Item 1. Business
General
The Company was organized under the laws of Pennsylvania in 1833. It operated the Reading Railroad until April 1, 1976, when substantially all of the Company's railroad assets were conveyed to Consolidated Rail Corporation ("Conrail").
In 1993, the Company determined to focus its activities on the "Beyond-the-Home" segment of the entertainment industry, acquiring Theater Acquisitions of Puerto Rico, Inc. ("TAPR") for a cash purchase price of $22.7 million in mid-1994. At the time of acquisition, TAPR operated six motion picture exhibition theaters with a total of 36 screens in the Commonwealth of Puerto Rico. Renamed Cine Vista in 1994, the theater circuit currently consists of 44 screens in 7 locations with an additional 16 screens under development. Cine Vista is also in negotiations with respect to several additional theater locations.
During 1995, the Company initiated theater development activities in Australia. In November 1995, the Company and Craig Corporation ("Craig"), the owner of approximately 49.3% of the Company's outstanding capital stock, formed Reading International Cinemas LLC (referred to herein together with its Australian subsidiaries as "Reading International"), a limited liability corporation owned equally by the Company and Craig to exploit opportunities in Australia. Reading International has acquired a 43 acre site in Melbourne, New South Wales and is currently seeking permits for the developments of a 24 screen multiplex cinema on this site. Reading International is also currently in negotiations with respect to several additional locations.
The Company also currently owns approximately 27 parcels of real estate located primarily in Pennsylvania and is a participant in two real estate joint ventures in center city Philadelphia.
Description of Business
The Company also has been liquidating certain of its assets since its emergence from bankruptcy in 1981. By late 1993, the various operating businesses owned by the Company had been sold.
In late 1993, following a review of investment opportunities in a number of industries, the Company determined to focus on acquiring or developing businesses in the "Beyond-the-Home" segment of the entertainment industry. The Company entered into two other development projects in the "Beyond-the-Home" segment of the entertainment industry in 1993 and early 1994: a joint venture project with Pacific Theatres ("Pacific") to develop multiplex cinemas in California and Hawaii ("PRT") and a project to develop a theme park based on the Wizard of Oz in Kansas (the "Oz Project"). Effective July 1, 1994, the Company acquired Cine Vista for a cash purchase price of $22.7 million, inclusive of $323,000 of acquisition expenses. Cine Vista operates 7 motion picture theaters in Puerto Rico. With the acquisition of Cine Vista, the development of internal operating capabilities, and the focusing of the Company's attention on foreign exhibition opportunities, the Company determined to terminate PRT and to make no additional financial commitments to the Oz Project. The Company continues to seek acquisitions and development opportunities in the "Beyond-the-Home" segment of the entertainment industry, but is currently emphasizing cinema exhibition opportunities. During 1995, the Company initiated theater development activities in Australia. In November 1995, the Company and Craig formed Reading International, a limited liability corporation owned equally by the Company and Craig, to exploit opportunities in Australia.
The Company's real estate activities include the sale or development of certain center city Philadelphia property, the sale of parcels outside center city and participation in two real estate joint ventures. Proceeds from the Company's real estate activities and sales of operating businesses, to the extent not needed to fund the Company's real estate operations, development and acquisition activities or to reduce indebtedness, have been held in readily marketable securities issued by the United States Treasury and federal agency securities, with the intent of preserving capital until needed in accordance with the Company's business plan to develop or acquire operating businesses. The Company attempts to avoid investment risk to the maximum extent practicable by holding
federal agency securities and United States Treasury obligations with maturities consistent with presently anticipated cash requirements.
Cine Vista
Cine Vista operates motion picture exhibition theaters in seven leased locations in Puerto Rico. Cine Vista currently has 16 screens under development in two locations, including a ten screen complex to replace an existing six screen facility. Cine Vista is also involved in negotiations for additional theater sites in Puerto Rico. While no assurances can be given, the Company anticipates a net increase of at least 12 screens over the next 24 months. Cine Vista continues to seek additional sites for the development of multiscreen movie theaters in Puerto Rico.
All of Cine Vista's theaters are modern multiscreen facilities.
Number of Existing Theaters Location Screens - - ----------------- -------- ------- Plaza de las Americas Mall San Juan 10 El Senorial Shopping Center San Juan 4 Cinema Centro Bayamon * 6 Plaza del Norte Shopping Center Hatillo 6 Mayaguez Mall 1 Hormigueros ** 6 Cayey Shopping Center Cayey 4 Plaza Palma Real Humacao 8
Under Development - - ----------------- Mayaguez Shopping Center Mayaguez 6 Mayaguez Mall 1 Hormigueros ** 10
* San Juan metropolitan area ** Mayaguez metropolitan area
1 Cine Vista is negotiating to demolish the building housing four of the existing six screens at the Mayaguez Mall and build a 10-plex on the site. After completion of the 10-plex, the remaining two screens at the Mayaguez Mall would be returned to the landlord.
Puerto Rico is a self-governing Commonwealth of the United States with a population of approximately 3.8 million people. The Commonwealth exercises control over internal affairs similar to states; however, the relationship with the United States Federal Government is different than that of a state. Residents of Puerto Rico are citizens of the United States but do not vote in national elections and, with certain exceptions, do not pay federal income taxes. Income taxes are paid instead under a system established by the Commonwealth. In recent years there have been two major views concerning the future relationship with the United States Government, one favoring statehood and the other favoring continuation of commonwealth status. In 1993, Puerto Rico voters were asked in a plebiscite to express their preference for statehood (48.4%), commonwealth status (46.2%) or independence (4.4%). The United States mainland is Puerto Rico's largest trading partner.
During the last four years, the Commonwealth has undergone significant retail shopping center development during which period the number of multiplex theaters has increased substantially. With approximately one screen per 24,000 of population, versus approximately one screen per 10,000 in the mainland United States, the Company
believes that Cine Vista has an opportunity to expand its operations through the development of new multiplex theaters and improvement of its existing operations.
Cine Vista derives approximately 70% of its revenues from box office receipts. Ticket prices vary by location, and provide for reduced rates for senior citizens and children. Box office receipts are reported net of a 10% excise tax imposed by the Commonwealth. Show times and features are placed in advertisements in local newspapers with the costs of such advertisements paid by Cine Vista. Film distributors may supplementally advertise certain feature films with the costs generally paid by distributors.
Concession sales account for approximately 25% of total revenues. Concession products primarily include popcorn, candy, and soda. Cine Vista has implemented training programs and incentive programs and experiments with product mix changes in order to increase the amount and frequency of concession purchases by theater patrons.
Screen advertising revenues contribute approximately 4% of total revenues. Cine Vista has agreements with a major soft-drink bottler and an independent advertising production company to show advertisements on theater screens prior to feature film showings. Other sources of revenue include revenues from theater rentals for meetings, conferences, special film exhibitions and vending and video machine receipts or rentals.
Films are licensed under agreements with major film distributors and several local distributors specializing in films of special interest to the Commonwealth. Commonwealth regulations generally require that film exhibitors be provided with an opportunity to view films prior to submitting bids, that film distributors provide advance notice of films which will be provided to the market, and are generally designed to preclude anticompetitive practices. Films are licensed on a film-by-film, theater-by-theater basis. Generally, film payment terms provide for payment to film distributors under a percentage of gross box office receipts formula or an adjusted gross receipts formula. Under the gross receipts formula, the film distributor receives a specified percentage of the gross box office receipts. Ordinarily, the percentage will decline from a range of 60-70% in the first playweek to a low of 30% after 4-5 weeks. Under an adjusted gross receipts formula, the film distributor receives a specified percentage (usually 90%) of the box office receipts over the "House Allowance," a negotiated allowance for theater expenses.
Cine Vista licenses film from substantially all of the major United States studios and is not dependent upon any one film distributor for all of its products. However, in the event the Company was unable to license film from a major studio, such lack of supply could have a material effect upon Cine Vista's business. Cine Vista believes that the popularity of the Puerto Rico exhibition market and the Commonwealth rules governing film licensing make such a situation unlikely. In 1995, films licensed from Cine Vista's 4 largest film suppliers accounted for approximately 65% of Cine Vista's box office revenues.
Competition - The Company believes there are approximately 30 first-run movie theaters in daily operation with approximately 156 screens in Puerto Rico. Based upon number of screens, box office revenues and number of theaters, Cine Vista is the second largest exhibitor in the Commonwealth. The three largest exhibitors are believed to account for over 98% of the box office revenues recorded in 1995 by theaters in daily operation. Competition among the theater exhibitors exists not only for theater patrons within certain geographic areas, but also for the licensing of films and the development of new theater sites. The number of sites suitable for multiplex cinema is limited. Competitors of Cine Vista are expected to open competitive theaters with approximately 30 screens during the next twelve months, certain of which are in locations competitive with those of Cine Vista's. It is likely that these new theaters will attract business that would otherwise have gone to theaters owned by Cine Vista.
Seasonality - Most major films are released to coincide with the summer months, when schools are closed, or the winter holiday seasons. Accordingly, Cine Vista has historically recorded greater revenues and earnings during the second half of the calendar year.
Reading International LLC
In November 1995, the Company and Craig formed Reading International to develop and operate multiplex cinemas in Australia. Reading and Craig each committed to make an initial contribution of $5 million on an as needed basis for an aggregate initial capitalization of $10 million. The provisions of the agreement which governs the activities of Reading International provide, among other things, that each party will have preemptive rights with respect to the provision of future capital and rights of first refusal regarding any proposed disposition of the other's interest in Reading International.
Reading International has retained the services of several key executive employees resident in Australia to assist in the implementation of its plan to be a major participant in the Australian market for multiplex theaters. A site has been acquired in Melbourne, Australia, on which the Company intends to develop a 24 screen multiplex theater, subject to obtaining the necessary governmental land use entitlements and approvals. The contracts with respect to that site provide for a total purchase price of approximately $6.5 million. In addition, corporate joint venture agreements between Reading International and an existing owner and operator of cinemas in Australia are currently being negotiated with respect to the development and management of certain additional cinema sites. Reading International is also in negotiation with several developers and landlords with respect to other potential locations.
On March 29, 1996, the Company and Craig entered into a capital funding agreement (the "Capital Funding Agreement") with respect to Reading International pursuant to which they agreed to increase the capital committed by the Company and Craig to Reading International from $10 million to approximately $103 million through a combination of cash contributions and secured capital funding undertakings. Under the terms of the Capital Funding Agreement, the Company and Craig each agreed to immediately contribute to Reading International $12,500,000 in cash, for an aggregate $25,000,000. In addition, the Company and Craig have undertaken to contribute up to an additional $37,500,000 each, for an aggregate future commitment of $75,000,000 on an as needed basis. The commitments of the Company and Craig are secured by various assets of the two parties. The collateral pledged by Craig was reviewed by an independent committee of the Company's Board of Directors comprised of outside directors who are unaffiliated with Craig, and found to be adequate.
Although the Company believes that there are significant opportunities for multiplex cinema development in Australia, several substantial and well capitalized competitors are already well established and active in this market. Accordingly, although Reading International believes that it has retained talented and experienced senior executives to lead its operations in Australia, no assurance can be given that Reading International will be able to successfully develop sites or to compete successfully in this market. Reading International activities in this market are currently entirely developmental in nature.
Other Acquisition and Development Activities
On November 8, 1995, the Company, for a price of $1,285,000, acquired from a major bank a judgement encumbering, among other things, a controlling interest in a Company which owns a Manhattan multiplex theater. The judgement has been acquired as part of the Company's plan to acquire, in conjunction with Manhattan-based City Cinemas Corp. ("City Cinemas"), all or at least a controlling interest in this multiplex theater. James J. Cotter, Chairman of the Company, has an ownership interest in City Cinemas. The Company has also acquired options to obtain shares representing 5/13ths of the voting power of the company owning the multiplex theater and to obtain certain other creditor claims against that company. No assurance can be given that the Company's plan to acquire the theater will ultimately prove successful.
In January 1994, the Company and an affiliate of Pacific formed PRT as a California general partnership in order to fund the development of new multiplex theaters to be built and managed by Pacific in California and Hawaii. In early 1995, the Company and Pacific dissolved PRT in order to permit the Company to focus on international theater exhibition opportunities and its expansion of Cine Vista.
The Company loaned Oz Resorts and Entertainment, Inc. ("OREI") a total of $795,000 in late 1993 and early 1994. The loans were made as part of a transaction intended to result in the acquisition by the Company of a controlling interest in OREI, which owns the rights to the Oz Project, a planned destination theme park, hotel and golf complex in Kansas City, Kansas. In May 1994, the Company entered into an agreement with OREI which provided the Company with a right, but no obligation, to participate in future debt or equity offerings by OREI. The Company elected to write off the $795,000 loan to OREI during 1994 due to the developmental nature of the project. As a result of the Company's acquisition of Cine Vista and its decision to explore international theater exhibition opportunities, the Company has determined not to enter into further financial commitments with respect to the Oz Project.
Real Estate
The Company's real estate activities include the managed sale of certain of its real properties, the possible future development of certain center city Philadelphia properties and participation in two real estate joint ventures.
The Company owns property in the Market Street East area which is situated at the hub of center city Philadelphia. Company-owned holdings in Market Street East include several parcels leased to a parking lot operator near the site of the Pennsylvania Convention Center, which total approximately .67 acres. See "Properties."
In addition to its properties in center city Philadelphia, the Company also owns a viaduct, a raised structure which was used to carry trains (the "Viaduct"), north of Vine Street to Fairmount Avenue and adjacent parcels which collectively total approximately 6.75 acres. The Company also owns approximately 23 parcels and other properties, including rights-of-way, located primarily in eastern Pennsylvania totaling approximately 425 acres. The Company is a participant in two real estate joint ventures, Parametric Garage Associates and S.R. Developers. See "Properties."
Employees
Cine Vista employment is seasonal with the number of employees ranging from approximately 165 to 220 depending upon the time of the year. Approximately 15 projectionists are covered by a collective bargaining agreement which expires in May 1997. In late 1993, certain part-time employees voted to be represented by a collective bargaining unit. Approximately 80 employees would be covered by the collective bargaining agreement. To date, no agreement has been signed between the union representing the employees and Cine Vista.
Reading International employs eight people on a full-time or substantially full time basis. In addition to Cine Vista employees and Reading International employees, the Company has ten full-time employees and two part-time employees.
Classes of Common Stock
As of December 31, 1995, the Company had available approximately $163 million in tax loss carryforwards. In order to preserve these carryforwards, the Company in 1989 in essence replaced its Common Stock with a new issue of Class A Common Stock. Substantially all of the Company's outstanding capital stock is now comprised of Class A Common Stock, which limits the ability of a holder thereof to acquire more than 4.75% of the Company's outstanding capital stock unless waived by the Board of Directors of the Company. The Board of Directors has waived certain restrictions on the transfer of Class A Common Stock in order to permit Craig to acquire up to approximately 49.9% of the Company's outstanding capital shares and an unrelated investment partnership to acquire up to 7%. Craig currently owns approximately 49.3% of the Company's outstanding capital shares and the investment partnership owns approximately 5.4%.
Subsequent Event
On March 29, 1996 the (Company purchased from Craig 1,564,473 shares of the common stock, par value $.01 per share, of Citadel Holding Corporation ("Citadel" and the "Citadel Common Stock", respectively) for an aggregate purchase price of $3,324,505, representing slightly less than $2.125 per share. The closing price of Citadel Common Stock on the American Stock Exchange on March 28, 1996 was $2.25 per share. The Company paid Craig for the Citadel Common Stock with a five year, unsecured promissory note which provides for the payment of interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus 2.25%. The Company also acquired from Craig a one year option to acquire 1,329,114 shares of the 3% Cumulative Voting Convertible Preferred Stock, stated value $3.95 per share of Citadel (the "Citadel Preferred Stock") and an option to acquire a warrant to acquire 666,000 shares of Citadel Common Stock (the "Warrant").
The option to acquire the Citadel Preferred Stock (the "Preferred Share Option") will be exercisable commencing on the later to occur of July 1, 1996 or ten business days after the date of the next Citadel Annual Meeting of Stockholders. The Preferred Share Option is exercisable for a period of twelve months at an exercise price equal to the fair market value of the Citadel Preferred Stock as determined by an investment banking firm to be mutually agreed upon or, if the Company determines to proceed with a transaction or series of transactions pursuant to which the Company acquires sufficient additional shares of Citadel Common Stock to permit the consolidation of the Company and Citadel for Federal income tax purposes (an "Acquisition Transaction") the exercise price shall be in the amount and form of the price paid by the Company to an unrelated stockholder pursuant to such Acquisition Transaction. In all other cases the exercise price for the Preferred Share Option is payable by delivery by the Company of its promissory note having the same terms (including due date) of the note issued by the Company to acquire the Citadel Common Stock. The Company paid an option fee of $50,000 in cash upon acquisition of the Preferred Share Option, which will be credited against the Preferred Share Option exercise price if exercised. The Company may extend the exercise period for the Preferred Share Option for an additional 12 months by paying an additional option fee of $50,000 prior to expiration of the original 12-month option period, which additional $50,000 will also be credited against the option exercise price, if exercised.
The option to acquire the Warrant (the "Warrant Option") is exercisable if the Company determines to proceed with an Acquisition Transaction and remains exercisable for a period of twelve months, provided that any closing on the exercise of the Warrant Option is conditioned upon consummation of an Acquisition Transaction. No separate consideration was paid by the Company for the grant of the Warrant Option. The Warrant Option exercise price will be the price per share paid to an unrelated Citadel stockholder in an Acquisition Transaction less $3.00 (the exercise price of the Warrant); provided, however, that if Craig exercises the Warrant prior to exercise of the Warrant Option, the Warrant Option shall become an option to purchase the Citadel Common Stock issued on exercise of the Warrant for an option price equal to the full price paid to an unrelated Citadel stockholder in an Acquisition Transaction.
If the Company determines to proceed with an Acquisition Transaction, Craig has the right under the agreement to require the Company to purchase the Preferred Shares and the Warrant (or Common Stock issued on exercise of the Warrant) on the same terms as if the Company had exercised the Preferred Share Option and the Warrant Option.
The transaction was separately reviewed, negotiated and approved by a special committee composed of the independent directors of the Board of Directors.
Item 2.
Item 2. Properties
Center City Philadelphia Properties
The Company's properties in center city Philadelphia, all of which are owned in fee, consist of several parcels of land aggregating approximately .67 acres located near or adjacent to the site of the Convention Center currently leased to a parking lot operator, the Viaduct north of Vine Street to Fairmount Avenue and adjacent parcels, comprising approximately 6.75 acres, and properties owned by partnerships in which the Company has interests. In 1993, the Company sold the Reading Terminal Headhouse, a vacant nine-story building located at 12th and Market Streets containing approximately 196,000 gross rentable square feet, and received gross proceeds of approximately $4.3 million. A center city Philadelphia parcel, totaling .28 acres, was sold in March 1994 generating gross proceeds of approximately $550,000.
Partnership Properties
S.R. Developers: A subsidiary of the Company is a general partner in S.R. Developers, a partnership which owns one property in center city Philadelphia.
Parametric Garage Associates: A subsidiary of the Company is a general partner in Parametric Garage Associates, a partnership which owns the 750-car Gallery II Parking Garage (the "Garage"). The Garage is adjacent to the Pennsylvania Convention Center Complex. The Company has primary responsibility for the leasing and management of 19,000 gross rentable square feet of retail space on the ground level of the Garage pursuant to a management agreement and provides certain other management services to the partnership.
Other Domestic Real Estate
When the Company's railroad assets were conveyed to Conrail, the Company retained fee ownership of approximately 650 parcels of real estate located throughout Pennsylvania, Delaware, and New Jersey. In addition, the Company retained portions of 52 abandoned rights-of-way with about 200 more parcels abutting these rights-of-way. Approximately 23 parcels and rights-of-way located outside of center city Philadelphia are still owned by the Company. The parcels consist primarily of vacant land and buildings, some of which are leased.
Cine Vista Properties
All of Cine Vista's real properties are leased. The seven theaters are leased pursuant to long-term leases with remaining terms and renewal options ranging from 12 to 38 years. Cine Vista has executed an additional theater lease, which lease term commences with occupancy, expected in late 1996. The landlord of one of Cine Vista's theaters has the right to terminate the lease relating to space presently housing two theaters, subject to six months' notice. All of Cine Vista's theater leases provide for the payment of minimum fixed rental payments and, in certain cases, may require additional payments based upon a percentage of theater revenues. Cine Vista also leases approximately 6,100 square feet of warehouse space and 2,200 square feet of office space.
Reading International Properties
Reading International maintains leased offices in Melbourne and Sydney, Australia pursuant to short term leases. The total space leased is approximately 2,300 square feet. In December 1995, Reading International acquired a site of approximately 43 acres in a suburban area outside of Melbourne. Reading International has also entered into a purchase agreement to acquire an additional six acres adjacent to the acquired site. Reading International intends to build a 24 screen multiplex theater on this site and is in the process of securing necessary permits to permit such development. No assurances can be given that the Company will be successful in this development effort. Reading International is also aggressively pursuing other locations in and about Sydney and
Melbourne and elsewhere in Australia upon which it may develop theater operations. It has made several refundable deposits related to lease and purchase proposals.
Item 3.
Item 3. Legal Proceedings
Reading Railroad Employee Health Claims
The Company is a defendant in actions instituted in the United States District Court for the Eastern District of Pennsylvania or the [Pennsylvania State] Court of Common Pleas by or on behalf of persons who had been employed by the Reading Railroad prior to its reorganization under the federal bankruptcy laws in 1980. In general, these actions also name Conrail, which acquired substantially all of Reading's railroad assets in connection with the Company's reorganization, as a defendant. Approximately 115 plaintiffs seek damages under the Federal Employers Liability Act ("FELA") in varying amounts for illnesses or death allegedly caused by exposure to asbestos fibers while employed by the Reading Railroad and, in some cases, by Conrail. Approximately 122 plaintiffs in pending actions seek damages in varying amounts for alleged impaired hearing suffered while employed by the Reading Railroad prior to its reorganization and, in some cases, by Conrail. The underlying actions are proceeding to trial.
The eventual outcome of the above-described litigation cannot be predicted at this time, and the Company's liability, if any, cannot be accurately determined. However, during 1990, the Company and its insurance carriers entered into an agreement (the "Settlement Agreement") which provided the Company with reimbursement for prior payments made to claimants in certain personal injury actions and which provides for the Company to receive reimbursement of amounts expended in conjunction with the matters described above or, if the Company elects, to receive reimbursement from the parties to the Settlement Agreement prior to expenditures. Three participants in the insurance settlement are insolvent. Unreimbursed claims by these three carriers have totaled $61,000. The Company believes that it may be entitled to reimbursement of such amounts from the other parties to the Settlement Agreement and may file for an arbitration hearing on such matters. The Company believes that the amounts available under the Settlement Agreement are sufficient to prevent the above-described litigation from having a materially adverse effect on the financial position, results of operations, or liquidity of the Company.
Cine Vista
A landlord of Cine Vista has alleged that Cine Vista underpaid rent by approximately $480,000 for the thirty month period ended December 31, 1995. The Company is contesting the landlord's claim and believes the claim to be without merit. If the landlord were to prevail in its assertion, the Company is indemnified by TALP for the amount due at June 30, 1994 ($180,000) and the Company believes it would be entitled to a reduction in the purchase price of TAPR relating not only to the 18 months ended December 31, 1995 but also relating to the 17 1/2 future years under the lease. Such purchase price reduction would be funded, in part, from the proceeds of the TAPR purchase escrow.
Environmental Litigation
McAdoo Site
The Company is one of approximately 63 private parties (the "Settlors") which in 1988 signed a consent decree (the "1988 Consent Decree") to perform a remedial action (the "RA") on a Superfund site located on land owned largely by the Company in McAdoo, Pennsylvania ("McAdoo"). Apart from future operation and maintenance ("O&M") expenses, the entire RA is complete. Under the 1988 Consent Decree, a portion of the costs the Settlors incurred to perform the RA before O&M is reimbursable from the Hazardous Substance Superfund (the "Fund"). In 1992, the Settlors submitted to the Fund a claim for reimbursement of such pre-O&M expenses (the "Claim").
To protect their right to seek contribution towards O&M from certain potentially responsible parties ("PRPs") who had refused to join in the 1988 Consent Decree (the "Non-Settlors"), the Settlors in 1992 attempted to intervene in the attempted settlement of the federal civil action which the United States had instituted against the Non-Settlors (the "Non-Settlors Litigation"). An agreement in principle to settle the Non-Settlors Litigation (the "Tentative Settlement") has now been reached and is being documented by the United States. The Company anticipates that the Settlors will approve the Tentative Settlement.
Under the Tentative Settlement, the Settlors would withdraw the Claim and instead recover most of the reimbursement sought thereby from funds which the Non-Settlors had deposited, before the Settlors attempted intervention, into a court registry to settle the Non-Settlors Litigation. The amount recovered by the Settlors from the court registry, along with an additional amount newly contributed by the Non-Settlors, would be dedicated to performing the remaining O&M at McAdoo and would also be used to perform certain additional ground water
monitoring sought by the United States. The Company has been advised that, in the likely event that the Tentative Settlement is finalized, it is unlikely that any additional amounts will be required to meet any of the Settlors' obligations under either the 1988 Consent Decree or the Tentative Settlement. Any amounts which might be so required would not be material.
Douglassville Site
Reading Company ("Reading") and a wholly-owned subsidiary, Reading Transportation Company ("RTC"), have each been advised by the Environmental Protection Agency ("EPA") that they are PRPs under environmental laws including Federal Superfund legislation ("Superfund") for a site located in Douglassville, Pennsylvania. The EPA issued an Administrative Order under Superfund against 34 PRPs requiring, among other things, that the named parties be required to incinerate materials at the site pursuant to a June 30, 1989 Record of Decision ("ROD"). The ROD estimated that the incineration would cost approximately $53 million. Thirty-six PRPs were also named in a civil action brought by the United States which seeks to recover alleged costs incurred at the site by the United States of approximately $22 million. Reading and RTC have each been named in a third-party action instituted by the majority of the 36 PRPs sued by the United States. The actions instituted against the Company and approximately 300 PRPs seek to have the parties contribute to reimbursement for past costs and any costs associated with further remediation at the site.
On September 14, 1995, the federal district court judge who presided over Reading's reorganization ruled that all liability asserted against Reading relating to the site was discharged pursuant to the consummation order issued in conjunction with the Company's amended plan of reorganization on December 31, 1980. The United States Department of Justice and a named defendant in the above described Administrative Order have filed appeals of the decision. The judge's decision did not affect the potential liability of RTC for the site. RTC has no assets and therefore cannot fund a settlement or judgement relating to this matter and the Company believes that the potential liability of RTC, if any, is not in excess of $300,000. Based upon the appeal and possible alternate attempts by the PRPs to obtain Reading's participation in funding for the site as well as the existence of the other environmental matters set forth below, the Company has not reduced its provision for these matters, which totals $1.2 million.
Reading Terminal Train Shed Litigation
In 1991, the Company filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania against the Southeastern Pennsylvania Transportation Authority ("SEPTA"), Conrail, the City of Philadelphia and other parties which sought to recover a portion of the approximately $9 million expended by the Company in conjunction with the cleanup of polychlorinated biphenyls ("PCBs") in the Reading Terminal Train Shed and a portion of the viaduct south of Vine Street. The action also sought a declaratory judgement as to future costs which could be incurred in cleaning up the remaining portions of the Viaduct. In January 1995, the parties agreed in principle to settle the claim for approximately $2.35 million which amount the Company anticipates receiving during 1996. The defendants have also agreed to pay an amount ranging from 52% to 55% of costs incurred by the Company, if any, relating to possible PCB contamination on the Viaduct.
Atlantic City Site
During 1995, the Company settled an action seeking the recovery of $3,800,000 of alleged environmental cleanup costs from five defendants under various provisions of New Jersey law for $235,000 which approximates the amount previously accrued by the Company to provide for its share of the liability.
Other Environmental
The Company removed six underground storage tanks at a site owned by the Company in 1991 and in conjunction with such activities submitted an environmental assessment of the site to the Pennsylvania Department of Environmental Protection ("DEP"). DEP has advised the Company that no further action is required at the site. With the advance knowledge and consent of DEP, the Company extinguished a fire at a Company-owned site which
had been used as a landfill by the Reading Railroad. The Company neither anticipates nor faces any administrative action against it by DEP concerning the site.
The Company believes that the Viaduct may be contaminated by PCBs resulting from former railroad operations on that property conducted by or on behalf of the Reading Railroad, Conrail, the City of Philadelphia or SEPTA. The Company has advised the EPA of the potential contamination. The Company has not determined the scope or extent of any such PCB contamination. However, the Company has been advised by counsel that, given the lack of regulatory attention to the Viaduct in the eleven years which have elapsed since EPA was notified of the likelihood of contamination, it is unlikely that the Company will be required to decontaminate the Viaduct or incur costs related thereto. In the event that the Company was required to incur expenditures to remove PCB contamination on the Viaduct, under terms of the settlement described above, Conrail, the City of Philadelphia and SEPTA would be required to fund 52% to 55% of such costs.
Prior to the Company's reorganization, the Company had extensive railroad and related operations. Such operations may have contributed to environmental contamination of properties now owned by the Company, previously sold or leased by the Company, or to which the Company, prior to its reorganization, sent waste. The ultimate extent of liabilities, if any, with respect to such matters, as well as the timing of cash disbursements, if any, cannot be determined. However, management is of the opinion, based on the information currently available to it, that while the ultimate liability resulting from such matters could have a material effect upon the results of operations in a given year, they will not have a material adverse effect upon the Company's financial position or liquidity.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position ---- --- --------
James J. Cotter 57 Chairman of the Board of Directors
S. Craig Tompkins 45 President and Director
Robert F. Smerling 61 Chief Executive Officer, Domestic and Puerto Rico Cinema Operations, Reading Cinemas and Cine Vista
John Rochester 52 Chief Executive Officer, Australian Cinemas Operations and Reading Australia Pty Ltd.
James A. Wunderle 43 Executive Vice President, Chief Operating Officer, Treasurer and Chief Financial Officer
Charles S. Groshon 42 Vice President
Eileen M. Mahady 30 Controller
Mr. Cotter has been Chairman of the Board of Directors since December 1991, Chairman of the Company's Executive Committee since March 1993 and a director since September 1990. Mr. Cotter has been Chairman of the Board of Craig since 1988 and a director since 1985. Mr. Cotter has been a director and the Chairman of the Board of Citadel Holding Corporation ("Citadel") since 1991. From October 1991 to June 1993, Mr. Cotter also served as the acting Chairman of Citadel's wholly-owned subsidiary, Fidelity Federal Bank, FSB ("Fidelity"), and served as a director of Fidelity until December 1994. Mr. Cotter has been a director and Chief Executive Officer of Townhouse Cinemas Corporation (motion picture exhibition) since 1987, Executive Vice President and a director of The Decurion Corporation (motion picture exhibition) since 1969 and a director of Stater Bros. Holdings, Inc. (retail grocery chain) and its predecessors since 1987. From 1988 through January 1993, Mr. Cotter also served as the President and a director of Cecelia Packing Corporation (a citrus grower and packer), a company wholly owned by Mr. Cotter. Mr. Cotter is also a director and Executive Vice President of Pacific, a wholly-owned subsidiary of Decurion.
Mr. Tompkins has been President and a director of the Company since March 1994. Mr. Tompkins is also President and a director of Craig and has served in such positions since March 1, 1994. Prior thereto, Mr. Tompkins was a partner in the law firm of Gibson, Dunn & Crutcher for more than five years. Mr. Tompkins has been a director of Citadel since May 1994 and a director of G&L Realty Corp., a New York Stock Exchange listed REIT (Real Estate Investment Trust), since December 1994. He serves as the Vice Chairman of Reading Cinemas and Managing Director of Reading International.
Mr. Smerling has been President of Reading Cinemas, Inc. since November 1994. Mr. Smerling also serves as the President of Cine Vista and the Chief Executive Officer of Reading International. Mr. Smerling served as president of Loews Theater Management Corporation, a subsidiary of Sony Corporation, from May 1990 until November 1994. Mr. Smerling also serves as President and Chief Executive Officer of City Cinemas, a motion picture exhibitor located in New York City, New York. City Cinemas is an affiliate of James J. Cotter and has entered into an Executive Sharing Agreement with the Company with respect to the services of Mr. Smerling.
Mr. Rochester has been Chief Executive Officer of the Australian Cinemas Operations since November 1995. From 1990 through 1995, Mr. Rochester was the Managing Director of Television & Media Services Ltd.
(formerly Hoyts Entertainment Ltd.). He also served in several other executive offices for that organization since 1987.
Mr. Wunderle has been Chief Operating Officer since February 1990 and Executive Vice President, Treasurer, and Chief Financial Officer since December 1988. He was Vice President of Finance, Chief Financial Officer and Treasurer from January 1987 to December 1988.
Mr. Groshon has been Vice President of the Company since December 1988. He was an internal auditor with the Company from August 1984 until December 1988, and a staff accountant prior thereto.
Ms. Mahady has been Controller of the Company since April 1990. Prior to joining the Company, she was a senior auditor with Ernst & Young. Ms. Mahady is a Certified Public Accountant.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Common Stock Summary
The following table sets forth the high and low prices of the Company's Class A Common Stock from January 1, 1994 through December 31, 1995, as reported on the National Market System of the National Association of Securities Dealers, Inc. ("NASDAQ"). The Company's Common Stock trades infrequently on the over-the-counter "pink sheet" market. Historical bid/asked data is insufficient to provide high and low price information on the Company's Common Stock during 1994 and 1995. No cash dividends have been paid on either class of the Company's common stock during any of the periods indicated. Management does not intend to authorize the payment of dividends in the foreseeable future.
Quarter 1st 2nd 3rd 4th - - ------- --- --- --- ---
High 11 1/2 11 1/8 10 3/16 9 1/2 Low 9 5/8 9 7/8 9 8 1/2
Quarter 1st 2nd 3rd 4th - - ------- --- --- --- ---
High 11 3/4 10 1/2 11 1/8 11 1/2 Low 9 7/8 9 1/2 9 3/4 11
On March 28, 1996, the high, low, and closing prices of the Company's Class A Common Stock were $10.81, $10.63 and $10.63, respectively. On March 28, 1996, there were approximately 1,200 shareholders of record of the Company's Class A Common Stock and approximately 350 shareholders of record of the Company's Common Stock, which amounts do not include individual participants in security position listings.
Item 6.
Item 6. Selected Financial Data
The following table sets forth certain historical consolidated financial information for the Company. This table is based on, and should be read in conjunction with, the Consolidated Financial Statements included elsewhere herein and the related notes thereto.
(in thousands, except per share information)
(1) Results of operations of Cine Vista have been included since its acquisition effective July 1, 1994.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Due to the nature of the Company's historical business activities, the Company's revenues and earnings have varied significantly reflecting the results of real estate and other asset sales. In addition, the operating results of Cine Vista are only included in the consolidated operating results of the Company since July 1, 1994 (see Note 2 to the Consolidated Financial Statements contained elsewhere herein and "Item 1. Business"). Accordingly, year-to-year comparisons of operating results will not be indicative of future financial results.
Revenues:
Revenues increased to $19,973,000 in 1995 from $10,990,000 in 1994 and $3,509,000 in 1993 due largely to the inclusion of $14,991,000 and $8,100,000 in revenue from Cine Vista for the year and six months ended December 31, 1995 and December 31, 1994, respectively. Cine Vista's business is seasonal and the second six months of the year have historically provided more than a proportionate share of annual revenue.
"Real estate" revenues include gains and losses from real estate sales, rental income and real estate development activities. "Real estate" revenues decreased to $272,000 in 1995 from $697,000 in 1994 and $533,000 in 1993 due in part to fewer sales of the Company's remaining real estate parcels. Real estate revenues included $179,000 in 1994 representing the Company's share of fire insurance proceeds from the S.R. Developers joint venture and in 1993 included $294,000 relating to the Rutherford Industrial Center joint venture as well as a $151,000 loss from the sale of the Reading Terminal Headhouse (gross proceeds received from the sale totaled $4,300,000). The Company has approximately 23 parcels and rights-of-way located outside of center city Philadelphia, all of which are for sale, and several properties in center city Philadelphia which it may sell or develop. Other than the parcels located in center city Philadelphia, the size and location of the remaining properties limit their salability. Accordingly, the Company believes that future proceeds from sales of real estate will continue to decrease.
"Interest and dividends" revenues in 1995 increased $301,000 to $2,435,000 from 1994 and decreased $338,000 from $2,773,000 in 1993. The increase in "Interest and dividends" revenue in 1995 versus 1994 was a result of higher interest yields on invested funds. The reduction between 1993 and 1994 was due to lower investable fund balances (due primarily to the $22,700,000 purchase of Cine Vista) and lower interest yields in 1994 versus 1993.
"Condemnation and other" revenues increased to $2,341,000 in 1995 from $79,000 in 1994 and $203,000 in 1993. In 1995, these revenues included $1,146,000 in condemnation proceeds, $425,000 received by the Company in settlement of certain litigation, $319,000 received in settlement of two matters related to the Company's former railroad operations and $223,000 related to unclaimed reorganization debt-holders' obligations (See Note 13 to the Consolidated Financial Statements contained elsewhere herein).
Expenses:
"Theater costs,""Theater concession costs" and substantially all of "Depreciation and amortization" expense reflect the direct theater costs of Cine Vista's operations since Cine Vista's acquisition, effective July 1, 1994.
"General and administrative" expenses decreased $353,000 in 1995 from $4,553,000 in 1994 to $4,200,000 in 1995. In 1995, these expenses included $922,000 related to Cine Vista's operations for the twelve months ended December 31, 1995 versus $427,000 in such expenses for the six months ended December 31, 1994, both of which amounts are net of management fees paid to Reading Company by Cine Vista. The increase associated with the inclusion of Cine Visa's general and administrative expenses for a full year in 1995 was offset by a $795,000 charge in 1994 to fully reserve a loan to OREI (See Note 4 to the Consolidated Financial Statements contained elsewhere herein). "General and administrative" expenses increased $764,000 in 1994 from $3,789,000 in 1993 due primarily to the inclusion of the $795,000 loan provision described above and $427,000 in Cine Vista general and administrative expenses offset in part by a reduction in costs resulting from the 1993 sale of the Reading Terminal Headhouse.
"Equity loss from investment in Australian theater developments" reflects the Company's 50% share of the initial general and administrative expenses in Australia and noncapitalized development expenditures relating to new theater site analysis and selection (See Note 5 to the Consolidated Financial Statements contained elsewhere herein). The Company does not anticipate material revenues from Reading International during the next 18 months and therefore anticipates continuing losses during such
period as new theaters are developed and operations initiated. The investment in and operating results of Reading International are reported under the equity method.
During 1994, the Company increased its "Provision for environmental matters" by $1,306,000, including $1,200,000 for the Douglassville Disposal Site based upon the advice of the Company's counsel, who estimated that the likely range of possible outcomes for the site was from $0 to $3,000,000, and an amount paid of $106,000 (See "Item 3. Legal Proceedings" and Note 10 to the Consolidated Financial Statements contained elsewhere herein). The Company recorded a provision for environmental matters of $241,000 in 1993 and paid environmental costs of $249,000, $133,000, and $676,000 during 1995, 1994 and 1993, respectively.
The "Condemnation and other" revenues of $2,341,000 comprised the Company's net income of $2,351,000 in 1995 versus a loss of $1,652,000 in 1994 and a loss before the cumulative effect of an accounting change of $520,000 in 1993. Cine Vista contributed approximately $1,271,000 and $900,000 in earnings for 1995 and the six months ended December 31, 1994, respectively.
Liquidity and Capital Resources:
The Company's existing financial resources are sufficient to fund the Company's existing operations, obligations, acquisition plans and the present development plans of Cine Vista and Reading International. Reading International is actively seeking properties to develop in Australia and has acquired one site and has made deposits for several other real property purchases or leases. The Company is also negotiating to acquire a theater in Manhattan (See Note 4 to the Consolidated Financial Statements contained elsewhere herein). Cine Vista has two new theaters under development and is seeking additional theater sites in Puerto Rico. In order to assure that the Company has adequate liquidity to fund its current and planned activities the Company (i) arranged a line of credit for Cine Vista (described below) (ii) formed Reading International and entered into the Capital Funding Agreement (described below) and (iii) issued a promissory note in conjunction with its acquisition of the Citadel Common Stock (described below).
In November 1995, the Company and Craig formed Reading International in order to make available additional capital and liquidity to develop theater opportunities in Australia. On March 29, 1996, the Company and Craig entered into the Capital Funding Agreement with respect to Reading International pursuant to which they agreed to increase the capital committed by the Company and Craig to Reading International from $10 million to approximately $103 million through a combination of cash contributions and secured capital funding undertakings (See Note 16 to the Consolidated Financial Statements contained elsewhere herein). The Company and Craig each agreed to immediately contribute to Reading International $12,500,000 in cash and have undertaken to contribute up to an additional $37,500,000 on an as needed basis (the "Funding Commitment"). To secure the Funding Commitment, the Company pledged its interest in Cine Vista and government agency securities. The Company may substitute collateral for the Funding Commitment provided that the fair market value of the collateral substituted is equal to at least 125% of the Funding Commitment or, in the case of government or government agency securities, equal to 100% of the Funding Commitment. The Capital Funding Agreement allows the Company and Craig to be assured that each of the participants in Reading International has an adequate asset base to meet its Funding Commitment without requiring the parties to incur the expense associated with borrowing funds in advance of the need for funding. If the Company is successful in its negotiation to acquire the Manhattan theater described above, it anticipates utilizing the proceeds from the sale of a portion of its government agency securities to fund the purchase and substituting its interest in the acquired theater to secure its Capital Funding Commitment.
Cine Vista entered into a revolving credit agreement in December 1995 (the "Credit Agreement"). In accordance with the terms of the Credit Agreement, Cine Vista may borrow up to $15,000,000 to repay certain loans payable to a wholly-owned subsidiary of the Company and fund certain new theater development expenditures (See Note 14 to the Consolidated Financial Statements contained elsewhere herein). No amounts are presently outstanding under the Credit Agreement. The Company may use funds available under the Credit Agreement to fund non-Cine Vista theater development activities or other activities provided that a portion of such funds remain available under the Credit Agreement to fund certain Cine Vista development projects.
On March 29, 1996, the Company purchased from Craig 1,564,473 shares Citadel Common Stock for $3,324,505 (See Part I Subsequent Event and Note 17 to the Consolidated Financial Statements contained elsewhere herein). The Company paid Craig for the Citadel Common Stock with a five year unsecured promissory note which provides for the payment of interest at a rate equal to LIBOR plus 2.25%. The Company also acquired from Craig a one year option to acquire, at fair market value, as determined by an investment banker selected by the parties, 1,329,114 shares of the 3% Cumulative Voting Convertible Preferred Stock, stated value $3.95 per share of Citadel and an option to acquire a warrant to acquire 666,000 shares of Citadel Common Stock. If the Company elects to exercise the option to acquire the Citadel Preferred Stock, the Company may pay for the acquisition with the issuance of a note with the same terms as the note issued in payment of the Citadel Common Stock. Debt service on the note (or notes, if the Company acquires the Citadel Preferred Stock) will be paid from the Company's working capital.
In January 1995, the Company and several parties agreed to settle litigation whereby the Company sought to recover certain environmental cleanup costs previously expended by the Company on properties it formerly owned (See Note 16 to the Consolidated Financial Statements contained elsewhere herein). The agreement provides for the Company to receive payments totalling $2.35 million to recover these costs, which amount the Company anticipates receiving in 1996. The parties to the settlement also agreed to pay an amount ranging from 52% to 55% of certain future costs, if any, the Company may incur in cleaning environmental contamination on the Viaduct (See Note 10 to the Consolidated Financial Statements contained elsewhere herein and "Legal Proceedings -- Reading Terminal Train Shed Litigation").
Prior to the Company's reorganization, the Company had extensive railroad and related operations. Such operations may have contributed to environmental contamination of properties now owned by the Company, previously sold by the Company, or to which the Company, prior to its reorganization, sent waste. The ultimate extent of liabilities, if any, with respect to such matters, as well as the timing of cash disbursements, if any, cannot be determined. However, management is of the opinion, based on the information currently known, that while the ultimate liability resulting from such matters could have a material effect upon the results of operations in a given year, they will not have a material adverse effect upon the Company's financial position or liquidity.
1995:
"Unrestricted cash and cash equivalents" together with "Available-for-sale securities" decreased $747,000 in 1995 from $44,936,000 in 1994 to $44,189,000 at December 31, 1995. Working capital decreased $717,000 from $43,383,000 at December 31, 1994 to $42,666,000 at December 31, 1995.
While not necessarily indicative of its results of operations determined under generally accepted accounting principles. Cine Vista's operating cash flow (income before depreciation and amortization) of $2,625,000 contributed to the Company's liquid funds in 1995. Other principal sources of liquid funds in 1995 were $2,435,000 in "Interest and dividends" income, $2,341,000 in "Condemnation and other" proceeds from litigation (See Note 13 to the Consolidated Financial Statements contained elsewhere herein), a decrease of $664,000 in "Insurance proceeds receivable", a decrease of $208,000 in "Restricted cash" and $185,000 in proceeds from real estate joint venture investments.
In addition to operating expenses, principal uses of liquid funds in 1995 include a $1,040,000 increase in amounts "Due from affiliate" related to the Company's advance to Reading International on behalf of Craig for their share of certain capital contributions to the entity (See Note 5 to the Consolidated Financial Statements contained elsewhere herein) which amount was reimbursed by Craig to the Company in February 1996, $1,828,000 for the purchase of property, plant and equipment related primarily to Cine Vista's new eight screen multiplex theater which commenced operations during December 1995 (See Note 11 to the Consolidated Financial Statements contained elsewhere herein) and $1,285,000 for the purchase of a judgement encumbering certain cinema assets located in Manhattan (See Note 4 to the Consolidated Financial Statements contained elsewhere herein). Other uses of funds include $392,000 in payments of other liabilities and an increase of $529,000 in "Amounts receivable."
1994:
"Unrestricted cash and cash equivalents" together with "Available-for-sale securities" decreased $21,378,000 in 1994 from $66,314,000 at December 31, 1993 to $44,936,000 at December 31, 1994 due primarily to the $22,700,000 purchase of Cine Vista. Working capital decreased accordingly. "Available-for-sale securities" consist of liquid treasury securities having maturities in excess of three months at the time of acquisition.
While not necessarily indicative of its results of operations determined under generally accepted accounting principles, Cine Vista's operating cash flows (income before depreciation and amortization) of $1,573,000 for the period subsequent to July 1, 1994 (the acquisition effective date) contributed to the Company's liquid funds in 1994. Other principal sources of liquid funds were $2,114,000 in "Interest and dividends" income and receipt of $1,000,000 in full repayment of a loan made in 1993 to an officer of Reading Cinemas in accordance with the terms of his employment by the Company (see Note 12 to the Consolidated Financial Statements contained elsewhere herein).
Other sources of liquid funds included $570,000 in proceeds from sales of real estate and a net increase of $829,000 in "Accounts payable and accrued expenses," primarily due to Cine Vista operations subsequent to the purchase date. In addition to the purchase of Cine Vista, principal uses of liquid funds include a net increase of $654,000 in insurance proceeds receivable, a $470,000 loan to OREI, and a net decrease of $458,000 in other liabilities.
1993:
Principal sources of liquid funds in 1993 included $4,470,000 in proceeds from sales of real estate and "Interest and dividends" income of $2,773,000. In addition to operating expenses, principal uses of liquid funds included a reduction in accrued expenses and accounts payable of $660,000 which expenses related to the extinguishment of a fire on land owned by the Company in the fourth quarter of 1992. Principal uses of funds also included payment of $298,000 in accrued professional fees and the $1,000,000 loan to the officer of Reading Cinemas in accordance with the terms of his employment by the Company, which loan was repaid in 1994.
Effects of Inflation
The Company does not believe that inflation has a material effect upon its existing operations.
Effects of a Change in Accounting Principle
The Company adopted the Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes" on January 1, 1994 without restating prior years' financial statements. The cumulative effect of $132,000 resulting from this change in accounting principle was recorded in the Consolidated Statement of Operations for the three months ended March 31, 1994. This amount is equivalent to the deferred tax asset recorded for the tax benefits which are more likely than not to be realized from the Company's net operating loss carryforwards.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123, which must be adopted in 1996, establishes financial accounting and reporting standards for stock-based employee compensation plans, and establishes accounting standards for issuance of equity instruments to acquire goods and services from non-employees.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121, which must be adopted in 1996, establishes accounting standards for the, impairment, or disposal of long-lived assets, and certain intangible assets.
The Company does not expect that adoption of SFAS No. 121 and SFAS No. 123 will have a material effect on its consolidated financial position, consolidated statement of operations or liquidity.
Item 8.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference to pages through.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item, to the extent that it relates to directors of the Company, is incorporated by reference to the Company's proxy statement with respect to its 1996 Annual Meeting of Shareholders and, to the extent that it relates to executive officers, appears in Part I hereof.
Item 11.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Company's proxy statement with respect to its 1996 Annual Meeting of Shareholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the Company's proxy statement with respect to its 1996 Annual Meeting of Shareholders.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the Company's proxy statement with respect to its 1996 Annual Meeting of Shareholders.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are not applicable and therefore have been omitted.
(a)(3) Exhibits
2(a) Purchase Agreement dated July 8, 1994 by and among Theater Acquisitions, L.P., Theater Acquisitions of Puerto Rico, Inc., and Reading Company. (Incorporated by reference to Exhibit 2(a) to the Company's Form 10-Q for the period ended June 30, 1994.)
2(b) Letter Agreement dated August 9, 1994 by and among Theater Acquisitions, L.P., Theater Acquisitions of Puerto Rico, Inc., and Reading Company. (Incorporated by reference to Exhibit 2(b) to the Company's Form 10-Q for the period ended June 30, 1994.)
3.1 Articles of Incorporation of Registrant. (Incorporated by reference to Exhibit 3(A) in Registration Statement No. 2-87410, as amended.)
3.2 Form of Amended and Restated Articles of Incorporation of Registrant. (Incorporated by reference to Exhibit 3(C) in Registration Statement No. 2-87410, as amended.)
3.3 Copy of Amendment to Articles of Incorporation filed October 13, 1989. (Incorporated by reference to Exhibit 3.4 in registrant's annual report on Form 10-K for the year ended December 31, 1989.)
3.4 Copy of Amendment to Articles of Incorporation filed October 13, 1989. (Incorporated by reference to Exhibit 3.5 in registrant's annual report on Form 10-K for the year ended December 31, 1989.)
3.5 By-Laws of Registrant, as amended March 4, 1992. (Incorporated by reference to Exhibit 3.6 in registrant's annual report on Form 10-K for the year ended December 31, 1991.)
3.6 By-Laws of Registrant, as amended February 26, 1993. (Incorporated by reference to Exhibit 3.6 in registrant's annual report on Form 10-K for the year ended December 31, 1993.)
3.7 By-Laws of Registrant, as amended October 6, 1995.
4.1 Instruments Defining the Rights of Security Holders. (Incorporated by reference to Exhibits 3.1 and 3.5 hereof and to Exhibit 4 in Registration Statement No. 2-87410, as amended.)
10.1 Reading Company 1982 Non-Qualified Stock Option Plan, as Amended. (Incorporated by reference to Exhibit 4(b) to Registration Statement No. 2-83039, as amended).
10.2 Reading Company 1982 Incentive Stock Option Plan, as Amended. (Incorporated by reference to Exhibit 4(a) to Registration Statement No. 2-83039, as amended.)
10.3 Reading Company 1992 Non-Qualified Stock Option Plan. (Incorporated by reference to Exhibit 4(B) to Registration Statement No. 33-57222, as amended.)
10.4 Executive Sharing Agreement by and between Reading Cinemas, Inc. and City Cinemas Corp. dated as of November 1, 1993. (Incorporated by reference to Exhibit 10.1 to registrant's annual report on Form 10-K for the year ended December 31, 1993).
10.5 Lease Agreement between Plaza Las Americas, Inc. and Wometco de Puerto Rico, Inc. dated as of August 24, 1979, as amended. (Incorporated by reference to Exhibit 10.5 to registrant's annual report on Form 10-K for the year ended December 31, 1994).
10.6 Lease Agreement between TJAC (Hatillo), S.E. and Theater Acquisitions of Puerto Rico, Inc. dated as of May 11, 1992. (Incorporated by reference to Exhibit 10.6 to registrant's annual report on Form 10-K for the year ended December 31, 1994).
10.7 Agreement of Lease between Cinema Centro, S.E. and Theater Acquisitions of Puerto Rico, Inc. dated as of May 16, 1994. (Incorporated by reference to Exhibit 10.7 to registrant's annual report on Form 10-K for the year ended December 31, 1994).
10.8 Memorandum of Understanding by and between Reading Company and Robert Kory dated May 19, 1994. (Incorporated by reference to Exhibit 10.8 to registrant's annual report on Form 10-K for the year ended December 31, 1994).
10.9 Lease Agreement between Palma Real Associates, S.E. and Theater Acquisitions of Puerto Rico, Inc. dated as of July 13, 1994.
10.10 The First Amendment dated May 10, 1995 between Palma Real Associates, S.E. and Reading Cinemas of Puerto Rico, Inc. (successor by merger to Theater Acquisitions of Puerto Rico, Inc.) to the Lease Agreement between Palma Real Associates, S.E. and Theater Acquisitions of Puerto Rico, Inc. dated as of July 13, 1994.
10.11 Credit Agreement by and between Reading Cinemas of Puerto Rico, Inc., and Citibank, N.A., as administrative agent for the Lenders thereunder dated as of December 20, 1995.
10.12 The First Amendment dated February 7, 1996 to the Credit Agreement by and between Reading Cinemas of Puerto Rico, Inc., and Citibank, N.A., as administrative agent for the Lenders thereunder dated as of December 20, 1995.
10.13 Limited Liability Company Agreement of Reading International Cinemas LLC dated November 9, 1995.
10.14 RC Revocable Trust Agreement between Reading Investment Company, Inc. and Craig Corporation and Craig Management, Inc. as trustee, dated November 9, 1995.
10.15 Lease Agreement between Mayaguez Shopping Center, S.E. and Reading Cinemas of Puerto Rico, Inc. dated as of August 10, 1995.
10.16 Contract of Sale of Real Estate between Brick & Pipe Industries LTD and Burgundy Two Pty LTD dated October 10, 1995.
10.17 Contract of Sale of Real Estate between Royal Society for the Prevention of Cruelty to Animals (Victoria) Incorporated and Burgundy Two Pty LTD dated November 9, 1995.
10.18 Stock Purchase and Sale Agreement dated as of March 30, 1996 by and between Reading Holdings, Inc. and Craig Corporation.
10.19 Amended and Restated Capital Funding Agreement by and between Reading Investment Company, Inc., Craig Corporation, Craig Management Inc., and Reading International Cinemas LLC.
21.1 Registrant's Subsidiaries.
23.1 Consent of Independent Auditors - Ernst & Young LLP.
(b) Reports on Form 8-K.
None
(c) See item 14(a)(3) above.
(d)(1) Not applicable.
(d)(2) Not applicable.
(d)(3) Not applicable.
27. FINANCIAL DATA SCHEDULE
Reading Company and Subsidiaries Consolidated Balance Sheets (in thousands, except shares and per share amounts)
December 31, - - -------------------------------------------------------------------------------- 1995 1994 - - -------------------------------------------------------------------------------- ASSETS
Current Assets
Cash and cash equivalents $44,147 $9,413 Available-for-sale securities 42 35,523 Amounts receivable, less allowance of $291 in 1995 and $339 in 1994 624 280 Due from affiliate 1,040 0 Restricted cash 360 333 Inventories 112 86 Prepayments and other current assets 498 593 Due from insurance companies 87 751 Deferred tax asset 0 132 - - -------------------------------------------------------------------------------- Total current assets 46,910 47,111 - - -------------------------------------------------------------------------------- Other investments 1,771 438 Equity investment in Australian theater developments 640 0 Restricted cash 362 597 Real estate held for sale or development, less valuation allowance of $42 1,110 1,111 Property and equipment: Buildings 733 720 Capitalized premises lease 538 538 Leasehold improvements 5,095 3,560 Equipment 3,787 2,811 Construction-in-progress 236 103 ------ ------ 10,389 7,732 Less: Accumulated depreciation 1,176 726 ------ ------ 9,213 7,006 Intangible assets: Beneficial leases - net of accumulated amortization of $1,370 in 1995 and $455 in 1994 15,538 16,453 - - -------------------------------------------------------------------------------- 28,634 25,605 - - -------------------------------------------------------------------------------- $75,544 $72,716 ================================================================================
See Notes to Consolidated Financial Statements.
Reading Company and Subsidiaries Consolidated Balance Sheets (continued) (in thousands, except shares and per share amounts)
December 31, - - -------------------------------------------------------------------------------- 1995 1994 - - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,279 $1,468 Accrued compensation 222 218 Accrued taxes and other 528 627 Film rent payable 299 359 Other liabilities 916 1,056 - - -------------------------------------------------------------------------------- Total current liabilities 4,244 3,728 - - --------------------------------------------------------------------------------
Capitalized lease, less current portion 521 525 Other liabilities 2,067 2,377 - - -------------------------------------------------------------------------------- Total long term liabilities 2,588 2,902 - - --------------------------------------------------------------------------------
Commitments and contingencies (See Note 10)
Shareholders' Equity
Preferred stock, par value $1.00 per share: Authorized -- 5,000,000 shares Common stock, par value $.01 per share: Authorized -- 10,000,000 shares Issued 1995 -- 11,530 shares; 1994 -- 12,291 shares 1 1 Class A common stock, par value $.01 per share: Authorized -- 15,000,000 shares Issued 1995 -- 5,145,161 shares; 1994 -- 5,144,400 shares 51 51 Unrealized loss on available-for-sale securities 0 (286) Other capital 56,257 55,057 Retained earnings 15,035 13,884 Foreign currency translation adjustment (10) 0 Class A common stock in treasury, at cost: 1995 -- 183,397 shares; 1994 -- 183,250 shares (2,622) (2,621) - - -------------------------------------------------------------------------------- Total shareholders' equity 68,712 66,086 - - -------------------------------------------------------------------------------- $75,544 $72,716 ================================================================================
See Notes to Consolidated Financial Statements.
Reading Company and Subsidiaries Consolidated Statements of Operations (in thousands, except shares and per share amounts)
Year Ended December 31, - - -------------------------------------------------------------------------------- 1995 1994 1993 - - -------------------------------------------------------------------------------- REVENUES: Theater: Admissions $10,356 $5,633 $0 Concessions 3,883 2,141 0 Advertising and other 686 306 0 Real estate 272 697 533 Interest and dividends 2,435 2,134 2,773 Condemnation and other 2,341 79 203 - - -------------------------------------------------------------------------------- 19,973 10,990 3,509 - - -------------------------------------------------------------------------------- EXPENSES: Theater costs 10,784 5,742 0 Theater concession costs 640 360 0 Depreciation and amortization 1,369 681 11 General and administrative 4,200 4,553 3,789 Provision for environmental matters 0 1,306 241 Equity loss from investment in Australian theater developments 390 0 0 - - -------------------------------------------------------------------------------- 17,383 12,642 4,041
Income (loss) before income taxes and cumulative effect of accounting change 2,590 (1,652) (532) Federal income tax (benefit) 239 0 (12) - - -------------------------------------------------------------------------------- Income (loss) before cumulative effect of accounting change 2,351 (1,652) (520) Cumulative effect of accounting change 0 0 132 - - -------------------------------------------------------------------------------- Net income (loss) $2,351 ($1,652) ($388) - - -------------------------------------------------------------------------------- Per share information: Income (loss) before cumulative effect of accounting change $0.47 ($0.33) ($0.11) Cumulative effect of accounting change 0.00 0.00 0.03 - - -------------------------------------------------------------------------------- Net income (loss) $0.47 ($0.33) ($0.08) ================================================================================
Average shares outstanding 4,973,369 4,973,548 4,973,649
See Notes to Consolidated Financial Statements.
Reading Company and Subsidiaries Consolidated Statements of Cash Flows (in thousands)
Year Ended December 31, - - -------------------------------------------------------------------------------- 1995 1994 1993 - - -------------------------------------------------------------------------------- OPERATING ACTIVITIES
Net income (loss) $2,351 ($1,652) ($388) Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities: Condemnation award (1,146) 0 0 Cumulative effect of accounting change 0 0 (132) Gain on real estate joint venture investments 0 (179) (294) Gain on sale of other real estate 0 (308) (32) Discharge of reorganization obligations (223) 0 0 Depreciation 453 226 12 Amortization 916 455 0 Deferred rent expense 165 82 0 Deferred income tax expense 132 0 0 Equity loss from investment in Australian theater developments 390 0 0 Provision for environmental matters 0 1,306 241 Valuation provision for loan to OREI 0 795 0 Changes in operating assets and liabilities: (Increase) decrease in amounts receivable (529) 89 (59) (Increase) decrease in inventories (26) 24 0 Decrease (increase) in prepaids and other current assets 95 (119) 70 Decrease (increase) in insurance proceeds receivable 664 (654) 125 Decrease (increase) in notes receivable due from officer of subsidiary 0 1,000 (1,000) (Decrease) increase in accounts payable and accrued expenses (119) 829 (1,107) Decrease in film rent payable (60) (65) 0 Decrease in other liabilities (392) (458) (132) Other, net (49) 4 23
- - -------------------------------------------------------------------------------- Net cash provided from (used for) operating activities 2,622 1,375 (2,673) - - --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
Reading Company and Subsidiaries Consolidated Statements of Cash Flows (continued) (in thousands)
See Notes to Consolidated Financial Statements.
Reading Company and Subsidiaries Consolidated Statements of Shareholders' Equity Years ended December 31, 1995, 1994, 1993 (in thousands, except shares)
See Notes to Consolidated Financial Statements.
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements December 31, 1995 (amounts in tables in thousands, except shares and per share data)
Reading Company (the "Company") has operated motion picture exhibition theaters in leased locations in the Commonwealth of Puerto Rico since the acquisition of Theater Acquisitions of Puerto Rico, Inc. ("TAPR") in 1994. In November 1995, the Company and Craig Corporation ("Craig"), the owner of approximately 49.3% of the Company's capital stock, formed Reading International Cinemas LLC ("Reading International"), a limited liability company owned equally by the Company and Craig, which has initiated theater development activities in Australia. The Company's remaining real estate activities include the managed sale of certain of its real properties, the possible future development of certain center city Philadelphia properties and participation in two real estate joint ventures.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation: The consolidated financial statements of Reading Company and Subsidiaries (the "Company") include the accounts of Reading Company and its majority-owned subsidiaries. Significant intercompany transactions and accounts have been eliminated. TAPR was acquired as of July 1, 1994 and the results of TAPR have been consolidated with the Company's operating results since that date (See Note 2). On December 31, 1994, TAPR was merged into its parent corporation, Reading Cinemas of Puerto Rico, Inc. ("RCPR") with RCPR the successor corporation and the operating name changed to Cine Vista (unless otherwise required by the context, TAPR, RCPR and Cine Vista may be used interchangeably herein).
Income Taxes: The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes," on January 1, 1993, without restating prior years' financial statements. The cumulative effect resulting from this change in accounting principle was recorded in the Consolidated Statement of Operations for the year ended December 31, 1993. This amount is equivalent to the deferred tax asset recorded for the tax benefits which are more likely than not to be realized from the Company's net operating loss carryforwards. Under SFAS No. 109, an income tax provision is recorded in the statement of operations using the enacted income tax rates and the deferred asset is amortized in an amount equivalent to the tax provision as the tax benefits are realized.
The Company underwent a quasi-reorganization in 1981. The quasi-reorganization did not require restatement of any assets or liabilities or any other modification of capital accounts. The Company is required to make a transfer from "Retained earnings" to "Other capital" in the Consolidated Statement of Shareholders' Equity in an amount equal to the tax benefit resulting from utilization of federal net operating loss carryforwards which relate to periods prior to the quasi-reorganization.
Cash Equivalents: The Company considers all highly liquid investments with maturities of three months or less at the time of acquisition to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair market value, and consist principally of federal agency securities and short-term money market instruments.
Available-for-Sale Securities: The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on January 1, 1994, without restating prior years' financial statements. Debt securities that a company does not have both the intent and ability to hold to maturity are to be classified as available-for-sale and carried at fair value with unrealized holding gains and losses, net of tax, reported as a separate component of shareholders' equity.
Management classifies treasury and federal agency securities held by the Company with maturities in excess of three months at the time of purchase as available-for-sale as such investments together with "Cash and cash equivalents" are expected to be used to fund expansion of theater operations, acquisition or other development activities.
F - 7
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements December 31, 1995 (amounts in tables in thousands, except shares and per share data)
The amortized cost of securities available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and the interest related to these securities are included in "Interest and Dividends" revenues. Any realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in earnings.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Inventories: Inventories are comprised of confection goods used in Cine Vista's operations and are stated at the lower of cost (first-in, first-out method) or net realizable value.
Real Estate Held for Sale or Development: Real estate held for sale or development is carried at the lower of cost, including related holding costs, or estimated net realizable value and is classified as a noncurrent asset due to the inherent difficulty in estimating the timing of future sales.
Property and Equipment: Property and equipment is carried at cost. Depreciation of buildings, capitalized premises lease, leasehold improvements and equipment is recorded on a straight-line basis over the estimated lives of the assets or, if the assets are leased, the remaining lease term (inclusive of options, if likely to be exercised), whichever is shorter. The estimated useful lives are generally as follows:
Building and Improvements 40 years Equipment 15 years Furniture and Fixtures 7 years Leasehold Improvements 20 years
Intangible Assets: Intangible assets are comprised of beneficial theater leases used in Cine Vista's operations. The amount of the TAPR purchase price ascribed to the beneficial leases was determined by an independent appraiser computing the present value of the excess of market rental rates over the rental rates in effect under TAPR's leases at the time of the Company's acquisition of TAPR and allocating such amount as a component of the purchase price of TAPR. The beneficial leases are amortized on a straight-line basis over the remaining term of the underlying leases, which approximates 19 years.
Translation of Non-U.S. Currency Amounts: The financial statements and transactions of Reading International's (See Note 5) Australian operations are maintained in their functional currency (Australian dollars) and translated into U.S. dollars in accordance with SFAS No. 52 "Foreign Currency Translation." Assets and liabilities are translated at exchange rates in effect at the balance sheet date and shareholders' equity is translated at historical exchange rates. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments are reported as a separate component of shareholders' equity.
Income (Loss) Per Share: Income (loss) per share (Common Stock and Class A Common Stock) is calculated by dividing net income (loss) by the aggregate of the weighted average shares outstanding during the period and the dilutive effect, if any, of common stock equivalents that are outstanding.
Reclassifications: Certain amounts in previously issued financial statements have been reclassified to conform with the current presentation.
F - 8
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
Accounting Changes: In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stack-Based Compensation." SFAS No. 123 must be adopted in 1996 and establishes financial accounting and reporting standards for stock-based employee compensation plans, and establishes accounting standards for issuance of equity instruments to acquire goods and services from non-employees.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 must be adopted in 1996 establishes accounting standards for the impairment of long-lived assets, certain intangible assets and costs in excess of net assets related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of.
The Company does not expect that adoption of SFAS No. 121 and SFAS No. 123 will have a material effect on its consolidated financial statements.
NOTE 2 -- ACQUISITIONS
Effective July 1, 1993, the Company acquired TAPR from Theater Acquisitions, LP ("TALP") for an aggregate cash purchase price of approximately $22,700,000, inclusive of acquisition costs of $323,000. Cine Vista operates motion picture exhibition theaters in seven leased locations with a total of 44 screens in the Commonwealth of Puerto Rico. At the time of its acquisition, TAPR operated 36 screens in six leased locations. The acquisition was accounted for using the purchase method and TAPR's operating results since July 1, 1994 have been consolidated with the operating results of the Company.
The purchase price was subject to the satisfaction of certain contingencies in accordance with the provisions of a purchase agreement by and among TAPR, TALP and the Company dated July 1, 1994 (the "Purchase Agreement"). The landlord of one of Cine Vista's theaters has the right to terminate the lease relating to space presently housing two theaters, subject to six months' notice. Accordingly, $1 million of the purchase price was escrowed and was payable over 36 months provided the landlord did not cancel the lease during such period or assert other claims relating to the lease, in which case the escrow is available for set off. The landlord has asserted certain claims relating to the computation of the rent (See Note 10) and the Company and TALP therefore amended the terms under which the payments are made from the escrow. Under amended terms, payments of $30,000 are paid monthly to TALP. This escrow, which is invested in short term treasury securities, has been classified as "Restricted cash." At December 31, 1995, $707,000 was due to TALP under this arrangement and has been classified as an "Other liability."
F - 9
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
The pro forma consolidated operating results set forth below assume that the acquisition of TAPR was completed at the beginning of 1994 and include the impact of certain adjustments, including amortization of intangibles, depreciation and reductions in "Interest and dividend" income resulting from payment of the purchase price.
Year Ended December 31,
1994 1993 ------- --------
Revenues $17,015 $ 15,628 ======= ========
Net loss before cumulative effect of accounting change ($1,617) ($ 70) ======= ========
Per Share:
Net loss before cumulative effect of accounting change ($ 0.33) ($ .01) ======= ========
NOTE 3 -- AVAILABLE-FOR-SALE SECURITIES
The net adjustment for unrealized holding losses on available-for-sale securities, included as a separate component of shareholders' equity, totaled $0 and $286,000 as of December 31, 1995 and 1994, respectively. As of December 31, 1994, the net adjustment consisted of an unrealized gain of $38,000, net of tax, recorded on January 1, 1994 as a result of the change in accounting method and an unrealized loss of $324,000, net of tax, recorded for the year ended December 31, 1994.
As of December 31, 1995, the amortized cost and estimated fair value of the "Available-for-sale securities" was $42,000. The contractual maturity of these securities as of December 31, 1995 was six months or less.
Accrued interest as of December 31, 1994 was $478,000 and is included in "Available-for-sale securities" on the Consolidated Balance Sheet.
NOTE 4 -- INVESTMENTS
On November 8, 1995, the Company acquired from a major bank for $1,285,000, a judgement encumbering, among other things, a controlling interest in a company which has as its principal asset a Manhattan multiplex theater. The judgement has been acquired as part of the Company's plan to acquire, in conjunction with Manhattan-based City Cinemas Corp. ("City Cinemas")(James J. Cotter, Chairman of the Company, has an ownership interest in City Cinemas), all of or at least a controlling interest in this theater. The Company also acquired options to purchase shares representing 5/13ths of the voting power of the company that owns the multiplex theater and to obtain certain other creditor claims against that company. No assurance can be given that the Company's plan to acquire the theater will ultimately prove successful.
Management believes that the December 31, 1995 carrying amounts of this investment and the Company's other investments totalling $486,000 approximate their fair value.
F - 10
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
NOTE 5 -- EQUITY INVESTMENT / ACQUISITION ACTIVITIES
In November 1995, the Company and Craig formed Reading International to develop and operate multiplex cinemas in Australia and other markets. A wholly owned subsidiary of Reading International has retained the services of several executive employees in Australia who provide services with respect to such Australian operations on a full time or substantially full time basis. Reading International is equally owned by the Company and Craig, each of which committed to make an initial contribution of $5 million, on an as needed basis, for an aggregate initial investment of $10 million. (See Note 17).
The Company accounts for its investment in Reading International and its foreign subsidiaries by the equity method. Summarized financial information for Reading International as of December 31, 1995 is as follows:
Current assets $ 225 Noncurrent assets 4,534 ------ Total assets $4,759 ======
Current liabilities 3,480 Shareholders' equity 1,279 ------ Total liabilities and shareholders' equity $4,759 ======
Reading International's net loss from its inception through December 31, 1995 was $781,000, consisting primarily of general and administrative expenses and development costs incurred with its theater development activities. The Company's equity loss from Reading International was $390,000, which is included in the Consolidated Statement of Operations.
As of December 31, 1995, advances and contributions amounting to approximately $2,080,000 have been made to the joint venture by Reading and Craig inclusive of $1,040,000 advanced on behalf of Craig classified as "Due from affiliate" on the Company's Consolidated Balance Sheet. This advance was repaid during the first quarter of 1996. These funds were used to finance capital expenditures and general and administrative expenses. Reading International's noncurrent assets at December 31, 1995 are comprised principally of $4,223,000 related to the purchase of land and development costs and $351,000 of refundable property deposits. The land purchase was made pursuant to a real estate purchase contract with the seller which provided for installment payments, including $3,144,000 due on December 20, 1996 which is included in current liabilities on Reading International's balance sheet at December 31, 1995. Reading International is also in negotiation with several developers and landlords with respect to other potential locations.
In the fourth quarter of 1995, the Company acquired from a major bank, for $1,285,000, a judgement encumbering among other things, a controlling interest in a company which has as its principal asset a Manhattan multiplex theater (See Note 4).
NOTE 6 -- REAL ESTATE HELD FOR SALE OR DEVELOPMENT
As described in Note 1, "Real estate held for sale or development" is carried at the lower of cost or estimated net realizable value. The Company is exploring development and sale options for its center city Philadelphia properties which are adjacent to the Pennsylvania Convention Center site and is actively seeking buyers for its properties located outside center city Philadelphia.
F - 11
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
NOTE 7 -- OTHER LIABILITIES
Other liabilities consisted of the following at December 31:
1995 1994 --------------- -------------- Reserve for guarantee obligations of SWS Industries, Inc. (See Note 10) $ 406 $ 555 Obligations related to past railroad operations and environmental issues (See Note 10) 1,251 1,489 Reorganization obligations 13 236 Cine Vista deferred purchase price (See Note 2) 707 917 Minimum rent obligations 247 82 Other 359 154 --------------- -------------- 2,983 3,433 Less estimated current portion (916) (1,056) --------------- -------------- $2,067 $ 2,377 =============== ==============
The reorganization obligations represent the Company's remaining liability to reorganization debt-holders. In accordance with the provisions of the Company's Plan of Reorganization, the Company was obligated to repay a portion of such indebtedness if certain debt-holders presented their claims for payment to the Company on or before December 24, 1995. In December 1995, the Company recorded $223,000 as "Condemnation and other revenues" in the Consolidated Statement of Operations equal to the total of the unclaimed amounts. These funds are presently available for use by the Company in accordance with the provisions of the Company's Plan of Reorganization.
NOTE 8 -- STOCK OPTION PLANS
The Company has options outstanding under three Stock Option Plans, the 1982 Incentive Stock Option Plan, the 1982 Non-qualified Option Plan (collectively, the "1982 Plans") and the 1992 Non-qualified Stock Option Plan (the "1992 Plan"). Each plan was approved by shareholders in the year of adoption. No further grants may be made under the 1982 Plans and all options outstanding thereunder are currently exercisable at prices of $12.50 to $15.54 per share. All options granted under the 1982 Plans were at fair market value on the date of grant.
The 1992 Plan reserved 500,000 shares for grant and provides for one-third of options granted to be immediately exercisable, one-third exercisable on the first anniversary of the date of grant, and the final one-third exercisable upon the second anniversary date of the date of grant unless the Executive Committee of the Board of Directors (the "Committee"), in its discretion, decides otherwise. Options granted under the 1992 Plan shall not be for less than 100 percent of the fair market value on the date of grant and are eligible for exercise for a period of ten years from the date of grant and may contain certain other terms and conditions as determined by the Committee.
F - 12
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
Changes in the number of shares subject to options under the plans are summarized as follows:
1995 1994 1993 -------- -------- -------- 1982 Plans:
Outstanding at beginning and end of period: 17,000 17,000 17,000 ======== ======== ========
1992 Plan:
Outstanding at beginning of period 357,732 357,732 325,232 Granted (at $14.00 per share) 40,000 Canceled (at $14.00 per share) (15,000) (7,500) -------- -------- -------- Outstanding at end of period 342,732 357,732 357,732 ======== ======== ======== Total Outstanding at December 31, 1995 ranging in price from $12.50 to $15.54 per share 359,732 Exercisable at December 31, 1995 324,982
NOTE 9 -- INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
As described in Note 1, the Company adopted SFAS No. 109, "Accounting for Income Taxes," on January 1, 1993, without restating prior years' financial statements. The cumulative effect of $132,000 ($.03 per share) resulting from this change in accounting principle was recorded in the Consolidated Statement of Operations. This amount is equivalent to the deferred tax asset recorded for the tax benefits which were determined by management to be more likely than not to be realized from the Company's net operating loss carryforwards. The Company recorded a $132,000 tax provision in the 1995 Consolidated Statement of Operations related to the realization of such tax benefits in that period.
Effective December 31, 1981, after approval by its shareholders, the Company eliminated its accumulated deficit by a charge to "Other capital." This quasi-reorganization did not require the restatement of any assets or liabilities or any other modification of capital accounts. Tax benefits realized from the carryforwards of pre-quasi-reorganization losses have been included in the determination of net income and then reclassified from "Retained earnings" to "Other capital." Had such tax benefits been excluded from net income, the Company would have reported net income of $1,152,000 or $.23 per share for the twelve months ended December 31, 1995.
F - 13
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
Carryforwards and temporary differences which give rise to the deferred tax asset at December 31, 1995 and 1994 are as follows:
1995 1994 -------- -------- Net operating loss carryforwards $ 55,325 $ 56,695 Reserves 1,004 1,044 Other, net 242 108 -------- -------- Gross deferred asset 56,571 57,847 Valuation allowance (56,571) (57,715) -------- -------- Net deferred asset $ 0 $ 132 ======== ========
Based on an analysis of the likelihood of realizing the Company's gross deferred tax asset (taking into consideration applicable statutory carryforward periods), the Company concluded that under SFAS No. 109, a valuation allowance for the entire amount was necessary.
The Company's federal tax net operating loss carryforwards expire as follows:
Year Amount - - ------------------- ------------
1996................... $123,097 1997................... 13 1998................... 2,096 1999................... 0 2000................... 26,915 2001................... 0 2002................... 7,382 2003................... 589 2004................... 0 2005................... 0 2006................... 0 2007................... 1,443 2008................... 1,155 2009................... 32 ------------ $162,722 ============
The Company is required to pay federal alternative minimum tax ("AMT") for 1995. AMT is calculated separately from the regular federal income tax and is based on a flat rate applied to a broader tax base. Amounts payable thereunder cannot be totally eliminated through the application of net operating loss carryforwards. The Company recorded AMT expense in 1995 of $87,000 and recorded no AMT expenses in 1994. The Company recorded an AMT benefit of $12,000 in 1993.
F - 14
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
SWS Industries, Inc.
The Company sold a subsidiary, SWS Industries, Inc. ("SWS") in 1987. SWS subsequently filed for bankruptcy in 1988. Under the terms of the SWS sales agreement, the Company remained liable as guarantor on various performance bonds issued on behalf of SWS. The Company's liability under the performance bond guarantees has been reduced as the related contracts have been completed or settled. Completion activities will continue into 1996. Management believes the reserve at December 31, 1995 is adequate for the remaining obligations of the Company.
Cine Vista
A landlord of Cine Vista has alleged that Cine Vista underpaid rent by approximately $480,000 for the thirty month period ended December 31, 1995. The Company is contesting the landlord's claim and believes the claim to be without merit. If the landlord were to prevail in its assertion, the Company is indemnified by TALP for the amount due at June 30, 1994 ($180,000) and the Company believes it would be entitled to a reduction in the purchase price of TAPR relating not only to the 18 months ended December 31, 1995 but also relating to the 17 1/2 future years under the lease. Such purchase price reduction would be funded, in part, from the proceeds of the TAPR purchase escrow (See Note 2).
Historical Railroad Operations
The Company is a defendant in various personal injury legal actions relating to its railroad operations prior to reorganization and has insurance coverage relating to such actions. In accordance with the provisions of a 1990 settlement agreement (the "Settlement Agreement") with its insurance carriers, the Company receives quarterly reimbursement for certain personal injury legal actions. At December 31, 1995, $87,000 was reimbursable to the Company for amounts expended in defense and settlement of such actions. This amount has been classified as "Due from insurance companies." Three participants in the insurance settlement are insolvent. Unreimbursed claims insured by these insolvent companies totaled $61,000 from 1992 through December 31, 1995. The Company believes that it may be entitled to reimbursement of such amounts from the other parties to the agreement and may request an arbitration hearing on such matters. Based upon the backlog of pending personal injury cases and the Company's experience in settling such cases, the Company has established a reserve of $146,000 reflecting the potential effect of such insolvencies on future insurance reimbursement if no recovery is received from either the insolvent carriers or the other parties to the Settlement Agreement. The reserve associated with such insolvencies may increase if additional claims are filed; however, the Company does not believe that such amount will be material.
Environmental
Reading Company ("Reading") and a wholly-owned subsidiary, Reading Transportation Company ("RTC"), have each been advised by the Environmental Protection Agency ("EPA") that they are potentially responsible parties ("PRPs") under environmental laws including Federal Superfund legislation ("Superfund") for a site located in Douglassville, Pennsylvania. The EPA issued an Administrative Order under Superfund against 34 PRPs requiring, among other things, that the named parties be required to incinerate materials at the site pursuant to a June 30, 1989 Record of Decision ("ROD"). The ROD estimated that the incineration would cost approximately $53 million. Thirty-six PRPs were also named in a civil action brought by the United States Government which seeks to recover alleged costs incurred at the site by the United States of approximately $22 million. Reading and RTC have each been named in a third-party action instituted by the majority of the 36 PRPs sued by the United States. The actions instituted
F - 15
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
against the Company and approximately 300 PRPs seek to have the parties contribute to reimbursement for past costs and any costs associated with further remediation at the site.
During 1994, based upon the Company's and counsel's evaluation of possible outcomes in the matter, the Company increased its "Provision for environmental matters" by $1,200,000. On September 14, 1995, the federal district court judge who presided over Reading's reorganization ruled that all liability asserted against Reading relating to the site was discharged pursuant to the consummation order issued in conjunction with the Company's amended plan of reorganization on December 31, 1980. The United States Department of Justice and a named defendant in the above described Administrative Order have filed appeals of the decision. The judge's decision did not affect the potential liability of RTC for the site. RTC has no assets and therefore cannot fund a settlement or judgement relating to this matter and the Company believes that the potential liability of RTC, if any, is not in excess of $300,000. Based upon the appeal and possible alternate attempts by the PRPs to obtain Reading's participation in funding for the site as well as the existence of the other environmental matters set forth below, the Company has not reduced its "Provision for environmental matters."
The Company is a party to a consent decree relating to a Superfund site located on land owned by the Company. Apart from future operation and maintenance expenses ("O&M"), remediation is complete. During 1994, the Company paid approximately $106,000 as its estimated share of ten years of O&M and charged such amount to "Provisions for environmental matters" expense. The Company believes that the amounts expended to date will be adequate to fund O&M at the site. If additional amounts are required, such amounts would not be material.
During 1995, the Company settled an action seeking the recovery of $3,800,000 of alleged environmental cleanup costs from five defendants under various provisions of New Jersey law for $235,000, which approximates the amount previously accrued by the Company to provide for its share of the liability.
The Company believes that one of its properties, the Viaduct may be contaminated by polychlorinated biphenyls ("PCBs") resulting from former railroad operations on that property conducted by or on behalf of the Reading Railroad, Consolidated Rail Corporation ("Conrail"), the City of Philadelphia or the Southeastern Pennsylvania Transportation Authority ("SEPTA"). The Company has advised the Environmental Protection Agency of the potential contamination. The Company has not determined the scope and extent of any such PCB contamination. However, the Company has been advised by counsel that, given the lack of regulatory attention to the Viaduct in the eleven years which have elapsed since EPA was notified of the likelihood of contamination, it is unlikely that the Company will be required to decontaminate the Viaduct or incur costs related thereto. In the event that the Company is required to incur expenditures to remove PCB contamination from the Viaduct, under terms of a settlement of certain litigation (See Note 16), Conrail, the City of Philadelphia and SEPTA would be required to fund 52 to 55% of such costs.
Prior to the Company's reorganization, the Company had extensive railroad and related operations. Such operations could have contributed to environmental contamination of properties now owned by the Company, previously sold or leased by the Company, or to which the Company, prior to its reorganization, sent waste. The ultimate extent of liabilities, if any, with respect to such matters, as well as the timing of cash disbursements, if any, cannot be determined. However, management is of the opinion that while the ultimate liability resulting from such matters could have a material effect upon the results of operations in a given year, they will not have a material adverse effect upon the Company's financial position or liquidity.
F - 16
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
The following is an analysis of the Company's accrual for environmental claims:
Balance at January 1, 1993 $ 771 Provisions 241 Payments (676) ------ Balance at December 31, 1993 336
Provisions 1,306 Payments (133) ------ Balance at December 31, 1994 1,509
Provisions 0 Payments (248) ------ Balance at December 31, 1995 $1,261 ======
NOTE 11 -- LEASE AGREEMENTS
Cine Vista conducts all of its operations in leased premises. The leases relate to motion picture theaters with remaining terms of approximately 6.5 to 27 years with certain leases containing options to extend the leases for up to an additional 30 years. The minimum remaining lease term, inclusive of any renewal options, for any of Cine Vista's theaters is approximately 17.5 years. Cine Vista also leases office, warehouse space and various equipment. Certain theater leases provide for contingent rentals based upon a specified percentage of theater revenues with a guaranteed minimum. Performance under one lease has been guaranteed by the Company. Substantially all of the leases require the payment of property taxes, insurance and other costs applicable to the property. The Company also leases office space and various equipment under noncancelable operating leases. With the exception of one capital lease, all leases are accounted for as operating leases.
Cine Vista determines annual base rent expense by amortizing total minimum lease obligations on a straight-line basis over the lease terms. Base rent expense under operating leases totaled $2,139,000, $1,097,000, and $75,000, in 1995, 1994, and 1993, respectively. In 1995 and 1994, contingent rental expense under the Cine Vista operating leases totaled $197,000 and $111,000, respectively.
F - 17
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements December 31, 1995 (amounts in tables in thousands, except shares and per share data)
Future minimum lease payments, by year and in the aggregate, under noncancelable operating leases and the capital lease consist of the following at December 31, 1995:
Capital Operating Lease Leases ----- ------
1996 $95 $1,411 1997 95 1,328 1998 95 1,401 1999 95 1,413 2000 95 1,401 Thereafter 1,258 14,526 ----- ------ Total net minimum lease payments 1,733 $21,480 ======= Less amount representing interest (1,208) ------ Present value of net minimum lease payments under capital lease $ 525 ======
In May 1995, Cine Vista and a landlord amended a lease originally executed in July 1994 for a new eight-plex motion picture theater. The lease became effective and operations at the theater commenced in December 1995. Cine Vista was responsible for certain construction costs of the theater.
In June 1995, Cine Vista entered into a lease agreement for a new six-plex motion picture theater. The lease provides for a 20-year term with an average annual base rent of approximately $195,000 with options to extend the lease up to an additional 10 years. The lease will be effective after completion of construction of the new theater. Cine Vista is responsible for certain construction costs of the theater which are presently estimated to total $1.2 million. Completion of construction and commencement of theater operations is scheduled to occur in late 1996 or early 1997. The lease provides for contingent rentals based upon a specified percentage of theater revenues with a guaranteed minimum and requires the payment of property taxes, insurance and other costs applicable to the property.
NOTE 12 -- RELATED PARTY TRANSACTIONS
Robert F. Smerling serves as president of Cine Vista. In accordance with the terms of Mr. Smerling's employment, the Board of Directors authorized and extended a $1,000,000 loan to Mr. Smerling in December 1993. Principal relating to the fully secured loan, which accrued interest at the prime rate of interest plus one percent, was repaid by Mr. Smerling in April 1994.
In 1994 and 1995, the Company's Board of Directors voted to waive the transfer restrictions imposed by the provisions of the Company's Class A Common Stock to the extent necessary to permit James J. Cotter, Chairman of the Board of Directors of the Company and Craig to acquire additional shares of the Company's Class A Common Stock. The transfer provisions prohibit a party from acquiring more than 4.75% of the Company's outstanding capital stock without the permission of the Company's Board of Directors and are intended to assure the continuing availability of the Company's tax loss carryforwards by precluding a change in control which could limit the value of the carryforwards. Prior to granting the waiver of the restrictions, the Board of Directors had determined that acquisition of the shares by Mr. Cotter and Craig would not effect the continuing availability of the Company's tax loss carryforwards.
F - 18
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
The Company is presently negotiating to acquire a multiplex theater located in New York City (See Note 4). The theater will be owned jointly by City Cinemas, a Manhattan-based theater operator (or its affiliates) and the Company. It is anticipated that City Cinemas, owned in part by James J. Cotter, the Company's Chairman, will operate the theater pursuant to a management agreement. The terms of that management agreement have not yet been negotiated. Robert F. Smerling, President of Cine Vista, also serves as President of City Cinemas.
NOTE 13 - CONDEMNATION AND OTHER INCOME
During 1995, the Company and the Commonwealth of Pennsylvania Department of Transportation ("PennDot") agreed to settle certain litigation related to PennDot's 1985 condemnation of a bridge which connected sections of a right-of-way which was owned by the Company and located in center city Philadelphia. The Company received $1,146,000 in settlement of this claim during the fourth quarter of 1995 and the income related thereto has been recorded as "Condemnation and other" income in the Company's Consolidated Statement of Operations.
"Condemnation and other" income also includes $425,000 received by the Company from ARAMARK in accordance with a litigation settlement which encompassed disputes relating to ARAMARK's tenancy in One Reading Center, a 32-story office tower in which the Company conveyed its interest in 1985. Additionally, $319,000 was received in settlement of two matters relating to the Company's former railroad operations and $223,000 relating to certain unclaimed reorganization obligations (See Note 7) were also included in "Condemnation and other" in the Company's Consolidated Statement of Operations.
NOTE 14 -- LONG-TERM DEBT
In December 1995, Cine Vista entered into a $15 million eight year revolving credit agreement (the "Credit Agreement") with a bank. Under terms of the Credit Agreement, Cine Vista may borrow up to $15 million to repay Cine Vista acquisition loans, which loans are payable to a wholly-owned subsidiary of the Company (the "Subsidiary Loans"), and fund certain new theater development expenditures (the "Development Expenditures"). During the initial 30 months of the eight-year term, Cine Vista may borrow and repay amounts outstanding under the Credit Agreement. Amounts outstanding at the end of the 30 month period are payable in increasing quarterly installments over the balance of the loan term. At December 31, 1995, no amounts are outstanding under this agreement.
As security for the loan, Cine Vista has pledged substantially all of its assets. In addition, the stock of Cine Vista's parent company has been pledged as security for the loan. In conjunction with the loan, the Company has also agreed to subordinate to the lender its right to payment of the Subsidiary Loans as well as certain other fees payable by Cine Vista to the Company under certain circumstances. In addition, the Company has agreed to contribute funds to Cine Vista in the event that estimated unpaid Development Expenditures exceed the amount of funds available to Cine Vista under the Credit Agreement.
The provisions of the Credit Agreement require Cine Vista to maintain a minimal level of net worth and other financial ratios, restrict the payment of dividends and limit additional borrowings and capital expenditures. Borrowings under the Credit Agreement accrue interest at LIBOR (the London Interbank Offered Rate) plus 2.25%, the cost of Section 936 deposits (deposits held by lenders in Puerto Rico which are qualified under Section 936 of the Internal Revenue Code) to the lender (currently 4.91%) plus 2.25%, or the base rate plus 1/2 of 1%, at Cine Vista's election. In accordance with the provisions of the Credit Agreement, Cine Vista is required to pay a commitment fee on the unused commitment equal to 1/2 of 1%.
F - 19
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
NOTE 15 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for 1995 and 1994 is summarized below:
1995:
The operating results of Cine Vista are included in each quarter's financial information. The second quarter results include $425,000 received in settlement of certain litigation between the Company and ARAMARK (See Note 13) and $165,000 in expenses related to the review of theater acquisitions (See Note 4). The third quarter results include revenues of $1,146,000 in condemnation proceeds (See Note 13) as well as $319,000 received in settlement of two matters related to the Company's former railroad operations. Also included in the third quarter was a $290,000 equity loss from Reading International. The fourth quarter results include revenues of $223,000 related to unclaimed reorganization debt-holders' obligations (See Note 7) and a $100,000 equity loss from Reading International.
1994:
The operating results of Cine Vista are included in the quarterly financial information after June 30. The third quarter results include $4,924,000 in theater revenues and $3,768,000 in theater cost of sales (inclusive of depreciation and amortization). Fourth quarter results include $3,177,000 in theater revenues and $3,000,000 in theater cost of sales (inclusive of depreciation and amortization). The second quarter results include a $265,000 gain on sale of real estate which was located in center city Philadelphia. Third quarter results also include a $1,305,000 provision for environmental matters and a $795,000 charge related to loans the Company made to OREI. Fourth quarter revenues include a gain of $179,000 from the S.R. joint venture.
F - 20
Reading Company and Subsidiaries
Notes to Consolidated Financial Statements (continued) December 31, 1995 (amounts in tables in thousands, except shares and per share data)
NOTE 16 -- SUBSEQUENT EVENT I
In 1991, the Company filed a lawsuit against SEPTA, Conrail, the City of Philadelphia, and other parties which sought to recover costs expended by the Company in conjunction with the cleanup of PCBs in the Reading Terminal Train Shed and a portion of the viaduct south of Vine Street. In January 1996, the Company and several parties agreed to settle this litigation by providing for the Company to receive payments totaling $2.35 million which amount the Company anticipates receiving in 1996. The parties to the settlement also agreed to pay an amount ranging from 52% to 55% of certain future costs the Company may incur in cleaning environmental contamination on the Viaduct.
NOTE 17--SUBSEQUENT EVENTS II
On March 29, 1996, the Company and Craig entered into a capital funding agreement (the "Capital Funding Agreement") with respect to Reading International pursuant to which they agreed to increase the capital committed by the Company and Craig to Reading International from $10 million to approximately $103 million through a combination of cash contributions and secured capital funding undertakings. Under the terms of the Capital Funding Agreement, the Company and Craig each agreed to immediately contribute to Reading International $12,500,000 in cash, for an aggregate $25,000,000. In addition, the Company and Craig have undertaken to contribute up to an additional $37,500,000 each, for an aggregate future commitment of $75,000,000 on an as needed basis. The commitments of the Company and Craig are secured by various assets of the two parties. The collateral pledged by Craig was reviewed by an independent committee of the Company's Board of Directors comprised of outside directors who are unaffiliated with Craig, and found to be adequate.
On March 29, 1996, the Company purchased from Craig 1,564,473 shares of the common stock of Citadel Holding Corporation ("Citadel" and the "Citadel Common Stock", respectively) for an aggregate purchase price of $3,324,505, representing slightly less than $2.125 per share. The closing price of Citadel Common Stock on the American Stock Exchange on March 28, 1996 was $2.25 per share. The Company paid Craig for the Citadel Common Stock with a five year unsecured promissory note which provides for the payment of interest at a rate equal to LIBOR plus 2.25%. The Company also acquired from Craig a one year option to acquire, at fair market value, as determined by an investment banker selected by the parties, 1,329,114 shares of the 3% Cumulative Voting Convertible Preferred Stock, stated value $3.95 per share of Citadel and an option to acquire a warrant to acquire 666,000 shares of Citadel Common Stock. The transaction was separately reviewed, negotiated and approved by an independent committee of the Company's Board of Directors comprised of outside directors who are unaffiliated with Craig, and found to be adequate.
F - 21
Report of Independent Auditors
Board of Directors and Shareholders Reading Company
We have audited the consolidated balance sheets of Reading Company and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reading Company and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes.
Philadelphlia, Pennsylvania February 16, 1996, except Note 17, the date of which is March 29, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
READING COMPANY AND SUBSIDIARIES (in thousands)
(1) Uncollectible accounts written off and cash receipts. (2) Property sales.
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
READING COMPANY
By: /s/ S. Craig Tompkins ---------------------------------- S. Craig Tompkins, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ James J. Cotter - - ------------------------------------- James J. Cotter Chairman and Director 3/28/96 (Principal Executive Officer)
/s/ S. Craig Tompkins - - ------------------------------------- S. Craig Tompkins President and Director 3/28/96
/s/ James A. Wunderle - - ------------------------------------- James A. Wunderle Executive Vice President, 3/28/96 Chief Operating Officer and Treasurer (Principal Financial Officer)
/s/ Eileen M. Mahady - - ------------------------------------- Eileen M. Mahady Controller 3/28/96 (Principal Accounting Officer)
/s/ Edward L. Kane - - ------------------------------------- Edward L. Kane Director 3/28/96
/s/ Gerard P. Laheney - - ------------------------------------- Gerard P. Laheney Director 3/28/96
/s/ Ralph B. Perry III - - ------------------------------------- Ralph B. Perry III Director 3/28/96
/s/ John W. Sullivan - - ------------------------------------- John W. Sullivan Director 3/28/96
/s/ Albert J. Tahmoush - - ------------------------------------- Albert J. Tahmoush Director 3/28/96
EXHIBIT INDEX
Exhibit Number Page - - ------ ----
3.7 By-Laws of Registrant, as amended October 6, 1995.
10.9 Lease Agreement between Palma Real Associates, S.E. and Theater Acquisitions of Puerto Rico, Inc. dated as of July 13, 1994.
10.10 The First Amendment dated May 10, 1995 between Palma Real Associates, S.E. and Reading Cinemas of Puerto Rico, Inc. (successor by merger to Theater Acquisitions of Puerto Rico, Inc.) to the Lease Agreement between Palma Real Associates, S.E. and Theater Acquisitions of Puerto Rico, Inc. dated as of July 13, 1994.
10.11 Credit Agreement by and between Reading Cinemas of Puerto Rico, Inc., and Citibank, N.A., as administrative agent for the Lenders thereunder dated as of December 20, 1995.
10.12 The First Amendment dated February 7, 1996 to the Credit Agreement by and between Reading Cinemas of Puerto Rico, Inc., and Citibank, N.A., as administrative agent for the Lenders thereunder dated as of December 20, 1995.
10.13 Limited Liability Company Agreement of Reading International Cinemas LLC dated November 9. 1995.
10.14 RC Revocable Trust Agreement between Reading Investment Company, Inc. and Craig Corporation and Craig Management, Inc. as trustee, dated November 9. 1995.
10.15 Lease Agreement between Mayaguez Shopping Center, S.E. and Reading Cinemas of Puerto Rico, Inc. dated as of August 10, 1995.
10.16 Contract of Sale of Real Estate between Brick & Pipe Industries LTD and Burgundy Two Pty LTD dated October 10, 1995.
10.17 Contract of Sale of Real Estate between Royal Society for the Prevention of Cruelty to Animals (Victoria) Incorporated and Burgundy Two Pty LTD dated November 9. 1995.
10.18 Stock Purchase and Sale Agreement dated as of March 30, 1996 by and between Reading Holdings, Inc. and Craig Corporation.
10.19 Amended and Restated Capital Funding Agreement by and between Reading Investment Company, Inc., Craig Corporation, Craig Management Inc., Craig Corporation and Reading International Cinemas LLC.
21.1 Registrant's Subsidiaries.
23.1 Consent of Independent Auditors - Ernst & Young LLP.
27 Financial Data Schedule