|• FORM 10-Q • EXHIBIT 10.1 • EXHIBIT 10.2 • EXHIBIT 31.1 CERTIFICATION • EXHIBIT 31.2 CERTIFICATION • EXHIBIT 32 CERTIFICATION|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the quarterly period ended: June 30, 2012
For the transition period from ___________ to ___________
Commission file number 1-8625
READING INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Registrant’s telephone number, including area code: (213) 235-2240
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 8, 2012, there were 21,571,953 shares of Class A Nonvoting Common Stock, $0.01 par value per share and 1,495,490 shares of Class B Voting Common Stock, $0.01 par value per share outstanding.
TABLE OF CONTENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the Six Months Ended June 30, 2012
Note 1 – Basis of Presentation
Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was founded in 1983 as a Delaware corporation and reincorporated in 1999 in Nevada. Our businesses consist primarily of:
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”) for interim reporting. As such, certain information and disclosures typically required by US GAAP for complete financial statements have been condensed or omitted. The financial information presented in this quarterly report on Form 10-Q for the period ended June 30, 2012 (the “June Report”) should be read in conjunction with our Annual Report filed on Form 10-K for the year ended December 31, 2011 (our “2011 Annual Report”) which contains the latest audited financial statements and related notes. The periods presented in this document are the three (“2012 Quarter”) and six (“2012 Six Months”) months ended June 30, 2012 and the three (“2011 Quarter”) and six (“2011 Six Months”) months ended June 30, 2011.
In the opinion of management, all adjustments of a normal recurring nature considered necessary to present fairly in all material respects our financial position as of June 30, 2012 and our results of our operations and cash flows for the three and six months ended June 30, 2012 and 2011 have been made. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results of operations to be expected for the entire year.
Liberty Theatre Term Loans
As our Liberty Theater Term Loans are due to mature on April 1, 2013, the June 30, 2012 outstanding balance of this debt of $6.5 million is classified as current on our balance sheet. We intend to refinance the property’s debt with similar financing.
Tax Settlement Liability
As indicated in our 2011 Annual Report, in accordance with the agreement between the U.S. Internal Revenue Service and our subsidiary, Craig Corporation, we are obligated to pay $290,000 per month, $3.5 million per year, in settlement of our tax liability for the tax year ended June 30, 1997.
For the abovementioned liabilities, we believe that we have sufficient borrowing capacity under our various credit facilities, together with our $30.7 million of cash and time deposits, to meet our anticipated short-term working capital requirements for the next twelve months.
Time deposits are cash depository investments in which the maturity of the investments is greater than 90 days. During May 2012, we purchased $8.0 million in U.S. dollar time deposits in Australia which are scheduled to mature on January 3, 2013 having an interest rate of 1.26%.
We had investments in marketable securities of $49,000 and $2.9 million at June 30, 2012 and December 31, 2011, respectively. We account for these investments as available for sale investments. We assess our investment in marketable securities for other-than-temporary impairments in accordance with Accounting Standards Codification (“ASC”) 320-10 for each applicable reporting period. These investments have a cumulative income (loss) of $4,000 and $(11,000) included in accumulated other comprehensive income at June 30, 2012 and December 31, 2011, respectively. For the three and six months ended June 30, 2012, our net unrealized income (loss) on marketable securities was $3,000 and ($7,000), respectively. For the three and six months ended June 30, 2011, our net unrealized gain (loss) on marketable securities was $126,000 and $(43,000), respectively. During the six months ended June 30, 2012, we sold $3.0 million of our marketable securities with a realized gain of $109,000.
Deferred Leasing Costs
We amortize direct costs incurred in connection with obtaining tenants over the respective term of the lease on a straight-line basis.
Deferred Financing Costs
We amortize direct costs incurred in connection with obtaining financing over the term of the loan using the effective interest method, or the straight-line method, if the result is not materially different. In addition, interest on loans with increasing interest rates and scheduled principal pre-payments, is also recognized using the effective interest method.
Accounting Pronouncements Adopted During 2012
FASB ASU No. 2011-05 - Comprehensive Income (Topic 220): Presentation of Comprehensive Income
ASU No. 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. This amendment is effective for our Company in 2012 and was applied retrospectively.
FASB ASU No. 2011-08 - Intangibles—Goodwill and Other
ASU No. 2011-08 relates to a change in the annual test of goodwill for impairment. The statement permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. This amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.
New Accounting Pronouncements
No new pronouncements were made pertaining to our Company’s accounting during the 2012 Quarter.
Note 2 – Equity and Stock Based Compensation
During the six months ended June 30, 2012 and 2011, we issued 155,925 and 174,825, respectively, of Class A Nonvoting shares to an executive employee associated with the vesting of his prior years’ stock grants, and, during the three months ended June 30, 2012, we issued 9,680 as a one-time stock grant of Class A Nonvoting shares to our employees valued at $44,000 which we accounted for as compensation expense. During the three and six months ended June 30, 2012, we accrued $238,000 and $476,000, respectively, in compensation expense associated with the vesting of executive employee stock grants. During the three and six months ended June 30, 2011, we accrued $188,000 and $375,000, respectively, in compensation expense associated with the vesting of executive employee stock grants.
Employee/Director Stock Option Plan
We have a long-term incentive stock option plan that provides for the grant to eligible employees, directors, and consultants of incentive or nonstatutory options to purchase shares of our Class A Nonvoting Common Stock and Class B Voting Common Stock. Our 1999 Stock Option Plan expired in November 2009, and was replaced by our new 2010 Stock Incentive Plan, which was approved by the holders of our Class B Voting Common Stock in May 2010.
When the Company’s tax deduction from an option exercise exceeds the compensation cost resulting from the option, a tax benefit is created. FASB ASC 718-20 relating to Stock-Based Compensation (“FASB ASC 718-20”), requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows. For the three and six months ended June 30, 2012 and 2011, there was no impact to the unaudited condensed consolidated statement of cash flows because there were no recognized tax benefits from stock option exercises during these periods.
FASB ASC 718-20 requires companies to estimate forfeitures. Based on our historical experience and the relative market price to strike price of the options, we do not currently estimate any forfeitures of vested or unvested options.
In accordance with FASB ASC 718-20, we estimate the fair value of our options using the Black-Scholes option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility, and the expected life of the options. As we intend to retain all earnings, we exclude the dividend yield from the calculation. We expense the estimated grant date fair values of options issued on a straight-line basis over the vesting period.
For the 40,000 options granted during 2012, we estimated the fair value of these options at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:
We did not grant any options during the three or six months ended June 30, 2011.
Based on the above calculation and prior years’ assumptions, and, in accordance with the FASB ASC 718-20, we recorded compensation expense for the total estimated grant date fair value of stock options that vested of $89,000 and $169,000 for the three and six months ended June 30, 2012, respectively, and $47,000 and $94,000 for the three and six months ended June 30, 2011, respectively. At June 30, 2012, the total unrecognized estimated compensation cost related to non-vested stock options granted was $27,000, which we expect to recognize over a weighted average vesting period of 0.17 years. 95,000 options were exercised during the six months ended June 30, 2012 having a realized value of $136,000 for which we received $308,000 of cash. There were no options exercised during the six months ended June 30, 2011. The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at June 30, 2012 was $430,000 of which 77.7% are currently exercisable.
Pursuant to both our 1999 Stock Option Plan and our 2010 Stock Incentive Plan, all stock options expire within ten years of their grant date. The aggregate total number of shares of Class A Nonvoting Common Stock and Class B Voting Common Stock authorized for issuance under our 2010 Stock Incentive Plan is 1,250,000. At the discretion of our Compensation and Stock Options Committee, the vesting period of stock options is usually between zero and four years.
We had the following stock options outstanding and exercisable as of June 30, 2012 and December 31, 2011:
The weighted average remaining contractual life of all options outstanding, vested, and expected to vest at June 30, 2012 and December 31, 2011 was approximately 4.41 and 4.13 years, respectively. The weighted average remaining contractual life of the exercisable options outstanding at June 30, 2012 and December 31, 2011 was approximately 4.23 and 3.85 years, respectively.
Note 3 – Business Segments
We organize our operations into two reportable business segments within the meaning of FASB ASC 280-10 - Segment Reporting. Our reportable segments are (1) cinema exhibition and (2) real estate. The cinema exhibition segment is engaged in the development, ownership, and operation of multiplex cinemas. The real estate segment is engaged in the development, ownership, and operation of commercial properties. Incident to our real estate operations we have acquired, and continue to hold, raw land in urban and suburban centers in Australia, New Zealand, and the United States.
The tables below summarize the results of operations for each of our principal business segments for the three and six months ended June 30, 2012 and 2011, respectively. Operating expense includes costs associated with the day-to-day operations of the cinemas and the management of rental properties including our live theater assets (dollars in thousands):
Note 4 – Operations in Foreign Currency
We have significant assets in Australia and New Zealand. To the extent possible, we conduct our Australian and New Zealand operations on a self-funding basis. The carrying value of our Australian and New Zealand assets and liabilities fluctuate due to changes in the exchange rates between the US dollar and the functional currency of Australia (Australian dollar) and New Zealand (New Zealand dollar). We have no derivative financial instruments to hedge against the risk of foreign currency exposure.
Presented in the table below are the currency exchange rates for Australia and New Zealand as of June 30, 2012 and December 31, 2011:
Note 5 – Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to Reading International, Inc. common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing the net income (loss) attributable to Reading International, Inc. common shareholders by the weighted average number of common shares outstanding during the period after giving effect to all potentially dilutive common shares that would have been outstanding if the dilutive common shares had been issued. Stock options and non-vested stock awards give rise to potentially dilutive common shares. In accordance with FASB ASC 260-10 - Earnings Per Share, these shares are included in the diluted earnings per share calculation under the treasury stock method. As noted in the table below, due to the small difference between the basic and diluted weighted average common shares, the basic and the diluted earnings (loss) per share are the same for each of the periods presented. The following is a calculation of earnings (loss) per share (dollars in thousands, except share data):
For the three and six months ended June 30, 2012, we recorded losses from continuing operations; therefore, we excluded 168,606 of in-the-money incremental stock options from the computation of diluted loss per share because they were anti-dilutive. For the three and six months ended June 30, 2011, the weighted average common stock – diluted included 170,995 of stock compensation and in-the-money incremental stock options. In addition, 692,789 of out-of-the-money stock options were excluded from the computation of diluted earnings (loss) per share for the three and six months ended June 30, 2012, and 714,417 of out-of-the-money stock options were excluded from the computation of diluted earnings (loss) per share for the three and six months ended June 30, 2011.
Note 6 – Property Acquired, Property Sold, Property Held for Sale, Property Held For and Under Development, and Property and Equipment
Coachella, California Land Acquisition
On January 10, 2012, Shadow View Land and Farming, LLC, a limited liability company owned by our Company, acquired a 202-acre property, zoned for the development of up to 843 single-family residential units, located in the City of Coachella, California. The property was acquired at a foreclosure auction for $5.5 million. The property was acquired as a long-term investment in developable land. Half of the funds used to acquire the land were provided by Mr. James J. Cotter, our Chairman, Chief Executive Officer and controlling shareholder. Upon the approval of our Conflicts Committee, these funds were converted on January 18, 2012 into a 50% interest. The limited liability company is administratively managed by our Company. See Note 14 – Noncontrolling Interests.
On February 21, 2012, we sold our three properties in the Taringa area of Brisbane, Australia consisting of approximately 1.1 acres for $1.9 million (AUS$1.8 million).
Property Held For and Under Development
As of June 30, 2012 and December 31, 2011, we owned property held for and under development summarized as follows (dollars in thousands):
At the beginning of 2010, we curtailed the development activities of our properties under development and are not currently capitalizing interest expense. As a result, we did not capitalize any interest during the three months ended June 30, 2012 or 2011.
Property and Equipment
As of June 30, 2012 and December 31, 2011, we owned investments in property and equipment as follows (dollars in thousands):
Depreciation expense for property and equipment was $4.0 million and $7.5 million for the three and six months ended June 30, 2012, respectively, and $3.6 million and $7.1 million for the three and six months ended June 30, 2011, respectively.
Note 7 – Investments in Unconsolidated Joint Ventures and Entities
Our investments in unconsolidated joint ventures and entities are accounted for under the equity method of accounting except for Rialto Distribution, which is accounted for as a cost method investment, and, as of June 30, 2012 and December 31, 2011, included the following (dollars in thousands):
For the three months ended June 30, 2012 and 2011, we recorded our share of equity earnings from our investments in unconsolidated joint ventures and entities as follows (dollars in thousands):
Note 8 – Goodwill and Intangible Assets
In accordance with FASB ASC 350-20-35, Goodwill - Subsequent Measurement and Impairment, we perform an annual impairment review in the fourth quarter of our goodwill and other intangible assets on a reporting unit basis, or earlier if changes in circumstances indicate an asset may be impaired. No such circumstances existed during the 2012 Quarter. As of June 30, 2012 and December 31, 2011, we had goodwill consisting of the following (dollars in thousands):
We have intangible assets other than goodwill that are subject to amortization, which we amortize over various periods. We amortize our beneficial leases over the lease period, the longest of which is 30 years; our trade name using an accelerated amortization method over its estimated useful life of 45 years; and our other intangible assets over 10 years. For the three and six months ended June 30, 2012, the amortization expense of intangibles totaled $572,000 and $1.2 million, respectively, and, for the three and six months ended June 30, 2011, the amortization expense of intangibles totaled $677,000 and $1.3 million, respectively. The accumulated amortization of intangibles includes $540,000 and $406,000 of the amortization of acquired leases which are recorded in operating expense for the six months ended June 30, 2012 and 2011, respectively.
Intangible assets subject to amortization consist of the following (dollars in thousands):
Note 9 – Prepaid and Other Assets
Prepaid and other assets are summarized as follows (dollars in thousands):
Short Term Note Receivable
On February 29, 2012, at a discount, we acquired for $1.8 million from the original lender a promissory note which is currently in default. We believe the note is indirectly secured by the operating income of a cinema in which we have an interest.
Note 10 – Income Tax
The provision for income taxes is different from the amount computed by applying U.S. statutory rates to consolidated losses before taxes. The significant reason for these differences is as follows (dollars in thousands):
Pursuant to ASC 740-10, a provision should be made for the tax effect of earnings of foreign subsidiaries that are not permanently invested outside the United States. Our intent is that earnings of our foreign subsidiaries are not permanently invested outside the United States. Current earnings were available for distribution in the Reading Australia consolidated group of subsidiaries as of June 30, 2012. There is no withholding tax on dividends paid by an Australian company to its 80% or more U.S. public company shareholder, thus we have not provided foreign withholding taxes for these current retained earnings. We believe the U.S. tax impact of a dividend from our Australian subsidiary, net of loss carry forward and potential foreign tax credits, would not have a material effect on the tax provision as of June 30, 2012.
Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by the relevant tax rate. In accordance with FASB ASC 740-10 – Income Taxes (“ASC 740-10”), we record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax planning strategies, and recent financial performance. ASC 740-10 presumes that a valuation allowance is required when there is substantial negative evidence about realization of deferred tax assets, such as a pattern of losses in recent years, coupled with facts that suggest such losses may continue.
In the period ended June 30, 2011, the Company determined that substantial negative evidence regarding the realizable nature of deferred tax assets continues to exist in the U.S., New Zealand, and Puerto Rico subsidiaries, arising from ongoing pre-tax financial losses. Accordingly, the Company continues to record a full valuation allowance for net deferred tax assets available in these subsidiaries. After consideration of a number of factors for the Reading Australia group, including its recent history of pretax financial income, its expected future earnings, the increase in market value of its real estate assets, which would cause taxable gain if sold, and having executed in June 2011 a credit facility of over $100.0 million to resolve potential liquidity issues, the Company determined that it is more likely than not that deferred tax assets in Reading Australia will be realized. Accordingly, during 2011, Reading Australia reversed $13.8 million of the valuation allowance previously recorded against its net deferred tax, which mainly reflects the loss carryforwards available to offset future taxable income in Australia.
We have accrued $25.1 million in income tax liabilities as of June 30, 2012, of which $14.6 million has been classified as income taxes payable and $10.5 million have been classified as non-current tax liabilities. As part of current tax liabilities, we have accrued $3.5 million in connection with the negotiated Tax Court judgment, dated January 6, 2011, implementing our agreement with the IRS as to the final disposition of the 1996 tax litigation matter. We believe these amounts represent an adequate provision for our income tax exposures, including income tax contingencies related to foreign withholding taxes.
In accordance with FASB ASC 740-10-25 – Income Taxes - Uncertain Tax Positions (“ASC 740-10-25”), we record interest and penalties related to income tax matters as part of income tax expense.
The following table is a summary of the activity related to unrecognized tax benefits, excluding interest and penalties, for the periods ending June 30, 2012 and December 31, 2011, and December 31, 2010 (dollars in thousands):
For the three months ended June 30, 2012 we recorded no material change to our gross unrecognized tax benefits. The net tax balance is approximately $2.1 million, of which $1.0 million would impact the effective rate if recognized.
It is difficult to predict the timing and resolution of uncertain tax positions. Based upon the Company’s assessment of many factors, including past experience and judgments about future events, it is probable that within the next 12 months the reserve for uncertain tax positions will increase within a range of $0.9 million to $1.8 million. The reasons for such changes include but are not limited to tax positions expected to be taken during the next twelve months, reevaluation of current uncertain tax positions, expiring statutes of limitations, and interest related to the ”Tax Audit/Litigation” settlement which occurred January 6, 2011.
Our company and subsidiaries are subject to U.S. federal income tax, income tax in various U.S. states, and income tax in Australia, New Zealand, and Puerto Rico.
Generally, changes to our federal and most state income tax returns for the calendar year 2007 and earlier are barred by statutes of limitations. Our income tax returns of Australia filed since inception in 1995 are generally open for examination because of operating losses. The income tax returns filed in New Zealand and Puerto Rico for calendar year 2007 and afterward generally remain open for examination as of June 30, 2012.
Note 11 – Notes Payable
Notes payable are summarized as follows (dollars in thousands):
As indicated in Note 17 – Derivative Instruments, for our NAB Australian Corporate Credit Facility (“NAB Loan”) and GE Capital Term Loan (“GE Loan”), we have entered into interest rate swap agreements for all or part of these facilities. These swap agreements result in us paying a total fixed interest rate of 8.15% (5.50% swap contract rate plus a 2.65% margin) for our NAB Loan and a total fixed interest rate of 5.84% (1.34% swap contract rate plus a 4.50% margin) for our GE Loan instead of the above indicated 6.28% and 5.50%, respectively, the obligatorily disclosed loan rates.
Trust Preferred Securities
Effective May 1, 2012, the interest rate on our Trust Preferred Securities changed from a fixed rate of 9.22%, which was in effect for the past five years, to a variable rate of 3 month LIBOR plus 4.00%, which will reset each quarter through the end of the loan.
Refinanced US Cinema 1, 2, 3 Loan
On June 28, 2012, Sutton Hill Properties LLC (“SHP”), one of our consolidated subsidiaries, paid off its Eurohypo AG, New York Branch loan with a new $15.0 million term loan (the “Sovereign Bank Loan”) from Sovereign Bank, N.A. The Sovereign Bank Loan has a one-year term ending on June 27, 2013, with a one year extension option to June 26, 2014 subject to an extension fee equal to 1% of the ending principal balance and a compliance requirement with certain special covenants. As we currently intend to exercise this option, we have classified this loan as long-term. The terms of the Sovereign Bank Loan require interest only payments at LIBOR plus a 5.00% margin to be calculated and paid monthly. This loan is secured by SHP’s interest in the Cinemas 1, 2, & 3 land and building. The Sovereign Bank Loan covenants include maintaining a loan to value ratio of at least 50% of fair market value and an 11% debt yield (with a numerator of the cash available for debt service and a denominator of the outstanding principal balance of the loan). SHP is owned 75% by Reading and 25% by Sutton Hill Capital, LLC, a joint venture indirectly wholly owned by Mr. James J. Cotter, our Chairman and Chief Executive Officer, and an unrelated third party. The Sovereign Bank Loan is further secured by a guaranty provided by Reading International, Inc.
Renewed New Zealand Credit Facility
On February 8, 2012, we received an approved amendment from Westpac renewing our existing $36.9 million (NZ$45.0 million) New Zealand credit facility with a 3-year credit facility. The renewed facility decreased the overall facility by $4.1 million (NZ$5.0 million) to $32.8 million (NZ$40.0 million) and increased the facility margin from 0.55% to 2.0%. No other significant changes to the facility were made.
Note 12 – Other Liabilities
Other liabilities are summarized as follows (dollars in thousands):
Included in our other liabilities are accrued pension costs of $4.5 million at June 30, 2012. The benefits of our pension plans are fully vested, and, as such, no service costs were recognized for the three months ended June 30, 2012 and 2011. Our pension plans are unfunded; therefore, the actuarial assumptions do not include an estimate for expected return on plan assets. For the three and six months ended June 30, 2012, we recognized $87,000 and $177,000, respectively, of interest cost and $76,000 and $152,000, respectively, of amortized prior service cost. For the three and six months ended June 30, 2011, we recognized $100,000 and $190,000, respectively, of interest cost and $82,000 and $164,000, respectively, of amortized prior service cost.
Note 13 – Commitments and Contingencies
Total debt of unconsolidated joint ventures and entities was $1.1 million and $663,000 as of June 30, 2012 and December 31, 2011. Our share of unconsolidated debt, based on our ownership percentage, was $356,000 and $221,000 as of June 30, 2012 and December 31, 2011. This debt is guaranteed by one of our subsidiaries to the extent of our ownership percentage.
Note 14 – Noncontrolling interests
Noncontrolling interests are composed of the following enterprises:
The components of noncontrolling interests are as follows (dollars in thousands):
The components of income attributable to noncontrolling interests are as follows (dollars in thousands):
Coachella Land Purchase
During the 2012 Quarter, Mr. James J. Cotter, our Chairman, Chief Executive Officer and controlling shareholder, contributed $2.5 million of cash and $255,000 of his 2011 bonus as his 50% share of the purchase price of a land parcel in Coachella, California. Pursuant to FASB ASC 810-10-05, we have consolidated Mr. Cotter’s interest in the property and its expenses with that of our interest and shown his interest as a noncontrolling interest. See Note 6 – Property Acquired, Property Sold, Property Held for Sale, Property Held For and Under Development, and Property and Equipment.
Summary of Controlling and Noncontrolling Stockholders’ Equity
A summary of the changes in controlling and noncontrolling stockholders’ equity is as follows (dollars in thousands):
Note 15 – Common Stock
Common Stock Issuance
During the six months ended June 30, 2012 and 2011, we issued 155,925 and 174,825, respectively, of Class A Nonvoting shares to an executive employee associated with his prior years’ stock grant, and, during the three months ended June 30, 2012, we issued 9,680 as a one-time stock grant of Class A Nonvoting shares to our employees valued at $44,000 which we accounted for as compensation expense.
95,000 options were exercised during the six months ended June 30, 2012 having a realized value of $136,000 for which we received $308,000 of cash. There were no options exercised during the six months ended June 30, 2011.
Note 16 – Derivative Instruments
We are exposed to interest rate changes from our outstanding floating rate borrowings. We manage our fixed to floating rate debt mix to mitigate the impact of adverse changes in interest rates on earnings and cash flows and on the market value of our borrowings. From time to time, we may enter into interest rate hedging contracts, which effectively convert a portion of our variable rate debt to a fixed rate over the term of the interest rate swap. In the case of our Australian borrowings, we are presently required to swap no less than 75% of our drawdowns under our Australian Corporate Credit Facility into fixed interest rate obligations. In conjunction with this NAB Credit Facility, we entered into a five-year interest swap agreement, which swaps 100% of our variable rate loan based on BBSY for a 5.50% fixed rate loan, and we have contracted for balance step-downs that correspond with the loan’s principal payments through the termination of the loan. Under our GE Capital Term Loan, we are required to swap no less than 50% of our variable rate drawdowns for the first three years of the loan agreement. We elected to swap 100% of the original loan balance on the GE Capital Term Loan and have contracted for balance step-downs that correspond with the loan’s principal payments through December 31, 2013. For an explanation of the impact of these swaps on our interest paid for the periods, see Note 11 – Notes Payable.
The following table sets forth the terms of our interest rate swap derivative instruments at June 30, 2012: