Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.8.0.1
Revenue Recognition
3 Months Ended
Mar. 31, 2018
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

3.

Revenue Recognition

Revenue Recognition Policy

Admissions and concession revenues are recognized when sales are made at the box office and concession stand, respectively.  Other revenues include screen advertising and other ancillary revenues such as vendor marketing promotions, meeting rentals and electronic video games located in the Company’s theatres.  The Company records proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognizes admissions or concession revenue when a holder redeems the card or certificate. Additionally, the Company recognizes unredeemed gift cards and other advanced sale-type certificates as a proportion of actual redemptions as other revenues, which is an estimate primarily based on the Company’s historical experience with such cards and certificates.

Screen advertising revenues are generally recognized over the period that the related advertising is delivered on-screen or in-theatre. Advances collected on long-term screen advertising, concession and other contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the advances collected on such contracts are recognized during the period in which the Company satisfies the related performance obligations, which may differ from the period in which the advances are collected. These advances are recognized on either a straight-line basis over the term of the contracts or as the Company has met its performance obligations in accordance with the terms of the contracts.

See additional revenue recognition policy considerations, updated for the adoption of ASC Topic 606, below.  

Adoption of ASC Topic 606

The Company adopted ASC 606, Revenue from Contracts with Customers, effective January 1, 2018 under the modified retrospective method (cumulative-effect) and therefore, revenue amounts as presented on the condensed consolidated statements of income have not been adjusted for prior periods presented.

Changes to the way in which the Company recognizes revenue resulted in the following impacts to the condensed consolidated statements of income:

 

a)  

Recording of incremental other revenue and interest expense related to the significant financing component of the Company’s Exhibitor Services Agreement (“ESA”) with NCM, LLC (“NCM”).  See further discussion below, including the estimated interest rates assumed in determining the amount of interest expense.  

 

b)

Deferral of a portion of admissions and concession revenues for transactions that include the issuance of loyalty points to customers. To determine the amount of revenues to defer upon issuance of points to customers under its points-based loyalty programs, the Company estimated the values of the rewards expected to be redeemed by its customers for those points.  The estimates are based on the rewards that have historically been offered under the loyalty programs, which the Company believes is representative of the rewards to be offered in the future.

 

c)

Increase in other revenues and an increase in utilities and other expenses due to presentation of transactional fees on a gross versus net basis.

 

d)

Increase in other revenues due to the change in amortization methodology for deferred revenue – NCM that is now amortized on a straight-line basis and effective for the entire term of the ESA.  As a result of the change in amortization method, the Company recorded a cumulative effect of accounting change adjustment of $40,526, net of taxes, in retained earnings on January 1, 2018 (see also Note 6).  

 

The above noted changes increased (decreased) admissions, concession and other revenue by ($1,302), ($545) and $27,459, respectively, for the three months ended March 31, 2018.

 

The Company applied the practical expedient to exclude sales and other similar taxes collected from customers from its transaction price for purposes of recording revenues, as such revenues are presented net of such taxes.

 

Disaggregation of Revenue

The following table presents revenues for the three months ended March 31, 2018, disaggregated based on major type of good or service and by reportable operating segment.

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Major Goods/Services

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Admissions revenues

 

$

349,352

 

 

$

103,272

 

 

$

452,624

 

Concession revenues

 

 

203,750

 

 

 

58,022

 

 

 

261,772

 

Screen advertising and promotional revenues

 

 

18,179

 

 

 

14,269

 

 

 

32,448

 

Other revenues

 

 

25,062

 

 

 

8,065

 

 

 

33,127

 

Total revenues

 

$

596,343

 

 

$

183,628

 

 

$

779,971

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 15 for additional information by segment.

The following table presents revenues for the three months ended March 31, 2018, disaggregated based on timing of revenue recognition (see Revenue Recognition Policy above).

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services transferred at a point in time

 

$

575,826

 

 

$

166,149

 

 

$

741,975

 

Goods and services transferred over time

 

 

20,517

 

 

 

17,479

 

 

 

37,996

 

Total

 

$

596,343

 

 

$

183,628

 

 

$

779,971

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 15 for additional information by segment.

Deferred Revenues

The following table presents changes in the Company’s deferred revenues for the three months ended March 31, 2018.  

Deferred Revenues

 

Deferred Revenue - NCM

 

 

Other Deferred Revenues (1)

 

 

Total

 

Balance at January 1, 2018

 

$

351,706

 

 

$

86,498

 

 

$

438,204

 

  Impact of adoption of ASC Topic 606

 

 

(53,605

)

 

 

 

 

 

(53,605

)

  Amounts recognized as accounts receivable

 

 

 

 

 

9,119

 

 

 

9,119

 

  Cash received from customers in advance

 

 

 

 

 

22,271

 

 

 

22,271

 

  Common units received from NCM (see Note 7)

 

 

5,012

 

 

 

 

 

 

5,012

 

  Revenue recognized during period

 

 

(3,891

)

 

 

(33,613

)

 

 

(37,504

)

  Foreign currency translation adjustments

 

 

 

 

 

(75

)

 

 

(75

)

Balance at March 31, 2018

 

$

299,222

 

 

$

84,200

 

 

$

383,422

 

 

(1)

Includes liabilities associated with outstanding gift cards and SuperSavers, points or rebates outstanding under the Company’s loyalty and membership programs and revenues not yet recognized for screen advertising and other promotional activities. Classified as accounts payable and accrued expenses or other long-term liabilities on the condensed consolidated balance sheet.

The table below summarizes the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of March 31, 2018 and when the Company expects to recognize this revenue.

 

 

Twelve Months Ended March 31,

 

 

 

 

 

 

 

 

 

Remaining Performance Obligations

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

 

 

Total

 

Deferred revenue - NCM

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

220,067

 

 

$

299,222

 

Deferred revenue - other

 

 

73,338

 

 

 

10,799

 

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

84,200

 

Total

 

$

89,169

 

 

$

26,630

 

 

$

15,894

 

 

$

15,831

 

 

$

15,831

 

 

$

220,067

 

 

$

383,422

 

Accounts receivable as of March 31, 2018 included approximately $47,539 of receivables related to contracts with customers.  The Company did not record any assets related to the costs to obtain or fulfill a contract with customers during the three months ended March 31, 2018.

Significant Financing Component

As discussed further in Note 7, in connection with the completion of the NCM, Inc. (“NCMI”) initial public offering, the Company amended and restated its ESA with NCM and received approximately $174,000 in cash consideration from NCM.  The proceeds were recorded as deferred revenue and are being amortized over the term of the modified ESA, or through February 2037.  In addition to the consideration received upon the ESA modification during 2007, the Company also receives consideration in the form of common units from NCM, at each annual common unit adjustment settlement, in exchange for exclusive access to the Company’s newly opened domestic screens under the ESA.  See Note 7 for additional information regarding the common unit adjustment and related accounting.   Due to the significant length of time between receiving the consideration from NCM and fulfillment of the related performance obligation, the ESA includes an implied significant financing component, as per the guidance in ASC Topic 606.  

As a result of the significant financing component on deferred revenue - NCM, the Company recognized incremental screen advertising revenue and an offsetting interest expense of $4,979 during the three months ended March 31, 2018. The interest expense was calculated using the Company’s incremental borrowing rates at the time when the cash and each tranche of common units were received from NCM, which ranged from 5.5% to 8.0%.