READING INTERNATIONAL, INC. 
This MD&A should be read in conjunction with the accompanying consolidated financial statements included in Part II, Item 8 (Financial Statements and Supplementary Data). The foregoing discussions and analyses contain certain forward-looking statements. Please refer to the "Cautionary Statement Regarding Forward-Looking Statements" included as a preface in Part I, Item 1A - Risk Factors of this 2021 Form 10-K.
INDEX Page
Our Business 34
Recent Developments 35
Results of Operations 39
Business Segment Results - 2021 vs. 2020 40
Non-Segment Results - 2021 vs. 2020 46
Liquidity and Capital Resources 48
Contractual Obligations, Commitments and Contingencies 50
Financial Risk Management 51
Critical Accounting Estimates 51
OUR BUSINESS
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has caused considerable economic instability all over the
world, affecting our operations in the United States , Australia, and New
Zealand . The pandemic has caused patrons to lessen their exposure to others by
avoiding our cinemas and retail centers and, in the United States , our live
theatres or other public places where large crowds would be in attendance. In
March of 2020, we temporarily closed all of our Company's cinemas in the United
States , Australia, and New Zealand in accordance with the directions and
recommendations of the relevant local, state and federal authorities. In the
U.S. , we also temporarily closed our live theatres.
Although cinema attendances are still below pre-pandemic levels, the industry
has experienced a positive shift in box office results in 2021. The releases of
blockbuster films, such as Spider-Man: No Way Home, Venom: There Will Be
Carnage, and No Time To Die have provided optimism for the cinema industry.
Since the onset of the pandemic, we experienced our first quarter of positive
operating results from our cinema operations in the fourth quarter of 2021.
However, with the emergence of the Delta and Omicron variants, the uncertainty
with the cinema industry has continued.
No cinemas are currently closed due to the Delta or Omicron variant of COVID-19.
As of the date of this 2021 Annual Report, one cinema in the United States and
one cinema in New Zealand are closed due to reasons unrelated to the pandemic.
At the start of the spread of the COVID-19 pandemic, various trading
restrictions, some enforced by the government, affected many of our unrelated
third-party tenants at our ETC's in Australia and New Zealand . Although there
were varied trading restrictions, most of these properties remained open for
business through the COVID-19 crisis. As of the date of this 2021 Annual Report,
all of our tenants are currently open for business at our Australian and New
Zealand properties with continued health and safety measures in place (with the
exception of two tenants in Australia completing new fit outs). Most of the
rentable retail portions of our Courtenay Central location in New Zealand
continue to be closed due to seismic concerns, however, three tenants remain
open and are trading as of the date of this 2021 Annual Report.
We have and will continue to experience into 2022 significant impacts on our
cinema exhibition and real estate businesses. We have and may continue to
experience the negative influence of (i) delayed releases of certain major
motion pictures and (ii) recent announcements from certain major exhibitors
collaborating with certain major studios in agreements to shorten and/or
eliminate the theatrical window.
- 35 -
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RECENT DEVELOPMENTS
Recent developments in our two business segments are discussed below. For an
overview of our two business segments, including a breakdown of assets that we
own and/or manage, please see Part I, Item 1 - Our Business of this 2021 Form
10-K.
Cinema Exhibition
Key Performance Indicators
A key performance indicator utilized by management is food and beverage Spend
Per Patron ("SPP").
One of our strategic priorities is upgrading the food and beverage menu at a
number of our global cinemas. We use SPP as a measure of our performance as
compared to the performance of our competitors, as well as a measure of the
performance of our food and beverage operations. While ultimately, the
profitability of our food and beverage operations depends on a variety of
factors, including labor cost and cost of goods sold, we think that this
calculation is important to show how well we are doing on a top line basis.
Due to the lower attendances resulting from social distancing requirements,
competition from other entertainment sources, the lack of new and compelling
film product, and the reticence of customers to participate in social gatherings
with third parties, management does not currently believe that a discussion of
Reading's key performance indicators will serve as a useful metric for
stockholders. management intends to resume providing a discussion of our key
performance indicators in future filings.
Cinema Additions
The latest additions to our cinema portfolio over the past three years ended
December 31, 2021 are as follows:
Australia and New Zealand ?Traralgon,
?Millers Junction,Victoria, Australia : OnJune 16, 2021 , we opened a new state-of-the-art six screen Reading Cinemas at the expandedMillers Junction Village featuring two TITAN LUXE auditoriums with DOLBY ATMOS immersive sound, luxury recliner seating in all auditoriums, and an enhanced F&B offering. ?Jindalee,Queensland, Australia : OnDecember 22, 2020 , we opened a new state-of-the-art six-screen Reading Cinemas at Jindalee featuring a TITAN LUXE with DOLBY ATMOS immersive sound, luxury recliner seating in all auditoriums, and newly curated enhanced food and beverage offering. ?Burwood,Melbourne ,Victoria, Australia : OnDecember 5, 2019 , we opened a new state-of-the-art six-screen Reading Cinemas in the Burwood Brickworks shopping center offering a TITAN LUXE with DOLBY ATMOS immersive sound, enhanced food and beverage offerings, and full recliner seating in all auditoriums. ?State Cinema, Hobart,Tasmania, Australia : OnDecember 4, 2019 , we acquired the leasehold interest and other operating assets of the iconic State Cinema for$6.2 million (AU$9.0 million). This leasehold interest features 10 screens, a roof top cinema and bar, a large café, and a bookstore. ?Lower Hutt ,Wellington, New Zealand : To mitigate the ongoing temporary closure of Reading Cinemas at Courtenay Central, we opened a three-screen cinema that trades as The Hutt Pop Up by Reading Cinemas inJune 2019 . ?Devonport,Tasmania, Australia : OnJanuary 30, 2019 , we purchased the tenant's interest and other operating assets of a well-established four-screen cinema in Devonport,Tasmania, Australia , for$1.4 million (AU$1.95 million). We commenced trading from this new cinema site onJanuary 30, 2019 . - 36 - -------------------------------------------------------------------------------- Upgrades to our Film Exhibition Technology and Theater Amenities Prior to COVID-19, we invested in both (i) the upgrading of our existing cinemas and (ii) the development of new cinemas to provide our customers with premium offerings, including state-of-the-art presentation (including sound, lounges, and bar service) and luxury recliner seating. As ofDecember 31, 2021 , all of the upgrades to our theater circuits' film exhibition technology and amenities over the years are as summarized in the following table: Location Screen ?Count ?Count Screen Format Digital (all cinemas in our theater circuit) 63 515 IMAX 1 1 TITAN XC and LUXE 26 32 Dine-in Service Gold Lounge (AU/NZ)(1) 9 24 Premium (AU/NZ)(2) 16 42 Spotlight (U.S.)(3) 1 6 Upgraded Food & Beverage menu (U.S.)(4) 17 n/a Premium Seating (features recliner seating) 29 181 Liquor Licenses in Use(5) 37 n/a (1)Gold Lounge : This is our "First Class Full Dine-in Service" in our Australian andNew Zealand cinemas, which includes an upgraded F&B menu (with alcoholic beverages), luxury recliner seating features (intimate 25-50 seat cinemas) and waiter service. (2)Premium Service: This is our "Business Class Dine-in Service" in our Australian andNew Zealand cinemas, which typically includes upgraded F&B menu (some with alcoholic beverages) and may include luxury recliner seating features (less intimate 80-seat cinemas), but no waiter service. (3)Spotlight Service: "Spotlight" is our first dine-in cinema concept in theU.S. at Reading Cinemas inMurrieta, California . Six of our 17 auditoriums at this theater feature waiter service before the movie begins with a full F&B menu, luxury recliner seating, and laser focus on customer service. (4)Upgraded Food & Beverage Menu: Features an elevated F&B menu including a menu of locally inspired and freshly prepared items that go beyond traditional concessions, which we have worked with former Food Network executives to create. The elevated menu also includes beer, wine and/or spirits at most of our locations. (5)Liquor Licenses: Licenses are applicable at each cinema location, rather than each theater auditorium. For accounting purposes, we capitalize the cost of successfully purchasing or applying for liquor licenses meeting certain thresholds as an intangible asset due to long-term economic benefits derived on future sales of alcoholic beverages. As ofDecember 31, 2021 , we have pending applications for additional liquor licenses for eleven theaters in theU.S. and one inAustralia . United States ?Kahala Mall renovation: In late 2019, we commenced the renovation of ourConsolidated Theatre at theKahala Mall inHonolulu . The renovation work was suspended at the end of the first quarter in 2020 as a result of the initial COVID-19 shutdown. This cinema reopened onNovember 5, 2021 , with the opening of theHawaii International Film Festival . The theatre features recliner seating throughout along with a state-of-the-art kitchen and an elevated F&B menu.
?
As of the date of this Report, we have converted 110 of our 238 U.S. auditoriums to luxury recliner seating.Australia and New Zealand ?AU and NZ Renovations: From 2019 to 2021, we improved eight theaters:Harbour Town , Waurn Ponds, Maitland,West Lakes , Rhodes, Chirnside, and Dandenong inAustralia , and The Palms inNew Zealand . Plans for 2022 and Our Cinema Business By the end of 2022, we anticipate adding two new cinemas, totaling 13 screens, to our Australian cinema circuit.South City Square inBrisbane , QLD is an eight-screen complex, which will operate under the Angelika Film Center brand, and Busselton inWestern Australia is a five-screen Reading Cinema. Both new cinema complexes are part of broader shopping center developments currently under construction. Our focus with respect to new cinemas includes state-of-the-art projection and sound, luxury recliner seating, enhanced F&B (typically including alcohol service), and typically at least one major TITAN-type presentation screen. Our focus is on providing best-in-class services and amenities that will differentiate us from in-home and mobile viewing options. We believe that a night at the - 37 - -------------------------------------------------------------------------------- movies should be a special and premium experience and, indeed, that it must be able to compete with the variety of options being offered to consumers through other platforms. During 2022, we will continue to focus on the enhancement of our proprietary online ticketing capabilities and social media interfaces. These are intended to enhance the convenience of our offerings and to promote guest affinity with the experiences and products that we are offering. We will also be focusing on post-COVID-19 technology improvements and contactless experiences. Expanding our online capabilities, in the third quarter of 2020 and fourth quarter of 2021, respectively, we launched the online ordering of a full F&B menu for our Angelika brand in theU.S. and launched a full F&B menu for our Reading Cinemas inAustralia and New Zealand . InDecember 2020 andDecember 2021 , respectively, we launched our very own streaming service, Angelika Anywhere, in theU.S. andAustralia , which is curated for film lovers of independent and foreign film, documentaries, and the more specialized movies from the major studios. Real Estate Strategic Acquisitions ?Exercise of Option to Acquire Ground Lessee's interest in Ground Lease and Improvements Constituting the Village East Cinema - OnAugust 28, 2019 , we exercised our option to acquire the ground lessee's interest in the ground lease underlying and the real property assets constituting our Village East Cinema inManhattan . The purchase price under the option is$5.9 million . The transaction is currently scheduled to close onJanuary 1, 2023 . See Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 12 - Pension and Other Liabilities and Note 21 - Related Parties for further information. Strategic Asset MonetizationsUnited States : ?OnMarch 5, 2021 , we monetized our approximately 202-acre raw land holdings inCoachella, California for$11.0 million (recognizing a gain on sale after costs to sell of$6.3 million over our$4.4 million net book value). As a 50% member ofShadow View Land andFarming LLC , the entity that owned the property, our Company received 50% of the sale proceeds, being$5.3 million . As raw land, this asset produced no operating income while continuing to generate carrying costs, such as taxes, insurance, and maintenance. ?OnJune 30, 2021 , we monetized ourRoyal George Theatre property inChicago for$7.1 million . We realized a gain on sale after costs to sell of$5.0 million over our$1.8 million net book value.
?OnJune 9, 2021 , we monetized ourAuburn /Redyard Center (including 114,000 square feet of undeveloped land) located inAuburn ,New South Wales for$69.6 million (AU$90.0 million). We recognized a gain on sale after costs to sell of$38.7 million (AU$50.1 million) over our$30.2 million (AU$39.1 million) net book value. As part of the transaction, we entered into a lease with the purchaser to continue to operate the cinema at that location.New Zealand : ?OnMarch 4, 2021 , we monetized our two industrial properties adjacent to theAuckland Airport in Manukau/Wiri inNew Zealand , representing 70.4 acres, for$56.1 million (NZ$77.2 million ). We recognized a gain on sale after costs to sell of$41.0 million (NZ$56.3 million) over our$13.6 million (NZ$18.7 million) net book value. As raw land, this asset produced no operating income while continuing to generate carrying costs, such as property taxes, insurance, and maintenance. ?OnAugust 30, 2021 , we monetized our cinema building and land in Invercargill for$3.8 million (NZ$5.4 million) to the owner of the adjacent shopping center, which is currently undergoing a major redevelopment. As part of the transaction, we entered into a lease with the purchaser to continue to operate the cinema at that location and integrate the existing cinema within that newly redeveloped shopping center. - 38 - -------------------------------------------------------------------------------- Value-creating Opportunities The implementation of most of our real estate development plans has been delayed due to COVID-19 and the need to conserve capital. However, we continue to believe that our Company's strong real estate asset base will provide (i) increased financial security through the potential sale of certain non-core real estate assets or (ii) provide collateral for strategic re-financing, in each case to meet liquidity demands. We intend to continue to emphasize the prudent development of our real estate assets.United States : ?44 Union Square Redevelopment (New York, N.Y. ) - Initially, during the COVID-19 pandemic,New York City shut down non-essential construction and businesses, including construction work at our site. The shutdown has since been lifted. OnAugust 31, 2020 , we received a temporary certificate of occupancy for the core and shell of the building, which has been continuously renewed pending construction of tenant improvements. OnJanuary 27, 2022 , we entered into a long-term lease with a national retailer for the lower level, ground floor and second floor of the building. We expect the tenant to take occupancy in 2022, following the completion of certain work for which we are responsible. We have retained CBRE as our leasing agent for the upper floors of the building. Our leasing team continues to pursue potential tenants to fill the remainder of the space, although no assurances can be given that we will be able to lease the space on acceptable terms in the near term. ?Sepulveda Office Building (Culver City , C.A.) - OnMay 27, 2020 , we leased on a multi-year basis the entire second floor of our office building inCulver City, California (approximately 12,000 usable square feet) to WWP Beauty (wwpinc.com), a global company with over 35 years of experience providing the cosmetics and personal care industries with a range of packaging needs. On the date of the lease, possession of the space was turned over to WWP Beauty, which was responsible for building out its space. This work was completed inOctober 2021 . ?Minetta Lane Theatre (New York, N.Y. ) - Prior to COVID-19, our theatre was used by Audible, to present plays featuring a limited cast of one or two characters and special live performance engagements on the Audible streaming service. Due to COVID-19, no shows were presented betweenMarch 2020 andOctober 8, 2021 , the date on which public performances resumed. In late 2019, we completed an initial feasibility study for the potential redevelopment of this asset. We will refocus our efforts on this project at a later date asNew York City continues to show signs of recovery from the impacts of the COVID-19 pandemic. In the interim, we renewed our license arrangement with Audible which extends throughMarch 15, 2023 , with a one-year option to extend held by Audible. ?Cinemas 1,2,3 Redevelopment (New York, N.Y. ) - We have received the consent of the 25% minority member of the ownership entity for the redevelopment of the property. We continue to evaluate the potential to redevelop the property as a mixed-use property. As our negotiations with our neighbor for a joint development did not bear fruit and given the closure of our two cinemas inNew York City's UpperEast Side , we have determined to continue to operate this location as a cinema for at least the near term. All other redevelopment activity related to this location has been suspended, until we are able to develop a better understanding of the ongoing effects of COVID-19 on our assets and the market.Australia : ?Newmarket Village ETC, (Brisbane, Australia ) - We continue to work on the expansion and upgrading of our Newmarket Village ETC. The site includes a 23,000 square foot parcel adjacent to the center, improved with an office building. Over the next few years, we will be evaluating development options for this space. The center is currently 96% leased. ?Cannon Park ETC, (Queensland, Australia ) - we acquired two adjoining properties in Townsville,Queensland, Australia comprising of approximately 9.4-acres in 2015. The total gross leasable area of theCannon Park City Center and the Cannon Park Discount Center is 105,000 square feet. Our multiplex cinema is the anchor tenant at theCannon Park City Center , which we continue to work on and improve. This site is currently 87% leased. - 39 -
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?Courtenay Central Redevelopment (Wellington, New Zealand ) - Damage from the 2016 Kaikoura earthquake necessitated demolition of our nine-story parking garage at the site, and unrelated seismic issues caused us to close major portions of the existing cinema and retail structure in early 2019. Prior to the COVID-19 pandemic, our real estate team had developed a comprehensive plan featuring a variety of uses to complement and build upon the "destination quality" of the Courtenay Central location. Notwithstanding the COVID-19 pandemic, our real estate team is continuing to work with our consultants, tenants, potential tenants, and city representatives to advance our redevelopment plans for this property. Given the uncertainty surrounding the COVID-19 pandemic, we have no fixed time frame for the commencement of the redevelopment of this property. Relatively recent developments, including the near completion of the futureTakina Wellington Convention and Exhibition Center (wcec.co.nz), the capital's first premium conference and exhibition space, the loosening of certain height and density restrictions, and the lack of comparable building sites, have enhanced the value of the assemblage.
For a complete list of our principal properties, see Part I, Item 2 - Properties under the heading "Investment and Development Property."
Corporate Matters
?Stock Repurchase Program - OnMarch 10, 2020 , our Board of Directors authorized a$25.0 million increase to our 2017 stock repurchase program, bringing our total authorized repurchase amount remaining to$26.0 million , and extended the program toMarch 2, 2022 . ThroughDecember 31, 2021 , we had repurchased 1,792,819 shares of Class A Non-Voting Common Stock at an average price of$13.39 per share (excluding transaction costs). No shares were purchased during the year endedDecember 31, 2021 . Due to the COVID-19 pandemic and its impact on our overall liquidity, our stock repurchase program has and will likely continue to take a lower capital allocation priority for the foreseeable future. ?Board Compensation and Stock Options Committee - Refer to Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 15 - Share-Based Compensation and Repurchase Plans for details regarding our Board, Executive and Employee stock-based remuneration programs. OVERALL RESULTS OF OPERATIONS In this section, we discuss the results of our operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . For a discussion of the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . ? - 40 -
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The following table sets forth the overall results of operations for the three
years ended
% Change -
?Favorable/
?(Unfavorable)
% of % of % of 2021 vs. 2020 vs.(Dollars in thousands) 2021 ?Revenue 2020 ?Revenue
2019 ?Revenue 2020 2019
SEGMENT RESULTS
Cinema exhibition
operating income (loss) $ (18,637) (13) % $ (45,056) (58) % $ 23,329 8 % 59 % (>100) %
Real estate operating
income (loss) (5,355) (4) % (2,463) (3) % 5,141 2 % (>100) % (>100) %
NON-SEGMENT RESULTS
Depreciation and
amortization expense (1,232) (1) % (970) (1) % (414) - % (27) % (>100) %
General and
administrative expense (16,569) (12) % (12,824) (16) % (18,933) (7) % (29) % 32 %
Interest expense, net (13,688) (10) % (9,354) (12) % (7,904) (3) % (46) % (18) %
Equity earnings of
unconsolidated joint
ventures 258 - % (449) (1) % 792 - % >100 % (>100) %
Gain (loss) on sale of
assets 92,219 66 % (1) (0) % (2) - % >100 % 50 %
Other income (expense) 3,762 3 % 293 - % 325 - % >100 % (10) %
Income (loss) before
income taxes 40,758 29 % (70,824) (91) % 2,334 1 % >100 % (>100) %
Income tax benefit
(expense) (5,944) (4) % 4,967 6 % (28,837) (10) % (>100) % >100 %
Net income (loss) 34,814 25 % (65,857) (85) % (26,503) (10) % >100 % (>100) %
Less: Net income (loss)
attributable to
noncontrolling
interests 2,893 2 % (657) (1) % (74) - % >100 % (>100) %
Net income (loss)
attributable to Reading
International, Inc. $ 31,921 23 % $ (65,200) (84) % $ (26,429) (10) % >100 % (>100) %
Basic earnings (loss)
per share $ 1.46 $ (3.00) $ (1.17) >100 % (>100) %
CONSOLIDATED RESULTS
2021 vs. 2020
Net income attributable to Reading International, Inc. increased by
$97.1 million to $31.9 million . This increase was due to (i) $92.2 million of
gains on sales of assets related to the strategic monetization of our Coachella
and Manukau landholdings, Royal George property, Auburn /Redyard Center, and
Invercargill property in 2021 in response to the liquidity needs resulting
primarily from closure of our cinemas due to the COVID-19 pandemic, (ii) an
improvement by $26.4 million in our cinema segment operation results
attributable to lower COVID-19 cases and better film product in 2021, and (iii)
the resolution of an insurance claim related to damage done by the Kaikoura
earthquake.
The increase was offset by a (i) $10.9 million increase in income tax expense to
$5.9 million , due to income tax from the monetization of certain real estate
assets, (ii) $4.3 million increase in interest expense to $13.7 million related
to the completion of our 44 Union Square development, interest prior to
completion having been capitalized, (iii) $3.7 million increase in general and
administrative expense to $16.6 million related to the payment of bonuses in
2021 (no senior management officer bonuses were paid related to years 2019 or
2020), (iv) the establishment of a $4.0 million accrual of the settlement of
certain wage and hour claims, and (v) the non-recurring legal settlement of $0.8
million entered in favor of our Company in the James Cotter Jr. derivative
litigation by the Nevada Supreme Court during the third quarter of 2020.
BUSINESS SEGMENT RESULTS -2021 vs. 2020
Presented below is the comparison of the segment operating income of our two
business segments for the years ended December 31, 2021 and 2020, respectively:
% Change
?Favorable/
2021 2020 ?(Unfavorable)
(Dollars in thousands) Cinema Real Estate Cinema Real Estate Cinema Real Estate
Segment Revenues $ 126,812 $ 12,763 $ 67,014 $ 12,963 89 % (2) %
Segment Operating Expenses
Operating Expense (123,416) (10,106) (93,180) (8,578) (32) % (18) % Depreciation and amortization
(14,422) (7,092) (15,246) (6,101) 5 % (16) % General and administrative expense (7,611)
(920) (3,427) (747) (>100) % (23) %
Impairment of long-lived assets - - (217) - 100 % - %
Total segment expenses (145,449) (18,118) (112,070) (15,426) (30) % (17) %
Segment operating income (loss) $ (18,637) $ (5,355) $ (45,056) $ (2,463) 59 % (>100) %
Breakdown by country:
United States $ (21,145) $ (5,083) $ (39,371) $ (3,399) 46 % (50) %
Australia 2,054 1,645 (4,267) 2,336 >100 % (30) %
New Zealand 454 (1,917) (1,418) (1,400) >100 % (37) %
$ (18,637) $ (5,355) $ (45,056) $ (2,463) 59 % (>100) %
?
- 41 --------------------------------------------------------------------------------- A discussion for each segment follows: Cinema Exhibition - The following table details our Cinema Exhibition segment operating results for the years endedDecember 31, 2021 and 2020, respectively: 2021 vs. 2020 ?Favorable/ (Dollars in thousands) 2021 % of Revenue 2020 % of Revenue ?(Unfavorable) REVENUE United States Admission revenue$ 33,173 55 %$ 15,593 57 % >100 % Food & beverage revenue 20,832 35 % 8,245 30 % >100 % Advertising and other revenue 5,882 10 % 3,584 13 % 64 %$ 59,887 100 %$ 27,422 100 % >100 % Australia Admission revenue$ 33,485 61 %$ 20,137 62 % 66 % Food & beverage revenue 17,900 32 % 9,590 29 % 87 % Advertising and other revenue 3,932 7 % 2,788 9 % 41 %$ 55,317 100 %$ 32,515 100 % 70 % New Zealand Admission revenue$ 7,281 63 %$ 4,569 65 % 59 % Food & beverage revenue 3,641 31 % 2,066 29 % 76 % Advertising and other revenue 686 6 % 442 6 % 55 %$ 11,608 100 %$ 7,077 100 % 64 % Total revenue$ 126,812 100 %$ 67,014 100 % 89 %
OPERATING EXPENSE
Film rent and
United States advertising cost $ (17,299) (29) % $ (8,183) (30) % (>100) %
Food & beverage cost (4,930) (8) % (2,519) (9) % (96) %
Occupancy expense (21,546) (36) % (26,697) (97) % 19 %
Other operating expense (23,636) (39) % (18,631) (69) % (27) %
$ (67,411) (113) % $ (56,030) (204) % (20) %
Film rent and
Australia advertising cost $ (14,568) (26) % $ (8,605) (26) % (69) %
Food & beverage cost (3,989) (7) % (2,276) (7) % (75) %
Occupancy expense (10,036) (18) % (8,484) (26) % (18) %
Other operating expense (17,437) (32) % (10,705) (33) % (63) %
$ (46,030) (82) % $ (30,070) (93) % (53) %
Film rent and
New Zealand advertising cost $ (3,220) (28) % $ (1,991) (28) % (62) %
Food & beverage cost (737) (6) % (432) (6) % (71) %
Occupancy expense (1,957) (17) % (1,692) (24) % (16) %
Other operating expense (4,061) (35) % (2,966) (42) % (37) %
$ (9,975) (86) % $ (7,081) (99) % (41) %
Total operating expense $ (123,416) (97) % $ (93,181) (139) % (32) %
DEPRECIATION, AMORTIZATION, GENERAL AND
ADMINISTRATIVE EXPENSE
Depreciation and
United States amortization $ (7,300) (12) % $ (8,060) (29) % 9 %
Impairment of
long-lived assets - - % (217) (1) % (>100) %
General and
administrative expense (6,321) (11) % (2,486) (9) % (>100) %
$ (13,621) (23) % $ (10,763) (39) % (27) %
Depreciation and
Australia amortization $ (5,943) (11) % $ (5,762) (18) % (3) %
General and
administrative expense (1,290) (2) % (950) (3) % (36) %
$ (7,233) (13) % $ (6,712) (21) % (8) %
Depreciation and
New Zealand amortization $ (1,179) (10) % $ (1,423) (20) % 17 %
General and
administrative expense - - % 9 - % 100 %
$ (1,179) (10) % $ (1,414) (20) % 17 %
Total depreciation, amortization, and
general and administrative expense$ (22,033) (17) %$ (18,889) (28) % (17) % Total expenses$ (145,449) (115) %$ (112,070) (167) % (30) % OPERATING INCOME (LOSS) United States$ (21,145) (35) %$ (39,371) (144) % 46 % Australia 2,054 4 % (4,267) (13) % >100 % New Zealand 454 4 % (1,418) (20) % >100 % Total operating income (loss)$ (18,637) (15) %$ (45,056) (67) % 59 % ? - 42 -
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Cinema Exhibition - The following table details our Cinema Exhibition segment operating results for the quarters endedDecember 31, 2021 and 2020, respectively: 2021 vs. 2020 ?Favorable/ (Dollars in thousands) 2021 % of Revenue 2020 % of Revenue ?(Unfavorable) REVENUE United States Admission revenue$ 14,846 57 %$ 1,349 48 % >100 % Food & beverage revenue 8,949 34 % 923 33 % >100 % Advertising and other revenue 2,234 9 % 568 20 % >100 %$ 26,029 100 %$ 2,840 100 % >100 % Australia Admission revenue$ 10,605 60 %$ 4,512 60 % >100 % Food & beverage 32 30 revenue 5,837 % 2,304 % >100 % Advertising and other 7 10 revenue 1,255 % 757 % 66 %$ 17,697 100 %$ 7,573 100 % >100 % New Zealand Admission revenue$ 2,173 62 %$ 1,114 64 % 95 % Food & beverage 31 29 revenue 1,102 % 503 % >100 % Advertising and other 7 7 revenue 231 % 118 % 96 %$ 3,506 100 %$ 1,735 100 % >100 % Total revenue$ 47,232 100 %$ 12,148 100 % >100 % OPERATING EXPENSE Film rent and United States advertising cost$ (8,118) (31) %$ (727) (26) % (>100) % Food & beverage cost (2,086) (9) % (339) (12) % (>100) % Occupancy expense (5,171) (20) % (6,486) (228) % 20 % Other operating expense (7,721) (30) % (3,434) (121) % (>100) %$ (23,096) (89) %$ (10,986) (387) % (>100) % Film rent and Australia advertising cost$ (5,120) (29) %$ (1,877) (25) % (>100) % Food & beverage cost (1,316) (7) % (601) (8) % (>100) % Occupancy expense (2,532) (14) % (1,865) (25) % (36) % Other operating expense (5,352) (29) % (2,436) (33) % (>100) %$ (14,320) (81) %$ (6,779) (90) % (>100) % Film rent and New Zealand advertising cost$ (1,033) (29) %$ (463) (27) % (>100) % Food & beverage cost (226) (6) % (104) (6) % (>100) % Occupancy expense (581) (17) % (256) (15) % (>100) % Other operating expense (1,289) (37) % (872) (50) % (48) %$ (3,129) (90) %$ (1,695) (98) % (85) % Total operating expense$ (40,545) (86) %$ (19,460) (160) % (>100) % DEPRECIATION, AMORTIZATION, IMPAIRMENT AND GENERAL AND ADMINISTRATIVE EXPENSE Depreciation and United States amortization$ (1,862) (7) %$ (2,110) (74) % 12 % Impairment of long-lived assets - - % (217) (5) % 100 % General and administrative expense (634) (2) % (258) (10) % (>100) %$ (2,496) (10) %$ (2,585) (91) % 3 % Depreciation and (19) Australia amortization$ (1,500) (8) %$ (1,413) % (6) % General and (1) administrative expense (389) (2) % (96) % (>100) %$ (1,889) (11) %$ (1,509) (20) % (25) % Depreciation and (19)
New Zealand amortization$ (260) (7) %$ (333) % 22 % General and - administrative expense - - % 1 % 100 %$ (260) (7) %$ (332) (19) % 22 %
Total depreciation, amortization,
impairment and general and administrative expense$ (4,645) (10) %$ (4,426) (36) % (5) % Total expenses$ (45,190) (96) %$ (23,886) (197) % (89) % OPERATING INCOME (LOSS) United States$ 437 2 %$ (10,731) (378) % >100 % Australia 1,488 8 % (715) (9) % >100 % New Zealand 117 3 % (292) (17) % >100 % Total operating income (loss)$ 2,042 4 %$ (11,738) (97) % >100 % Cinema Exhibition Segment Operating Income Cinema exhibition segment operating loss decreased by$26.4 million , to a loss of$18.6 million for the year endedDecember 31, 2021 , compared toDecember 31, 2020 , primarily driven by a significant increase in total revenue. Our cinema operations experienced fewer mandated closures in 2021 due to the wide distribution of vaccines. As vaccination rates increased and certain government imposed restrictions decreased, major movie studios began to release blockbuster movies, like Spider-Man: No Way Home, Venom: There Will Be Carnage, and Not Time to Die. Since the onset of the pandemic, we experienced our first quarter of positive operating results for our cinema segment. Thanks to the major blockbuster films, like Spider-Man: No Way Home and Eternals, cinema exhibition segment operating income improved from a loss of$11.7 million to income of$2.0 million for the quarter endedDecember 31, 2021 , compared toDecember 31, 2020 . Due to the mandatory closures related to COVID-19 during the fourth quarter of 2020, our cinemas experienced a reduction in the number of operational days, which impacted our admissions revenue significantly in 2020. - 43 -
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Revenue
Cinema revenue increased by$59.8 million , to$126.8 million for the year endedDecember 31, 2021 , compared to 2020. Our cinema circuit experienced a higher number of days in operation in 2021 when compared to the same period in the prior year. Higher vaccination rates led to fewer mandated closures despite the presence of the Delta and Omicron variants. As a result, major studios began to release more film product. The table below is the revenue breakdown, by country, for the years endedDecember 31, 2021 and 2020, respectively: 2021 vs. 2020 % of % of ?Favorable/ (Dollars in thousands) 2021 ?Revenue 2020 ?Revenue ?(Unfavorable) United States$ 59,887 47 %$ 27,422 41 % >100 % Australia 55,317 44 % 32,515 49 % 70 % New Zealand 11,608 9 % 7,077 11 % 64 % Total Segment Revenues$ 126,812 100 %$ 67,014 100 % 89 %
Below are the changes in our cinema revenue by market:
?In
?In
?InNew Zealand , cinema revenues increased by$4.5 million , to$11.6 million for the year endedDecember 31, 2021 , compared to 2020. For the quarter endedDecember 31, 2021 , Cinema segment revenue increased against the fourth quarter of 2020 by$35.1 million , to$47.2 million . This increase was due to (i) the majority of our global cinemas being in operation for more days in the fourth quarter of 2021 than in 2020, (ii) the releases of more tentpole films by major studios, such as Spider-Man: No Way Home, and (iii) the easing of local government restrictions in 2021 due to increased vaccination rates. Operating Expense Operating expense for the full year 2021 increased by$30.2 million , to$123.4 million when compared to 2020 due to increased ticket sales and higher film rent associated with the releases of more major tentpole films. For the quarter endedDecember 31, 2021 , operating expenses increased by$21.1 million , to$40.5 million when compared to the fourth quarter of 2020 due to increased ticket sales and higher film rent associated with the release of more major tentpole films. Depreciation, Amortization, General and Administrative Expense Depreciation, amortization, general and administrative expense for the year-endedDecember 31, 2021 increased by$3.1 million , to$22.0 million compared to 2020 primarily driven by legal costs, a$4.0 million accrual of the settlement of certain wage and hour claims, and the depreciation charge on our new cinemas inAustralia . Depreciation, amortization, general and administrative expense for the quarter endedDecember 31, 2021 , increased by$0.2 million , to$4.6 million primarily due to increased cinema general and administrative expenses inAustralia . ? - 44 -
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Real Estate - The following table details our Real Estate segment operating
results for the years ended
2021 vs. 2020
?Favorable/
(Dollars in thousands) 2021 % of Revenue 2020 % of Revenue ?(Unfavorable)
REVENUEUnited Live theatre rental and
States ancillary income$ 1,349 70 %$ 988 69 % 37 % Property rental income 577 30 % 434 31 % 33 % 1,926 100 % 1,422 100 % 35 %
Australia Property rental income 9,855 100 % 10,576 100 %
(7) %
New Zealand Property rental income 982 100 % 965 100 % 2 %
Total revenue $ 12,763 100 % $ 12,963 100 % (2) %
OPERATING EXPENSE
United
States Live theatre cost $ (541) (28) % $ (698) (49) % 22 %
Property cost (1,282) (67) % $ (1,184) (83) % (8) %
Occupancy expense (1,415) (73) % (930) (65) % (52) %
$ (3,238) (168) % $ (2,812) (198) % (15) %
Australia Property cost $ (2,699) (27) % $ (2,457) (23) % (10) %
Occupancy expense (2,251) (23) % (1,874) (18) % (20) %
$ (4,950) (50) % $ (4,331) (41) % (14) %
New Zealand Property cost $ (1,470) (150) % $ (1,002) (104) % (47) %
Occupancy expense (448) (46) % (432) (45) % (4) %
$ (1,918) (195) % $ (1,434) (149) % (34) %
Total operating expense $ (10,106) (79) % $ (8,577) (66) % (18) %
DEPRECIATION, AMORTIZATION, GENERAL
AND ADMINISTRATIVE EXPENSE
United Depreciation and
States amortization $ (3,059) (159) % $ (1,522) (107) % (>100) %
General and
administrative expense (712) (37) % (487) (34) % (46) %
$ (3,771) (196) % $ (2,009) (141) % (88) %
Depreciation and
Australia amortization $ (3,054) (31) % $ (3,634) (34) % 16 %
General and
administrative expense (206) (2) % (275) (3) % 25 %
$ (3,260) (33) % $ (3,909) (37) % 17 %
New Depreciation and
Zealand amortization $ (979) (100) % $ (945) (98) % (4) %
General and
administrative expense (2) (1) % 14 1 % (>100) %
$ (981) (100) % $ (931) (96) % (5) %
Total depreciation, amortization,
and general and administrative
expense$ (8,012) (63) %$ (6,849) (53) % (17) % Total expenses$ (18,118) (142) %$ (15,426) (119) % (17) % OPERATING INCOME (LOSS) United States$ (5,083) (264) %$ (3,399) (239) % (50) % Australia 1,645 17 % 2,336 22 % (30) % New Zealand (1,917) (195) % (1,400) (145) % (37) %
Total operating income (loss)
?
- 45 ---------------------------------------------------------------------------------
Real Estate - The following table details our Real Estate segment operating
results for the quarters ended
2021 vs. 2020
?Favorable/
(Dollars in thousands) 2021 % of Revenue 2020 % of Revenue ?(Unfavorable)
REVENUE
United Live theatre rental and
States ancillary income $ 567 81 % $ 100 39 % >100 %
Property rental income 130 19 % 157 61 % (17) %
697 100 % 257 100 % >100 %
Australia Property rental income 1,855 100 % 2,526 100 % (27) %
New Zealand Property rental income 264 100 % 252 100 % 5 %
Total revenue $ 2,816 100 % $ 3,035 100 % (7) %
OPERATING EXPENSE
United
States Live theatre cost $ (167) (24) % $ (86) (33) % (94) %
Property cost (275) (39) % $ (240) (93) % (15) %
Occupancy expense (39) (6) % (369) (144) % 89 %
$ (481) (69) % $ (695) (270) % 31 %
Australia Property cost $ (658) (35) % $ (724) (29) % 9 %
Occupancy expense (548) (30) % (521) (21) % (5) %
$ (1,206) (65) % $ (1,245) (49) % 3 %
New Zealand Property cost $ (402) (152) % $ (264) (105) % (52) %
Occupancy expense (115) (44) % (115) (46) % - %
$ (517) (196) % $ (379) (150) % (36) %
Total operating expense $ (2,204) (78) % $ (2,319) (76) % 5 %
DEPRECIATION, AMORTIZATION, GENERAL
AND ADMINISTRATIVE EXPENSE
United Depreciation and
States amortization $ (822) (119) % $ (731) (284) % (12) %
General and
administrative expense (217) (31) % 114 43 % (>100) %
$ (1,039) (150) % $ (617) (240) % (68) %
Depreciation and
Australia amortization $ (744) (40) % $ (1,001) (40) % 26 %
General and
administrative expense (42) (2) % 154 6 % (>100) %
$ (786) (42) % $ (847) (34) % 7 %
Depreciation and
New Zealand amortization $ (232) (88) % $ (242) (96) % 4 %
General and
administrative expense (2) (1) % (9) (4) % 78 %
$ (234) (89) % $ (251) (100) % 7 %
Total depreciation, amortization,
and general and administrative
expense$ (2,059) (73) %$ (1,715) (57) % (20) % Total expenses$ (4,263) (151) %$ (4,034) (133) % (6) % OPERATING INCOME (LOSS) United States$ (823) (118) %$ (1,055) (411) % 22 % Australia (137) (7) % 434 17 % (>100) % New Zealand (487) (184) % (378) (150) % (29) %
Total operating income (loss)
(45) %
Real Estate Segment Operating Income
Real estate segment operating loss increased by $2.9 million , to a loss of
$5.4 million for the year ended December 31, 2021 , compared to 2020. These
results reflect (i) increased property carrying costs related to our 44 Union
Square property, which had been capitalized in the past, as well as the
commencement of depreciation for this property and (ii) a decrease in property
rental income in Australia due to the monetization of our Auburn /Redyard center
during the second quarter of 2021. This loss was offset by our Live Theatres in
New York City which reported increased operating income during the fourth
quarter 2021 as both the Orpheum and Minetta Lane theatres were open and holding
public performances for most of the fourth quarter 2021.
Real estate segment operating loss increased by $0.4 million , to a loss of $1.4
million for the quarter ended December 31, 2021 , compared to 2020. A decrease in
property rental income in Australia due to the monetization of our
Auburn /Redyard center during the second quarter of 2021 negatively impacted our
annual results. This loss was offset by the operating income of our Live
Theatres in New York City which increased compared to 2020, when the theaters
closed in mid-March 2020 due to the pandemic.
- 46 ---------------------------------------------------------------------------------
Revenue
The table below is the revenue breakdown by country for each year:
2021 vs. 2020
% of % of ?Favorable/
(Dollars in thousands) 2021 ?Revenue 2020 ?Revenue ?(Unfavorable) United States$ 1,926 15 %$ 1,422 11 % 35 % Australia 9,855 77 % 10,576 82 % (7) % New Zealand 982 8 % 965 7 %
2 %
Total Segment Revenues
Real estate revenues for the year endedDecember 31, 2021 , decreased by$0.2 million , to$12.8 million compared to 2020. This decrease is attributable to a decrease in property rental income inAustralia related to the monetization of ourAuburn /Redyard shopping center during the second quarter of 2021, partially offset by the re-opening of our live theatres as well as rent received from ourCulver City tenant. For the quarter endedDecember 31, 2021 , real estate revenue decreased by$0.2 million , to$2.8 million compared to 2020. This decrease is primarily due to a decrease in property rental income inAustralia related to the monetization of ourAuburn /Redyard shopping center during the second quarter of 2021. Operating Expense Operating expense for the year endedDecember 31, 2021 , increased by$1.5 million , to$10.1 million when compared to the same period in 2020 due to the increased operating costs related to our44 Union Square property. In addition, the State Revenue Offices (SRO) inAustralia implemented support measures for commercial landlords whereby land tax relief was provided in 2020 that did not recur in 2021. This result was partially offset by the reduction of costs related to the monetization of ourAuburn /Redyard ETC during the second quarter of 2021. For the quarter endedDecember 31, 2021 , operating expenses remained relatively flat with a slight decrease of$0.1 million , to$2.2 million when compared to the same period in 2020 due to a decrease in occupancy expenses related to the monetization of ourCoachella property. Depreciation, Amortization, General and Administrative Expense Depreciation, amortization, general and administrative expenses for 2021 increased by$1.2 million , to$8.0 million when compared to the same period in 2020 driven by the commencement of depreciation of our44 Union Square property, partially offset by savings in depreciation related to the sale of ourAuburn /Redyard shopping center, Royal George, and Invercargill properties. For the quarter endedDecember 31, 2021 , depreciation, amortization, and general, and administrative expenses increased by$0.3 million , to$2.1 million compared to the quarter endedDecember 31, 2020 , due to which is attributable to the commencement of depreciation of our44 Union Square property, offset by savings in depreciation related to the sale of ourAuburn /Redyard shopping center, Royal George, and Invercargill properties. NON-SEGMENT RESULTS -2021 vs. 2020 General and Administrative Expense Non-segment general and administrative expense for the year endedDecember 31, 2021 , increased by$3.7 million , to$16.6 million compared to the same period in the prior year. This increase in expense is due principally to (i) a return to the payment of executive bonuses in 2021 (no senior management officer bonuses were paid related to years 2019 or 2020) and (ii) the non-recurring income in 2020 related to the$0.8 million judgment in our favor in the James Cotter Jr. derivative litigation. For more information about the legal expense, please refer to Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 13 - Commitments and Contingencies. Income Tax Expense Income tax expense increased by$10.9 million , to$5.9 million , when compared to 2020, mainly due to income tax as a result of the monetization of certain of our real estate assets. Please refer to Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 10 - Income Taxes for further information. - 47 -
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Interest Expense, Net
Interest expense (net of interest income) increased by$4.3 million , to$13.7 million , mainly due to the termination of the capitalization of interest on44 Union Square due to the completion of this development. ? - 48 - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Our Financing Strategy Prior to the interruption to our revenues caused by the COVID-19 pandemic, we had used cash generated from operations and other excess cash to the extent not needed to fund capital investments contemplated by our business plan, to pay down our loans and credit facilities. This provided us with availability under our loan facilities for future use and thereby, reduced interest charges. On a periodic basis, we have reviewed the maturities of our borrowing arrangements and negotiated renewals and extensions where necessary. In 2020, we completed amending and extending various financing arrangements less than two weeks prior to the COVID-19 government mandated shutdowns, which we believe has helped provide the necessary liquidity to see us through the COVID-19 crisis. In response to the COVID-19 pandemic, the temporary closure of our cinemas, and the trading restrictions placed on many of our real estate tenants, we had fully drawn-down on all our available operating lines-of-credit by the end of the first quarter of 2020, to provide additional liquidity. In 2021, the monetization of certain real estate assets funded our ability to pay down debt thereby increasing our future availability and, in some places, permanently reducing our loan funding amounts: ?During the second quarter of 2021, we refinanced our44 Union Square loan with a new$55.0 million mortgage facility secured by the property withEmerald Creek Capital ; ?InNovember 2021 , we repaid and retired our$5.0 million line of credit withBank of America ; ?InJune 2021 , we repaid$15.7 million (AU$20.0 million) of our Revolving Corporate Markets Loan facility with NAB, using a portion of the proceeds of our monetization ofAuburn /Redyard to permanently reduce the availability under the line; ?Throughout 2021, we repaid$11.7 million on ourBank of America revolving credit facility, bringing the outstanding balance to$39.5 million . InNovember 2021 , we also restructured this facility into a term loan; ?Throughout 2021, we repaid$12.5 million (NZ$18.2 million) of our Westpac revolving facility, permanently reducing the funding available; and ?OnMarch 3, 2022 , we exercised the first of two six month options to extend the Cinemas 1,2,3 Term Loan, taking the maturity toOctober 1, 2022 . Our bank loans withBank of America , NAB, and Westpac require that our Company comply with certain covenants. Furthermore, our Company's use of these loan funds is limited due to limitations on the expatriation of funds fromAustralia and New Zealand tothe United States . We believe that our lenders understand that the current situation, relating to the COVID-19 pandemic, is not of our making, that we are doing everything that can reasonably be done, and that, generally speaking, our relationship with our lenders is good. Our Company remains focused on the various economic factors affecting us as the markets in which we operate emerge from the worst effects of the COVID-19 pandemic, including financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If our Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed our Company's borrowing capacity under its available facilities, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling additional assets, or restructuring debt. For more information about our borrowings, including loan modifications and modifications to waivers of certain covenants, please refer to Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 11 - Borrowings. - 49 -
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The table below presents the changes in our total available resources (cash and borrowings), debt-to-equity ratio, working capital, and other relevant information addressing our liquidity for the last five years: ($ in thousands) 2021 2020 2019 2018(2) 2017(2)Net Cash from Operating Activities$ (13,498) $ (30,201) $ 24,607 $ 32,644 $ 23,851 Total Resources (cash and borrowings) Cash and cash equivalents (unrestricted)$ 83,251 $ 26,826 $ 12,135 $ 13,127 $ 13,668 Unused borrowing facility 12,000 15,490 73,920 85,886 137,231 Restricted for capital projects(1) 12,000 9,377 13,952 30,318 62,280 Unrestricted capacity 0 6,113 59,968 55,568 74,951 Total resources at 12/31 95,251 42,316 86,055 99,013 150,899 Total unrestricted resources at 12/31 83,251 32,939 72,103 68,695 88,619 Debt-to-Equity Ratio Total contractual facility$ 248,948 $ 300,449 $ 283,138 $ 252,929 $ 271,732 Total debt (gross of deferred financing costs) 236,948 284,959 209,218 167,043 134,501 Current 12,060 42,299 37,380 30,393 8,109 Non-current 224,888 242,660 171,838 136,650 126,392 Finance lease liabilities 68 118 209 - - Total book equity 105,060 81,173 139,616 179,979 181,382 Debt-to-equity ratio 2.26 3.51 1.50 0.93 0.74 Changes in Working Capital Working capital (deficit)(3)$ (6,673) $ (64,140) $ (84,138) $ (56,047) $ (47,294) Current ratio 0.94 0.47 0.24 0.35 0.41 Capital Expenditures (including acquisitions)$ 14,428 $ 16,759 $ 47,722 $
56,827
(1)This relates to the construction facilities specifically negotiated for44 Union Square redevelopment project. (2)Certain 2018 and 2017 balances included the restatement impact as a result of a prior period financial statement correction of immaterial errors (see Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 2 - Summary of Significant Accounting Policies - Prior Period Financial Statement Correction of Immaterial Errors). (3)Typically, our working capital is reported as a deficit, as we receive revenue from our cinema business ahead of the time that we have to pay our associated liabilities. We use the money we receive to pay down our borrowings in the first instance. We manage our cash, investments, and capital structure to meet the short-term and long-term obligations of our business, while maintaining financial flexibility and liquidity. We forecast, analyze, and monitor our cash flows to enable investment and financing within the overall constraints of our financial strategy. Before the COVID-19 pandemic, our treasury management has been focused on aggressive cash management using cash balances to reduce debt and minimize interest expense. In the past, we used cash generated from operations and other excess cash to the extent not needed for any capital expenditures, to pay down our loans and credit facilities providing us some flexibility on our available loan facilities for future use and thereby, reducing interest charges. As a result of the COVID-19 pandemic, we chose to fully draw down on most of our lines of credit in order to provide liquidity for the Company during a time of minimal revenues. Our current financial position, forecasts and cash flow estimates based on our current expectations of industry performance and recovery, mean that our Company has sufficient resources to meet its obligations as they become due within one year after the issuance of this report on Form 10-K. Refer to Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 11 - Borrowings for further details on our various borrowing arrangements. AtDecember 31, 2021 , our consolidated cash and cash equivalents totaled$83.3 million . Of this amount,$10.9 million ,$49.5 million and$22.8 million were held by ourU.S. , Australian andNew Zealand operations, respectively. Due to the impact of the COVID-19 pandemic, we no longer intend to indefinitely reinvest offshore any earnings derived from our Australian andNew Zealand operations. We have historically funded our working capital requirements, capital expenditures and investments in individual properties primarily from a combination of internally generated cash flows and debt. During 2021 and into 2022 the need for such funding, apart from working capital, has been and will be substantially reduced, due to the COVID-19 pandemic. The funding that has been required, has been funded predominantly from cost reductions, debt and strategic asset sales. As noted in the preceding table, we had no unused available corporate credit facilities atDecember 31, 2021 . - 50 -
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The change in cash and cash equivalents for the three years endedDecember 31, 2021 is as follows: % Change 2021 vs. 2020 vs. (Dollars in thousands) 2021 2020 2019 2020 2019 Net cash provided by (used in) operating activities$ (13,498) $ (30,200) $ 24,607 55 % (>100) % Net cash provided by (used in) investing activities 129,610 (18,771) (53,263) >100 % 65 % Net cash provided by (used in) financing activities (50,280) 59,330 26,008 (>100) % >100 % Impact of exchange rate on cash (4,095) 4,333 322 (>100) % >100 % Net increase (decrease) in cash and cash equivalents$ 61,737 $ 14,692 $ (2,326) >100 % >100 % Operating Activities 2021 vs. 2020 Cash used in operating activities for 2021 decreased by$16.7 million , to cash used of$13.5 million , due to improved trading performance. Investing Activities 2021 vs. 2020 The$129.6 million of cash provided by investing activities increased significantly primarily due to the 2021 asset monetizations described herein. Financing Activities 2021 vs. 2020 The cash used in financing activities of$50.3 million is primarily due to developments in our debt portfolio as discussed above. CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES The following table provides information with respect to the future maturities and scheduled principal repayments of our recorded contractual obligations and certain of our commitments and contingencies, either recorded or off-balance sheet, as ofDecember 31, 2021 : (Dollars in thousands) 2022 2023 2024 2025 2026 Thereafter Total Debt(1)$ 32,776 $ 122,815 $ 43,287 $ 300 $ 313 $ 7,500 $ 206,991 Operating leases, including imputed interest 34,325 34,281 32,838 30,855 28,608 158,713 319,620 Finance leases, including imputed interest 43 28 - - - - 71 Subordinated debt(1) 711 747 586 - - 27,913 29,957 Pension liability 684 684 684 684 684 869 4,289 Village East purchase option(2) - 5,900 - - - - 5,900 Estimated interest on debt(3) 9,929 7,763 2,592 1,511 1,497 601 23,893 Total$ 78,468 $ 172,218 $ 79,987 $ 33,350 $ 31,102 $ 195,596 $ 590,721 (1)Information is presented gross of deferred financing costs. (2)Represents the lease liability of the option associated with the ground lease purchase of the Village East Cinema. (3)Estimated interest on debt is based on the anticipated loan balances for future periods and current applicable interest rates. Please refer to Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 13 - Commitments and Contingencies for more information. Litigation We are currently involved in certain legal proceedings and, as required, have accrued estimates of probable and estimable losses for the resolution of these claims. Where we are the plaintiffs, we expense all legal fees on an ongoing basis and make no provision for any potential settlement amounts until received. InAustralia , the prevailing party is usually entitled to recover its attorneys' fees, which typically work out to be approximately 60% of the amounts actually spent where first-class legal counsel is engaged at customary rates. Where we are a plaintiff, we have likewise made no provision for the liability for the defendant's attorneys' fees in the event we are determined not to be the prevailing party. Where we are the defendants, we accrue for probable damages that insurance may not cover as they become known and can be reasonably estimated. In our opinion, any claims and litigation in which we are currently involved are not reasonably likely to have a - 51 - -------------------------------------------------------------------------------- material adverse effect on our business, results of operations, financial position, or liquidity. It is possible, however, that future results of the operations for any particular quarterly or annual period could be materially affected by the ultimate outcome of the legal proceedings. Please refer to Part I, Item 3 - Legal Proceedings for more information. There have been no material changes to our litigation, except as set forth in Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 13 - Commitments and Contingencies. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in the financial condition, revenue or expense, results of operations, liquidity, capital expenditures or capital resources. FINANCIAL RISK MANAGEMENT Currency and Interest Rate Risk Our Company's objective in managing exposure to foreign currency and interest rate fluctuations is to reduce volatility of earnings and cash flows in order to allow management to focus on core business issues and challenges. Historically, we have managed our currency exposure by creating, whenever possible, natural hedges inAustralia and New Zealand . This involves local country sourcing of goods and services, as well as borrowing in local currencies to match revenues and expenses. We have also historically paid management fees to theU.S. to cover a portion of our domestic overhead. The fluctuations of the Australian andNew Zealand currencies, however, may impact our ability to rely on such funding for ongoing support of our domestic overhead. Our exposure to interest rate risk arises out of our long-term floating-rate borrowings. To manage the risk, we utilize interest rate derivative contracts to convert certain floating-rate borrowings into fixed-rate borrowings. It is our Company's policy to enter into interest rate derivative transactions only to the extent considered necessary to meet its objectives as stated above. Our Company does not enter into these transactions or any other hedging transactions for speculative purposes. Inflation We continually monitor inflation and the effects of changing prices. Inflation increases the cost of goods and services used. Competitive conditions in many of our markets restrict our ability to recover fully the higher costs of acquired goods and services through price increases. We attempt to mitigate the impact of inflation by implementing continuous process improvement solutions to enhance productivity and efficiency and, as a result, lower costs and operating expenses. The effects of inflation have not had a material impact on our operations and the resulting financial position or liquidity, but the current uptrend in inflation could impact us in the future CRITICAL ACCOUNTING ESTIMATES We believe that the application of the following accounting policies requires significant judgments and estimates in the preparation of our Consolidated Financial Statements and hence, are critical to our business operations and the understanding of our financial results: Impairment of Long-Lived Assets, Including Goodwill and Intangible Assets We review long-lived assets, including goodwill and intangibles, for impairment as part of our annual budgeting process, at the beginning of the fourth quarter, and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. (i)Impairment of Long-lived Assets (other thanGoodwill and Intangible Assets with indefinite lives) - we evaluate our long-lived assets and finite-lived intangible assets using historical and projected data of cash flows as our primary indicator of potential impairment and we take into consideration the seasonality of our business. If the sum of the estimated, undiscounted future cash flows is less than the carrying amount of the asset, then an impairment is recognized for the amount by which the carrying value of the asset exceeds its estimated fair value based on an appraisal or a discounted cash flow calculation. For certain non-income producing properties or for those assets with no consistent historical or projected cash flows, we obtain appraisals or other evidence to evaluate whether there are impairment indicators for these assets. - 52 - -------------------------------------------------------------------------------- No impairment losses were recorded for long-lived and finite-lived intangible assets for the year endedDecember 31, 2021 .$217,000 of impairment losses were recorded for long-lived and finite-lived intangible assets for the year endedDecember 31, 2020 , based on historical information and projected cash flow. No impairment losses were recorded for the year endedDecember 31, 2019 . (ii)Impairment ofGoodwill and Intangible Assets with indefinite lives - goodwill and intangible assets with indefinite useful lives are not amortized, but instead, tested for impairment at least annually on a reporting unit basis. The impairment evaluation is based on the present value of estimated future cash flows of each reporting unit plus the expected terminal value. There are significant assumptions and estimates used in determining the future cash flows and terminal value. The most significant assumptions include our cost of debt and cost of equity assumptions that comprise the weighted average cost of capital for each reporting unit. Accordingly, actual results could vary materially from such estimates. No impairment losses were recorded for goodwill and indefinite-lived intangible assets for the years endedDecember 31, 2021 , 2020, or 2019. Tax Valuation Allowance and Deferred Taxes We record our estimated future tax benefits and liabilities arising from the temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss carryforwards. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future federal, state, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). As ofDecember 31, 2021 , we had recorded approximately$43.1 million of deferred tax assets (net of$64.7 million deferred tax liabilities) related to the temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss carryforwards and tax credit carryforwards. These deferred tax assets were offset by a valuation allowance of$40.9 million resulting in a net deferred tax asset of$2.2 million . The recoverability of deferred tax assets is dependent upon our ability to generate future taxable income. Recognition of Gift Card Breakage Income Generally, our revenue recognition is not assessed as an area requiring significant judgment or estimation. Revenues from ticket and food and beverage sales are recognized when the service is provided - that is when the show has commenced, or the food has been provided. Transaction fees from online sales are recorded at the time of the online transaction. In regard to our real estate business, we execute lease contracts for existing tenancies, but revenue is recognized on a straight-line basis over the lease term. In contrast, recognition of gift card breakage income requires certain estimates and judgements to be made in regarding the pattern of customer behavior at our cinemas. This policy is described in detail in the section Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 2 - Summary of Significant Accounting Policies - Accounting Changes. Contingencies For loss contingencies, we record any loss contingencies when there is a probable likelihood that the liability has been incurred and the amount of the loss can be reasonably estimated. For other contingencies, (i)for recoveries through an insurance claim, we record a recoverable asset (not to exceed the amount of the total losses incurred) only when the collectability of such claim is considered probable. To evaluate the probable collectability of an insurance claim, we consider communications with our insurance company. (ii)for gain contingencies resulting from legal settlements, we record those settlements in our consolidated statements of operations when cash or other forms of payments are received. Legal contingencies From time to time, we are involved with claims and lawsuits arising in the ordinary course of our business that may include contractual obligations, insurance claims, tax claims, employment matters, and anti-trust issues, among other matters. We provide accruals for matters that have probable likelihood of occurrence and can be properly estimated as to their expected negative outcome. - 53 - -------------------------------------------------------------------------------- We do not record expected gains until the proceeds (either in cash or other forms of payments) are received by us. Please refer to Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 13 - Commitments and Contingencies for more information on legal matters. For a summary of our significant accounting policies, including the critical accounting estimates discussed above, see Part II, Item 8 - Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-- Note 2. Click or tap here to enter text. Item 7A - Quantitative and Qualitative Disclosure about Market Risk TheSEC requires that registrants include information about potential effects of changes 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 in currency exchange rates and interest rates. This analysis is constrained by several factors, including the following:
?it is based on a single point in time; and
?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. AtDecember 31, 2021 , approximately 40% and 8% of our assets were invested in assets denominated in Australian dollars (Reading Australia) and New Zealand dollars (Reading New Zealand ), respectively, including approximately$51.8 million in cash and cash equivalents. AtDecember 31, 2020 , approximately 39% and 12% of our assets were invested in assets denominated in Australian andNew Zealand dollars, respectively, including approximately$19.1 million in cash and cash equivalents. Our policy inAustralia and New Zealand is to match revenues and expenses, whenever possible, in local currencies. As a result, we have procured in local currencies a majority of our expenses inAustralia and New Zealand . Despite this natural hedge, recent movements in foreign currencies have had an effect on our current earnings. The effect of the translation adjustment on our assets and liabilities noted in our other comprehensive income was an increase of$8.1 million for the year endedDecember 31, 2021 . As we continue to progress our acquisition and development activities inAustralia and New Zealand , no assurances can be given that the foreign currency effect on our earnings will not be material in the future. Historically, our policy has been to borrow in local currencies to finance the development and construction of our long-term assets inAustralia, and New Zealand . As a result, the borrowings in local currencies have provided somewhat of a natural hedge against the foreign currency exchange exposure. Even so, and as a result of our issuance of fully subordinated Trust Preferred Securities in 2007, and their subsequent partial repayment, approximately 24% and 37% of our Australian andNew Zealand assets, respectively, remain subject to such exposure, unless we elect to hedge our foreign currency exchange between theU.S. and Australian andNew Zealand dollars. If the foreign currency rates were to fluctuate by 10%, the resulting change in Australian andNew Zealand assets would result in an increase or decrease of$6.7 million and$2.1 million , respectively, and the change in our net income for the year would be$2.5 million and$3.4 million , respectively. Presently, we have no plans to hedge such exposure. With changes in the tax landscape caused by the Tax Cuts and Jobs Act of 2017, we may reconsider our strategy for financing operations and redevelopment projects in the three countries we are invested in, which may include increased borrowings from banks in higher-tax countries, and dividends to theU.S. from foreign subsidiaries, being mindful of withholding taxes on interest, and thin capitalization limitations on interest deduction inAustralia and New Zealand . We record unrealized foreign currency translation gains or losses that could materially affect our financial position. We have accumulated unrealized foreign currency translation gains of approximately$6.8 million and$15.0 million as ofDecember 31, 2021 and 2020, respectively. Historically, we maintained most of our cash and cash equivalent balances in short-term money market instruments with original maturities of three months or less. Due to the short-term nature of such investments, a change of 1% in short-term interest rates would not have a material effect on our financial condition. The negative spread between our borrowing costs and earned interest will exacerbate as we hold cash to provide a safety net to meet our expenses while some of our cinema operations remain closed and some of our tenant income curtailed. We have a combination of fixed and variable interest rate loans. In connection with our variable interest rate loans, a change of approximately 1% in short-term interest rates would have resulted in approximately$1.6 million increase or decrease in our 2021 interest expense. For further discussion on market risks, please refer to International Business Risks included in Item 1A - Risk Factors. ? - 54 -
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