In Reading’s 2008 Consolidated Entertainment/Pacific Theaters acquisition of 181 movie screens in California and Hawaii, there were three contingent purchase price reduction tests, each forgiving a portion of the acquisition’s seller note PLUS interest RETROACTIVE back to the Feb 2008 acquisition date. Two of those tests have already taken place and have reduced the seller note (“US Nationwide Loan 1” on Reading’s 3/31/10 schedule of Notes Payable) to $15.3 million.
This article notes the first anniversary of a competitive theater in Bakersfield California, within the competitive radius of Reading’s Valley Plaza 16, triggering the last contingent purchase price reduction test.
A multiple of the cash flow reduction experienced by Reading’s theater over this PAST year (that is lower EBITDA which RDI shareholders have already “suffered” from) is to be returned to Reading in the form of forgiveness on the seller note. The measurement will take place this current quarter. Reading’s lowered debt from forgiveness of a portion or all of the US Nationwide Loan 1 and recovery of accrued interest expense on the forgiven principal RETROACTIVE to the Feb 2008 acquisition date is likely to occur during Q4, after Pacific Theater’s audit of Reading’s claim.
RDI has also announced that it has settled its tax dispute with the IRS. Here’s the release:
Reading International Settles Tax Case with IRS
Los Angeles, California, – (BUSINESS WIRE) – July 16, 2010 – Reading International, Inc. (Reading) (NASDAQ:RDI) announced today that its wholly owned subsidiary, Craig Corporation (Craig), has reached an agreement in principle to settle its tax dispute with the Internal Revenue Service (IRS) related to Craig’s tax year ended June 30, 1997. Craig and the IRS are currently in the process of documenting this settlement. The settlement resulted in a 70% concession by the government and will lead to the previously issued IRS Notice of Deficiency, dated June 29, 2006, in the amount of $20.9 million, $47.2 million inclusive of interest, being set aside by agreement of the parties. Reading estimates that, as of the date of this release, Craig’s liability under this settlement is approximately $15.0 million inclusive of interest, although final calculations have yet to be agreed. As of March 31, 2010, Craig had reserved $4.5 million against this liability.
The impact of this settlement with the IRS on Reading is approximately $14.0 million, resulting in a charge against earnings of $9.5 million for the second quarter.
[Full Disclosure: I hold RDI. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]