FORM 10-Q

(Mark One)

Commission file number 1-8625

READING INTERNATIONAL, INC.

Registrant’s telephone number, including area code: (213) 235-2240

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 3, 2004, there were 19,916,876 shares of Class A Nonvoting Common Stock, $0.01 par value per share and 1,982,414 shares of Class B Voting Common Stock, $0.01 par value per share outstanding.

READING INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

PART I – Financial Information

Item 1 – Financial Statements

Reading International, Inc. and Subsidiaries

See accompanying notes to consolidated financial statements.

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Reading International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

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Reading International, Inc. and Subsidiaries

See accompanying notes to consolidated financial statements.

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Reading International, Inc. and Subsidiaries

See accompanying notes to consolidated financial statements.

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Reading International, Inc. and Subsidiaries

Note 1 – Basis of Presentation

     Reading International, Inc. a Nevada corporation (“RII”) along with its consolidated subsidiaries (the “Company” or “Reading”) is the corporate successor to the Reading Railroad, initially organized in Pennsylvania in 1833. RII was incorporated in 1999 and, following the consummation of a consolidation transaction on December 31, 2001 (the “Consolidation”) is now the owner of the consolidated businesses and assets of Reading Entertainment (“RDGE”), Craig Corporation (“CRG”) and Citadel Holding Corporation (“CDL”). Its businesses consist primarily of:

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

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the development and operation of cinema-based entertainment-themed retail centers (“ETRC”) in Australia and New Zealand;

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the ownership and operation of “Off Broadway” style live theaters in Manhattan and Chicago; and

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the development, ownership and operation of commercial real estate in Australia, New Zealand and the United States as a business ancillary to the development and operation of cinemas, cinema-based ETRCs and live theaters.

     The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission for interim reporting. As such, certain information and footnote disclosures typically required by US GAAP for complete financial statements have been condensed or omitted. There have been no material changes in the information disclosed in the notes to the condensed consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (“2003 Annual Report”). The financial information presented in this quarterly report on Form 10-Q for the period ended June 30, 2004 (the “June Report”), including the information under the heading, Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with the Company’s 2003 Annual Report which contains the latest audited financial statements and related footnotes.

     In the opinion of management, all adjustments of a normal recurring nature considered necessary to present fairly in all material respects the Company’s financial position, results of its operations and cash flows for the three and six months ended June 30, 2004 have been made. The results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results of operations to be expected for the entire year. Certain amounts in previously issued financial statements have been reclassified to conform to the 2004 presentation.

     Note 2 – Stock-Based Compensation

     The Company has a stock based compensation plan for certain employees and non-employee directors which is fully described in the 2003 Annual Report. The Company accounts for the plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Under Accounting Principles Board Opinion No. 25, no stock-based employee compensation cost has been reflected in net income, as all options granted under the plan had an

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exercise price equal to the market value of the underlying common stock on the date of grant. Accounting Principles Board Opinion No. 25 does not apply to non-employees and would require that the Company record compensation expense for non-employees. However, Accounting Principles Board Opinion No. 25 applies to non-employee directors when stock options are granted in connection with the non-employee directors’ board services. As such, no compensation expense has been recorded.

     Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS Nos. 123 and 148”) established disclosure requirements using the fair value basis method of accounting for stock-based compensation. As permitted by SFAS Nos. 123 and 148, the Company has elected to continue using the intrinsic value method of accounting prescribed under APBO No. 25. The following table illustrates the effect on net (loss) income and net (loss) income per common share as if the Company had applied the fair value provisions of SFAS Nos. 123 and 148 to measure stock-based compensation (dollars in thousands):

Note 3 – Business Segments

     Reading’s operations are organized into three reportable business segments within the meaning of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company’s reportable segments are: (1) cinema, (2) live theater and (3) rental/real estate. The Company’s cinema segment is primarily engaged in the development, ownership and operation of multiplex cinemas. The live theater segment is engaged in the ownership and operation of “Off Broadway” style live theaters. Reading’s rental and real estate segment is primarily engaged in the development, ownership and operation of commercial properties, including ETRCs. Corporate results include interest income earned with respect to the Company’s cash balances, interest expense, general and administrative expenses, minority interest expense and other (income) expense.

     Information about the Company’s cinema, live theater and rental/real estate segment operations for the three and six months ended June 30, 2004 and 2003 is presented in the following tables (dollars in thousands):

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Note 4 — Foreign Currency and Derivative Instruments

     As fully described in the Company’s 2003 Annual Report, Reading has cinema and real estate operations and significant assets in Australia and New Zealand. To the extent possible, Reading conducts its Australian and New Zealand operations on a self-funding basis. The carrying value of the Company’s Australian and New Zealand assets fluctuates due to changes in the exchange rates between the US dollar and the functional currency of Australia (Australian dollar) and New Zealand (New Zealand dollar). The Company has no derivative financial instruments to hedge foreign currency exposure.

     Presented in the table below are the currency exchange rates for Australia and New Zealand as of June 30, 2004 and December 31, 2003.

Note 5 – Loss Per Share

     Basic loss per share is computed by dividing net loss to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss to common stockholders by the weighted average number of common shares outstanding during the period after giving effect to all potentially dilutive common shares that would have been outstanding if the dilutive common shares had been issued. Stock options give rise to potentially dilutive common shares.

     For the three months and six months ended June 30, 2004 and 2003, respectively, the Company recorded net losses. As such, the incremental shares of 693,255 and 339,806 in 2004 and 2003, respectively from stock options to purchase shares of common stock were excluded from the computation of diluted loss per share because they were anti-dilutive in those periods.

Note 6 — Comprehensive Income

     US GAAP requires that the effect of foreign currency translation adjustments and unrealized gains and/or losses on securities that are available-for-sale (“AFS”) be classified as comprehensive income. The following table sets forth the Company’s comprehensive income for the periods indicated (dollars in thousands):

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Note 7 — Rental Property and Property and Equipment

     As of June 30, 2004 and December 31, 2003, Reading had investments in rental property and property and equipment as follows (dollars in thousands):

Note 8 – Goodwill and Intangible Assets

     As of January 1, 2002, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, Reading does not amortize goodwill and instead, performs annual impairment reviews of its goodwill and other intangible assets. As of June 30, 2004 and December 31, 2003, Reading had goodwill of $5,070,000 and $5,090,000, respectively, consisting of the following (dollars in thousands):

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     Reading has intangible assets other than goodwill which are subject to amortization and are being amortized over various periods. The Company amortizes its beneficial lease over 20 years and its option fees and acquisition costs over 10 years. For the six months ended June 30, 2004, the amortization expense totaled $561,000.

     Intangible assets subject to amortization consist of the following (dollars in thousands):

Note 9 – Income Tax

     The income tax provision (benefit) for the three and six months ended June, 2004 and 2003 was comprised of the following amounts (dollars in thousands), respectively:

Note 10 – Minority Interest

			Minority interest is comprised of the following enterprises:
	•		50% of membership interest in Angelika Film Center LLC (“AFC LLC”) by a subsidiary of National Auto Credit, Inc.;

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33% minority interest in the Elsternwick Joint Venture by Champion Pictures Pty Ltd.; and

	•		25% minority interest in Australian Country Cinemas by Panorama Cinemas for the 21st Century Pty Ltd.
			The components of minority interest are as follows (dollars in thousands):

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Note 11 – Other (Income) Expense

     Other (income) expense is comprised of the following (dollars in thousands):

Note 12 – Loan Agreement

     The Company is in final discussions with a major Australian bank to document an accepted Offer to Loan, to refinance its existing AUD$30,000,000 loan facility in Australia and to increase its borrowing to AUD$55,000,000. Subject to full documentation of the new loan facility, the bank has advanced the Company a temporary additional facility, increasing the old facility to AUD$32,250,000.

Note 13– Subsequent Events

     During the second quarter 2004, the Company contracted with the principal stockholders of Australia-based Anderson Cinemas to acquire, subject to due diligence and the satisfaction of certain other conditions to closing, their interest in that circuit. As ownership of the various cinemas in the circuit was divided amongst a variety of entities and subject to the claims of a variety of creditors, the acquisitions, which closed subsequent to the end of the second quarter, were ultimately structured as the acquisition of (i) the shares of one company, which owns as its sole asset the 10-screen leasehold cinema at Epping (a suburb of Melbourne), (ii) agreements to lease with respect to two leasehold cinemas currently under construction at Rhodes Peninsula (8 screens) (a suburb of Sydney) and Westlakes (7 screens) (a suburb of Adelaide), and (iii) three existing leasehold cinemas at Colac (2 screens), Melton (5 screens) and Sunbury (5 screens) (all suburbs of Melbourne). In total, the Company paid approximately AUD$6.0 million and assumed liabilities estimated at approximately AUD$10.0 million (including approximately AUD$7.0 million in connection with the fit out of the Rhodes Peninsula and Westlakes cinemas). The Rhodes Peninsula and Westlakes cinemas are currently scheduled to open in the fourth quarter 2004.

     During the second quarter of 2004, we entered into four separate agreements which, together, provide for the acquisition of six existing New Zealand cinemas, representing 27 screens, and in the case of three of these cinemas, the fee interests underlying such cinemas. The cinemas are being acquired for an aggregate purchase price of NZ$10.4 million, representing a multiple of approximately 5 times projected cash flow. The fee interests are being acquired for an aggregate purchase price of NZ$11.0 million, representing a cap rate of approximately 9%. The agreements are subject to a number of conditions, including satisfactory completion of due diligence. The Due Diligence period is scheduled to expire on August 11, and we currently anticipate that the transactions will close prior to the end of August. The acquisitions are consistent with our plan to expand our cinema operations in Australia and New Zealand. Upon the closing of the acquisitions, we will own directly 7 cinemas representing 37 screens and own indirectly through our Berkeley joint venture an additional 21 screens in 4 cinemas in New Zealand. Two of the newly acquired cinemas have the capacity for 4 additional screens, and our Berkeley joint venture will open this December an additional 8-screen state-of-the-art multiplex in the Auckland area. Completion of these expansion screens and this additional cinema will increase our New Zealand screen count to 70 screens in 12 cinemas. It is anticipated that substantially all of the acquisition costs of these cinemas and fee interests will be financed through New Zealand based bank financing.

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     During the second quarter of 2004, the Company entered into a letter of intent with a possible purchaser of the Company’s cinemas in Puerto Rico specifying a sale price of approximately $6.5 million. These assets are currently carried on our books at $2.2 million. On August 4, 2004, we agreed to an extension of the due diligence period through August 25, 2004, in order to provide the Buyer with additional time to negotiate lease assignment terms with one of the Company’s landlords. The sale of these cinemas remains subject to due diligence and the negotiation and execution of definitive transactional documents. Accordingly, no assurances can be given that the letter of intent will eventually result in a sale of the Company’s cinemas in Puerto Rico.

     On August 4, 2004, we entered into an agreement to purchase for $12 million the approximately 7,840 square-foot fee interest underlying our current leasehold estate in the Cinemas 1, 2 & 3 property located in Manhattan on 3rd Avenue between 58th Street and 59th Street. The ownership of the Cinemas 1, 2 & 3 property is currently divided into three ownerships: the fee interest (which we now have under contract to purchase), the ground lease and improvements, (which are owned by Sutton Hill Capital LLC but which we, as described in our Annual Report on Form 10-K, have an option to purchase as a part of a pool of assets in 2010), and our current space lease which also runs until 2010. This fee interest is being acquired consistent with our business philosophy of owning, where feasible, the fee interests underlying our various cinema and theater properties. In consideration of Sutton Hill Capital’s agreement to sell its interest in the ground lease and improvements to us outside of the aforementioned option to purchase, we will grant them an option to acquire a 25% membership interest in the LLC set up to acquire the fee interest in the Cinemas property.

     On June 10, 2004, we were advised by the purchaser of our Sutton Cinema complex on 57th Street in Manhattan that they intend to pre-pay the $13 million purchase money promissory note issued to us in connection with our sale of our interest in that property last year. On August 2, 2004, we received a notice from the purchaser triggering a 30-day review period with regards to our potential investment in the redevelopment of that property. We are currently reviewing whether or not to exercise our option to acquire at cost up to a 25% interest in the mixed use retail and residential condominium redevelopment currently planned for that property, or to accept, in lieu of that option, $650,000. Exercise of the option to acquire a 25% interest would require an investment of approximately $2.2 million.

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Reading International, Inc. (“RII,” and collectively with its consolidated subsidiaries, “the Company”) consider ourselves to be essentially a cinema exhibition and live theater operating company with a strong focus on the development and holding of real estate assets. Our business operations include:

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

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the development and operation of cinema-based entertainment-themed retail centers (“ETRC”) in Australia and New Zealand;

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the ownership and operation of “Off Broadway” style live theaters in Manhattan and Chicago located in properties wholly owned by the Company; and

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the development, ownership and operation of commercial real estate in Australia, New Zealand and the United States as a business ancillary to the development and operation of cinemas, cinema-based ETRCs and live theaters.

     We manage our worldwide cinema business under various different brands:

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in the US, under the Reading, Angelika Film Center and City Cinemas brands;

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in Australia, under the Reading brand;

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in New Zealand, under the Reading and Berkeley Cinemas brands; and

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in Puerto Rico, under the CineVista brand.

     Including the 22 screens acquired subsequent to the end of the second quarter as a part of our acquisition of substantially all of the assets of the Australia based Anderson Circuit, we currently operate (directly or indirectly through consolidated entities or majority owned unincorporated joint ventures) 231 screens in 34 cinema complexes, including two cinema complexes (comprising an aggregate of 9 screens) which we operate under management contracts in which we have no ownership interest. In addition, we have 50% unincorporated joint venture interests in 26 screens in five cinema complexes in New Zealand (including one 5-screen cinema which our joint venture operates under a management agreement and in which our joint venture has no ownership interest) and a 331/3% unincorporated joint venture interest in a 16-screen cinema complex in Australia.

     As previously reported to you, during the first quarter of 2004, we entered heads of agreement to fit-out and lease two new cinemas comprising 16 screens currently under development in Australia. Since the close of the first quarter, we have, in addition, entered into agreements for lease with respect to the fit-out and leasing of two additional cinemas, comprising a total of 15 screens. In the aggregate, these agreements cover four cinemas comprising 31 screens. It is currently anticipated that two of these cinemas comprising 15 screens will be completed and open for business before the end of the year, and that the remaining two cinemas comprising 16 screens will be completed in the third and fourth quarters of 2005. In addition, our New Zealand joint venture is currently in the process of developing an 8-screen leasehold cinema in a suburb of Auckland, which we anticipate will be completed and open for business before the end of the year.

     We currently operate 17 cinemas with 115 screens in Australia; when complete, the fit-outs will increase our holdings to 21 cinemas with 146 screens in Australia. Worldwide, prior to the completion of the acquisition of the Anderson cinemas, we operated 29 cinemas with 204 screens. With the completion of that acquisition, we now operate 33 cinemas with 226 screens. Upon completion of the four fit-outs currently under agreements for lease or heads of agreement, we will have 37 cinemas with 257 screens. In addition, the completion of the 8-screen cinema currently under construction in suburban Auckland will increase the size of our New Zealand joint venture’s operation to 34 screens in six cinemas.

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     Our business plan is to continue to identify, develop and acquire cinema and live theater properties, focusing on those opportunities where we can acquire either the fee interest underlying the operating entertainment assets, or long term leases, which we believe provide flexibility with respect to the usage of such leasehold assets. In the near term, we are focusing principally on the operation of our existing cinema and live theater assets and in the development of five parcels of undeveloped real estate in Melbourne, Brisbane, and Sydney in Australia, and in Wellington in New Zealand while taking advantage of those opportunities that may present themselves to strategically expand our existing cinema circuits. Since the close of the first quarter, we entered into agreements for lease with the two anchor tenants aggregating approximately 44,000 square feet of our approximately 95,000 square foot shopping center development in a suburb of Brisbane. Accordingly, we are now moving forward with the preparation of final construction drawings for that project, and anticipate that the shopping center will be open for business in the fourth quarter of 2005. In addition, on June 30, 2004, we acquired an adjoining 12,500 square-foot parcel, which we believe will allow us, in accordance with our initial plans for the project, to add a state-of-the-art multiplex to the shopping center.

     A significant portion of our business is conducted in Australia and New Zealand, and as such, we are subject to a certain degree of currency risk. We do not engage in currency hedging activities. Rather, to the extent possible, we operate our Australian and New Zealand operations on a self-funding basis. Our policy in Australia and New Zealand is to match revenue and expenses, whenever possible, in local currencies. As a result, a majority of our expenses in Australia and New Zealand have been procured in local currencies. Due to the developing nature of our operations in Australia and New Zealand, our revenues are not yet significantly greater than our operating expenses. The resulting natural operating hedge has led to a negligible foreign currency effect on our earnings. As we continue to progress our acquisition and development activities in Australia and New Zealand, we cannot assure you that the foreign currency effect on our earnings will be insignificant in the future.

     We are continuing in accordance with our business plan to dispose of or reposition those assets which either no longer fit with our entertainment-based business focus or which have a higher and better use as non-entertainment oriented properties:

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In May 2004, we entered into a letter of intent to sell our Puerto Rico assets for approximately $6.5 million. These assets are currently carried on our books at $2.2 million. Closing of the transaction contemplated by this letter of intent is subject to a variety of contingencies, including due diligence by the purchaser and the negotiation and execution of definitive documentation. Accordingly, we cannot assure you that a sale of our Puerto Rico assets will be completed.

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In October 2003, we sold our interest in our Sutton cinema property located on 58th Street near 3rd Avenue in Manhattan for $13 million and an option to either (i) acquire up to a 25% interest in the contemplated redevelopment of that property as a mixed use retail and residential condominium or (ii) to receive in lieu of such exercise the sum of $650,000. On August 2, 2004, we received a notice from the buyer triggering a 30-day review period with regards to our potential investment in the redevelopment. We are currently reviewing our option to acquire at cost up to a 25% interest in that project or, alternatively, to take the in lieu fee. Acquisition of a 25% interest would require an investment of approximately $2.2 million.

Results of Operations

     During the quarter ended June 30, 2004, we operated 29 cinemas with 204 screens and four live theaters comprising seven stages. Unconsolidated joint ventures in which we have interests operated an additional six cinemas with 42 screens. In addition, along with the three ETRC’s that we developed in Australia and New Zealand, we have fee interests in five developed commercial properties in the United States, and hold for development an additional five parcels (aggregating approximately 60 acres) in urbanized areas of Australia and

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New Zealand. Two of these parcels are in areas designated by the provincial government of Victoria, Australia as “major activity areas.”

     The tables below summarize the results of operations for each of our principal business segments for the three (“2004 Quarter”) and six (“2004 Six Months”) months ended June 30, 2004 and the three (“2003 Quarter”) and six (“2003 Six Months”) months ended June 30, 2003, respectively. Operating expenses include costs associated with the day-to-day operations of the cinemas and live theaters and the management of rental properties.

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