Note 2 – Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries as well as majority-owned subsidiaries that the Company controls, and should be read in conjunction with the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2018 (“2018 Form 10-K”). All significant intercompany balances and transactions have been eliminated on consolidation. These consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). As such, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. We believe that we have included all normal and recurring adjustments necessary for a fair presentation of the results for the interim period.

Operating results for the quarter ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Significant estimates include (i) projections we make regarding the recoverability and impairment of our assets (including goodwill and intangibles), (ii) valuations of our derivative instruments, (iii) recoverability of our deferred tax assets, (iv) estimation of breakage and redemption experience rates, which drive how we recognize breakage on our gift card and gift certificates, and revenue from our customer loyalty program, and (v) allocation of insurance proceeds to various recoverable components. Actual results may differ from those estimates.

Recently Adopted and Issued Accounting Pronouncements

Adopted:

Accounting Standards Update (“ASU”) 2016-02 Leases: In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard, ASC 842 Leases, to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

On January 1, 2019, we adopted the new accounting standard Accounting Standards Codification (“ASC”) 842 Leases using the modified retrospective method. We recognized the cumulative effect of initially applying the new leasing standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The standard had a material impact on our consolidated balance sheets, but not on our consolidated income statements or statements of cash flow.


(Dollars in thousands)	Balance at December 31, 2018		Adjustments due to ASC 842		Balance at January 1, 2019
Assets
Operating property, net	$	257,667	$	370	$	258,037
Operating lease right-of-use assets		—		232,319		232,319
Intangible assets, net		7,369		(3,542)		3,827
Deferred tax asset, net		26,235		82		26,317
Liabilities
Operating lease liabilities	$	—	$	245,280	$	245,280
Other non-current liabilities		28,931		(16,033)		12,898
Stockholders' Equity
Non-controlling interest	$	4,337	$	(46)	$	4,291
Retained earnings		47,616		28		47,644


	Period Ended March 31, 2019
(Dollars in thousands)	As Reported, March 31, 2019		Balances Without Adoption of ASC 842		Effect of change Higher / (Lower)
Cinema costs and expenses	$	48,329	$	48,334	$	(5)
Depreciation and amortization		5,594		5,552		42
General and administrative		6,484		6,528		(44)
Interest expense, net		1,852		1,849		3
Income tax (benefit) expense		1,042		1,041		1
Net income (loss)	$	(2,097)	$	(2,094)	$	3


(Dollars in thousands)	As Reported, March 31, 2019		Balances Without Adoption of ASC 842		Effect of change Higher / (Lower)
Assets
Operating property, net	$	257,402	$	257,072	$	330
Intangible assets		3,694		7,151		(3,457)
Operating lease right-of-use assets		229,266		—		229,266
Deferred tax asset, net		26,483		26,400		83
Liabilities
Other current liabilities	$	9,525	$	9,363	$	162
Operating lease liabilities, current		19,797		—		19,797
Other non-current liabilities		12,346		28,643		(16,297)
Operating lease liabilities, non-current		222,594		—		222,594
Stockholders' Equity
Retained earnings	$	45,563	$	45,585	$	(22)

ASU 2014-09 Revenue from Contracts with Customers: On January 1, 2018, we adopted the new accounting standard ASC 606 Revenue from Contracts with Customers using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information was not restated. Adoption of this standard has no material effect on our consolidated financial statements.

On January 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB Emerging Issues Task Force. This standard requires that amounts generally described as restricted cash and cash equivalents should be combined with unrestricted cash and cash equivalents when reconciling the beginning and end of period balances on the statement of cash flows. Adoption of this standard has no material effect on our consolidated statement of cash flows.

On January 1, 2018, the Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments). The standard applies to eight (8) specific cash flow classification issues, reducing the current and potential future diversity in the presentation of certain cash flows. Adoption of this standard has no material effect on our consolidated statement of cash flows.

On January 1, 2018, the Company adopted ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard (i) requires that an employer disaggregate the service cost component from the other components of net benefit cost, and (ii) specifies how to present the service cost component and the other components of net benefit cost in the income statement and (iii) allows only the service cost component of net benefit cost to be eligible for capitalization. Adoption of this standard has no material impact on our consolidated financial statements.

On January 1, 2018, the Company adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU provides that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset is not a “business”, thus reducing the number of transactions that need further evaluation for business combination. The standard has no material impact on our current consolidated financial statements, and we do not expect it to be applicable to our consolidated financial statements in the near term unless we enter into a definitive business acquisition transaction.

Issued:

ASUs Effective 2019 and Beyond

Goodwill Impairment Simplification (ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment)

Issued by FASB in January 2017, this standard removes the second step of the two-step impairment test for measuring goodwill and is to be applied on a prospective basis only. The new standard is effective for the Company on January 1, 2020, including interim periods within the year of adoption. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. It is not anticipated that adoption of this standard will have any material impact on our consolidated financial statements.

Prior period financial statement correction of immaterial errors

During the third quarter of 2018, we identified immaterial errors related to the accounting for straight line rent receivable from tenants in our real estate operations dating back to 2015. These errors resulted in an understatement of real estate revenue.

We assessed the materiality of these errors on our financial statements for prior periods in accordance with the SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements, and concluded that they were not material to any prior annual or interim periods. However, the aggregate amount of $440k related to the prior period immaterial errors through June 30, 2018, would have been material to the quarterly accounts with our current Consolidated Statements of Income. Consequently, in accordance with ASC 250 (specifically SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we have corrected these errors for all prior periods presented by revising the consolidated financial statements and other financial information included herein.

The following is a summary of the previously issued financial statement line items for all periods and statements included in this report.

Consolidated Statements of Income:


	Three Months Ended March 31, 2018
(Dollars in thousands)	As Reported		Adjustment		As Revised
Real estate revenue	$	3,567	$	50	$	3,617
Total revenue		75,822		50		75,872
Operating income (loss)		5,643		50		5,693
Income before income taxes		4,224		50		4,274
Income tax benefit (expense)		(1,155)		(15)		(1,170)
Net income (loss)		3,069		35		3,104
Net income (loss) attributable to Reading International, Inc. common shareholders		3,047		35		3,082

Basic earnings (loss) per share	$	0.13	$	—	$	0.13
Diluted earnings (loss) per share		0.13		—		0.13

Consolidated Balance Sheets:


	Summary of Equity
(Dollars in thousands)	As Reported		Adjustment		As Revised
Equity at January 1, 2018	$	176,910	$	377	$	177,287
Net income (loss)		3,047		35		3,082
Equity at March 31, 2018	$	179,423	$	412	$	179,835

Consolidated Statements of Cash Flows:


	Three Months Ended March 31, 2018
(Dollars in thousands)	As Reported		Adjustment		As Revised
Net income (loss)	$	3,069	$	35	$	3,104
Change in net deferred tax assets		157		15		172
Prepaid and other assets		(2,259)		(50)		(2,309)
Net cash provided by operating activities	$	2,452	$	—	$	2,452