Quarterly report pursuant to Section 13 or 15(d)

Other Investments

v3.7.0.1
Other Investments
3 Months Ended
Mar. 31, 2017
Other Investments
6. Other Investments

Below is a summary of activity for each of the Company’s other investments for the three months ended March 31, 2017:

 

     DCIP     AC JV,
LLC
     DCDC      Other     Total  

Balance at January 1, 2017

   $ 87,819     $ 5,980      $ 2,750      $ 1,768     $ 98,317  

Cash contributions

     228       —          —          —         228  

Cash distributions

     (5,212     —          —          —         (5,212

Equity in income

     5,375       858        586        —         6,819  

Equity in other comprehensive income

     198       —          —          —         198  

Other

     —         —          —          (160     (160
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance at March 31, 2017

   $ 88,408     $ 6,838      $ 3,336      $ 1,608     $ 100,190  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Digital Cinema Implementation Partners LLC (“DCIP”)

On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as 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. As of March 31, 2017, the Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP. The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting.

Below is summary financial information for DCIP for the three months ended March 31, 2017 and 2016:

 

     Three Months Ended  
     March 31, 2017      March 31, 2016  

Revenues

   $ 45,479      $ 40,644  

Operating income

   $ 27,934      $ 23,400  

Net income

   $ 24,142      $ 18,502  

The digital projection systems are being leased from Kasima LLC (“Kasima”), which is an indirect subsidiary of DCIP and a related party to the Company, 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, the Company pays annual rent of one thousand dollars per digital projection system. The Company may also be 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 March 31, 2017, the Company had 3,794 digital projection systems being leased under the master equipment lease agreement with Kasima. The Company had the following transactions with DCIP, recorded in utilities and other on the condensed consolidated statements of income during the three months ended March 31, 2017 and 2016:

 

     Three Months Ended
March 31,
 
     2017      2016  

Equipment lease payments

   $ 1,369      $ 1,125  

Warranty reimbursements from DCIP

   $ (1,884    $ (1,324

Management services fees

   $ 206      $ 206  

AC JV, LLC

During December 2013, the Company, Regal, AMC (the “AC Founding Members”) and NCM entered into a series of agreements that resulted in the formation of AC JV, LLC (“AC”), a new joint venture that now owns “Fathom Events” (consisting of Fathom Events and Fathom Consumer Events) formerly operated by NCM. The Fathom Events business focuses on the marketing and distribution of live and pre-recorded entertainment programming to various theatre operators to provide additional programs to augment their feature film schedule. The Fathom Consumer Events business includes live and pre-recorded concerts featuring contemporary music, opera and symphony, DVD product releases and marketing events, theatrical premieres, Broadway plays, live sporting events and other special events. The Company paid event fees of $3,369 and $2,930 to AC for the three months ended March 31, 2017 and 2016, respectively, which are included in film rentals and advertising costs on the condensed consolidated statements of income.

AC was formed by the AC Founding Members and NCM. NCM, under a contribution agreement, contributed the assets associated with its Fathom Events division to AC in exchange for 97% ownership of the Class A Units of AC. Under a separate contribution agreement, the Founding Members each contributed cash of approximately $268 to AC in exchange for 1% of the Class A Units of AC. Subsequently, NCM and the Founding Members entered into a Membership Interest Purchase Agreement, under which NCM sold each of the Founding Members 31% of its Class A Units in AC, the aggregate value of which was determined to be $25,000, in exchange for a six-year Promissory Note. Each of the Founding Members’ Promissory Notes were originally for $8,333, bear interest at 5% per annum and require annual principal and interest payments. The remaining outstanding balance of the note payable from the Company to AC as of March 31, 2017 was $4,167.

Digital Cinema Distribution Coalition

Digital Cinema Distribution Coalition (“DCDC”) is a joint venture among the Company, Universal, Warner Bros., AMC and Regal. DCDC operates a satellite distribution network that distributes all digital content to U.S. theatres via satellite. The Company has an approximate 14.6% ownership in DCDC. The Company paid approximately $278 and $307 to DCDC during the three months ended March 31, 2017 and 2016, respectively, related to content delivery services provided by DCDC. These fees are included in film rentals and advertising costs on the condensed consolidated statements of income.