Quarterly report pursuant to Section 13 or 15(d)

Investment in Digital Cinema Implementation Partners

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Investment in Digital Cinema Implementation Partners
9 Months Ended
Sep. 30, 2014
Investment in Digital Cinema Implementation Partners

8. Investment in Digital Cinema Implementation Partners

On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as Digital Cinema Implementation Partners LLC (“DCIP”) to facilitate the implementation of digital cinema in the Company’s theatres and to establish agreements with major motion picture studios for the financing of digital cinema. On March 10, 2010, the Company signed a master equipment lease agreement and other related agreements (collectively the “agreements”) with Kasima LLC (“Kasima”), which is an indirect subsidiary of DCIP and a related party to the Company. As of September 30, 2014, the Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP.

The Company has a variable interest in Kasima through the terms of its master equipment lease agreement; however, the Company has determined that it is not the primary beneficiary of Kasima, as the Company does not have the ability to direct the activities of Kasima that most significantly impact Kasima’s economic performance. The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting. During the three months ended September 30, 2014 and 2013, the Company recorded equity in earnings of approximately $4,791 and $4,613, respectively. During the nine months ended September 30, 2014 and 2013, the Company recorded equity in earnings of $10,969 and $7,315, respectively.

Below is a summary of changes in the Company’s investment in DCIP for the nine months ended September 30, 2014:

 

     Investment in  
     DCIP  

Balance as of January 1, 2014

   $ 38,033   

Cash contributions

     1,925   

Equity in income

     10,969   

Equity in other comprehensive loss

     194   
  

 

 

 

Balance as of September 30, 2014

   $ 51,121   
  

 

 

 

The digital projection systems that are leased from Kasima are under an operating lease with an initial term of twelve years that contains ten one-year fair value renewal options. The equipment lease agreement also contains a fair value purchase option. Under the equipment lease agreement, which was amended effective March 31, 2014, the Company pays minimum annual rent of one thousand dollars per digital projection system. The Company is also subject to various types of other rent if such digital projection systems do not meet minimum performance requirements as outlined in the agreements. Certain of the other rent payments are subject to either a monthly or an annual maximum. As of September 30, 2014, the Company had 3,666 digital projection systems being leased under the master equipment lease agreement with Kasima. The Company paid equipment lease expense of approximately $3,005 and $2,848 during the nine months ended September 30, 2014 and 2013, respectively, which is included in utilities and other costs on the condensed consolidated statements of income.

 

Below is summary financial information for DCIP for the three and nine months ended September 30, 2014 and 2013.

 

     Three Months Ended      Nine Months Ended  
     September 30, 2014      September 30, 2013      September 30, 2014      September 30, 2013  

Revenues

   $ 41,600       $ 46,321       $ 127,684       $ 134,398   

Operating income

   $ 24,913       $ 29,748       $ 75,619       $ 85,274   

Net income

   $ 17,759       $ 16,530       $ 42,352       $ 30,793