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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

Commission file number 1-8625

READING INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)

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.

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 5, 2002, there were 20,484,820 shares of Class A Nonvoting Common Stock, $0.01 par value per share and 1,336,334 shares of Class B Voting Common Stock, $0.01 par value per share outstanding.

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READING INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

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PART I — Financial Information

Item 1 — Financial Statements

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

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
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

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Reading International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)

See accompanying notes to consolidated financial statements.

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

Note 1 — Basis of Presentation and Significant Accounting Policies

     Reading International, Inc. (“RII” and collectively with its predecessors and consolidated affiliates “Reading” or the “Company”) is the result of the merger on December 31, 2001, of Reading Entertainment, Inc. (“RDGE” and collectively with its consolidated subsidiaries, “Old Reading”), and Craig Corporation (“CRG” and collectively with its wholly owned subsidiaries, “Craig”) with wholly owned subsidiaries of Citadel Holding Corporation and the simultaneous amendment of the Articles of Incorporation of Citadel Holding Corporation to change its name to Reading International, Inc. (the “Consolidation”). As a result, following the Consolidation RII held a 50% combined controlling interest in the Angelika Film Centers LLC (“AFC”) and began consolidating the accounts of AFC as of December 31, 2001. The Company, as it existed prior to the Consolidation, is referred to in these footnotes as “Citadel” and Citadel Holding Corporation, as it existed prior to the Consolidation and its name change, is referred to in the footnotes as “CDL”. Reading International, Inc., the surviving entity following the Consolidation, is now the owner of the consolidated businesses and assets of Reading Entertainment, Inc., Craig Corporation, and Citadel Holding Corporation.

     In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments of a recurring nature considered necessary for a fair presentation of its financial position as of September 30, 2002 and December 31, 2001, and the results of its operations and its cash flows for the nine months ended September 30, 2002 and 2001. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results of operations to be expected for the entire year.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the information and footnotes required to be in conformity with generally accepted accounting principles in the United States of America. The financial information provided herein, including the information under the heading, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” is written with the presumption that the users of the interim financial statements have read, or have access to, the most recent Annual Report on Form 10-K which contains the latest audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2001 and for the year then ended. Certain amounts in previously issued financial statements have been reclassified to conform to the 2002 financial statement presentation.

Foreign Currency Exchange

     The carrying value of the Reading’s Australia and New Zealand assets will fluctuate due to changes in the exchange rate between the U.S. dollar and Australian dollar ($0.5429 and $0.5117, were the respective exchange rates of U.S. dollars per Australian dollar at September 30, 2002 and December 31, 2001) and the U.S. dollar and New Zealand dollar ($0.4698 and $0.4161, were the respective exchange rates of U.S. dollars per New Zealand dollar at September 30, 2002 and December 31, 2001).

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

Basic and Diluted Earnings per Share

     Basic earnings per share is calculated by dividing net earnings applicable to common shareholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net earnings applicable to common shareholders by the weighted average common shares outstanding plus the dilutive effect of stock options. Options to purchase 1,459,000 and 881,180 shares of Class A Nonvoting common stock and Class B Voting common stock, respectively, were outstanding at September 30, 2002 at a weighted average exercise prices of $4.15 and $6.08 per share, respectively. Options to purchase 155,000 shares of Class A and Class B common stock were outstanding at September 30, 2001.

     For the three and nine months ended September 30, 2002 and 2001, the Company recorded a net loss and therefore, the effect of these stock options would have been anti-dilutive. Accordingly, the diluted earnings per share for the three and nine months ended September 30, 2002 and 2001 were calculated using the weighted average number of shares outstanding during the respective periods.

Recent Accounting Pronouncements

     In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). The FASB also issued Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), in August 2001.

     SFAS 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS 142, the Company no longer amortizes goodwill but continues to amortize other intangible assets with finite lives. In addition, all goodwill and intangible assets with indefinite lives will be subject to periodic testing for impairment.

     SFAS 144 supercedes SFAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and applies to all long-lived assets, including discontinued operations. SFAS 144 establishes a single accounting model for the impairment of disposal of long-lived assets, including discontinued operations. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. We have adopted SFAS No. 142 and SFAS 144 effective January 1, 2002. The adoption of SFAS No. 142 and 144 did not have a material impact on our financial position or on our results of operations.

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

     In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction” (“SFAS 145”). The most significant provisions of this statement relate to the rescission of Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” and it also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Under this new statement, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet certain defined criteria must be reclassified. The Company will adopt this statement as of January 1, 2003 but does not expect any material reclassifications as the result of our adoption.

     In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” (“SFAS 146”). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. A fundamental conclusion reached by the FASB in this statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company has not yet determined the impact of SFAS No. 146 on its financial position and results of operations, if any.

Note 2 — Certain Pro Forma Information Regarding the Consolidation

     Citadel, Craig and Old Reading consolidated under Reading International, Inc. as of December 31, 2001. In the Consolidation, each holder of RDGE common stock received 1.25 shares of RII Class A Nonvoting common stock for each share of RDGE common stock and each holder of CRG common stock and CRG common preference received 1.17 shares of RII Class A Nonvoting common stock for each share of the CRG common and CRG common preference stock. Holders of CDL common stock hold the same shares after the Consolidation as they did prior to the Consolidation since Citadel, though renamed Reading International, Inc., was the survivor in the transaction. (The Consolidation is discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2001).

     The operations of Craig and Old Reading are included in the Company’s accounts from December 31, 2001, the effective date of the Consolidation. The pro forma information presented below is not necessarily indicative of what the actual financial results would have been, had the Consolidation taken place on January 1, 2001. Unaudited pro forma operating results for the three and nine months ended September 30, 2001 for the consolidated company, assuming that the Consolidation had occurred on January 1, 2001, are set forth below (dollars in thousands, except for per share amounts).

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

     All significant intercompany transactions and balances between Craig, Old Reading and Citadel, including management fees, equity in earnings of affiliates, intercompany interest and dividend, and intercompany notes payable, have been eliminated. The Company’s operating income of approximately $422,000 and operating loss of approximately $383,000 from its Puerto Rican cinema circuit for the three and nine months ended September 30, 2001 is presented as operating loss from asset held for sale (Note 4).

Note 3 — Rental Property and Property and Equipment

     The table below sets forth the Company’s investment in rental property and property and equipment as of the dates indicated (dollars in thousands).

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

     The increase in property and equipment is primarily due to reclassification of approximately $18,000,000 from property held in development upon completion of the Company’s entertainment center located in Wellington, New Zealand.

Note 4 — Property Held for Sale

     Subsequent to the Company’s acquisition of the CineVista circuit as part of the Consolidation, the Company has continued discussions with an interested party regarding the disposition of all or a substantial portion of its assets and operations in Puerto Rico (See Note 11). As a consequence of write-downs taken in 1999, the CineVista circuit is currently carried on the books of the Company at $3,018,000 and CineVista’s operating income of $308,000 and $327,000 for the three and nine months ended September 30, 2002 is included in the Company’s Condensed Consolidated Statements of Operations as “Operating income from asset held for sale”. No assurances can be given that these discussions will mature into a sales transaction.

Note 5 — Goodwill and Intangible Assets

     Reading’s goodwill of $5,021,000 consists of (1) $4,817,000 of goodwill arising from the Liberty Theaters acquisition and (2) $204,000 from the acquisition of a cinema in Australia.

     Reading’s intangible assets, net of amortization, of $14,686,000 consist of (1) $9,926,000 in beneficial lease arising from the consolidation of AFC, (2) $4,393,000 of option payment made on the City Cinemas properties, and (3) $367,000 of capitalized acquisition costs relating to the Liberty Theaters and the City Cinemas chain. Reading amortizes its beneficial lease over 20 years and its option fees and acquisition costs over 10 years. At September 30, 2002 and at December 31, 2001, the accumulated amortization on the Company’s intangible assets was approximately $1,715,400 and $736,100, respectively.

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

     The goodwill amortization expense for the three and nine months ended September 30, 2001 was recorded as operating expense of the cinema/live theater segment and as of January 1, 2002, the Company stopped amortizing its goodwill in accordance with SFAS 142. The Company’s intangible assets were determined to have finite useful lives and as a result, the Company continues to amortize its option fee and acquisition costs over 10 years and its beneficial lease over 20 years.

     The reconciliation of reported net loss and loss per share to adjusted net loss and loss per share for the three and nine months ended September 30, 2002 and 2001 is as follows (dollars in thousands, except for per share data):

Note 6 — Income Tax

     The income tax benefit for the three and nine months ended September 30, 2002 amounted to $(435,000) and $(372,000), respectively, representing foreign withholding tax provision of $185,000 and $570,000, respectively, reduced by a federal tax refund of ($620,000) and ($942,000), respectively.

Note 7 — Minority Interest

     The minority interest is principally derived from the Company’s holdings in AFC. The Company owns 50% of the membership interest in AFC, with a subsidiary of National Auto Credit, Inc. (“NAC”) holding the other 50% membership interest. Notwithstanding the fact that the Company only owns a 50% interest, the Company consolidates AFC for financial reporting purposes due to the fact that the Company has effective management control over AFC. The minority interest in the Australian cinemas represents a 25% minority interest ownership in Australian County Cinemas and a 33.3% interest in the Elsternwick joint venture. The minority interest in Big 4 Farming LLC represents the 20% minority membership interest. The components of minority interest are as follows (dollars in thousands):

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

Note 8 — Business Segments

     The table below sets forth certain information concerning the Company’s theater and rental real estate operations for the three and nine months ended September 30, 2002 and 2001 (dollars in thousands).

Three Months Ended September 30,

Nine Months Ended September 30,

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2002

     The cinema/live theater results shown above include revenue and operating expense directly linked to Reading’s cinema and theater assets. The rental real estate results include rental income from properties owned by Reading offset by operating expense, including mortgage payments and interest. Corporate results include interest income earned with respect to the Company’s cash balances, and other income (expense).

     Corporate expenses include general and administrative expenses that are not directly attributable to other operating segments and are mostly comprised of the costs associated with the corporate offices located in Los Angeles, California, and Melbourne, Australia.

Note 9 — Comprehensive Income (Loss)

     Generally accepted accounting principles require Reading to classify unrealized gains and/or losses on Gish securities which are held as available-for-sale securities and the effect of the foreign currency translation adjustments as comprehensive income. The following table sets forth Reading’s comprehensive income for the periods indicated (in thousands):

Note 10 — Other (Income) Expense

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

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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 predecessors and consolidated affiliates “Reading” or the “Company”) is the result of the merger on December 31, 2001, of Reading Entertainment, Inc. (“RDGE” and collectively with its consolidated subsidiaries, “Old Reading”), and Craig Corporation (“CRG” and collectively with its wholly owned subsidiaries, “Craig”) with wholly owned subsidiaries of Citadel Holding Corporation and the simultaneous amendment of the Articles of Incorporation of Citadel Holding Corporation to change its name to Reading International, Inc. (the “Consolidation”). As a result, following the Consolidation RII held a 50% combined controlling interest in the Angelika Film Centers LLC (“AFC”) and began consolidating the accounts of AFC as of December 31, 2001. The Company, as it existed prior to the Consolidation, is referred to in these footnotes as “Citadel” and Citadel Holding Corporation, as it existed prior to the Consolidation and its name change, is referred to in the footnotes as “CDL”. Reading International, Inc., the surviving entity following the Consolidation, is now the owner of the consolidated businesses and assets of Reading Entertainment, Inc., Craig Corporation, and Citadel Holding Corporation. These businesses consist primarily of:

	•		The development, ownership and operation of cinemas in the United States, Australia, New Zealand, and Puerto Rico;
	•		The development, ownership and operation of cinema based entertainment centers in Australia and New Zealand;
	•		The ownership and operation of “Off Broadway” style live theaters in the United States; and
	•		As a business ancillary to its ownership and operation of cinemas, entertainment centers and live theaters — the development, ownership and operation of commercial real estate in Australia, New Zealand and the United States.

     We consider ourselves to be essentially a cinema and live theater exhibition company with a focus on real estate oriented assets. Consequently, 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 such operating assets, or long term leases, which provide flexibility with respect to the usage of such leasehold estates. As of July 1, 2002, the Agricultural Partnerships in which we owned a 40% interest, reconveyed the Big 4 Ranch to the original owner in consideration of the release from all obligations and liabilities otherwise owed to the original owner. We are currently in the process of winding up our agricultural activities. We intend to reduce or dispose of our interests in Puerto Rico as well as our investment in Gish Biomedical, Inc. securities. From time to time we may dispose of, or put to alternative use some or all of our interests in various operating assets, in order to realize the real estate values of such assets.

     As further described in our Annual Report on Form 10-K which contains the audited financial statements and notes thereto, for the year end December 31, 2001, we completed a series of transactions in 2001 that caused reported results for the three and nine months period ended September 30, 2002 (“2002 Quarter” and “2002 Nine Months”, respectively) and three and nine month periods ended September 30, 2001 (“2001 Quarter” and “2001 Nine Months”, respectively) to lack comparability. Also included below are transactions completed during the 2002 Nine Months which may affect comparability. To summarize:

	•		On July 1, 2002, we disposed of substantially all of our agricultural interests and assets.
	•		On March 21, 2002, we opened a 10-screen cinema and associated retail areas in Wellington, New Zealand, as part of an entertainment center that we developed.

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	•		On January 29, 2002, we modified our lease with Sutton Hill Associates to reflect the sale of the Murray Hill Cinema, resulting in a reduction in rental expense of approximately $825,000 per annum.
	•		On December 31, 2001, Citadel Holding Corporation merged with Old Reading and Craig and then changed its name to Reading International, Inc. (“RII”). As a result of the Consolidation, RII holds a 50% interest in the Angelika Film Centers LLC (“AFC”) and consolidates the accounts of AFC as of that date. The operating results of AFC are included in the 2002 Quarter and 2002 Nine Months.
	•		Also due to the Consolidation, the operating results of Old Reading and Craig are included in the 2002 Quarter and 2002 Nine Months results.
	•		On August 3, 2001, we opened an 8-screen cinema in Dallas that we had fitted out.
	•		On March 8, 2001, we acquired four domestic cinemas from Old Reading. Accordingly, the 2001 Nine Months results include only twenty-seven weeks of operations from these four cinemas.
	•		On February 13, 2001, we acquired the fee interest in the Union Square building. Accordingly, the 2001 Nine Months results include only thirty weeks of rental income from the Union Square building.