Reading International(RDI) - 2023 Q4 - Annual Report

Part I Our Business Reading International operates cinema exhibition and real estate segments across the U.S., Australia, and New Zealand, managing liquidity challenges through asset sales and strategic initiatives - The company operates in two segments: Theatrical Motion Picture Exhibition (61 cinemas) and Real Estate, which includes development and rental of retail, commercial, and live theatre assets[21] - Operations were materially disrupted in 2023 by the Hollywood strikes and rising interest rates, which increased interest expense by $1.6 million in 2023 despite a $26.6 million debt reduction over two years[21][22] - To address liquidity challenges, the company monetized seven non-core assets from 2021 through Q1 2024, generating $156.1 million in net cash, used to pay down $75.6 million in debt and fund $33.9 million in capital improvements[27][29] - Total revenues have been recovering post-pandemic, reaching $222.7 million in 2023, up from $203.1 million in 2022, but still below the pre-pandemic level of $276.8 million in 2019[31] Cinema Exhibition The company operates 61 cinemas globally, with revenue primarily from box office and F&B, competing through premium amenities and enhanced offerings Cinema Locations and Screens by Country (as of Dec 31, 2023) | Country | Location Count | Screen Count | Leased | Owned | | :--- | :--- | :--- | :--- | :--- | | United States | 20 | 198 | 19 | 1 | | Australia | 30 | 226 | 26 | 4 | | New Zealand | 11 | 67 | 7 | 4 | | GRAND TOTAL | 61 | 491 | 52 | 9 | - In 2023, cinema revenue was sourced primarily from box office receipts (58%), food & beverage sales (34%), and screen advertising/other revenue (8%)[50][52][53] - The company is the 15th largest exhibitor in the U.S. (1% of box office), 4th largest in Australia (8% of box office), and 3rd largest in New Zealand (9% of box office)[61][62][63] - To enhance the customer experience, 195 auditoriums feature recliner seating, and 33 have premium large format screens (TITAN or IMAX)[48] Real Estate The real estate segment develops, owns, and leases retail, commercial, and live theatre assets, including key properties like 44 Union Square and Entertainment Themed Centers - Key assets include 44 Union Square (NYC), four ETCs in Australia/NZ (Newmarket Village, The Belmont Common, Cannon Park, Courtenay Central), and two live theatres in Manhattan (Minetta Lane, Orpheum)[44][70] - The 44 Union Square redevelopment project in Manhattan secured a long-term lease with Petco for 42% of its leasable area; Petco opened in June 2023[35][222] - The Courtenay Central property in Wellington, NZ, remains a key long-term redevelopment project, with plans advancing despite seismic-related closures[29][88] - The company owns the Reading Viaduct, approximately 6.5 acres of land in downtown Philadelphia, which presents a substantial long-term development or monetization opportunity[72][79][83] Risk Factors The company faces significant risks including film supply disruptions, intense competition, real estate market fluctuations, illiquid assets, currency risks, and substantial short-term debt - Cinema business is highly dependent on third-party film supply, which was disrupted by the 2023 Hollywood Strikes and is continually challenged by competition from in-home streaming services like Netflix, Disney+, and Amazon Prime[123][124] - The company faces competition from larger exhibitors (AMC, Regal, Cinemark) who have greater access to films and capital, and from competitors who have used bankruptcy to reduce debt and rent[128][113] - Real estate investments are illiquid and subject to risks including economic downturns, competition from e-commerce impacting retail tenants, and natural disasters in key locations like California and New Zealand[140][143][137] - The company is a "Controlled Company" as Margaret Cotter holds 69% of the voting Class B Stock, giving her unilateral power to elect the board and determine the outcome of major corporate matters[163][164][168] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[170] Cybersecurity The company maintains a risk-based cybersecurity program with third-party support and reports no material cybersecurity incidents - The company has a cybersecurity program that includes policies, procedures, and various technical controls to mitigate risks[171] - Third-party cybersecurity firms are utilized for functions such as audits, ransomware assessments, and penetration tests[172] - The company reports that it has not experienced any cybersecurity incidents that it believes have had or are likely to have a material effect[174] Properties The company owns approximately 662,000 square feet of income-producing property and leases 1.97 million square feet of cinema space, including key redevelopment projects Key Owned Operating Properties (as of Dec 31, 2023) | Property | Location | Net Book Value (in thousands) | | :--- | :--- | :--- | | 44 Union Square | Manhattan, NY | $97,107 | | Newmarket Village | Newmarket, QLD | $39,152 | | Cinemas 1,2,3 | Manhattan, NY | $24,146 | | Cannon Park | Thuringowa, QLD | $18,848 | | Culver City Office | Culver City, CA | $10,847 | - The company leases approximately 1,970,000 sq. ft. of cinema space: 780,000 in the U.S., 977,000 in Australia, and 213,000 in New Zealand[182] - The company owns 201 acres of legacy railroad property, primarily in Pennsylvania, including the Reading Viaduct in Philadelphia[187] Legal Proceedings The company is involved in ordinary course legal proceedings, accruing for estimable losses, but anticipates no material adverse effects on its financial position or liquidity - The company is involved in legal proceedings arising from the ordinary course of business and accrues for probable and estimable losses[453] - Management does not believe that any current litigation is reasonably likely to have a material adverse effect on the company's financial position or liquidity[455] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[189] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A and B common stock trade on NASDAQ, with no history or current plans for cash dividends, and has underperformed market benchmarks - Class A (RDI) and Class B (RDIB) common stock are traded on the NASDAQ[191] - The company has never declared a cash dividend and has no current plans to do so[191] - The stock performance graph for the five years ending Dec 31, 2023, shows significant underperformance compared to the NASDAQ composite and industry peer groups[192][194] Selected Financial Data This item is reserved in the report, with no selected financial data presented - This item is marked as [RESERVED][196] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A details financial performance impacted by external factors, showing improved net loss in 2023, with liquidity managed through asset sales and debt refinancing to mitigate going concern risks Results of Operations In 2023, the company reported a net loss of $30.7 million, an improvement from 2022, driven by positive operating income in both cinema and real estate segments Consolidated Results of Operations (in thousands) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $222,744 | $203,115 | 10% | | Operating Income (Loss) | ($12,031) | ($28,483) | 58% | | Net Loss Attributable to RDI | ($30,673) | ($36,184) | 15% | | Basic Loss Per Share | ($1.38) | ($1.64) | 16% | - The Cinema segment's operating income improved from a loss of $11.7 million in 2022 to an income of $0.1 million in 2023, primarily due to a stronger U.S. film slate[231][235] - The Real Estate segment's operating income increased to $3.8 million in 2023 from $0.5 million in 2022, mainly due to rental income from the new Petco lease at 44 Union Square[231][244] Liquidity and Capital Resources The company's liquidity is strained with a $88.4 million working capital deficit, managed through deferred capital expenditures, debt refinancing, and asset monetization to address going concern risks Key Liquidity Metrics (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $12,906 | $29,947 | | Working capital (deficit) | ($88,373) | ($74,152) | | Net Cash used in Operating Activities | ($9,735) | ($26,351) | | Total debt (gross) | $210,300 | $215,633 | - The company has $85.5 million of debt maturing in the twelve months following the report's issuance, which requires refinancing to maintain liquidity[370] - Management has concluded that its plans to refinance debt and potentially monetize more assets are probable of being implemented, alleviating substantial doubt about the company's ability to continue as a going concern[373] Critical Accounting Estimates Critical accounting estimates involve significant judgment, including impairment of long-lived assets, valuation allowance for deferred tax assets, gift card breakage income, and loss contingencies for legal matters - Impairment of long-lived assets, goodwill, and intangibles is a critical estimate, evaluated using projected cash flows; no impairment was recorded in 2023, but a $1.5 million charge was taken in 2022[272] - The company maintains a significant valuation allowance against its deferred tax assets, totaling $59.1 million at year-end 2023, as it believes recovery is not more-likely-than-not[273] - Recognition of gift card breakage income and estimating loss contingencies for legal matters are also identified as critical accounting estimates requiring significant judgment[274][277] Quantitative and Qualitative Disclosure about Market Risk The company faces market risks from foreign currency fluctuations (AUD, NZD) and interest rate changes, with a 1% rate change impacting interest expense by $1.6 million annually, and significant debt refinancing needs - Approximately 36% of assets are in Australia and 9% in New Zealand, exposing the company to foreign currency translation risk, which is not hedged[280] - A hypothetical 1% change in short-term interest rates would increase or decrease annual interest expense on variable-rate debt by approximately $1.6 million[287] - The company faces additional risk from needing to refinance approximately $174.6 million of debt maturing over the next 24 months, likely at higher interest rates[269] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, including balance sheets, statements of operations, and cash flows, along with the independent auditor's unqualified opinion Consolidated Balance Sheets As of December 31, 2023, total assets were $533.1 million, total liabilities $500.1 million, and stockholders' equity $33.0 million, reflecting a decrease from 2022 due to net loss and currency adjustments Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $533,051 | $587,055 | | Cash and cash equivalents | $12,906 | $29,947 | | Operating properties, net | $262,417 | $286,952 | | Total Liabilities | $500,055 | $523,776 | | Debt (current & long-term) | $181,089 | $185,967 | | Operating lease liabilities | $203,945 | $224,008 | | Total Stockholders' Equity | $32,996 | $63,279 | Consolidated Statements of Operations In 2023, total revenues were $222.7 million, leading to an operating loss of $12.0 million and a net loss of $30.7 million, an improvement from the prior year Consolidated Statement of Operations Summary (in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Revenues | $222,744 | $203,115 | $139,060 | | Operating Loss | ($12,031) | ($28,483) | ($41,793) | | Net Loss/Income Attributable to RDI | ($30,673) | ($36,184) | $31,921 | | Basic EPS | ($1.38) | ($1.64) | $1.46 | Consolidated Statements of Cash Flows In 2023, net cash used in operating activities improved to $9.7 million, with overall cash and cash equivalents decreasing by $19.5 million due to investing and financing activities Consolidated Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($9,735) | ($26,351) | | Net cash used in investing activities | ($2,699) | ($9,486) | | Net cash used in financing activities | ($6,667) | ($16,557) | | Net decrease in cash | ($19,538) | ($53,592) | Note 5 – Real Estate Transactions The company actively monetized real estate assets, including significant sales in 2021 and the $10.0 million sale of the Culver City office building in early 2024, to support operations - The company has been monetizing non-core real estate assets to generate cash for operations and debt repayment amid challenging market conditions[380] - In 2021, major sales included the Auburn/Redyard ETC for $69.6 million and Manukau, NZ land for $56.1 million, generating significant gains[382][383] - The Culver City administrative building, classified as held for sale at year-end, was sold on February 23, 2024, for $10.0 million, resulting in a book loss of $0.7 million to be recorded in 2024[391][392] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the fourth quarter of 2023 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[498] - There were no material changes to internal controls over financial reporting during the fourth quarter of 2023[499] Part III Information for Part III, covering Items 10-14, is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders Items 10, 11, 12, 13 and 14 Information for these items is incorporated by reference from the forthcoming 2024 Proxy Statement - Information required by Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders[504] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements, debt agreements, and SOX certifications - This section contains the list of all financial statements, schedules, and exhibits filed with the annual report[507] - Key exhibits include debt agreements with major lenders like Bank of America and National Australia Bank, stock incentive plans, and certifications required by the Sarbanes-Oxley Act[510][511][512]