Reading International(RDIB) - 2020 Q4 - Annual Report

Part I Business A diversified cinema and real estate company, Reading International's operations were severely impacted by COVID-19, prompting a strategic response focused on liquidity and asset monetization - The company operates through two primary segments: Theatrical Motion Picture Exhibition (61 cinemas) and Real Estate (development and rental)[15] - The company's business strategy is described as a "two business/three country" model (cinemas and real estate in the U.S., Australia, and New Zealand), which helped mitigate the full impact of the COVID-19 pandemic[16] - In response to COVID-19, the company monetized significant non-income producing land assets, selling its Manukau, New Zealand land for $56.1 million (a $41.0 million gain) and its Coachella, California land for $11.0 million (a $6.3 million gain)[18][31] - Strategic responses to the pandemic included terminating most hourly U.S. staff, suspending non-essential expenditures, negotiating rent deferrals, obtaining debt covenant waivers, and launching new income streams like the Angelika Anywhere streaming service[28][31] Asset and Revenue Distribution by Geography (FY 2020) | Geography | Asset Percentage (Book Value) | 2020 Revenue | 2019 Revenue | | :--- | :--- | :--- | :--- | | United States | 49% | $25.7 million | $151.5 million | | Australia | 39% | $31.3 million | $103.0 million | | New Zealand | 12% | $5.8 million | $22.3 million | Global Cinema Portfolio as of Dec 31, 2020 | Country | Locations | Screens | Owned Properties | Leased Properties | | :--- | :--- | :--- | :--- | :--- | | United States | 24 | 238 | 1 | 23 | | Australia | 25 | 196 | 6 | 19 | | New Zealand | 12 | 70 | 5 | 7 | | Total | 61 | 504 | 12 | 49 | Risk Factors The company faces significant risks from the COVID-19 pandemic's impact, competition from streaming, real estate tenant defaults, and ongoing litigation among controlling family heirs - Cinema business risks are dominated by the adverse effects of the COVID-19 pandemic, including government-ordered closures, social distancing requirements, and changes in film release patterns[112] - The company faces intense competition from in-home entertainment (streaming, VOD) and other larger cinema exhibitors who may have better access to films and capital[114][116] - Real estate risks include tenant defaults and rent reductions due to the pandemic's impact on retail operations, as well as long-term threats from the growth of e-commerce[123][124] - Significant risk stems from ongoing disputes among the heirs of the late controlling stockholder, creating uncertainty regarding the company's future control and management[147][152][156] - The company is a "Controlled Company" under NASDAQ regulations, as the Cotter family entities control approximately 72% of the Class B voting stock[157][160] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[163] Properties This section details the company's significant owned and leased real estate holdings, including cinemas, live theatres, and key development properties across its operating regions - The company owns three Off-Broadway live theatres: the Minetta Lane and Orpheum in Manhattan, and the Royal George Theatre in Chicago, which is currently being marketed for sale[172] - A detailed table of operating properties lists key assets, including 44 Union Square (book value $92.8M), Newmarket Village ($48.9M), and Auburn Redyard ($27.6M), along with their occupancy rates[176] - Key investment and development properties include developable land at Auburn Redyard in Sydney and the Courtenay Central redevelopment project in Wellington, New Zealand[183] - The company owns various parcels from its historic railroad operations, primarily 197 acres of vacant land in Pennsylvania, including the Reading Viaduct in Philadelphia[185][186] Leased Cinema Space | Region | Aggregate Square Footage | Remaining Lease Term Range (incl. renewals) | | :--- | :--- | :--- | | United States | 938,000 | 2022 – 2052 | | Australia | 769,000 | 2022 – 2049 | | New Zealand | 202,000 | 2023 – 2040 | Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 13 of the Consolidated Financial Statements - This section incorporates by reference the information contained in Note 13 – Commitments and Contingencies[187] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[188] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ, no cash dividends have been declared, and restricted stock units were awarded to management in 2020 - The company's Class A Nonvoting Common Stock (RDI) and Class B Voting Common Stock (RDIB) are traded on the NASDAQ[190] - The company has never declared a cash dividend on its common stock[190] - In December 2020, the company awarded 114,803 restricted stock units to certain members of management and key employees under its 2020 Stock Incentive Plan[196] Selected Financial Data This disclosure is no longer required following amendments to Regulation S-K - Item 6 is no longer required due to amendments in Regulation S-K[199] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A details the severe financial impact of COVID-19, the company's strategic response, and management's plan to ensure its continuation as a going concern Overall Results of Operations The company's net loss increased significantly to $65.2 million in 2020, driven by pandemic-related operating losses in both cinema and real estate segments Consolidated Results of Operations (2020 vs. 2019) | (In thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Cinema exhibition operating income (loss) | $(45,056) | $23,329 | (>100)% | | Real estate operating income (loss) | $(2,463) | $5,141 | (>100)% | | General and administrative expense | $(12,824) | $(18,933) | 32% | | Income (loss) before income taxes | $(70,824) | $2,334 | (>100)% | | Income tax benefit (expense) | $4,967 | $(28,837) | >100% | | Net income (loss) attributable to RDI | $(65,200) | $(26,429) | (>100)% | Business Segment Results Both the Cinema Exhibition and Real Estate segments suffered substantial operating losses in 2020 due to pandemic-related closures and revenue declines - Cinema revenue decreased by 74% to $67.0 million in 2020, from $262.2 million in 2019, due to theater closures, capacity restrictions, and a lack of major film releases[274][278] - Real estate revenue decreased by 41% to $13.0 million in 2020, from $21.9 million in 2019, due to the closure of U.S. Live Theatres and rent abatements for tenants[290][293] Segment Operating Income (Loss) (2020 vs. 2019) | (In thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Cinema Exhibition | $(45,056) | $23,329 | (>100)% | | United States | $(39,371) | $4,457 | (>100)% | | Australia | $(4,267) | $15,974 | (>100)% | | New Zealand | $(1,418) | $2,898 | (>100)% | | Real Estate | $(2,463) | $5,141 | (>100)% | | United States | $(3,399) | $64 | (>100)% | | Australia | $2,336 | $5,449 | (57)% | | New Zealand | $(1,400) | $(372) | (>100)% | Liquidity and Capital Resources The company's liquidity was severely strained by the pandemic, necessitating credit drawdowns, covenant waivers, and a strategic plan to sell assets to remain a going concern - In response to the pandemic, the company drew down its available operating borrowing capacity, resulting in total outstanding borrowings of $285.0 million at year-end 2020[307] - The company obtained waivers and amendments for financial covenants on its loans with Bank of America, NAB, and Westpac to maintain compliance[309] - Management concluded that while substantial doubt exists about the company's ability to continue as a going concern, its plans to monetize assets and refinance properties are probable to alleviate that doubt[486][492] Key Cash Flow and Liquidity Metrics (2020 vs. 2019) | (In thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $(30,201) | $24,607 | | Cash and cash equivalents | $26,826 | $12,135 | | Total debt (gross) | $284,959 | $209,218 | | Working capital (deficit) | $(64,140) | $(84,138) | Critical Accounting Estimates Key accounting estimates, including asset impairment and deferred tax asset valuation, required significant judgment due to pandemic-induced uncertainties - Impairment of Long-Lived Assets: Due to COVID-19, impairment was tested quarterly, a $217,000 impairment loss was recorded for certain long-lived assets, but no impairment was recorded for goodwill[339][417][418] - Tax Valuation Allowance: The company determined that its U.S. and New Zealand deferred tax assets were not more-likely-than-not to be realized, resulting in an increase to the valuation allowance of $13.1 million[343][515] Quantitative and Qualitative Disclosure about Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates on its significant variable-rate debt - At year-end 2020, approximately 39% of assets were denominated in Australian dollars and 12% in New Zealand dollars, exposing the company to foreign currency risk[349] - The company primarily uses natural hedges (matching local currency revenues with local currency expenses and debt) to manage currency exposure and does not use speculative derivative instruments[335] - A hypothetical 1% change in short-term interest rates would have resulted in an approximate $2.0 million change in the company's 2020 interest expense[357] Financial Statements and Supplementary Data This section presents the audited financial statements, with the auditor's report highlighting critical audit matters related to the pandemic's impact - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[365][379] - The auditor's report identified three Critical Audit Matters due to the complex judgments required by the COVID-19 pandemic: Liquidity (Going Concern), Valuation of Long-Lived Assets, and Impairment of Goodwill[369][370][373][375] - Note 13 (Commitments and Contingencies) details the ongoing Cotter Trust litigation, which creates uncertainty over the company's voting control[569][578] - Note 23 (Subsequent Events) confirms key events after year-end, including the sale of Manukau and Coachella land and the repayment of the $40.6 million 44 Union Square construction loan[641][642] Consolidated Financial Highlights (as of and for the year ended Dec 31, 2020) | Metric (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Balance Sheet | | | | Total Assets | $690,169 | $674,989 | | Total Liabilities | $608,996 | $535,373 | | Total Stockholders' Equity | $81,173 | $139,616 | | Statement of Operations | | | | Total Revenues | $77,862 | $276,768 | | Net Loss | $(65,857) | $(26,503) | | Statement of Cash Flows | | | | Net Cash from Operating Activities | $(30,201) | $24,607 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any accounting or financial disclosure matters - None[646] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the fiscal year-end 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[648] - There were no material changes in internal control over financial reporting during the fourth quarter of 2020[649] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accountant Fees and Services Required information for these items is incorporated by reference from the company's 2021 Proxy Statement - Information for Part III (Items 10-14) is incorporated by reference from the company's 2021 Proxy Statement[654] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the annual report - This section provides a complete list of all financial statements, schedules, and exhibits filed with the annual report[658] - Key exhibits listed include debt agreements with major lenders, stock incentive plans, and certifications by the CEO and CFO[662]