Reading International Inc.
Annual Report 2012

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KREADING INTERNATIONAL INC - RDIFiled: March 19, 2013 (period: December 31, 2012)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K(cid:0)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012 or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the transition period from _______ to ______ Commission File No. 1-8625READING INTERNATIONAL, INC.(Exact name of registrant as specified in its charter) NEVADA(State or other jurisdiction of incorporation ororganization)6100 Center Dr., Suite 900Los Angeles, CA(Address of principal executive offices)95-3885184(I.R.S. Employer Identification Number) 90045(Zip Code) Registrant’s telephone number, including Area Code: (213) 235-2240Securities Registered pursuant to Section 12(b) of the Act: Title of each className of each exchange on which registeredClass A Nonvoting Common Stock, $0.01 parvalueNASDAQClass B Voting Common Stock, $0.01 parvalueNASDAQ Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes (cid:0) No (cid:0) If this report is an annual or transition report, indicate by check mark if the registrant is not requiredto file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes (cid:0) No (cid:0) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Exchange Act of 1934 during the preceding 12 months (or for shorter period than the Registrantwas required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes (cid:0) No (cid:0) Indicate by check mark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes (cid:0) No (cid:0) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form 10-K of any amendments to thisForm 10-K. (cid:0) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer (cid:0) Accelerated filer (cid:0) Non-accelerated filer (cid:0) Smaller reporting company (cid:0) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes (cid:0) No (cid:0) Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as ofthe latest practicable date. As of March 18, 2013, there were 21,805,665 shares of class A non-votingcommon stock, par value $0.01 per share and 1,495,490 shares of class B voting common stock, parvalue $0.01 per share, outstanding. The aggregate market value of voting and nonvoting stock held bynon-affiliates of the Registrant was $93,911,612 as of June 30, 2012. Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. READING INTERNATIONAL, INC.ANNUAL REPORT ON FORM 10-KYEAR ENDED DECEMBER 31, 2012INDEX PART I3Item 1 – Our Business3Item 1A – Risk Factors11Item 1B - Unresolved Staff Comments18Item 2 – Properties19Item 3 – Legal Proceedings26PART II28Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities28Item 6 – Selected Financial Data30Item 7 – Management’s Discussions and Analysis of Financial Condition and Results ofOperations32Item 7A – Quantitative and Qualitative Disclosure about Market Risk52Item 8 – Financial Statements and Supplementary Data53Reports of Independent Registered Public Accounting Firms54Consolidated Balance Sheets as of December 31, 2012 and 201156Consolidated Statements of Operations for the Three Years Ended December 31, 201257Consolidated Statements of Comprehensive Income (Loss) for the Three Years EndedDecember 31, 201258Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31,201259Consolidated Statements of Cash Flows for the Three Years Ended December 31, 201260Notes to Consolidated Financial Statements61Schedule II – Valuation and Qualifying Accounts102Item 9 – Change in and Disagreements with Accountants on Accounting and FinancialDisclosure103Item 9A – Controls and Procedures104PART III106PART IV107Item 15 – Exhibits, Financial Statement Schedules107SIGNATURES128 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IItem 1 – Our BusinessGeneral Description of Our Business Reading International, Inc., a Nevada corporation (“RDI”), was incorporated in 1999 incident to our reincorporation inNevada. Our class A non-voting common stock (“Class A Stock”) and class B voting common stock (“Class B Stock”) arelisted for trading on the NASDAQ Capital Market (Nasdaq-CM) under the symbols RDI and RDIB, respectively. Ourprincipal executive offices are located at 6100 Center Drive, Suite 900, Los Angeles, California 90045. Our generaltelephone number is (213) 235-2240 and our website is www.readingrdi.com. It is our practice to make available free ofcharge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act as soon asreasonably practicable after we have electronically filed such material with or furnished it to the Securities and ExchangeCommission. In this Annual Report, we from time to time use terms such as the “Company,” “Reading” and “we,” “us,” or“our” to refer collectively to RDI and our various consolidated subsidiaries and corporate predecessors. We are an internationally diversified “hard asset” company principally focused on the development,ownership and operation of entertainment and real property assets in the United States, Australia, and NewZealand. Currently, we have two business segments:1.Cinema Exhibition, through our 56 cinemas, and2.Real Estate, including real estate development and the rental of retail, commercial and live theaterassets.We believe that these two business segments complement one another, as the comparatively consistent cash flowsgenerated by our cinema operations allow us to be opportunistic in acquiring and holding real estate assets, and can be usednot only to grow and develop our cinema business but also to help fund the front-end cash demands of our real estatedevelopment business.At December 31, 2012, the book value of our assets was $428.6 million; and as of that same date, we had aconsolidated stockholders’ book equity of $131.0 million. Calculated based on book value, $148.4 million or 34%, of ourassets relate to our cinema exhibition activities and $260.3 million or 61%, of our assets relate to our real estate activities. For additional segment financial information, please see Note 22 – Business Segments and Geographic AreaInformation to our 2012 Consolidated Financial Statements. 3 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We have diversified our assets among three countries: the United States, Australia, and New Zealand. Wecurrently have approximately 29% of our assets (based on net book value) in the United States, 53% in Australia and 18%in New Zealand compared to 26%, 57%, and 17% at the end of 2011. For 2012, our gross revenue in these jurisdictionswas $121.5 million, $108.3 million, and $24.6 million, respectively, compared to $112.0 million, $110.7 million, and $22.2million for 2011. For additional financial information concerning the geographic distribution of our business, please see Note 22 –Business Segments and Geographic Area Information to our 2012 Consolidated Financial Statements.While we do not believe the cinema exhibition business to be a growth business, we do believe it to be a businessthat will likely continue to generate fairly consistent cash flows in the years ahead even in recessionary or inflationaryenvironments. This is based on our belief that people will continue to spend some reasonable portion of their entertainmentdollar on entertainment outside of the home and that, when compared to other forms of outside the home entertainment,movies continue to be a popular, and competitively priced option. Since we believe the cinema exhibition business to be amature business with most markets either adequately screened or over-screened, we see growth in our cinema businesscoming principally from the enhancement of our current cinemas, the development in select markets of specialty cinemas,and the opportunistic acquisition of already existing cinemas rather than from the development of new conventionalcinemas. In 2011, we acquired an existing 17-screen cinema in Southern California for $4.2 million. In late 2012, weopened a new 8-screen “Angelika” branded cinema in the Greater Washington D.C. area, and we have begun the process ofconverting one of our conventional cinemas in San Diego into an “Angelika”. In recent periods, reflecting the difficulties infinding financing and tenants for new real estate development projects, our cash flow has been invested more heavily in thecinema aspects of our business rather than in real estate development activities. However, over time, we do anticipate thatthe cash flow from our cinema operations will be used increasingly to support our real estate oriented activities, rather thanfor cinema growth, and that our real estate activities will, again, become the principal thrust of our business. In the period 2008 through 2012, the market value of most commercial and undeveloped real estate saw a materialdecline in the markets in which we operate. This has affected some of our development projects resulting in impairmentlosses during those periods. However, the practical impact on our real estate holdings has been minimal, as we havecontinued to enjoy increases in rentals from the tenants in our retail holdings, and as our strategy has generally called fordevelopment of our raw land holdings over time for long-term development. We have also benefited from the strengtheningof Australian and New Zealand dollars. On an overall or portfolio basis, our estimated market value of our real estate andcinema assets measured in US dollars has remained flat in recent periods. Furthermore, in our view, it appears that valueshave stabilized in the markets in which we operate. In some markets (such as Manhattan), our real estate portfolio valueshave increased materially in recent years and have, in our estimation, a value substantially in excess of their book value. In light of uncertainties in the real estate and financial markets in recent periods, and the need to focus our attentionon the renewal and preservation of our various lending facilities we have generally delayed our plans for development of ourvarious properties. In 2011, we replaced our Australian credit facility with a new three-year credit facility from NationalAustralia Bank (“NAB”) in the amount of $110.5 million (AUS$105.0 million). On 4 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.February 8, 2012, we amended our existing $36.9 million (NZ$45.0 million) New Zealand credit facility with Westpac,extending that facility for a further three-years and setting the borrowing limit at $32.8 million (NZ$40.0 million). OnOctober 31, 2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bank of America of$30.0 million, which expires on October 31, 2017. In addition, Bank of America renewed and increased our existing $3.0million line of credit to $5.0 million. In 2012, we also converted substantially all of our domestic cinemas to digitalprojection, under a $15.5 million equipment lease from the Banc of America Capital & Leasing, LLC. Historically, it has not been our practice to sell assets, except in connection with the repositioning of such assets to ahigher and better use. However, in light of the current market conditions and our desire to free up capital and pay downdebt, we sold, in 2012, our 24,000 square foot office building in Indooroopilly, and anticipate the sale in 2013 of our propertyin Lake Taupo, New Zealand. In addition, we may sell additional properties in the year ahead to fund the development orredevelopment of other assets in our portfolio. Given the resurgence of Manhattan commercial real estate values, we intend to focus on the redevelopment of ourCinemas 1, 2 & 3 property and our Union Square property. Also, we are actively pursuing the development of the nextphase of our Courtenay Central property in Wellington, New Zealand. We continue to evaluate our options concerning our50.6 acre Burwood property, our 3.3 acre Moonee Ponds property in Melbourne, Australia and our 70.3 acre Manukauproperty in New Zealand. We may sell all or portions of these properties to provide liquidity for other projects. In evaluatingwhether to sell a particular property, we consider the potential upside in a particular property and costs required to achievethat upside, compared to the opportunities presented by our other properties.Typically, we have endeavored to match the currency in which we have financed our development with thejurisdiction within which these developments are located. We have followed this approach to reduce our risk to currencyfluctuations. This structure has, however, somewhat limited our ability to move cash from one jurisdiction to another. During 2012, we deviated somewhat from this policy by purchasing $8.0 million in time deposits denominated in U.S.dollars and held by an Australian bank. In February 2007, we also deviated from this policy and privately placed $50.0million of 20-year trust preferred securities (“TPS”), with dividends fixed at 9.22% for the first five years, to serve as a long-term financing foundation for our real estate assets and to pay down our New Zealand and a portion of our Australian dollardenominated debt. Although structured as the issuance of TPS by a related trust, the financing is essentially the same asan issuance of fully subordinated debt: the payments are tax deductible to us and the default remedies are the same asdebt. During the first quarter of 2009, we returned somewhat to our debt-to-local-currency matching policy by takingadvantage of the then current market illiquidity for TPS to repurchase $22.9 million in face value of our TPS for $11.5million. As a result of this transaction, in 2009, we recorded a $10.7 million gain on retirement of subordinated debt. Inaddition, in December 2008 we secured a waiver of all financial covenants with respect to our TPS for a period of nine years(through December 2017), in consideration of the payment of $1.6 million, consisting of an initial payment of $1.1 million, apayment of $270,000 made in December 2011 and a contractual obligation to pay $270,000 in December 2014. In the eventthat the remaining payment is not made, the only remedy available to us is the termination of the waiver. Also, weanticipate that, in order to reduce our cost of converting our Australian and New Zealand circuits to digital projection, ourparent company will guaranty the equipment lease under which we anticipate acquiring the equipment to complete theconversion of our Australian and New Zealand cinemas to digital projection. In summary, while we do have operating company attributes, we see ourselves principally as a geographicallydiversified real estate and cinema company and intend to add to stockholder value by building the value of our portfolio oftangible real estate and entertainment-oriented assets. We endeavor to maintain a reasonable asset allocation between ourdomestic and overseas assets and operations, and between our cash generating cinema operations and our cashconsuming real estate development activities. We believe that by blending the cash generating capabilities of a cinemaoperation with the investment and development opportunities of our real estate operation coupled with our internationaldiversification of assets, our business strategy is unique among public companies. While historically we have retained ourproperties through development, we continue to evaluate the sale of certain assets to provide capital to develop ourremaining properties.At December 31, 2012, our principal assets included:·interests in 54 cinemas comprising some 462 screens; 5 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.·fee interests in four live theaters (the Union Square, the Orpheum and Minetta Lane in Manhattan and the RoyalGeorge in Chicago);·fee ownership of approximately 24.0 million square feet of developed and undeveloped real estate; and·cash, cash equivalents, and time deposits aggregating $46.5 million.Our Cinema Exhibition ActivitiesGeneralWe conduct our cinema operations on four basic and rather simple premises:·first, notwithstanding the enormous advances that have been made in home entertainment technology, humansare essentially social beings, and will continue to want to go beyond the home for their entertainment, provided thatthey are offered clean, comfortable and convenient facilities, with state of the art technology;·second, cinemas can be used as anchors for larger retail developments and our involvement in the cinemabusiness can give us an advantage over other real estate developers or redevelopers who must identify andnegotiate exclusively with third party anchor tenants;·third, pure cinema operators can get themselves into financial difficulty as demands upon them to produce cinemabased earnings growth tempt them into reinvesting their cash flow into increasingly marginal cinema sites. Whilewe believe that there will continue to be attractive opportunities to acquire cinema assets and/or to develop upperend specialty type theaters (like our Angelika Film Centers)in the future, we do not feel pressure to build or acquirecinemas for the sake of adding units. We intend to focus our use of cash flow on our real estate development andoperating activities, to the extent that attractive cinema opportunities are not available to us; and·fourth, we are always open to the idea of converting an entertainment property to another use, if there is a higherand better use for the property, or to sell individual assets, if we are presented with an attractive opportunity. 6 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our current cinema assets that we own and/or manage are as set forth in the following chart: Wholly OwnedConsolidated1Unconsolidated2Managed3TotalsAustralia18 cinemas2 cinemas1 cinema4None21 cinemas 138 screens11 screens16 screens 165 screens New Zealand7 cinemasNone2 cinemas5None9 cinemas 40 screens 13 screens 53 screens United States23 cinemas1 cinema6None2 cinemas26 cinemas 238 screens6 screens 9 screens253 screens Totals48 cinemas3 cinemas3 cinemas2 cinemas56 cinemas 416 screens17 screens29 screens9 screens471 screens [1] Cinemas owned and operated through consolidated, but not wholly owned subsidiaries.[2] Cinemas owned and operated through unconsolidated subsidiaries.[3] Cinemas in which we have no ownership interest, but which are operated by us under management agreements.[4] 33.3% unincorporated joint venture interest.[5] 50% unincorporated joint venture interests.[6] The Angelika Film Center and Café in Manhattan is owned by a limited liability company in which we own a 50% interest with rights tomanage. We focus on the ownership and/or operation of three categories of cinemas: ·first, modern stadium seating multiplex cinemas featuring conventional film product;·second, specialty and art cinemas, such as our Angelika Film Centers in Manhattan, Dallas, and Fairfax, Virginiaand the Rialto cinema chain in New Zealand; and ·third, in some markets, particularly small town markets that will not support the development of a modern stadiumdesign multiplex cinema, conventional sloped floor cinemas. We also have various premium class offerings including luxury seating, premium audio, private lounges, café andbar service, and other amenities in certain of our cinemas and are in the process of converting certain of our exiting cinemasto provide this premium offering. Although we operate cinemas in three jurisdictions, the general nature of our operations and operating strategiesdoes not vary materially from jurisdiction to jurisdiction. In each jurisdiction, our gross receipts are primarily from box officereceipts, concession sales, and screen advertising. Our ancillary revenue is created principally from theater rentals (forexample, for film festivals and special events), ancillary programming (such as concerts and sporting events), and internetadvertising and ticket sales. Our cinemas generated approximately 69% of their 2012 revenue from box office receipts. Ticket prices vary bylocation and we offer reduced rates for senior citizens and children. Show times and features are placed in advertisements in local newspapers and on our various websites. In theUnited States, film distributors may also advertise certain feature films in various print, radio and television media, as wellas on the internet and those costs are generally paid by distributors. In Australia and New Zealand, the exhibitor typicallypays the costs of local newspaper film advertisements, while the distributors are responsible for the cost of any nationaladvertising campaign. Concession sales accounted for approximately 26% of our total 2012 revenue. Although certain cinemas havelicenses for the sale and consumption of alcoholic beverages, concession products primarily include popcorn, candy, andsoda. 7 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Screen advertising and other revenue contribute approximately 5% of our total 2012 revenue. With the exception ofcertain rights that we have retained to sell to local advertisers, generally speaking, we are not in the screen advertisingbusiness and nationally recognized screen-advertising companies provide such advertising for us.In New Zealand, we also own a one-third interest in Rialto Distribution. Rialto Distribution, an unincorporated jointventure, is engaged in the business of distributing art film in New Zealand and Australia. The remaining 2/3 interest isowned by the founders of the company, who have been in the art film distribution business since 1993.Management of Cinemas With two exceptions, we manage all of our cinemas with executives located in Los Angeles, Manhattan, Melbourne,Australia, and Wellington, New Zealand. Approximately 2,268 individuals were employed (on a full time or part time basis)in our cinema operations in 2012. Our two New Zealand Rialto cinemas are owned by a joint venture in which ReadingNew Zealand is a 50% joint venture partner. While we are principally responsible for the booking of the cinemas, our jointventure partner, Greater Union, manages the day-to-day operations of these cinemas. In addition, we have a 33.3%interest in a 16-screen Brisbane cinema. Greater Union manages that cinema as well.Licensing/Pricing Film product is available from a variety of sources ranging from the major film distributors such as Columbia,Disney, Buena Vista, DreamWorks, Fox, MGM, Paramount, Warner Bros, and Universal, to a variety of smallerindependent film distributors. In Australia and New Zealand, some of those major distributors distribute through localunaffiliated distributors. The major film distributors dominate the market for mainstream conventional films. Similarly,most art and specialty films come from the art and specialty divisions of these major distributors, such as Fox’s Searchlightand Miramax. Generally speaking, film payment terms are based upon an agreed upon percentage of box office receiptswhich will vary from film to film as films are licensed in Australia, New Zealand and the United States on a film-by-film,theater by theater basis. While in certain markets film may be allocated by the distributor among competitive cinemas, typically in themarkets in which we operate, we have access to all conventional film product. In the art and specialty markets, due to thelimited number of prints available, we from time to time are unable to license all of the films that we might desire to play. Insummary, while in some markets we are subject to film allocation, on the whole, access to film product has not in recentperiods been a major impediment to our operations.Competition In each of the United States, Australia, and New Zealand, film patrons typically select the cinema that they are goingto go to first by selecting the film they want to see, and then by selecting the cinema in which they would prefer to seeit. Accordingly, the principal factor in the success or failure of a particular cinema is access to popular film products. If aparticular film is only offered at one cinema in a given market, then customers wishing to see that film will, of necessity, goto that cinema. If two or more cinemas in the same market offer the same film, then customers will typically take intoaccount factors such as the relative convenience and quality of the various cinemas. In many markets, the number of printsin distribution is less than the number of exhibitors seeking that film for that market, and distributors typically take theposition that they are free to provide or not provide their films to particular exhibitors, at their complete and absolutediscretion. Competition for films can be intense, depending upon the number of cinemas in a particular market. Our ability toobtain top grossing first run feature films may be adversely impacted by our comparatively small size, and the limitednumber of screens we can supply to distributors. Moreover, in the United States, because of the dramatic consolidation ofscreens into the hands of a few very large and powerful exhibitors such as Regal and AMC, these mega exhibitioncompanies are in a position to offer distributors access to many more screens in major markets than we can. Accordingly,distributors may decide to give preference to these mega exhibitors when it comes to licensing top grossing films, ratherthan deal with independents such as ourselves. The situation is different in Australia and New Zealand where typicallyevery major multiplex cinema has access to all of the film currently in distribution, regardless of the ownership of thatmultiplex cinema. However, we have suffered somewhat in these 8 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.markets from competition from boutique operators, who are able to book top grossing commercial films for limited runs,thus increasing competition for customers wishing to view such top film product. Once a patron has selected the film, the choice of cinema is typically impacted by the quality of the cinemaexperience offered weighed against convenience and cost. For example, most cinema patrons seem to prefer a modernstadium design multiplex, to an older sloped floor cinema, and to prefer a cinema that either offers convenient access to freeparking (or public transport) over a cinema that does not. However, if the film they desire to see is only available at a limitednumber of locations, they will typically choose the film over the quality of the cinema and/or the convenience of thecinema. Generally speaking, our cinemas are modern multiplex cinemas with good and convenient parking. As discussedfurther below, the availability of 3D or digital technology and/or premium class seating can also be a factor in the preferenceof one cinema over another. The film exhibition markets in the United States, Australia, and New Zealand are to a certain extent dominated by alimited number of major exhibition companies. The principal exhibitors in the United States are Regal (with 6,880 screensin 540 cinemas), AMC (with 4,804 screens in 332 cinemas), Cinemark (with 3,918 screens in 299 cinemas), andCarmike (with 2,242 screens in 232 cinemas). As of December 31, 2012, we were the 11th largest exhibitor with 1% of thebox office in the United States with 253 screens in 26 cinemas. The principal exhibitors in Australia are Greater Union, which do business under the Event name (a subsidiary ofAmalgamated Holdings Limited), Hoyts Cinemas (“Hoyts”), and Village. The major exhibitors control approximately 66%of the total cinema box office: Event 30%, Hoyts 21%, and Village 15%. Event has 476 screens nationally, Hoyts 359screens, and Village 217 screens. By comparison, our 148 screens represent approximately 7% of the total box office. The principle exhibitors in New Zealand are Event with 101 screens nationally and Hoyts with 64 screens. Readinghas 40 screens (not including partnerships). The major exhibitors in New Zealand control approximately 57% of the totalbox office: Event 35% and Hoyts 22%. Reading has 11% of the market (Event and Reading market share figures again donot include any partnership theaters). Greater Union is the owner of Birch Carroll & Coyle in Australia and purchased Sky Cinemas in New Zealandduring 2010. In addition, generally speaking, all new multiplex cinema projects announced by Village are being jointlydeveloped by a joint venture comprised of Greater Union and Village. These companies have substantial capitalresources. Village had a publicly reported consolidated net worth of approximately $535.1 million (AUS$522.8 million) atJune 30, 2012. The Greater Union organization does not separately publish financial reports, but its parent, AmalgamatedHoldings, had a publicly reported consolidated net worth of approximately $879.1 million (AUS$858.9 million) at June 30,2012. Hoyts is privately held and does not publish financial reports. Hoyts is currently owned by Pacific Equity Partners. In Australia, the industry is somewhat vertically integrated in that Roadshow Film Distributors, a subsidiary ofVillage, serves as a distributor of film in Australia and New Zealand for Warner Brothers and New Line Cinema. Filmsproduced or distributed by the majority of the local international independent producers are also distributed by RoadshowFilm Distributors. Hoyts is also involved in film production and distribution.Digital Exhibition After years of uncertainty as to the future of digital exhibition and the impact of this technology on cinema exhibition,it became clear in 2012 that the industry must go digital. We have now substantially completed the conversion of ourdomestic cinema operations to digital projection. We are in the process of, and anticipate that we will complete in 2013, theconversion of our Australian and New Zealand cinema operations to digital projection. We anticipate that the cost of thisconversion, over time, will be covered in substantial part by the receipt of Virtual Print Fees paid by film distributors for theuse of such digital projection equipment. In-Home CompetitionThe “in-home” entertainment industry has experienced significant leaps in recent periods in both the quality andaffordability of in-home entertainment systems and in the accessibility to entertainment programming 9 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.through cable, satellite, DVD, and internet distribution channels. These alternative distribution channels are puttingpressure on cinema exhibitors to reduce the time period between theatrical and secondary release dates, and certaindistributors are talking about possible simultaneous or near simultaneous releases in multiple channels ofdistribution. These are issues common to both our domestic and international cinema operations. Competitive issues are discussed in greater detail above under the caption, Competition, and under the caption,Item 1A - Risk Factors.Seasonality Major films are generally released to coincide with holidays. With the exception of Christmas and New Year’s Days,this fact provides some balancing of our revenue because there is no material overlap between holidays in the United Statesand those in Australia and New Zealand. Distributors will delay, in certain cases, releases in Australia and New Zealand totake advantage of Australian and New Zealand holidays that are not celebrated in the United States. Employees We have 62 full time executive and administrative employees and approximately 2,268 cinema employees. Ourcinema employees in Wellington, New Zealand and our projectionists in Hawaii are unionized. None of our otheremployees are subject to union contracts. Our one union contract with respect to our projectionists in Hawaii expired onMarch 31, 2012. Our union contracts with respect to our New Zealand employees expired on August 31, 2012. We arecurrently in the process of renegotiating these contracts. None of our Australian based employees is unionized. Overall, weare of the view that the existence of these contracts does not materially increase our costs of labor or our ability tocompete. We believe our relations with our employees to be generally good.Our Real Estate Activities Our real estate activities have historically consisted principally of:·the ownership of fee or long-term leasehold interests in properties used in our cinema exhibition activities or whichwere acquired for the development of cinemas or cinema based real estate development projects;·the acquisition of fee interests in land for general real estate development;·the leasing to shows of our live theaters; and·the redevelopment of our existing fee owned cinema or live theater sites to their highest and best use. While we report our real estate as a separate segment, it has historically operated as an integral portion of ouroverall business and, again historically, has principally been in support of that business. In recent periods, however, wehave acquired or developed properties which do not have any cinema or other entertainment component. As opportunitiesfor cinema development become more limited, it is likely that our real estate activities will continue to expand beyond thedevelopment of entertainment-oriented properties. Our real estate activities, holdings and developments are described in greater detail in Item 2 – Properties. 10 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1A – Risk Factors Investing in our securities involves risk. Set forth below is a summary of various risk factors that you shouldconsider in connection with your investment in our company. This summary should be considered in the context of ouroverall Annual Report on Form 10K, as many of the topics addressed below are discussed in significantly greater detail inthe context of specific discussions of our business plan, our operating results, and the various competitive forces that weface.Business Risk FactorsWe are currently engaged principally in the cinema exhibition and real estate businesses. Since we operate in twobusiness segments (cinema exhibition and real estate), we discuss separately below the risks we believe to be material toour involvement in each of these segments. We have discussed separately certain risks relating to the international natureof our business activities, our use of leverage, and our status as a controlled corporation. Please note, that while we reportthe results of our live theater operations as real estate operations – since we are principally in the business of renting spaceto producers rather than in licensing or producing plays ourselves – the cinema exhibition and live theater businesses sharecertain risk factors and are, accordingly, discussed together below.Cinema Exhibition and Live Theater Business Risk FactorsWe operate in a highly competitive environment, with many competitors who are significantly larger and mayhave significantly better access to funds than do we.We are a comparatively small cinema operator and face competition from much larger cinema exhibitors. Theselarger exhibitors are able to offer distributors more screens in more markets – including markets where they may be theexclusive exhibitor – than can we. In some cases, faced with such competition, we may not be able to get access to all ofthe films we want, which may adversely affect our revenue and profitability.These larger competitors may also enjoy (i) greater cash flow, which can be used to develop additional cinemas,including cinemas that may be competitive with our existing cinemas, (ii) better access to equity capital and debt, and (iii)better visibility to landlords and real estate developers, than do we. In the case of our live theaters, we compete for shows not only with other “for profit” off-Broadway theaters, but alsowith not-for-profit operators and, increasingly, with Broadway theaters. We believe our live theaters are generallycompetitive with other off-Broadway venues. However, due to the increased cost of staging live theater productions, we areseeing an increasing tendency for plays that would historically have been staged in an off-Broadway theater, moving directlyto larger Broadway venues.We face competition from other sources of entertainment and other entertainment delivery systems.Both our cinema and live theater operations face competition from developing “in-home” sources ofentertainment. These include competition from DVDs, cable and satellite television, pay per view, the internet and othersources of entertainment, and video games. The quality of in-house entertainment systems has increased while the cost ofsuch systems has decreased in recent periods, and some consumers may prefer the security of an ”in-home” entertainmentexperience to the more public experience offered by our cinemas and live theaters. The movie distributors have beenresponding to these developments by, in some cases, decreasing the period of time between cinema release and the datesuch product is made available to “in-home” forms of distribution. The narrowing of this so-called “window” for cinema exhibition may be problematic for the cinema exhibitionindustry. On the other hand, the significant quantity of films produced in recent periods has probably had more to do, atleast to date, with the shortening of the time most movies play in the cinemas, than any shortening of the cinema exhibitionwindow. In recent periods, there has been discussion about the possibility of eliminating the cinema window altogether forcertain films, in favor of a simultaneous release in multiple channels of distribution, such as theaters, pay-per-view, andDVD. However, again to date, this move has been strenuously resisted by the cinema exhibition industry and we view thetotal elimination of the cinema exhibition window, while theoretically possible, to be unlikely. 11 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.However, there is the risk that, over time, distributors may move towards simultaneous release of motion pictureproduct in multiple channels of distribution. This would adversely affect the competitive advantage enjoyed by cinemas over“in-home” forms of entertainment, as it may be that both the cinema market and the “in-home” market will havesimultaneous access to motion picture product.We also face competition from various other forms of “beyond-the-home” entertainment, including sporting events,concerts, restaurants, casinos, video game arcades, and nightclubs. Our cinemas also face competition from live theatersand vice versa.Competition from less expensive “in-home” entertainment alternatives may be intensified as a result of the currenteconomic recession.Our cinema operations depend upon access to film that is attractive to our patrons and our live theateroperations depend upon the continued attractiveness of our theaters to producers.Our ability to generate revenue and profits is largely dependent on factors outside of our control, specifically, thecontinued ability of motion picture and live theater producers to produce films and plays that are attractive to audiences, theamount of money spent by film distributors to promote their motion pictures, and the willingness of these producers tolicense their films on terms that are financial viable to our cinemas and to rent our theaters for the presentation of theirplays. To the extent that popular movies and plays are produced, our cinema and live theater activities are ultimatelydependent upon our ability, in the face of competition from other cinema and live theater operators, to book these moviesand plays into our facilities.We rely on film distributors to supply the films shown in our theatres. In the U.S., the film distribution business ishighly concentrated, with six major film distributors accounting for approximately 83.0% of U.S. box office revenues.Numerous antitrust cases and consent decrees resulting from these antitrust cases impact the distribution of films. Theconsent decrees bind certain major film distributors to license films to exhibitors on a theatre-by-theatre and film-by-filmbasis. Consequently, we cannot guarantee a supply of films by entering into long-term arrangements with majordistributors. We are therefore required to negotiate licenses for each film and for each theatre. A deterioration in ourrelationship with any of the [six] major film distributors could adversely affect our ability to obtain commercially successfulfilms and to negotiate favorable licensing terms for such films, both of which could adversely affect our business andoperating results.Adverse economic conditions could materially affect our business by reducing discretionary income and bylimiting or reducing sources of film and live theater funding.Cinema and live theater attendance is a luxury, not a necessity. Accordingly, a decline in the economy resulting ina decrease in discretionary income, or a perception of such a decline, may result in decreased discretionary spending, whichcould adversely affect our cinema and live theater businesses. Adverse economic conditions can also affect the supply sideof our business, as reduced liquidity can adversely affect the availability of funding for movies and plays. This is particularlytrue in the case of Off-Broadway plays, which are often times financed by high net worth individuals or groups of suchindividuals and which are very risky due to the absence of any ability to recoup investment in secondary markets like DVDor cable.Our screen advertising revenue may decline. Over the past several years, cinema exhibitors have been looking increasingly to screen advertising as a way toboost income. No assurances can be given that this source of income will be continuing or that the use of such advertisingwill not ultimately prove to be counterproductive by giving consumers a disincentive to choose going to the movies over “in-home” entertainment alternatives.We face uncertainty as to the timing and direction of technological innovations in the cinema exhibitionbusiness and as to our access to those technologies.We are now in the midst of converting substantially all of our cinema auditoriums to digital projection. However, noassurances can be given that other technological advances will not require us to make further material investments in ourcinemas or face loss of business. For example, only a limited number of our cinemas are 12 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.equipped with the 48 frame per second equipment that is required to show such films as The Hobbit. Also, equipment iscurrently being developed for holographic or laser projection. The future of these technologies in the cinema exhibitionindustry is uncertain.Real Estate Development and Ownership Business RisksWe operate in a highly competitive environment, in which we must compete against companies with muchgreater financial and human resources than we have.We have limited financial and human resources, compared to our principal real estate competitors. In recentperiods, we have relied heavily on outside professionals in connection with our real estate development activities. Many ofour competitors have significantly greater resources than do we and may be able to achieve greater economies of scale thancan we.Risks Related to the Real Estate Industry GenerallyOur financial performance will be affected by risks associated with the real estate industry generally. Events and conditions generally applicable to developers, owners, and operators of real property will affect ourperformance as well. These include (i) changes in the national, regional and local economic climate, (ii) local conditionssuch as an oversupply of, or a reduction in demand for commercial space and/or entertainment oriented properties, (iii)reduced attractiveness of our properties to tenants, (iv) the rental rates and capitalization rates applicable to the markets inwhich we operate and the quality of properties that we own, (v) competition from other properties, (vi) inability to collect rentfrom tenants, (vii) increased operating costs, including labor, materials, real estate taxes, insurance premiums, andutilities, (viii) costs of complying with changes in government regulations, (ix) the relative illiquidity of real estateinvestments, and (x) decreases in sources of both construction and long-term lending as traditional sources of such fundingleave or reduce their commitments to real estate based lending. In addition, periods of economic slowdown or recession,rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, couldresult in declining rents or increased lease defaults.We may incur costs complying with the Americans with Disabilities Act and similar laws. Under the Americans with Disabilities Act and similar statutory regimes in Australia and New Zealand or underapplicable state law, all places of public accommodation (including cinemas and theaters) are required to meet certaingovernmental requirements related to access and use by persons with disabilities. A determination that we are not incompliance with those governmental requirements with respect to any of our properties could result in the imposition offines or an award of damages to private litigants. The cost of addressing these issues could be substantial. Illiquidity of real estate investments could impede our ability to respond to adverse changes in theperformance of our properties. Real estate investments are relatively illiquid and, therefore, tend to limit our ability to vary our portfolio promptly inresponse to changes in economic or other conditions. Many of our properties are either (i) “special purpose” properties thatcould not be readily converted to general residential, retail or office use, or (ii) undeveloped land. In addition, certainsignificant expenditures associated with real estate investment, such as real estate taxes and maintenance costs, aregenerally not reduced when circumstances cause a reduction in income from the investment and competitive factors mayprevent the pass-through of such costs to tenants.Real estate development involves a variety of risks. 13 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Real estate development includes a variety of risks, including the following:·The identification and acquisition of suitable development properties. Competition for suitable developmentproperties is intense. Our ability to identify and acquire development properties may be limited by our size andresources. Also, as we and our affiliates are considered to be “foreign owned” for purposes of certain Australian andNew Zealand statutes, we have been in the past, and may in the future be, subject to regulations that are notapplicable to other persons doing business in those countries.·The procurement of necessary land use entitlements for the project. This process can take many years,particularly if opposed by competing interests. Competitors and community groups (sometimes funded by suchcompetitors) may object based on various factors including, for example, impacts on density, parking, traffic, noiselevels and the historic or architectural nature of the building being replaced. If they are unsuccessful at the localgovernmental level, they may seek recourse to the courts or other tribunals. This can delay projects and increasecosts. ·The construction of the project on time and on budget. Construction risks include the availability and cost offinance; the availability and costs of material and labor; the costs of dealing with unknown site conditions (includingaddressing pollution or environmental wastes deposited upon the property by prior owners); inclement weatherconditions; and the ever-present potential for labor related disruptions. ·The leasing or sell-out of the project. Ultimately, there are risks involved in the leasing of a rental property or thesale of a condominium or built-for-sale property. For our entertainment themed retail centers (“ETRCs”), the extentto which our cinemas can continue to serve as an anchor tenant will be influenced by the same factors as willinfluence generally the results of our cinema operations. Leasing or sale can be influenced by economic factors thatare neither known nor knowable at the commencement of the development process and by local, national, andeven international economic conditions, both real and perceived.·The refinancing of completed properties. Properties are often developed using relatively short-term loans. Uponcompletion of the project, it may be necessary to find replacement financing for these loans. This process involvesrisk as to the availability of such permanent or other take-out financing, the interest rates, and the payment termsapplicable to such financing, which may be adversely influenced by local, national, or international factors. To date,we have been successful in negotiating development loans with roll over or other provisions mitigating our need torefinance immediately upon completion of construction. The ownership of properties involves risk. The ownership of investment properties involves risks, such as: (i) ongoing leasing and re-leasing risks, (ii)ongoing financing and re-financing risks, (iii) market risks as to the multiples offered by buyers of investment properties, (iv)risks related to the ongoing compliance with changing governmental regulation (including, without limitation,environmental laws and requirements to remediate environmental contamination that may exist on a property (such as, byway of example, asbestos), even though not deposited on the property by us), (v) relative illiquidity compared to some othertypes of assets, and (vi) susceptibility of assets to uninsurable risks, such as biological, chemical or nuclearterrorism. Furthermore, as our properties are typically developed around an entertainment use, the attractiveness of theseproperties to tenants, sources of finance and real estate investors will be influenced by market perceptions of the benefitsand detriments of such entertainment type properties.International Business RisksOur international operations are subject to a variety of risks, including the following:Risk of currency fluctuations. While we report our earnings and assets in US dollars, substantial portions of ourrevenue and of our obligations are denominated in either Australian or New Zealand dollars. The value of these currenciescan vary significantly compared to the US dollar and compared to each other. We typically have not hedged against thesecurrency fluctuations, but rather have relied upon the natural hedges that exist as a result of the fact that our film costs aretypically fixed as a percentage of the box office, and our local operating costs and obligations are likewise typicallydenominated in local currencies. However, we do have debt at our parent company level that is serviced by our overseascash flow and our ability to service this debt could be adversely impacted by declines in the relative value of the Australianand New Zealand dollar compared to the US dollar. Our cash in Australia and New Zealand of $17.5 million (AUS$16.8million) and $6.3 million (NZ$7.6 million), 14 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.respectively, is denominated in local currencies and subject to the risk of currency exchange rate fluctuations. Also, our useof local borrowings to mitigate the business risk of currency fluctuations has reduced our flexibility to move cash betweenjurisdictions. Set forth below is a chart of the exchange ratios between these three currencies over the past twenty years:·Risk of adverse government regulation. At the present time, we believe that relations between the United States,Australia, and New Zealand are good. However, no assurances can be given that this relationship will continueand that Australia and New Zealand will not in the future seek to regulate more highly the business done by UScompanies in their countries. ·Risk of adverse labor relations. Our labor relations and costs of labor (including future government requirementswith respect to pension liabilities, disability insurance and health coverage, and vacations and leave).Risks Associated with Certain Discontinued OperationsCertain of our subsidiaries were previously in industrial businesses. As a consequence, properties that arecurrently owned or may have in the past been owned by these subsidiaries may prove to have environmentalissues. Where we have knowledge of such environmental issues and are in a position to make an assessment as to ourexposure, we have established what we believe to be appropriate reserves, but we are exposed to the risk that currentlyunknown problems may be discovered. These subsidiaries are also exposed to potential claims related to exposure offormer employees to coal dust, asbestos, and other materials now considered to be, or which in the future may be found tobe, carcinogenic or otherwise injurious to health. Operating Results, Financial Structure and Borrowing RiskFrom time to time, we may have negative working capital. In recent years, as we have invested our cash in new acquisitions and the development of our existing properties,we have from time to time had negative working capital. This negative working capital is typical in the cinema exhibitionindustry because our short-term liabilities are in part financing our long-term assets instead of long-term liabilities financingshort-term assets as is the case in other industries such as manufacturing and distribution. 15 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We have substantial short to medium term debt.Generally speaking, we have historically financed our operations through relatively short-term debt. No assurancescan be given that we will be able to refinance this debt, or if we can, that the terms will be reasonable. However, as acounterbalance to this debt, we have significant unencumbered real property assets, which could be sold to pay debt orencumbered to assist in the refinancing of existing debt, if necessary. In February 2007, we issued $50.0 million in 20-year TPS, and utilized the net proceeds principally to retire short-term bank debt in New Zealand and Australia. The interest rate on our TPS was only fixed for five years. Additionally, weused US dollar denominated obligations to retire debt denominated in New Zealand and Australian dollars which hasincreased our exposure to currency risk. In the first quarter of 2009, we repurchased $22.9 million of our TPS at a 50%discount.At the present time, corporate borrowers both domestically and internationally are facing greater than normalconstraints on liquidity. No assurances can be given that we will be able to refinance these debts as they become due.We have substantial lease liabilities.Most of our cinemas operate in leased facilities. These leases typically have cost of living or other rent adjustmentfeatures and require that we operate the properties as cinemas. A down turn in our cinema exhibition business might,depending on its severity, adversely affect the ability of our cinema operating subsidiaries to meet these rentalobligations. Even if our cinema exhibition business remains relatively constant, cinema level cash flow will likely beadversely affected unless we can increase our revenue sufficiently to offset increases in our rental liabilities. Unlike propertyrental leases, our newly added digital equipment leases do not have cost of living or other lease adjustment features.Our stock is thinly traded.Our stock is thinly traded, with an average daily volume in 2012 of only approximately 53,000 shares. This canresult in significant volatility, as demand by buyers and sellers can easily get out of balance. Ownership and Management Structure, Corporate Governance, and Change of Control Risks The interests of our controlling stockholder may conflict with your interests.Mr. James J. Cotter beneficially owns 70.4% of our outstanding Class B Stock. Our Class A Stock is non-voting,while our Class B Stock represents all of the voting power of our Company. As a result, as of December 31, 2012, Mr.Cotter controlled 70.4% of the voting power of all of our outstanding common stock. For as long as Mr. Cotter continues toown shares of common stock representing more than 50% of the voting power of our common stock, he will be able to electall of the members of our board of directors and determine the outcome of all matters submitted to a vote of our stockholders,including matters involving mergers or other business combinations, the acquisition or disposition of assets, the incurrenceof indebtedness, the issuance of any additional shares of common stock or other equity securities and the payment ofdividends on common stock. Mr. Cotter will also have the power to prevent or cause a change in control, and could takeother actions that might be desirable to Mr. Cotter but not to other stockholders. In addition, Mr. Cotter and his affiliates havecontrolling interests in companies in related and unrelated industries. In the future, we may participate in transactions withthese companies (see Note 25 – Related Parties and Transactions to our 2012 Consolidated Financial Statements).Since we are a Controlled Company, our Directors have determined to take advantage of certain exemptionsprovide by the NASDAQ from the corporate governance rules adopted by that Exchange.Generally speaking, the NASDAQ requires listed companies to meet certain minimum corporate governanceprovisions. However, a Controlled Corporation, such as we, may elect not to be governed by certain of theseprovisions. Our board of directors has elected to exempt our Company from requirements that (i) at least a 16 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.majority of our directors be independent, (ii) nominees to our board of directors be nominated by a committee comprisedentirely of independent directors or by a majority of our Company’s independent directors, and (iii) the compensation of ourchief executive officer be determined or recommended to our board of directors by a compensation committee comprisedentirely of independent directors or by a majority of our Company’s independent directors. Notwithstanding thedetermination by our board of directors to opt-out of these NASDAQ requirements, a majority of our board of directors isnevertheless currently comprised of independent directors, and our compensation committee is nevertheless currentlycomprised entirely of independent directors.We depend on key personnel for our current and future performance.Our current and future performance depends to a significant degree upon the continued contributions of our seniormanagement team and other key personnel. The loss or unavailability to us of any member of our senior managementteam or a key employee could significantly harm us. We cannot assure you that we would be able to locate or employqualified replacements for senior management or key employees on acceptable terms. 17 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1B - Unresolved Staff CommentsNone. 18 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 2 – PropertiesExecutive and Administrative Offices We lease approximately 9,800 square feet of office space in Los Angeles, California to serve as our executiveheadquarters. We own an 8,100 square foot office building in Melbourne, Australia, approximately 5,200 square feet ofwhich serves as the headquarters for our Australian and New Zealand operations (the remainder being leased to anunrelated third party). We maintain our accounting personnel and certain IT and operational personnel in approximately5,900 square foot of offices located in our Wellington Courtenay Central shopping center. We occupy approximately 3,500square feet at our Village East leasehold property for administrative purposes. We also own a residential condominium unitin Los Angeles, used for offsite corporate meetings and residential space by our Chairman and Chief Executive Officer. Entertainment PropertiesEntertainment Use Leasehold Interests As of December 31, 2012, we lease approximately 1.8 million square feet of completed cinema space in the UnitedStates, Australia, and New Zealand as follows: Aggregate Square Footage Approximate Range ofRemaining Lease Terms(including renewals) United States 942,000 2013 – 2049 Australia 721,000 2017 – 2049 New Zealand 141,000 2024 – 2034 During September 2012, we opened an 8-screen art cinema in the Mosaic District in the greater Washington D.C.metropolitan area. Additionally, during 2012, we elected not to renew the leases of our 4-screen Hastings cinema in NewZealand and our 4-screen Kukui cinema in Hawaii. We terminated operations with the Hastings cinema in January 2012and we terminated operations for our Kukui cinema in November 2012. Entertainment Use Fee Interests In Australia, as of December 31, 2012, we own approximately 3.2 million square feet of land at nine locations. Mostof this land is located in the greater metropolitan areas of Brisbane, Melbourne, Perth, and Sydney, including the 50.6-acreBurwood site. Of these fee interests, approximately 145,000 square feet are currently improved with cinemas. In New Zealand, as of December 31, 2012, we own approximately 3.4 million square feet of land at sevenlocations. This includes the Courtney Central ETRC in Wellington, the 70.3 acre Manakau site, and the fee interestsunderlying three cinemas in New Zealand, which properties include approximately 22,000 square feet of ancillary retailspace. In the United States, as of December 31, 2012, we own approximately 134,000 square feet of improved real estatecomprised of four live theater buildings, which include approximately 58,000 square feet of leasable space, and the feeinterest in our Cinemas 1, 2 & 3 in Manhattan (held through a limited liability company in which we have a 75% managingmember interest).Live Theaters (“Liberty Theaters”) Included among our real estate holdings are four “Off Broadway” style live theaters, operated through our LibertyTheaters subsidiary. We license theater auditoriums to the producers of “Off Broadway” theatrical productions and providevarious box office and concession services. The terms of our licenses are, naturally, principally dependent upon thecommercial success of our tenants. STOMP has been playing at our Orpheum Theatre in excess of 16 years. While weattempt to choose productions that we believe will be successful, we have no control over the production itself. At the currenttime, we have three single auditorium theaters in Manhattan: 19 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.·the Minetta Lane (399 seats);·the Orpheum (347 seats); and·the Union Square (499 seats).We also own a four-auditorium theater complex, the Royal George in Chicago (main stage 452 seats, cabaret 199seats, great room 100 seats and gallery 60 seats). Two of the properties, the Union Square and the Royal George, haveancillary retail and office space.Liberty Theaters is primarily in the business of renting theater space. However, we may from time to timeparticipate as an investor in a play, which can help facilitate the production of the play at one of our facilities, and do fromtime to time rent space on a basis that allows us to share in a production’s revenue or profits. Revenue, expense, andprofits are reported as a part of the real estate segment of our business.Joint Venture Cinema Interests We also hold real estate through several unincorporated joint ventures, two 75% owned subsidiaries, and onemajority-owned subsidiary, as described below:·in Australia, we own a 75% interest in a subsidiary company that leases two cinemas with eleven screens in twoAustralian country towns, and a 33% unincorporated joint venture interest in a 16-screen leasehold cinema in asuburb of Brisbane. ·in New Zealand, we own a 50% unincorporated joint venture interest in two cinemas with 13 screens in the NewZealand cities of Auckland and Dunedin. ·In the United States, we own a 50% membership interest in Angelika Film Center, LLC, which holds the lease tothe approximately 17,000 square foot Angelika Film Center & Café in the Soho district of Manhattan. We also holdthe management rights with respect to this asset. We also own a 75% managing member interest in the limitedliability company that owns our Cinemas 1, 2 & 3 property and a 50% managing member interest in Shadow ViewLand & Farming, LLC which owns an approximately 202-acre property in Riverside County, California which,while zoned residential and approved for 823 single family lots. 20 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Income Operating Property As of December 31, 2012, we own fee interests in approximately 1.0 million square feet of income producingproperties (including certain properties principally occupied by our cinemas). Square Feet of ImprovementsPercentageGross Book ValueProperty7(rental/entertainment)Leased(in U.S. Dollars) Auburn60000 / 57000 100 Parramatta RoadPlus a 871-space100%$35,894,000Auburn, NSW, Australiaparking structure Belmont Knutsford Avenue and15000 / 5200078%$16,102,000Fulham Street Belmont, WA, Australia Cinemas 1, 2 & 38 1003 Third Avenue0 / 21000N/A$23,626,000Manhattan, NY, USA Courtenay Central38000 / 71000 100 Courtenay PlacePlus a 1,086-space75%$26,237,000Wellington, New Zealandparking structure [7] Rental square footage refers to the amount of area available to be rented to third parties and the percentage leased is the amount of suchrental square footage currently leased to third parties. A number of our real estate holdings include entertainment components rented to one ormore of our subsidiaries. The rental area to such subsidiaries is noted under the entertainment square footage. The gross book value refers tothe gross carrying cost of the land and buildings of the property. Book value and rental information are as of December 31, 2012.[8] This property is owned by a limited liability company in which we hold a 75% managing interest. The remaining 25% is owned by SuttonHill Investments, LLC, a company owned in equal parts by our Chairman and Chief Executive Officer, Mr. James J. Cotter, and MichaelForman. 21 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Square Feet of ImprovementsPercentageGross Book ValueProperty(rental/entertainment)Leased(in U.S. Dollars)Invercargill Cinema 29 Dee Street10000 / 2400072%$3,243,000Invercargill, New Zealand Lake Taupo Motel 138-140 Lake Terrace Road9000 / 0Short-term rentals$2,283,000Taupo, New Zealand Maitland Cinema Ken Tubman Drive0 / 22000N/A$2,472,000Maitland, NSW, Australia Minetta Lane Theatre 18-22 Minetta Lane0 / 9000N/A$8,354,000Manhattan, NY, USA Napier Cinema 154 Station Street12000 / 17000100%$3,547,000Napier, New Zealand Newmarket 400 Newmarket Road93000 / 0 Newmarket, Queensland,Plus a 436-space97%$45,087,000Australiaparking structure Orpheum Theatre 126 2nd Street0 / 5000N/A$3,439,000Manhattan, NY, USA Royal George37000 / 23000 1633 N. Halsted StreetPlus a 55-space91%$3,415,000Chicago, IL, USAparking structure Rotorua Cinema 1281 Eruera Street0 / 19000N/A$3,044,000Rotorua, New Zealand Union Square Theatre 100 E. 17th Street21000 / 17000100%$8,900,000Manhattan, NY, USA 22 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Long-Term Leasehold Operating PropertyIn addition, in certain cases we have long-term leases that we view more akin to real estate investments thancinema leases. As of December 31, 2012, we had approximately 169,000 square foot of space subject to such long-termleases. Square Feet of ImprovementsPercentageGross Book ValueProperty9(rental/entertainment)Leased(in U.S. Dollars) Manville0 / 53000N/A$2,285,000 Tower0 / 16000N/A$994,000 Village East104000 / 38000100%$11,877,000 Waurn Ponds6000 / 52000100%$3,656,000 [9] Rental square footage refers to the amount of area available to be rented to third parties, and the percentage leased is the amount of rentalsquare footage currently leased to third parties. A number of our long-term leasehold operating property include entertainment componentsrented to one or more of our subsidiaries. The rental area to such subsidiaries is noted under the entertainment square footage. Book valueincludes the entire investment in the leased property, including any cinema fit-out. Rental and book value information is as of December 31,2012.[10] The lease of the Village East provides for a call option pursuant to which Reading may purchase the cinema ground lease for $5.9 millionat the end of the lease term in 2020. Additionally, the lease has a put option pursuant to which SHC may require Reading to purchase all or aportion of SHC's interest in the existing cinema lease and the cinema ground lease at any time between July 1, 2013 and December 4,2019. See Note 25 - Related Parties and Transactions to our 2012 Consolidated Financial Statements. 23 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Investment and Development Property We are engaged in several investment and development projects relative to our currently undeveloped parcels ofland. In addition, we anticipate that redevelopment of one or more of our existing developed properties may also occur. Gross Book Value Property11Acreage(in U.S. Dollars)Status Auburn, Sydney, Australia2.6 acres$2,107,000We are actively pursuing the developmentof the next phase of this property.Burwood, Victoria, Australia50.6 acres$54,156,000We continue to evaluate our options withregards to this property.Coachella,CA, USA202 acres$4,050,000We continue to evaluate our options withregards to this property.Courtenay Central, Wellington, New Zealand1.1 acres$6,831,000We are actively pursuing the developmentof the next phase of this property.Moonee Ponds, Victoria,Australia3.3 acres$12,728,000Zoned for high-density as a “PrincipalActivity Area.” Recently, this property hasenjoyed a rezoning by the city increasingour permitted development potential fromup to 10 levels to a range of 10 to 16 levels.We continue to evaluate our options withregards to this property.Lake Taupo, Taupo, NewZealand0.5 acre$2,283,000We are actively pursuing various methodsto dispose of this property. [11] A number of our real estate holdings include additional land held for development. In addition, we have acquired certain parcels forfuture development. The gross book value includes, as applicable, the land, building, development costs, and capitalized interest. 24 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Gross Book Value Property11Acreage(in U.S. Dollars)Status Manakau, Auckland, New Zealand64 acres zonedagricultural and 6.4 acreszoned light industrial$14,021,000The bulk of the land is zoned foragriculture and is currently used forhorticulture commercial purposes. Adevelopment plan has been filed to rezonethe property for warehouse, distributionand manufacturing uses. We currentlyanticipate that this rezoning will beapproved. In 2010, we acquired anadjacent property which is zonedindustrial, but is currentlyunimproved. This property links ourexisting parcel with the existing roadnetwork.Some of our income operating property and our investment and development property carry various debtencumbrances based on their income streams and geographic locations. For an explanation of our debt and the associatedsecurity collateral please see Note 12 – Notes Payable to our 2012 Consolidated Financial Statements.Other Property Interests and Investments We own the fee interest in 11 parcels comprising 195 acres in Pennsylvania and Delaware. These acres consistprimarily of vacant land. With the exception of certain properties located in Philadelphia (including the raised railroad bedleading to the old Reading Railroad Station), the properties are principally located in rural areas of Pennsylvania andDelaware. Additionally, we own a condominium in the Los Angeles, California area that is used for offsite corporatemeetings and by our Chief Executive Officer when he is in town. Except for a negative pledge on the aforementioned LosAngeles condominium, these properties are unencumbered with any debt and are lien free. 25 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 3 – Legal Proceedings Tax Audit/LitigationThe Internal Revenue Service (the “IRS”) has examined the tax return of Reading Entertainment Inc. (“RDGE”) forits tax years ended December 31, 1996 through December 31, 1999 and the tax return of Craig Corporation (“CRG”) for itstax year ended June 30, 1997. These companies are both now wholly owned subsidiaries of the Company, but for the timeperiods under audit, were not consolidated with the Company for tax purposes. CRG and the IRS agreed to compromise the claims made by the IRS against CRG and the Tax Court’s order wasentered on January 6, 2011. In the settlement, the IRS conceded 70% of its claimed adjustment to income. Instead of aclaim for unpaid taxes of $20.9 million plus interest, the effect of settlement on the Reading consolidated group was torequire a total federal income tax obligation of $5.4 million, reduced by a federal tax refund of $800,000 and increased byinterest of $9.3 million, for a net federal tax liability of $13.9 million as of January 6, 2011. On October 26, 2011, CRGreached an agreement with the IRS for an installment plan to pay off this federal tax liability, including additional interestaccruals at the prescribed IRS floating rate. The agreement requires monthly payments of $290,000 over a period ofapproximately five years. As of December 31, 2012 and 2011, after the payments made during 2012 and 2011, respectively,the remaining federal tax obligation was $10.0 million and $13.5 million, respectively, in tax and interest. Of the $10.0million owed under the installment agreement as of December 31, 2012, $3.5 million was recorded as current taxespayable, with the remaining balance being recorded as non-current tax liability. Of the $13.5 million owed under theinstallment agreement as of December 31, 2011, $3.5 million was recorded as current taxes payable, with the remainingbalance being recorded as non-current tax liability. The impact of the settlement upon the state taxes of the Reading consolidated group, if the adjustment to incomeagreed with the IRS were reflected on state returns, would be an obligation of approximately $1.4 million in tax plus interestand potential penalty. CRG’s 1997 tax year remains open with respect to CRG’s potential tax liability to the State ofCalifornia. As of December 31, 2012, no deficiency has been asserted by the State of California, and we have made no finaldecision as to the course of action to be followed if a deficiency is asserted.Environmental and Asbestos ClaimsCertain of our subsidiaries were historically involved in railroad operations, coal mining, and manufacturing. Also,certain of these subsidiaries appear in the chain of title of properties that may suffer from pollution. Accordingly, certain ofthese subsidiaries have, from time to time, been named in and may in the future be named in various actions broughtunder applicable environmental laws. Also, we are in the real estate development business and may encounter from timeto time unanticipated environmental conditions at properties that we have acquired for development. These environmentalconditions can increase the cost of such projects, and adversely affect the value and potential for profit of such projects. Wedo not currently believe that our exposure under applicable environmental laws is material in amount.From time to time, we have claims brought against us relating to the exposure of former employees of our railroadoperations to asbestos and coal dust. These are generally covered by an insurance settlement reached in September 1990with our insurance carriers. However, this insurance settlement does not cover litigation by people who were not ouremployees and who may claim second hand exposure to asbestos, coal dust and/or other chemicals or elements nowrecognized as potentially causing cancer in humans. Our known exposure to these types of claims, asserted or probable ofbeing asserted, is not material. In connection with the development of our 50.6 acre Burwood site, it will be necessary to address certainenvironmental issues. That property was at one time used as a brickworks and we have discovered petroleum andasbestos at the site. During 2007, we developed a plan for the remediation of these materials, in some cases throughremoval and in other cases through encapsulation. As of December 31, 2012, we estimate that the total site preparationcosts associated with the removal of this contaminated soil will be $17.7 million (AUS$17.1 million) and as of that date wehad already incurred a total of $8.6 million (AUS$8.3 million) of these costs. We do not believe that this has addedmaterially to the overall development cost of the site, as it is anticipated that all of the 26 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.work will be done in connection with the excavation and other development activity already contemplated for the property. 27 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIItem 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities(a) Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder MattersMarket InformationReading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries andcorporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was incorporated in 1999. Historically, wehave been listed on the AMEX and due to the 2008 purchase of the AMEX by the NYSE Alternext US, we were listed on thatexchange at December 31, 2008. During July 2009, we moved our listing from NYSE Alternext to NASDAQ.The following table sets forth the high and low closing prices of the RDI and RDIB common stock for each of thequarters in 2012 and 2011 as reported by NASDAQ: Class A Stock Class B Stock High Low High Low 2012Fourth Quarter$6.23 $5.48 $7.40 $5.64 Third Quarter$6.58 $4.73 $7.95 $5.00 Second Quarter$5.88 $4.62 $6.75 $4.53 First Quarter$4.56 $4.12 $7.00 $4.26 2011Fourth Quarter$4.30 $3.95 $7.01 $4.26 Third Quarter$4.49 $3.88 $7.00 $6.00 Second Quarter$5.02 $4.53 $7.00 $5.25 First Quarter$5.16 $4.86 $9.00 $6.04The following table summarizes the securities authorized for issuance under our equity compensation plans: Plan category Number ofsecurities to beissued uponexercise ofoutstandingoptions,warrants, andrights Weighted-average exerciseprice ofoutstandingoptions,warrants, andrights Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplansEquity compensation plans approved by securityholders 857,450 $7.03 1,829,436 Total 857,450 $7.03 1,829,436 Performance Graph The following line graph compares the cumulative total stockholder return on Reading International, Inc.’s commonstock for the years ended December 31, 2008, 2009, 2010, 2011, and 2012 against the cumulative total return as calculatedby the NASDAQ composite, the motion picture theater operator group, and the real estate operator group. 28 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Holders of RecordThe number of holders of record of our Class A Stock and Class B Stock in 2012 was approximately 3,500 and 300,respectively. On March 18, 2013, the closing price per share of our Class A Stock was $5.64 and the closing price per shareof our Class B Stock was $5.65.Dividends on Common StockWe have never declared a cash dividend on our common stock and we have no current plans to declare a dividend;however, we review this matter on an ongoing basis.(b) Recent Sales of Unregistered Securities; Use of Proceeds from Registered SecuritiesNone.(c) Purchases of Equity Securities by the Issuer and Affiliated PurchasersDuring 2011, we purchased 172,300 of Class A Nonvoting shares on the open market for $747,000. Additionally,during the first quarter of 2010, we purchased 62,375 shares for a total cost of $251,000. No shares were purchased during2012. 29 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 6 – Selected Financial DataThe table below sets forth certain historical financial data regarding our Company. This information is derived inpart from, and should be read in conjunction with our consolidated financial statements included in Item 8 of this AnnualReport on Form 10-K for the year ended December 31, 2012 (the “2012 Annual Report”), and the related notes to theconsolidated financial statements (dollars in thousands, except per share amounts). At or for the Year Ended December 31, 2012 2011 2010 2009 2008Revenue$254,430 $244,979 $229,322 $216,740 $197,055 Operating income (loss)$19,127 $18,178 $13,069 $13,910 $(2,134)Income (loss) from discontinued operations$(405)$1,888 $97 $12 $(154)Net income (loss)$(1,406)$10,896 $(12,034)$6,482 $(16,189)Net income (loss) attributable to ReadingInternational, Inc. shareholders$(914)$9,956 $(12,650)$6,094 $(16,809) Basic earnings (loss) per share – continuingoperations$(0.02)$0.36 $(0.56)$0.27 $(0.74)Basic earnings (loss) per share – discontinuedoperations$(0.02)$0.08 $--$--$(0.01)Basic earnings (loss) per share$(0.04)$0.44 $(0.56)$0.27 $(0.75)Diluted earnings (loss) per share – continuingoperations$(0.02)$0.35 $(0.56)$0.27 $(0.75)Diluted earnings (loss) per share –discontinued operations$(0.02)$0.08 $--$--$--Diluted earnings (loss) per share$(0.04)$0.43 $(0.56)$0.27 $(0.75) Other Information: Shares outstanding 23,083,265 22,806,838 22,804,313 22,588,403 22,482,605 Weighted average number of sharesoutstanding–basic 23,028,596 22,764,666 22,781,392 22,580,942 22,477,471 Weighted average number of sharesoutstanding–diluted 23,028,596 22,993,135 22,781,392 22,767,735 22,477,471 Total assets$428,588 $430,764 $430,349 $406,417 $371,870 Total debt$196,597 $209,614 $228,821 $226,993 $239,162 Working capital (deficit)$(21,415)$(12,844)$(57,634)$(16,229)$12,516 Stockholders’ equity$130,954 $124,987 $112,639 $110,263 $69,447 EBIT$20,416 $18,664 $13,900 $22,618 $1,030 Depreciation and amortization$16,049 $16,595 $15,563 $15,034 $18,556 Add: Adjustments for discontinued operations$335 $365 $351 $134 $2 EBITDA$36,800 $35,624 $29,814 $37,786 $19,588 Debt to EBITDA$5.34 $5.88 $7.67 $6.01 $12.21 Capital expenditure (including acquisitions)$13,723 $9,376 $19,371 $5,686 $75,167 Number of employees at 12/31 2,412 2,263 2,109 2,207 1,986 EBIT presented above represents net income (loss) adjusted for interest expense (calculated net of interest income)and income tax expense. EBIT is presented for informational purposes to show the significance of depreciation andamortization in the calculation of EBITDA. We use EBIT in our evaluation of our operating results since we believe that it isuseful as a measure of financial performance, particularly for us as a multinational company. We believe it is a usefulmeasure of financial performance principally for the following reasons:·since we operate in multiple tax jurisdictions, we find EBIT removes the impact of the varying tax rates and taxregimes in the jurisdictions in which we operate.·in addition, we find EBIT useful as a financial measure that removes the impact from our effective tax rate of factorsnot directly related to our business operations, such as, whether we have acquired operating assets by purchasingthose assets directly, or indirectly by purchasing the stock of a company that might hold such operating assets. 30 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.·the use of EBIT as a financial measure also (i) removes the impact of tax timing differences which may vary fromtime to time and from jurisdiction to jurisdiction, (ii) allows us to compare our performance to that achieved by othercompanies, and (iii) is useful as a financial measure that removes the impact of our historically significant net losscarry forwards.·the elimination of net interest expense helps us to compare our operating performance to those companies that mayhave more or less debt than we do.EBITDA presented above is net income (loss) adjusted for interest expense (again, calculated net of interestincome), income tax expense, and in addition depreciation and amortization expense. We use EBITDA in our evaluation ofour performance since we believe that EBITDA provides a useful measure of financial performance and value. We believethis principally for the following reasons:·we believe that EBITDA is an industry comparative measure of financial performance. It is, in our experience, ameasure commonly used by analysts and financial commentators who report on the cinema exhibition and realestate industries and a measure used by financial institutions in underwriting the creditworthiness of companies inthese industries. Accordingly, our management monitors this calculation as a method of judging our performanceagainst our peers and market expectations and our creditworthiness.·also, analysts, financial commentators, and persons active in the cinema exhibition and real estate industriestypically value enterprises engaged in these businesses at various multiples of EBITDA. Accordingly, we findEBITDA valuable as an indicator of the underlying value of our businesses.We expect that investors may use EBITDA to judge our ability to generate cash, as a basis of comparison to othercompanies engaged in the cinema exhibition and real estate businesses and as a basis to value our company against suchother companies.Neither EBIT nor EBITDA is a measurement of financial performance under accounting principles generallyaccepted in the United States of America and should not be considered in isolation or construed as a substitute for netincome or other operations data or cash flow data prepared in accordance with accounting principles generally accepted in theUnited States for purposes of analyzing our profitability. The exclusion of various components such as interest, taxes,depreciation, and amortization necessarily limit the usefulness of these measures when assessing our financialperformance, as not all funds depicted by EBITDA are available for management’s discretionary use. For example, asubstantial portion of such funds are subject to contractual restrictions and functional requirements to service debt, to fundnecessary capital expenditures and to meet other commitments from time to time as described in more detail in this AnnualReport on Form 10-K. EBIT and EBITDA also fail to take into account the cost of interest and taxes. Interest is clearly a real cost that for usis paid periodically as accrued. Taxes may or may not be a current cash item but are nevertheless real costs that, in mostsituations, must eventually be paid. A company that realizes taxable earnings in high tax jurisdictions may be ultimatelyless valuable than a company that realizes the same amount of taxable earnings in a low tax jurisdiction. EBITDA fails totake into account the cost of depreciation and amortization and the fact that assets will eventually wear out and have to bereplaced.EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. Areconciliation of net income (loss) to EBIT and EBITDA is presented below (dollars in thousands): 2012 2011 2010 2009 2008Net income (loss) attributable to ReadingInternational, Inc. shareholders$(914)$9,956 $(12,650)$6,094 $(16,809)Add: Interest expense, net 16,426 21,038 12,286 14,572 15,740 Add: Income tax (benefit) expense 4,904 (12,330) 14,264 1,952 2,099 EBIT$20,416 $18,664 $13,900 $22,618 $1,030 Add: Depreciation and amortization 16,049 16,595 15,563 15,034 18,556 Adjustments for discontinued operations 335 365 351 134 2 EBITDA$36,800 $35,624 $29,814 $37,786 $19,588 31 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 7 – Management’s Discussions and Analysis of Financial Condition and Results of OperationsThe following review should be read in conjunction with the consolidated financial statements and related notesincluded in this 2012 Annual Report. Historical results and percentage relationships do not necessarily indicate operatingresults for any future periods.OverviewWe are an internationally diversified company principally focused on the development, ownership, and operation ofentertainment and real property assets in the United States, Australia, and New Zealand. Currently, we operate in twobusiness segments:·Cinema Exhibition, through our 56 multiplex theaters, and·Real Estate, including investment, development, and the rental of retail, commercial and live theater assets.We believe that these two business segments complement one another, as the comparatively consistent cash flowsgenerated by our cinema operations can be used to fund new cinema business opportunities and the front-end cashdemands of our real estate investment and development business.We manage our worldwide cinema exhibition businesses under various different brands:·in the US, under the Reading, Angelika Film Center, Consolidated Amusements, and City Cinemas brands;·in Australia, under the Reading brand; and·in New Zealand, under the Reading and Rialto brands.While we do not believe the cinema exhibition business to be a growth business, we do believe it to be a businessthat will likely continue to generate fairly consistent cash flows in the years ahead even in recessionary or inflationaryenvironment. This is based on our belief that people will continue to spend some reasonable portion of their entertainmentdollar on entertainment outside of the home and that, when compared to other forms of outside the home entertainment,movies continue to be a popular and competitively priced option. Since we believe the cinema exhibition business to be amature business with most markets either adequately screened or over-screened, we see growth in our cinema businesscoming principally from the enhancement of our current cinemas, the development in select markets of specialty cinemas,and the opportunistic acquisition of already existing cinemas rather than from the development of new conventionalcinemas. From time to time, we invest in the securities of other companies, where we believe the business or assets ofthose companies to be attractive or to offer synergies to our existing entertainment and real estate businesses. Also, in thecurrent environment, we intend to be opportunistic in identifying and endeavoring to acquire undervalued assets,particularly assets with proven cash flow and which we believe to be resistant to current recessionary trends.In summary, while we do have operating company attributes, we see ourselves principally as a geographicallydiversified real estate company and intend to add to stockholder value by building the value of our portfolio of tangible assetsincluding both entertainment and other types of land and brick and mortar assets. We endeavor to maintain a reasonableasset allocation between our domestic and overseas assets and operations, and between our cash generating cinemaoperations and our cash consuming real estate investment and development activities. We believe that by blending thecash generating capabilities of a cinema operation with the investment and development opportunities of our real estateoperations, our business strategy is unique among public companies.Business ClimateCinema Exhibition - General After years of uncertainty as to the future of digital exhibition and the impact of this technology on cinema exhibition,it became clear in 2012 that the industry must go digital. We have now substantially completed the conversion of ourdomestic cinema operations to digital projection. We are in the process, and anticipate that we will complete this year theconversion of our Australia and New Zealand cinema operations to digital projection. 32 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Over several years, we anticipate that the cost of this conversion will be covered in substantial part by the receipt of VirtualPrint Fees paid by film distributors for the use of such digital projection equipment. In the case of “in-home” entertainment alternatives, the industry has experienced significant leaps in recent periodsin both the quality and affordability of in-home entertainment systems and in the accessibility to entertainmentprogramming through cable, satellite, DVD, and internet distribution channels. These alternative distribution channels areputting pressure on cinema exhibitors to reduce the time period between theatrical and secondary release dates, and certaindistributors are talking about possible simultaneous or near simultaneous releases in multiple channels ofdistribution. These are issues common to both our domestic and international cinema operations.Cinema Exhibition – Australia / New Zealand The film exhibition industry in Australia and New Zealand is highly concentrated in that Village, Event, and Hoyts(the “Major Exhibitors”) control approximately 66% of the cinema box office in Australia while Event and Hoyts controlapproximately 57% of New Zealand’s cinema box office. The industry is also vertically integrated in that one of the MajorExhibitors, Roadshow Film Distributors (part of Village), also serves as a distributor of film in Australia and New Zealand forWarner Bros. and New Line. Films produced or distributed by the majority of the local international independent producersare also distributed by Roadshow. Typically, the Major Exhibitors own the newer multiplex and megaplex cinemas, whilethe independent exhibitors typically have older and smaller cinemas. In addition, the Major Exhibitors have in recentperiods built a number of new multiplexes as joint venture partners or under-shared facility arrangements, and havehistorically not engaged in head-to-head competition. Cinema Exhibition – North America In North America, distributors may find it more commercially appealing to deal with major exhibitors, rather than todeal with independents like us, which tends to compress the supply of screens in a very limited number of markets. Thiscompetitive disadvantage has increased significantly in recent periods with the development of mega circuits like Regal andAMC who are able to offer distributors access to screens on a truly nationwide basis, or, on the other hand, to deny access iftheir desires with respect to film supply are not satisfied. These consolidations can adversely affect our ability to get film in certain domestic markets where we competeagainst major exhibitors. With the restructuring and consolidation undertaken in the industry, and the emergence ofincreasingly attractive “in-home” entertainment alternatives, strategic cinema acquisitions by our North American operationhave and can continue to be a way to combat such a competitive disadvantage. Real Estate – Australia and New Zealand Over the past few years, there has been a noted decrease in real estate market activity resulting in decreases tocommercial and retail property values in Australia and to a lesser extent in New Zealand. That being said, both countrieshave relatively stable economies with varying degrees of economic growth that are mostly influenced by global trends. Also,we have noted that our Australian and New Zealand developed properties have had consistent growth in rentals and valuesalthough project commencements have slowed. Once developed, we remain confident that our Australian and NewZealand holdings will continue to provide value and cash flows to our operations.Real Estate – North AmericaThe commercial real estate market has improved somewhat during 2012 and we have noted some strongincreases associated with our real estate located in large urban environments.Business Segments As indicated above, our two primary business segments are cinema exhibition and real estate. These segments aresummarized as follows: Cinema Exhibition 33 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.One of our primary businesses consists of the ownership and operation of cinemas. For a breakdown of ourcurrent cinema assets that we own and/or manage please see Item 1 – Our Business of this 2012 Annual Report under thesubheading “Our Cinema Exhibition Activities.”During 2012, we opened one cinema with 8 screens and closed two cinemas having a total of 8 screens. In 2011,we purchase one 17-screen cinema. In 2010, we opened one 8-screen cinema and closed two cinemas having a total of 12screens. Our cinema revenue consists of admissions, concessions, and advertising. The cinema operating expenseconsists of the costs directly attributable to the operation of the cinemas including film rent expense, operating costs, andoccupancy costs. Cinema revenue and expense fluctuate with the availability of quality first-run films and the numbers ofweeks the first–run films stay in the market.Real Estate For fiscal 2012, our income operating property consisted of the following:·our Belmont, Western Australia ETRC, our Auburn, New South Wales ETRC and our Wellington, New ZealandETRC;·our Newmarket shopping center in Newmarket, Queensland, a suburb of Brisbane;·three single auditorium live theaters in Manhattan (Minetta Lane, Orpheum, and Union Square) and a fourauditorium live theater complex in Chicago (The Royal George) and, in the case of the Union Square and the RoyalGeorge, their accompanying ancillary retail and commercial tenants;·a New Zealand commercial property and Australian commercial properties rented to unrelated third parties, to beheld for current income and long-term appreciation; and·the ancillary retail and commercial tenants at some of our non-ETRC cinema properties.In addition, we had various parcels of unimproved real estate held for development in Australia and New Zealandand certain unimproved land in the United States that was used in our historic activities. We also owned an 8,100 squarefoot commercial building in Melbourne, which serves as our administrative headquarters for Australia and New Zealand,approximately 36% of which is leased to an unrelated third party.Acquisitions 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 ofCoachella, California. The property was acquired at a foreclosure auction for $5.5 million. The property was acquired as along-term investment in developable land. Half of the funds used to acquire the land were provided by James J. Cotter, ourChairman, Chief Executive Officer and controlling shareholder. Upon the approval of our Conflicts Committee, these fundswere converted into a 50% interest in Shadow View Land and Farming, LLC. We are the managing member of thiscompany.In August 2011, we purchased the CalOaks Cinema, our largest multi-screened cinema to date, for $4.2 millionmade up of $3.9 million of cash and a $250,000 holdback note for certain offset charges to the purchase price.DisposalsOn November 20, 2012, we sold our Indooroopilly property for $12.4 million (AUS$12.0 million). As the bookvalue was $12.5 million (AUS$12.1 million) for this property, we recorded a loss on sale as an impairment expense of$318,000 (AUS$306,000) for the year ended December 31, 2012 which included the cost to sell the property. Additionally,on February 21, 2012, we sold our three properties in the Taringa area of Brisbane, Australia of approximately 1.1 acres for$1.9 million (AUS$1.8 million). Because the net carrying amounts of these properties were greater than the total sale price,we recorded an impairment expense for these properties of $369,000 (AUS$365,000) for the year ended December 31,2011. 34 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.On April 14, 2011, we sold our 66.7% share of the 5-screen Elsternwick Classic cinema located in Melbourne,Australia to our joint venture partner for $1.9 million (AUS$1.8 million) and recognized a gain on sale of a discontinuedoperation of $1.7 million (AUS$1.6 million).Investment and Development Property We are engaged in several real estate development projects. For a complete list of these properties with their size,status, and gross book values please see Item 2 – Properties under the heading of “Investment and Development Property.”Critical Accounting Policies The Securities and Exchange Commission defines critical accounting policies as those that are, in management’sview, most important to the portrayal of the company’s financial condition and results of operations and the most demandingin their calls on judgment. We believe our most critical accounting policies relate to:·impairment of long-lived assets, including goodwill and intangible assets;·tax valuation allowance and obligations; and·legal and environmental obligations.We review long-lived assets, including goodwill and intangibles, for impairment as part of our annual budgetingprocess, at the beginning of the fourth quarter, and whenever events or changes in circumstances indicate that the carryingamount of the asset may not be fully recoverable. We review internal management reports on a monthly basis as well asmonitor current and potential future competition in film markets for indications of potential impairment. We evaluate ourlong-lived assets using historical and projected data of cash flow as our primary indicator of potential impairment and wetake into consideration the seasonality of our business. If the sum of the estimated, undiscounted future cash flows are lessthan the carrying amount of the asset, then an impairment is recognized for the amount by which the carrying value of theasset exceeds its estimated fair value based on an appraisal or a discounted cash flow calculation. Goodwill and intangibleassets are evaluated on a reporting unit basis. The impairment evaluation is based on the present value of estimated futurecash flows of the segment plus the expected terminal value. There are significant assumptions and estimates used indetermining the future cash flows and terminal value. The most significant assumptions include our cost of debt and cost ofequity assumptions that comprise the weighted average cost of capital for each reporting unit. Accordingly, actual resultscould vary materially from such estimates. Based on calculations of current value, we recorded impairment losses of $1.5million, $369,000 and $2.2 million relating to certain of our property and cinema locations for the years ended December31, 2012, 2011, and 2010, respectively. The impairments reflect our estimates of fair value which were based on appraisalsor a discounted income approach with market based assumptions. For a further explanation of our 2012 impairment lossessee below under the heading “Coachella impairment” and see Note 7 – Investment and Development Property to our2012 Consolidated Financial Statements. We record our estimated future tax benefits and liabilities arising from the temporary differences between the taxbases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operatingloss carry forwards. We estimate the recoverability of any tax assets recorded on the balance sheet and provide anynecessary allowances as required. As of December 31, 2012, we had recorded approximately $50.6 million of deferred taxassets related to the temporary differences between the tax bases of assets and liabilities and amounts reported in theaccompanying consolidated balance sheets, as well as operating loss carry forwards and tax credit carry forwards. Thesedeferred tax assets were offset by a valuation allowance of $37.9 million resulting in a net deferred tax asset of $12.6million. The recoverability of deferred tax assets is dependent upon our ability to generate future taxable income. There isno assurance that sufficient future taxable income will be generated to benefit from our tax loss carry forwards and tax creditcarry forwards.Certain of our subsidiaries were historically involved in railroad operations, coal mining, and manufacturing. Also,certain of these subsidiaries appear in the chain of title of properties that may suffer from pollution. Accordingly, certain ofthese subsidiaries have, from time to time, been named in and may in the future be named in various actions broughtunder applicable environmental laws. Also, we are in the real estate development business and may encounter from timeto time unanticipated environmental conditions at properties that we have acquired for development. These environmentalconditions can increase the cost of such projects and 35 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.adversely affect the value and potential for profit of such projects. We do not currently believe that our exposure underapplicable environmental laws is material in amount.From time to time, we have claims brought against us relating to the exposure of former employees of our railroadoperations to asbestos and coal dust. These are generally covered by an insurance settlement reached in September 1990with our insurance carriers. However, this insurance settlement does not cover litigation by people who were not ouremployees and who may claim second hand exposure to asbestos, coal dust, and/or other chemicals or elements nowrecognized as potentially causing cancer in humans. Our known exposure to these types of claims, asserted or probable ofbeing asserted, is not material.From time to time, we are involved with claims and lawsuits arising in the ordinary course of our business thatmay include contractual obligations, insurance claims, tax claims, employment matters, and anti-trust issues, among othermatters.Coachella impairmentIn January 2012, we acquired in a foreclosure auction for $5.5 million a 202-acre property located in Coachella,California zoned for the development of up to 843 single-family residential units. The only other bidder was the holder ofthe mortgage on the property who bid up to $50,000 less than our final bid. At the time of the purchase, we knew, based onour due diligence that we were paying more for the property than would be supported by an Uniform Standards ofProfessional Appraisal Practice (“USPAP”) appraisal. However, the amount that we bid was the lowest price at which wewere able to acquire the property from the mortgagor. In valuing the property, we took into account a variety of factors,including the fact that the property is located within the City of Coachella, the state of the land use entitlements, and the factthat the prior owner had invested considerable time and money in obtaining the entitlements from the City ofCoachella. Since an independent USPAP appraisal of the property produced an appraised value as of December 2012 at$4.0 million, we have written down the book value of the property by $1.5 million. As noted below, this property is 50%owned by Mr. James J. Cotter who shares in any impairment loss to the extent of his ownership interest.We acquired the property as a potentially long-term investment based on the expectation that ready-for-developmentresidential real estate will recover in value. As we are not in the business of developing single family residences, it isanticipated that the property will eventually be sold to a developer of this type of property.We hold the property in a limited liability company, which we manage. This company is owned 50/50 by ourselvesand our Chairman and Chief Executive Officer, James J. Cotter. The opportunity to acquire the property was originallypresented to Mr. Cotter in his individual capacity and the transaction was approved by our Conflicts Committee, comprisedentirely of independent directors.Results of Operations We currently have two operating segments: Cinema Exhibition and Real Estate. Our cinema exhibition segmentincludes the operations of our consolidated cinemas. Our real estate segment includes the operating results of ourcommercial real estate holdings, cinema real estate, live theater real estate, and ETRC’s. The tables below summarize the results of operations for our principal business segments for the years endedDecember 31, 2012, 2011, and 2010 (dollars in thousands). Year Ended December 31, 2012CinemaExhibitionReal EstateIntersegmentEliminationsTotalRevenue$234,703 $27,256 $(7,529)$254,430 Operating expense 198,040 11,163 (7,529) 201,674 Depreciation and amortization 11,154 4,441 -- 15,595 General and administrative expense 2,598 718 -- 3,316 Impairment expense -- 1,463 -- 1,463 Segment operating income$22,911 $9,471 $--$32,382 36 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended December 31, 2011CinemaExhibitionReal EstateIntersegmentEliminationsTotalRevenue$225,849 $26,562 $(7,432)$244,979 Operating expense 189,647 10,190 (7,432) 192,405 Depreciation and amortization 11,842 4,444 -- 16,286 General and administrative expense 2,740 646 -- 3,386 Impairment expense -- 369 -- 369 Segment operating income$21,620 $10,913 $--$32,533 Year Ended December 31, 2010CinemaExhibitionReal EstateIntersegmentEliminationsTotalRevenue$211,073 $24,715 $(6,466)$229,322 Operating expense 178,261 9,049 (6,466) 180,844 Depreciation and amortization 10,559 4,289 -- 14,848 General and administrative expense 2,880 1,043 -- 3,923 Impairment expense -- 2,239 -- 2,239 Segment operating income$19,373 $8,095 $--$27,468 Reconciliation to net income attributable to Reading International, Inc. shareholders: 2012 2011 2010Total segment operating income $32,382 $32,533 $27,468 Non-segment: Depreciation and amortization expense 454 309 715 General and administrative expense 12,801 14,046 13,684 Operating income 19,127 18,178 13,069 Interest expense, net (16,426) (21,038) (12,286)Other income (loss) (563) 1,157 (347)Gain (loss) on sale of assets 144 (67) 352 Income tax benefit (expense) (4,904) 12,330 (14,264)Equity earnings (loss) of unconsolidated joint venturesand entities 1,621 (1,552) 1,345 Income (loss) from discontinued operations (85) 232 97 Gain (loss) on sale of discontinued operation (320) 1,656 --Net income (loss) $(1,406)$10,896 $(12,034)Net (income) loss attributable to noncontrolling interests 492 (940) (616)Net income (loss) attributable to Reading International,Inc. common shareholders $(914)$9,956 $(12,650) 37 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cinema Exhibition SegmentThe following tables and discussion that follows detail our operating results for our 2012, 2011, and 2010 cinemaexhibition segment (dollars in thousands): Year Ended December 31, 2012 United States Australia New Zealand TotalAdmissions revenue$78,745 $68,819 $13,897 $161,461 Concessions revenue 32,219 24,564 4,266 61,049 Advertising and other revenues 5,433 5,806 954 12,193 Total revenues 116,397 99,189 19,117 234,703 Cinema costs 96,534 75,210 14,959 186,703 Concession costs 5,374 4,908 1,055 11,337 Total operating expense 101,908 80,118 16,014 198,040 Depreciation and amortization 6,482 3,589 1,083 11,154 General and administrative expense 1,937 661 -- 2,598 Segment operating income$6,070 $14,821 $2,020 $22,911 Year Ended December 31, 2011 United States Australia New Zealand TotalAdmissions revenue$73,062 $72,887 $12,622 $158,571 Concessions revenue 28,225 23,306 3,446 54,977 Advertising and other revenues 5,482 6,019 800 12,301 Total revenues 106,769 102,212 16,868 225,849 Cinema costs 89,602 75,771 13,998 179,371 Concession costs 4,461 4,963 852 10,276 Total operating expense 94,063 80,734 14,850 189,647 Depreciation and amortization 6,525 4,218 1,099 11,842 General and administrative expense 1,973 691 76 2,740 Segment operating income$4,208 $16,569 $843 $21,620 Year Ended December 31, 2010 United States Australia New Zealand TotalAdmissions revenue$73,266 $61,640 $15,601 $150,507 Concessions revenue 27,391 18,658 3,861 49,910 Advertising and other revenues 5,096 4,559 1,001 10,656 Total revenues 105,753 84,857 20,463 211,073 Cinema costs 89,531 63,976 15,578 169,085 Concession costs 4,260 4,009 907 9,176 Total operating expense 93,791 67,985 16,485 178,261 Depreciation and amortization 6,556 2,969 1,034 10,559 General and administrative expense 2,040 840 -- 2,880 Segment operating income$3,366 $13,063 $2,944 $19,373 Cinema Results for 2012 Compared to 2011·Cinema revenue increased in 2012 by $8.9 million or 3.9% compared to 2011. The geographic activity of ourrevenue can be summarized as follows:oUnited States - Revenue in the United States increased by $9.6 million or 9.0%. This increase in revenuewas predominately attributable to a 722,000 person increase in box office admissions and a commensurateincrease in admissions and concessions revenue primarily from our 2011 acquisition of the CalOakscinema in Murrieta, California and from our newly opened AFC 38 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Mosaic cinema in the greater Washington D.C. metropolitan area; offset by, a 0.7% decrease in theaverage ticket price.oAustralia - Revenue in Australia decreased by $3.0 million or 3.0%. This decrease in revenue wasprimarily related to a 91,000 person decrease in box office admissions coupled with a 3.9% decrease in theaverage ticket price resulting from a more competitive ticket pricing model. This decrease included thetemporary closure of a cinema in Australia due to renovations during the second quarter. As noted below,there was only a nominal change in the Australian dollar compared to the U.S. dollar for the comparableperiods. (see below).oNew Zealand - Revenue in New Zealand increased by $2.2 million or 13.3%. This increase in revenuewas predominately attributable to a year over year 236,000 person increase in admissions; offset by, adecrease in the average ticket price of 7.6% resulting from a more competitive ticket pricing model. Theincrease in New Zealand admissions was primarily as a result of the reopening of an earthquake damagedNew Zealand multiplex in early January 2012. This increase in revenue was somewhat enhanced by anincrease in the value of the New Zealand dollar compared to the U.S. dollar (see below).·Operating expense increased in 2012 by $8.4 million or 4.4% compared to 2011. Year over year operating expenseincreased only slightly in relation to revenue from 84.0% to 84.4%.oUnited States - Operating expense in the United States increased by $7.8 million or 8.3% primarily relatedto the operating activity of the aforementioned newly acquired and opened cinemas.oAustralia - Operating expense in Australia decreased by $616,000 or 0.8%. This decrease was in line withthe above-mentioned decrease in cinema revenue which directly affects film rental costs; offset by, the yearover year nominal increase in the value of the Australian dollar compared to the U.S. dollar (see below).oNew Zealand - Operating expense in New Zealand increased by $1.2 million or 7.8%. This increase wasin line with the above-mentioned increase in cinema revenue which directly affects film rental costs andwith the above-mentioned year over year increase in the value of the New Zealand dollar compared to theU.S. dollar (see below).·Depreciation expense decreased in 2012 by $688,000 or 5.8% compared to 2011. This decrease was primarilyrelated to several of our cinema assets reaching the end of their depreciable lives.·General and administrative expense decreased in 2012 by $142,000 or 5.2% compared to 2011. This decrease wasprimarily related to a write off of certain cinema assets in New Zealand and higher bonus accrual costs in 2011neither of which reoccurred in 2012.·Australian and New Zealand monthly average exchange rates for 2012 increased by 0.3% and 2.4%, respectively,from those in 2011, which had an overall positive impact on the income statement.·As a result, cinema exhibition segment operating income increased in 2012 by $1.3 million compared to 2011primarily from the aforementioned increase in revenue from our U.S. and New Zealand cinema operations.Cinema Results for 2011 Compared to 2010·Cinema revenue increased in 2011 by $14.8 million or 7.0% compared to 2010. The geographic activity of ourrevenue can be summarized as follows:oUnited States - Revenue in the United States increased by $1.0 million or 1.0%. This increase in revenuewas predominately attributable to an increase in concessions and other cinema revenue in part from ournewly acquired cinema in Murrieta, California; offset by, a decrease in our admissions revenue which wasprimarily affected by a 1.3% decrease in the average ticket price coupled with a relatively flat number of boxoffice admissions.oAustralia - Revenue in Australia increased by $17.4 million or 20.5%. This increase in revenue waspredominately attributable to the opening of a new cinema in October 2010, a year over year increase in theaverage ticket price of 3.1%, a small increase in admissions of 83,000, and an increase in the value of theAustralian dollar compared to the U.S. dollar. This change in currency value translated to higher Australianrevenue for 2011 compared to 2010 (see below).oNew Zealand - Revenue in New Zealand decreased by $3.6 million or 17.6%. This decrease in revenuewas predominately attributable to a year over year decrease in the average ticket price of 2.2% and a463,000 decrease in admissions due to poor film product being delivered to the country as a whole. Thedecrease in admissions was in large part affected by poorer film product 39 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.offered throughout the country as a result of the rugby world cup being held in New Zealand during2011. This decrease in revenue was somewhat offset by an increase in the value of the NewZealand dollar compared to the U.S. dollar (see below).·Operating expense increased in 2011 by $11.4 million or 6.4% compared to 2010. Year over year operating expensedecreased in relation to revenue from 84.5% to 84.0%.oUnited States - Operating expense in the United States increased by $272,000 or 0.3% primarily due tohigher utility costs associated with our Hawaiian cinemas.oAustralia - Operating expense in Australia increased by $12.7 million or 18.8%. This increase was in linewith the above-mentioned increase in cinema revenue which directly affects film rental costs and with theyear over year increase in the value of the Australian dollar compared to the U.S. dollar (see below).oNew Zealand - Operating expense in New Zealand decreased by $1.6 million or 9.9%. This decrease wasin line with the above-mentioned decrease in cinema revenue which directly affects film rental costs offsetby the above-mentioned year over year increase in the value of the New Zealand dollar compared to theU.S. dollar (see below).·Depreciation expense increased in 2011 by $1.3 million or 12.2% compared to 2010. This increase was primarilyrelated to the opening of a new cinema in Australia and our continuing purchases of digital equipment.·General and administrative expense decreased in 2011 by $140,000 or 4.9% compared to 2010. This decrease wasprimarily related to preopening costs in 2010 for a newly opened Australian cinema which did not recur in 2011.·Australian and New Zealand monthly average exchange rates for 2011 increased by 12.2% and 9.7%, respectively,from those in 2010, which had an overall positive impact on the income statement.As a result, cinema exhibition segment operating income increased in 2011 by $2.2 million compared to 2010primarily from the aforementioned increase in revenue from our Australian cinema operations.Real Estate SegmentAs discussed above, our other business segment is the development and management of real estate. Theseholdings include our rental live theaters, certain fee owned properties used in our cinema business, and unimproved realestate held for development. The tables and discussion that follow detail our operating results for our 2012, 2011, and 2010 real estate segment(dollars in thousands): Year Ended December 31, 2012 United States Australia New Zealand TotalLive theater rental and ancillary income$3,416 $--$--$3,416 Property rental income 1,690 14,536 7,614 23,840 Total revenues 5,106 14,536 7,614 27,256 Live theater costs 1,917 -- -- 1,917 Property rental cost 934 6,077 2,235 9,246 Total operating expense 2,851 6,077 2,235 11,163 Depreciation and amortization 305 2,823 1,313 4,441 General and administrative expense 99 536 83 718 Impairment expense 1,463 -- -- 1,463 Segment operating income$388 $5,100 $3,983 $9,471 40 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended December 31, 2011 United States Australia New Zealand TotalLive theater rental and ancillary income$3,507 $--$--$3,507 Property rental income 1,714 13,850 7,491 23,055 Total revenues 5,221 13,850 7,491 26,562 Live theater costs 1,946 -- -- 1,946 Property rental cost 528 5,628 2,088 8,244 Total operating expense 2,474 5,628 2,088 10,190 Depreciation and amortization 326 2,848 1,270 4,444 General and administrative expense 32 554 60 646 Impairment expense -- 369 -- 369 Segment operating income$2,389 $4,451 $4,073 $10,913 Year Ended December 31, 2010 United States Australia New Zealand TotalLive theater rental and ancillary income$3,082 $--$--$3,082 Property rental income 1,732 13,125 6,776 21,633 Total revenues 4,814 13,125 6,776 24,715 Live theater costs 2,044 -- -- 2,044 Property rental cost 455 4,789 1,761 7,005 Total operating expense 2,499 4,789 1,761 9,049 Depreciation and amortization 321 2,467 1,501 4,289 General and administrative expense 13 957 73 1,043 Impairment expense -- 2,239 -- 2,239 Segment operating income$1,981 $2,673 $3,441 $8,095 Real Estate Results for 2012 Compared to 2011·Real estate revenue increased by $694,000 or 2.6% compared to 2011. The increase in revenue was primarilyrelated to an increase in rental income from our Australian and New Zealand ETRCs coupled with fluctuations incurrency exchange rates (see below); offset by, a decrease in rent from our live theater venues in the U.S.·Operating expense for the real estate segment increased by $1.0 million or 9.5% compared to 2011. This increasein expense was primarily related to higher repair, maintenance, and insurance costs for our operating properties,from legal costs incurred in 2012 associated with protecting the property rights of our Burwood property and with ourresidual railroad properties, and the aforementioned fluctuations in currency exchange rates (see below).·We recorded a real estate impairment loss in 2012 of $1.5 million related to our Coachella property (see Note 7 –Investment and Development Property to our 2012 Consolidated Financial Statements) As noted above, thisproperty is 50% owned by Mr. James J. Cotter who shares in any impairment loss to the extent of his ownershipinterest. In 2011, we recorded a $369,000 impairment loss related to our Taringa real estate property. Wesubsequently sold the Taringa property on February 21, 2012 for $1.9 million (AUS$1.8 million).·General and administrative costs increased by $72,000 or 11.1% compared to 2011 primarily due to an increase inour allowance for doubtful accounts for our U.S. properties in 2012.·Australian and New Zealand monthly average exchange rates for 2012 increased by 0.3% and 2.4%, respectively,from those in 2011, which had an overall positive impact on the income statement.·As a result of the above, real estate segment income decreased by $1.4 million or 13.2% compared to 2011. 41 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Real Estate Results for 2011 Compared to 2010·Real estate revenue increased by $1.8 million or 7.5% compared to 2010. The increase in revenue was primarilyrelated to an increase in live theater revenue in the U.S., increased rental income from our Australian and NewZealand ETRCs coupled with fluctuations in currency exchange rates (see below).·Operating expense for the real estate segment increased by $1.1 million or 12.6% compared to 2010. This increasein expense was primarily related to our efforts to sell various development properties in Australia and New Zealandand with the aforementioned fluctuations in currency exchange rates (see below).·Depreciation expense for the real estate segment increased by $155,000 or 3.6% compared to 2010 primarily due tothe impact of currency fluctuations for our Australian and New Zealand operations (see below); offset by, a $208,000correction of a recorded prior year depreciation expense to the New Zealand results.·We recorded a real estate impairment loss of $369,000 in 2011 compared to $2.2 million in 2010 related to ourTaringa real estate property. We subsequently sold this property on February 21, 2012 for $1.9 million (AUS$1.8million)·General and administrative costs decreased by $397,000 or 38.1% compared to 2010 primarily due 2010 litigationcosts for the Mackie case in Australia not repeated in 2011.·Australian and New Zealand monthly average exchange rates for 2011 increased by 12.2% and 9.7%, respectively,from those in 2010, which had an overall positive impact on the income statement.As a result of the above, real estate segment income increased by $2.8 million or 34.8% compared to 2010.Non-Segment ActivityNon-segment expense/income includes expense and/or income that is not directly attributable to our two operatingsegments.2012 Compared to 2011·general and administrative expense decreased by $1.2 million primarily related to the one-time additional laborcosts incurred during 2011, associated with the transfer of our accounting functions from the U.S. and Australia toNew Zealand not being repeated in 2012, as well as some cost savings resulting from the synergies gained as aresult of this move.·net interest expense decreased by $4.6 million compared to 2011. The decrease in interest expense during 2012was primarily due to a smaller increase in the fair value of our interest rate swaps in 2012 than that noted for thesame period in 2011 and to a decrease in interest rates specifically from our Trust Preferred Securities. EffectiveMay 1, 2012, that interest rate changed from a fixed rate of 9.22%, which was in effect for the past five years, to avariable rate of 3 month LIBOR plus 4.00%, which will reset each quarter through the end of the loan, unless wechoose to fix the rate again.·the $563,000 in other loss during 2012 was primarily related to the write off of our GE Capital loan costs at the timeof the refinance of our U.S. Corporate Credit Facility with Bank of America; offset by, additional insurance proceedsfrom our business interruption claim for the temporary closure of our cinema in Christchurch, New Zealand due tothe February 22, 2011 earthquake. The $1.2 million in other income during 2011 was primarily related toinsurance proceeds from a partial payment of our business interruption claim for the aforementioned temporaryclosure of our cinema in Christchurch, New Zealand (see Note 26 – Casualty Loss to our 2012 ConsolidatedFinancial Statements).·the net income tax expense was $4.9 million during 2012 compared to a net income tax benefit of $12.3 millionduring 2011. The year over year change in 2012 was primarily related to a reduction in deferred tax assets inAustralia, caused by the sale of certain assets, plus a reduction in loss carryforwards available to offset futureAustralia taxable income. For 2011, the change was primarily related to a one-time tax provision adjustment of$14.4 million caused by a reduction in the valuation allowance related to our Australian operations (see Note 14 –Income Tax to our 2012 Consolidated Financial Statements).·equity earnings from unconsolidated investments increased by $3.2 million primarily related to a 2011 $2.9 millionimpairment to our interest in Rialto Entertainment not repeated in 2012. 42 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2011 Compared to 2010During 2011, the increase of $362,000 in corporate General and Administrative expense was primarily made up of: ·$1.2 million increase in corporate payroll expense primarily related to one-time severance and temporarilyduplicated labor costs associated with our transfer of our accounting functions from the U.S. and Australia to NewZealand;·$362,000 increase in consulting and administrative activities primarily related to the transfer of our accountingfunctions to New Zealand and to costs associated with the recent move of our Los Angeles corporate office; offset by,·$1.3 million decrease in legal and professional fees in 2011 associated principally with our tax litigation case whichwas settled in 2010.Also during 2011:·net interest expense increased by $8.8 million compared to 2010. The increase in interest expense during 2011was primarily driven by a $5.0 million increase associated with the mark-to-market of our interest rate swaps andcap, an increase to interest expense of $1.1 million associated with increased line of credit fees for our newAustralian credit facility, and a decrease in our 2010 interest primarily related to a reduction of interest on ourNationwide notes associated with a purchase price adjustment of the Consolidated Cinemas acquisition.·the $1.2 million in other income during 2011 was primarily related to insurance proceeds from a partial payment ofour business interruption claim for the temporary closure of our cinema in Christchurch, New Zealand due to theFebruary 22, 2011 earthquake (see Note 26 – Casualty Loss to our 2012 Consolidated Financial Statements). The$347,000 other loss in 2010 included offsetting settlements related to our Whitehorse Center litigation and the 2008sale of our interest in the Botany Downs cinema; a $605,000 loss associated with our Mackie litigation; and arecovery of previously written-off receivables.·gain (loss) on sale of assets decreased by $419,000 primarily related to a deferred gain on sale of a property in 2010not recurring in 2011.·equity earnings from unconsolidated investments decreased by $2.9 million primarily related to a $2.9 millionimpairment in our interest in Rialto Entertainment.·the net income tax benefit of $12.3 million during 2011 was primarily relating to a one-time tax provisionadjustment of $14.4 million caused by a reduction in the valuation allowance related to our Australian operationscompared to an income tax expense of $14.3 million during 2010 primarily relating to additional tax accrualassociated with our tax litigation settlement. For more information regarding these tax provision and accrualadjustments, see Note 14 – Income Tax to our 2012 Consolidated Financial Statements.·gain on the sale for our Elsternwick Cinema of $1.7 million that is included in our income from discontinuedoperations.Income TaxesWe are subject to income taxation in several jurisdictions throughout the world. Our effective tax rate and incometax liabilities will be affected by a number of factors, such as:·the amount of taxable income in particular jurisdictions;·the tax rates in particular jurisdictions;·tax treaties between jurisdictions;·the extent to which income is repatriated; and·future changes in law.Generally, we file consolidated or combined tax returns in jurisdictions that permit or require such filings. Forjurisdictions that do not permit such a filing, we may owe income, franchise, or capital taxes even though, on an overallbasis, we may have incurred a net loss for the tax year. 43 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Net Income Attributable to Reading International, Inc. Common Shareholders For the years ending 2012, 2011, and 2010, our consolidated business units produced a net loss of $914,000, a netincome of $10.0 million (primarily driven by a decrease in our tax provision of $14.4 million caused by a reduction in thevaluation allowance related to our Australian operations), and a net loss of $12.7 million (primarily driven by an increase inour accrual for our IRS Tax Audit/Litigation case of $12.0 million), respectively, attributable to Reading International, Inc.common shareholders. For many of the years prior to 2012, we consistently experienced net losses. However, asexplained in the Cinema and Real Estate segment sections above, we have generally noted improvements in our segmentoperating income such that we have a positive segment operating income for each of the years of 2012, 2011, and 2010, thatin years past has been negative. Although we cannot assure that this trend will continue, we are committed to the overallimprovement of earnings through good fiscal management.Business Plan, Liquidity, and Capital Resources of the CompanyBusiness Plan While we do not believe the cinema exhibition business to be a growth business, we do believe it to be a businessthat will likely continue to generate fairly consistent cash flows in the years ahead even in recessionary or inflationaryenvironment. This is based on our belief that people will continue to spend some reasonable portion of their entertainmentdollar on entertainment outside of the home and that, when compared to other forms of outside the home entertainment,movies continue to be a popular and competitively priced option. Since we believe the cinema exhibition business to be amature business with most markets either adequately screened or over-screened, we see growth in our cinema businesscoming principally from the enhancement of our current cinemas, the development in select markets of specialty cinemas,and the opportunistic acquisition of already existing cinemas rather than from the development of new conventionalcinemas. From time to time, we invest in the securities of other companies, where we believe the business or assets ofthose companies to be attractive or to offer synergies to our existing entertainment and real estate businesses. Also, in thecurrent environment, we intend to be opportunistic in identifying and endeavoring to acquire undervalued assets,particularly assets with proven cash flow and which we believe to be resistant to current recessionary trends. In summary, while we do have operating company attributes, we see ourselves principally as a geographicallydiversified real estate company and intend to add to stockholder value by building the value of our portfolio of tangible assetsincluding both entertainment and other types of land and brick and mortar assets. We endeavor to maintain a reasonableasset allocation between our domestic and overseas assets and operations, and between our cash generating cinemaoperations and our cash consuming real estate development activities. We believe that by blending the cash generatingcapabilities of a cinema operation with the investment and development opportunities of our real estate developmentoperation, our business strategy is unique among public companies.Liquidity and Capital Resources Our ability to generate sufficient cash flows from operating activities in order to meet our obligations andcommitments drives our liquidity position. This is further affected by our ability to obtain adequate, reasonable financingand/or to convert non-performing or non-strategic assets into cash. Currently, our liquidity needs continue to arise mainly from:·working capital requirements;·capital expenditures; and·debt servicing requirements.With the changes to the worldwide credit markets, the business community is concerned that credit will be moredifficult to obtain especially for potentially risky ventures like business and asset acquisitions. However, we believe that ouracquisitions over the past few years coupled with our strengthening operational cash flows demonstrate our ability toimprove our profitability. We believe that this business model will help us to demonstrate to lending institutions our abilitynot only to digitize our cinema circuit and make strategic acquisitions but also to service the associated debt. 44 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Discussion of Our Statement of Cash Flows The following discussion compares the changes in our cash flows over the past three years. Operating Activities2012 Compared to 2011. Cash provided by operations was $25.5 million in 2012 compared to $24.3 million in the2011. The increase in cash provided by operations of $1.2 million was due primarily to a $4.4 million increase inoperational cash flows; offset by, a $3.2 million decrease in cash from changes in operating assets and liabilities2011 Compared to 2010. Cash provided by operations was $24.3 million in 2011 compared to $22.8 million in the2010. The increase in cash provided by operations of $1.5 million was due primarily to $4.5 million from changes inoperating assets and liabilities (excluding a $12.7 million change in accrual for our tax litigation settlement) offset by a $3.1million decrease in operational cash flows.Investing Activities Cash used in investing activities was $6.1 million in 2012, $3.8 million in 2011, and $21.0 million in 2010. Thefollowing summarizes our discretionary investing activities for each of the three years ending December 31, 2012:The $6.1 million cash used in 2012 was primarily related to:·$8.2 million in property enhancements to our existing properties;·$8.0 million to purchase time deposits;·$1.8 million to purchase a note receivable; and·$5.5 million for the purchase of the Coachella land acquisition;offset by,·$14.1 million of proceeds from the sale of our Taringa and Indooroopilly properties;·$382,000 in return of investment in unconsolidated entities; and·$3.0 million of proceeds from the sale of marketable securities.The $3.8 million cash used in 2011 was primarily related to:·$3.9 million for the purchase of the CalOaks cinema;·$5.5 million in property enhancements to our existing properties;·$168,000 of a change in restricted cash; and·$2.8 million for the purchase of mortgage notes receivable;offset by,·$1.9 million of net proceeds from the sale of our 66.7% share of the 5-screen Elsternwick Classic cinema located inMelbourne, Australia;·$143,000 of proceeds from the sale of marketable securities; and·$6.8 million of proceeds from the pay off of a long-term other receivable associated with our Malulani investment.The $21.0 million cash used in 2010 was primarily related to:·$14.1 million in property enhancements to our existing properties;·$5.3 million in acquisitions; and·$1.8 million of change in restricted cashoffset by, 45 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.·$229,000 in return of investment of unconsolidated entities.Financing Activities Cash used in financing activities for 2012 was $12.7 million and $23.4 million in 2011 compared to cash provided byfinancing activities of $5.5 million in 2010. The following summarizes our financing activities for each of the three yearsending December 31, 2012:The $12.7 million cash used in 2012 was primarily related to:·$62.6 million of loan repayments including $15.0 million to pay off our Eurohypo Cinemas 1, 2, 3 loan, $32.2million to pay off our GE Capital Loan, and $14.8 million in payments on our NAB term debt;offset by,·$47.0 million of new borrowing including $30.0 million of loan proceeds from our new Bank of America U.S. CreditFacility and $15.0 million of loan proceeds from our new Cinemas 1, 2, 3 loan (both offset by a total of $782,000 ofcapitalized borrowing cost) and $2.0 million of borrowing from our Bank of America line of credit;·$3.4 million in noncontrolling interests’ contributions; and·$308,000 of proceeds from the exercise of employee stock options.The $23.4 million cash used in 2011 was primarily related to:·$126.8 million of loan repayments including the $105.8 million payoff of our Australian BOSI loan, $5.3 million inloan repayment on our GE Capital Loan, $9.7 million payoff of our NAB revolver, $3.4 million loan repayment ofour NAB term debt, and $2.0 million pay down of our Nationwide Notes;·$747,000 to repurchase our Class A Nonvoting Common Stock; and·$654,000 in noncontrolling interests’ distributions.offset by,·$105.3 million of new borrowing including $104.2 million of loan proceeds from our new NAB loan net of $774,000of capitalized borrowing costs and $1.1 million of borrowing from our New Zealand credit facility; and·$233,000 in noncontrolling interests’ contributions.The $5.5 million cash provided in 2010 was primarily related to:·$8.0 million of borrowing on our New Zealand credit facility;·$7.2 million of borrowing proceeds from our new Union Square Theater Term Loan net of capitalized borrowingcosts;·$7.0 million of new borrowings from our recently renegotiated GE capital loan net of capitalized borrowing costs;·$225,000 of contributions from noncontrolling interests; and·$248,000 of proceeds from the exercise of employee stock options;offset by,·$15.5 million of loan repayments including $6.9 million for the pay off of our Union Square Term Loan, $5.0million for the pay off of our SHC Loan, and $3.2 million pay down of our GE Capital Loan;·$251,000 of repurchase of Class A Nonvoting Common Stock; and·$1.4 million in noncontrolling interest distributions. 46 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Future Liquidity and Capital ResourcesDuring the past 24 months, we have put into place several measures that currently have or will have a positiveeffect on our overall liquidity, including:·replacing our GE Capital Term Loan of $27.7 million with a new revolving line of credit from Bank of America (the“BofA Revolver”) of $30.0 million which has significantly lower principal payments than those of our former GECapital Term Loan.·renewing and increasing our existing $3.0 million line of credit with Bank of America to $5.0 million.·replacing our Eurohypo AG, New York Branch loan with a new $15.0 million Sovereign Bank, N.A. term loanhaving a one-year term ending on June 27, 2013, with a one year extension option to June 26, 2014.·receiving, on February 8, 2012, an approved amendment from Westpac renewing our existing $36.9 million(NZ$45.0 million) New Zealand credit facility with a 3-year $32.8 million (NZ$40.0 million) credit facility.·replacing our Australia Corporate Credit Facility with a new facility from National Australia Bank comprising, atDecember 31, 2012, a $75.3 million (AUS$72.5 million) term loan; a $10.4 million (AUS$10.0 million) revolvingfacility which was unused at December 31, 2012; and a $5.2 million (AUS$5.0 million) guarantee facility.We believe that we have sufficient borrowing capacity to meet our short-term working capital requirements. To meetour current and future liquidity requirements, we have the following external sources of unused liquidity:·$9.9 million (NZ$12.0 million) is available on our renewed New Zealand Corporate Credit facility;·$10.4 million (AUS$10.0 million) is available on our new NAB revolver facility; and·$3.0 million is available on our Bank of America Line of Credit.Potential uses for funds during 2013 that would reduce our liquidity, other than those relating to working capitalneeds and debt service requirements include: ·Securing digital and digital 3D projectors for our Australian and New Zealand cinema circuits;·payment of our legal settlement obligation for the Tax/Audit Litigation based on a recently negotiated schedule;·the selective development of our currently held for development projects; and·the acquisition of assets with proven cash flow that we believe to be resistant to the current recessionary trends.Our worldwide cash position at December 31, 2012 was $46.5 million including an $8.0 million time deposit inAustralia. Of the $46.5 million, $17.5 million was in Australia, $22.7 million was in the U.S., and $6.3 million was inNew Zealand. As part of our main credit facilities in Australia, New Zealand and the U.S., we are subject to certain debtcovenants which limit the transfer or use of cash outside of the various regional subsidiaries in which the cash is held. Assuch, at December 31, 2012, we have approximately $7.5 million of cash that is not restricted by loan covenants. Based upon the current levels of the consolidated operations, further anticipated cost savings and future growth, webelieve our cash flow from operations, together with both the existing and anticipated lines-of-credit and other sources ofliquidity (including future potential asset sales) will be adequate to meet our anticipated requirements for principalrepayments, interest payments, and short-term debt maturities plus any other debt service obligations, working capital,capital expenditures and other operating needs. There can be no assurance, however, that the business will continue to generate cash flow at or above currentlevels or that estimated cost savings or growth can be achieved. Future operating performance and our ability to service orrefinance existing indebtedness will be subject to future economic conditions and to financial and other factors, such asaccess to first-run films, many of which are beyond our control. If our cash flow from operations and/or proceeds fromanticipated borrowings should prove to be insufficient to meet our funding needs, our current intention is either: 47 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.·to defer construction of projects currently slated for land presently owned by us;·to take on joint venture partners with respect to such development projects; and/or·to sell assets. Contractual ObligationsThe following table provides information with respect to the maturities and scheduled principal repayments of oursecured debt and lease obligations at December 31, 2012 (in thousands): 2013 2014 2015 2016 2017 Thereafter TotalDebt$19,714 $86,357 $32,613 $3,000 $18,000 $--$159,684 Notes payable to related parties 9,000 -- -- -- -- -- 9,000 Subordinated notes (trust preferredsecurities) -- -- -- -- -- 27,913 27,913 Tax settlement liability 3,480 3,480 2,301 -- -- -- 9,261 Pension liability 13 27 44 61 481 6,350 6,976 Lease obligations 34,388 30,543 26,424 22,574 19,688 76,271 209,888 Estimated interest on debt 9,536 5,835 3,621 2,894 1,715 10,900 34,501 Total$76,131 $126,242 $65,003 $28,529 $39,884 $121,434 $457,223 Estimated interest on long-term debt is based on the anticipated loan balances for future periods calculated againstcurrent fixed and variable interest rates.We adopted FASB ASC 740-10-25 – Income Taxes - Uncertain Tax Positions on January 1, 2007. As of adoption,the total amount of gross unrecognized tax benefits for uncertain tax positions was $12.5 million increasing to $13.7 million,to $14.5 million, and to $15.3 million as of December 31, 2007, 2008, and 2009, respectively. As of December 31 2010,the gross unrecognized tax benefit increased to $20.6 million, substantially as a result of having settled our TaxAudit/Litigation case (see Note 19 – Commitments and Contingencies to our 2012 Consolidated FinancialStatements). As of December 31, 2011, the gross unrecognized tax benefit decreased to $4.1 million largely because theTax Audit/Litigation matter is no longer in the nature of an uncertain tax position governed by FASB ASC 740-10-25, but is afixed and determinable tax liability. As of December 31, 2012, the gross unrecognized tax benefit increased to $5.3million. We do not expect a significant tax payment related to the $5.3 million in uncertain tax positions within the next 12months.Unconsolidated Joint Venture Debt Total debt of unconsolidated joint ventures was $703,000 and $663,000 as of December 31, 2012 and December 31,2011, respectively. Our share of unconsolidated debt, based on our ownership percentage, was $234,000 and $221,000 asof December 31, 2012 and December 31, 2011, respectively. This loan is guaranteed by one of our subsidiaries to theextent of our ownership percentage.Off-Balance Sheet ArrangementsThere are no off-balance sheet transactions, arrangements or obligations (including contingent obligations) thathave, or are reasonably likely to have, a current or future material effect on our financial condition, changes in the financialcondition, revenue or expense, results of operations, liquidity, capital expenditures or capital resources.Financial Risk ManagementOur internally developed risk management procedure, seeks to minimize the potentially negative effects of changesin foreign exchange rates and interest rates on the results of operations. Our primary exposure to fluctuations in thefinancial markets is currently due to changes in foreign exchange rates between U.S and Australia and New Zealand, andinterest rates. If our operational focus shifts more to Australia and New Zealand, unrealized foreign currency translation gains andlosses could materially affect our financial position. Historically, we managed our currency exposure by 48 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.creating natural hedges in Australia and New Zealand. This involves local country sourcing of goods and services as well asborrowing in local currencies. During 2012, we deviated somewhat from this practice by purchasing $8.0 million in timedeposits denominated in U.S. dollars and held by an Australian bank. Additionally, by paying off our New Zealand debt andpaying down on our Australian debt with the proceeds of our TPS, we have added an increased element of currency risk toour Company. We believe that this currency risk is mitigated by the long-term nature of the fully subordinated notes and ourrecent ability to repurchase, at a discount, some of these securities.In the first quarter 2009, we took advantage of current market illiquidity for securities such as our TPS to repurchase$22.9 million of those securities for $11.5 million. In addition, in December 2008 we secured a waiver of all financialcovenants with respect to our TPS for a period of nine years (through December 2017), in consideration of the payment of$1.6 million, consisting of an initial payment of $1.1 million, a payment of $270,000 made in December 2011, and acontractual obligation to pay $270,000 in December 2014. In the event that the remaining payment is not made, the onlyremedy is the termination of the waiver. Because of this transaction, which was partially funded with borrowings againstour New Zealand line-of-credit, we once again have substantially matched the currency in which we have financed ourdevelopments with the jurisdictions in which these developments are located.Our exposure to interest rate risk arises out of our long-term debt obligations. Consistent with our internallydeveloped guidelines, we seek to reduce the negative effects of changes in interest rates by changing the character of theinterest rate on our long-term debt, converting a fixed rate into a variable rate and vice versa. Our internal procedures allowus to enter into derivative contracts on certain borrowing transactions to achieve this goal. Our Australian Credit Facilityprovides for floating interest rates based on the Bank Bill Swap Bid Rate (BBSY bid rate), but requires that not less than75% of the loan be swapped into fixed rate obligations but we have elected to swap 100% of the balance. On October 31,2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bank of America of $30.0million. Although the new credit facility does not require a fixed interest swap agreement, we will continue to use ourexisting fixed interest rate swap of $29.1 million until its term date of December 31, 2013 (see Note 12 – Notes Payable toour 2012 Consolidated Financial Statements). In accordance with FASB ASC 815-20 – Derivatives and Hedging, we marked our interest swap instruments tomarket on the consolidated balance sheet resulting in a $1.1 million increase to interest expense during 2012, a $5.0 millionincrease to interest expense during 2011, and a $284,000 decrease to interest expense during 2010.InflationWe continually monitor inflation and the effects of changing prices. Inflation increases the cost of goods andservices used. Competitive conditions in many of our markets restrict our ability to recover fully the higher costs of acquiredgoods and services through price increases. We attempt to mitigate the impact of inflation by implementing continuousprocess improvement solutions to enhance productivity and efficiency and, as a result, lower costs and operatingexpenses. In our opinion, the effects of inflation have been managed appropriately and as a result, have not had a materialimpact on our operations and the resulting financial position or liquidity.Accounting Pronouncements Adopted During 2012Please see Note 2 – Summary of Significant Accounting Policies to our 2012 Consolidated Financial Statements.New Accounting Pronouncements Please see Note 2 – Summary of Significant Accounting Policies to our 2012 Consolidated Financial Statements. 49 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Forward-Looking StatementsOur statements in this annual report contain a variety of forward-looking statements as defined by the SecuritiesLitigation Reform Act of 1995. Forward-looking statements reflect only our expectations regarding future events andoperating performance and necessarily speak only as of the date the information was prepared. No guarantees can be giventhat our expectation will in fact be realized, in whole or in part. You can recognize these statements by our use of words suchas, by way of example, “may,” “will,” “expect,” “believe,” and “anticipate” or other similar terminology.These forward-looking statements reflect our expectation after having considered a variety of risks anduncertainties. However, they are necessarily the product of internal discussion and do not necessarily completely reflect theviews of individual members of our Board of Directors or of our management team. Individual Board members andindividual members of our management team may have different view as to the risks and uncertainties involved, and mayhave different views as to future events or our operating performance.Among the factors that could cause actual results to differ materially from those expressed in or underlying ourforward-looking statements are the following:·with respect to our cinema operations:othe number and attractiveness to movie goers of the films released in future periods;othe amount of money spent by film distributors to promote their motion pictures;othe licensing fees and terms required by film distributors from motion picture exhibitors in order to exhibittheir films;othe comparative attractiveness of motion pictures as a source of entertainment and willingness and/orability of consumers (i) to spend their dollars on entertainment and (ii) to spend their entertainment dollarson movies in an outside the home environment;othe extent to which we encounter competition from other cinema exhibitors, from other sources of outsideof the home entertainment, and from inside the home entertainment options, such as “home theaters” andcompetitive film product distribution technology such as, by way of example, cable, satellite broadcast,DVD and VHS rentals and sales, and so called “movies on demand;”othe extent to which we can digitalize our cinema circuit compared to our competitors; andothe extent to and the efficiency with which, we are able to integrate acquisitions of cinema circuits with ourexisting operations.·with respect to our real estate development and operation activities:othe rental rates and capitalization rates applicable to the markets in which we operate and the quality ofproperties that we own;othe extent to which we can obtain on a timely basis the various land use approvals and entitlementsneeded to develop our properties;othe risks and uncertainties associated with real estate development;othe availability and cost of labor and materials;ocompetition for development sites and tenants;oenvironmental remediation issues; andothe extent to which our cinemas can continue to serve as an anchor tenant who will, in turn, be influencedby the same factors as will influence generally the results of our cinema operations.·with respect to our operations generally as an international company involved in both the development andoperation of cinemas and the development and operation of real estate; and previously engaged for many years inthe railroad business in the United States:oour ongoing access to borrowed funds and capital and the interest that must be paid on that debt and thereturns that must be paid on such capital;othe relative values of the currency used in the countries in which we operate;ochanges in government regulation, including by way of example, the costs resulting from theimplementation of the requirements of Sarbanes-Oxley;oour labor relations and costs of labor (including future government requirements with respect to pensionliabilities, disability insurance and health coverage, and vacations and leave); 50 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.oour exposure from time to time to legal claims and to uninsurable risks such as those related to our historicrailroad operations, including potential environmental claims and health related claims relating to allegedexposure to asbestos or other substances now or in the future recognized as being possible causes ofcancer or other health related problems;ochanges in future effective tax rates and the results of currently ongoing and future potential audits bytaxing authorities having jurisdiction over our various companies; andochanges in applicable accounting policies and practices.The above list is not necessarily exhaustive, as business is by definition unpredictable and risky, and subject toinfluence by numerous factors outside of our control such as changes in government regulation or policy, competition,interest rates, supply, technological innovation, changes in consumer taste and fancy, weather, and the extent to whichconsumers in our markets have the economic wherewithal to spend money on beyond-the-home entertainment.Given the variety and unpredictability of the factors that will ultimately influence our businesses and our results ofoperation, it naturally follows that no guarantees can be given that any of our forward-looking statements will ultimatelyprove to be correct. Actual results will undoubtedly vary and there is no guarantee as to how our securities will performeither when considered in isolation or when compared to other securities or investment opportunities.Finally, we undertake no obligation to update publicly or to revise any of our forward-looking statements, whether asa result of new information, future events or otherwise, except as may be required under applicable law. Accordingly, youshould always note the date to which our forward-looking statements speak.Additionally, certain of the presentations included in this annual report may contain “non-GAAP financialmeasures.” In such case, a reconciliation of this information to our GAAP financial statements will be made available inconnection with such statements. 51 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 7A – Quantitative and Qualitative Disclosure about Market RiskThe Securities and Exchange Commission requires that registrants include information about potential effects ofchanges in currency exchange and interest rates in their Form 10-K filings. Several alternatives, all with some limitations,have been offered. The following discussion is based on a sensitivity analysis, which models the effects of fluctuations incurrency exchange rates and interest rates. This analysis is constrained by several factors, including the following:·it is based on a single point in time.·it does not include the effects of other complex market reactions that would arise from the changes modeled.Although the results of such an analysis may be useful as a benchmark, they should not be viewed as forecasts. At December 31, 2012, approximately 51% and 18% of our assets (determined by the book value of such assets)were invested in assets denominated in Australian dollars (Reading Australia) and New Zealand dollars (Reading NewZealand), respectively, including approximately $15.8 million in cash and cash equivalents. At December 31, 2011,approximately 57% and 16% of our assets were invested in assets denominated in Australian and New Zealand dollars,respectively, including approximately $19.8 million in cash and cash equivalents. Our policy in Australia and New Zealand is to match revenue and expenses, whenever possible, in localcurrencies. As a result, a majority of our expenses in Australia and New Zealand have been procured in localcurrencies. Due to the developing nature of our operations in Australia and New Zealand, our revenue is not yetsignificantly greater than our operating expense. The resulting natural operating hedge has led to a negligible foreigncurrency effect on our earnings. As we continue to progress our acquisition and development activities in Australia and NewZealand, we cannot assure you that the foreign currency effect on our earnings will be insignificant in the future.Historically, our policy has been to borrow in local currencies to finance the development and construction of ourentertainment complexes in Australia and New Zealand whenever possible. As a result, the borrowings in local currencieshave provided somewhat of a natural hedge against the foreign currency exchange exposure. Even so, approximately 56%and 47% of our Australian and New Zealand assets (based on book value), respectively, remain subject to such exposureunless we elect to hedge our foreign currency exchange between the U.S. and Australian and New Zealand dollars. If theforeign currency rates were to fluctuate by 10% the resulting change in Australian and New Zealand assets would be $12.4million and $3.6 million, respectively, and the change in annual net income would be $35,000 and $7,000, respectively. Atthe present time, we have no plan to hedge such exposure. We believe that this currency risk is mitigated by the long-termnature of the fully subordinated notes. We record unrealized foreign currency translation gains or losses that could materially affect our financialposition. We have accumulated unrealized foreign currency translation gains of approximately $64.6 million and $60.1million as of December 31, 2012 and 2011, respectively.Historically, we maintained most of our cash and cash equivalent balances in short-term money marketinstruments with original maturities of six months or less. Some of our money market investments may decline in value ifinterest rates increase. Due to the short-term nature of such investments, a change of 1% in short-term interest rates wouldnot have a material effect on our financial condition. The majority of our loans have fixed interest rates; however, one of our international loans has a variable interestrate and a change of approximately 1% in short-term interest rates would have resulted in approximately $681,000 increaseor decrease in our 2012 interest expense. 52 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 8 – Financial Statements and Supplementary DataTABLE OF CONTENTS Reports of Independent Registered Public Accounting Firms54Consolidated Balance Sheets as of December 31, 2012 and 201156Consolidated Statements of Operations for the Three Years Ended December 31, 201257Consolidated Statements of Comprehensive Income (Loss) for the Three Years Ended December31, 201258Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31, 201259Consolidated Statements of Cash Flows for the Three Years Ended December 31, 201260Notes to Consolidated Financial Statements61 53 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Reading International, Inc.Los Angeles, California We have audited the accompanying consolidated balance sheets of Reading International, Inc. and subsidiaries (the“Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensiveincome (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2012. Ouraudits of the consolidated financial statements also included the financial statement schedule listed in the Index at Item 15for each of the two years in the period ended December 31, 2012. These financial statements and financial statementschedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, thefinancial position of Reading International, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of theiroperations and their cash flows for each of the two years in the period ended December 31, 2012, in conformity withaccounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statementschedule for each of the two years in the period ended December 31, 2012, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.As discussed in Note 2 to the consolidated financial statements, the accompanying consolidated financialstatements have been retrospectively adjusted for the adoption of Accounting Standards Update (ASU) No. 2011-05,Presentation of Comprehensive Income.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) and our report dated March 19, 2013 expressed an unqualified opinion thereon./s/ GRANT THORNTON LLPLos Angeles, CaliforniaMarch 19, 2013 54 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders ofReading International, Inc.Los Angeles, California We have audited the accompanying consolidated statements of operations, comprehensive income (loss),stockholders' equity, and cash flows of Reading International, Inc. and subsidiaries (the “Company”) for the year endedDecember 31, 2010. Our audit also included Schedule II – Valuation and Qualifying Accounts for the year ended December31, 2010, listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibilityof the Company's management. Our responsibility is to express an opinion on the financial statements and financialstatement schedule based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results ofoperations and cash flows of Reading International, Inc. and subsidiaries, for the year ended December 31, 2010, inconformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Schedule II –Valuation and Qualifying Accounts, when considered in relation to the basic consolidated financial statements taken as awhole, presents fairly, in all material respects, the information set forth therein for the year ended December 31, 2010. As discussed in Note 2 to the 2010 consolidated financial statements, the Company's Australian Credit Facility withan outstanding balance of $101.7 million as of December 31, 2010 matures on June 30, 2011 and the Company is currentlyin negotiations to obtain a new credit facility. Management's plans concerning this matter are discussed in Note 2 to thefinancial statements. As discussed in Note 9 to the consolidated financial statements, the accompanying 2010 consolidated financialstatements have been retrospectively adjusted for the reversal of discontinued operations. As discussed in Note 2 to the consolidated financial statements, the accompanying 2010 consolidated financialstatements have been retrospectively adjusted for the adoption of Accounting Standards Update (ASU) No. 2011-05,Presentation of Comprehensive Income. As discussed in Note 8 to the consolidated financial statements, the accompanying 2010 consolidated financialstatements have been retrospectively adjusted for discontinued operations. /s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaMarch 15, 2011 (March 15, 2012 as to the effects of the retrospective adjustments for the reversal of discontinued operations discussed inNote 9) (March 19, 2013 as to the effects of the retrospective adjustments for the adoption of ASU No. 2011-05 discussed in Note 2and the effects of the retrospective adjustments for discontinued operations discussed in Note 8) 55 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Reading International, Inc. and SubsidiariesConsolidated Balance Sheets as of December 31, 2012 and 2011(U.S. dollars in thousands) December 31, 2012 2011ASSETS Current Assets: Cash and cash equivalents$38,531 $31,597 Time deposits 8,000 --Receivables 8,514 6,973 Inventory 918 1,035 Investment in marketable securities 55 2,874 Restricted cash 2,465 2,379 Deferred tax asset 3,659 1,985 Prepaid and other current assets 3,576 3,781 Assets held for sale -- 14,495 Total current assets 65,718 65,119 Operating property, net 202,778 203,780 Investment and development property, net 94,922 90,699 Investment in unconsolidated joint ventures and entities 7,715 7,839 Investment in Reading International Trust I 838 838 Goodwill 22,898 22,277 Intangible assets, net 15,661 17,999 Deferred tax asset, net 8,989 12,399 Other assets 9,069 9,814 Total assets$428,588 $430,764 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities$18,909 $16,905 Film rent payable 6,657 6,162 Notes payable – current portion 19,714 29,630 Notes payable to related party – current portion 9,000 --Taxes payable 15,234 14,858 Deferred current revenue 11,587 10,271 Other current liabilities 6,032 137 Total current liabilities 87,133 77,963 Notes payable – long-term portion 139,970 143,071 Notes payable to related party – long-term portion -- 9,000 Subordinated debt 27,913 27,913 Noncurrent tax liabilities 8,859 12,191 Other liabilities 33,759 35,639 Total liabilities 297,634 305,777 Commitments and contingencies (Note 19) Stockholders’ equity: Class A non-voting common stock, par value $0.01, 100,000,000 shares authorized, 31,951,945 issued and 21,587,775 outstanding at December 31, 2012 and 31,675,518 issued and 21,311,348 outstanding at December 31, 2011 223 220 Class B voting common stock, par value $0.01, 20,000,000 shares authorized and 1,495,490 issued and outstanding at December 31, 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 December 31, 2012 and December 31, 2011 -- --Additional paid-in capital 136,754 135,171 Accumulated deficit (66,993) (66,079)Treasury shares (4,512) (4,512)Accumulated other comprehensive income 61,369 58,937 Total Reading International, Inc. stockholders’ equity 126,856 123,752 Noncontrolling interests 4,098 1,235 Total stockholders’ equity 130,954 124,987 Total liabilities and stockholders’ equity$428,588 $430,764 See accompanying notes to consolidated financial statement. 56 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Reading International, Inc. and SubsidiariesConsolidated Statements of Operations for the Three Years Ended December 31, 2012(U.S. dollars in thousands) Year Ended December 31, 2012 2011 2010 Operating revenue Cinema$234,703 $225,849 $211,073 Real estate 19,727 19,130 18,249 Total operating revenue 254,430 244,979 229,322 Operating expense Cinema 190,511 182,215 171,795 Real estate 11,163 10,190 9,049 Depreciation and amortization 16,049 16,595 15,563 General and administrative 16,117 17,432 17,607 Impairment expense 1,463 369 2,239 Total operating expense 235,303 226,801 216,253 Operating income 19,127 18,178 13,069 Interest income 800 1,482 1,351 Interest expense (17,226) (22,520) (13,637)Net gain (loss) on sale of assets 144 (67) 352 Other income (expense) (563) 1,157 (347)Income (loss) before income tax expense and equity earnings ofunconsolidated joint ventures and entities 2,282 (1,770) 788 Income tax benefit (expense) (4,904) 12,330 (14,264)Income (loss) before equity earnings of unconsolidated joint venturesand entities (2,622) 10,560 (13,476)Equity earnings (loss) of unconsolidated joint ventures and entities 1,621 (1,552) 1,345 Income (loss) before discontinued operations (1,001) 9,008 (12,131)Income (loss) from discontinued operations, net of tax (85) 232 97 Gain (loss) on sale of discontinued operations (320) 1,656 --Net income (loss)$(1,406)$10,896 $(12,034)Net (income) loss attributable to noncontrolling interests 492 (940) (616)Net income (loss) attributable to Reading International, Inc. commonshareholders$(914)$9,956 $(12,650) Basic income (loss) per common share attributable to ReadingInternational, Inc. shareholders: Earnings (loss) from continuing operations$(0.02)$0.36 $(0.56)Earnings (loss) from discontinued operations, net (0.02) 0.08 --Basic income (loss) per share attributable to Reading International, Inc.shareholders$(0.04)$0.44 $(0.56) Diluted income (loss) per common share attributable to ReadingInternational, Inc. shareholders: Earnings (loss) from continuing operations$(0.02)$0.35 $(0.56)Earnings (loss) from discontinued operations, net (0.02) 0.08 --Diluted income (loss) per share attributable to Reading International,Inc. shareholders$(0.04)$0.43 $(0.56)Weighted average number of shares outstanding–basic 23,028,596 22,764,666 22,781,392 Weighted average number of shares outstanding–diluted 23,028,596 22,993,135 22,781,392 See accompanying notes to consolidated financial statements. 57 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Reading International, Inc. and SubsidiariesConsolidated Statements of Comprehensive Income (Loss) for the Three Years Ended December 31, 2012(U.S. dollars in thousands) Years Ended December 31, 2012 2011 2010Net income (loss)$(1,406)$10,896 $(12,034)Reclassification of realized gain on available for sale investmentsincluded in net income (loss) (109) (25) --Unrealized income (loss) on available for sale investments 107 (7) (478)Cumulative foreign currency adjustment 4,419 1,028 16,015 Accrued pension service benefit (costs) (1,980) 832 112 Comprehensive income$1,031 $12,724 $3,615 Net (income) loss attributable to noncontrolling interests 492 (940) (616)Comprehensive income attributable to noncontrolling interests (5) (11) (43)Comprehensive income attributable to Reading International, Inc.$1,518 $11,773 $2,956 See accompanying notes to consolidated financial statements. 58 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Reading International, Inc. and SubsidiariesConsolidated Statements of Stockholders’ Equity for the Three Years Ended December 31, 2012(In thousands) Common Stock AccumulatedReading Class A Class BAdditional OtherInternationalInc. Total Class A Par Class B ParPaid-InTreasuryAccumulatedComprehensiveStockholders’NoncontrollingStockholders’ Shares Value Shares ValueCapitalStockDeficitIncome/(Loss)EquityInterestsEquityAt January 1, 201021,133 $215 1,495 $15 $134,044 $(3,514)$(63,385)$41,514 $108,889 $1,374 $110,263 Net loss-- -- -- -- -- -- (12,650) -- (12,650) 616 (12,034)Other comprehensive income, net of tax-- -- -- -- -- -- -- 15,606 15,606 43 15,649 Stock option and restricted stockcompensation expense-- -- -- -- 821 -- -- -- 821 -- 821 Purchase of treasury shares(63) -- -- -- -- (251) -- -- (251) -- (251)Class A common stock issued for stockbonuses and options exercised239 1 -- -- 248 -- -- -- 249 -- 249 Deemed distribution from capital lease-- -- -- -- (877) -- -- -- (877) -- (877)Contributions from noncontrollingshareholders-- -- -- -- -- -- -- -- -- 225 225 Distributions to noncontrollingshareholders-- -- -- -- -- -- -- -- -- (1,406) (1,406)At December 31, 201021,309 $216 1,495 $15 $134,236 $(3,765)$(76,035)$57,120 $111,787 $852 $112,639 Net income-- -- -- -- -- -- 9,956 -- 9,956 940 10,896 Other comprehensive income, net of tax-- -- -- -- -- -- -- 1,817 1,817 11 1,828 Stock option and restricted stockcompensation expense-- 4 -- -- 935 -- -- -- 939 -- 939 Purchase of treasury shares(172) -- -- -- -- (747) -- -- (747) -- (747)Class A common stock issued for stockbonuses and options exercised174 -- -- -- -- -- -- -- -- -- --Cinema sale to noncontrollingshareholder-- -- -- -- -- -- -- -- -- (147) (147)Contributions from noncontrollingshareholders-- -- -- -- -- -- -- -- -- 233 233 Distributions to noncontrollingshareholders-- -- -- -- -- -- -- -- -- (654) (654)At December 31, 201121,311 $220 1,495 $15 $135,171 $(4,512)$(66,079)$58,937 $123,752 $1,235 $124,987 Net loss-- -- -- -- -- -- (914) -- (914) (492) (1,406)Other comprehensive income, net of tax-- -- -- -- -- -- -- 2,432 2,432 5 2,437 Stock option and restricted stockcompensation expense-- 2 -- -- 1,276 -- -- -- 1,278 -- 1,278 Class A common stock issued for stockbonuses and options exercised277 1 -- -- 307 -- -- -- 308 -- 308 Contributions from noncontrollingshareholders-- -- -- -- -- -- -- -- -- 3,350 3,350 At December 31, 201221,588 $223 1,495 $15 $136,754 $(4,512)$(66,993)$61,369 $126,856 $4,098 $130,954 See accompanying notes to consolidated financial statement. 59 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. XReading International, Inc. and SubsidiariesConsolidated Statements of Cash Flows for the Three Years Ended December 31, 2012(U.S. dollars in thousands) Year Ended December 31, 2012 2011 2010Operating Activities Net income (loss)$(1,406)$10,896 $(12,034)Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Income) loss recognized on foreign currency transactions (20) 16 (59)Equity (earnings) loss of unconsolidated joint ventures and entities (1,621) 1,552 (1,345)Distributions of earnings from unconsolidated joint ventures and entities 1,540 1,119 1,352 Loss provision on impairment of asset 1,463 369 2,239 (Gain) loss on sale of assets 176 (1,589) (352)Change in valuation allowance on net deferred tax assets 1,929 (15,028) --Gain on sale of marketable securities (109) (25) --Depreciation and amortization 16,384 16,960 15,914 Amortization of prior service costs 304 832 112 Amortization of above and below market leases 395 427 924 Amortization of deferred financing costs 1,440 1,276 1,402 Amortization of straight-line rent 1,213 782 (93)Stock based compensation expense 1,278 939 821 Changes in assets and liabilities: (Increase) decrease in receivables (1,449) (1,468) 4,363 (Increase) decrease in prepaid and other assets 1,907 (7) (162)Increase in accounts payable and accrued expenses 1,800 833 115 Increase (decrease) in film rent payable 435 361 (1,841)Increase (decrease) in taxes payable (2,965) 908 13,009 Increase (decrease) in deferred revenue and other liabilities 2,802 5,100 (1,581)Net cash provided by operating activities 25,496 24,253 22,784 Investing Activities Acquisitions (5,510) (3,917) (5,313)Acquisition deposit paid -- (200) --Purchases of and additions to operating property (8,213) (5,459) (14,058)Change in restricted cash (6) (168) (1,838)Purchase of notes receivable (1,800) (2,784) --Purchase of marketable securities -- -- (42)Sale of marketable securities 2,974 143 30 Distributions of investment in unconsolidated joint ventures and entities 382 -- 229 Proceeds from sale of property 14,078 6,750 --Cinema sale proceeds from noncontrolling shareholder -- 1,867 --Purchase of time deposits (8,000) -- --Net cash used in investing activities (6,095) (3,768) (20,992)Financing Activities Repayment of long-term borrowings (62,602) (126,780) (15,450)Proceeds from borrowings 47,007 105,311 23,525 Capitalized borrowing costs (782) (774) (1,347)Repurchase of Class A Nonvoting Common Stock -- (747) (251)Proceeds from the exercise of stock options 308 -- 248 Noncontrolling interest contributions 3,350 233 225 Noncontrolling interest distributions -- (654) (1,406)Net cash provided by (used in) financing activities (12,719) (23,411) 5,544 Effect of exchange rate on cash 252 (45) 2,620 Increase (decrease) in cash and cash equivalents 6,934 (2,971) 9,956 Cash and cash equivalents at the beginning of the period 31,597 34,568 24,612 Cash and cash equivalents at the end of the period$38,531 $31,597 $34,568 Supplemental Disclosures Cash paid during the period for: Interest on borrowings$14,526 $16,957 $15,133 Income taxes$5,666 $2,688 $792 Non-Cash Transactions Noncontrolling interest contribution from bonus accrual 255 -- --Foreclosure of a mortgage note to obtain title of the underlying property -- 1,984 --Reduction in note payable associated with acquisition purchase price adjustment -- -- 4,381 Deemed distribution -- -- 877 Capital lease asset addition -- -- 4,697 Capital lease asset obligation -- -- 5,573 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.See accompanying notes to consolidated financial statements. 60 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Reading International, Inc. and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Note 1 – Nature of Business Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries andcorporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was incorporated in 1999 and, following theconsummation of a consolidation transaction on December 31, 2001 (the “Consolidation”), is now the owner of theconsolidated businesses and assets of Reading Entertainment, Inc. (“RDGE”), Craig Corporation (“CRG”), and CitadelHolding Corporation (“CDL”). 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 theUnited States.Note 2 – Summary of Significant Accounting PoliciesBasis of Consolidation The consolidated financial statements of RDI and its subsidiaries include the accounts of RDGE, CRG, andCDL. Also consolidated are Australia Country Cinemas Pty, Limited (“ACC”), a company in which we own a 75% interestand whose only assets are our leasehold cinemas in Townsville and Dubbo, Australia; the Angelika Film Center LLC(“AFC”) in which we own a 50% controlling membership interest and whose only asset is the Angelika Film Center inManhattan, and Shadow View Land and Farming, LLC in which we own a 50% controlling membership interest andwhose only asset is a 202 acre land parcel in Coachella, California .Our investment interests are accounted for as unconsolidated joint ventures and entities, and accordingly, ourunconsolidated joint ventures and entities in 20% to 50% owned companies are accounted for on the equity method. Theseinvestment interests include our·25% undivided interest in the unincorporated joint venture that owns 205-209 East 57th Street Associates, LLC(Place 57) a limited liability company formed to redevelop our former cinema site at 205 East 57th Street inManhattan;·33.3% undivided interest in the unincorporated joint venture that owns the Mt. Gravatt cinema in a suburb ofBrisbane, Australia;·33.3% undivided interest in Rialto Distribution, an unincorporated joint venture engaged in the business ofdistributing art film in New Zealand and Australia; and·50% undivided interest in the unincorporated joint venture that owns Rialto Cinemas.Refinancing Long-Term DebtLiberty Theatre Term LoansAs our Liberty Theater Term Loans are due to mature on April 1, 2013, the December 31, 2012 outstandingbalance of this debt of $6.4 million is classified as current on our balance sheet. We intend to refinance the property’s debt.Cinemas 1, 2, 3 LoanOn June 28, 2012, Sutton Hill Properties LLC (“SHP”), one of our consolidated subsidiaries, paid off its EurohypoAG, 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 June26, 2014 subject to an extension fee equal to 1.00% of the ending principal balance and a 61 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. compliance requirement with certain special covenants. Currently, we intend to exercise this extension option. See Note 12– Notes Payable.U.S. Credit FacilityOn October 31, 2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bankof America (the “BofA Revolver”) of $30.0 million with an interest rate of between 2.50% and 3.00% above LIBOR and anexpiration date of October 31, 2017. In addition, Bank of America increased our existing $3.0 million line of credit to $5.0million. See Note 12 – Notes Payable.Australian Credit FacilityOn June 24, 2011, we replaced our Australian Corporate Credit Facility with BOS International (“BOSI”) of $115.8million (AUS$110.0 million) with the proceeds from a new credit facility from National Australia Bank (“NAB”) of $110.5million (AUS$105.0 million). The outstanding balance of this loan of $101.7 million (AUS$100.5 million) was classified asa current liability at December 31, 2010 on our 2010 Consolidated Balance Sheet as we had not refinanced the thencurrently maturing facility prior to the annual report issuance date. See Note 12 – Notes Payable.Cash PositionOur cash position at December 31, 2012 was $46.5 million including an $8.0 million time deposit in Australia. Ofthe $46.5 million, $17.5 million was in Australia, $22.7 million was in the U.S., and $6.3 million was in New Zealand. Aspart of our main credit facilities in Australia, New Zealand and the U.S., we are subject to certain debt covenants which limitthe transfer or use of cash outside of the various regional subsidiaries in which the cash is held. As such, at December 31,2012, we have approximately $7.5 million of cash worldwide that is not restricted by loan covenants.At December 31, 2012, we had undrawn funds of $10.4 million (AUS$10.0 million) available under our NAB lineof credit in Australia, $9.9 million (NZ$12.0 million) available under our New Zealand Corporate Credit facility, and $3.0million available under our BofA Revolver in the U.S. Accordingly, we believe that we have sufficient borrowing capacityunder our various credit facilities, together with our $46.5 million cash balance, to meet our anticipated short-term workingcapital requirements.Accounting PrinciplesOur consolidated financial statements have been prepared in accordance with accounting principles generallyaccepted in the United States of America (“US GAAP”).Cash and Cash EquivalentsWe consider all highly liquid investments with original maturities of three months or less when purchased to becash equivalents for which cost approximates fair value.Time DepositsTime deposits are cash depository investments in which the original maturity of the investments is greater than 90days. During May 2012, we purchased $8.0 million in U.S. dollar time deposits in Australia which mature on January 3,2013 having an interest rate of 0.48%.ReceivablesOur receivables balance is composed primarily of credit card receivables, representing the purchase price of tickets,concessions, or coupon books sold at our various businesses. Sales charged on customer credit cards are collected whenthe credit card transactions are processed. The remaining receivables balance is primarily made up of the goods andservices tax (“GST”) refund receivable from our Australian taxing authorities and the management fee receivable from themanaged cinemas. We have no history of significant bad debt losses and we have established an allowance for accountsthat we deem uncollectible. 62 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. InventoryInventory is composed of concession goods used in theater operations and is stated at the lower of cost (first-in, first-out method) or net realizable value.Investment in Marketable SecuritiesWe account for investments in marketable debt and equity securities in accordance with Financial AccountingStandards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10 - Investments—Debt and Equity Securities(“ASC 320-10”). Our investment in Marketable Securities includes equity instruments that are classified as available forsale and are recorded at market using the specific identification method. In accordance with ASC 320-10, available for salesecurities are carried at their fair market value and any difference between cost and market value is recorded as unrealizedgain or loss, net of income taxes, and is reported as accumulated other comprehensive income in the consolidatedstatement of stockholders’ equity. Premiums and discounts of any debt instruments are recognized in interest incomeusing the effective interest method. Realized gains and losses and declines in value expected to be other-than-temporary onavailable for sale securities are included in other expense. We evaluate our available for sale securities for other thantemporary impairments at the end of each reporting period. These investments have a cumulative unrealized gain of$9,000 included in other comprehensive income at December 31, 2012. For the twelve months ended December 31, 2012,2011, and 2010, our net unrealized losses were $2,000, $32,000, and $478,000, respectively. The cost of securities sold isbased on the specific identification method. Interest and dividends on securities classified as available for sale are includedin interest income.Restricted CashWe classify restricted cash as those cash accounts for which the use of funds is restricted by contract or bankcovenant. At December 31, 2012 and 2011, our restricted cash balance was $2.5 million and $2.4 million, respectively,which were primarily funds held in escrow for our Mackie litigation settlement. Fair Value of Financial InstrumentsThe carrying amounts of our cash and cash equivalents, accounts receivable, restricted cash, and accounts payableapproximate fair value due to their short-term maturities. See Note 16 – Fair Value of Financial Instruments.Derivative Financial InstrumentsIn accordance with FASB ASC 815-20 – Derivatives and Hedging (“ASC 815-20”), we carry all derivative financialinstruments on our consolidated balance sheets at fair value. Derivatives are generally executed for interest ratemanagement purposes but are not designated as hedges in accordance with ASC 815-20. Therefore, changes in marketvalues are recognized in current earnings.Operating propertyOperating property consists of land, buildings and improvements, leasehold improvements, fixtures andequipment which we use to derive operating income associated with our two business segments, cinema exhibition andreal estate. Buildings and improvements, leasehold improvements, fixtures and equipment initially recorded at the lower ofcost or fair market value and depreciated over the useful lives of the related assets. In accordance with US GAAP, land isnot depreciated.Investment and Development PropertyInvestment and development property consists of land, new buildings and improvements under development, andtheir associated capitalized interest and other development costs that we are either holding for development, currentlydeveloping, or holding for investment appreciation purposes. These properties are initially recorded at the lower of cost orfair market value. Within investment and development property are building and improvement costs directly associated withthe development of potential cinemas (whether for sale or lease), the development of entertainment themed retail centers(“ETRCs”), or other improvements to real property. As incurred, we expense start-up costs (such as pre-opening cinemaadvertising and training expense) and other costs 63 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. not directly related to the acquisition and development of long-term assets. We cease capitalization on a developmentproperty when the property is complete and ready for its intended use, or if activities necessary to get the property ready forits intended use have been substantially curtailed. During the year-ended December 31, 2009, we decided to curtail ourcurrent development progress on certain Australian and New Zealand land development projects. As a result, theseproperties are considered held for development and we have not capitalized interest for these projects and will not do so, untilthe development work recommences. Incident to the development of our Burwood property, in late 2006, we began various fill and earth movingoperations. In late February 2007, it became apparent that our cost estimates with respect to site preparation were low, asthe extent of the contaminated soil present at the site, a former brickworks site, was greater than we had originallybelieved. As we were not the source of this contamination, we are not currently under any legal obligation to remove thiscontaminated soil from the site. However, as a practical matter, we intend to address these issues in connection with ourplanned redevelopment of the site as a mixed-use retail, entertainment, commercial and residential complex. As ofDecember 31, 2012, we estimate that the total site preparation costs associated with the removal of this contaminated soilwill be $17.7 million (AUS$17.1 million) and as of that date we had incurred a total of $8.6 million (AUS$8.3 million) ofthese costs. In accordance with FASB ASC 410-30-25 – Environmental Obligations, contamination clean up costs thatimprove the property from its original acquisition state are capitalized as part of the property’s overall development costs.Accounting for the Impairment of Long Lived AssetsWe assess whether there has been impairment in the value of our long-lived assets whenever events or changesin circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held andused is then measured by a comparison of the carrying amount to the future net cash flows, undiscounted and withoutinterest, expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized ismeasured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to bedisposed of are reported at the lower of the carrying amount or fair value, less costs to sell. We recorded impairment lossesof approximately $1.5 million, $369,000, and $2.2 million, relating to certain of our operating property and investment anddevelopment property for the years ended December 31, 2012, 2011, and 2010, respectively. The impairments reflect ourestimates of fair value which were based on appraisals or a discounted income approach with market basedassumptions. Our impairment calculations contain uncertainties and use significant estimates and judgments, and arebased on the information available at the balance sheet date. Future economic and other events could negatively impact theevaluation and future material impairment charges may become necessary. We evaluate our joint venture investments forother than temporary impairments in accordance with FASB ASC 318-10 – Investments—Equity Method and JointVentures. For a further explanation of our 2012 impairment losses see Note 7 – Investment and Development Property.Variable Interest Entity Our determination of the appropriate accounting method with respect to our investment in Reading InternationalTrust I, which is considered a Variable Interest Entity (“VIE”), is based on FASB ASC 810-10. We account for this VIE, ofwhich we are not the primary beneficiary, under the equity method of accounting. We determine if an entity is a VIE under FASB ASC 810-10 based on several factors, including whether the entity’stotal equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinatedfinancial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis,then a quantitative analysis, if necessary. In a quantitative analysis, we incorporate various estimates, including estimatedfuture cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenariosoccurring. If the entity is a VIE, we then determine whether we consolidate the entity as the primary beneficiary. Wedetermine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates thatare inherently subjective. If we made different judgments or utilized different estimates in these evaluations, it could resultin differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity. Ourinvestments in unconsolidated entities in which we have the ability to exercise significant influence over operating andfinancial policies, but do not control, or entities which are variable interest entities in which we are not the primarybeneficiary are accounted for under the equity method. 64 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We carry our investment in the Reading International Trust I using the equity method of accounting because we havethe ability to exercise significant influence (but not control) over operating and financial policies of the entity. We eliminatetransactions with an equity method entity to the extent of our ownership in such an entity. Accordingly, our share of netincome (loss) of this equity method entity is included in consolidated net income (loss). We have no implicit or explicitobligation to further fund our investment in Reading International Trust I.Goodwill and Intangible AssetsWe use the purchase method of accounting for all business combinations. Goodwill and intangible assets withindefinite useful lives are not amortized, but instead, tested for impairment at least annually. Prior to conducting ourgoodwill impairment analysis, we assess long-lived assets for impairment in accordance with FASB ASC 360-15 -Impairment or Disposal of Long-Lived Assets (“ASC 360-15”). We then perform the impairment analysis at the reportingunit level (one level below the operating segment level) (see Note 10 – Goodwill and Intangibles) as defined by FASB ASC350-35 – Goodwill Subsequent Measurement (“ASC 350-35”). This analysis requires management to make a series ofcritical assumptions to: (1) evaluate whether any impairment exists; and (2) measure the amount of impairment. Weestimate the fair value of our reporting units as compared with their current book value. If the estimated fair value of areporting unit is less than the book value, then impairment is deemed to have occurred. In estimating the fair value of ourreporting units, we primarily use the income approach (which uses forecasted, discounted cash flows to estimate the fairvalue of the reporting unit). For the year ended December 31, 2010, in accordance with the sale agreement of ConsolidatedEntertainment, the initial aggregate purchase price of the cinemas was adjusted down by $16.9 million resulting in acorresponding decrease in goodwill associated with the purchased cinemas. No further adjustments are anticipated for thistransaction. The resulting net goodwill balance associated with this transaction is $1.7 million at December 31, 2012 and2011.Discontinued Operations and Properties Held for SaleIn accordance with ASC 360-15, the revenue, expenses and net gain on dispositions of operating properties and therevenue and expenses on properties classified as held for sale are reported in the consolidated statements of operations asdiscontinued operations for all periods presented through the date of the respective disposition. The net gain (loss) ondisposition is included in the period the property is sold. In determining whether the income and loss and net gain ondispositions of operating properties is reported as discontinued operations, we evaluate whether we have any significantcontinuing involvement in the operations, leasing or management of the sold property in accordance with FASB ASC 205-20 – Presentation of Financial Statements – Discontinued Operations (“ASC 205-20”). If we were to determine thatthere was any significant continuing involvement, the income and loss and net gain on dispositions of the operatingproperty would not be recorded in discontinued operations.A property is classified as held for sale when certain criteria, as set forth under ASC 360-15, are met. At such time,we present the respective assets and liabilities related to the property held for sale separately on the balance sheet and ceaseto record depreciation and amortization expense. Properties held for sale are reported at the lower of their carrying value ortheir estimated fair value less the estimated costs to sell. For a description of the properties previously held for sale see Note9 – Transfer of Held for Sale Real Estate to Continuing Operations and Related Items. These asset transfers from heldfor sale to operating resulted in a reclassification of their operating results which is reflected in our December 31, 2012,2011, and 2010 Consolidated Statements of Operations.Revenue RecognitionRevenue from cinema ticket sales and concession sales are recognized when sold. Revenue from gift certificatesales is deferred and recognized when the certificates are redeemed. Rental revenue is recognized on a straight-line basis inaccordance with FASB ASC 840-20-25 – Leases Having Both Scheduled Rent Increases and Contingent Rents (“ASC840-20-25”). Deferred Leasing/Financing CostsDirect costs incurred in connection with obtaining tenants and/or financing are amortized over the respective term ofthe lease or loan on a straight-line basis. Direct costs incurred in connection with financing are amortized over the respectiveterm of the loan utilizing the effective interest method, or straight-line method if the 65 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. result is not materially different. In addition, interest on loans with increasing interest rates and scheduled principal pre-payments are also recognized on the effective interest method.Advertising Expense We expense our advertising as incurred. The amount of our advertising expense was $3.8 million, $3.8 million,and $3.8 million for the years ended December 2012, 2011, and 2010, respectively.Other Income/Expense For the years ended December 31, 2012, 2011, and 2010, we recorded gains/(losses) on the settlement of litigation of($194,000), $0, and ($808,000), respectively, included in other income (expense).Depreciation and AmortizationDepreciation and amortization are provided using the straight-line method over the estimated useful lives of theassets. The estimated useful lives are generally as follows: Building and improvements15-40 yearsLeasehold improvementShorter of the life of the lease or useful life of the improvementTheater equipment7 yearsFurniture and fixtures5 – 10 yearsTranslation of Non-U.S. Currency AmountsThe financial statements and transactions of our Australian and New Zealand cinema and real estate operations arereported in their functional currencies, namely Australian and New Zealand dollars, respectively, and are then translatedinto U.S. dollars. Assets and liabilities of these operations are denominated in their functional currencies and are thentranslated at exchange rates in effect at the balance sheet date. Revenue and expenses are translated at the averageexchange rate for the reporting period. Translation adjustments are reported in “Accumulated Other ComprehensiveIncome,” a component of Stockholders’ Equity. The carrying value of our Australian and New Zealand assets fluctuates due to changes in the exchange rate betweenthe U.S. dollar and the Australian and New Zealand dollars. The exchange rates of the U.S. dollar to the Australian dollarwere $1.0393 and $1.0251 as of December 31, 2012 and 2011, respectively. The exchange rates of the U.S. dollar to theNew Zealand dollar were $0.8267 and $0.7805 as of December 31, 2012 and 2011, respectively.Income Taxes We account for income taxes under FASB ASC 740-10 – Income Taxes (“ASC 740-10”), which prescribes an assetand liability approach. Under the asset and liability method, deferred tax assets and liabilities are recognized for the expectedfuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets andliabilities and the respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuationallowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Incometax expense (benefit) is the tax payable (refundable) for the period and the change during the period in deferred tax assetsand liabilities. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider allavailable positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxableincome, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historicalresults adjusted for the results of discontinued operations and changes in accounting policies. We then includeassumptions about the amount of projected future state, federal and foreign pretax operating income, the reversal oftemporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions requiresignificant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use tomanage the underlying businesses. In evaluating the 66 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. objective evidence that historical results provide, we consider three years of cumulative operating income (loss). In theevent we were to determine that we would be able to realize our deferred income tax assets in the future in excess of theirnet recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision forincome taxes. ASC 740-10 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely thannot that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes,based on the technical merits. We recognize tax liabilities in accordance with ASC 740-10 and we adjust these liabilities when our judgmentchanges as a result of the evaluation of new information not previously available. Due to the complexity of some of theseuncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the taxliabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which theyare determined.Earnings Per ShareBasic earnings per share is calculated using the weighted average number of shares of Class A and Class B Stockoutstanding during the years ended December 31, 2012, 2011, and 2010, respectively. Diluted earnings per share iscalculated by dividing net earnings available to common stockholders by the weighted average common shares outstandingplus the dilutive effect of stock options and unvested restricted stock. We had issued stock options to purchase 672,350,622,350, and 622,350 shares of Class A Common Stock at December 31, 2012, 2011, and 2010, respectively, at aweighted average exercise price of $6.24, $5.65, and $5.65 per share, respectively. Stock options to purchase 185,100,185,100, and 185,100 shares of Class B Common Stock were outstanding at the years ended December 31, 2012, 2011,and 2010, respectively, at a weighted average exercise price of $9.90, $9.90, and $9.90 per share, respectively. Inaccordance with FASB ASC 260-10 – Earnings Per Share (“ASC 260-10”), for any years that we record losses fromcontinuing operations before discontinued operations, the effect of the stock options and restricted stock are anti-dilutive andaccordingly excluded from the diluted earnings per share computation (see Note 4 – Earnings (Loss) Per Share).Real Estate Purchase Price AllocationWe allocate the purchase price to tangible assets of an acquired property (which includes land, building and tenantimprovements) based on the estimated fair values of those tangible assets assuming the building was vacant. Estimates offair value for land are based on factors such as comparisons to other properties sold in the same geographic area adjusted forunique characteristics. Estimates of fair values of buildings and tenant improvements are based on present valuesdetermined based upon the application of hypothetical leases with market rates and terms.We record above-market and below-market in-place lease values for acquired properties based on the present value(using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) thecontractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates forthe corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. Weamortize any capitalized above-market lease values as a reduction of rental income over the remaining non-cancelable termsof the respective leases. We amortize any capitalized below-market lease values as an increase to rental income over theinitial term and any fixed-rate renewal periods in the respective leases.We measure the aggregate value of other intangible assets acquired based on the difference between (i) the propertyvalued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. Management’sestimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flowanalysis). Factors considered by management in its analysis include an estimate of carrying costs during hypotheticalexpected lease-up periods considering current market conditions, and costs to execute similar leases. We also considerinformation obtained about each property as a result of our pre-acquisition due diligence, marketing, and leasing activities inestimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management includesreal estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expectedlease-up periods. Management also estimates costs to 67 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. execute similar leases including leasing commissions, legal, and other related expenses to the extent that such costs arenot already incurred in connection with a new lease origination as part of the transaction.The total amount of other intangible assets acquired is further allocated to in-place lease values and customerrelationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease andour overall relationship with that respective tenant. Characteristics considered by management in allocating these valuesinclude the nature and extent of our existing business relationships with the tenant, growth prospects for developing newbusiness with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under theterms of the lease agreement), among other factors.We amortize the value of in-place leases to expense over the initial term of the respective leases. The value ofcustomer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respectiveleases, but in no event may the amortization period for intangible assets exceed the remaining depreciable life of thebuilding. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationshipintangibles would be charged to expense.These assessments have a direct impact on revenue and net income. If we assign more fair value to the in-placeleases versus buildings and tenant improvements, assigned costs would generally be depreciated over a shorter period,resulting in more depreciation expense and a lower net income on an annual basis. Likewise, if we estimate that more ofour leases in-place at acquisition are on terms believed to be above the current market rates for similar properties, thecalculated present value of the amount above market would be amortized monthly as a direct reduction to rental revenue andultimately reduce the amount of net income.Business Acquisition ValuationsThe assets and liabilities of businesses acquired are recorded at their respective preliminary fair values as of theacquisition date in accordance with FASB ASC 805-10 – Business Combinations (“ASC 805-10”). Upon the acquisition ofreal properties, we allocate the purchase price of such properties to acquired tangible assets, consisting of land and building,and identified intangible assets and liabilities, consisting of the value of above market and below market leases and thevalue of in-place leases, based in each case on their fair values. We use independent appraisals to assist in thedetermination of the fair values of the tangible assets of an acquired property (which includes land and building). We alsoperform valuations and physical counts of property, plant and equipment, valuations of investments and the involuntarytermination of employees, as necessary. Costs in excess of the net fair values of assets and liabilities acquired are recordedas goodwill.We record and amortize above-market and below-market operating leases assumed in the acquisition of a businessin the same way as those under real estate acquisitions.The fair values of any other intangible assets acquired are based on the expected discounted cash flows of theidentified intangible assets. Finite-lived intangible assets are amortized using the straight-line method of amortization overthe expected period in which those assets are expected to contribute to our future cash flows. We do not amortize indefinitelived intangibles and goodwill.Fair Value of Financial InstrumentsFASB ASC 820-10 – Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes aframework for measuring fair value in GAAP and provides for expanded disclosure about fair value measurements. ASC820-10 applies to all other accounting pronouncements that require or permit fair value measurements. The fair value of our financial assets and liabilities are disclosed in Note 16 – Fair Value of Financial Instrumentsto our consolidated financial statements. We generally determine or calculate the fair value of financial instruments usingquoted market prices in active markets when such information is available or using appropriate present value or othervaluation techniques, such as discounted cash flow analyses, incorporating available market discount rate information forsimilar types of instruments while estimating for non-performance and liquidity risk. These techniques are significantlyaffected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. 68 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The financial assets and liabilities recorded at fair value in our consolidated financial statements are marketablesecurities and interest rate swaps/cap. The carrying amounts of our cash and cash equivalents, restricted cash andaccounts payable approximate fair value due to their short-term maturities. The remaining financial assets and liabilitiesthat are only disclosed at fair value are comprised of notes payable, TPS, and other debt instruments. We estimated the fairvalue of our secured mortgage notes payable, our unsecured notes payable, TPS and other debt instruments by performingdiscounted cash flow analyses using an appropriate market discount rate. We calculated the market discount rate byobtaining period-end treasury rates for fixed-rate debt, or LIBOR rates for variable-rate debt, for maturities that correspond tothe maturities of our debt adding an appropriate credit spreads derived from information obtained from third-party financialinstitutions. These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether thedebt is secured or unsecured, and the loan-to-value ratios of the debt.Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820-10 applies include:·Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination;·Long-lived assets measured at fair value due to an impairment assessment under ASC 360-15; and·Asset retirement obligations initially measured under FASB ASC 410-20 – Asset Retirement Obligations (“ASC410-20”).Use of EstimatesThe preparation of financial statements in conformity with US GAAP requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenue and expenses during the reported period. Actualresults could differ from those estimates.Accounting Pronouncements Adopted During 2012FASB ASU No. 2011-05 - Comprehensive Income (Topic 220): Presentation of Comprehensive IncomeASU No. 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a singlecontinuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option topresent other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassifiedfrom other comprehensive income to net income are required to be presented on the face of the financial statements wherethe components of net income and the components of other comprehensive income are presented. This amendment iseffective for our Company in 2012 and was applied retrospectively.FASB ASU No. 2011-08 - Intangibles—Goodwill and OtherASU No. 2011-08 relates to a change in the annual test of goodwill for impairment. The statement permits an entityto first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is lessthan its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment testdescribed in Topic 350. This amendment is effective for annual and interim goodwill impairment tests performed for fiscalyears beginning after December 15, 2011. For our goodwill impairment testing, at least for now, we have continued to use aquantitative approach.New Accounting PronouncementsNo new pronouncements were made pertaining to our Company’s accounting during the year ended December 31,2012. 69 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 3 – Stock Based Compensation and Employee Stock Option PlanStock Based CompensationAs part of his compensation package, Mr. James J. Cotter, our Chairman of the Board and Chief Executive Officer,was granted $950,000, $750,000, and $750,000, respectively, of restricted class A non-voting common stock (“Class AStock”) for each of the years ended December 31, 2012, 2011, and 2010, respectively. The 2012, 2011, and 2010 stockgrants of 217,890, 155,925, and 174,825 shares, respectively, were granted with stock grant prices of $4.36, $4.81, and$4.29, respectively. Mr. Cotter’s stock compensation is granted fully vested with a five-year restriction on sale. As ofDecember 31, 2012, the 2012 stock grant had not yet been issued to Mr. Cotter. During 2012, we issued to Mr. Cotter155,925 of Class A Stock for his 2011 vested stock grants which had a stock grant price of $4.81 and a grant date fair value of$750,000. During 2012, we issued 9,680 shares as a one-time stock grant of Class A Nonvoting shares to our employeesvalued at $44,000. During 2010, as part of Mr. John Hunter’s, our Chief Operating Officer, compensation package,$100,000 of restricted Class A Stock vested relating to Mr. Hunter’s 2009 and 2008 stock grants. During 2010, we issued toMr. Hunter 5,154 shares related to his 2009 vested stock compensation. During the years ended December 31, 2012, 2011, and 2010, we recorded compensation expense of $994,000,$750,000, and $754,000, respectively, for the vesting of all our restricted stock grants. The following table details the grantsand vesting of restricted stock to our employees (dollars in thousands): Non-VestedRestricted Stock WeightedAverage FairValue at GrantDateOutstanding – January 1, 2010--$--Granted174,825 750 Vested(174,825) (750)Outstanding – December 31, 2010--$--Granted155,925 750 Vested(155,925) (750)Outstanding – December 31, 2011--$--Granted227,570 994 Vested(227,570) (994)Outstanding – December 31, 2012--$-- On April 1, 2010, we terminated our then existing contractual relationship with Doug Osborne, at that time the chiefexecutive officer of our Landplan real estate operations. Mr. Osborne’s incentive interest in our various Landplan projects,which was valued at $0, was revoked at that time. Mr. Osborne continues to provide services to us on a non-exclusiveindependent contractor basis.Employee Stock Option PlanWe have a long-term incentive stock option plan that provides for the grant to eligible employees, directors, andconsultants of incentive or nonstatutory options to purchase shares of our Class A Nonvoting Common Stock. Our 1999Stock Option Plan expired in November 2009, and was replaced by our new 2010 Stock Incentive Plan, which wasapproved by the holders of our Class B Voting Common Stock in May 2010. For the stock options exercised during theyears ended December 31, 2012 and 2010, we issued 95,000 and 90,000 shares of Class A Stock for cash to employees ofthe corporation under this stock based compensation plan at exercise prices of $4.68 and $2.76, respectively. During theyear ended December 31, 2011, we did not issue any shares under this stock based compensation plan.FASB ASC 718-10 – Stock Compensation (“ASC 718-10”) requires that all stock-based compensation berecognized as an expense in the financial statements and that such costs be measured at the fair value of the award. Weestimate the valuation of stock based compensation using a Black-Scholes option-pricing model. 70 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. When our tax deduction from an option exercise exceeds the compensation cost resulting from the option, a taxbenefit is created. ASC 718-10 requires that excess tax benefits related to stock option exercises be reflected as financingcash inflows instead of operating cash inflows. For the years ended December 31, 2012, 2011, and 2010, there was noimpact to the consolidated statements of cash flows because there were no recognized tax benefits during these periods.ASC 718-10 requires companies to estimate forfeitures. Based on our historical experience, we did not estimateany forfeitures for the options granted during the years ended December 31, 2012, 2011, and 2010.In accordance with ASC 718-10, we estimate the fair value of our options using the Black-Scholes option-pricingmodel, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock pricevolatility, and the expected life of the options. The dividend yield is excluded from the calculation, as it is our presentintention to retain all earnings. We estimated the expected stock price volatility based on our historical price volatilitymeasured using daily share prices back to the inception of the Company in its current form beginning on December 31,2001. We estimate the expected option life based on our historical share option exercise experience during this sameperiod. We expense the estimated grant date fair values of options issued on a straight-line basis over their vesting periods.No options were granted during 2011. For the 206,000 and 157,700 options granted during 2012 and 2010,respectively, we estimated the fair value of these options at the date of grant using a Black-Scholes option-pricing model withthe following weighted average assumptions: 20122010 Stock option exercise price$5.94$5.17Risk-free interest rate1.71%2.74%Expected dividend yield----Expected option life7.20 yrs7.23 yrsExpected volatility32.15%33.01%Weighted average fair value$2.62$1.88 Using the above assumptions and based on our use of the modified prospective method, we recorded $285,000,$189,000, and $67,000 in compensation expense for the total estimated grant date fair value of stock options that vestedduring the years ended December 31, 2012, 2011, and 2010, respectively. At December 31, 2012 total unrecognizedestimated compensation cost related to non-vested stock options granted was $342,000 which is expected to be recognizedover a weighted average vesting period of 2.38.No options were exercised in 2011. The total realized value of stock options exercised during the years endedDecember 31, 2012 and 2010 was $136,000 and $138,000, respectively. The grant date fair value of options that vestedduring the years ending December 31, 2012, 2011, and 2010 was $285,000, $189,000, and $67,000, respectively. Werecorded cash received from stock options exercised of $308,000 and $248,000 during the years ended December 31, 2012and 2010, respectively. Additionally, in 2012, 41,000 options were exercised having a realized value of $103,000 for whichwe did not receive any cash but the employee elected to receive the net incremental number of in-the-money shares of15,822 based on an exercise price of $4.01 and a market price of $6.53. At December 31, 2012, the intrinsic, unrealizedvalue of all options outstanding, vested and expected to vest, was $509,000 of which 100.0% were currently exercisable.Pursuant to both our 1999 Stock Option Plan and our 2010 Stock Incentive Plan, all stock options expire within tenyears of their grant date. The aggregate total number of shares of Class A Stock and class B voting common stockauthorized for issuance under our 2010 Stock Option Plan is 1,250,000. At the time that options are exercised, at thediscretion of management, we will either issue treasury shares or make a new issuance of shares to the employee or boardmember. Dependent on the grant letter to the employee or board member, the required service period for option vesting isbetween zero and four years. We had the following stock options outstanding and exercisable: Weighted Weighted Average Common StockAverage ExerciseCommon Stock Price of OptionsPrice of OptionsExercisable Exercisable OutstandingOutstandingOptions Options Class AClass BClass AClass BClass AClass BClass AClass BOutstanding-January 1, 2010589,750 150,000 $5.51 $10.24 534,750 150,000 $5.62 $10.24 Granted122,600 35,100 $5.17 $8.47 Exercised(90,000)--$2.76 $-- Outstanding- December 31, 2010622,350 185,100 $5.65 $9.90 449,750 150,000 $6.22 $10.24 No activity during the period----$--$-- Outstanding-December 31, 2011622,350 185,100 $5.65 $9.90 544,383 167,550 $5.86 $10.05 Granted206,000 --$5.94 $-- Exercised(136,000)--$4.68 $-- Expired(20,000)--$3.75 $-- Outstanding-December 31, 2012672,350 185,100 $6.24 $9.90 546,350 185,100 $6.26 $9.90 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 71 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The weighted average remaining contractual life of all options outstanding, vested and expected to vest, at December31, 2012 and 2011 were approximately 5.32 and 4.13 years, respectively. The weighted average remaining contractual lifeof the exercisable options outstanding at December 31, 2012 and 2011 was approximately 4.28 and 3.85 years, respectively.Note 4 – Earnings (Loss) Per Share For the three years ended December 31, 2012, we calculated the following earnings (loss) per share (dollars inthousands, except per share amounts): 2012 2011 2010Income (loss) from continuing operations$(509)$8,068 $(12,747)Income (loss) from discontinued operations (405) 1,888 97 Net income (loss) attributable to Reading International, Inc. commonshareholders (914) 9,956 (12,650)Basic income (loss) per common share attributable to ReadingInternational, Inc. shareholders: Earnings (loss) from continuing operations$(0.02)$0.36 $(0.56)Earnings (loss) from discontinued operations, net (0.02) 0.08 --Basic income (loss) per share attributable to Reading International, Inc.shareholders$(0.04)$0.44 $(0.56)Diluted income (loss) per common share attributable to ReadingInternational, Inc. shareholders: Earnings (loss) from continuing operations$(0.02)$0.35 $(0.56)Earnings (loss) from discontinued operations, net (0.02) 0.08 --Diluted income (loss) per share attributable to Reading International, Inc.shareholders$(0.04)$0.43 $(0.56)Weighted average shares of common stock – basic 23,028,596 22,764,666 22,781,392 Weighted average shares of common stock – diluted 23,028,596 22,993,135 22,781,392 For the year ended December 31, 2011, the weighted average common stock – dilutive included 228,469 ofincremental shares of exercisable in-the-money stock options and unissued restricted Class A Stock. For the years endedDecember 31, 2012 and 2010, we recorded losses from continuing operations. As such, the 284,054 and 235,517,respectively, of incremental shares of exercisable in-the-money stock options and unissued restricted Class A Stock wereexcluded from the computation of diluted loss per share because they were anti-dilutive in those periods. In addition,791,286, 734,906, and 746,758 of out-of-the-money stock options were excluded from the computation of diluted earnings(loss) per share for the years ended December 31, 2012, 2011, and 2010, respectively. The total number of in-the-moneystock options, out-of-the-money stock options, and unissued restricted Class A Stock that could potentially dilute basicearnings per share was 1,075,340, 963,375, and 982,275 for the years ended December 31, 2012, 2011, and 2010,respectively. 72 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 5 – Prepaid and Other AssetsPrepaid and other assets are summarized as follows (dollars in thousands): December 31, 2012 2011Prepaid and other current assets Prepaid expenses$1,150 $1,168 Prepaid taxes 855 781 Deposits 373 605 Other 1,198 1,227 Total prepaid and other current assets$3,576 $3,781 Other non-current assets Other non-cinema and non-rental real estate assets$1,134 $1,134 Long-term deposits 212 264 Deferred financing costs, net 2,230 3,725 Notes receivable 2,000 851 Tenant inducement asset 716 1,064 Straight-line rent asset 2,775 2,776 Other 2 --Total non-current assets$9,069 $9,814 Investment in Notes ReceivableNotes Receivable We currently hold two promissory notes secured by assets in the United States and New Zealand. The purchaseprice of these notes aggregate to $2.0 million and they are carried on our balance sheet at their purchase price. Note 6 – Operating PropertyProperty associated with our operating activities is summarized as follows (dollars in thousands): December 31,Operating property 2012 2011Land$69,370 $62,873 Building and improvements 136,225 134,967 Leasehold improvements 45,391 41,380 Fixtures and equipment 108,169 103,872 Total cost 359,155 343,092 Less: accumulated depreciation (156,377) (139,312)Operating property, net$202,778 $203,780 Depreciation expense for operating property was $14.9 million, $14.9 million, and $13.0 million for the three yearsended December 31, 2012, 2011, and 2010, respectively. In 2011, we recorded impairment losses totaling $65,000 on two of our cinema properties. We did not record animpairment charge for our operating assets during 2012 or 2010. Note 7 – Investment and Development PropertyInvestment and development property is summarized as follows (dollars in thousands): 73 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31,Investment and Development Property 2012 2011Land$77,020 $75,384 Construction-in-progress (including capitalized interest) 17,902 15,315 Investment and development property, net$94,922 $90,699 During the year-ended December 31, 2009, we decided to curtail our current development progress on certainAustralian and New Zealand land development projects. As a result, we did not capitalize interest on these projects during2012, 2011, and 2010 and we will not capitalize interest for these projects until development work recommences.Coachella, California LandBased on a December 2012 appraisal of the property, the fair value of the property was $4.0 million resulting in a$1.5 million impairment to the carrying value of the asset. As noted below, this property is 50% owned by Mr. James J.Cotter who shares in any impairment loss to the extent of his ownership interest.Note 8 – Acquisitions, Disposals, and Assets Held for Sale2012 TransactionsIndooroopilly - SaleOn November 20, 2012, we sold our Indooroopilly property for $12.4 million (AUS$12.0 million). As its book valueat the time of sale was $12.5 million (AUS$12.1 million), we recorded a loss on sale in the form of an impairment expenseof $318,000 (AUS$306,000) for the year ended December 31, 2012 which included the cost to sell the property. The netbook value of this property’s assets is included in assets held for sale on our Consolidated Balance Sheets at December 31,2011 and the operational results are included in income (loss) from discontinued operations on our Condensed ConsolidatedStatements of Operations for the three years ended December 31, 2012. The condensed statement of operations forIndooroopilly is as follows (dollars in thousands): 2012 2011 2010Revenue$793 $825 $809 Less: operating expense 560 593 712 Less: impairment expense 318 -- --Income (loss) from discontinued operations, net of tax$(85)$232 $97 Taringa - SaleOn February 21, 2012, we sold our three properties of approximately 1.1 acres in the Taringa area of Brisbane,Australia for $1.9 million (AUS$1.8 million). Because the net carrying amounts of these properties were greater than thetotal sale price, we recorded an impairment expense for these properties of $369,000 (AUS$365,000) for the year endedDecember 31, 2011.Coachella, California Land - AcquisitionOn 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 ofCoachella, California. The property was acquired at a foreclosure auction for $5.5 million. The property was acquired as along-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, thesefunds were converted on January 18, 2012 into a 50% interest in Shadow View Land and Farming, LLC. We are themanaging member of this company. See Note 20 – Noncontrolling Interests.2011 Transactions 74 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cal Oaks Cinema - AcquisitionOn August 25, 2011, we purchased a 17-screen multiplex in Murrieta, California (the “CalOaks Cinema”) for $4.2million made up of $3.9 million of cash and a $250,000 holdback note for certain offset charges to the purchase price (seeNote 12 – Notes Payable).On May 15, 2011, in conjunction with the contemplated purchase of the CalOaks cinema, we lent $2.3 million tothe owner of the CalOaks cinema in exchange for a 90-day note receivable. The note was secured by three cinemas’ leasesand had an annualized interest of 9.9%. On August 25, 2011, as part of the CalOaks cinema acquisition, this note wasrepaid.Elsternwick Classic Cinema - Sale On April 14, 2011, we sold our 66.7% share of the 5-screen Elsternwick Classic cinema located in Melbourne,Australia to our joint venture partner for $1.9 million (AUS$1.8 million) and recognized a gain on sale of a discontinuedoperation of $1.7 million (AUS$1.6 million).2010 TransactionsManukau Land - Acquisition On April 30, 2009, we entered into an agreement to purchase for $3.6 million (NZ$5.2 million) a property adjacent toour Manukau property. An initial deposit of $26,000 (NZ$50,000) was paid upon signing of the agreement, a second depositof $175,000 (NZ$258,000) was paid in the second quarter of 2009 and a third deposit of $531,000 (NZ$773,000) was paid inAugust 2009. The fourth and final purchase payment of $2.9 million (NZ$4.1 million) was made on March 31, 2010completing our acquisition of this land parcel.Note 9 – Transfer of Held for Sale Real Estate to Continuing Operations and Related Items2011 TransactionsLake Taupo Motel During the fourth quarter of 2010, we listed for sale the residential units of our Lake Taupo property and the adjoining1.0-acre parcel located in Lake Taupo, New Zealand. A portion of this property was previously improved with a motel inwhich we recently renovated the property’s units to be condominiums and have enhanced the property value withresidential apartment entitlements for the adjoining vacant land. At December 31, 2011, we had not yet sold theproperty. Pursuant to ASC 360-10-45, as twelve months had passed since this announcement and we did not meet thecriteria to classify this property as held for sale, we reclassified $5,000 of income from discontinued operations to thecomponents of income from continuing operations for the year ended December 31, 2010. As a result of the transfer of theasset from held for sale to continuing operations, we recorded a loss for 2011 of $37,000 (NZ$48,000) to measure theproperty at the lower of its carrying amount, adjusted for depreciation and amortization expense that would have beenrecognized had the asset been continuously classified as a continuing operational asset, or its fair value at the date of thedecision not to sell. We continue to discuss with potential buyers and plan to monetize the property in time.Burwood Development Property In May 2010, we announced our intent to sell and began actively marketing our 50.6-acre Burwood development sitein suburban Melbourne. At June 30, 2011, we had not yet achieved that aim. Pursuant to ASC 360-10-45, as twelvemonths had passed since this announcement and we did not meet the criteria to classify this property as held for sale, wereclassified the current carrying value of this property of $53.4 million (AUS$52.1 million) from assets held for sale toinvestment and development property on our December 31, 2011 consolidated balance sheet. We continue to evaluate ouroptions concerning this property. 2012 and 2010 Transactions 75 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. There were no transfers of held for sale real estate to continuing operations or related items in 2012 or 2010.Note 10 – Goodwill and Intangible Assets Goodwill associated with our business combinations is tested for impairment at the beginning of the fourth quarterwith continued evaluation through the end of the fourth quarter of every year. The fair value estimates of each of ourreporting units is based on the projected profits and cash flows of the related assets using each reporting unit’s weightedaverage cost of capital as a discount rate. As a result of this test, whereby the Step 1 Test was passed for all reporting units,it was determined that there is no impairment to our goodwill as of December 31, 2012 or 2011. At December 31, 2012 or 2011, our goodwill consisted of the following (dollars in thousands): 2012 Cinema Real Estate TotalBalance as of January 1, 2012$17,053 $5,224 $22,277 Foreign currency translation adjustment 621 -- 621 Balance at December 31, 2012$17,674 $5,224 $22,898 2011 Cinema Real Estate TotalBalance as of January 1, 2011$16,311 $5,224 $21,535 Goodwill acquired during 2011 539 -- 539 Foreign currency translation adjustment 203 -- 203 Balance at December 31, 2011$17,053 $5,224 $22,277 We have intangible assets other than goodwill that are subject to amortization which are being amortized overvarious periods (dollars in thousands): As of December 31, 2012 BeneficialLeases Trade name OtherIntangibleAssets TotalGross carrying amount$24,284 $7,254 $458 $31,996 Less: Accumulated amortization 12,873 3,059 403 16,335 Total, net$11,411 $4,195 $55 $15,661 As of December 31, 2011 BeneficialLeases Trade name OtherIntangibleAssets TotalGross 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 We amortize our beneficial leases over the lease period, the longest of which is approximately 30 years; our tradename using an accelerated amortization method over its estimated useful life of 45 years; and our option fee and otherintangible assets over 10 years. For the years ended December 31, 2012, 2011, and 2010, our amortization expense was$2.2 million, $2.4 million, and $2.6 million, respectively. The estimated amortization expense in the five succeeding yearsand thereafter is as follows (dollars in thousands): Year Ending December 31, 2013$2,222 2014 1,960 2015 1,845 2016 1,595 2017 1,165 Thereafter 6,874 Total future amortization expense$15,661 76 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 11 – Investments in and Advances to Unconsolidated Joint Ventures and EntitiesInvestments in and advances to unconsolidated joint ventures and entities are accounted for under the equitymethod of accounting except for Rialto Distribution as described below. As of December 31, 2012 and 2011, theseinvestments in and advances to unconsolidated joint ventures and entities include the following (dollars in thousands): December 31, Interest 2012 2011Rialto Distribution33.3%$--$--Rialto Cinemas50.0% 1,561 1,586 205-209 East 57th Street Associates, LLC25.0% 60 33 Mt. Gravatt33.3% 6,094 6,220 Total investments $7,715 $7,839 For the years ended December 31, 2012, 2011, and 2010, we recorded our earnings (loss) from our unconsolidatedjoint ventures and entities as follows (dollars in thousands): Year Ended December 31, 2012 2011 2010Rialto Distribution$199 $383 $286 Rialto Cinemas 209 (72) 64 205-209 East 57th Street Associates, LLC 27 33 89 Mt. Gravatt 1,186 1,038 906 Total investor share of earnings 1,621 1,382 1,345 Rialto Cinemas impairment recorded at investor level -- (2,934) --Total equity earnings$1,621 $(1,552)$1,345 Rialto DistributionEffective October 1, 2005, we purchased for $694,000 (NZ$1.0 million) a 33.3% interest in RialtoDistribution. Rialto Distribution, an unconsolidated joint venture, is engaged in the business of distributing art film in NewZealand and Australia. We own an undivided 33.3% interest in the assets and liabilities of the joint venture. Prior toJanuary 1, 2010, we treated our interest as an equity method interest in an unconsolidated joint venture. However, during2009, the reporting company of Rialto Distribution reported a net loss of $2.2 million (NZ$3.2 million). Our share of thisloss was $734,000 (NZ$1.1 million). Due to this significant loss, we determined that the goodwill associated with RialtoDistribution’s investment in the film distribution business was fully impaired. Therefore, we recorded our share of theimpairment loss of $331,000 (NZ$434,000) as a part of our equity losses resulting in a net zero balance at December 31,2009. As of January 1, 2010, we treat our interest as a cost method interest in an unconsolidated joint venture. For theyears ended December 31, 2012 2011, and 2010 we received $199,000 (NZ$245,000), $383,000 (NZ$500,000), and$286,000 (NZ$400,000), respectively, in distributions from our interest in Rialto Distribution which we recorded as earningsat the time of receipt.Rialto CinemasEffective October 1, 2005, we purchased, indirectly, a beneficial ownership of 100% of the stock of RialtoEntertainment for $4.8 million (NZ$6.9 million). Rialto Entertainment was at the time of purchase a 50% joint venturepartner with Village and Sky in Rialto Cinemas, the largest art cinema circuit in New Zealand. The Village and Skyownership interest have subsequently been sold to Greater Union, an Australian based cinema chain operator. We own anundivided 50% interest in the assets and liabilities of the joint venture and treat our interest as an equity method interest inan unconsolidated joint venture. Subsequent to the February 22, 2011 earthquake in 77 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Christchurch, the joint venture obtained a termination agreement with the landlord associated with the Christchurch cinemalease (see Note 26 – Casualty Loss). As of December 31, 2012, following the closure of three cinemas with 15 screens,the joint venture owned two cinemas with 13 screens in the New Zealand cities of Auckland and Dunedin. As part of ourinvestment impairment analysis for 2011, we determined that the value of our investment was impaired. For this reason,we recorded an impairment charge to our investment in Rialto Cinemas of $2.9 million (NZ$3.8 million) during December31, 2011 and included it in our equity loss from unconsolidated joint ventures and entities for the year ended December 31,2011.205-209 East 57th Street Associates, LLCWe own a non-managing 25% membership interest in 205-209 East 57th Street Associates, LLC a limited liabilitycompany formed to redevelop our former cinema site at 205 East 57th Street in Manhattan. During the fourth quarter of 2010, the last residential condominium was sold for $900,000 from which we recordedearnings of $64,000 and received distributions totaling $293,000. During 2012, as a consequence of a purchaser’s dispute,a condominium which was previously sold was repurchased, renovated, and resold for a small gain resulting in additionalearnings to us of $27,000.Mt. GravattWe own an undivided 33.3% interest in Mt. Gravatt, an unincorporated joint venture that owns and operates a 16-screen multiplex cinema in Australia. The condensed balance sheets and statements of operations of Mt. Gravatt are asfollows (dollars in thousands):Mt. Gravatt Condensed Balance Sheet Information December 31, 2012 2011Current assets $1,318 $1,935 Noncurrent assets 4,078 3,832 Current liabilities 1,111 846 Noncurrent liabilities 43 60 Members’ equity 4,242 4,861 Mt. Gravatt Condensed Statements of Operations Information December 31, 2012 2011 2010Total revenue$15,236 $14,097 $12,909 Net income 3,513 3,045 2,711 Malulani Investments, LimitedOn June 26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real estate company. On July 2,2009, Magoon Acquisition and Development, LLC (“Magoon LLC”) and we entered into a settlement agreement (the“Settlement Terms”) with respect to a lawsuit against certain officers and directors of Malulani Investments, Limited(“MIL”). Under the Settlement Terms, Magoon LLC and we received $2.5 million in cash, a $6.8 million three-year 6.25%secured promissory note issued by The Malulani Group (“TMG”), and a ten-year “tail interest” in MIL and TMG in exchangefor the transfer of all ownership interests in MIL and TMG held by both Magoon, LLC and RDI and for the release of allclaims against the defendants in this matter. A gain on the transfer of our ownership interest in MIL of $268,000 wasrecognized during 2009 as a result of this transaction. The tail interest allows us to participate in certain distributions madeor received by MIL, TMG, and in certain cases, the shareholders of TMG. The tail interest, however, continues only for aperiod of ten years and we cannot assure that we will receive any distributions from this tail interest. During 2011 and 2010,we received $191,000 and $635,000 in interest on the promissory note and, on June 14, 2011, we received $6.8 millionwith respect to the principal and interest owed on this note. We believe that further amounts are owed under the note andwe have begun litigation to collect such amounts. Any further collections will be recognized when received. 78 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Berkeley Cinemas – Botany We previously had investments in three joint ventures with Everard Entertainment Ltd in New Zealand. On June 6,2008, we sold our last investment in these joint ventures of the Botany Downs Cinema to our joint venture partner. During2010, we finalized our claims regarding the sale of this cinema resulting in an additional gain on sale of $384,000(NZ$554,000) for the year ended 2010 included in other income (expense) on our Consolidated Statement of Operations.Combined Condensed Financial InformationThe combined condensed financial information for all of the above unconsolidated joint ventures and entitiesaccounted for under the equity method is as follows; therefore, these financials only exclude Rialto Distribution (dollars inthousands):Condensed Balance Sheet Information December 31, 2012 2011Current assets $3,488 $5,245 Noncurrent assets 6,621 6,611 Current liabilities 2,197 3,031 Noncurrent liabilities 751 723 Members’ equity 7,161 8,102 Condensed Statements of Operations Information December 31, 2012 2011 2010Total revenue$26,138 $28,017 $24,944 Net income 4,590 4,021 4,779 79 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 12 - Notes PayableNotes payable are summarized as follows (dollars in thousands): Name of Note Payable or SecurityDecember 31,2012December 31,2011Maturity Date December 31,2012 December 31,2011Trust Preferred Securities4.31%9.22%April 30, 2027$27,913 $27,913 Australian NAB Corporate Term Loan5.82%7.20%June 30, 2014 75,349 88,671 Australian NAB Corporate Revolver5.82%7.20%June 30, 2014 -- --Australian Shopping Center Loans--2012-2014 208 384 New Zealand Corporate Credit Facility4.70%4.15%March 31, 2015 23,148 21,854 US Bank of America Revolver3.26%-October 31, 2017 30,000 --US Bank of America Line of Credit3.21%-October 31, 2017 2,007 --US Cinema 1, 2, 3 Term Loan-6.73%July 1, 2012 -- 15,000 US Cinema 1, 2, 3 Term Loan5.24%-June 27, 2013 15,000 --US GE Capital Term Loan-5.50%October 31, 2012 -- 32,188 US Liberty Theaters Term Loans6.20%6.20%April 1, 2013 6,429 6,583 US Nationwide Loan 18.50%8.50%February 21, 2013 593 597 US Sanborn Note-7.00%January 31, 2012 -- 250 US Sutton Hill Capital Note – Related Party8.25%8.25%December 31, 2013 9,000 9,000 US Union Square Theatre Term Loan5.92%5.92%May 1, 2015 6,950 7,174 Total $196,597 $209,614 Trust Preferred SecuritiesOn February 5, 2007, we issued $51.5 million in 20-year fully subordinated notes to a trust that we control, whichin turn issued $51.5 million in securities. Of the $51.5 million, $50.0 million in TPS were issued to unrelated investors in aprivate placement and $1.5 million of common trust securities were issued by the trust to Reading called “Investment inReading International Trust I” on our balance sheet. Effective May 1, 2012, the interest rate on our Trust PreferredSecurities changed from a fixed rate of 9.22%, which was in effect for the past five years, to a variable rate of three monthLIBOR plus 4.00%, which will reset each quarter through the end of the loan unless we exercise our right to refix the rate atthe current market rate at that time. There are no principal payments due until maturity in 2027 when the notes and thetrust securities are scheduled to be paid in full. We may pay off the debt after the first five years at 100% of the principalamount without any penalty. The trust is essentially a pass through, and the transaction is accounted for on our books asthe issuance of fully subordinated notes. The credit facility includes a number of affirmative and negative covenantsdesigned to monitor our ability to service the debt. The most restrictive covenant of the facility requires that we mustmaintain a fixed charge coverage ratio at a certain level. However, on December 31, 2008, we secured a waiver of allfinancial covenants with respect to our TPS for a period of nine years (through December 31, 2017), in consideration of thepayment of $1.6 million, consisting of an initial payment of $1.1 million, a payment of $270,000 made in December 2011,and a contractual obligation to pay $270,000 in December 2014. The private placement generated $49.9 million in net proceeds, which were used principally to make ourinvestment in the common trust securities of $1.5 million, to retire all of our bank indebtedness in New Zealand of $34.4million (NZ$50.0 million) and to retire a portion of our bank indebtedness in Australia of $5.8 million (AUS$7.4million). During the years ended December 31, 2012, 2011, and 2010, we paid $1.9 million, $2.5 million, and $2.5million, respectively, in preferred dividends to the unrelated investors that are included in interest expense. At December31, 2012 and 2011, we had preferred dividends payable of $198,000 and $416,000, respectively. Interest payments for thisloan are required every three months.During the first quarter of 2009, we took advantage of the then current market illiquidity for securities such as ourTPS to repurchase $22.9 million in face value of those securities through an exchange of $11.5 million worth of marketablesecurities purchased during the period for the express purpose of executing this exchange transaction with the third partyholder of these TPS. During the twelve months ended 2009, we amortized $106,000 of discount to interest incomeassociated with the holding of these securities prior to their extinguishment. On April 30, 2009, we extinguished $22.9million of these TPS, which resulted in a gain on retirement of subordinated debt (TPS) of 80 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. $10.7 million net of loss on the associated write-off of deferred loan costs of $749,000 and a reduction in our Investment inReading International Trust I from $1.5 million to $838,000.AustraliaNAB Australian Corporate Term Loan On June 24, 2011, we replaced our Australian Corporate Credit Facility of $115.8 million (AUS$110.0 million) withBOS International (“BOSI”) with a new credit facility from National Australia Bank (“NAB”) of $110.5 million (AUS$105.0million). NAB provided us term debt of $94.7 million (AUS$90.0 million) and $9.5 million (AUS$9.0 million) in line ofcredit which we used combined with our cash of $1.6 million (AUS$1.5 million) to pay off our $105.8 million (AUS$100.5million) of outstanding BOSI debt. The new three-tiered credit facility from NAB (the “NAB Credit Facility”) has a term of three years, due and payableJune 30, 2014, and comprised of a term loan with a December 31, 2012 balance of $75.3 million (AUS$72.5 million); a$10.4 million (AUS$10.0 million) revolving facility for which we do not have a balance at December 31, 2012; and a $5.2million (AUS$5.0 million) guarantee facility. This loan to Reading Entertainment Australia commenced on June 24, 2011with an interest rate of between 2.90% and 2.15% above the BBSY bid rate. This credit facility is secured by substantially allof our cinema assets in Australia and is only guaranteed by several of our wholly owned Australian subsidiaries. The NABCredit Facility requires annual principal payments of between $7.3 million (AUS$7.0 million) and $9.4 million (AUS$9.0million) which we anticipate will be paid from Reading Entertainment Australia operating cash flows. The covenants of theNAB Credit Facility include a fixed charge coverage ratio, a debt service cover ratio, an operating leverage ratio, a loan tovalue ratio, and other financial covenants. Additionally, the NAB Credit Facility allows us to transfer only $4.2 million(AUS$4.0 million) per year outside of Australia. On August 2, 2011, we paid down our NAB revolver by $9.7 million(AUS$9.0 million) resulting in a zero balance on that date. In December 2012, as part of the sale of our Indooroopillyproperty, we paid down $6.3 million (AUS$6.0 million) on our NAB term loan. In conjunction with this NAB Credit Facility, we entered into a five-year interest swap agreement which swaps over100% of our $75.3 million (AUS$72.5 million) variable rate term loan (decreasing in line with scheduled principalrepayments) based on BBSY, for a 5.50% fixed rate. For further information regarding our swap agreements, see Note 13 –Derivative Instruments.Australian Shopping Center LoansIn July 2004, as part of the acquisition of the Anderson Cinema Circuit, we assumed the three loans on theEpping, Rhodes, and West Lakes properties. The total amount assumed on the transaction date was $1.5 million(AUS$2.1 million) and the loans carry no interest as long as we make timely principal payments of approximately $182,000(AUS$175,000) per year. Early repayment is possible without penalty. The only recourse on default of these loans is thesecurity on the properties. During 2009 and 2010, we were in dispute with the landlord. During 2010, we resolved thedispute and paid $51,000 (AUS$51,000) in principal payments on this loan. During 2011 and 2012, we paid $256,000(AUS$250,000) and $182,000 (AUS$175,000), respectively, in principal payments on this loan.New ZealandNew Zealand Corporate Credit FacilityOn 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 calls for a decrease in theoverall facility by $4.1 million ($5.0 million) to $32.8 million (NZ$40.0 million), an increase in the facility margin of 0.55% to2.00%, and the line of credit charge increase from 0.30% to 0.40%. The facility is secured by substantially all of our NewZealand assets, but has not been guaranteed by any entity other than several of our New Zealand subsidiaries. The facilityincludes various affirmative and negative financial covenants designed to protect the bank’s security regarding capitalexpenditures and the repatriation of funds out of New Zealand. Also included in the restrictive covenants of the facility is therestriction of transferring funds from subsidiary to parent. 81 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. USBank of America Revolver On October 31, 2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bank ofAmerica (the “BofA Revolver”) of $30.0 million with an interest rate of between 2.50% and 3.00% above LIBOR and anexpiration date of October 31, 2017. Although the BofA Revolver does not require a fixed interest swap agreement, we willcontinue to use our existing fixed interest rate swap of $29.1 million until its term date of December 31, 2013, see Note 13– Derivative Instruments. The BofA Revolver requires borrowing limit reductions of $3.0 million per year with a balloonpayment of $18.0 million at the expiration date. The BofA Revolver contains other customary terms and conditions,including representations and warranties, affirmative and negative covenants, events of default and indemnityprovisions. The most restrictive covenant of the facility requires that we must maintain a fixed charge coverage ratio at acertain level. As part of the negotiations of the BofA Revolver, we entered into a master operating equipment lease financingagreement with Banc of America Leasing & Capital, LLC to finance the acquisition of up to $15.5 million in digital projectionequipment for our U.S. cinema operations. See Note 19 - Commitments and Contingencies. Bank of America Line of Credit On October 31, 2012, Bank of America renewed and increased our existing $3.0 million line of credit to $5.0 million. The LOC carries an interest rate equal to BBA LIBOR floating plus a 3.50% margin and an unused line fee of 0.03%. Theagreement is in effect till October 31, 2017 and is potentially renewable at that date. The undrawn balance of this LOC is$3.0 million at December 31, 2012.Cinemas 1, 2, 3 Term Loan On June 28, 2012, Sutton Hill Properties LLC (“SHP”), one of our consolidated subsidiaries, paid off its EurohypoAG, 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 June26, 2014 subject to an extension fee equal to 1.00% of the ending principal balance and a compliance requirement withcertain special covenants. As we currently intend to exercise this option, we have classified this loan as long-term. Theterms of the loan require interest only payments at LIBOR plus a 5.00% margin to be calculated and paid monthly. Thisloan is secured by SHP’s interest in the Cinemas 1, 2, & 3 land and building. Covenants include maintaining a loan tovalue ratio of at least 50% of fair market value and an 11% debt yield (with a numerator of the cash available for debt serviceand a denominator of the outstanding principal balance of the loan). The Sovereign Bank Loan is further secured by aguaranty provided by Reading International, Inc. and by its noncontrolling interest member, Sutton Hill Capital, LLC.Liberty Theaters Term LoanOn March 17, 2008, we entered into a $7.1 million loan agreement with a financial institution, secured by ourRoyal George Theatre in Chicago, Illinois and our Minetta Lane Theatre and Orpheum Theatre in New York. The loan hasa 5-year term loan that accrues a 6.20% interest rate payable monthly in arrears. We incurred deferred financing costs of$527,000 related to our borrowings of this loan. The loan agreement requires only monthly principal and interest paymentsalong with self-reported annual financial statements. As this loan is due to mature on April 1, 2013, the December 31, 2012outstanding balance of this debt of $6.4 million is classified as current on our balance sheet. We intend to refinance theproperty’s debt.US Nationwide Loan 1 On February 22, 2008, we acquired 15 motion picture theaters and theater-related assets from Pacific TheatresExhibition Corp. and its affiliates (collectively, the “Sellers”) for $70.2 million a transaction referred to as the “Pacific TheatersAcquisition.” The Seller’s affiliate, Nationwide Theatres Corp (“Nationwide”), provided $21.0 million of acquisition financingevidenced by a five-year promissory note (the “Nationwide Note 1”) of Reading Consolidated Holdings, Inc., our whollyowned subsidiary (“RCHI”), maturing on February 21, 2013. 82 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Nationwide Note 1 bears interest (i) as to $4.5 million of principal at the annual rates of 7.50% for the first threeyears and 8.50% thereafter and (ii) as to $13.0 million of principal at the annual rates of 6.50% through July 31, 2009 and8.50% thereafter. Accrued interest is due and payable on February 21, 2011 and thereafter on the last day of each calendarquarter, commencing on June 30, 2011. The entire principal amount is due and payable upon maturity, subject to our rightto prepay at any time without premium or penalty and to the requirement that, under certain circumstances, we makemandatory prepayments equal to a portion of free cash flow generated by the acquired theaters. The loan is recourse only toRCHI and its assets, which include all of the Hawaii theaters and certain of the California theaters acquired from the Sellersand our Manville and Dallas Angelika Theaters. The Nationwide Note 1 was subject to certain purchase price related adjustments. Through December 31, 2012,these adjustments have resulted in a net reduction in principal of $20.4 million comprised of a reduction in the amount of$6.3 million in 2008, a further reduction of $226,000 during the first quarter of 2009, an additional advance of $3.0 millionin 2009 (such advance was used to pay down a portion of the GE Capital Term Loan discussed above), a $4.4 millionreduction during the first quarter of 2010 in which Nationwide Theaters Corp. and Reading agreed to reduce the seller’snote, and finally a $12.5 million reduction in September 2010. As a result of these reductions, the principal balance of thenotes at December 31, 2012 was $593,000.Sutton Hill Capital Notes 1 & 2 As part of the negotiation of the Village East Lease (see Note 25 – Related Parties and Transactions), we paid offthe Sutton Hill Capital (“SHC”) Note 1 of $5.0 million on June 30, 2010 and renegotiated the SHC Note 2 for $9.0million. Under the new terms of the SHC Note 2, the loan has a variable annual rate equal to a Five-Year Constant MaturityUnited States Treasury Note rate plus a 5.75% margin, subject to a minimum rate of 8.25% and a maximum rate of 10%and the note matures on December 31, 2013. No interim principal payments are required and the balance of the note ispayable upon maturity. No other covenants are required for this loan. This loan is unsecured.Union Square Theatre Term LoanOn April 30, 2010, we refinanced the loan secured by our Union Square property with another lender. The newloan for $7.5 million has a five-year term with a fixed interest rate of 5.92% per annum and an amortization paymentschedule of 20 years with a balloon payment of approximately $6.4 million at the end of the loan term. US Nationwide Loan 2In connection with the Pacific Theaters Acquisition, the Sellers also committed to loan to RDI up to $3.0 million intwo draws of $1.5 million each, one of which was drawn on July 21, 2008 and the other of which may have been drawn onor before July 31, 2009. During 2010, as part of the $4.4 million note reduction of the US Nationwide Loan 1, we waivedour right to draw on the second $1.5 million. The existing $1.5 million loan bore an interest rate of 8.50%, compoundedannually. The loan and accrued interest were due and payable, in full, on February 21, 2011, subject to our right to prepaythe loan without premium or penalty. Pursuant to the terms of this note, we paid off this loan of $1.5 million with its$359,000 of accrued interest on February 21, 2011.Summary of Notes Payable Our aggregate future principal loan payments are as follows (dollars in thousands): Year Ending December 31, 2013$28,714 2014 86,357 2015 32,613 2016 3,000 2017 18,000 Thereafter 27,913 Total future principal loan payments$196,597 Since approximately $98.7 million of our total debt of $196.6 million at December 31, 2012 consisted of 83 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. debt denominated in Australian and New Zealand dollars, the U.S dollar amounts of these repayments will fluctuate inaccordance with the relative values of these currencies.Note 13 – Derivative InstrumentsWe are exposed to interest rate changes from our outstanding floating rate borrowings. We manage our fixed tofloating rate debt mix to mitigate the impact of adverse changes in interest rates on earnings and cash flows and on themarket value of our borrowings. From time to time, we may enter into interest rate hedging contracts, which effectivelyconvert 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 drawdownsunder our Australian Corporate Credit Facility into fixed interest rate obligations. In conjunction with this NAB CreditFacility, we entered into a five-year interest swap agreement, which swaps 100% of our variable rate term loan based onBBSY for a 5.50% fixed rate loan which steps down commensurate with the payments of the loan balance. At the time ofentering into this NAB swap, our existing BOSI swap was “in-the-money” by $160,000. In lieu of a cash payment for the in-the-money BOSI swap, we negotiated a slightly lower fixed swap rate by 0.05% for our new NAB fixed rate swap. On October 31, 2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bankof America of $30.0 million (see Note 12 – Notes Payable). Although the new credit facility does not require a fixed interestswap agreement, we will continue to use our existing fixed interest rate swap of $29.1 million until its term date ofDecember 31, 2013. In order for Bank of America to agree to taking on this swap agreement, we agreed to increase theswap contract rate by 0.10%.As a result of these swap and loan agreements, we pay a total fixed interest rate of 8.15% (5.50% swap contract rateplus a 2.65% margin under the loan) for our NAB Loan and a total fixed interest rate of 5.84% (1.44% swap contract rateplus a 4.50% margin under the loan) for our BofA Loan instead of the obligatorily disclosed loan rates of 5.82% and 3.21%,respectively, as indicated in Note 12 – Notes Payable.The following table sets forth the terms of our interest rate swap derivative instruments at December 31, 2012: Type of Instrument Notional Amount Pay Fixed Rate Receive VariableRate Maturity DateInterest rate swap $29,062,000 1.440% 0.580% December 31, 2013Interest rate swap $81,585,000 5.500% 4.550% June 30, 2016 In accordance with FASB ASC 815-20 – Derivatives and Hedging, we marked our interest swap instruments tomarket on the consolidated balance sheet resulting in a $1.1 million increase to interest expense during 2012, a $5.0 millionincrease to interest expense during 2011, and a $284,000 decrease to interest expense during 2010. At December 31, 2012and 2011, we recorded the fair market value of an interest rate swap of $5.9 million and $4.7 million, respectively, as another long-term liabilities. In accordance with FASB ASC 815-20, we have not designated any of our current interest rateswap positions as financial reporting hedges. 84 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 14 - Income TaxesIncome (loss) before income tax expense includes the following (dollars in thousands): Year Ended December 31, 2012 2011 2010United States$836 $(1,391)$(1,566)Foreign 1,446 (379) 2,354 Income (loss) before income tax expense and equity earnings ofunconsolidated joint ventures and entities$2,282 $(1,770)$788 Net income attributable to noncontrolling interests: United States 578 (604) (309)Foreign (86) (336) (307)Equity earnings and gain on sale of unconsolidated subsidiary: United States 27 33 86 Foreign 1,594 (1,585) 1,259 Gain on sale of discontinued operation: United States -- -- --Foreign (405) 1,888 97 Income (loss) before income tax expense$3,990 $(2,374)$1,614 Significant components of the provision for income taxes are as follows (dollars in thousands): Year Ended December 31, 2012 2011 2010Current income tax expense Federal$964 $1,332 $7,730 State 584 531 5,239 Foreign 1,370 1,067 1,295 Total 2,918 2,930 14,264 Deferred income tax expense (benefit) Federal -- -- --State -- -- --Foreign 1,986 (15,260) --Total 1,986 (15,260) --Total income tax expense (benefit)$4,904 $(12,330)$14,264 Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts ofassets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by therelevant tax rate. The components of the deferred tax assets and liabilities are as follows (dollars in thousands): 85 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31,Components of Deferred Tax Assets 2012 2011Deferred Tax Assets: Net operating loss carry forwards$31,040 $35,455 Impairment reserves 4,493 1,764 Alternative minimum tax carry forwards 3,118 2,993 Installment sale of cinema property 3,022 2,929 Deferred revenue and expense 6,708 6,378 Acquired and option properties (952) 2,924 Other 3,122 402 Total Deferred Tax Assets 50,551 52,845 Valuation allowance (37,903) (38,461)Net deferred tax asset$12,648 $14,384 In accordance with FASB ASC 740-10 – Income Taxes (“ASC 740-10”), we record net deferred tax assets to theextent we believe these assets will more likely than not be realized. In making such determination, we consider allavailable positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxableincome, tax planning strategies and recent financial performance. ASC 740-10 presumes that a valuation allowance isrequired when there is substantial negative evidence about realization of deferred tax assets, such as a pattern of losses inrecent years, coupled with facts that suggest such losses may continue. Because of such negative evidence available for theU.S., Puerto Rico, and New Zealand, as of December 31, 2012, we recorded a valuation allowance of $37.9 million. Afterconsideration of a number of factors for the Reading Australia group, including its recent history of financial income, itsexpected future earnings, the increase in market value of its real estate assets, and having executed a credit facility of over$100.0 million to resolve potential liquidity issues, the Company determined as of July 1, 2011 that it is more likely than notthat deferred tax assets in Reading Australia group will be realized. Accordingly, we reversed the full valuation allowance inAustralia, resulting in a net deferred tax asset of $14.4 million as of December 31, 2011, with approximately $3.4 millionclassified as current and $11.0 million as non-current.As of December 31, 2012, we had U.S. net operating loss carry forwards of $21.7 million, of which $14.4 millionexpire between 2025 and 2030, while $7.3 million expire between 2030 and 2035.In addition to the above net operating loss carry forwards having expiration dates, we have the following carryforwards that have no expiration date at December 31, 2012:·approximately $3.1 million in U.S. alternative minimum tax credit carry forwards;·approximately $45.9 million in Australian loss carry forwards; and ·approximately $16.3 million in New Zealand loss carry forwards.We disposed of our Puerto Rico operations during 2005 and plan no further investment in Puerto Rico for theforeseeable future. We have approximately $14.1 million in Puerto Rico loss carry forwards expiring no later than 2018. Nomaterial future tax benefits from Puerto Rico loss carry forwards can be recognized by the Company unless it re-enters thePuerto Rico market. We expect no other substantial limitations on the future use of U.S. or foreign loss carry forwards except as mayoccur for certain losses occurring in New Zealand related to the Landplan operations, which may only be used to offsetincome and gains from those particular activities, and cannot be shared with their respective consolidated group.U.S. income taxes have not been recognized on the temporary differences between book value and tax basis ofinvestment in foreign subsidiaries. These differences become taxable upon a sale of the subsidiary or upon distribution ofassets from the subsidiary to U.S. shareholders. We expect neither of these events will occur in the foreseeable future forany of our foreign subsidiaries. 86 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The provision for income taxes is different from amounts computed by applying U.S. statutory rates to consolidatedlosses before taxes. The significant reason for these differences follows (dollars in thousands): Year Ended December 31, 2012 2011 2010Expected tax provision (benefit)$1,397 $(831)$554 Increase (decrease) in tax expense resulting from: Change in valuation allowance (558) (15,260) (5,595)Expired foreign loss carry forward -- 1,100 1,816 Foreign tax provision 3,356 1,067 1,291 Tax effect of foreign tax rates on current income (126) 24 (240)State and local tax provision 408 361 440 Tax/Audit Litigation Settlement 1,140 1,375 12,528 Effect of tax rate change -- -- 3,422 Other items (713) (166) 48 Actual tax provision (benefit)$4,904 $(12,330)$14,264 Pursuant to ASC 740-10, a provision should be made for the tax effect of earnings of foreign subsidiaries that arenot permanently invested outside the United States. Our intent is that earnings of our foreign subsidiaries are notpermanently invested outside the United States. Current earnings were available for distribution in the Reading Australiaconsolidated group of subsidiaries as of December 31, 2012. There is no withholding tax on dividends paid by an Australiancompany to its 80% or more U.S. public company shareholder, thus we have not provided foreign withholding taxes forthese current retained earnings. We believe the U.S. tax impact of a dividend from our Australian subsidiary, net of losscarry forward and potential foreign tax credits, would not have a material effect on the tax provision as of December 31 2012.We have accrued $24.1 million in income tax liabilities as of December 31, 2012, of which $15.2 million has beenclassified as current taxes payable and $8.9 million have been classified as non-current tax liabilities. As part of currenttaxes payable, we have accrued $8.0 million in connection with federal and state liabilities arising from the “Tax/AuditLitigation” matter which has now been settled (see Note 19 – Commitments and Contingencies). As part of noncurrent taxliabilities, we have accrued an additional $6.5 million related to the “Tax Audit/Litigation” matter. Amounts assessed by theIRS and expected to be assessed by state income tax agencies in connection with the “Tax Audit/Litigation” matter are nolonger recorded under the cumulative probability approach prescribed by FASB ASC 740-10-25 but are recorded as a fixedand determinable liability. We believe the $24.1 million in tax liabilities represents an adequate provision for our income taxexposures.The following table is a summary of the activity related to unrecognized tax benefits, excluding interest andpenalties, for the years ending December 31, 2012, December 31, 2011, and December 31, 2010 (dollars in thousands): Year Ended Year Ended Year Ended December 31, December 31, December 31, 2012 2011 2010Unrecognized tax benefits – gross beginning balance$1,974 $8,058 $11,412 Gross increases – prior period tax provisions 197 -- --Gross increases – current period tax positions -- 151 405 Settlements -- (6,235) (3,189)Statute of limitations lapse -- -- (570)Unrecognized tax benefits – gross ending balance$2,171 $1,974 $8,058 We adopted FASB ASC 740-10-25 – Income Taxes - Uncertain Tax Positions (“ASC 740-10-25”) on January 1,2007. In connection, we record interest and penalties related to income tax matters as part of income tax expense.We had approximately $10.8 million and $11.4 million of gross tax benefits as of the adoption date and December31, 2007, respectively, plus $1.7 million and $2.3 million of tax interest unrecognized on the financial 87 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. statements as of each date, respectively. The gross tax benefits mostly reflect operating loss carry forwards and the IRS TaxAudit/Litigation case described below. We recorded a reduction to our gross unrecognized tax benefits of approximately $3.4 million and an increase to taxinterest of approximately $8.8 million during the period January 1, 2010 to December 31, 2010, and the total balance atDecember 31, 2010 was approximately $20.6 million (of which approximately $12.6 million represents IRSinterest). Having settled the Tax Audit/Litigation matter described in Note 19 – Commitments and Contingencies, wefurther recorded a net reduction to our gross unrecognized tax benefits of approximately $6.1 million and a reduction to taxinterest of approximately $10.4 million during the period January 1, 2011 to December 31, 2011, resulting in a total balanceat December 31, 2011 of approximately $4.1 million, consisting of $1.9 million tax and $2.2 million interest. Of the $4.1million gross unrecognized tax benefit at December 31, 2011, approximately $3.0 million would impact the effective tax rateif recognized. During the period January 1, 2012 to December 31, 2012 we recorded an increase of $0.2 million to our grossunrecognized tax benefits and an increase to tax interest of approximately $1.1 million, resulting in a total balance of $5.3million consisting of $2.1 million in tax and $3.2 million in interest. Of the $5.3 million gross unrecognized tax benefit atDecember 31, 2012, approximately $4.3 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 assessmentof many factors, including past experience and judgments about future events, it is probable that within the next 12 monthsthe reserve for uncertain tax positions will increase within a range of $0.5 million to $1.5 million. The reasons for suchchange include but are not limited to tax positions expected to be taken during 2013, revaluation of current uncertain taxpositions, and expiring statutes of limitation.Our company and subsidiaries are subject to U.S. federal income tax, income tax in various U.S. states, andincome 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 barredby statutes of limitations. Certain domestic subsidiaries filed federal and state tax returns for periods before these entitiesbecame consolidated with us. These subsidiaries were examined by IRS for the years 1996 to 1999 and significant taxdeficiencies were assessed for those years. Those deficiencies have been settled, as discussed in “Tax Audit/Litigation,”Note 19 – Commitments and Contingencies. Our income tax returns for Australia filed since inception in 1995 aregenerally open for examination. The income tax returns filed in New Zealand and Puerto Rico for calendar year 2006 andafterward remain open for examination as of December 31, 2012. 88 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 15 – Other LiabilitiesOther liabilities are summarized as follows (dollars in thousands): December 31, 2012 2011Current liabilities Lease liability$5,855 $--Security deposit payable 174 137 Other 3 --Other current liabilities$6,032 $137 Other liabilities Foreign withholding taxes$6,480 $6,212 Straight-line rent liability 8,893 8,067 Lease liability -- 5,746 Environmental reserve 1,656 1,656 Accrued pension 6,976 4,289 Interest rate swap 5,855 4,722 Acquired leases 2,078 2,742 Other payable 1,191 1,243 Other 630 962 Other liabilities$33,759 $35,639 Village East Purchase Option On June 29, 2010, we agreed to extend our existing lease from SHC of the Village East Cinema in New York Cityby 10 years, with a new termination date of June 30, 2020. The Village East lease includes a sub-lease of the groundunderlying the cinema that is subject to a longer-term ground lease between SHC and an unrelated third party that expiresin June 1, 2031 (the “cinema ground lease”). The extended lease provides for a call option pursuant to which Reading maypurchase the cinema ground lease for $5.9 million at the end of the lease term. Additionally, the lease has a put optionpursuant to which SHC may require Reading to purchase all or a portion of SHC’s interest in the existing cinema lease andthe cinema ground lease at any time between July 1, 2013 and December 4, 2019. SHC’s put option may be exercised onone or more occasions in increments of not less than $100,000 each. Because our Chairman, Chief Executive Officer, andcontrolling shareholder, Mr. James J. Cotter, is also the managing member of SHC, RDI and SHC are considered entitiesunder common control. As a result, we recorded the Village East Cinema building as a property asset of $4.7 million on ourbalance sheet based on the cost carry-over basis from an entity under common control with a corresponding lease liability of$5.9 million presented under other liabilities which accretes up to the $5.9 million liability till July 1, 2013 (see Note 25 –Related Parties and Transactions). As the option can be exercised starting on July 1, 2013, we have classified the $5.9million lease liability as a current liability.Note 16 – Fair Value of Financial InstrumentsASC 820-10 applies to existing accounting pronouncements in which fair value measurements are already requiredand defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generallyaccepted in the United States, and expands disclosures about fair value measurements. ASC 820-10 (see Note 2 –Summary of Significant Accounting Policies) establishes a fair value hierarchy thatprioritizes the inputs to valuation techniques used to measure fair value. The statement requires that assets and liabilitiescarried at fair value be classified and disclosed in one of the following three categories:Level 1: Quoted market prices in active markets for identical assets or liabilities.Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.Level 3: Unobservable inputs that are not corroborated by market data. 89 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We use appropriate valuation techniques based on the available inputs to measure the fair values of our assets andliabilities. When available, we measure fair value using Level 1 inputs because they generally provide the most reliableevidence of fair value.We used the following methods and assumptions to estimate the fair values of the assets and liabilities in the tableabove.Level 1 Fair Value Measurements – are based on market quotes of our marketable securities.Level 2 Fair Value Measurements – Interest Rate Swaps – The fair value of interest rate swaps are estimated usinginternal discounted cash flow calculations based upon forward interest rate curves, which are corroborated by market data,and quotes obtained from counterparties to the agreements.Level 3 Fair Value Measurements – Impaired Property – For assets measured on a non-recurring basis, such as realestate assets that are required to be recorded at fair value as a result of an impairment, our estimates of fair value are basedon management’s best estimate derived from evaluating market sales data for comparable properties developed by a thirdparty appraiser and arriving at management’s estimate of fair value based on such comparable data primarily based onproperties with similar characteristics. For the years ended December 31, 2012, 2011, and 2010, the fair value of ourimpaired properties was estimated to be $4.1 million, $1.9 million, and $1.8 million, respectively, which we used to recordour impairment expense and was based on level 3 inputs in developing management’s estimate of fair value. For the yearended December 31, 2011, the fair value of our Rialto Cinemas investment was $1.6 million (NZ$2.0 million) resulting inan impairment charge of $2.9 million (NZ$3.8 million).As of December 31, 2012, we held certain items that are required to be measured at fair value on a recurringbasis. These included available for sale securities and interest rate derivative contracts. Derivative instruments are relatedto our economic hedge of interest rates. Our available-for-sale securities primarily consist of investments associated withthe ownership of marketable securities in Australia.The fair values of the interest rate swap agreements are determined using the market standard methodology ofdiscounting the future expected cash receipts or payments that would occur if variable interest rate fell above or below thestrike rate of the interest rate swap agreement. The variable interest rates used in the calculation of projected receipts orpayments on the interest rate swap and cap agreements are based on an expectation of future interest rates derived fromobservable market interest rate curves and volatilities. To comply with the provisions of ASC 820-10, we incorporate creditvaluation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty'snonperformance risk in the fair value measurements. Although we have determined that the majority of the inputs used tovalue our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with ourderivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us andour counterparties. However, as of December 31, 2012, we have assessed the significance of the impact of the creditvaluation adjustments on the overall valuation and determined that the credit valuation adjustments are not significant to theoverall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety areclassified in Level 2 of the fair value hierarchy. We have consistently applied these valuation techniques in all periodspresented and believe we have obtained the most accurate information available for the types of derivative contracts we hold.The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC820-10 at December 31, 2012 and 2011, respectively (dollars in thousands): Book Value Fair ValueFinancial InstrumentLevel 2012 2011 2012 2011Investment in marketable securities1$55 $2,874 $55 $2,874 Interest rate swaps liability2$5,855 $4,722 $5,855 $4,722 90 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Financial Instruments Disclosed at Fair ValueThe following table sets forth the carrying value and the fair value of our financial assets and liabilities at December31, 2012 and 2011 (dollars in thousands): Book ValueFair ValueFinancial InstrumentLevel 2012 2011 2012 2011Cash1$38,531 $31,597 $38,531 $31,597 Time deposits1$8,000 $--$8,000 $--Accounts receivable1$8,514 $6,973 $8,514 $6,973 Other assets - notes receivable1$2,000 $851 $2,000 $851 Restricted cash1$2,465 $2,379 $2,465 $2,379 Accounts and film rent payable1$25,566 $23,067 $25,566 $23,067 Notes payable3$159,684 $172,701 $154,795 $166,152 Notes payable to related partyN/A$9,000 $9,000 $N/A$N/ASubordinated debt3$27,913 $27,913 $12,268 $20,544 For purposes of this fair value disclosure, we based our fair value estimate for notes payable and subordinated debton our internal valuation whereby we apply the discounted cash flow method to our expected cash flow payments due underour existing debt agreements based on a representative sample of our lenders’ market interest rate quotes as of December31, 2012 and 2012, respectively, for debt with similar risk characteristics and maturities.Note 17 – Lease AgreementsMost of our cinemas conduct their operations in leased facilities. Thirteen of our eighteen operating multiplexes inAustralia, four of our eight cinemas in New Zealand, and all but one of our cinemas in the United States are in leasedfacilities. These cinema leases have remaining terms inclusive of options of 1 to 38 years. Certain of our cinema leasesprovide for contingent rentals based upon a specified percentage of theater revenue with a guaranteedminimum. Substantially all of our leases require the payment of property taxes, insurance, and other costs applicable to theproperty. We also lease office space and equipment under non-cancelable operating leases. All of our leases are accountedfor as operating leases and accordingly, we have no leases of facilities that require capitalization.We determine the annual base rent expense of our cinemas by amortizing total minimum lease obligations on astraight-line basis over the lease terms. Base rent expense and contingent rental expense under the operating leases totaledapproximately $32.6 million and $1.7 million for 2012, respectively; $31.2 million and $1.6 million for 2011, respectively;and $30.9 million and $1.1 million for 2010, respectively. Future minimum lease payments by year and, in the aggregate,under non-cancelable operating leases consisted of the following at December 31, 2012 (dollars in thousands): MinimumGround Minimum Premises Equipment Total Minimum Lease Payments Lease Payments Lease Lease Payments2013$3,218 $28,477 $2,693 $34,388 2014 2,130 25,720 2,693 30,543 2015 1,094 22,637 2,693 26,424 2016 1,128 18,753 2,693 22,574 2017 1,223 15,772 2,693 19,688 Thereafter 15,248 61,023 -- 76,271 Total minimum lease payments$24,041 $172,382 $13,465 $209,888 Since approximately $90.2 million of our total minimum lease payments of $209.9 million as of December 31,2012 consisted of lease obligations denominated in Australian and New Zealand dollars, the U.S dollar amounts of theseobligations will fluctuate in accordance with the relative values of these currencies. See Note 25 – Related Parties andTransactions for the amount of leases associated with any related party leases. 91 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Digital Projection Equipment Lease Effective December 1, 2012, we entered into a 5-year digital projection equipment lease obligation with Banc ofAmerica enabling us to convert substantially all of our domestic cinemas to digital projection. The equipment leaseagreement requires that we make lease payments of $218,000 per month for the next 60 months after which we can eitherpurchase the equipment at a market price or renew the lease for an undertermined length of time. This lease qualifies as anoperating lease and is recorded accordingly.Note 18 – Pension LiabilitiesSupplemental Executive Retirement Plan In March 1, 2007, the Board of Directors of Reading International, Inc. (“Reading”) approved a SupplementalExecutive Retirement Plan (“SERP”) pursuant to which Reading has agreed to provide James J. Cotter, its Chief ExecutiveOfficer and Chairman of the Board of Directors, supplemental retirement benefits effective March 1, 2007. Under theSERP, Mr. Cotter will receive a monthly payment of the greater of (i) 40% of the average monthly earnings over the highestconsecutive 36-month period of earnings prior to Mr. Cotter’s separation from service with Reading or (ii) $25,000 per monthfor the remainder of his life, with a guarantee of 180 monthly payments following his separation from service with Readingor following his death. The beneficiaries under the SERP may be designated by Mr. Cotter or by his beneficiary followinghis or his beneficiary’s death. The benefits under the SERP are fully vested as of March 1, 2007. The SERP initially will be unfunded, but Reading may choose to establish one or more grantor trusts from which topay the SERP benefits. As such, the SERP benefits are unsecured, general obligations of Reading. The SERP isadministered by the Compensation Committee of the Board of Directors of Reading. In accordance with FASB ASC 715-30-05 – Defined Benefit Pension Plans (“ASC 715-30-05”), the initial pension benefit obligation of $2.7 million was includedin our other liabilities with a corresponding amount of unrecognized prior service cost included in accumulated othercomprehensive income on March 1, 2007. The initial benefit obligation was based on a discount rate of 5.75% and acompensation increase rate of 3.5%. The $2.7 million is being amortized as a prior service cost over the estimated serviceperiod of 10 years combined with an annual interest cost. For the years ended December 31, 2012, 2011, and 2010, werecognized $149,000, $195,000, and $200,000, respectively, of interest cost and $304,000 of amortized prior service cost peryear. For the years ended December 31, 2012 and 2011, we recognized $0 and $24,000 of amortized net gains. Thebalance of the other liability for this pension plan was $5.9 million and $3.5 million at December 31, 2012 and 2011,respectively, and the accumulated unrecognized prior service costs included in other comprehensive income balance was$3.2 and $1.2 million at December 31, 2012 and 2011, respectively. The December 31, 2012 and 2011 values of the SERPare based on a discount rate of 3.40% and 4.25%, respectively and an annual compensation growth rate of 3.50% per year. The change in the SERP pension benefit obligation and the funded status for the year ending December 31, 2012and 2011 are as follows (dollars in thousands): For the year endingChange in Benefit Obligation December 31, 2012Benefit obligation at January 1, 2012$3,511 Interest cost 149 Actuarial loss 2,284 Benefit obligation at December 31, 2012 5,944 Funded status at December 31, 2012$(5,944) For the year endingChange in Benefit Obligation December 31, 2011Benefit obligation at January 1, 2011$3,820 Interest cost 195 Actuarial gain (504)Benefit obligation at December 31, 2011 3,511 Funded status at December 31, 2011$(3,511) 92 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Amount recognized in balance sheet consists of (dollars in thousands): At December 31,2012 At December 31,2011Current liabilities$14 $10 Noncurrent liabilities 5,930 3,501 Items not yet recognized as a component of net periodic pension cost consist of (dollars in thousands): At December 31,2012 At December 31,2011Unamortized actuarial (gain) loss$2,269 $(14)Prior service costs 931 1,234 Accumulated other comprehensive loss 3,200 1,220 The components of the net periodic benefit cost and other amounts recognized in other comprehensive income areas follows (dollars in thousands): Net periodic benefit cost For the year endingDecember 31, 2012 For the year endingDecember 31, 2011Interest cost$149 $195 Amortization of prior service costs 304 304 Amortization of net gain -- 24 Net periodic benefit cost$453 $523 Other changes in plan assets and benefit obligationsrecognized in other comprehensive income Net (gain) loss$2,284 $(504)Amortization of prior service cost (304) (304)Amortization of net gain -- (24)Total recognized in other comprehensive income$1,980 $(832) Total recognized in net periodic benefit cost and other comprehensiveincome$2,433 $(309)The estimated net loss and prior service cost for the defined benefit pension plan that will be amortized fromaccumulated other comprehensive income into net periodic benefit cost over the next fiscal year will be $356,000 and$304,000, respectively. 93 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following weighted average assumptions were used to determine the plan benefit obligations at December 31,2012 and 2011: 2012 2011Discount rate 3.40% 4.25%Rate of compensation increase 3.50% 3.50%The following weighted-average assumptions were used to determine net periodic benefit cost for the year ended December31, 2012 and 2011: 2012 2011Discount rate 4.25% 5.10%Expected long-term return on plan assets 0.00% 0.00%Rate of compensation increase 3.50% 3.50%Other Pension Liabilities In addition to the aforementioned SERP, we have defined contribution pension plans for selected current and formerexecutives of our corporation resulting in a pension liability of $1.0 million and $778,000 at December 31, 2012 and 2011,respectively. These pensions accrued $204,000 and $101,000 of pension expense for the years ended December 31, 2012and 2011, respectively. The benefit payments for all of our pensions, which reflect expected future service, as appropriate, are expected to bepaid over the following periods (dollars in thousands): Pension Payments2013 $13 2014 27 2015 44 2016 61 2017 481 Thereafter 6,350 Total pension payments $6,976 Note 19 - Commitments and ContingenciesUnconsolidated Joint Venture Loans The following section describes any loans associated with our investments in unconsolidated joint ventures. Asthese investments are unconsolidated, any associated bank loans are not reflected in our Consolidated Balance Sheet atDecember 31, 2012. Each loan is without recourse to any assets other than our interests in the individual joint venture.Rialto Distribution. We are the 33.3% co-owners of the assets of Rialto Distribution. At December 31, 2012 and 2011,Rialto Distribution had a bank line of credit of $1.7 million (NZ$2.0 million) and $1.6 million (NZ$2.0 million), respectively,and had an outstanding balance of $703,000 (NZ$850,000) and $663,000 (NZ$850,000), respectively. This loan isguaranteed by one of our subsidiaries to the extent of our ownership percentage.Tax Audit/LitigationThe Internal Revenue Service (the “IRS”) has examined the tax return of Reading Entertainment Inc. (“RDGE”) forits tax years ended December 31, 1996 through December 31, 1999 and the tax return of Craig Corporation (“CRG”) for itstax year ended June 30, 1997. These companies are both now wholly owned subsidiaries of the Company, but for the timeperiods under audit, were not consolidated with the Company for tax purposes. 94 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CRG and the IRS agreed to compromise the claims made by the IRS against CRG and the Tax Court’s order wasentered on January 6, 2011. In the settlement, the IRS conceded 70% of its claimed adjustment to income. Instead of aclaim for unpaid taxes of $20.9 million plus interest, the effect of settlement on the Reading consolidated group was torequire a total federal income tax obligation of $5.4 million, reduced by a federal tax refund of $800,000 and increased byinterest of $9.3 million, for a net federal tax liability of $13.9 million as of January 6, 2011. On October 26, 2011, CRGreached an agreement with the IRS for an installment plan to pay off this federal tax liability, including additional interestaccruals at the prescribed IRS floating rate. The agreement requires monthly payments of $290,000 over a period ofapproximately five years. As of December 31, 2012 and 2011, after the payments made during 2012 and 2011, respectively,the remaining federal tax obligation was $10.0 million and $13.5 million, respectively, in tax and interest. Of the $10.0million owed under the installment agreement as of December 31, 2012, $3.5 million was recorded as current taxespayable, with the remaining balance being recorded as non-current tax liability. Of the $13.5 million owed under theinstallment agreement as of December 31, 2011, $3.5 million was recorded as current taxes payable, with the remainingbalance being recorded as non-current tax liability.The impact of the settlement upon the state taxes of the Reading consolidated group, if the adjustment to incomeagreed with the IRS were reflected on state returns, would be an obligation of approximately $1.4 million in tax plus interestand potential penalty. CRG’s 1997 tax year remains open with respect to CRG’s potential tax liability to the State ofCalifornia. As of December 31, 2012, no deficiency has been asserted by the State of California, and we have made no finaldecision as to the course of action to be followed when a deficiency is asserted.Environmental and Asbestos ClaimsCertain of our subsidiaries were historically involved in railroad operations, coal mining, and manufacturing. Also,certain of these subsidiaries appear in the chain of title of properties that may suffer from pollution. Accordingly, certain ofthese subsidiaries have, from time to time, been named in and may in the future be named in various actions broughtunder applicable environmental laws. Also, we are in the real estate development business and may encounter from timeto time unanticipated environmental conditions at properties that we have acquired for development. These environmentalconditions can increase the cost of such projects, and adversely affect the value and potential for profit of such projects. Wedo not currently believe that our exposure under applicable environmental laws is material in amount.From time to time, we have claims brought against us relating to the exposure of former employees of our railroadoperations to asbestos and coal dust. These are generally covered by an insurance settlement reached in September 1990with our insurance carriers. However, this insurance settlement does not cover litigation by people who were not ouremployees and who may claim second hand exposure to asbestos, coal dust and/or other chemicals or elements nowrecognized as potentially causing cancer in humans. Our known exposure to these types of claims, asserted or probable ofbeing asserted, is not material.In connection with the development of our 50.6 acre Burwood site, it will be necessary to address certainenvironmental issues. That property was at one time used as a brickworks and we have discovered petroleum andasbestos at the site. During 2007, we developed a plan for the remediation of these materials, in some cases throughremoval and in other cases through encapsulation. As of December 31, 2012, we estimate that the total site preparationcosts associated with the removal of this contaminated soil will be $17.7 million (AUS$17.1 million) and as of that date wehad incurred a total of $8.6 million (AUS$8.3 million) of these costs. We do not believe that this has added materially to theoverall development cost of the site, as it is anticipated that all of the work will be done in connection with the excavation andother development activity already contemplated for the property. 95 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 20 – Noncontrolling interests As of December 31, 2012, the noncontrolling interests in our consolidated subsidiaries are comprised of thefollowing:·50% of membership interest in Angelika Film Center LLC (“AFC LLC”) owned by a subsidiary of iDNA·25% noncontrolling interest in Australian Country Cinemas by 21st Century Pty, Ltd·50% noncontrolling membership interest in Shadow View Land and Farming, LLC owned by Mr. James J. Cotter,Sr.; and·25% noncontrolling interest in the Sutton Hill Properties, LLC owned by Sutton Hill Capital, LLCThe components of noncontrolling interest are as follows (dollars in thousands): December 31, 2012 2011AFC LLC$1,737 $1,125 Australian Country Cinemas 601 360 Elsternwick unincorporated joint venture -- --Shadow View Land and Farming LLC 1,912 --Sutton Hill Properties (152) (250)Noncontrolling interests in consolidated subsidiaries$4,098 $1,235 The components of income attributable to noncontrolling interests are as follows (dollars in thousands): Year Ended December 31, 2012 2011 2010AFC LLC$612 $909 $546 Australian Country Cinemas 86 311 249 Elsternwick unincorporated joint venture -- 25 59 Shadow View Land and Farming LLC (843) -- --Sutton Hill Properties (347) (305) (238)Net income attributable to noncontrolling interest$(492)$940 $616 Shadow View Land and Farming LLC During the 2012, 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 inCoachella, California and to cover his 50% share of certain costs associated with that acquisition. This land is held inShadow View Land and Farming, LLC, in which Mr. Cotter owns a 50% interest. We are the managing member ofShadow View Land and Farming, LLC. However, as Mr. Cotter is considered to be our controlling shareholder, pursuant toFASB ASC 810-10-05, we have consolidated Mr. Cotter’s interest in the property and its expenses with that of our interestand shown his interest as a noncontrolling interest. Note 8 – Acquisitions, Disposals, and Assets Held for Sale.Elsternwick Sale On April 14, 2011, we sold our 66.7% share of the 5-screen Elsternwick Classic cinema located in Melbourne,Australia to our joint venture partner for $1.9 million (AUS$1.8 million) and recognized a gain on sale of a discontinuedoperation of $1.7 million (AUS$1.6 million). 96 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 21 - Common StockOur common stock trades on the NASDAQ under the symbols RDI and RDIB which are our Class A (non-voting)and Class B (voting) stock, respectively. Our Class A (non-voting) has preference over our Class B (voting) shares uponliquidation. No dividends have ever been issued for either share class.2012 Common Stock ActivityDuring 2012, we issued 155,925 of Class A Nonvoting shares to an executive employee associated with his prioryears’ stock grant, and, during 2012, we issued 9,680 as a one-time stock grant of Class A Nonvoting shares to ouremployees valued at $44,000 which we accounted for as compensation expense. 95,000 options were exercised during 2012 having a realized value of $136,000 for which we received $308,000 ofcash. Additionally, 41,000 options were exercised during 2012 having a realized value of $103,000 for which we did notreceive any cash but the employee elected to receive the net incremental number of in-the-money shares of 15,822 basedon an exercise price of $4.01 and a market price of $6.53.2011 Common Stock ActivityDuring 2011, we issued 174,825 of Class A Nonvoting shares to certain executive employee associated with hisprior years’ stock grants.During 2011, we purchased 172,300 of Class A Nonvoting shares on the open market for $747,000.2010 Common Stock ActivityDuring 2010, we issued 148,616 shares of Class A Stock (non-voting) to certain executive employees associatedwith their prior years’ stock bonuses. Additionally, we canceled 4,348,780 shares of Class A Stock (non-voting) held astreasury by one of our subsidiaries due to an issuance error made in 2002 associated with the consolidation of ReadingEntertainment Inc. and Craig Corporation, Inc. into Reading International, Inc. For the stock options exercised during 2010, we issued for cash to employees or directors of the corporation under ouremployee stock option plan 90,000 shares of Class A Stock at an exercise price of $2.76 per share.Due to a perceived low price of our common shares, during the first quarter of 2010, we purchased 62,375 sharesfor a total cost of $251,000. Also, as a result of our revised Village East Cinema building lease, we recorded a deemedequity distribution of $877,000 (see Note 25 – Related Parties and Transactions).Note 22 – Business Segments and Geographic Area InformationThe table below sets forth certain information concerning our cinema operations and our real estate operations(which includes information relating to both our real estate development, retail rental and live theater rental activities) for thethree years ended December 31, 2012 (dollars in thousands): Year Ended December 31, 2012CinemaExhibitionReal EstateIntersegmentEliminationsTotalRevenue$234,703 $27,256 $(7,529)$254,430 Operating expense 198,040 11,163 (7,529) 201,674 Depreciation and amortization 11,154 4,441 -- 15,595 General and administrative expense 2,598 718 -- 3,316 Impairment expense -- 1,463 -- 1,463 Segment operating income$22,911 $9,471 $--$32,382 97 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended December 31, 2011CinemaExhibitionReal EstateIntersegmentEliminationsTotalRevenue$225,849 $26,562 $(7,432)$244,979 Operating expense 189,647 10,190 (7,432) 192,405 Depreciation and amortization 11,842 4,444 -- 16,286 General and administrative expense 2,740 646 -- 3,386 Impairment expense -- 369 -- 369 Segment operating income$21,620 $10,913 $--$32,533 Year Ended December 31, 2010CinemaExhibitionReal EstateIntersegmentEliminationsTotalRevenue$211,073 $24,715 $(6,466)$229,322 Operating expense 178,261 9,049 (6,466) 180,844 Depreciation and amortization 10,559 4,289 -- 14,848 General and administrative expense 2,880 1,043 -- 3,923 Impairment expense -- 2,239 -- 2,239 Segment operating income$19,373 $8,095 $--$27,468 Reconciliation to net income attributable to Reading International, Inc. shareholders: 2012 2011 2010Total segment operating income $32,382 $32,533 $27,468 Non-segment: Depreciation and amortization expense 454 309 715 General and administrative expense 12,801 14,046 13,684 Operating income 19,127 18,178 13,069 Interest expense, net (16,426) (21,038) (12,286)Other income (loss) (563) 1,157 (347)Gain (loss) on sale of assets 144 (67) 352 Income tax benefit (expense) (4,904) 12,330 (14,264)Equity earnings (loss) of unconsolidated joint venturesand entities 1,621 (1,552) 1,345 Income (loss) from discontinued operations (85) 232 97 Gain (loss) on sale of discontinued operation (320) 1,656 --Net income (loss) $(1,406)$10,896 $(12,034)Net (income) loss attributable to noncontrolling interests 492 (940) (616)Net income (loss) attributable to Reading International,Inc. common shareholders $(914)$9,956 $(12,650) December 31,Summary of assets: 2012 2011 2010Segment assets$408,667 $414,608 $406,569 Corporate assets 19,921 16,156 23,780 Total Assets$428,588 $430,764 $430,349 December 31,Summary of capital expenditures: 2012 2011 2010Segment capital expenditures$13,390 $8,419 $18,942 Corporate capital expenditures 333 957 429 Total capital expenditures$13,723 $9,376 $19,371 98 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The cinema results shown above include revenue and operating expense directly linked to our cinema assets. Thereal estate results include rental income from our properties and live theater venues and operating expense directly linked toour property assets. The following table sets forth the book value of our operating property by geographical area (dollars in thousands): December 31, 2012 2011Australia$106,020 $106,263 New Zealand 35,456 33,322 United States 61,302 64,195 Total operating property$202,778 $203,780 The following table sets forth our revenue by geographical area (dollars in thousands): December 31, 2012 2011 2010Australia$108,320 $110,742 $93,417 New Zealand 24,608 22,247 25,339 United States 121,502 111,990 110,566 Total revenue$254,430 $244,979 $229,322 Note 23 – Unaudited Quarterly Financial Information (dollars in thousands, except per share amounts) First Second Third Fourth2012 Quarter Quarter Quarter QuarterRevenue$62,431 $62,948 $63,934 $65,117 Net income (loss)$(109)$224 $396 $(1,917)Net income (loss) attributable to Reading International, Inc.shareholders$(239)$239 $363 $(1,277)Basic earnings (loss) per share$(0.01)$0.01 $0.02 $(0.06)Diluted earnings (loss) per share$(0.01)$0.01 $0.02 $(0.06) 2011 Revenue$54,044 $66,960 $66,554 $57,421 Net income (loss)$(2,247)$17,613 $291 $(4,761)Net income (loss) attributable to Reading International, Inc.shareholders$(2,480)$17,432 $38 $(5,034)Basic earnings (loss) per share$(0.11)$0.76 $--$(0.21)Diluted earnings (loss) per share$(0.11)$0.76 $--$(0.22) 99 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Note 24 - Future Minimum Rental Income Real estate revenue amounted to $19.7 million, $19.1 million, and $18.2 million, for the years ended December 31,2012, 2011, and 2010, respectively. Future minimum rental income under all contractual operating leases is summarizedas follows (dollars in thousands): Year Ending December 31, 2013$10,913 2014 7,596 2015 7,258 2016 5,934 2017 231 Thereafter 30,711 Total future minimum rental income$62,643 Note 25 – Related Parties and TransactionsSutton Hill CapitalIn 2001, we entered into a transaction with Sutton Hill Capital, LLC (“SHC”) regarding the leasing with an option topurchase of certain cinemas located in Manhattan. In connection with that transaction, we also agreed to lend certainamounts to SHC, to provide liquidity in its investment, pending our determination whether or not to exercise our option topurchase and to manage the 86th Street Cinema on a fee basis. SHC is a limited liability company owned in equal sharesby James J. Cotter and Michael Forman and of which Mr. Cotter is the managing member. During 2012, 2011, and 2010,we paid rent to SHC in the amount of $590,000, $590,000, and $547,000, respectively.On June 29, 2010, we agreed to extend our existing lease from SHC of the Village East Cinema in New York Cityby 10 years, with a new termination date of June 30, 2020. The Village East lease includes a sub-lease of the groundunderlying the cinema that is subject to a longer-term ground lease between SHC and an unrelated third party that expiresin June 2031 (the “cinema ground lease”). The extended lease provides for a call option pursuant to which Reading maypurchase the cinema ground lease for $5.9 million at the end of the lease term. Additionally, the lease has a put optionpursuant to which SHC may require Reading to purchase all or a portion of SHC’s interest in the existing cinema lease andthe cinema ground lease at any time between July 1, 2013 and December 4, 2019. SHC’s put option may be exercised onone or more occasions in increments of not less than $100,000 each. Because our Chairman, Chief Executive Officer, andcontrolling shareholder, Mr. James J. Cotter, is also the managing member of SHC, RDI and SHC are considered entitiesunder common control. As a result, we recorded the Village East Cinema building as a property asset of $4.7 million on ourbalance sheet based on the cost carry-over basis from an entity under common control with a corresponding capital leaseliability of $5.9 million presented under other liabilities (see Note 15 – Other Liabilities). This resulted in a deemed equitydistribution of $877,000.In 2005, we acquired from a third party the fee interest and from SHC its interest in the ground lease estateunderlying the Cinemas 1, 2 & 3 in Manhattan. In connection with that transaction, we agreed to grant to SHC an option toacquire a 25% interest in the special purpose entity formed to acquire these interests at cost. On June 28, 2007, SHCexercised this option, paying the option exercise price through the application of their $3.0 million deposit plus theassumption of its proportionate share of SHP’s liabilities giving it a 25% non-managing membership interest in SHP.OBI Management Agreement Pursuant to a Theater Management Agreement (the “Management Agreement”), our live theater operations aremanaged by OBI LLC (“OBI Management”), which is wholly owned by Ms. Margaret Cotter who is the daughter of JamesJ. Cotter and a member of our Board of Directors.The Management Agreement generally provides that we will pay OBI Management a combination of fixed andincentive fees, which historically have equated to approximately 21% of the net cash flow received by us from 100 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. our live theaters in New York. Since the fixed fees are applicable only during such periods as the New York theaters arebooked, OBI Management receives no compensation with respect to a theater at any time when it is not generating revenuefor us. This arrangement provides an incentive to OBI Management to keep the theaters booked with the best availableshows, and mitigates the negative cash flow that would result from having an empty theater. In addition, OBI Managementmanages our Royal George live theater complex in Chicago on a fee basis based on theater cash flow. In 2012, OBIManagement earned $390,000, which was 19.7% of net cash flows for the year. In 2011, OBI Management earned$398,000, which was 19.4% of net cash flows for the year. In 2010, OBI Management earned $416,000, which was24.2% of net cash flows for the year. In each year, we reimbursed travel related expenses for OBI Management personnelwith respect to travel between New York City and Chicago in connection with the management of the Royal Georgecomplex. OBI Management conducts its operations from our office facilities on a rent-free basis, and we share the cost of oneadministrative employee of OBI Management. Other than these expenses and travel-related expenses for OBIManagement personnel to travel to Chicago as referred to above, OBI Management is responsible for all of its costs andexpenses related to the performance of its management functions. The Management Agreement renews automatically eachyear unless either party gives at least six months’ prior notice of its determination to allow the Management Agreement toexpire. In addition, we may terminate the Management Agreement at any time for cause.Live Theater Play Investment From time to time, our officers and directors may invest in plays that lease our live theaters. The play STOMP hasbeen playing in our Orpheum Theatre since prior to the time we acquired the theater in 2001. Messrs. James J. Cotter andMichael Forman own an approximately 5% interest in that play, an interest that they have held since prior to our acquisitionof the theater.Shadow View Land and Farming LLC During the 2012, 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 inCoachella, California and to cover his 50% share of certain costs associated with that acquisition. This land is held inShadow View Land and Farming, LLC, in which Mr. Cotter owns a 50% interest. We are the managing member ofShadow View Land and Farming, LLC.Note 26 – Casualty LossOur 8-screen complex in Christchurch, New Zealand, was damaged as a result of the devastating earthquakesuffered by that city on February 22, 2011. We have earthquake and lost profits insurance on that facility for which we havereceived to date $1.1 million (NZ$1.3 million) which is included in our other income (expense). We are awaiting a finalsettlement payment on this claim for a nominally estimated amount to be received in 2013. This cinema was reopened onNovember 17, 2011, but, as a result of a December 23, 2011 earthquake, the cinema was again temporarily closed forapproximately two weeks.Additionally, the 3-screen complex in Christchurch, New Zealand owned by our Rialto Cinemas joint venture entity(“Rialto Cinemas”), was damaged as a result of the devastating earthquake suffered by that city on February 22, 2011, andhas been closed since that date. Pursuant to the lease on the property, in May 2011, Rialto Cinemas gave notice to thelandlord that Rialto Cinemas would be terminating the cinema lease. Rialto Cinemas and the landlord have terminated thelease under agreeable terms and did not result in a significant reduction to the value of our investment in the RialtoCinemas joint venture relative to its carrying value. 101 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Schedule II – Valuation and Qualifying Accounts Description Balance atbeginningof year Additionscharged tocosts andexpenses Deductions Balance atend of yearAllowance for doubtful accounts Year-ended December 31, 2012 – Allowance for doubtfulaccounts$53 $367 $211 $209 Year-ended December 31, 2011 – Allowance for doubtfulaccounts$58 $153 $158 $53 Year-ended December 31, 2010 – Allowance for doubtfulaccounts$207 $69 $218 $58 Tax valuation allowance Year-ended December 31, 2012 – Tax valuationallowance$38,461 $--$558 $37,903 Year-ended December 31, 2011 – Tax valuationallowance$54,513 $--$16,052 $38,461 Year-ended December 31, 2010 – Tax valuationallowance$59,603 $--$5,090 $54,513 102 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 9 – Change in and Disagreements with Accountants on Accounting and Financial DisclosureNone. 103 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 9A — Controls and ProceduresManagement’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting,as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f), including maintenance of (i) records that inreasonable detail accurately and fairly reflect the transactions and dispositions of our assets, and (ii) policies and proceduresthat provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financialstatements in accordance with accounting principles generally accepted in the United States of America, (b) our receipts andexpenditures are being made only in accordance with authorizations of management and our Board of Directors and (c) wewill prevent or timely detect unauthorized acquisition, use, or disposition of our assets that could have a material effect onthe financial statements.Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectivesbecause of the inherent limitations of any system of internal control. Internal control over financial reporting is a process thatinvolves human diligence and compliance and is subject to lapses of judgment and breakdowns resulting from humanfailures. Internal control over financial reporting also can be circumvented by collusion or improper overriding of controls. Asa result of such limitations, there is risk that material misstatements may not be prevented or detected on a timely basis byinternal control over financial reporting. However, these inherent limitations are known features of the financial reportingprocess. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Under the supervision and with the participation of our management, including our Chief Executive Officer andChief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting basedon the criteria established in Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations (COSO) of the Treadway Commission. Based on our evaluation under the COSO framework, ourmanagement concluded that our internal control over financial reporting was effective as of December 31, 2012. Theeffectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by Grant ThorntonLLP, an independent registered public accounting firm, as stated in their report, which is included herein.Disclosure Controls and Procedures We have formally adopted a policy for disclosure controls and procedures that provides guidance on the evaluation ofdisclosure controls and procedures and is designed to ensure that all corporate disclosure is complete and accurate in allmaterial respects and that all information required to be disclosed in the periodic reports submitted by us under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods and in themanner specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure that information required to be disclosed by anissuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management,including its principal executive and principal financial officers, or persons performing similar functions, as appropriate toallow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out anevaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures. A disclosure committee consisting of the principal accounting officer,general counsel, senior officers of each significant business line and other select employees assisted the Chief ExecutiveOfficer and the Chief Financial Officer in this evaluation. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures were effective as required by the SecuritiesExchange Act Rule 13a-15(e) and 15d – 15(e) as of the end of the period covered by this report.Changes in Internal Controls Over Financial Reporting No changes in internal control over financial reporting occurred during the quarter ended December 31, 2012, thathave materially affected, or are likely to materially affect, our internal control over financial reporting. 104 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders ofReading International, Inc. Los Angeles, CaliforniaWe have audited the internal control over financial reporting of Reading International, Inc. and subsidiaries (the“Company”) as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management isresponsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control OverFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reportingbased on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for ouropinion.A company’s internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal control over financial reporting includes those policiesand procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recordedas necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reportingas of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2012 andour report dated March 19, 2013 expressed an unqualified opinion on those consolidated financial statements. /s/ Grant Thornton LLPLos Angeles, CaliforniaMarch 19, 2013 105 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IIIItems 10, 11, 12, 13 and 14Information required by Part II (Items 10, 11, 12, 13 and 14) of this From 10-K is herby incorporated by reference from theReading International, Inc.’s definitive Proxy Statement for its 2013 Annual Meeting of Stockholders, which will be filed with the Securitiesand Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year. 106 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IVItem 15 – Exhibits, Financial Statement Schedules(a) The following documents are filed as a part of this report:1.Financial StatementsThe following financial statements are filed as part of this report under Item 8 – Financial Statements and SupplementaryData.DescriptionPageReports of Independent Registered Accounting Firm...................................................................................................................54Consolidated Balance Sheets as of December 31, 2012 and 2011........................................................................................56Consolidated Statements of Operations for the Three Years Ended December 31, 2012...........................................57Consolidated Statements of Comprehensive Income (Loss) for the Three Years Ended December 31, 201258Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31, 2012.....................59Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2012.........................................60Notes to Consolidated Financial Statements....................................................................................................................................612.Financial Statements and Schedules for the years ended December 31, 2012, 2011, and 2010Schedule II – Valuation and Qualifying Accounts.........................................................................................................................102Financial Statements of Mt. Gravatt Cinemas Joint Venture.................................................................................................1083.Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K..........................................125(b) Exhibits Required by Item 601 of Regulation S-KSee Item (a) 3. above.(c) Financial Statement ScheduleSee Item (a) 2. above. 107 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Following are financial statements and notes of Mt. Gravatt Cinemas Joint Venture for the periods indicated. We arerequired to include in our Report on Form 10-K audited financial statements for the years ended December 31, 2012, 2011,and 2010.Mt. Gravatt Cinemas Joint VentureStatements of Comprehensive IncomeFor the Year Ended December 31, 2012 In AUS$Note 2012 2011 2010Revenue from rendering services5$10,689,440 $10,022,854 $10,378,232 Revenue from sale of concession 4,015,329 3,625,410 3,646,982 Total revenue 14,704,769 13,648,264 14,025,214 Film expenses (4,311,436) (3,974,267) (4,200,089)Personnel expenses6 (1,845,515) (1,925,190) (2,084,251)Occupancy expenses (1,584,751) (1,521,307) (1,413,895)House expenses (1,260,328) (1,159,484) (1,182,071)Cost of concession (944,355) (851,575) (913,716)Depreciation and amortization expenses11 (597,349) (555,594) (573,224)Advertising and marketing costs (313,791) (334,325) (325,214)Management fees (261,004) (253,914) (243,290)Repairs and maintenance expense (217,289) (182,566) (163,994) Results for operating activities 3,368,951 2,890,042 2,925,470 Finance income 21,256 58,301 19,522 Net finance income7 21,256 58,301 19,522 Profit for the period $3,390,207 $2,948,343 $2,944,992 Other comprehensive income Other comprehensive income for the period -- -- --Total comprehensive income for the period $3,390,207 $2,948,343 $2,944,992 The accompanying notes are an integral part of these financial statements. 108 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mt. Gravatt Cinemas Joint VentureStatements of Changes in EquityFor the Year Ended December 31, 2012 In AUS$ BirchCarroll &CoyleLimited ReadingExhibitionPty Ltd VillageRoadshowExhibitionPty Ltd TotalMembers’ Equity at December 31, 2009(Unaudited)$1,166,261 $1,166,260 $1,166,260 $3,498,781 Member distributions (850,000) (850,000) (850,000) (2,550,000)Total other comprehensive income -- -- -- --Profit for the period 981,664 981,664 981,664 2,944,992 Total comprehensive income for the period 981,664 981,664 981,664 2,944,992 Members’ Equity at December 31, 2010$1,297,925 $1,297,924 $1,297,924 $3,893,773 Member distributions (700,000) (700,000) (700,000) (2,100,000)Total other comprehensive income -- -- -- --Profit for the period 982,780 982,781 982,781 2,948,342 Total comprehensive income for the period 982,780 982,781 982,781 2,948,342 Members’ Equity at December 31, 2011$1,580,705 $1,580,705 $1,580,705 $4,742,115 Member distributions (1,350,000) (1,350,000) (1,350,000) (4,050,000)Total other comprehensive income -- -- -- --Profit for the period 1,130,069 1,130,069 1,130,069 3,390,207 Total comprehensive income for the period 1,130,069 1,130,069 1,130,069 3,390,207 Members’ Equity at December 31, 2012$1,360,774 $1,360,774 $1,360,774 $4,082,322 The accompanying notes are an integral part of these financial statements. 109 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mt. Gravatt Cinemas Joint VentureStatements of Financial PositionFor the Year Ended December 31, 2012 In AUS$Note 2012 2011ASSETS Cash and cash equivalents8$898,217 $1,590,333 Trade receivables9 196,598 143,488 Inventories10 173,411 153,899 Total current assets 1,268,226 1,887,720 Property, plant and equipment11 3,923,871 3,737,955 Total non-current assets 3,923,871 3,737,955 Total assets $5,192,097 $5,625,675 Trade and other payables12$878,026 $657,891 Employee benefits13 162,961 128,377 Deferred revenue14 27,683 39,068 Total current liabilities 1,068,670 825,336 Employee benefits13 41,105 58,224 Total non-current liabilities 41,105 58,224 Total liabilities 1,109,775 883,560 Net assets $4,082,322 $4,742,115 Equity Contributed equity 202,593 202,593 Retained earnings 3,879,729 4,539,522 Total equity $4,082,322 $4,742,115 The accompanying notes are an integral part of these financial statements. 110 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mt. Gravatt Cinemas Joint VentureStatements of Cash FlowsFor the Year Ended December 31, 2012 In AUS$Note 2012 2011 2010Cash flows from operating activities Cash receipts from customers $16,091,198 $14,889,678 $15,424,727 Cash paid to suppliers and employees (11,971,304) (11,450,521) (11,905,889)Net cash provided from operating activities18 4,119,894 3,439,157 3,518,838 Cash flows from investing activities Acquisition of property, plant and equipment11 (783,266) (1,309,432) (265,351)Interest received7 21,256 58,301 19,522 Net cash used in investing activities (762,010) (1,251,131) (245,829) Cash flows from financing activities Distributions to Joint Venturers (4,050,000) (2,100,000) (2,550,000)Net cash used in financing activities (4,050,000) (2,100,000) (2,550,000) Net increase/ (decrease) in cash and cash equivalents (692,116) 88,024 723,009 Cash and cash equivalents at 1 January 1,590,333 1,502,309 779,300 Cash and cash equivalents at 31 December8$898,217 $1,590,333 $1,502,309 The accompanying notes are an integral part of these financial statements. 111 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mt. Gravatt Cinemas Joint VentureNotes to Financial StatementsDecember 31, 2012 1. Reporting entity Mt. Gravatt Cinemas Joint Venture (the “Joint Venture”) is a legal joint venture between Birch Carrol & Coyle Ltd,Reading Exhibition Pty Ltd and Village Roadshow Exhibition Pty Ltd. The Joint Venture is domiciled and provides servicessolely in Australia. The address of the Joint Venture’s registered office is 227 Elizabeth Street, Sydney NSW 2000. The JointVenture primarily is involved in the exhibition of motion pictures at one cinema site. The joint venture is to continue in existence until the Joint Venture is terminated and associated underlying assetshave been sold and the proceeds of sale distributed upon agreement of the members. All distributions of earnings arerequired to be agreed upon and distributed evenly to the three Joint Venturers. The three Joint Venturers will evenlycontribute any future required contributions.2. Basis of presentation(a) Statement of complianceThese financial statements are general purpose financial statements which have been prepared in accordance withthe International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board.The financial year end of the Joint Venture is 30 June. For purposes of the use of these financial statements by oneof the Joint Venturers, these financial statements have been prepared on a 12-month period basis ending on 31 December.The financial statements were approved by the Management Committee on 4th March 2013.(b) Basis of measurementThe financial statements have been prepared on the historical cost basis. The methods used to measure fair values arediscussed further in Note 4, Determination of fair values.(c) Functional and presentation currency These financial statements are presented in Australian dollars, which is also the Joint Venture’s functionalcurrency. Amounts in the financial statements have been rounded to the nearest dollar, unless otherwise stated.(d) Use of estimates and judgments The preparation of financial statements in accordance with IFRS requires management to make judgements,estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applyingaccounting policies that have the most significant effect on the amount recognised in the financial statements are describedin Note 15, Financial instruments.3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financialstatements. 112 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Joint Venture has not elected to early adopt any accounting standards and amendments. See Note 3(n).(a) Financial instruments Non-derivative financial instruments comprise trade receivables, cash and cash equivalents, and trade payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair valuethrough profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financialinstruments are measured as described below. A financial instrument is recognised if the Joint Venture becomes a party to the contractual provisions of theinstrument. Financial assets are derecognised if the Joint Venture’s contractual rights to the cash flows from the financialassets expire or if the Joint Venture transfers the financial asset to another party without retaining control or substantially allrisks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., thedate that the Joint Venture commits itself to purchase or sell the asset. Financial liabilities are derecognised if the JointVenture’s obligations specified in the contract expire, are discharged or cancelled. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demandand form an integral part of the Joint Venture’s cash management are included as a component of cash and cashequivalents for the purpose of the statement of cash flows. Accounting for finance income and expense is discussed in Note 3(k), Finance income.(b) Property, plant and equipment(i) Recognition and measurementItems of property, plant and equipment are measured at cost less accumulated depreciation.Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructedassets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a workingcondition for its intended use. Costs also may include purchases of property, plant and equipment. Purchased software thatis integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to theacquisition or construction of qualifying assets are capitalised as part of the cost of that asset.When parts of an item of property, plant and equipment have different useful lives, they are accounted for asseparate items (major components) of property, plant and equipment.(ii) Subsequent costsThe cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of theitem if it is probable that the future economic benefits embodied within the part will flow to the Joint Venture and its cost canbe measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing ofproperty, plant and equipment are recognised in profit or loss as incurred.(iii) DepreciationDepreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of anitem of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their usefullives. Land is not depreciated.The estimated useful lives for the current and comparative periods are as follows:Leasehold improvementsShorter of estimated useful life and term of leasePlant and equipment3 to 20 years 113 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted ifappropriate.(c) Leased assets Leases in which the Joint Venture assumes substantially all the risks and rewards of ownership are classified asfinance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and thepresent value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordancewith the accounting policy applicable to that asset. Other leases are operating leases and are not recognised on the Joint Venture’s statement of financial position.(d) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-infirst-out principle, and includes expenditure incurred in acquiring the inventories, and other costs incurred in bringing themto their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business,less the estimated costs of completion and selling expenses.(e) Impairment(i) Financial assetsA financial asset is assessed at each reporting date to determine whether there is any objective evidence that it isimpaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initialrecognition of the asset, and that loss event had a negative effect on the estimated future cash flows of that asset that can beestimated reliably.An impairment loss in respect of a financial asset measured at amortised cost is calculated as the differencebetween its carrying amount, and the present value of the estimated future cash flows discounted at the original effectiveinterest rate. Losses are recognised in profit or loss and reflected in an allowance against the relevant asset. When asubsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed throughprofit or loss.(ii) Non-financial assetsThe carrying amounts of the Joint Venture’s non-financial assets, other than inventories, are reviewed at eachreporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’srecoverable amount is estimated.The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value lesscosts to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-taxdiscount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds itsrecoverable amount. Impairment losses are recognised in profit or loss.In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for anyindications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in theestimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’scarrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation,if no impairment loss had been recognised. 114 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (f) Employee benefits(i) Long-term employee benefitsThe Joint Venture’s net obligation in respect of long-term employee benefits is the amount of future benefit thatemployees have earned in return for their service in the current and prior periods plus related on-costs; that benefit isdiscounted to determine its present value and the fair value of any related assets is deducted.(ii) Termination benefitsTermination benefits are recognised as an expense when the Joint Venture is demonstrably committed, withoutrealistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirementdate, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefitsfor voluntary redundancies are recognised as an expense if the Joint Venture has made an offer of voluntary redundancy, itis probable that the offer will be accepted, and the number of acceptances can be estimated reliably.(iii) Short-term benefitsLiabilities for employee benefits for wages, salaries, and annual leave represent present obligations resulting fromemployees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wageand salary rates that the Joint Venture expects to pay as at reporting date including related on-costs, such as workerscompensation insurance and payroll tax. (g) ProvisionsA provision is recognised if, as a result of a past event, the Joint Venture has a present legal or constructiveobligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle theobligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects currentmarket assessments of the time value of money and the risks specific to the liability.(h) Contributed equityThe Joint Venture is comprised of three parties who share an equal ownership over the Joint Venture. TheContributed Equity amount represents the initial investment in the partnership. Distributions to the partners are made onbehalf of the Joint Venture and are recognised through retained earnings.(i) RevenueRendering of service/sale of concessionsRevenue is measured at the fair value of the consideration received or receivable, net of returns, trade discountsand value rebates. Revenues are generated principally through admissions and concession sales with proceeds received incash at the point of sale. Service revenue also includes product advertising and other ancillary revenues, such as bookingfees, which are recognised as income in the period earned. The Joint Venture recognises payments received attributable tothe advertising services provided by the Joint Venture under certain vendor programs as revenue in the period in whichservices are delivered.(j) Lease paymentsPayments made under operating leases are recognised in profit or loss on a straight-line basis over the term of thelease on a basis that is representative of the pattern of benefit derived from the leased property.(k) Finance incomeFinance income comprises interest income on cash held in financial institutions. Interest income is recognised asit accrues in profit or loss using the effective interest method. 115 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (l) Taxes(i) Goods and service taxRevenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except wherethe amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognisedas part of the cost of acquisition of the asset or as part of the expense.Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from,or payable to, the ATO is included as a current asset or liability in the balance sheet.Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flowsarising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operatingcash flows.(ii) Income taxUnder applicable Australian law, the Joint Venture is not subject to tax on earnings generated. Accordingly the JointVenture does not recognise any income tax expense, or deferred tax balances. Earnings of the Joint Venture are taxed at theJoint Venturer level.(m) Film expenseFilm expense is incurred based on a contracted percentage of box office results for each film. The Joint Venturenegotiates terms with each film distributor on a film-by-film basis. Percentage terms are based on a sliding scale, with theJoint Venture subject to a higher percentage of box office results when the film is initially released and declining eachsubsequent week. Different films have different rates dependent upon the expected popularity of the film, and forecastedsuccess.(n) New standards and interpretations not yet adoptedThe following standards, amendments to standards and interpretations have been identified as those which mayimpact the entity in the period of initial application. They are available for early adoption at 31 December 2012, but have notbeen applied in preparing this financial report:AASB 9 Financial Instruments (2010), AASB 9 Financial Instruments (2009) AASB 9 (2009) introduces newrequirements for the classification and measurement of financial assets. Under AASB 9 (2009), financial assetsare classified and measured based on the business model in which they are held and the characteristics of theircontractual cash flows. AASB 9 (2010) introduces additions relating to financial liabilities. The IASB currently hasan active project that may result in limited amendments to the classification and measurement requirements ofAASB 9 and add new requirements to address the impairment of financial assets and hedge accounting. AASB 9 (2010 and 2009) are effective for annual periods beginning on or after 1 January 2015 with earlyadoption permitted. The Company has not yet determined the potential effect of the standard.The Joint Venture does not consider that any other standards or interpretations issued by the IASB or the IFRIC,either applicable in the current year or not yet applicable, have, or will have, a significant impact on the financial statements.(o) Amounts paid or payable to the auditorThe amounts paid or payable to the auditor for the audit of these financial statements has been borne by one of theJoint Venturers for which these financial statements have been prepared. The auditor provided no non-audit service in thecurrent or prior periods disclosed. 116 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In AUS$ 2012 2011Audit fees $57,500 $57,500 4. Determination of fair valuesA number of the Joint Venture’s accounting policies and disclosures require the determination of fair value, for bothfinancial and non-financial assets and liabilities. Fair values have been determined for measurement and disclosurepurposes based on the following methods. Where applicable, further information about the assumptions made indetermining fair values is disclosed in the notes specific to that asset or liability.(i) Trade and other receivablesThe fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at themarket rate of interest at the reporting date.(ii) Non-derivative financial liabilitiesFair value, which is determined for disclosure purposes, is calculated based on the present value of future principaland interest cash flows, discounted at the market rate of interest at the reporting date.5. Revenue from rendering of services In AUS$ 2012 2011 2010Box office revenue 9,508,154 9,019,423 9,659,151 Screen advertising 286,501 249,524 251,325 Booking fees 268,180 200,017 187,206 Other cinema services 626,605 553,890 280,550 $10,689,440 $10,022,854 $10,378,232 6. Personnel expenses In AUS$ 2012 2011 2010Wages and salaries 1,767,789 1,846,267 1,987,041 Change in liability for annual leave 65,274 57,628 67,604 Change in liability for long-service leave 12,452 21,295 29,606 $1,845,515 $1,925,190 $2,084,251 7. Finance income In AUS$ 2012 2011 2010Interest income on cash at bank: 21,256 58,301 19,522 $21,256 $58,301 $19,522 8. Cash and cash equivalents In AUS$Note 2012 2011Cash at bank and on hand15 898,217 1,590,333 Cash and cash equivalents in the statement of cash flows $898,217 $1,590,333 The Joint Venture’s exposure to interest rate risk is disclosed in Note 15(e), Financial instruments, Market risk.9. Trade and other receivables In AUS$Note 2012 2011Trade receivables15 196,598 143,488 $196,598 $143,488 117 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Joint Venture’s trade receivables relate mainly to the Joint Venture’s screen advertiser and credit cardcompanies. The Joint Venture’s exposure to credit risk and impairment losses related to trade receivables is disclosed in Note15(c), Financial instruments, Credit risk.10. Inventories In AUS$ 2012 2011Concession stores at cost 173,411 153,899 $173,411 $153,899 11. Property, Plant, and Equipment In AUS$ Plant andEquipment LeaseholdImprovements Capital WIP TotalCost Balance at January 1, 2011 9,347,006 2,566,704 265,351 12,179,061 Additions -- -- 1,309,433 1,309,433 Transfers 1,111,257 221,080 (1,332,337) --Balance at December 31, 2011$10,458,263 $2,787,784 $242,447 $13,488,494 Balance at January 1, 2012 10,458,263 2,787,784 242,446 13,488,493 Additions -- -- 783,266 783,266 Transfers 94,123 4,900 (99,023) --Balance at December 31, 2012$10,552,386 $2,792,684 $926,689 $14,271,759 In AUS$ Plant andEquipment LeaseholdImprovements Capital WIP TotalAccumulated depreciation Balance at January 1, 2011 (8,224,886) (970,059) -- (9,194,945)Depreciation and amortisation (463,815) (91,779) -- (555,594)Disposals -- -- -- --Balance at December 31, 2011$(8,688,701)$(1,061,838)$--$(9,750,539) Balance at January 1, 2012 (8,688,701) (1,061,838) -- (9,750,539)Depreciation and amortisation (492,890) (104,459) -- (597,349)Balance at December 31, 2012$(9,181,591)$(1,166,297)$--$(10,347,888) 118 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In AUS$ Plant andEquipment LeaseholdImprovements Capital WIP TotalCarrying amounts At January 1, 2011$1,122,120 $1,596,645 $265,351 $2,984,116 At December 31, 2011 1,769,563 1,725,946 242,446 3,737,955 At January 1, 2012 1,769,563 1,725,946 242,446 3,737,955 At December 31, 2012 1,370,795 1,626,387 926,689 3,923,871 12. Trade and other payables In AUS$Note 2012 2011Trade payables 413,082 365,188 Non-trade payables and accruals 464,944 292,703 15 $878,026 $657,891 The Joint Venture’s exposure to liquidity risk related to trade and other payables is disclosed in Note 15(d), Financial instruments, Liquidity risk. Trade payables represents payments to trade creditors. The Joint Venture makesthese payments through the managing party’s shared service centre and is charged a management fee for theseservices. Disclosure regarding the management fee is made in Note 19, Related parties.13. Employee benefits Current In AUS$ 2012 2011Liability for annual leave 102,540 82,698 Liability for long-service leave 60,421 45,679 $162,961 $128,377 Non-current In AUS$ 2012 2011Liability for long-service leave 41,105 58,224 $41,105 $58,224 14. Deferred revenue In AUS$ 2012 2011Deferred revenue 27,683 39,068 $27,683 $39,068 Deferred revenue mainly consists of advance funds received from vendors for the exclusive rights to supply certainconcession items. Revenue is recognised over the term of the related contract on a straight-line basis and is classified asservice revenue.15. Financial instruments(a) Overview This note presents information about the Joint Venture’s exposure to financial risks, its objectives, policies, andprocesses for measuring and managing risk, and the management of capital. The Joint Venture’s activities expose it to the following financial risks;·credit risk; 119 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·liquidity risk; and·market risk.(b) Risk management framework The Joint Venturers’ have overall responsibility for the establishment and oversight of the risk managementframework and are also responsible for developing and monitoring risk management policies. Risk management policies are established to identify and analyse the risks faced by the Joint Venture to setappropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systemsare reviewed regularly to reflect changes in market conditions and the Joint Venture’s activities. The Joint Venture, throughits training and management standards and procedures, aims to develop a disciplined and constructive control environmentin which all employees understand their roles and obligations. The Joint Venturers’ oversee how management monitors compliance with the Joint Venture’s risk managementpolicies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by theJoint Venture. There were no changes in the Joint Venture’s approach to capital management during the year.(c) Credit risk Credit risk is the risk of financial loss to the Joint Venture if a customer or counterparty to a financial instrument failsto meet its contractual obligations, and arises principally from the Joint Venture’s receivables from customers. The Joint Venture’s exposure to credit risk is influenced mainly by the individual characteristics of eachcustomer. The demographics of the Joint Venture’s customer base, including the default risk of the industry and country, inwhich customers operate, has less of an influence on credit risk. Customers that are graded as “high risk” are placed on a restricted customer list, and monitored by the JointVenturers. The Joint Venture operates under the managing Joint Venturer’s credit policy under which each new customer isanalysed individually for creditworthiness before the Joint Venture’s standard payment and delivery terms and conditionsare offered. The Joint Venture’s review includes external ratings, when available, and in some cases bankreferences. Purchase limits are established for each customer. These limits are reviewed periodically. Customers that failto meet the Joint Venture’s benchmark creditworthiness may transact with the Joint Venture only on a prepayment basis.Exposure to credit risk The carrying amount of the Joint Venture’s financial assets represents the maximum credit exposure. The JointVenture’s maximum exposure to credit risk at the reporting date was: Carrying AmountIn AUS$Note 2012 2011Trade receivables9 $196,598 $143,488 Cash and cash equivalents8 898,217 1,590,333 The Joint Venture’s maximum exposure to credit risk for trade receivables at the reporting date by type of customerwas: Carrying AmountIn AUS$ 2012 2011Screen advertisers 72,181 63,696 Credit card companies 114,418 71,242 Games, machine and merchandising companies 9,999 8,550 $196,598 $143,488 120 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Impairment lossesNone of the Company’s trade receivables are past due (2011: $nil). There were no allowances for impairment at 31December 2012 or 2011.(d) Liquidity riskLiquidity risk is the risk that the Joint Venture will encounter difficulties in meeting its financial obligations as theyfall due. The Joint Venture’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficientliquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable lossesor risking damage to the Joint Venture’s reputation.The only financial liabilities are trade and other payables all of which are contractually due within 12 months. Thecarrying value of such liabilities at 31 December 2012 is $878,026 (2011: $657,891).(e) Market risk Market risk is the risk that changes in market prices, such as interest rates, will affect the Joint Venture’sincome. The objective of market risk management is to manage and control market risk exposures within acceptableparameters, while optimising the return. The Joint Venture is not subject to market risks relating to foreign exchange ratesor equity prices. Furthermore, the Joint Venture does not use derivative, financial instruments to hedge fluctuations ininterest rates.Interest rate riskAt the reporting date the interest rate profile of the Joint Venture’s interest-bearing financial instruments was: Variable rate instruments Carrying amountIn AUS$ 2012 2011Cash at bank $855,715 $1,461,138 The Joint Venture held no fixed rate instruments during financial years 2012 or 2011. 121 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (f) Fair valuesFair values versus carrying amountsThe fair values of financial assets and liabilities, together with the carrying amounts shown in the statement offinancial position, are as follows: 2012 2011In AUS$ Carryingamount Fair value Carryingamount Fair valueTrade receivables$196,598 $196,598 $143,488 $143,488 Cash and cash equivalents 898,217 898,217 1,590,333 1,590,333 Trade and other payables 878,026 878,026 657,891 657,891 The basis for determining fair values is disclosed in Note 4, Determination of fair values. (g) CapitalCapital consists of contributed equity and retained earnings. The contributed equity amount represents the initialinvestment in the partnership. The Managing Committee’s policy is to maintain a strong capital base so as to maintaincreditor confidence and to sustain future development of the business. There were no externally imposed capitalrequirements during the financial years 2012 or 2011.16. Operating leasesLeases as lessee Non-cancellable operating lease rentals are payable as follows: In AUS$ 2012 2011Less than one year 1,277,754 1,277,754 Between one and five years 5,111,016 5,111,016 More than five years 1,225,244 2,506,498 Total $7,614,014 $8,895,268 The Joint Venture leases the cinema property under a long term operating lease.The prior year operating lease commitments have been amended to exclude property outgoings which is consistentin the current year.17. Contingencies and capital commitmentsThe nature of the Joint Venture’s operations results in claims for personal injuries (including public liability andworkers compensation) being received from time to time. As at period end there were no material current or ongoingoutstanding claims.The Joint Venture has no capital commitments at 31 December 2012 (2011: $nil). 122 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 18. Reconciliation of cash flows from operating activities In AUS$Note 2012 2011 2010Cash flows from operating activities Profit for the period 3,390,207 2,948,343 2,944,992 Adjustments for: Depreciation and amortisation11 597,349 555,594 573,224 Interest received7 (21,256) (58,301) (19,522)Loss on disposal of property, plant, and equipment -- -- 10,771 Operating profit before changes in working capital $3,966,300 $3,445,636 $3,509,465 Change in trade receivables9 (53,110) (53,892) 7,763 Change in inventories10 (19,512) 81,620 (96,837)Change in prepayments and other receivables -- -- 109,099 Change in trade and other payables12 220,135 7,388 (40,721)Change in employee benefits13 17,466 9,195 47,027 Change in deferred revenue14 (11,385) (50,790) (16,958)Net cash from operating activities $4,119,894 $3,439,157 $3,518,838 19. Related partiesEntities with joint control or significant influence over the Joint Venture.The managing Joint Venturer is paid an annual management fee, which is presented separately in the statement ofcomprehensive income. The management fee paid is as per the Joint Venture agreement and is to cover the costs ofmanaging and operating the cinema complex and providing all relevant accounting and support services. The managementfee is based on a contracted base amount, increased by the Consumer Price Index for the City of Brisbane as published bythe Australian Bureau of Statistics on an annual basis. Such management fee agreement is binding over the life of theagreement which shall continue in existence until the Joint Venture is terminated under agreement by the Joint Venturers. As of 31 December 2012 the management fee payable was $nil (2011: $24,116).20. Subsequent eventsSubsequent to 31 December 2012, there were no events which would have a material effect on these financialstatements. 123 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Independent Auditors’ ReportThe Management Committee and Joint VenturersMt. Gravatt Cinemas Joint Venture:Report on the Financial StatementsWe have audited the accompanying financial statements of Mt. Gravatt Cinemas Joint Venture, which comprise thestatements of financial position as of December 31, 2012 and 2011 and the related statements of comprehensive income,changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the relatednotes to the financial statements.Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance withInternational Financial Reporting Standards as issued by the International Accounting Standards Board; this includes thedesign, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financialstatements that are free from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits inaccordance with auditing standards generally accepted in the United States of America. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of significant accounting estimates made bymanagement, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mt.Gravatt Cinemas Joint Venture as of December 31, 2012 and 2011, and the results of its operations and its cash flows eachof the years in the three-year period ended December 31, 2012, in conformity with International Financial ReportingStandards as issued by the International Accounting Standards Board./s/ KPMGSydney, AustraliaMarch 4, 2013 124 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibits 3.1Certificate of Amendment and Restatement of Articles of Incorporation of Reading International, Inc.,a Nevada corporation, as filed with the Nevada Secretary of State on May 22, 2003 (filed as Exhibit3.8 to the Company’s report on Form 10-Q for the period ended June 30, 2009, and incorporatedherein by reference).3.2.1Amended and Restated Bylaws of Reading International, Inc., a Nevada corporation (filed as Exhibit3.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, andincorporated herein by reference).3.2.2Amended Article V of the Amended and Restated Bylaws of Reading International, Inc. (filed asexhibit 3.2 to the Company’s report on Form 8-K dated December 27, 2007, and incorporated hereinby reference).3.3Articles of Merger of Craig Merger Sub, Inc. with and into Craig Corporation (filed as Exhibit 3.4 to theCompany’s Annual Report on Form 10-K for the year ended December 31, 2001).3.4Articles of Merger of Reading Merger Sub, Inc. with and into Reading Entertainment, Inc. (filed asExhibit 3.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).4.1*1999 Stock Option Plan of Reading International, Inc., as amended on December 31, 2001 (filed asExhibit 4.1 to the Company’s Registration Statement on Form S-8 filed on January 21, 2004, andincorporated herein by reference). 4.2Form of Preferred Securities Certificate evidencing the preferred securities of Reading InternationalTrust I (filed as Exhibit 4.1 to the Company’s report on Form 8-K filed on February 9, 2007, andincorporated herein by reference).4.3Form of Common Securities Certificate evidencing common securities of Reading International TrustI (filed as Exhibit 4.2 to the Company’s report on Form 8-K filed on February 9, 2007, andincorporated herein by reference).4.4Form of Reading International, Inc. and Reading New Zealand, Limited, Junior Subordinated Notedue 2027 (filed as Exhibit 4.3 to the Company’s report on Form 8-K filed on February 9, 2007, andincorporated herein by reference).4.5Form of Indenture (filed as Exhibit 4.4 to the Company’s report on Form S-3 on October 20, 2009,and incorporated herein by reference).4.6*2010 Stock Incentive Plan (filed as Exhibit 4.1 to the Company’s report on Form S-8 on May 26,2010, and incorporated herein by reference).4.7*Form of Stock Option Agreement (filed as Exhibit 4.2 to the Company’s report on Form S-8 on May26, 2010, and incorporated herein by reference).4.8*Form of Stock Bonus Agreement (filed as Exhibit 4.3 to the Company’s report on Form S-8 on May26, 2010, and incorporated herein by reference).4.9*Form of Restricted Stock Agreement (filed as Exhibit 4.4 to the Company’s report on Form S-8 onMay 26, 2010, and incorporated herein by reference).4.10*Form of Stock Appreciation Right Agreement (filed as Exhibit 4.5 to the Company’s report on Form S-8 on May 26, 2010, and incorporated herein by reference).4.11*Amendment to the 2010 Stock Incentive Plan (filed as Appendix A of the Company’s proxy statementon April 29, 2011, and incorporated here by reference).10.1*Employment Agreement, dated October 28, 1999, among Craig Corporation, Citadel HoldingCorporation, Reading Entertainment, Inc., and Andrzej Matyczynski (filed as Exhibit 10.37 to theCompany’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporatedherein by reference).10.2Amended and Restated Lease Agreement, dated as of July 28, 2000, as amended and restated as ofJanuary 29, 2002, between Sutton Hill Capital, L.L.C. and Citadel Cinemas, Inc. (filed as Exhibit10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 andincorporated herein by reference).10.3Amended and Restated Citadel Standby Credit Facility, dated as of July 28, 2000, as amended andrestated as of January 29, 2002, between Sutton Hill Capital, L.L.C. and Reading International, Inc.(filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended DecemberSource: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.31, 2002 and incorporated herein by reference).10.4Amended and Restated Security Agreement dated as of July 28, 2000 as amended and restated as ofJanuary 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit10.42 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 andincorporated herein by reference).10.5Amended and Restated Pledge Agreement dated as of July 28, 2000 as amended and restated as ofJanuary 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit10.43 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 andincorporated herein by reference). 10.6Amended and Restated Intercreditor Agreement dated as of July 28, 2000 as amended and restatedas of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. andNationwide Theatres Corp. (filed as Exhibit 10.44 to the Company’s Annual Report on Form 10-K forthe year ended December 31, 2002 and incorporated herein by reference). 10.7Guaranty dated July 28, 2000 by Michael R. Forman and James J. Cotter in favor of CitadelCinemas, Inc. and Citadel Realty, Inc. (filed as Exhibit 10.45 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2002 and incorporated herein by reference).10.8Theater Management Agreement, effective as January 1, 2002, between Liberty Theaters, Inc. andOBI LLC (filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002 and incorporated herein by reference).10.9Omnibus Amendment Agreement, dated as of October 22, 2003, between Citadel Cinemas, Inc.,Sutton Hill Capital, L.L.C., Nationwide Theatres Corp., Sutton Hill Associates, and ReadingInternational, Inc. (filed as Exhibit 10.49 to the Company’s report on Form 10-Q for the period endedSeptember 30, 2003, and incorporated herein by reference).10.10Assignment and Assumption of Lease between Sutton Hill Capital L.L.C. and Sutton Hill Properties,LLC dated as of September 19, 2005 (filed as exhibit 10.56 to the Company’s report on Form 8-K filedon September 21, 2005, and incorporated herein by reference).10.11License and Option Agreement between Sutton Hill Properties, LLC and Sutton Hill Capital L.L.C.dated as of September 19, 2005 (filed as exhibit 10.57 to the Company’s report on Form 8-K filed onSeptember 21, 2005, and incorporated herein by reference).10.12Second Amendment to Amended and Restated Master Operating Lease dated as of September 1,2005 (filed as exhibit 10.58 to the Company’s report on Form 8-K filed on September 21, 2005, andincorporated herein by reference). Purchase Agreement, dated February 5, 2007, among Reading International, Inc., ReadingInternational Trust I, and Kodiak Warehouse JPM LLC (filed as Exhibit 10.1 to the Company’s reporton Form 8-K filed on February 9, 2007, and incorporated herein by reference).10.14Amended and Restated Declaration of Trust, dated February 5, 2007, among Reading InternationalInc., as sponsor, the Administrators named therein, and Wells Fargo Bank, N.A., as property trustee,and Wells Fargo Delaware Trust Company as Delaware trustee (filed as Exhibit 10.2 to theCompany’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).10.15Indenture among Reading International, Inc., Reading New Zealand Limited, and Wells Fargo Bank,N.A., as indenture trustee (filed as Exhibit 10.4 to the Company’s report on Form 8-K dated February5, 2007, and incorporated herein by reference).10.16*Employment Agreement, dated December 28, 2006, between Reading International, Inc. and JohnHunter (filed as Exhibit 10.66 to the Company’s report on Form 10-K for the year ended December31, 2006, and incorporated herein by reference).10.17Reading Guaranty Agreement dated February 21, 2008 among Consolidated Amusement Theatres,Inc., a Nevada corporation, General Electric Capital Corporation, and GE Capital Markets, Inc. (filedas Exhibit 10.73 to the Company’s report on Form 10-K for the year ended December 31, 2007, andincorporated herein by reference).10.18Pledge and Security Agreement dated February 22, 2008 by Reading Consolidated Holdings, Inc. infavor of Nationwide Theatres Corp (filed as Exhibit 10.74 to the Company’s report on Form 10-K forthe year ended December 31, 2007, and incorporated herein by reference).10.19Promissory Note dated February 22, 2008 by Reading Consolidated Holdings, Inc. in favor ofNationwide Theatres Corp. (filed as Exhibit 10.75 to the Company’s report on Form 10-K for the yearended December 31, 2007, and incorporated herein by reference).10.20*Form of Indemnification Agreement, as routinely granted to the Company’s officers and directors(filed as Exhibit 10.77 to the Company’s report on Form 10-Q for the period ended September 30,Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(filed as Exhibit 10.77 to the Company’s report on Form 10-Q for the period ended September 30,2008, and incorporated herein by reference).10.21Third Amendment to Amended and Restated Master Operating Lease Agreement, dated June 29,2010, between Sutton Hill Capital, L.L.C. and Citadel Cinemas, Inc. (filed as Exhibit 10.21 to theCompany’s report on Form 10-K for the year ended December 31, 2010, and incorporated herein byreference).10.22Amended and Restated Purchase Money Installment Sale Note, dated September 19, 2005, asamended and restated as of June 29, 2010, by Sutton Hill Properties, LLC in favor of Sutton HillCapital, L.L.C. (filed as Exhibit 10.22 to the Company’s report on Form 10-K for the year endedDecember 31, 2010, and incorporated herein by reference).10.23Amended and Restated Credit Agreement dated February 21, 2008, as amended and restated as ofNovember 30, 2010, among Consolidated Entertainment, Inc., General Electric Capital Corporation,and GE Capital Markets, Inc. (filed as Exhibit 10.23 to the Company’s report on Form 10-K for theyear ended December 31, 2010, and incorporated herein by reference).10.24Bill Acceptance and Discount & Bank Guarantee Facility Agreement dated June 24, 2011, amongReading Entertainment Australia Pty Ltd and National Australia Bank Limited (filed as Exhibit 10.24to the Company’s report on Form 10-K for the year ended December 31, 2011, and incorporatedherein by reference).10.25Property Finance Wholesale Term Loan Facility dated June 20, 2007, among Reading CourtenayCentral Limited and Westpac New Zealand Limited (filed as Exhibit 10.25 to the Company’s report onForm 10-K for the year ended December 31, 2011, and incorporated herein by reference).10.26Letter dated May 6, 2009, amending Property Finance Wholesale Term Loan Facility dated June 20,2007, among Reading Courtenay Central Limited and Westpac New Zealand Limited (filed asExhibit 10.26 to the Company’s report on Form 10-K for the year ended December 31, 2011, andincorporated herein by reference).10.27Letter dated February 8, 2012, amending Property Finance Wholesale Term Loan Facility dated June20, 2007, among Reading Courtenay Central Limited and Westpac New Zealand Limited (filed asExhibit 10.27 to the Company’s report on Form 10-K for the year ended December 31, 2011, andincorporated herein by reference).10.28Amended and Restated Note dated June 28, 2012 among Sutton Hill Properties, LLC in favor ofSovereign Bank, N.A., amending Promissory Note dated June 27, 2007, by Sutton Hill Properties,LLC in favor of Eurohypo AG, New York Branch (filed as Exhibit 10.1 to the Company’s report onForm 10-Q for the period ended June 30, 2012, and incorporated herein by reference).10.29Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement, andFixture Filing (“Agreement”) dated June 28, 2012 among Sutton Hill Properties, LLC in favor ofSovereign Bank, N.A., amending Agreement dated June 27, 2007, by Sutton Hill Properties, LLC infavor of Eurohypo AG, New York Branch (filed as Exhibit 10.2 to the Company’s report on Form 10-Qfor the period ended June 30, 2012, and incorporated herein by reference).10.30Credit Agreement entered into as of October 31, 2012, among Consolidated Entertainment, LLC andBank of America (filed as Exhibit 99.1 to the Company’s report on Form 8-K dated October 31, 2012,and incorporated herein by reference).10.31Master Lease Agreement dated October 26, 2012, between Consolidated Cinema Services LLC andBanc of America Leasing & Capital, LLC (filed herewith).10.32Amendment dated October 31, 2012 to the Master Lease Agreement dated October 26, 2012,between Consolidated Cinema Services LLC and Banc of America Leasing & Capital, LLC (filedherewith).21List of Subsidiaries (filed herewith).23.1Consent of Independent Auditors, Grant Thornton LLP (filed herewith).23.2Consent of Independent Auditors, Deloitte & Touche LLP (filed herewith).23.3Consent of Independent Auditors, KPMG Australia (filed herewith).31.1Certification of Principal Executive Officer dated March 19, 2013 pursuant to Section 302 of theSarbanes-Oxley Act of 2002 (filed herewith).31.2Certification of Principal Financial Officer dated March 19, 2013 pursuant to Section 302 of theSarbanes-Oxley Act of 2002 (filed herewith).32.1Certification of Principal Executive Officer dated March 19, 2013 pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.32.2Certification of Principal Financial Officer dated March 19, 2013 pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema101.CALXBRL Taxonomy Extension Calculation101.DEFXBRL Taxonomy Extension Definition101.LABXBRL Taxonomy Extension Labels101.PREXBRL Taxonomy Extension Presentation*These exhibits constitute the executive compensation plans and arrangements of the Company. 125 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 126 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 127 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized.READING INTERNATIONAL, INC.(Registrant) Date: March 19, 2013By:/s/ Andrzej Matyczynski Andrzej Matyczynski Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of Registrant and in the capacities and on the dates indicated. SignatureTitle(s)Date /s/ James J. CotterChairman of the Board and Director and Chief ExecutiveOfficerMarch 19, 2013James J. Cotter /s/ Andrzej MatyczynskiPrincipal Financial and Accounting OfficerMarch 19, 2013Andrzej Matyczynski /s/ James J. Cotter, Jr.DirectorMarch 19, 2013James J. Cotter, Jr. /s/ Margaret CotterDirectorMarch 19, 2013Margaret Cotter /s/ William D. GouldDirectorMarch 19, 2013William D. Gould /s/ Edward L. KaneDirectorMarch 19, 2013Edward L Kane /s/ Douglas J. McEachernDirectorMarch 19, 2013Douglas J. McEachern Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results./s/ Tim StoreyDirectorMarch 19, 2013Tim Storey /s/ Alfred VillaseñorDirectorMarch 19, 2013Alfred Villaseñor 128 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 129 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Banc of America Leasing & Capital, LLCMaster Lease Agreement Number: 24874-90000This Master Lease Agreement, dated as of October 26, 2012 (this “Agreement”), is by and between Banc of America Leasing & Capital, LLC, aDelaware limited liability company having an office at 2059 Northlake Parkway, 3 North, Tucker, GA 30084 (together with its successors and assigns,“Lessor”), and Consolidated Cinema Services, LLC as “Lessee”, a limited liability company existing under the laws of the state of Nevada, and having itschief executive office and any organizational identification number as specified with its execution of this Agreement below. Certain defined terms used hereinare identified in bold face and quotation marks throughout this Agreement and in Section 16 below. This Agreement sets forth the terms and conditionsfor the lease of Equipment between Lessor and Lessee pursuant to one or more "Schedules" incorporating by reference the terms of this Agreement,together with all exhibits, addenda, schedules, certificates, riders and other documents and instruments executed and delivered in connection with suchSchedule (as amended from time to time, a “Lease”). Each Lease constitutes a separate, distinct and independent lease of Equipment and contractualobligation of Lessee. This Agreement is not an agreement or commitment by Lessor or Lessee to enter into any future Leases or other agreements, or forLessor to provide any financial accommodations to Lessee. Lessor shall not be obligated under any circumstances to advance any progress payments or otherfunds for any Equipment or to enter into any Lease if there shall have occurred a material adverse change in the operations, business, properties orcondition, financial or otherwise, of Lessee or any Guarantor. This Agreement and each Lease shall become effective only upon Lessor’s acceptance andexecution thereof at its corporate offices set forth above.1.Lease; Term; Non-Interference. Lessor and Lessee agree to lease Equipment described in Schedules entered into from time to time, together with all otherdocumentation from Lessee required by Lessor with respect to such Lease. Upon receipt of any item or group of Equipment intended for Lease hereunder,Lessee shall execute a Schedule, with all information fully completed and irrevocably accepting such Equipment for Lease, and deliver such Schedule toLessor for its review and acceptance. Provided no Event of Default has occurred, Lessee shall be entitled to use and possess the Equipment during theoriginal Lease Term provided in the Schedule (together with any extensions or renewals thereof in accordance with terms of the Lease, the “Lease Term”)free from interference by any person claiming by, through or under Lessor. 2.Rent. “Rent” shall be payable to Lessor during the Lease Term in the amounts and at the times provided in the Schedule. If any Rent or other amountpayable hereunder is not paid within 10 days of its due date, Lessee shall pay an administrative late charge of 5% of the amount not timely paid. All Rent andother amounts payable under a Lease shall be made in immediately available funds at Lessor’s address above or such other place in the United States asLessor shall specify in writing. Unless otherwise provided herein, payments received under any Lease will be applied to all interest, fees and amounts owingthereunder (other than Rent), and then to Rent payable thereunder. 3.Net Lease; Disclaimer Of Warranties. Each Lease is a net lease and a “finance lease” under Article 2A of the UCC, and Lessee waives all rights andremedies Lessee may have under sections 2A-508 – 2A-522 thereof, including any right to cancel or repudiate any Lease or to reject or revoke acceptanceof any Equipment. Upon the “Acceptance Date” provided in the Schedule for each Lease, Lessee’s Obligations thereunder (i) shall be non-cancelable,absolute and unconditional under all circumstances for the entire Lease Term, (ii) shall be unaffected by the loss or destruction of any Equipment, and (iii)shall not be subject to any abatement, deferment, reduction, set-off, counterclaim, recoupment or defense for any reason whatsoever. LESSOR IS NOT AVENDOR OR AGENT OF THE EQUIPMENT VENDOR, AND HAS NOT ENGAGED IN THE SALE OR DISTRIBUTION OF ANY EQUIPMENT.LESSOR MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES AS TO TITLE, MERCHANTABILITY,PERFORMANCE, CONDITION, EXISTENCE, FITNESS OR SUITABILITY FOR LESSEE'S PURPOSES OF ANY EQUIPMENT, PATENT,TRADEMARK OR COPYRIGHT INFRINGEMENTS, THE CONFORMITY OF THE EQUIPMENT TO THE DESCRIPTION THEREOF IN ANYLEASE, OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE EQUIPMENT. If Equipment is notdelivered or properly installed, does not operate as warranted, becomes obsolete, or is unsatisfactory for any reason, Lessee shall make all claims on accountthereof solely against Vendor and not against Lessor. Lessee is solely responsible for the selection, shipment, delivery and installation of the Equipment and itsVendors, expressly disclaims any reliance upon any statements or representations made by Lessor in connection therewith, and has received and approved theterms of any purchase orders, warranties, licenses or agreements with respect to the Equipment. During the Lease Term, Lessee shall be entitled, on a non-exclusive basis, to enforce any applicable Vendor warranties, to the extent permitted thereby and by applicable law. Lessor assigns such warranties to Lessee,to the extent permitted thereby, and agrees to cooperate with Lessee, at Lessee’s sole cost and expense, in making any reasonable claim against such Vendorarising from any defect in the Equipment. 4.Use; Maintenance; Location; Inspection. Lessee shall: (i) use, operate, protect and maintain the Equipment (a) in good operating order, repair, conditionand appearance, in the same condition as when received, ordinary wear and tear excepted, (b) consistent with prudent industry practice (but in no event lessthan the extent to which Lessee maintains other similar equipment in the prudent management of its assets and properties), and (c) in compliance with allapplicable insurance policies, laws, ordinances, rules, regulations and manufacturer's recommended maintenance and repair procedures, and (ii) maintaincomprehensive books and records regarding the use, operation, maintenance and repair of the Equipment. The Equipment shall be used only within the 48contiguous United States or Hawaii, solely for business purposes (and not for any consumer, personal, home, or family purpose), and shall not beabandoned or used for any unlawful purpose. Lessee shall not discontinue use of any Equipment except for normal Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. maintenance nor, through modifications, alterations or otherwise, impair in any material respect the current or residual value, useful life, utility or originallyintended function of any Equipment without Lessor's prior consent. Any replacement or substitution of parts, improvements, upgrades, or additions to theEquipment, including without limitation lenses financed as part of the Equipment (but excluding therefrom any such lenses not so financed), that arenecessary to operate the Equipment during the Lease Term or upon termination or expiration of the Lease Term (unless Lessor consents otherwise inwriting) shall become the property of Lessor and subject to the Lease, except that if no Event of Default exists, Lessee may at its expense removeimprovements or additions provided by Lessee that can be readily removed without impairing the value, function or remaining useful life of the Equipment.If requested by Lessor, Lessee shall cause Equipment to be plainly marked to disclose Lessor's ownership, as specified by Lessor. Except as provided in (x)Section 13 with respect to a permitted assignment or sublease, or (y) Section 10 with respect to a permitted license, Lessee shall not change the location ofany Equipment specified in its Schedule without Lessor's prior written consent. Lessor shall have the right to enter any premises where Equipment is locatedand inspect it (together with related books and records) at any reasonable time. 5.Loss and Damage. Lessee assumes all risk of (and shall promptly notify Lessor in writing of any occurrence of) any damage to or loss, theft, confiscationor destruction of any Equipment from any cause whatsoever (a “Casualty”) from the date shipped or otherwise made available to Lessee and continuinguntil it is returned to and accepted by Lessor in the condition required by the Lease, including Section 8 of this Agreement. If any Equipment suffers aCasualty which Lessor and Lessee reasonably determine is reparable, Lessee shall at its expense promptly place the same in good repair, condition or workingorder. If any Equipment suffers a Casualty which Lessor and Lessee reasonably determine is beyond repair or materially impairs its residual value (a “TotalLoss”), Lessee shall at Lessor’s option either (a) promptly replace such Equipment with a similar item reasonably acceptable to Lessor having an equivalentvalue, utility and remaining useful life of such Equipment, whereupon such replacement items shall constitute Equipment for all purposes the Lease, or (b)on the Rent payment date following such Casualty (or, if none, within 30 days) pay Lessor the Stipulated Loss Value for such Equipment, together with allRent scheduled for payment on such date, and all accrued interest, late charges and other amounts then due and owing under the Lease. Upon suchpayment following a Total Loss, the Lease with respect to the Equipment suffering a Total Loss shall terminate, and Lessor shall transfer all of its right, titleand interest in such Equipment, free from all liens and encumbrances created by Lessor, but otherwise on an “AS-IS, WHERE-IS,” quitclaim basis. If lessthan all Equipment under a Schedule suffers a Total Loss, (i) the Stipulated Loss Value with respect to any such item of Equipment shall be calculated byreference to the allocable portion of “Lessor’s Cost” provided in the applicable Schedule, Rent or other amount related to such item, as reasonablydetermined by Lessor, and (ii) the remaining Rent under the Schedule shall be proportionately reduced as reasonably calculated by Lessor upon Lessor’sreceipt of the payments described above. 6.Insurance. Lessee, at its own expense, shall keep each item of Equipment insured against all risks for its replacement value, and in no event less than itsStipulated Loss Value, and shall maintain general liability insurance against such risks and for such amounts as Lessor may require. All such insurance shall(a) be with companies rated “A-” or better by A.M. Best Company, in such form as Lessor shall approve, (b) specify Lessor and Lessee as insureds andprovide that it may not be canceled or altered in any way that would affect the interest of Lessor without at least 30 days' prior written notice to Lessor (10days' in the case of nonpayment of premium), (c) be primary, without right of contribution from any other insurance carried by Lessor and contain waiverof subrogation and “breach of warranty” provisions satisfactory to Lessor, (d) provide that all amounts payable by reason of loss or damage to Equipmentshall be payable solely to Lessor, unless Lessor otherwise agrees, and (e) contain such other endorsements as Lessor may reasonably require. Lessee shallprovide Lessor with evidence satisfactory to Lessor of the required insurance upon the execution of any Schedule and promptly upon any renewal of anyrequired policy. 7.Indemnities; Taxes. Lessee's indemnity and reimbursement obligations set forth below shall survive the cancellation, termination or expiration of any Leaseor this Agreement.(a) General Indemnity. Lessee shall indemnify, on an after-tax basis, defend and hold harmless Lessor and its Affiliates and their respective officers, directors,employees, agents acting in their capacities as representatives of Lessor or such Affiliates (“Indemnified Persons”) against all claims, liabilities, losses andexpenses whatsoever (except those determined by final decision of a court of competent jurisdiction to have been directly and primarily caused by theIndemnified Person's gross negligence or willful misconduct), including court costs and reasonable attorneys' fees and expenses (together, “Attorneys’Fees”), in any way relating to or arising out of the Equipment or any Lease at any time, or the ordering, acquisition, rejection, installation, possession,maintenance, use, ownership, condition, destruction or return of the Equipment, including any claims based in negligence, strict liability in tort,environmental liability or infringement.(b) General Tax Indemnity. Lessee shall pay or reimburse Lessor, and indemnify, defend and hold Lessor harmless from, on an after-tax basis, all taxes,assessments, fees and other governmental charges paid or required to be paid by Lessor or Lessee in any way arising out of or related to the Equipment orany Lease before or during the Lease Term or after the Lease Term following an Event of Default (but only to the extent that the Equipment remains in thepossession of the Lessee after such Event of Default), including foreign, Federal, state, county and municipal fees, taxes and assessments, and property,value-added, sales, use, gross receipts, excise, stamp and documentary taxes, and all related penalties, fines, additions to tax and interest charges(“Impositions”), excluding only Federal and state taxes based on Lessor's net income and overall gross income and any franchise taxes and taxes imposed inlieu of such taxes, unless such taxes are in lieu of any Imposition Lessee would otherwise be required to pay hereunder. Lessee shall timely pay anyImposition for which Lessee is primarily responsible under law and any other Imposition not payable or not paid by Lessor, Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. but Lessee shall have no obligation to pay any Imposition being contested in good faith and by appropriate legal proceedings, the nonpayment of which doesnot, in the good faith and reasonable opinion of Lessor, result in a material risk of adverse effect on the title, property, use, disposition or other rights ofLessor with respect to the Equipment. Upon Lessor's request, Lessee shall furnish proof of its payment of any Imposition.(c) Income Tax Indemnity. Lessor shall be treated for federal and state income tax purposes as the owner of the Equipment and shall be entitled to take intoaccount certain Tax Benefits in computing its income tax liabilities in connection with any Lease. If Lessor suffers a Tax Loss that would not have been butfor an act or failure to act by Lessee, or Lessee’s breach in any material respect of any representation, warranty or agreement in any Lease then, uponLessor's demand and at Lessor's option, either: (i) all further Rent under the Lease, if any, shall be increased by an amount, or (ii) Lessee shall pay Lessor alump sum amount, which in either case shall maintain the net economic after-tax yield, cash-flow and rate of return Lessor originally anticipated, based onLessor’s federal and state corporate income tax rate in effect on the Acceptance Date of the applicable Schedule and other assumptions originally used byLessor in evaluating the transaction (so long as such assumptions were reasonable when made and consistently applied when evaluating all similarly situatedtransactions) and setting the Rent therefor and other terms thereof. Lessee shall also pay Lessor on demand all interest, costs (including Attorneys’ Fees),penalties and additions to tax associated with the Tax Loss. Lessor shall have no obligation to contest any Tax Loss. All references to “Lessor” in this Section7(c) shall include (A) Lessor's successors and Assignees, and (B) each member of the affiliated group of corporations, as defined in Section 1504(a) of theCode, of which Lessor or such successor or Assignee is at any time a member. As used herein: “Tax Benefits” means all items of income, deduction(including depreciation consistent with Lessee's representation in the applicable Schedule), credit, gain or loss relating to ownership of the Equipment as areprovided to owners of similar equipment under the Code and applicable state tax laws in effect on the Acceptance Date of such Schedule; and “Tax Loss”means and will be deemed to be suffered if Lessor loses, is delayed in claiming, is required to recapture, is not allowed or may not claim all or any portion ofany Tax Benefits, provided, however, that Lessee shall be under no obligation to make any payments with respect to a Tax Loss to the extent that it (1) iscaused by Lessor's failure to have sufficient taxable income to benefit from any Tax Benefits or its failure to timely and properly claim the Tax Benefits, or(2) results from any disposition of Equipment by Lessor other than a disposition of Equipment following an Event of Default. 8.Return. Upon any cancellation, termination or expiration of any Lease (after the occurrence of an Event of Default or otherwise), Lessee shall, at itsexpense, cause the Equipment to be prepared and adequately protected for shipment by an authorized manufacturer’s representative and either surrender itto Lessor in place or, if instructed by Lessor, ship the Equipment to Lessor, freight and insurance pre-paid, to a place designated by Lessor within the 48contiguous United States, or in the case of Equipment located in the State of Hawaii, to a location on the West Coast of the continental United States within500 miles of the port of return, in the condition required under Section 4 hereof and under the applicable Schedule, able to be put into immediate serviceand to perform at manufacturer's rated levels (if any), together with all related manuals, documents and records, and, if applicable, reassembled by anauthorized manufacturer’s representative and immediately qualified for the manufacturer’s (or its authorized servicing representative’s) then available servicecontract or warranty. Upon its return, each item of Equipment shall have installed an operable lens, whether it is the lens originally financed and maintained asrequired hereunder or a lens of equal or greater value, utility and useful life. If requested by Lessor, Lessee shall, at its expense: (i) cause the Equipment toqualify for all applicable licenses or permits necessary for its operation and for its intended purpose, and to comply with all specifications and requirements ofapplicable federal, state and local laws, regulations and ordinances; (ii) provide safe, suitable storage, reasonably acceptable to Lessor, for the Equipment fora period not to exceed 90 days from the date of return; and (iii) cooperate with Lessor in attempting to remarket the Equipment, including display anddemonstration to prospective parties (but excluding any obligation to permit a private sale of the Equipment at any relevant location). If Lessee does notsurrender or return any item of Equipment to Lessor on the date or in the condition required under a Lease, in addition to all other available rights andremedies, at Lessor's election, such Equipment shall continue to be subject to all the terms and conditions of the Lease, with Rent and other chargescontinuing to accrue and be payable under the Lease with respect to such Equipment until it is so surrendered or returned to Lessor, except that Rent shallaccrue at 125% of the last Rent allocable to such item of Equipment (as reasonably calculated by Lessor) during the Lease Term, payable on demand. 9.Lessee Representations and Agreements. Lessee represents, warrants and agrees that: (a) Lessee operates and does business under the legal name listed inthe first paragraph of this Agreement, and is duly organized and validly existing in the form of business organization described above; (b) Lessee’s chiefexecutive office and notice address, taxpayer identification number and any organizational identification number is as described with its execution of thisAgreement below; (c) Lessee shall notify Lessor in writing at least 30 days before changing its legal name, state of organization, chief executive office locationor organizational identification number; (d) Lessee is duly organized and existing in good standing under the laws of the state described above and all otherjurisdictions where legally required in order to carry on its business, shall maintain its good standing in all such jurisdictions, and shall conduct its businessesand manage its properties in compliance with all applicable laws, rules or regulations binding on Lessee; (e) the execution, delivery and performance of thisAgreement, each Lease and Related Agreement to which it is a party has been duly authorized by Lessee, each of which are and will be binding on andenforceable against Lessee in accordance with their terms, and do not and will not contravene any other instrument or agreement binding on Lessee; and (f)there is no pending litigation, tax or environmental claim, proceeding, dispute or regulatory or enforcement action against Lessee or any of its Affiliates (andLessee shall promptly notify Lessor of any of the same that may hereafter arise) that may adversely affect any Equipment or Lessee's financial condition orimpair its ability to perform its Obligations. Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.Title; Property; Additional Security. (a) Title; Personal Property. Each Lease is and is intended to be a lease of personal property for all purposes. Lesseedoes not acquire any right, title or interest in or to any Equipment, except the right to use and possess the same under the terms of the applicable Lease.Except as specifically provided herein or in the applicable Schedule, Lessee has no right or option to extend the Lease Term of a Lease or purchase anyEquipment. Lessee assigns all of its rights (but none of its obligations) to Lessor under any purchase orders, invoices or other contracts of sale with respectto the Equipment, and conveys whatever right, title and interest it may now or hereafter have in any Equipment to Lessor. Lessor shall be the sole owner ofEquipment free and clear of all liens or encumbrances, other than Lessee’s rights under the Lease. Lessee will not create or permit to exist any lien, securityinterest, charge or encumbrance on any Equipment except those created by Lessor. The Equipment shall remain personal property at all times,notwithstanding the manner in which it may be affixed to realty. Lessee shall obtain and record such instruments and take such steps as may be necessary to(i) prevent any creditor, landlord, mortgagee or other entity (other than Lessor) from having any lien, charge, security interest or encumbrance on anyEquipment, and (ii) ensure Lessor's right of access to and removal of Equipment in accordance with the Lease. Notwithstanding the foregoing, Lessee shallhave the right to license the Equipment to its Affiliates, and shall have the right to allow licensees to use the Equipment on third-party premises, providedthat such license agreements are in form and substance reasonably acceptable to Lessor, and Lessee obtains from the owners and landlords of such premisesa consent to installation and waiver in form and substance reasonably acceptable to Lessor.(b) Additional Security. To secure the punctual payment and performance of Lessee’s Obligations under each Lease and, as a separate grant of security, tosecure the payment and performance of all other Obligations owing to Lessor, Lessee grants to Lessor a continuing security interest in the Collateral, provided, however, that if there then exists no Event of Default, Lessor’s security interest in Collateral subject to a Lease shall terminate upon the paymentand performance of all Obligations of Lessee under the applicable Lease. Notwithstanding the grant of a security interest in any Collateral, Lessee shall haveno right to sell, lease, rent, dispose or surrender possession, use or operation of any Equipment to any third parties without the prior written consent ofLessor except as permitted by Sections 10(a) or 13 hereof. The foregoing grant of a security interest shall not of itself be a factor in determining whether anyLease creates a lease or security interest in the Equipment under applicable provisions of the UCC. 11.Default. Each of the following (a “Default”) shall, with the giving of any notice or passage of any time period specified, constitute an "Event of Default"hereunder and under all Leases: (1) Lessee fails to pay any Rent or other amount owing under any Lease within 10 days of its due date; (2) Lessee fails tomaintain insurance as required herein, or sells, leases, subleases, assigns, conveys, or suffers to exist any lien, charge, security interest or encumbranceon, any Equipment without Lessor's prior consent unless the sublease or assignment is permitted by Sections 10(a) or 13 hereof, or any Equipment issubjected to levy, seizure or attachment; (3) Lessee fails to perform or comply with any other covenant or obligation under any Lease or Related Agreementand, if curable, such failure continues for 30 days after written notice thereof by Lessor to Lessee; provided that such 30-day period may be extended withLessor’s consent if Lessee is diligently pursuing cure of such default and completes such cure within 60 days after written notice thereof by Lessor toLessee; (4) any representation, warranty or other written statement made to Lessor by Lessee in connection with this Agreement, any Lease, RelatedAgreement or other Obligation, or by any Guarantor pursuant to any Guaranty (including financial statements) proves to have been incorrect in any materialrespect when made; (5) Lessee (w) enters into any merger or consolidation with, or sells or transfers all or any substantial portion of its assets to, or entersinto any partnership or joint venture other than (A) in the ordinary course of business with, any entity, (B) in a transaction that would not otherwise resultin a default under any of the incorporated covenants described in Section 15 hereof, (x) dissolves, liquidates or ceases or suspends the conduct of business,or ceases to maintain its existence, in each case in a transaction that would not otherwise result in a default under any of the incorporated covenants describedin Section 15 hereof, or (y) enters into or suffers any transaction or series of transactions as a result of which Lessee is no longer directly or indirectlycontrolled by Parent; (6) Lessee undertakes any general assignment for the benefit of creditors or commences any voluntary case or proceeding for reliefunder the federal bankruptcy code, or any other law for the relief of debtors, or takes any action to authorize or implement any of the foregoing; (7) thefiling of any petition or application against Lessee under any law for the relief of debtors, including proceedings under the federal bankruptcy code, or for thesubjection of property of Lessee to the control of any court, receiver or agency for the benefit of creditors if such petition or application is consented to byLessee or is otherwise not dismissed within 60 days from the date of filing; (8) any default occurs under any other lease, credit or other agreement orinstrument to which Lessee and Lessor or any Affiliate of Lessor are now or hereafter party (each, an “Affiliate Obligation”); (9) any default by Lesseeoccurs under any other agreement or instrument to which Lessee is a party and under which there is outstanding, owing or committed an aggregate amountgreater than $100,000; (10) any attempted repudiation, breach or default of any Guaranty; or (11) the occurrence of any event described in clauses (4)through (9) above with reference to any Guarantor or any controlling shareholder, general partner or member of Lessee. Lessee shall promptly notifyLessor in writing of any Default or Event of Default. As reflected in Section 15 hereof, any cure or waiver of any default under an Affiliate Obligation thathas caused a default hereunder shall automatically cure, or result in a waiver of, such corresponding default hereunder. 12.Remedies. (a) Upon the occurrence of an Event of Default, Lessor may, in its discretion, exercise any one or more of the following remedies with respectto any or all Leases or Equipment: (1) cause Lessee to promptly discontinue use of or disable any Equipment, or to assemble and return any Equipment orother Collateral in accordance with the terms of the applicable Lease; (2) remedy such Event of Default or proceed by court action, either at law or in equity,to enforce performance of the applicable provisions of any Lease; (3) with or without court order, enter upon the premises where Equipment is located andrepossess and remove the same, all without liability for damage to such premises or by reason such entry or repossession, except for Lessor's grossnegligence or willful misconduct; (4) dispose of any Equipment in a public or private transaction, or hold, use, operate or keep idle the Equipment, free andclear of any rights or interests of Lessee therein; (5) recover direct, incidental, consequential and other damages for the breach of any Lease, including thepayment of all Rent and other amounts payable thereunder (discounted at the Discount Rate with respect to any Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. accelerated future amounts), and all costs and expenses incurred by Lessor in exercising its remedies or enforcing its rights thereunder (including allAttorneys’ Fees); (6) by written notice to Lessee, cancel any Lease and, as liquidated damages for the loss of Lessor's bargain and not as a penalty, declareimmediately due and payable an amount equal to the Stipulated Loss Value applicable to such Leases which Lessee acknowledges to be reasonable liquidateddamages in light of the anticipated harm to Lessor that might be caused by an Event of Default and the facts and circumstances existing as of the AcceptanceDate of each Lease; (7) without notice to Lessee, apply or set-off against any Obligations all security deposits, advance payments, proceeds of letters ofcredit, certificates of deposit (whether or not matured), securities or other additional collateral held by Lessor or otherwise credited by or due from Lessor toLessee; or (8) pursue all other remedies provided under the UCC or other applicable law. Upon the commencement of any voluntary case under the federalbankruptcy code concerning the Lessee, the remedy provided in clause (6) above shall be automatically exercised without the requirement of prior writtennotice to Lessee or of any other act or declaration by Lessor, and the liquidated damages described therein shall be immediately due and payable. Lessee shallpay interest equal to the lesser of (a) 12% per annum, or (b) the highest rate permitted by applicable law (“Default Rate”) on (i) any amount other thanRent owing under any Lease and not paid when due, (ii) Rent not paid within 30 days of its due date, and (iii) any amount required to be paid uponcancellation of any Lease under this Section 12. Any payments received by Lessor after an Event of Default, including proceeds of any disposition ofEquipment, shall be applied in the following order: (A) to all of Lessor's costs (including Attorneys’ Fees), charges and expenses incurred in taking,removing, holding, repairing and selling or leasing the Equipment or other Collateral or enforcing the provisions hereof; (B) to the extent not previously paidby Lessee, to pay Lessor for any damages then remaining unpaid hereunder; (C) to reimburse Lessee for any sums previously paid by Lessee as damageshereunder; and (D) the balance, if any, shall be retained by Lessor.(b) No remedy referred to in this Section 12 shall be exclusive, each shall be cumulative (but not duplicative of recovery of any Obligation) and in addition toany other remedy referred to above or otherwise available to Lessor at law or in equity, and all such remedies shall survive the cancellation of any Lease.Lessor’s exercise or partial exercise of, or failure to exercise, any remedy shall not restrict Lessor from further exercise of that remedy or any other availableremedy. No extension of time for payment or performance of any Obligation shall operate to release, discharge, modify, change or affect the original liabilityof Lessee for any Obligations, either in whole or in part. Lessor may proceed against any Collateral or Guarantor, or may proceed contemporaneously or inthe first instance against Lessee, in such order and at such times following an Event of Default as Lessor determines in its sole discretion. In any action torepossess any Equipment or other Collateral, Lessee waives any bonds and any surety or security required by any applicable laws as an incident to suchrepossession. Notices of Lessor's intention to accelerate, acceleration, nonpayment, presentment, protest, dishonor, or any other notice whatsoever (otherthan notices of Default specifically required of Lessor pursuant to Section 11 above) are waived by Lessee and any Guarantor. Any notice given by Lessor ofany disposition of Collateral or other intended action of Lessor which is given in accordance with this Agreement at least 5 business days prior to such action,shall constitute fair and reasonable notice of such action. (c) Lessor agrees to honor the right given by Lessee to CIDM in Section 9(c)(i) of the CIDM Agreement, after an Event of Default hereunder, of firstnegotiation and last refusal to acquire the Equipment prior to its sale to any other party. 13. Assignment; Subleases. Lessor and any Assignee may assign or transfer any of Lessor's interests in any Lease or Equipment without notice to Lessee,subject, however, to the rights of Lessee (and any permitted assignees, licensees or sublessees) to use and possess the Equipment under such Lease for solong as no Event of Default has occurred and is continuing. Lessee agrees that: (i) the rights of any Assignee shall not be affected by any breach or default ofLessor or any prior Assignee, and Lessee shall not assert any defense, rights of set-off or counterclaim against any Assignee, nor hold or attempt to holdsuch Assignee liable for any such breach or default; (ii) no Assignee shall be required to assume any obligations of Lessor under any Lease except theobligation of non-interference in Section 1 and the recognition of CIDM’s rights to acquire the Equipment described in Section 12(c) above, (iii) any Assigneeexpressly assuming the obligations of Lessor shall thereupon be responsible for Lessor's duties under the applicable Lease accruing after assignment andLessor shall be released from such duties, and (iv) Lessee shall execute and deliver upon request such additional documents, instruments and assurances asmay be reasonably necessary in order to (y) acknowledge and confirm all of the terms and conditions of any Lease and Lessor's or such Assignee’s rightswith respect thereto, and Lessee’s compliance with all of the terms and provisions thereof, and (z) preserve, protect and perfect Lessor’s or Assignee’s right,title or interest hereunder and in any Equipment, including, without limitation, such UCC financing statements or amendments, control agreements,corporate or member resolutions, votes, notices of assignment of interests, and confirmations of Lessee’s obligations and representations and warranties withrespect thereto as of the dates requested. Lessor may disclose to any potential Assignee any information regarding Lessee, any Guarantor and their Affiliates;provided that any information provided to Lessor by Lessee under the terms of any Confidentiality Agreement will not be disclosed except pursuant to aconfidentiality agreement between Lessee and the intended recipient of such information from Lessor containing terms and conditions substantially similar tothose set forth in the Confidentiality Agreement under which such information was disclosed by Lessee to Lessor. Lessee shall not sell, pledge, transfer orhypothecate in any way dispose of any of its rights or obligations under any Lease without Lessor's prior written consent. Any purported sale, pledge,transfer, hypothecation, or disposal made without Lessor’s prior written consent shall be null and void, except in connection with (1) licenses permittedunder Section 10 hereof, or (2) assignments and subleases permitted under this Section 13. Lessee may assign the Equipment or its interest under aSchedule only if: (i) Lessee provides Lessor with notice of such proposed assignment and financial information as may be requested on the assignee at least60 days prior to the proposed assignment date; (ii) the assignee is an entity that is a direct or indirect wholly-owned subsidiary of one of the Guarantors; (iii)Lessor approves the identity and location of the assignee; (iv) the assignee assumes all obligations of Lessee hereunder and under the appropriate Schedule(and Lessee’s obligations hereunder shall correspondingly be terminated to the extent of the assignment); and (v) each existing Guaranty is amended or newguaranties Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. are entered into by each Guarantor to include a guaranty of payment and performance of all obligations of the assignee. Lessee may sublease (which for thesepurposes shall not include a license permitted under Section 10 or an assignment permitted under this Section 13) the Equipment or its interest under aSchedule only if: (i) Lessee provides Lessor with notice of such proposed sublease and financial information as may be requested concerning the sublessee atleast 60 days prior to the proposed sublease commencement; (ii) the sublessee is an entity that is a direct or indirect wholly-owned subsidiary of one of theGuarantors; (iii) Lessor approves the identity and location of the sublessee; (iv) any permitted sublease shall be in a form satisfactory in form and substanceto Lessor and shall provide that the sublessee's rights are subject and subordinate to the rights of Lessor; (v) Lessee shall remain liable at all times for thepayment and performance of the terms and conditions of this Lease with respect to any subleased Equipment ; (iv) the sublease chattel paper shall becollaterally assigned to Lessor as additional security, and if requested, Lessee shall provide the original sublease chattel paper to Lessor to perfect Lessor’ssecurity interest therein ; and (iv) each Guaranty is amended or new guaranties are entered into by each Guarantor to include a guaranty of payment andperformance of all obligations of the sublessee. 14.Financial and Other Data. (a) During any Lease Term, Consolidated Entertainment, Inc. and Reading International Inc., each a Guarantor hereunder,shall maintain books and records in accordance with generally accepted accounting principles consistently applied (“GAAP”) and prudent businesspractice. Lessee shall promptly provide Lessor, within 120 days after the close of each fiscal year, and, upon Lessor's request, within 45 days of the end ofeach quarter and each fiscal year, as applicable, a copy of (i) company-prepared management reports for Lessee and Consolidated Amusement Holdings,Inc., (ii) quarterly financial statements for Consolidated Entertainment, Inc. and Reading International Inc. as requested by Lessor, which financial statementsmust be prepared in accordance with GAAP, and (iii) within 180 days after the close of each fiscal year, annual statements for Consolidated Entertainment,Inc. and Reading International Inc. audited by independent certified public accountants; provided, however, that for so long as any such Guarantor is legallyand timely filing annual and quarterly financial reports on Forms 10-K and 10-Q with the Securities and Exchange Commission which are readily available tothe public, the filing of such reports shall satisfy the foregoing financial statement reporting requirements for such entity; and (iii) furnish Lessor all otherfinancial information and reports and such other information as Lessor may reasonably request concerning Lessee, any Guarantor and their respectiveaffairs, or the Equipment or its condition, location, use or operation.(b) Lessee represents and warrants that all written information and financial statements at any time furnished by or on behalf of Lessee or any Guarantor areaccurate in all material respects and in the case of financial statements reasonably reflect as of their respective dates, results of operations and the financialcondition of Lessee, such Guarantor or other entity they purport to cover. Credit and other information regarding Lessee, any Guarantor or their Affiliates,any Lease or Equipment may be disclosed by Lessor to its Affiliates, agents and potential Assignees, notwithstanding anything contained in any agreementthat may purport to limit or prohibit such disclosure, subject, however, to such assignees’ agreement to hold all such credit and other information on aconfidential basis consistent with the confidentiality obligation between Lessor and Lessee. 15. Financial Covenants All covenants of Consolidated Entertainment, Inc. and its subsidiaries on a consolidated basis that are based upon a specified level or ratio relating to assets,liabilities, indebtedness, rentals, net worth, cash flow, earnings, profitability, or any other accounting-based measurement or test, now or hereafter existing(collectively, the “Additional Covenants”), contained in that certain Credit Agreement dated as of October __, 2012, as amended from time to time, amongConsolidated Entertainment, Inc. as Borrower, other parties as Credit Parties and certain Lenders, or in any replacement credit facility between Lessee andanother financial institution (a “Bank Facility”), are hereby incorporated into and made a part of this Agreement (with such adjustments to defined terms asmay be necessary to assure consistency), as such Additional Covenants may be amended from time to time under such Bank Facility; provided, however,that the Additional Covenants shall be deemed permanently incorporated into the Agreement, in their then existing form without further modification oramendment except as may be agreed to in writing by Lessee and Lessor, upon and notwithstanding the cancellation or termination of a Bank Facility by eitherLessee or the lender(s); provided further that any modification, amendment or waiver of any breach (or anticipated breach) of any Additional Covenant (byreason of amendment, forbearance or otherwise) shall not constitute a modification, amendment or waiver of the corresponding default (or anticipateddefault) of such Additional Covenant under this Agreement unless specifically agreed to in writing by Lessor. Notwithstanding the foregoing, if a replacement credit facility is with Bank of America, N.A. or one of its Affiliates as a lender, any modification, amendmentor waiver of any breach (or anticipated breach) of any Additional Covenant (by reason of amendment, forbearance or otherwise) under such replacementcredit facility shall be binding on Lessor. 16.DefinitionsAs used herein, the following terms shall have the meanings assigned or referred to them below: Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. “Affiliate” means any entity controlling, controlled by or under common control with the referent entity; “control” includes (i) the ownership of 25% ormore of the voting stock or other ownership interest of any entity and (ii) the status of a general partner of a partnership or managing member of a limitedliability company.“Assignee” means any assignee or transferee of all or any of Lessor’s right, title and interest in any Lease or any Equipment.“CIDM” means ACCESS DIGITAL CINEMA PHASE 2, CORP, the counterparty to the Master Digital Cinema and Administration Agreementdescribed below, and its successors and assigns“Code” means the Internal Revenue Code of 1986, as amended.“Collateral” means and includes all of Lessee's right, title and interest in and to all Equipment, together with: (i) all parts, attachments, accessories andaccessions to, substitutions and replacements for, each item of Equipment; (ii) all accounts, chattel paper, and general intangibles arising from or related toany sale, lease, rental or other disposition of any Equipment to third parties, or otherwise resulting from the possession, use or operation of any Equipmentby third parties, including instruments, investment property, deposit accounts, letter of credit rights, and supporting obligations arising thereunder or inconnection therewith, excluding however, (a) accounts or other amounts generated by intercompany rentals of the Collateral to Lessee’s Affiliates; and (b)Usage Payments and Virtual Print Fees payable to Lessee under a Master Digital Cinema and Administrative Agreement dated as of September __, 2012 (asamended, restated, supplemented or otherwise modified from to time, the “Digital Cinema Agreement”) generated in the ordinary course of Lessee’s or apermitted licensee’s use of the Collateral on third party sites, (iii) all insurance, warranty and other claims against third parties with respect to anyEquipment; (iv) all software and other intellectual property rights used in connection therewith; (v) proceeds of all of the foregoing, including insuranceproceeds and any proceeds in the form of goods, accounts, chattel paper, documents, instruments, general intangibles, investment property, depositaccounts, letter of credit rights and supporting obligations; and (vi) all books and records regarding the foregoing, in each case, now existing or hereafterarising. “Discount Rate” means the 1-year Treasury Constant Maturity rate as published in the Selected Interest Rates table of the Federal Reserve statisticalrelease H.15(519) for the week ending immediately prior to the original Acceptance Date of a Lease (or if such rate is no longer determined or published, asuccessor or alternate rate selected by Lessor).“Equipment” means the items, units and groups of personal property, licensed materials and fixtures described in each Schedule, together with allreplacements, parts, additions, accessories and substitutions therefor; and “item of Equipment” means a “commercial unit” as defined and described inArticle 2A of the UCC, and includes each functionally integrated and separately marketable group or unit of Equipment.“Guarantor” means any guarantor, surety, endorser, general partner or co-lessee of Lessee, or other party liable in any capacity, or providing additionalcollateral security for, the payment or performance of any Obligations of Lessee.“Guaranty” means any guaranty, surety instrument, security, indemnity, “keep-well” agreement or other instrument or arrangement from or with anyGuarantor."Obligations" means and includes all obligations of Lessee owing to Lessor under this Agreement, any Lease or Related Agreement, or of any Guarantorowing to Lessor under any Guaranty, together with all other obligations, indebtedness and liabilities of Lessee to Lessor under any other financings, leases,loans, notes, progress payment agreements, guaranties or other agreements, of every kind and description, now existing or hereafter arising, direct orindirect, joint or several, absolute or contingent, whether for payment or performance, regardless of how the same may arise or by what instrument,agreement or book account they may be evidenced, including without limitation, any such obligations, indebtedness and liabilities of Lessee to others whichmay be obtained by Lessor through purchase, negotiation, discount, transfer, assignment or otherwise.“Parent” means Reading International Inc.“Related Agreement” means and includes any Guaranty and any approval letter or progress payment, assignment, security or other agreement oraddendum related to this Agreement, any Lease or any Collateral to which Lessee or any Guarantor is a party.“Stipulated Loss Value” means, as of any particular date, the product obtained by multiplying the “Lessor’s Cost” specified in the Schedule by thepercentage set forth in the “Schedule of Stipulated Loss Values” attached to the Schedule, specified opposite the Rent installment number (or date)becoming due immediately after the Casualty, Event of Default or other event requiring the calculation of Stipulated Loss Value. If there is no Schedule ofStipulated Loss Values attached to a Schedule, or if the Schedule of Stipulated Loss Values does not otherwise cover a Rent installment number (or date),Stipulated Loss Value on any Rent payment date shall equal the net present value of: (a) all unpaid Rent for the remainder of the Lease Term, plus (b) theamount of any purchase obligation, fixed price purchase option, or TRAC amount payment or, if there is no such obligation, option or payment, then thefair market value of the Equipment as of the end of the Lease Term, as estimated by Lessor in its sole discretion, all discounted to present value at theDiscount Rate.“UCC” means the Uniform Commercial Code in effect in the state specified in Section 17(f) of this Agreement. Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. “Vendor” means the manufacturer, distributor, supplier or other seller (whether or not a merchant or dealer) of the Equipment and any sales representativeor agent thereof. 17.Miscellaneous. (a) At Lessor's request, Lessee shall execute, deliver, file and record such financing statements and other documents as Lessor deemsnecessary to protect Lessor's interest in the Equipment and to effectuate the purposes of any Lease or Related Agreement, and Lessee authorizes, andirrevocably appoints Lessor as its agent and attorney-in-fact, with right of substitution and coupled with an interest, to (i) execute, deliver, file, and recordany such item, and to take such action for Lessee and in Lessee's name, place and stead, (ii) make minor corrections to manifest errors in factual data in anySchedule and any addenda, attachments, exhibits and riders thereto, and (iii) after the occurrence of an Event of Default, enforce claims relating to theEquipment against insurers, Vendors or other persons, and to make, adjust, compromise, settle and receive payment under such claims; but without anyobligation to do so.(b)Federal law requires all financial institutions to obtain, verify and record information that identifies each entity that obtains a loan or other financialaccommodation. The first time Lessee requests a financial accommodation from Lessor, the Lessor may ask for Lessee’s (or any Guarantor’s) legal name,address, tax ID number and other identifying information. Lessee shall promptly provide copies of business licenses or other documents evidencing theexistence and good standing of Lessee or any Guarantor requested by Lessor.(c) Time is of the essence in the payment and performance of all of Lessee’s Obligations under any Lease or Related Agreement. This Agreement, and eachLease or Related Agreement may be executed in one or more counterparts, each of which shall constitute one and the same agreement. All demands,notices, requests, consents, waivers and other communications concerning this Agreement and any Lease or Related Agreement shall be in writing and shallbe deemed to have been duly given when received, personally delivered or three business days after being deposited in the mail, first class postage prepaid, orthe business day after delivery to an express carrier, charges prepaid, addressed to each party at the address provided herein, or at such other address asmay hereafter be furnished in writing by such party to the other.(d) Except as otherwise agreed between Lessee and Lessor in writing, Lessee shall reimburse Lessor upon demand for reasonable and documented costs andexpenses incurred by Lessor in connection with the execution and delivery of this Agreement, any Lease or Related Agreement. Lessee shall reimburseLessor on demand for all reasonable and documented costs (including Attorneys’ Fees) incurred by Lessor in connection with Lessee’s exercise of anypurchase or extension option under any Lease, or any amendment or waiver of the terms of this Agreement or any Lease or Related Agreement requestedby Lessee.(e) Any provisions of this Agreement or any Lease or Related Agreement which are unenforceable in any jurisdiction shall, as to such jurisdiction, beineffective to the extent of such unenforceability without invalidating the remaining provisions thereof, and any such unenforceability shall not renderunenforceable such provisions in any other jurisdiction. Any requirement for the execution and delivery of any document, instrument or notice may besatisfied, in Lessor’s discretion, by authentication as a record within the meaning of, and to the extent permitted by, Article 9 of the UCC.(f) THIS AGREEMENT AND ANY LEASE OR RELATED AGREEMENT, AND THE LEGAL RELATIONS OF THE PARTIES THERETO,SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODEISLAND, WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES; THE PARTIES CONSENT AND SUBMIT TO THE JURISDICTION OFTHE STATE AND FEDERAL COURTS OF SUCH STATE FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDINGARISING THEREFROM, AND EXPRESSLY WAIVE ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS. THEPARTIES EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT THERETO. IN NOEVENT SHALL LESSOR HAVE ANY LIABILITY TO LESSEE FOR INCIDENTAL, GENERAL, CONSEQUENTIAL, PUNITIVE OREXEMPLARY DAMAGES. Any cause of action by Lessee against Lessor relating to this Agreement or any Lease or Related Agreement shall be broughtwithin one year after any such cause of action first arises, and Lessee hereby waives the benefit of any longer period provided by statute.(g)EACH LEASE, TOGETHER WITH THIS AGREEMENT AND ANY RELATED AGREEMENTS, (i) CONSTITUTES THE FINAL ANDENTIRE AGREEMENT BETWEEN THE PARTIES SUPERSEDING ALL CONFLICTING TERMS OR PROVISIONS OF ANY PRIORPROPOSALS, APPROVAL LETTERS, TERM SHEETS OR OTHER AGREEMENTS OR UNDERSTANDINGS BETWEEN THE PARTIES, (ii)MAY NOT BE CONTRADICTED BY EVIDENCE OF (y) ANY PRIOR WRITTEN OR ORAL AGREEMENTS OR UNDERSTANDINGS, OR (z)ANY CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS BETWEEN THE PARTIES; and (iii) MAYNOT BE AMENDED, NOR MAY ANY RIGHTS THEREUNDER BE WAIVED, EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY THEPARTY CHARGED WITH SUCH AMENDMENT OR WAIVER. Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In Witness Whereof, Lessor and Lessee have executed this Agreement as of the date first above written. BANC OF AMERICA LEASING & CAPITAL, LLC (Lessor)CONSOLIDATED CINEMA SERVICES, LLC (Lessee)By: /s/ Gail C. BeallPrint Name: Gail C Beall Title: Vice President By: /s/ Andrzej MatyczynskiPrint Name: Andrzej MatyczynskiTitle: Chief Financial OfficerTaxpayer ID # : 95-3885184Org. ID # (if any) F0229472011-7Chief Executive Office:6100 Center Drive, Suite 900___Los Angeles, CA 90045 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Banc of America Leasing & Capital, LLC2059 Northlake Pkwy, 3rd FloorTucker, GA 30084Tel: 770-270-8400October 31, 2012Andrzej Matyczynski, CFOReading International, Inc.6100 Center Drive, Suite 900Los Angeles, CA 90045 Re: Master Lease Agreement No. 24874-90000 dated as of October 26, 2012 between Banc of America Leasing &Capital, LLC as "I.essor" and Consolidated Cinema Services. LLC as "Lessee" (the "Master Lease")Dear Andrzej:We refer to the captioned Master Lease executed by the parties as of October 26, 2012.In consideration of the mutual agreement of the parties and other good and valuable consideration, the receipt of which is herebyacknowledged, BALC and CCS hereby agree to amend the last sentence of Section 10(a) by striking it in its entirety and substituting thefollowing:Notwithstanding the foregoing (1) Lessee shall have the right to license the Equipment to its Affiliates, and shall have the right toallow licensees to use the Equipment on third-party premises, provided that such license agreements are in form and substancereasonably acceptable to Lessor, and Lessee obtains from the owners and landlords or such premises a consent to installation andwaiver in form and substance reasonably acceptable to Lessor and (2) the Lessee's obligation to Lessor to deliver a consent toinstallation and waiver or otherwise to ensure access to and removal of Equipment shall be limited to Lessee using good faith,commercially reasonable efforts to obtain by December 31, 2012 consents to installation and waiver, or other landlord consentsand waivers, for locations where Equipment will be located on premises leased by Lessee or its Affiliates in form and substancereasonably satisfactory to Lessor (and it shall not be a condition precedent to any funding, license or installation that any suchconsent and\or waiver be obtained).Except as amended hereby, the Master Lease shall remain in full force and effect and is in all respects hereby ratified and affirmed.Capitalized terms not otherwise defined herein shall have the meanings ascribed them in the Master Lease.Sincerely,/s/ Gail C. BeallGail C. BeallVice President cc: William Sellier, SVPConsolidated Cinema Services, LLC hereby agrees to the amendment to the Master Lease set forth herein:CONSOLIDATED CINEMA SERVICES LLCBy: /S/ Andrzej MatyczynskiPrinted Name: Andrzej MatyczynskiTitle: Chief Financial OfficerDate: October 31, 2012Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 21 READING INTERNATIONAL, INC. – LIST OF SUBSIDIARIESSubsidiary (Jurisdiction of Incorporation)A.C.N. 143 633 096 Pty Ltd (Australia)AHGP, Inc. (Delaware)AHLP, Inc. (Delaware)Angelika Film Center Mosaic, LLC (Nevada)Angelika Film Centers (Dallas), Inc. (Texas)Angelika Film Centers (Plano) LP (Nevada)Angelika Plano Beverage LLC (Texas)Australia Country Cinemas Pty Ltd (Australia)Australian Equipment Supply Pty Ltd (Australia)Bayou Cinemas LP (Delaware)Bogart Holdings Ltd (New Zealand)Burwood Developments Pty Ltd (Australia)Carmel Theatres, LLC (Nevada)Citadel Agriculture, Inc. (California)Citadel Cinemas, Inc. (Nevada)Citadel Realty, Inc. (Nevada)City Cinemas, LLC (Nevada)Consolidated Amusement Holdings, LLC (Nevada)Consolidated Cinema Services, LLC (Nevada)Consolidated Entertainment, LLC (Nevada)Copenhagen Courtenay Central Ltd (New Zealand)Courtenay Car Park Ltd (New Zealand)Craig Corporation (Nevada)Darnelle Enterprises Ltd (New Zealand)Dimension Specialty, Inc. (Delaware)Epping Cinemas Pty Ltd (Australia)Gaslamp Theatres, LLC (Nevada)Hope Street Hospitality, LLC (Delaware)Hotel Newmarket Pty Ltd (Australia)Kaahumanu Cinemas, LLC (Nevada)Kahala Cinema Company LLC (Nevada)Liberty Live, LLC (Nevada)Liberty Theaters, LLC (Nevada)Liberty Theatricals, LLC (Nevada)Minetta Live, LLC (Nevada)Movieland Cinemas (NZ) Ltd (New Zealand)Newmarket Properties #3 Pty Ltd (Australia)Newmarket Properties No. 2 Pty Ltd (Australia)Newmarket Properties Pty Ltd (Australia)Orpheum Live, LLC (Nevada)Queenstown Land Holdings Ltd (New Zealand)Reading Arthouse Distribution Ltd (New Zealand)Reading Arthouse Ltd (New Zealand)Reading Auburn Pty Ltd (Australia)Reading Australia Leasing (E&R) Pty Ltd (Australia)Reading Belmont Pty Ltd (Australia)Reading Capital Corporation (Delaware)Reading Center Development Corporation (Pennsylvania)Reading Charlestown Pty Ltd (Australia)Reading Cinemas Courtenay Central Ltd (New Zealand) Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Reading Cinemas Management Pty Ltd (Australia)Reading Cinemas NJ, Inc. (Delaware)Reading Cinemas of Puerto Rico, Inc. (Puerto Rico)Reading Cinemas Pty Ltd (Australia)Reading Cinemas Puerto Rico LLC (Nevada)Reading Cinemas USA LLC (Nevada)Reading Colac Pty Ltd (Australia)Reading Company (Pennsylvania)Reading Consolidated Holdings, Inc. (Nevada)Reading Consolidated Holdings (Hawaii), Inc. (Hawaii)Reading Dandenong Pty Ltd (Australia)Reading Elizabeth Pty Ltd (Australia)Reading Entertainment Australia Pty Ltd (Australia)Reading Exhibition Pty Ltd (Australia)Reading Holdings, Inc. (Nevada)Reading International Cinemas LLC (Delaware)Reading International Services Company (California)Reading Licenses Pty Ltd (Australia)Reading Maitland Pty Ltd (Australia)Reading Malulani, LLC (Nevada)Reading Melton Pty Ltd (Australia)Reading Moonee Ponds Pty Ltd (Australia)Reading Murrieta Theater, LLC (Nevada)Reading New Zealand Holdings Ltd (New Zealand)Reading New Zealand Ltd (New Zealand)Reading Pacific LLC (Nevada)Reading Properties Indooroopilly Pty Ltd (Australia)Reading Properties Lake Taupo Ltd (New Zealand)Reading Properties Manukau Ltd (New Zealand)Reading Properties New Zealand Ltd (New Zealand)Reading Properties Pty Ltd (Australia)Reading Properties Taringa Pty Ltd (Australia)Reading Property Holdings Pty Ltd (Australia)Reading Queenstown Ltd (New Zealand)Reading Real Estate Company (Pennsylvania)Reading Rouse Hill Pty Ltd (Australia)Reading Royal George, LLC (Delaware)Reading Sunbury Pty Ltd (Australia)Reading Theaters, Inc. (Delaware)Reading Wellington Properties Ltd (New Zealand)Rhodes Peninsula Cinema Pty Ltd (Australia)Rialto Brands Ltd (New Zealand)Rialto Cinemas Ltd (New Zealand)Rialto Distribution Ltd (New Zealand)Rialto Entertainment Ltd (New Zealand)Ronwood Investments Ltd (New Zealand)Rydal Equipment Co. (Pennsylvania)S Note Liquidation Company, LLC (Nevada)Sails Apartments Management Ltd (New Zealand)Shadow View Land and Farming, LLC (Nevada)Sutton Hill Properties, LLC (Nevada)Tobrooke Holdings Ltd (New Zealand)Trans-Pacific Finance Fund I, LLC (Delaware)Trenton-Princeton Traction Company (New Jersey)Twin Cities Cinemas, Inc. (Delaware)US Agricultural Investors, LLC (Delaware) Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.US Development, LLC (Nevada)US International Property Finance Pty Ltd (Australia)Washington and Franklin Railway Company (Pennsylvania)Westlakes Cinema Pty Ltd (Australia)Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.1 Consent of Independent Registered Public Accounting Firm We have issued our reports dated March 18, 2013, with respect to the consolidated financial statements, scheduleand internal control over financial reporting included in the Annual Report of Reading International, Inc. on Form 10-Kfor the year ended December 31, 2012. We hereby consent to the incorporation by reference of said reports in theRegistration Statements of Reading International, Inc on Form S-8 (File No. 333-36277) and on Form S-3 (File No. 333-162581). /s/ GRANT THORNTON LLP Los Angeles, CaliforniaMarch 19, 2013 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-36277 on Form S-8 of ourreport dated March 15, 2011 (March 15, 2012 as to the effects of the retrospective adjustments for the reversal ofdiscontinued operations discussed in Note 9, and March 18, 2013 as to the effects of the retrospective adjustments forthe adoption of ASU No. 2011-05 discussed in Note 2 and the effects of the retrospective adjustments for discontinuedoperations discussed in Note 8), relating to the financial statements and Schedule II – Valuation and QualifyingAccounts for the year ended December 31, 2010, listed in the Index at Item 15 of Reading International, Inc. andsubsidiaries (the “Company”) ,which report includes an explanatory paragraph regarding the current maturity of theCompany’s Australian Credit Facility, an explanatory paragraph regarding the retrospective adjustments for the adoptionof ASU No. 2011-05, an explanatory paragraph regarding the retrospective adjustments to reflect discontinuedoperations, and an explanatory paragraph regarding the retrospective adjustments to reflect the reversal of discontinuedoperations, appearing in this Annual Report on Form 10-K of Reading International, Inc. and subsidiaries for the yearended December 31, 2012. /s/ Deloitte Los Angeles, California March 19, 2013Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.3Consent of Independent Auditor The Management Committee and Joint VenturersMt. Gravatt Cinemas Joint Venture:We consent to the incorporation by reference in the registration statements No. 333-167101 on Form S-8 of ReadingInternational, Inc., of our report dated March 4, 2013 with respect to the statement of financial position of Mt. GravattCinemas Joint Venture as of December 31, 2012 and 2011, and the related statements of comprehensive income, changesin equity, and cash flows for each of the years in the three-year period ended December 31, 2012, which report appearsin the December 31, 2012, annual report on Form 10-K of Reading International, Inc. /s/ KPMGSydney, AustraliaMarch 19, 2013Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James J. Cotter, certify that: 1) I have reviewed this Form 10-K of Reading International, Inc.;2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3) Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this report;4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;b) designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) thathas materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or personsperforming the equivalent functions):a) all significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting. /s/ James J. Cotter James J. CotterChief Executive Officer March 19, 2013 Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.2CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Andrzej Matyczynski, certify that: 1) I have reviewed this Form 10-K of Reading International, Inc.;2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3) Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this report;4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;b) designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) thathas materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or personsperforming the equivalent functions):a) all significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting. /s/ Andrzej Matyczynski Andrzej MatyczynskiChief Financial OfficerMarch 19, 2013Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350) In connection with the accompanying Annual Report of Reading International, Inc. (the “Company”) on Form10-K for the fiscal year ended December 31, 2012 (the “Report”), I, James J. Cotter, Chief Executive Officer of theCompany, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934;and2. The information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company. /s/ James J. Cotter James J. CotterChief Executive Officer March 19, 2013Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.2CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350) In connection with the accompanying Annual Report of Reading International, Inc. (the “Company”) on Form10-K for the fiscal year ended December 31, 2012 (the “Report”), I, Andrzej Matyczynski, Chief Financial Officer ofthe Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002,that:1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934;and2. The information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company. /s/ Andrzej Matyczynski Andrzej MatyczynskiChief Financial OfficerMarch 19, 2013Source: READING INTERNATIONAL INC, 10-K, March 19, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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