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FORM 10-Q

(Mark One)

OR

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.

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

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 5, 2003, there were 20,484,805 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 (Unaudited)
(dollars in thousands)

See accompanying notes to consolidated financial statements.

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Reading International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (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 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)
March 31, 2003

Note 1 – Report by Management

     Reading International, Inc. and its wholly owned subsidiaries (the “Company”) prepared the accompanying condensed consolidated financial statements following the requirements of the Securities Exchange Commission for interim reporting. As a consequence, these statements 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, 2002 and for the year then ended. Certain amounts in previously issued financial statements have been reclassified to conform to the 2003 financial statement presentation.

     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 March 31, 2003 and December 31, 2002, and the results of its operations and its cash flows for the three months ended March 31, 2003 and 2002. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results of operations to be expected for the entire year.

Note 2 – Recent Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 sets forth the criteria used in determining whether an investment in a variable interest entity (“VIE”) should be consolidated and is based on the general premise that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 would require the consolidation of specified VIE’s created before February 1, 2003 in the Company’s September 30, 2003 Form 10-Q. For specified VIE’s created after January 31, 2003, FIN 46 would require consolidation in the Company’s March 31, 2003 Form 10-Q. The Company has not completed its evaluation of the effect that the adoption of FIN 46 will have on its consolidated results of operations and financial position.

     In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” (“FAS 148”). FAS 148 amends Statement No. 123, Stock-Based Compensation (“FAS 123”) to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS 148 amends the requirements of FAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As permitted by FAS 123, the Company has elected to follow the intrinsic value method under Accounting Principle Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations in accounting for its employee

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

stock option plans. Under APB 25, no compensation expense is recognized at the time of option grant when the exercise price of the Company’s employee stock options equals the fair market value of the underlying common stock on the date of grant. The disclosure provisions of FAS 148 are effective for periods ending after December 15, 2002. The effects on net loss and loss per common share as if the Company had applied the fair value method to measure stock-based compensation have been incorporated below:

     In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 significantly changes the current practice in the accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements meeting the characteristics described in FIN 45 are required to be initially recorded as a liability at fair value. FIN 45 also requires a guarantor to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor having to make payment under the guarantee is remote. The disclosure requirements within FIN 45 are effective for financial statements for annual or interim periods ending after December 15, 2002. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of FIN 45 as of December 31, 2002. The adoption did not have a material impact on the Company’s consolidated results of operations and financial position.

     In October 2002, the FASB issued Statement of Financial Accounting Standards No. 147, “Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9” (“SFAS 147”). The provisions of SFAS 147 that relate to the application of the purchase method of accounting apply to all acquisitions of financial institutions, except transactions between two or more mutual enterprises. The provisions that require that an unidentifiable excess in a business combination be treated as goodwill rather than as a separate unidentifiable intangible asset apply to all acquisitions of financial institutions. The provisions of SFAS 147 became effective October 1, 2002. Adoption of SFAS 147 did not have a material impact on the Company’s consolidated results of operations and financial position.

     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 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS 146 requires that the initial measurement of a liability be at fair value. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002 with early adoption

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

encouraged. The adoption of SFAS 146 effective January 1, 2003 did not have a material impact on the Company’s consolidated results of operations and financial position.

     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 to the amendment of 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 presented periods that does not meet certain defined criteria must be reclassified. The adoption of SFAS 145 effective January 1, 2003 did not have a material impact on the Company’s consolidated results of operations and financial position.

Note 3 - Foreign Currency

     The Company does not use derivative financial instruments to hedge foreign currency exposure. The carrying value of the Company’s Australian and New Zealand assets will fluctuate due to changes in the exchange rates between the U.S. dollar and Australian dollar and the U.S. dollar and New Zealand dollar.

Note 4 - Earnings per Share

     Basic earnings per share is calculated by dividing net earnings applicable to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net earnings applicable to common stockholders by the weighted average common shares outstanding plus the dilutive effect of stock options.

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

     For the three months ended March 31, 2003 and 2002, 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 months ended March 31, 2003 and 2002 were calculated using the weighted average number of shares outstanding during the respective periods.

Note 5 - 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).

     The Company had $151,900 in capitalized interest during the three months ended March 31, 2002. There was no interest capitalized during the three months ended March 31, 2003.

Note 6 - Goodwill and Intangible Assets

     Goodwill of $5,036,000, net of accumulated amortization of $357,000, consists of the following (dollars in thousands):

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

     The Company has stopped amortizing its goodwill as of January 1, 2002.

     Intangible assets subject to amortization of $14,076,000, net of accumulated amortization of $2,331,000, consist of the following (dollars in thousands):

     The Company amortizes its beneficial lease over 20 years and its option fees and acquisition costs over 10 years. For the three months ended March 31, 2002, the amortization expense totaled $344,000. The Company’s intangible assets are all subject to amortization.

Note 7 – Income Tax

     The income tax benefit for the three months ended March 31, 2003 amounted to a net $171,000, representing a federal tax refund of $365,000 and a foreign withholding tax provision of $194,000 related to accrued interest from loans to foreign subsidiaries.

Note 8 – Minority Interest

       The minority interest is comprised of the following:

	•		50% of membership interest in Angelika Film Center LLC (“AFC LLC”) by a subsidiary of National Auto Credit, Inc.;
	•		33% minority interest in the Elsternwick Joint Venture by Champion Pictures Pty Ltd.;
	•		25% minority interest in Australian Country Cinemas by Panorama Cinemas for the 21st Century Pty Ltd.; and
	•		20% minority interest in Big 4 Farming LLC by Cecelia Packing Corporation.

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

     The components of minority interest are as follows (dollars in thousands):

Note 9 – Business Segments

     The Company is primarily engaged in two segments: (1) cinema and live theater ownership and operation and (2) development, ownership and operation of real estate assets. As a result, the Company has two reportable segments: (1) cinema/live theater and (2) rental/real estate. The cinema/live theater results shown below include revenue and operating expense directly linked to the Company’s cinema and theater assets. The rental/real estate results include rental income from properties owned by the Company 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). The table below sets forth certain information concerning the Company’s cinema/live theater and rental/real estate operations for the three months ended March 31, 2003 and 2002 (dollars in thousands).

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

Note 10 - Comprehensive Income

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

Note 11 – Other Expense (Income)

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

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

Note 12 – Subsequent Event

Settlement of Village Law Suit

     On December 16, 2001, Reading entered into Principles of Settlement with respect to the settlement of two lawsuits between Reading, as plaintiff, and Village Cinemas Australia Pty, Ltd., Birch Carroll & Coyle Ltd., AMP Life Limited, as defendants, and between Reading, as plaintiff, and Roadshow Film Distributors Pty Ltd, as defendant. Village and Birch Carroll & Coyle, when considered on a consolidated basis with its affiliate Greater Union, are two of the three largest exhibition companies in Australia. AMP is an insurance company and, through its affiliates, a major commercial landlord in Australia. Roadshow is a major film exhibitor in Australia. The settlements resolve a variety of claims on the part of Reading asserting various violation of Australian trade antitrust and trade practice laws and, in the case of its claim against AMP, alleged breach of an agreement to lease a multiplex cinema complex to Reading.

     The Principles of Settlement provides that:

	•		Village and Birch Carroll & Coyle will sell to Reading, at a historic cost of $1,961,000 (AUS$ 3,244,000), an undivided 1/3rd interest in the unincorporated joint venture that owns and operates the 16 screen multiplex cinema that was the subject matter of the AMP litigation.
	•		Reading may, at any time prior to December 16, 2003, put its interest back to Village and Birch Carroll & Coyle for $4,466,000 (AUS$ 7,387,998).
	•		Village will give to Reading the option to purchase, at cost, an undivided 1/3rd interest in an unincorporated joint venture to be formed to develop a new multi-plex cinema, or, in the event that Greater Union determines not to participate in that joint venture, the option to purchase an undivided ½ interest in that unincorporated joint venture.
	•		Roadshow will, generally speaking, provide Reading access to film product on the same basis as major exhibitors such as Village, Greater Union and Hoyts.
	•		Reading will be reimbursed attorneys fees in the amount of approximately $483,600 (AUS$800,000).

     The parties are currently negotiating definitive settlement documentation implementing the agreements set forth in the Principles of Settlement. The transaction is anticipated to close in the second quarter of 2003.

Sale of Certain Coal Interests and Settlement of Associated Litigation

     Included among Reading’s historic properties is an interest in certain proven anthracite coal deposits located in Pennsylvania. In April, the Company entered into a settlement agreement pursuant to which it has agreed to sell its rights in those coal deposits in exchange for $525,000 plus a royalty interest in any coal extracted from the site. It is anticipated that this transaction will close in the second quarter of 2003. The scope and extent of the Company’s interest is disputed by the local municipality, and the purchaser has agreed to assume the defense of those claims. In the event that it should be

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Reading International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2003

determined that the municipality and not the Company is the owner of these coal deposits, then the Company’s obligation is limited to the return of the $525,000 together with interest fixed as LIBOR at the date of closing of the Settlement Agreement.

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

     Reading International is in the business of owning and operating cinemas and live theaters and developing, owning and operating real estate assets. Our business consists primarily of:

	•		the development, ownership and operation of cinemas in the United States, Australia, New Zealand, and Puerto Rico;
	•		the ownership and operation of “Off Broadway” style live theaters in Manhattan and Chicago; and
	•		the development, ownership and operation of commercial real estate in Australia, New Zealand and the United States, including entertainment-themed retail centers (“ETRC”) in Australia and New Zealand.

     We manage our worldwide cinema business under various different brands:

	•		in the United States, under the Reading, Angelika Film Center and City Cinemas brands;
	•		in Australia, under the Reading brand;
	•		in New Zealand, under the Reading and Berkeley Cinemas brands; and
	•		in Puerto Rico, under the CineVista brand.

     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. In the near term, we are focusing principally on the operation of our existing cinema and live theater assets, and on the development of five parcels of undeveloped real estate in Melbourne and Sydney in Australia and in Wellington in New Zealand. We anticipate that over the remainder of the year, we will add a 6-screen cinema in Christchurch, New Zealand (owned in an unincorporated joint venture with our partner as a part of our Berkeley Cinemas chain in New Zealand) and close on the acquisition of a one-third undivided interest in an existing 16-screen cinema in suburban Brisbane, Australia. We have also been retained to manage a new art cinema (which will be operated under our Angelika name) in Plano, Texas.

     We plan to dispose of our interests in Puerto Rico and our interests in assets not core to our cinema, live theater and real estate businesses. To this end, we achieved the following since the end of 2002:

     1.     Reduction of General and Administrative Expense

     As part of our ongoing drive to reduce general and administrative expense and notwithstanding our commitment to sell our Puerto Rico circuit, we consolidated our Puerto Rican administrative support functions into our corporate office in Los Angeles, California. This consolidation will allow us to reduce our annual general and administrative expense by approximately $170,000.

     2.     Disposition of Non-core Assets

     In April 2003, we entered into an agreement to sell for $525,000 plus an ongoing royalty right, our interest in certain anthracite coal deposits in Pennsylvania.

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Results of Operations

     At March 31, 2003, we operated thirty-four cinemas with 222 screens and four live theatres comprising seven stages. 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 New Zealand.

     The tables below summarize the results of operations for each of our principal business segments for the three months ended March 31, 2003 (“2003 Quarter”) and for the three months ended March 31, 2002 (“2002 Quarter”) (dollars in thousands). Operating expense includes costs associated with the day-to-day management of the theaters and rental properties.