XNAS:RDIB Reading International Inc Class B Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.  20549
 
__________________________________
 

 
FORM 10-Q
 
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:  June 30, 2012
 
OR
 

 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________
 

 
Commission file number 1-8625
 
READING INTERNATIONAL, INC.
 
(Exact name of Registrant as specified in its charter)
 

 
NEVADA
(State or other jurisdiction of incorporation or organization)
95-3885184
(IRS Employer Identification No.)
6100 Center Drive, Suite 900
Los Angeles,  CA
(Address of principal executive offices)
90045
(Zip Code)
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


 
 
Page
     
 
       
   
       
   
       
   
       
   
       
   
     
 
     
 
     
 
   
     
 
     
 
     
 
     
 
     
 
     
 
   
 
 
 
-1-

 


 
Item 1 - Financial Statements
 
 
   
 
 
Reading International, Inc. and Subsidiaries
 
 
   
 
 
Condensed Consolidated Balance Sheets
 
 
   
 
 
(U.S. dollars in thousands)
 
 
   
 
 
 
 
June 30,
2012
   
December 31,
2011
 
ASSETS
 
 
 
Current Assets:
 
 
   
 
 
Cash and cash equivalents
  $ 22,678     $ 31,597  
Time deposits
    8,000       --  
Receivables
    6,762       6,973  
Inventory
    758       1,035  
Investment in marketable securities
    49       2,874  
Restricted cash
    2,377       2,379  
Deferred tax asset
    3,525       1,985  
Prepaid and other current assets
    3,893       3,781  
Assets held for sale
    2,100       1,848  
Total current assets
    50,142       52,472  
 
               
Property held for and under development
    95,817       91,698  
Property & equipment, net
    211,640       215,428  
Investment in unconsolidated joint ventures and entities
    7,648       7,839  
Investment in Reading International Trust I
    838       838  
Goodwill
    22,536       22,277  
Intangible assets, net
    16,817       17,999  
Deferred tax asset, net
    10,468       12,399  
Other assets
    11,151       9,814  
Total assets
  $ 427,057     $ 430,764  
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities:
               
Accounts payable and accrued liabilities
  $ 16,645     $ 16,905  
Film rent payable
    5,948       6,162  
Notes payable – current portion
    21,795       29,630  
Taxes payable
    14,638       14,858  
Deferred current revenue
    8,707       10,271  
Other current liabilities
    204       137  
Total current liabilities
    67,937       77,963  
 
               
Notes payable – long-term portion
    144,914       143,071  
Notes payable to related party – long-term portion
    9,000       9,000  
Subordinated debt
    27,913       27,913  
Noncurrent tax liabilities
    10,508       12,191  
Other liabilities
    36,955       35,639  
Total liabilities
    297,227       305,777  
Commitments and contingencies (Note 13)
               
Stockholders’ equity:
               
Class A non-voting common stock, par value $0.01, 100,000,000 shares authorized,
               
31,936,123 issued and 21,571,953 outstanding at June 30, 2012 and 31,675,518
               
issued and 21,311,348 outstanding at December 31, 2011
    221       220  
Class B voting common stock, par value $0.01, 20,000,000 shares authorized and
               
 1,495,490 issued and outstanding at June 30, 2012 and at December 31, 2011
    15       15  
Nonvoting preferred stock, par value $0.01, 12,000 shares authorized and no issued
               
or outstanding shares at June 30, 2012 and December 31, 2011
    --       --  
Additional paid-in capital
    135,691       135,171  
Accumulated deficit
    (66,082 )     (66,079 )
Treasury shares
    (4,512 )     (4,512 )
Accumulated other comprehensive income
    59,875       58,937  
Total Reading International, Inc. stockholders’ equity
    125,208       123,752  
Noncontrolling interests
    4,622       1,235  
Total stockholders’ equity
    129,830       124,987  
Total liabilities and stockholders’ equity
  $ 427,057     $ 430,764  
 
               
See accompanying notes to consolidated financial statements.
 
 
 

 
 
Condensed Consolidated Statements of Operations
 
(U.S. dollars in thousands, except per share amounts)
 
 
 
Three Months Ended
 June 30,
   
Six Months Ended
June 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
 
 
 
   
 
   
 
   
 
 
Operating revenue
 
 
   
 
   
 
   
 
 
Cinema
  $ 57,988     $ 62,236     $ 115,390     $ 111,710  
Real estate
    5,156       4,937       10,406       9,706  
Total operating revenue
    63,144       67,173       125,796       121,416  
 
                               
Operating expense
                               
Cinema
    46,465       48,234       92,798       89,709  
Real estate
    2,645       2,594       5,441       5,026  
Depreciation and amortization
    4,007       4,292       8,204       8,421  
General and administrative
    4,326       4,756       8,746       8,990  
Total operating expense
    57,443       59,876       115,189       112,146  
 
                               
Operating income
    5,701       7,297       10,607       9,270  
 
                               
Interest income
    193       409       393       841  
Interest expense
    (5,876 )     (5,815 )     (9,836 )     (10,178 )
Net loss on sale of assets
    (2 )     (68 )     (2 )     (68 )
Other expense
    68       91       23       74  
Income (loss) before income tax expense and equity earnings of unconsolidated joint ventures and entities
    84       1,914       1,185       (61 )
Income tax benefit (expense)
    (259 )     13,774       (1,884 )     13,138  
Income (loss) before equity earnings of unconsolidated joint ventures and entities
    (175 )     15,688       (699 )     13,077  
Equity earnings of unconsolidated joint ventures and entities
    399       269       812       633  
Income (loss) before discontinued operations
    224       15,957       113       13,710  
Gain on sale of discontinued operation
    --       1,656       --       1,656  
Net income
  $ 224     $ 17,613     $ 113     $ 15,366  
Net (income) loss attributable to noncontrolling interests
    15       (181 )     (116 )     (414 )
Net income (loss) attributable to Reading International, Inc. common shareholders
  $ 239     $ 17,432     $ (3 )   $ 14,952  
Basic and diluted income per common share attributable to Reading International, Inc. shareholders:
                               
Earnings (loss) from continuing operations
  $ 0.01     $ 0.69     $ --     $ 0.58  
Earnings from discontinued operations, net
    --       0.07       --       0.07  
Basic and diluted income (loss) per share attributable to Reading International, Inc. shareholders
  $ 0.01     $ 0.76     $ --     $ 0.65  
Weighted average number of shares outstanding – basic
    23,009,209       22,789,718       22,969,392       22,749,202  
Weighted average number of shares outstanding – diluted
    23,177,815       22,960,713       22,969,392       22,920,198  
 
                               
See accompanying notes to consolidated financial statements.
 


 

Condensed Consolidated Statements of Comprehensive Income (Loss)
(U.S. dollars in thousands, except per share amounts)
 
 
Three Months Ended
 June 30,
   
Six Months Ended
June 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Net income
  $ 224     $ 17,613     $ 113     $ 15,366  
Foreign currency translation gain (loss)
    (3,206 )     8,782       789       11,437  
Realized (gain) loss on available for sale investments
    --       (23 )     (109 )     (23 )
Unrealized gain (loss) on available for sale investments
    3       (219 )     102       106  
Amortization of pension prior service costs
    76       82       152       164  
Comprehensive income (loss)
    (2,903 )     26,235       1,047       27,050  
Net income (loss) attributable to noncontrolling interest
    15       (181 )     (116 )     (414 )
Comprehensive income (loss) attributable to noncontrolling interest
    9       (17 )     4       (24 )
Comprehensive income (loss) attributable to Reading International, Inc.
  $ (2,879 )   $ 26,037     $ 935     $ 26,612  
 
                               
See accompanying notes to consolidated financial statements.
 
 

 
 
Condensed Consolidated Statements of Cash Flows
 
(U.S. dollars in thousands)
 
 
 
Six Months Ended
June 30,
 
 
 
2012
   
2011
 
Operating Activities
 
 
   
 
 
Net income
  $ 113     $ 15,366  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Gain recognized on foreign currency transactions
    (19 )     --  
Equity earnings of unconsolidated joint ventures and entities
    (812 )     (633 )
Distributions of earnings from unconsolidated joint ventures and entities
    911       375  
(Gain) loss on sale of assets
    2       (1,588 )
Change in valuation allowance on net deferred tax assets
    373       (14,422 )
Gain on sale of marketable securities
    (109 )     (23 )
Depreciation and amortization
    8,204       8,421  
Amortization of prior service costs
    152       164  
Amortization of above and below market leases
    204       406  
Amortization of deferred financing costs
    657       621  
Amortization of straight-line rent
    395       496  
Stock based compensation expense
    213       94  
Changes in assets and liabilities:
               
(Increase) decrease in receivables
    232       (920 )
(Increase) decrease in prepaid and other assets
    170       629  
Decrease in accounts payable and accrued expenses
    (302 )     (750 )
Increase (decrease) in film rent payable
    (222 )     814  
Increase (decrease) in taxes payable
    (1,921 )     970  
Increase (decrease) in deferred revenue and other liabilities
    (1 )     72  
Net cash provided by operating activities
    8,240       10,092  
Investing Activities
               
Acquisition of property
    (5,510 )     --  
Purchases of and additions to property and equipment
    (3,188 )     (3,183 )
Change in restricted cash
    33       (136 )
Purchase of notes receivable
    (1,800 )     (5,034 )
Sale of marketable securities
    2,974       123  
Distributions of investment in unconsolidated joint ventures and entities
    132       --  
Proceeds from sale of property
    1,862       6,750  
Cinema sale proceeds from noncontrolling shareholder
    --       1,867  
Purchase of term deposits
    (8,000 )     --  
Net cash provided by (used in) investing activities
    (13,497 )     387  
Financing Activities
               
Repayment of long-term borrowings
    (22,510 )     (112,425 )
Proceeds from borrowings
    15,945       105,311  
Capitalized borrowing costs
    (445 )     (684 )
Repurchase of Class A Nonvoting Common
    --       (111 )
Proceeds from the exercise of stock options
    308       --  
Noncontrolling interest contributions
    3,275       --  
Noncontrolling interest distributions
    --       (554 )
Net cash used in financing activities
    (3,427 )     (8,463 )
Effect of exchange rate on cash
    (235 )     1,650  
 
               
Increase (decrease) in cash and cash equivalents
    (8,919 )     3,666  
Cash and cash equivalents at the beginning of the period
    31,597       34,568  
Cash and cash equivalents at the end of the period
  $ 22,678     $ 38,234  
Supplemental Disclosures
               
Cash paid during the period for:
               
Interest on borrowings, net of amounts capitalized
  $ 7,912     $ 8,244  
Income taxes
  $ 3,706     $ 407  
Non-Cash Transactions
               
Foreclosure of a mortgage note to obtain title of the underlying property
    --       1,125  
Noncontrolling interest contribution from bonus accrual
    255       --  
 
               
See accompanying notes to consolidated financial statements.
 
 

 
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 development, ownership and operation of multiplex cinemas in the United States, Australia, and New Zealand; and

·  
the development, ownership, and operation of retail and commercial real estate in Australia, New Zealand, and the United States.

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.

Liquidity Requirements
 
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.

 
-6-

 
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

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%.

Marketable Securities

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.

 
-7-

 
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
 
 
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:
 

   
2012
 
Stock option exercise price
  $ 4.99  
Risk-free interest rate
    1.710%  
Expected dividend yield
    --  
Expected option life
    10 yrs   
Expected volatility
    31.87%  
Weighted average fair value
  $ 2.19  
 
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:
 
 
 
 
   
 
   
Weighted
   
 
   
 
   
Weighted Average
 
 
 
Common Stock
   
Average Exercise
   
Common Stock
   
Price of
 
 
 
Options
   
Price of Options
   
Exercisable
   
Exercisable
 
 
 
Outstanding
   
Outstanding
   
Options
   
Options
 
 
 
Class A
   
Class B
   
Class A
   
Class B
   
Class A
   
Class B
   
Class A
 
Class B
 
Outstanding- January 1, 2011
    622,350       185,100     $ 5.65     $ 9.90       449,750       150,000     $ 6.22     $ 10.24  
No activity during the period
    --       --     $ --     $ --                                  
Outstanding-December 31, 2011
    622,350       185,100     $ 5.65     $ 9.90       544,383       167,550     $ 5.86     $ 10.05  
Granted
    40,000       --     $ 4.99     $ --                                  
Exercised
    (95,000 )     --     $ 4.68     $ --                                  
Outstanding-June 30, 2012
    567,350       185,100     $ 6.01     $ 9.90       489,383       167,550     $ 6.30     $ 10.05  
 
 
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):

Three Months Ended June 30, 2012
 
Cinema Exhibition
   
Real Estate
   
Intersegment Eliminations
   
Total
 
Revenue
  $ 57,988     $ 7,038     $ (1,882 )   $ 63,144  
Operating expense
    48,347       2,645       (1,882 )     49,110  
Depreciation & amortization
    2,733       1,177       --       3,910  
General & administrative expense
    782       146       --       928  
Segment operating income
  $ 6,126     $ 3,070     $ --     $ 9,196  
 
                               

 
Three Months Ended June 30, 2011
 
Cinema Exhibition
   
Real Estate
   
Intersegment Eliminations
   
Total
 
Revenue
  $ 62,236     $ 6,604     $ (1,667 )   $ 67,173  
Operating expense
    49,901       2,594       (1,667 )     50,828  
Depreciation & amortization
    3,000       1,285       --       4,285  
General & administrative expense
    669       207       --       876  
Segment operating income
  $ 8,666     $ 2,518     $ --     $ 11,184  
 
Reconciliation to net income attributable to Reading International, Inc. shareholders:
 
2012
Quarter
   
2011
Quarter
 
Total segment operating income
  $ 9,196     $ 11,184  
Non-segment:
               
Depreciation and amortization expense
    97       7  
General and administrative expense
    3,398       3,880  
Operating income
    5,701       7,297  
Interest expense, net
    (5,683 )     (5,406 )
Other income
    68       91  
Loss on sale of assets
    (2 )     (68 )
Income tax benefit (expense)
    (259 )     13,774  
Equity earnings of unconsolidated joint ventures and entities
    399       269  
Income from discontinued operations
    --       1,656  
Net income
  $ 224     $ 17,613  
Net (income) loss attributable to noncontrolling interests
    15       (181 )
Net income attributable to Reading International, Inc. common shareholders
  $ 239     $ 17,432  
 
 
 
 
   
 
   
 
   
 
 
Six Months Ended June 30, 2012
 
Cinema Exhibition
   
Real Estate
   
Intersegment Eliminations
   
Total
 
Revenue
  $ 115,390     $ 14,171     $ (3,765 )   $ 125,796  
Operating expense
    96,563       5,441       (3,765 )     98,239  
Depreciation & amortization
    5,563       2,405       --       7,968  
General & administrative expense
    1,484       325       --       1,809  
Segment operating income
  $ 11,780     $ 6,000     $ --     $ 17,780  
 
                               
Six Months Ended June 30, 2011
 
Cinema Exhibition
   
Real Estate
   
Intersegment Eliminations
   
Total
 
Revenue
  $ 111,710     $ 13,040     $ (3,334 )   $ 121,416  
Operating expense
    93,043       5,026       (3,334 )     94,735  
Depreciation & amortization
    5,904       2,507       --       8,411  
General & administrative expense
    1,280       394       --       1,674  
Segment operating income
  $ 11,483     $ 5,113     $ --     $ 16,596  
 
                               

 
             
Reconciliation to net income (loss) attributable to Reading International, Inc. shareholders:
 
2012 Six
Months
   
2011 Six
Months
 
Total segment operating income
  $ 17,780     $ 16,596  
Non-segment:
               
Depreciation and amortization expense
    236       10  
General and administrative expense
    6,937       7,316  
Operating income
    10,607       9,270  
Interest expense, net
    (9,443 )     (9,337 )
Other income
    23       74  
Loss on sale of assets
    (2 )     (68 )
Income tax benefit (expense)
    (1,884 )     13,138  
Equity earnings of unconsolidated joint ventures and entities
    812       633  
Income from discontinued operations
    --       1,656  
Net income
  $ 113     $ 15,366  
Net income attributable to noncontrolling interests
    (116 )     (414 )
Net income (loss) attributable to Reading International, Inc. common shareholders
  $ (3 )   $ 14,952  
 
 
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:

 
 
US Dollar
 
 
 
June 30, 2012
   
December 31, 2011
 
Australian Dollar
  $ 1.0236     $ 1.0251  
New Zealand Dollar
  $ 0.8027     $ 0.7805  


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):

 
 
Three months ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Income (loss) from continuing operations
  $ 239     $ 15,776     $ (3 )   $ 13,296  
Income from discontinued operations
    --       1,656       --       1,656  
Net income (loss) attributable to Reading International, Inc. common shareholders
    239       17,432     $ (3 )   $ 14,952  
 
                               
Basic and diluted loss per share attributable to Reading International, Inc. common share holders:
                               
Earnings (loss) from continuing operations
  $ 0.01     $ 0.69     $ --     $ 0.58  
Earnings from discontinued operations
    --       0.07       --       0.07  
Basic and diluted earnings (loss) per share attributable to Reading International, Inc. common shareholders:
  $ 0.01     $ 0.76     $ --     $ 0.65  
Weighted average shares of common stock – basic
    23,009,209       22,789,718       22,969,392       22,749,202  
Weighted average shares of common stock – diluted
    23,177,815       22,960,713       22,969,392       22,920,198  

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

Acquisitions

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.



Disposals

Taringa

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):

Property Held For and Under Development
 
June 30,
2012
   
December 31,
2011
 
Land
  $ 90,479     $ 86,667  
Construction-in-progress (including capitalized interest)
    5,338       5,031  
Property Held For and Under Development
  $ 95,817     $ 91,698  

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):
 
Property and Equipment
 
June 30,
2012
   
December 31,
2011
 
Land
  $ 65,483     $ 65,281  
Building and improvements
    145,211       144,155  
Leasehold interests
    41,712       40,855  
Construction-in-progress
    1,273       525  
Fixtures and equipment
    106,165       104,804  
Total cost
    359,844       355,620  
Less: accumulated depreciation
    (148,204 )     (140,192 )
Property and equipment, net
  $ 211,640     $ 215,428  

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):

 
 
Interest
   
June 30, 2012
   
December 31, 2011
 
Rialto Distribution
    33.3%     $ --     $ --  
Rialto Cinemas
    50.0%       1,688       1,586  
205-209 East 57th Street Associates, LLC
    25.0%       33       33  
Mt. Gravatt
    33.3%       5,927       6,220  
Total investments
          $ 7,648     $ 7,839  

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):

 
 
Three Months Ended
 June 30,
   
Six Months Ended
June 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Rialto Distribution
  $ 51     $ 55     $ 112     $ 112  
Rialto Cinemas
    26       (65 )     57       (53 )
205-209 East 57th Street Associates, LLC
    --       --       --       33  
Mt. Gravatt
    322       279       643       541  
Total equity earnings
  $ 399     $ 269     $ 812     $ 633  


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):

 
 
Cinema
   
Real Estate
   
Total
 
Balance as of December 31, 2011
  $ 17,053     $ 5,224     $ 22,277  
Foreign currency translation adjustment
    259       --       259  
Balance at June 30, 2012
  $ 17,312     $ 5,224     $ 22,536  

 
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):
 
As of June 30, 2012
 
Beneficial Leases
   
Trade name
   
Other Intangible Assets
   
Total
 
Gross carrying amount
  $ 24,499     $ 7,220     $ 457     $ 32,176  
Less: Accumulated amortization
    12,154       2,804       401       15,359  
Total, net
  $ 12,345     $ 4,416     $ 56     $ 16,817  
 
                               
As of December 31, 2011
 
Beneficial Leases
   
Trade name
   
Other Intangible Assets
   
Total
 
Gross carrying amount
  $ 24,471     $ 7,220     $ 456     $ 32,147  
Less: Accumulated amortization
    11,238       2,553       357       14,148  
Total, net
  $ 13,233     $ 4,667     $ 99     $ 17,999  


Note 9 – Prepaid and Other Assets

Prepaid and other assets are summarized as follows (dollars in thousands):
 
 
 
June 30,
2012
   
December 31,
2011
 
Prepaid and other current assets
 
 
   
 
 
Prepaid expenses
  $ 1,510     $ 1,168  
Prepaid taxes
    555       781  
Deposits
    601       605  
Other
    1,227       1,227  
Total prepaid and other current assets
  $ 3,893     $ 3,781  
 
               

Other non-current assets
 
 
   
 
 
Other non-cinema and non-rental real estate assets
  $ 1,134     $ 1,134  
Long-term deposits
    231       264  
Deferred financing costs, net
    3,514       3,725  
Note receivable
    1,800       --  
Tenant inducement asset
    845       1,064  
Straight-line rent asset
    2,752       2,776  
Mortgage notes receivable
    876       851  
Other
    (1 )     --  
Total non-current assets
  $ 11,151     $ 9,814  
 

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):
 
 
 
Three Months Ended
 June 30,
   
Six Months Ended
June 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Expected tax provision (benefit)
  $ 174     $ 1,510     $ 659     $ 729  
Increase (reduction) in tax expense resulting from:
                               
Change in valuation allowance, other
    (241 )     (15,709 )     (668 )     (14,799 )
Foreign income tax provision
    (414 )     195       490       295  
Foreign withholding tax provision
    273       111       640       214  
Tax effect of foreign tax rates on current income
    67       (152 )     8       (281 )
State and local tax provision
    158       109       272       234  
Federal tax litigation settlement
    242       162       483       470  
Actual tax provision (benefit)
  $ 259     $ (13,774 )   $ 1,884     $ (13,138 )
 
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):
 
 
 
Six Months
Ended
June 30,
2012
   
Year Ended
December 31,
2011
   
Year Ended
December 31,
2010
 
Unrecognized tax benefits – gross beginning balance
  $ 1,974     $ 8,058     $ 11,412  
Gross increases – current period tax positions
    94       151       405  
Settlements
    --       (6,235 )     (3,189 )
Statute of limitations lapse
    --       --       (570 )
Unrecognized tax benefits – gross ending balance
  $ 2,068     $ 1,974     $ 8,058  

 
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.
 
 
-18-

 
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):

Name of Note Payable or Security
 
June 30, 2012
Interest Rate
   
December 31, 2011 Interest Rate
   
Maturity Date
   
June 30, 2012
Balance
   
December 31, 2011
Balance
 
NAB Australian Corporate Term Loan
    6.28%       7.20%    
June 30, 2014
    $ 84,959     $ 88,671  
NAB Australian Corporate Revolver
    6.28%       7.20%    
June 30, 2014
      --       --  
Australian Shopping Center Loans
    -       -      2012-2014       256       384  
New Zealand Corporate Credit Facility
    4.70%       4.15%    
March 31, 2015
      22,476       21,854  
Trust Preferred Securities
    4.47%       9.22%    
April 30, 2027
      27,913       27,913  
US Cinema 1, 2, 3 Term Loan
    -       6.73%    
July 1, 2012
      --       15,000  
US Cinema 1, 2, 3 Term Loan
    5.25%       -    
June 27, 2013
      15,000       --  
US GE Capital Term Loan
    5.50%       5.50%    
December 1, 2015
      28,906       32,188  
US Liberty Theaters Term Loans
    6.20%       6.20%    
April 1, 2013
      6,507       6,583  
US Nationwide Loan 1
    8.50%       8.50%    
February 21, 2013
      595       597  
Bank of America Letter of Credit
    3.74%       -    
August 31, 2014
      945       --  
US Sanborn Note
    -       7.00%    
January 31, 2012
      --       250  
US Sutton Hill Capital Note – Related Party
    8.25%       8.25%    
December 31, 2013
      9,000       9,000  
US Union Square Theatre Term Loan
    5.92%       5.92%    
May 1, 2015
      7,065       7,174  
                     Total
                          $ 203,622     $ 209,614  

Derivative Instruments

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):

 
 
June 30,
2012
   
December 31,
2011
 
Current liabilities
 
 
   
 
 
Security deposit payable
  $ 164     $ 137  
Other
    40       --  
Other current liabilities
  $ 204     $ 137  
Other liabilities
               
Foreign withholding taxes
  $ 6,346     $ 6,212  
Straight-line rent liability
    8,215       8,067  
Lease liability
    5,800       5,746  
Environmental reserve
    1,656       1,656  
Accrued pension
    4,466       4,289  
Interest rate swap
    6,219       4,722  
Acquired leases
    2,410       2,742  
Other payable
    1,191       1,243  
Other
    652       962  
Other liabilities
  $ 36,955     $ 35,639  

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

Unconsolidated Debt

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:
 
·  
Angelika Film Centers LLC (“AFC LLC”) 50% membership interest owned by a subsidiary of iDNA, Inc.;
 
·  
Australia Country Cinemas Pty Ltd (“ACC”) 25% noncontrolling interest owned by Panorama Cinemas for the 21st Century Pty Ltd.;
 
·  
Coachella Land 50% interest owned by Mr. James J. Cotter, Sr.; and
 
·  
Sutton Hill Properties, LLC 25% noncontrolling interest owned by SHC.

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

   
June 30,
2012
   
December 31,
2011
 
AFC LLC
  $ 1,419     $ 1,125  
Australian Country Cinemas
    578       360  
Coachella Land
    2,699       --  
Sutton Hill Properties
    (74 )     (250 )
Noncontrolling interests in consolidated subsidiaries
  $ 4,622     $ 1,235  
 
               
 

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

   
Three Months Ended
 June 30,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
AFC LLC
  $ 116     $ 181     $ 294     $ 373  
Australian Country Cinemas
    9       62       72       136  
Coachella Land
    (34 )     --       (56 )     --  
Elsternwick unincorporated joint venture
    --       1       --       25  
Sutton Hill Properties
    (106 )     (63 )     (194 )     (120 )
Net income (loss) attributable to noncontrolling interest
  $ (15 )   $ 181     $ 116     $ 414  
 
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):
 

 
 
Controlling Stockholders’ Equity
   
Noncontrolling Stockholders’ Equity
   
Total Stockholders’ Equity
 
Equity at – January 1, 2012
  $ 123,752     $ 1,235     $ 124,987  
Net income (loss)
    (3 )     116       113  
Increase in additional paid in capital
    521       --       521  
Contributions from noncontrolling stockholders
    --       3,275       3,275  
Accumulated other comprehensive income (loss)
    938       (4 )     934  
Equity at – June 30, 2012
  $ 125,208     $ 4,622     $ 129,830  
 
 
 
 
Controlling Stockholders’ Equity
   
Noncontrolling Stockholders’ Equity
   
Total Stockholders’ Equity
 
Equity at – January 1, 2011
  $ 111,787     $ 852     $ 112,639  
Net income
    14,952       414       15,366  
Increase in additional paid in capital
    94       --       94  
Treasury stock purchased
    (111 )     --       (111 )
Distributions to noncontrolling stockholders
    --       (554 )     (554 )
Sale of noncontrolling interest
    --       (148 )     (148 )
Accumulated other comprehensive income
    11,661       24       11,685  
Equity at – June 30, 2011
  $ 138,383     $ 588     $ 138,971  
 
 
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 fl