10-Q/A: Reading International Restates Financials Due to Accounting Error, Identifies Material Weakness

Reading International files an amended 10-Q report to restate its financials for the period ended September 30, 2024, due to an error in accounts payable and accrued expenses, revealing a material weakness in internal controls.

Summary

• Reading International is filing an amendment to its Form 10-Q for the nine months ended September 30, 2024, to restate previously issued unaudited consolidated financial statements.
• The restatement corrects an error in accounts payable and accrued expenses, as well as the accumulated deficit within the unaudited Consolidated Balance Sheets.
• The error stemmed from the erroneous reversal and treatment of a liability in the quarter ended June 30, 2024.
• Management has identified a material weakness in its internal control over financial reporting as a result of the accounting error.
• The company's net loss attributable to Reading International, Inc. for the quarter ending September 30, 2024, increased by $2.6 million, from a loss of $4.4 million to a loss of $7.0 million, when compared to the same period in the prior year.
• For the nine months ended September 30, 2024, net loss attributable to Reading International, Inc. increased by $14.8 million, from a loss of $18.3 million to a loss of $33.1 million, when compared to the same period in the prior year.
• As of March 28, 2025, there were 20,603,203 shares of Class A Nonvoting Common Stock and 1,680,590 shares of Class B Voting Common Stock outstanding.

Sentiment

Score: 3

Explanation: The document reveals a restatement due to accounting errors and a material weakness in internal controls, coupled with increased net losses, painting a negative picture despite management's optimism about the future.

Positives

• The company is taking steps to remediate the material weakness in internal control over financial reporting.
• The company has been working to re-negotiate leases at its continuing U.S. cinemas to either reduce occupancy or to convert fixed rent to percentage rent.
• The company streamlined operations by selling its administrative building in Culver City, California, generating $1.2 million in cash after settling mortgages, brokerage fees, and transactional costs.
• The company anticipates that the sale of the administrative building in Culver City, California will save it around $1.5 million in operating and holding costs through the end of 2025.
• The company is encouraged by (i) the U.S. Federal Reserve reducing interest rates by 50 basis points in September 2024 and by 25 basis points in November 2024 and (ii) the New Zealand Reserve Bank in October 2024 reducing interest rates by 50 basis points, with an indication that the market expects a further 75 basis point cut by the New Zealand Reserve Bank in November.

Negatives

• The company is restating its financials due to an accounting error.
• A material weakness in internal control over financial reporting has been identified.
• The company's net loss attributable to Reading International, Inc. for the quarter ending September 30, 2024, increased by $2.6 million, from a loss of $4.4 million to a loss of $7.0 million, when compared to the same period in the prior year.
• For the nine months ended September 30, 2024, net loss attributable to Reading International, Inc. increased by $14.8 million, from a loss of $18.3 million to a loss of $33.1 million, when compared to the same period in the prior year.
• The company has negative working capital of $84.1 million as of the end of the third quarter, 2024.

Risks

• The company's forecasts and cash flow estimates, and its reasonable refinancing expectations, may not come to fruition to the extent needed to provide sufficient funding.
• The company is exposed to macroeconomic headwinds such as increased interest rates, inflation, supply chain issues and increased film rent, labor and operating costs.
• The company is exposed to risks associated with fluctuating foreign currency exchange rates.
• The company is exposed to labor shortages and increased labor costs related to such shortages and to increasingly costly labor laws and regulations applicable to part time non-exempt workers.
• The company is exposed to cybersecurity risks, including misappropriation of customer information or other breaches of information security.

Future Outlook

The company anticipates that cinema cash flow for the fourth quarter of this year and for 2025 will be strong, but if the company is unable to generate sufficient cash flow in the upcoming months, it will be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditure, monetizing additional assets, restructuring its debt and/or its lease obligations or finding additional sources of liquidity.

Management Comments

• While our performance this quarter was not as strong as we had anticipated, especially in comparison to the third quarter of 2023, we remain optimistic about the direction of our cinema business and the cinema industry as a whole.
• We believe that our lenders understand that we are doing everything that can reasonably be done, and that, generally speaking, our relationships with our lenders are good.

Industry Context

The film exhibition industry has seen some notable movie titles initially slated for 2024 being postponed to 2025, including Captain America: Brave New World , Thunderbolts , Disneys Snow White , Elio , Mission: Impossible 8 , SpongeBob SquarePants , and James Camerons eagerly awaited Avatar sequel, which, while negatively impacting our current year, we anticipate will make for a positive effect on the 2025 movie slate.

Comparison to Industry Standards

• The company uses F&B Spend Per Patron (SPP) to assess its F&B performance compared to its competitors.
• The company uses Average Ticket Price (ATP) per Patron to measure its operational cinema performance when compared to that of its competitors.

Corporate Governance

Legal Proceedings

• While some of our U.S. landlords have initiated legal proceedings incident to these negotiations, we believe that we have tentatively reached revised lease agreements in each pending case, which are now being documented.

Stakeholder Impact

• Shareholders will be impacted by the restatement of financial statements and the identification of a material weakness in internal controls.
• Employees may be impacted by the company's plans to close underperforming locations.
• Customers may be impacted by the company's plans to enhance its Food & Beverage offerings and improve its online ticketing capabilities.
• Creditors may be impacted by the company's efforts to manage its liquidity and capital resources.

Next Steps

• Management is actively engaged in the implementation of remediation measures to address the internal control deficiencies that resulted in the material weakness in internal control over financial reporting as of September 30, 2024.
• The company will continue to focus on the enhancement of its proprietary online ticketing and Food & Beverage capabilities, together with improving and expanding its social media platforms and interfaces and the development of a paid subscription plan, plus the relaunching of its loyalty program in Australia and New Zealand.
• The company will continue to evaluate its U.S. holdings and plan to close underperforming locations where reasonable agreements with landlords cannot be reached.
• The company will continue to operate its Newmarket Village ETC, which includes Reading Cinemas as an anchor tenant, and will be evaluating different development options for the space over the next few years.
• The company is currently conducting a controlled auction of its Wellington property assemblage through JLL.

Key Dates

Keywords

restatement, financial statements, material weakness, internal control, accounting error, cinema, real estate, Reading International