.

 

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3.           Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

The Joint Venture has not elected to early adopt any accounting standards and amendments.  See note 3(n).

 (a)  Financial Instruments

Non-derivative financial instruments comprise trade receivables, cash and cash equivalents, and trade payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

A financial instrument is recognised if the Joint Venture becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Joint Venture’s contractual rights to the cash flows from the financial assets expire or if the Joint Venture transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Joint Venture commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Joint Venture’s obligations specified in the contract expire, are discharged or cancelled.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Joint Venture’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Accounting for finance income and expense is discussed in note 3(k).

 (b)  Property, Plant and Equipment

(i)  Recognition and Measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation. The cost of property, plant and equipment at 1 July 2004, the date of transition to IFRS, was determined by reference to its fair value at that date.

Cost includes expenditures that are directly attributable to the acquisition of the asset.  The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use.  Costs also may include purchases of property, plant and equipment.  Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets are recognised in profit or loss as incurred.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

(ii)  Subsequent Costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Joint Venture and its cost can be measured reliably. The carrying amount of the replaced part is derecognised.  The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

 

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(iii)  Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

Leasehold improvements	Shorter of estimated useful life and term of lease
Plant and equipment	5.0% to 33.3%
Leased plant and equipment	5.0% to 20.0%

 

Depreciation methods, useful lives and residual values are reassessed at the reporting date.

(c)  Leased Assets

Leases in which the Joint Venture assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.  The Joint Venture’s one finance lease expired in June of 2006.

Other leases are operating leases and are not recognised on the Joint Venture’s balance sheet.

(d)  Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, and other costs incurred in bringing them to their existing location and condition.

(e)  Impairment

(i)  Financial Assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired.  A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.

All impairment losses are recognised in profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss.

 

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(ii)  Non-financial Assets

The carrying amounts of the Joint Venture’s non-financial assets, other than inventories, are reviewed at each reporting date to determine whether there is any indication of impairment.  If any such indication exists then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.  Impairment losses are recognised in profit or loss.

In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists.  An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.  An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.

(f)  Employee Benefits

(i)  Long-Term Employee Benefits

The Joint Venture’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on-costs.

(ii)  Termination Benefits

Termination benefits are recognised as an expense when the Joint Venture is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if the Joint Venture has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

(iii)  Short-Term Benefits

Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Joint Venture expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax.

(g)  Provisions

A provision is recognised if, as a result of a past event, the Joint Venture has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

 

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(h)  Contributed Equity

The Joint Venture is comprised of three parties who share an equal ownership over the Joint Venture.  The Contributed Equity amount represents the initial investment in the partnership.  Distributions to the partners are made on behalf of the Joint Venture and are recognised through retained earnings.

(i)  Revenue

(i)  Rendering of Service/Sale of Concessions

 
 

Revenues are generated principally through admissions and concession sales with proceeds received in cash at the point of sale. Service revenue also includes product advertising and other ancillary revenues which are recognized as income in the period earned. The Joint Venture recognizes payments received attributable to the advertising services provided by the Joint Venture under certain vendor programs as revenue in the period in which services are delivered.

(ii)  Customer Loyalty Programme

 
 

The cinema operates a loyalty programme where customers accumulate points for purchases made which entitles them to discounts on future purchases.  The award points are recognised as a separately identifiable component of the initial sale transaction, by allocating the fair value of the consideration received between the award points and the components of the sale such that the award points are recognised at their fair value.  Revenue from the award points is recognised when the points are redeemed.  The amount of the revenue is based on the number of points redeemed relative to the total number expected to be redeemed.

(j) Lease Payments

Payments made under operating leases recognised in profit or loss on a straight-line basis over the term of the lease on a basis that is representative of the pattern of benefit derived from the leased property.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the contingency no longer exists and the lease adjustment is known.  The Joint Venture’s one finance lease expired in June of 2006.

(k) Finance Income and Expenses

Finance income comprises interest income on cash held in financial institutions.  Interest income is recognised as it accrues in profit and loss using the effective interest method.

Finance expenses comprise interest expense on the finance lease.

(l) Taxes

(i)  Goods and Service Tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority.  In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

 Receivables and payables are stated with the amount of GST included.  The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.

 

 

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 Cash flows are included in the statement of cash flows on a gross basis.  The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(ii)  Income Tax

Under applicable Australian law, the Joint Venture is not subject to tax on earnings generated.  Accordingly the Joint Venture does not recognise any income tax expense, or deferred tax balances.  Earnings of the Joint Venture are taxed on the Joint Venturer level.

(m) Film Expense

Film expense is incurred based on a contracted percentage of box office results for each film.  The managing party negotiates terms with each film distributor on a film-by-film basis.  Percentage terms are based on a sliding scale, with the Joint Venture subject to a higher percentage of box office results at the beginning of the term and declining each subsequent week.  Different films have different rates dependent upon the expected popularity of the film, and forecasted success.

(n) New Standards and Interpretations Not Yet Adopted

 

The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 31 December 2008, but have not been applied in preparing this financial report:

·

Revised AASB 101 Presentation of Financial Statements (September 2007) introduces as a financial statement (formerly “primary” statement) the “statement of comprehensive income”.  The revised standard does not change the recognition, measurement or disclosure of transactions and events that are required by other AASBs.  The revised AASB 101 will become mandatory for the Joint Venture’s 31 December 2009 financial statements.  The Joint Venture has not yet determined the potential effect of the revised standard on the Joint Venture’s disclosures.

·

Revised AASB 123 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.  The revised AASB 123 will become mandatory for the Joint Venture’s 31 December 2009 financial statements and will constitute a change in accounting policy for the Joint Venture.  In accordance with the transitional provisions the Joint Venture will apply the revised AASB 123 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date.

4.           Determination of Fair Values

A number of the Joint Venture’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(a)  Trade and Other Receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

 

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(b)  Non-Derivative Financial Liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

 

5.           Financial Risk Management

Overview

The Joint Venture has exposure to the following risks;

 

·	credit risk

 

·	liquidity risk

 

·	market risk

This note presents information about the Joint Venture’s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report.

The Joint Venturers’ have overall responsibility for the establishment and oversight of the risk management framework and are also responsible for developing and monitoring risk management policies.

Risk management policies are established to identify and analyse the risks faced by the Joint Venture to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Joint Venture’s activities. The Joint Venture, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Joint Venturers’ oversee how management monitors compliance with the Joint Venture’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Joint Venture.

Credit Risk

Credit risk is the risk of financial loss to the Joint Venture if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Joint Venture’s receivables from customers.

The Joint Venture’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Joint Venture’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk.

The Joint Venture operates under the managing Joint Venturer’s credit policy under which each new customer is analysed individually for creditworthiness before the Joint Venture’s standard payment and delivery terms and conditions are offered. The Joint Venture’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer. These limits are reviewed periodically. Customers that fail to meet the Joint Venture’s benchmark creditworthiness may transact with the Joint Venture only on a prepayment basis.

The Joint Venture’s trade receivables relate mainly to the Joint Venture’s screen advertiser and credit card companies.  Customers that are graded as “high risk” are placed on a restricted customer list, and monitored by the Joint Venturers.

 

 

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Liquidity Risk

Liquidity risk is the risk that the Joint Venture will not be able to meet its financial obligations as they fall due. The Joint Venture’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Joint Venture’s reputation.

Market Risk

Market risk is the risk that changes in market prices, such as interest rates will affect the Joint Venture’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

There were no changes in the Joint Venture’s approach to capital management during the year.

The Joint Venture is not subject to market risks relating to foreign exchange rates or equity prices.

6.           Segment Reporting

Business Segments

The business segment of the Joint Venture is the motion picture exhibition in cinemas which includes the sale of concession goods.  The Joint Venture did not operate in any other business segments during the financial years.

Geographical Segments

The Joint Venture operates one cinema location in Queensland, Australia.  The Joint Venture did not operate into any other geographical locations during the financial years.

7.           Revenue

In AUS$		2009 (unaudited)				2008 (unaudited)				2007
Box office revenue		$	9,724,095			$	8,472,215			$	8,473,778
Screen advertising			264,406				263,813				223,462
Other cinema services			470,515				493,426				397,978
Revenue from rendering of services		$	10,459,016			$	9,229,454			$	9,095,218

8.           Personnel Expenses

In AUS$		2009 (unaudited)				2008 (unaudited)				2007
Wages and salaries		$	1,904,805			$	1,819,325			$	1,790,110
Employee annual leave			49,927				21,163				42,849
Employee long-service leave			9,214				18,166				6,771
Total personnel expenses		$	1,963,946			$	1,858,654			$	1,839,730

 

 

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9.           Finance Income and Expense

In AUS$		2009 (unaudited)				2008 (unaudited)				2007
Interest income on bank balances:		$	16,047			$	33,400			$	44,340
Finance income		$	16,047			$	33,400			$	44,340

10.           Property, Plant, and Equipment

In AUS$		Plant and Equipment				Leasehold Improvements				Capital WIP				Total
Cost
Balance at January 1, 2008 (unaudited)		$	8,670,574			$	2,566,704			$	--			$	11,237,278
Additions/(Transfers)			231,156				--				--				231,156
Balance at December 31, 2008 (unaudited)		$	8,901,730			$	2,566,704			$	--			$	11,468,434
Balance at January 1, 2009 (unaudited)			8,901,730				2,566,704				--				11,468,434
Additions/(Transfers)			469,852				--				--				469,852
Balance at December 31, 2009 (unaudited)		$	9,371,582			$	2,566,704			$	--			$	11,938,286

In AUS$		Plant and Equipment				Leasehold Improvements				Capital WIP				Total
Depreciation
Balance at January 1, 2008 (unaudited)		$	(6,637,732	)		$	(701,676	)		$	--			$	(7,339,408	)
Depreciation and amortization for the year			(597,033	)			(85,910	)			--				(682,943	)
Balance at December 31, 2008 (unaudited)		$	(7,234,765	)		$	(787,586	)		$	--			$	(8,022,351	)
Balance at January 1, 2009 (unaudited)			(7,234,765	)			(787,586	)			--				(8,022,351	)
Depreciation and amortization for the year			(521,938	)			(91,237	)			--				(613,175	)
Balance at December 31, 2009 (unaudited)		$	(7,756,703	)		$	(878,823	)		$	--			$	(8,635,526	)

In AUS$		Plant and Equipment				Leasehold Improvements				Capital WIP				Total
Carrying amounts
At January 1, 2008 (unaudited)		$	2,032,842			$	1,865,028			$	--			$	3,897,870
At December 31, 2008 (unaudited)			1,666,965				1,779,118				--				3,446,083
At January 1, 2009 (unaudited)			1,666,965				1,779,118				--				3,446,083
At December 31, 2009 (unaudited)			1,614,879				1,687,881				--				3,302,760

11.           Inventories

In AUS$		2009 (unaudited)				2008 (unaudited)
Concession stores at cost		$	138,682			$	115,630
Carrying amount of inventories			138,682				115,630

12.           Trade Receivables and Other Assets

In AUS$		Note				2009 (unaudited)				2008 (unaudited)
Trade receivables			17			$	97,359			$	91,712
Prepayments							109,099				914

 

 

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The Joint Venture’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in Note 17.

13.           Cash and Cash Equivalents

In AUS$		2009 (unaudited)				2008 (unaudited)
Bank balances		$	637,001			$	877,438
Cash in transit			106,599				22,485
Cash on hand			35,700				35,700
Cash and cash equivalents in the statement of cash flows		$	779,300			$	935,623

The Joint Venture’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 17.

14.           Employee Benefits

Current
In AUS$		2009 (unaudited)				2008 (unaudited)
Liability for annual leave		$	53,647			$	39,597
Liability for long-service leave			16,571				17,485
Total employee benefits - current		$	70,218			$	57,082

Non-current
In AUS$		2009 (unaudited)				2008 (unaudited)
Liability for long-service leave		$	60,161			$	68,603
Total employee benefits – non current		$	60,161			$	68,603

15.           Payables

In AUS$		Note				2009 (unaudited)				2008 (unaudited)
Trade payables						$	340,213			$	309,932
Other creditors and accruals							351,011				370,538
Total payables			17			$	691,224			$	680,470

The Joint Venture’s exposure to liquidity risk related to trade and other payables is disclosed in note 17.  Trade payables represents payments to trade creditors.  The Joint Venture makes these payments through the managing parties shared service centre and is charged a management fee for these services.  Disclosure regarding management fee is made in note 21.

 

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16.           Deferred Revenue

In AUS$		2009 (unaudited)				2008 (unaudited)
Deferred revenue		$	106,816			$	63,529

Deferred revenue mainly consists of advance funds received from vendors for the exclusive rights to supply certain concession items.  Revenue is released over the term of the related contract on a straight-line basis and is classified as service revenue.  In addition deferred revenue includes the fair value of the award points relating to the customer loyalty programme.  This revenue is recognised when the points are redeemed.

17.           Financial Instruments

Credit Risk

Exposure to Credit Risk

The carrying amount of the Joint Venture’s financial assets represents the maximum credit exposure.  The Joint Venture’s maximum exposure to credit risk at the reporting date was:

						Carrying Amount
In AUS$		Note				2009 (unaudited)				2008 (unaudited)
Trade receivables			12			$	97,359			$	91,712
Cash and cash equivalents			13				779,300				935,623

The Joint Venture’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:

		Carrying amount
In AUS$		2009 (unaudited)				2008 (unaudited)
Screen advertisers		$	60,669			$	71,803
Credit card companies			17,833				3,640
Screen hire			--				--
Games, machine and merchandising companies			18,857				16,269
Total		$	97,359			$	91,712

Impairment losses

There were no trade receivables at the reporting date or comparable period which were past due.  The carrying value of such receivables were $97,359 in 2009 (unaudited) (2008: $91,712).  There were no allowances for impairment during the reporting periods.

Liquidity risk

Financial liabilities are only trade payables all contractually due within 6 months.  The carrying value of such liabilities were $691,224 in 2009 (unaudited) (2008: $685,765).

 

 

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Interest rate risk

Profile

At the reporting date the interest rate profile of the Joint Venture’s interest-bearing financial instruments was:

Variable rate instruments		Carrying amount
In AUS$		2009 (unaudited)				2008 (unaudited)
Bank Balances		$	637,001			$	877,438

The Joint Venture held no fixed rate instruments during financial year 2009 (unaudited) or 2008 (unaudited).

Cash Flow Sensitivity Analysis for Variable Rate Instruments

A change of one percentage point in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2009.

		Profit or loss								Equity
Effect In AUS$		1 percentage point Increase				1 percentage point Decrease				1 percentage point Increase				1 percentage point Decrease
December 31, 2009 (unaudited)
Variable rate instruments		$	2,377			$	(2,377	)		$	2,377			$	(2,377	)
Cash flow sensitivity			2,377				(2,377	)			2,377				(2,377	)

		Profit or loss								Equity
Effect In AUS$		1 percentage point Increase				1 percentage point Decrease				1 percentage point Increase				1 percentage point Decrease
December 31, 2008 (unaudited)
Variable rate instruments		$	4,942			$	(4,942	)		$	4,942			$	(4,942	)
Cash flow sensitivity			4,942				(4,942	)			4,942				(4,942	)

Fair Values

Fair Values versus Carrying Amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:

		December 31, 2009 (unaudited)								December 31, 2008 (unaudited)
In AUS$		Carrying amount				Fair value				Carrying amount				Fair value
Trade receivables		$	97,359			$	97,359			$	91,712			$	91,712
Cash and cash equivalents			779,300				779,300				935,623				935,623
Trade payables			691,224				691,224				680,470				680,470

The basis for determining fair values is disclosed in Note 4.

 

 

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18.           Operating Leases

Leases as Lessee

Non-cancellable operating lease rentals are payable as follows:

In AUS$		December 31, 2009 (unaudited)				December 31, 2008 (unaudited)
Less than one year		$	1,296,409			$	1,123,654
Between one and five years			5,185,635				4,494,614
More than five years			5,135,910				5,575,169
Total		$	11,617,954			$	11,193,437

The Joint Venture leases the cinema property under operating leases expiring over 9 years.

19.           Contingencies

The nature of the Joint Venture’s operations results in claims for personal injuries (including public liability and workers compensation) being received from time to time.  As at period end there were no material current or ongoing outstanding claims.

20.           Reconciliation of Cash Flows from Operating Activities

In AUS$		Note				2009 (unaudited)				2008 (unaudited)				2007
Cash flows from operating activities
Profit for the period						$	3,318,503			$	2,667,093			$	2,851,507
Adjustments for:
Depreciation and amortization			10				613,175				682,943				653,342
Operating profit before changes in working capital						$	3,931,678			$	3,350,036			$	3,504,849
Change in trade receivables			12				(5,647	)			5,885				(31,679	)
Change in inventories			11				(23,052	)			(27,313	)			20,320
Change in other assets			12				(108,185	)			(380	)			40,193
Change in trade payables			15				10,754				(114,263	)			262,897
Change in employee benefits			14				4,694				2,544				3,381
Change in deferred revenue			16				43,287				(14,116	)			(19,411	)
Net cash from operating activities						$	3,853,529			$	3,202,393			$	3,780,550

21.           Related Parties

 

Entities with joint control or significant influence over the Joint Venture.

The managing Joint Venturer is paid an annual management fee, which is presented separately in the income statement.  The management fee paid is as per the Joint Venture agreement and is to cover the costs of the managing Joint Venturer for managing and operating the cinema complex and providing all relevant accounting and support services.  The management fee is based on a contracted base amount, increased by the Consumer Price Index for the City of Brisbane as published by the Australian Bureau of Statistics on an annual basis.  Such management fee agreement is binding over the life of the agreement which shall continue in existence until the Joint Venture is terminated under agreement by the Joint Venturers.

As of 31 December 2009 (unaudited) and 31 December 2008, there were no outstanding payable amounts.

 

 

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22.           Subsequent Events

Subsequent to 31 December 2009 (unaudited), there were no events which would have a material effect on the financial report.

 

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Independent Auditors’ Report

 

The Management Committee and Joint Venturers

Mt. Gravatt Cinemas Joint Venture:

We have audited the accompanying income statement, statement of recognised income and expense, and statement of cash flows of Mt. Gravatt Cinemas Joint Venture for the year ended December 31, 2007.  These financial statements are the responsibility of the Joint Venture’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Joint Venture’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significan t estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Mt. Gravatt Cinemas Joint Venture for the year ended December 31, 2007, in conformity with International Financial Reporting Standards as published by the International Accounting Standards Board.

/s/ KPMG

Sydney, Australia

March 13, 2008

 

 

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Exhibits (listed by numbers corresponding to Item 601 of Regulation S-K)

3.1	Certificate of Amendment of Restatement Articles of Incorporation of Citadel Holding Corporation (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).

3.2	Restated By-laws of Citadel Holding Corporation, a Nevada corporation (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).

3.3	Certificate of Amendment of Articles of Incorporation of Citadel Holding Corporation (filed as Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

3.4	Articles of Merger of Craig Merger Sub, Inc. with and into Craig Corporation (filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

3.5	Articles of Merger of Reading Merger Sub, Inc. with and into Reading Entertainment, Inc. (filed as Exhibit 3.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

3.6	Restated By-laws of Reading International, Inc., a Nevada corporation (filed as Exhibit 3.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference).

3.7	Amendment to Article V of the Amended and Restated Bylaws of the Company (filed as exhibit 3.2 to the Company’s report on Form 8-K dated December 27, 2007, and incorporated herein by reference).

3.8	Amendment and Restatement of Articles of Incorporation of the Company as filed with the Nevada Secretary of State on May 22, 2003 (filed as Exhibit 3.8 to the Company’s report on Form 10-Q for the period ended June 30, 2009, and incorporated herein by reference).

4.1	1999 Stock Option Plan of Reading International, Inc. as amended on December 31, 2001 (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed on January 21, 2004, and incorporated herein by reference).

4.2	Form of Preferred Security Certificate evidencing the preferred securities of Reading International Trust I (filed as Exhibit 4.1 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).

4.3	Form of Common Security Certificate evidencing common securities of Reading International Trust I (filed as Exhibit 4.2 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).

4.4	Form of Reading International, Inc. Floating Rate Junior Subordinated Debt Security due 2027 (filed as Exhibit 4.3 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).

10.1	Tax Disaffiliation Agreement, dated as of August 4, 1994, by and between Citadel Holding Corporation and Fidelity Federal Bank (filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, and incorporated herein by reference).

10.2	Standard Office lease, dated as of July 15, 1994, by and between Citadel Realty, Inc. and Fidelity Federal Bank (filed as Exhibit 10.42 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference).

 

 

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10.3	First Amendment to Standard Office Lease, dated May 15, 1995, by and between Citadel Realty, Inc. and Fidelity Federal Bank (filed as Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference).

10.4	Guaranty of Payment dated May 15, 1995 by Citadel Holding Corporation in favor of Fidelity Federal Bank (filed as Exhibit 10.47 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference).

10.5

Exchange Agreement dated September 4, 1996 among Citadel Holding Corporation, Citadel Acquisition Corp., Inc. Craig Corporation, Craig Management, Inc., Reading Entertainment, Inc., Reading Company (filed as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference).

10.6

Asset Put and Registration Rights Agreement dated October 15, 1996 among Citadel Holding Corporation, Citadel Acquisition Corp., Inc., Reading Entertainment, Inc., and Craig Corporation (filed as Exhibit 10.52 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference).

10.7	Articles of Incorporation of Reading Entertainment, Inc., A Nevada Corporation (filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).

 
 

10.7a

Certificate of Designation of the Series A Voting Cumulative Convertible preferred stock of Reading Entertainment, Inc. (filed as Exhibit 10.7a to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).

10.8	Lease between Citadel Realty, Inc., Lesser and Disney Enterprises, Inc., Lessee dated October 1, 1996 (filed as Exhibit 10.54 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference).

10.9	Second Amendment to Standard Office Lease between Citadel Realty, Inc. and Fidelity Federal Bank dated October 1, 1996 (filed as Exhibit 10.55 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference).

10.10

Citadel 1996 Non-employee Director Stock Option Plan (filed as Exhibit 10.57 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference).

10.11

Reading Entertainment, Inc. Annual Report on Form 10-K for the year ended December 31, 1997 (filed as Exhibit 10.58 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.12

Stock Purchase Agreement dated as of April 11, 1997 by and between Citadel Holding Corporation and Craig Corporation (filed as Exhibit 10.56 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference).

10.13

Secured Promissory Note dated as of April 11, 1997 issued by Craig Corporation to Citadel Holding Corporation in the principal amount of $1,998,000 (filed as Exhibit 10.60 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference).

10.14

Agreement for Purchase and Sale of Real Property between Prudential Insurance Company of America and Big 4 Farming LLC dated August 29, 1997 (filed as Exhibit 10.61 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference).

10.15

Second Amendment to Agreement of Purchase and Sale between Prudential Insurance Company of America and Big 4 Farming LLC dated November 5, 1997 (filed as Exhibit 10.62 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference).

 

 

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10.16

Partnership Agreement of Citadel Agricultural Partners No. 1 dated December 19, 1997 (filed as Exhibit 10.63 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.17

Partnership Agreement of Citadel Agricultural Partners No. 2 dated December 19, 1997 (filed as Exhibit 10.64 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.18

Partnership Agreement of Citadel Agricultural Partners No. 3 dated December 19, 1997 (filed as Exhibit 10.65 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.19

Farm Management Agreement dated December 26, 1997 between Citadel Agricultural Partner No. 1 and Big 4 Farming LLC (filed as Exhibit 10.67 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.20

Farm Management Agreement dated December 26, 1997 between Citadel Agricultural Partner No. 2 and Big 4 Farming LLC (filed as Exhibit 10.68 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.21

Farm Management Agreement dated December 26, 1997 between Citadel Agricultural Partner No. 3 and Big 4 Farming LLC (filed as Exhibit 10.69 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.22

Line of Credit Agreement dated December 29, 1997 between Citadel Holding Corporation and Big 4 Ranch, Inc. (filed as Exhibit 10.70 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.23

Management Services Agreement dated December 26, 1997 between Big 4 Farming LLC and Cecelia Packing (filed as Exhibit 10.71 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.24

Agricultural Loan Agreement dated December 29, 1997 between Citadel Holding Corporation and Citadel Agriculture Partner No. 1 (filed as Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.25

Agricultural Loan Agreement dated December 29, 1997 between Citadel Holding Corporation and Citadel Agriculture Partner No. 2 (filed as Exhibit 10.73 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.26

Agricultural Loan Agreement dated December 29, 1997 between Citadel Holding Corporation and Citadel Agriculture Partner No. 3 (filed as Exhibit 10.74 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.27

Promissory Note dated December 29, 1997 between Citadel Holding Corporation and Citadel Agricultural Partners No. 1 (filed as Exhibit 10.75 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.28

Promissory Note dated December 29, 1997 between Citadel Holding Corporation and Citadel Agricultural Partners No. 2 (filed as Exhibit 10.76 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

 

 

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10.29

Promissory Note dated December 29, 1997 between Citadel Holding Corporation and Citadel Agricultural Partners No. 3 (filed as Exhibit 10.77 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.30

Security Agreement dated December 29, 1997 between Citadel Holding Corporation and Citadel Agricultural Partnership No. 1 (filed as Exhibit 10.78 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.31

Security Agreement dated December 29, 1997 between Citadel Holding Corporation and Citadel Agricultural Partnership No. 2 (filed as Exhibit 10.79 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.32

Security Agreement dated December 29, 1997 between Citadel Holding Corporation and Citadel Agricultural Partnership No. 3 (filed as Exhibit 10.80 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.33

Administrative Services Agreement between Citadel Holding Corporation and Big 4 Ranch, Inc. dated December 29, 1997 (filed as Exhibit 10.81 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.34

Reading Entertainment, Inc. Annual Report on Form 10-K for the year ended December 31, 1998 (filed as Exhibit as 10.41 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).

10.35

Reading Entertainment, Inc. Annual Report on Form 10-K for the year ended December 31, 1999 (filed by Reading Entertainment Inc. as Form 10-K for the year ended December 31, 1999 on April 14, 2000 and incorporated herein by reference).

10.36

Promissory Note dated December 20, 1999 between Citadel Holding Corporation and Nationwide Life Insurance 3 (filed as Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).

10.37*

Employment Agreement between Citadel Holding Corporation and Andrzej Matyczynski (filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).

10.38

Citadel 1999 Employee Stock Option Plan (filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).

10.39

Amendment and Plan of Merger By and Among Citadel Holding Corporation and Off-Broadway Theatres, Inc. (filed as Exhibit A to the Company’s Proxy Statement and incorporated herein by reference).

10.40

Amended and Restated Lease Agreement dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Citadel Cinemas, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

10.41

Amended and Restated Citadel Standby Credit Facility dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

10.42

Amended and Restated Security Agreement dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

 

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10.43

Amended and Restated Pledge Agreement dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

10.44

Amended and Restated Intercreditor Agreement dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. and Nationwide Theatres Corp. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.45

Guaranty dated July 28, 2000 by Michael R. Forman and James J. Cotter in favor of Citadel Cinemas, Inc. and Citadel Realty, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.46

Amended and Restated Agreement with Respect to Fee Option dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Citadel Realty, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.47

Theater Management Agreement between Liberty Theaters, Inc. and OBI LLC (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

10.48*

Non-qualified Stock Option Agreement between Reading International, Inc. and James J. Cotter (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

10.49

Omnibus Agreement between Citadel Cinemas, Inc. and Sutton Hill Capital, LLC, dated October 22, 2003 (filed on Quarterly Report Form 10-Q for the period ended September 30, 2003 and incorporated herein by reference).

10.50

Pledge Agreement between Citadel Cinemas, Inc. and Sutton Hill Capital, LLC, dated October 22, 2003 (filed on Quarterly Report Form 10-Q for the period ended September 30, 2003 and incorporated herein by reference).

10.51

Guarantee of Lenders Obligation Under Standby Credit Agreement in favor of Sutton Hill Capital, LLC, dated October 22, 2003 (filed on Quarterly Report Form 10-Q for the period ended September 30, 2003 and incorporated herein by reference).

10.52*

Employment agreement between Reading International, Inc. and Wayne D. Smith (filed as exhibit 10.52 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference).

10.53

Contract of Sale between Sutton Hill Capital L.L.C. and Sutton Hill Properties, LLC dated as of September 19, 2005 (filed as exhibit 10.53 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

10.54

Installment Sale Note dated as of September 19, 2005 (filed as exhibit 10.54 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

10.55

Guaranty by Reading International, Inc. dated as of September 1, 2005 (filed as exhibit 10.55 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

 

 

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10.56

Assignment and Assumption of Lease between Sutton Hill Capital L.L.C. and Sutton Hill Properties, LLC dated as of September 19, 2005 (filed as exhibit 10.56 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

10.57

License and Option Agreement between Sutton Hill Properties, LLC and Sutton Hill Capital L.L.C. dated as of September 19, 2005 (filed as exhibit 10.57 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

10.58

Second Amendment to Amended and Restated Master Operating Lease dated as of September 1, 2005 (filed as exhibit 10.58 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

10.59

Letter from James J. Cotter dated August 11, 2005 regarding liens (filed as exhibit 10.59 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

10.60

Letter amending effective date of transaction to September 19, 2005 (filed as exhibit 10.60 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).

10.61

Promissory Note by Citadel Cinemas, Inc. in favor of Sutton Hill Capital L.L.C. dated September 14, 2004 (filed as exhibit 10.61 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference).

10.62

Guaranty by Reading International, Inc. in favor of Sutton Hill Capital L.L.C. dated September 14, 2004 (filed as exhibit 10.62 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference).

10.63

Purchase Agreement, dated February 5, 2007, among Reading International, Inc., Reading International Trust I, and Kodiak Warehouse JPM LLC (filed as Exhibit 10.1 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).

10.64

Amended and Restated Declaration of Trust, dated February 5, 2007, among Reading International Inc., as sponsor, the Administrators named therein, and Wells Fargo Bank, N.A., as property trustee, and Wells Fargo Delaware Trust Company as Delaware trustee (filed as Exhibit 10.2 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).

10.65

Indenture among Reading International, Inc., Reading New Zealand Limited, and Wells Fargo Bank, N.A., as indenture trustee (filed as Exhibit 10.4 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).

10.66*

Employment Agreement between Reading International, Inc. and John Hunter (filed as Exhibit 10.66 to the Company’s report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference).

10.67

Asset Purchase and Sale Agreement dated October 8, 2007 among Pacific Theatres Exhibition Corp., Consolidated Amusement Theatres, Inc., a Hawaii corporation, Michael Forman, Christopher Forman, Consolidated Amusement Theatres, Inc., a Nevada corporation, and Reading International, Inc. (filed as Exhibit 10.67 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.68

Real Property Purchase and Sale Agreement dated October 8, 2007 between Consolidated Amusement Theatres, Inc., a Hawaii corporation, and Consolidated Amusement Theatres, Inc., a Nevada corporation (filed as Exhibit 10.68 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

 

 

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10.69

Leasehold Purchase and Sale Agreement dated October 8, 2007 between Kenmore Rohnert, LLC and Consolidated Amusement Theatres, Inc., a Nevada corporation (filed as Exhibit 10.69 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.70

Amendment No. 1 to Asset Purchase and Sale Agreement dated February 8, 2008 among Pacific Theatres Exhibition Corp., Consolidated Amusement Theatres, Inc., a Hawaii corporation, Michael Forman, Christopher Forman, Consolidated Amusement Theatres, Inc., a Nevada corporation, and Reading International, Inc. (filed as Exhibit 10.70 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.71

Amendment No. 2 to Asset Purchase and Sale Agreement dated February 14, 2008 among Pacific Theatres Exhibition Corp., Consolidated Amusement Theatres, Inc., a Hawaii corporation, Michael Forman, Christopher Forman, Consolidated Amusement Theatres, Inc., a Nevada corporation, and Reading International, Inc. (filed as Exhibit 10.71 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.72

Credit Agreement dated February 21, 2008 among Consolidated Amusement Theatres, Inc., a Nevada corporation, General Electric Capital Corporation, and GE Capital Markets, Inc. (filed as Exhibit 10.72 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.73

Reading Guaranty Agreement dated February 21, 2008 among Consolidated Amusement Theatres, Inc., a Nevada corporation, General Electric Capital Corporation, and GE Capital Markets, Inc. (filed as Exhibit 10.73 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.74

Pledge and Security Agreement dated February 22, 2008 by Reading Consolidated Holdings, Inc. in favor of Nationwide Theatres Corp (filed as Exhibit 10.74 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.75

Promissory Note dated February 22, 2008 by Reading Consolidated Holdings, inc. in favor of Nationwide Theatres Corp. (filed as Exhibit 10.75 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).

10.76*

Employment Agreement dated June 5, 2008 between the Company and Jay Laifman (filed as Exhibit 10.76 to the Company’s report on form 10-Q for the period ended June 30, 2008, and incorporated herein by reference).

10.77

Form of Indemnity, as routinely granted to the Company’s officers and directors (filed as Exhibit 10.77 to the Company’s report on Form 10-Q for the period ended September 30, 2008, and incorporated herein by reference).

18	Preferability letter of Independent Auditors, Deloitte & Touche LLP (filed herewith).

21	List of Subsidiaries (filed herewith).

23.1	Consent of Independent Auditors, Deloitte & Touche LLP (filed herewith).

23.2	Consent of Independent Auditors, Pricewaterhousecoopers LLP (filed herewith).

23.3	Consent of Independent Auditors, KPMG Australia (filed herewith).

31.1	Certification of Principal Executive Officer dated March 12, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

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31.2	Certification of Principal Financial Officer dated March 12, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1	Certification of Principal Executive Officer dated March 12, 2010 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2	Certification of Principal Financial Officer dated March 12, 2010 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

*These exhibits constitute the executive compensation plans and arrangements of the Company.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

READING INTERNATIONAL, INC.

(Registrant)

Date:  March 12, 2010	By:	/s/ Andrzej Matyczynski
		Andrzej Matyczynski
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.

Signature	Title(s)	Date
/s/ James J. Cotter	Chairman of the Board and Director and Chief Executive Officer	March 12, 2010
James J. Cotter
/s/ Andrzej Matyczynski	Principal Financial and Accounting Officer	March 12, 2010
Andrzej Matyczynski
/s/ Eric Barr	Director	March 12, 2010
Eric Barr
/s/ James J. Cotter, Jr.	Director	March 12, 2010
James J. Cotter, Jr.
/s/ Margaret Cotter	Director	March 12, 2010
Margaret Cotter
/s/ William D. Gould	Director	March 12, 2010
William D. Gould
/s/ Edward L. Kane	Director	March 12, 2010
Edward L Kane
/s/ Gerard P. Laheney	Director	March 12, 2010
Gerard P. Laheney
/s/ Alfred Villaseñor	Director	March 12, 2010
Alfred Villaseñor

 

 

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EXHIBIT 18

March 12, 2010

Reading International, Inc.

500 Citadel Drive, Suite 300

Commerce, CA  90040

Dear Sirs/Madams:

We have audited the consolidated financial statements of Reading International, Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009, included in your Annual Report on Form 10-K to the Securities and Exchange Commission and have issued our report thereon dated March 12, 2010, which expresses an unqualified opinion.  Note 10 to such consolidated financial statements contains a description of your change in the date of your annual goodwill impairment test for one reporting unit during the year ended December 31, 2009.  In our judgment, such change is to an alternative accounting principle that is preferable under the circumstances.

Yours truly,

 

/s/    DELOITTE & TOUCHE LLP 

 

Los Angeles, California

March 12, 2010

EXHIBIT 21

READING INTERNATIONAL, INC. – LIST OF SUBSIDIARIES

Subsidiary	Jurisdiction of Incorporation
AHGP, Inc.	Delaware
AHLP, Inc.	Delaware
Angelika Film Center Mosaic, LLC	Nevada
Angelika Film Centers (Dallas), Inc.	Texas
Angelika Film Centers (Plano) LP	Nevada
Angelika Film Centers LLC	Delaware
Australia Country Cinemas Pty Ltd	New South Wales, Australia
Australian Equipment Supply Pty Ltd	Victoria, Australia
Bayou Cinemas LP	Delaware
Bogart Holdings Ltd	New Zealand
Burwood Developments Pty Ltd	Victoria, Australia
Carmel Theatres, LLC	Nevada
Citadel 57th Street, LLC	Nevada
Citadel Agriculture, Inc.	California
Citadel Cinemas, Inc.	Nevada
Citadel Realty, Inc.	Nevada
City Cinemas, LLC	Nevada
Consolidated Amusement Holdings, Inc.	Nevada
Consolidated Entertainment, Inc.	Nevada
Copenhagen Courtenay Central Ltd	New Zealand
Courtenay Car Park Ltd	New Zealand
Craig Corporation	Nevada
Darnelle Enterprises Ltd	New Zealand
Dimension Specialty, Inc.	Delaware
Epping Cinemas Pty Ltd	Victoria, Australia
Gaslamp Theatres, LLC	Nevada
Hope Street Hospitality, LLC	Delaware
Hotel Newmarket Pty Ltd	Victoria, Australia
Landplan Property Partners Lake Taupo Ltd	New Zealand
Landplan Property Partners Manukau Ltd	New Zealand
Landplan Property Partners New Zealand Ltd	New Zealand
Landplan Property Partners Pty Ltd	Victoria, Australia
Landplan Property Partners Taupo Ltd	New Zealand
Liberty Live, LLC	Nevada
Liberty Theaters, LLC	Nevada
Liberty Theatricals, LLC	Nevada
Minetta Live, LLC	Nevada
Movieland Cinemas (NZ) Ltd	New Zealand
Newmarket Properties No. 2 Pty Ltd	Victoria, Australia
Newmarket Properties Pty Ltd	Victoria, Australia
Orpheum Live, LLC	Nevada
Queenstown Land Holdings Ltd	New Zealand
Reading Arthouse Distribution Ltd	New Zealand
Reading Arthouse Ltd	New Zealand
Reading Auburn Pty Ltd	Victoria, Australia
Reading Australia Leasing (E&R) Pty Ltd	Victoria, Australia
Reading Belmont Pty Ltd	Victoria, Australia
Reading Bundaberg Pty Ltd	Victoria, Australia
Reading Capital Corporation	Delaware
Reading Center Development Corporation	Pennsylvania
Reading Charlestown Pty Ltd	Victoria, Australia
Reading Cinemas Courtenay Central Ltd	New Zealand
Reading Cinemas Management Pty Ltd	Victoria, Australia
Reading Cinemas NJ, Inc.	Delaware
Reading Cinemas of Puerto Rico, Inc.	Puerto Rico
Reading Cinemas Pty Ltd	New South Wales, Australia
Reading Cinemas Puerto Rico LLC	Nevada
Reading Cinemas USA LLC	Nevada
Reading Colac Pty Ltd	Victoria, Australia
Reading Company	Pennsylvania
Reading Consolidated Holdings, Inc.	Nevada
Reading Courtenay Central Ltd	New Zealand
Reading Dandenong Pty Ltd	Victoria, Australia
Reading Elizabeth Pty Ltd	Victoria, Australia
Reading Entertainment Australia Pty Ltd	New South Wales, Australia
Reading Exhibition Pty Ltd	Victoria, Australia
Reading Holdings, Inc.	Nevada
Reading International Cinemas LLC	Delaware
Reading International Services Company	California
Reading Licenses Pty Ltd	Victoria, Australia
Reading Maitland Pty Ltd	Victoria, Australia
Reading Malulani, LLC	Nevada
Reading Melton Pty Ltd	Victoria, Australia
Reading Moonee Ponds Pty Ltd	Victoria, Australia
Reading New Zealand Ltd	New Zealand
Reading Pacific LLC	Nevada
Reading Properties Pty Ltd	Victoria, Australia
Reading Property Holdings Pty Ltd	Victoria, Australia
Reading Property Partners No. 1 Pty Ltd	Victoria, Australia
Reading Queenstown Ltd	New Zealand
Reading Real Estate Company	Pennsylvania
Reading Rouse Hill Pty Ltd	Victoria, Australia
Reading Royal George, LLC	Delaware
Reading Sunbury Pty Ltd	Victoria, Australia
Reading Theaters, Inc.	Delaware
Reading Wellington Properties Ltd	New Zealand
Rhodes Peninsula Cinema Pty Ltd	Victoria, Australia
Rialto Brands Ltd	New Zealand
Rialto Cinemas Ltd	New Zealand
Rialto Distribution Ltd	New Zealand
Rialto Entertainment Ltd	New Zealand
Ronwood Investments Ltd	New Zealand
Rydal Equipment Co.	Pennsylvania
Sails Apartments Management Ltd	New Zealand
Sutton Hill Properties, LLC	Nevada
Tobrooke Holdings Ltd	New Zealand
Trans-Pacific Finance Fund I, LLC	Delaware
Trenton-Princeton Traction Company	New Jersey
Twin Cities Cinemas, Inc.	Delaware
US Development, LLC	Nevada
US International Property Finance Pty Ltd	Victoria, Australia
Washington and Franklin Railway Company	Pennsylvania
Westlakes Cinema Pty Ltd	Victoria, Australia
The Wilmington and Northern Railroad Company	Pennsylvania

EXHIBIT 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

We consent to the incorporation by reference in Registration Statement No. 333-36277 on Form S-8 and in Registration Statement No. 333-162581 on Form S-3 of our reports dated March 12, 2010, relating to the financial statements and financial statement schedule of Reading International, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company's internal control over financial reporting (which report expresses an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of a material weakness), appearing in this Annual Report on Form 10-K of Reading International, Inc. and subsidiaries for the year ended December 31, 2009.

 

 

DELOITTE & TOUCHE LLP

Los Angeles, California

March 12, 2010

 

EXHIBIT 23.2

 

 

CONSENT OF INDEPENDENT ACCOUNTANTS

 

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-36277) and Form S-3 (no. 333-162581) of Reading International, Inc. of our report dated February 11, 2008 relating to the financial statements of 205-209 East 57th Street Associates, LLC, which appears in this Form 10-K.

 

 

PricewaterhouseCoopers LLP

New York, New York

March 10, 2010

EXHIBIT 23.3

 

 

Consent of Independent Auditors

 

The Management Committee and Joint Venturers

Mt. Gravatt Cinemas Joint Venture:

 

We consent to the incorporation by reference in the registration statements No. 333-162581 on Form S-3 and No. 333-36277 on Form S-8 of Reading International, Inc., of our report dated March 13, 2008, with respect to the income statement, statement of changes in members' equity, and statement of cash flows of Mt. Gravatt Cinemas Joint Venture  for the year ended December 31, 2007, which report appears in the December 31, 2009, annual report on Form 10-K of Reading International, Inc.

 

KPMG

Sydney, Australia

 

March 12, 2010

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James J. Cotter, certify that:

 

1)	I have reviewed this Form 10-K of Reading International, Inc.;

 

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

 

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ James J. Cotter                                           

James J. Cotter

Chief Executive Officer

March 12, 2010                                

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrzej Matyczynski, certify that:

 

1)	I have reviewed this Form 10-K of Reading International, Inc.;

 

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

 

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Andrzej Matyczynski                                           

Andrzej Matyczynski

Chief Financial Officer

March 12, 2010

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Annual Report of Reading International, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2009 (the “Report”), I, James J. Cotter, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James J. Cotter                                           

James J. Cotter

Chief Executive Officer

March 12, 2010

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Annual Report of Reading International, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2009 (the “Report”), I, Andrzej Matyczynski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Andrzej Matyczynski                                           

Andrzej Matyczynski

Chief Financial Officer

March 12, 2010