Quarterly report pursuant to Section 13 or 15(d)

Other Investments

v3.20.2
Other Investments
9 Months Ended
Sep. 30, 2020
Financial Support For Nonconsolidated Legal Entity [Abstract]  
Other Investments

10.

Other Investments

Below is a summary of activity for each of the Company’s other investments for the nine months ended September 30, 2020:

 

 

 

DCIP

 

AC JV,

LLC

 

DCDC

 

FE Concepts

 

Other

 

Total

 

Balance at January 1, 2020

 

$

124,696

 

$

5,022

 

$

3,169

 

$

19,519

 

$

2,879

 

$

155,285

 

Cash distributions received

 

 

(10,383

)

 

 

 

(878

)

 

 

 

 

 

(11,261

)

Equity loss

 

 

(20,083

)

 

(618

)

 

(1,197

)

 

(1,003

)

 

 

 

(22,901

)

Other

 

 

50

 

 

 

 

 

 

 

 

(2,584

)

 

(2,534

)

Balance at September 30, 2020

 

$

94,280

 

$

4,404

 

$

1,094

 

$

18,516

 

$

295

 

$

118,589

 

 

Digital Cinema Implementation Partners LLC (“DCIP”)

On February 12, 2007, the Company, AMC and Regal (the “Exhibitors”) 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. On March 10, 2010, DCIP and its subsidiaries completed an initial financing transaction to enable the purchase, deployment and leasing of digital projection systems to the Exhibitors under equipment lease and installation agreements.  On March 31, 2011, DCIP obtained incremental financing necessary to complete the deployment of digital projection systems.  DCIP also entered into long-term Digital Cinema Deployment Agreements (“DCDAs”) with six major motion picture studios pursuant to which Kasima LLC, one of DCIP’s subsidiaries, receives a virtual print fee ("VPF") each time the studio books a film or certain other content on the leased digital projection systems. Other content distributors entered into similar DCDAs that provide for the payment of VPFs for bookings of the distributor's content on a leased digital projection system.  The DCDAs end on

the earlier to occur of (i) the tenth anniversary of the "mean deployment date" for all digital projection systems scheduled to be deployed over a period of up to five years, or (ii) the date DCIP achieves "cost recoupment", each as defined in the DCDAs.  Cost recoupment occurs when revenues attributable to the digital projection systems exceed the financing, deployment, administration and other costs associated with the purchase of the digital projection systems.  DCIP expects cost recoupment to occur during 2021. The timing of cost recoupment is dependent on VPF payments from studios. Pursuant to the operating agreement between the Exhibitors and DCIP, DCIP began to distribute excess cash to the Exhibitors upon the payoff of its outstanding debt, which occurred during the year ended December 31, 2019.  

As of September 30, 2020, 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 periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

Gross revenues

 

$

1,084

 

 

$

40,200

 

 

$

20,809

 

 

$

125,869

 

Operating income (loss)

 

$

(29,878

)

 

$

22,617

 

 

$

(72,422

)

 

$

73,396

 

Net income (loss)

 

$

(30,554

)

 

$

22,362

 

 

$

(79,660

)

 

$

69,323

 

 

 

 

As of

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Current assets

 

$

28,299

 

 

$

51,382

 

Noncurrent assets

 

$

461,276

 

 

$

581,547

 

Current liabilities

 

$

58,375

 

 

$

70,515

 

Noncurrent liabilities

 

$

710

 

 

$

190

 

Members' equity

 

$

430,490

 

 

$

562,224

 

 

As of September 30, 2020, the Company had 3,812 digital projection systems being leased under the master equipment lease agreement with Kasima LLC, which is an indirect subsidiary of DCIP and a related party to the Company. The Company had the following transactions with DCIP, reflected in utilities and other costs on the condensed consolidated statements of income, during the three and nine months ended September 30, 2020 and 2019:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

Equipment lease payments (1)

 

$

346

 

 

$

1,105

 

 

$

1,384

 

 

$

3,357

 

Warranty reimbursements from DCIP

 

$

 

 

$

(2,953

)

 

$

(3,123

)

 

$

(8,842

)

Management service fees

 

$

 

 

$

128

 

 

$

84

 

 

$

438

 

 

(1)

The Company negotiated an abatement of lease payments during the temporary closure of its theatres as a result of the COVID-19 pandemic.  The Company did not remeasure its lease liabilities and lease right-of-use assets as a result of these negotiations in accordance with FASB guidance.  See further discussion at Note 4.  

 

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 joint venture that owns “Fathom 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, including concerts, 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 to AC of $2,258 and $10,332 for the nine months ended September 30, 2020 and 2019, respectively, which are included in film rentals and advertising costs on the condensed consolidated statements of income. The Company accounts for its investment in AC under the equity method of accounting.

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 $208 and $703 to DCDC during the nine months ended September 30, 2020 and 2019, 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. The Company accounts for its investment in DCDC under the equity method of accounting.

FE Concepts, LLC

During April 2018, the Company, through its wholly-owned indirect subsidiary CNMK Texas Properties, LLC (“CNMK”), formed a joint venture, FE Concepts, LLC (“FE Concepts”) with AWSR Investments, LLC (“AWSR”), an entity owned by Lee Roy Mitchell and Tandy Mitchell.  FE Concepts operates a family entertainment center that offers bowling, gaming, movies and other amenities that opened during December 2019.  The Company and AWSR each invested approximately $20,000 and each have a 50% voting interest in FE Concepts.  The Company accounts for its investment in FE Concepts under the equity method of accounting.  The Company has a theatre services agreement with FE Concepts under which it provides film booking and equipment monitoring services. The Company recorded $3 and $19 of theatre services revenue under the agreement during the three and nine months ended September 30, 2020, respectively.

Additional Considerations

 

Each of the investments above have been adversely impacted by the COVID-19 pandemic (see Note 2) due to the temporary closure of theatres across the U.S.  The Company does not believe that any resulting decline in value of the underlying investments is other than temporary as the Company and other industry participants, who also have equity ownership interests in certain of the above investments, have reopened some theatres and will continue to reopen theatres as local government restrictions allow. The Company expects the industry to recover gradually over time.