Annual report pursuant to Section 13 and 15(d)

Other Investments

v3.20.4
Other Investments
12 Months Ended
Dec. 31, 2020
Financial Support For Nonconsolidated Legal Entity [Abstract]  
Other Investments

9.

OTHER INVESTMENTS

Below is a summary of activity for each of the Company’s other investments for the periods indicated:

 

 

 

DCIP

 

 

AC JV,

LLC

 

 

DCDC

 

 

FE Concepts

 

 

Other

 

 

Total

 

Balance at January 1, 2018

 

$

106,215

 

 

$

5,916

 

 

$

3,598

 

 

$

104

 

 

$

4,212

 

 

$

120,045

 

Cash contributions

 

 

2,076

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

 

 

22,076

 

Equity in income (loss)

 

 

22,899

 

 

 

1,270

 

 

 

1,313

 

 

 

(82

)

 

 

 

 

 

25,400

 

Equity in comprehensive loss

 

 

(139

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(139

)

Cash distributions received

 

 

(5,799

)

 

 

(1,920

)

 

 

(219

)

 

 

 

 

 

 

 

 

(7,938

)

Other (1)

 

 

 

 

 

 

 

 

(2,437

)

 

 

(104

)

 

 

(137

)

 

 

(2,678

)

Balance at December 31, 2018

 

$

125,252

 

 

$

5,266

 

 

$

2,255

 

 

$

19,918.00

 

 

$

4,075

 

 

$

156,766

 

Equity in income (loss)

 

 

23,281

 

 

 

3,276

 

 

 

1,120

 

 

 

(399

)

 

 

 

 

 

27,278

 

Equity in comprehensive loss

 

 

(141

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(141

)

Cash distributions received

 

 

(23,696

)

 

 

(3,520

)

 

 

(206

)

 

 

 

 

 

 

 

 

(27,422

)

Other (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,196

)

 

 

(1,196

)

Balance at December 31, 2019

 

$

124,696

 

 

$

5,022

 

 

$

3,169

 

 

$

19,519

 

 

$

2,879

 

 

$

155,285

 

Equity in loss

 

 

(24,559

)

 

 

(1,277

)

 

 

(1,036

)

 

 

(1,246

)

 

 

 

 

 

(28,118

)

Cash contributions

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

Cash distributions received

 

 

(10,383

)

 

 

 

 

 

(878

)

 

 

 

 

 

 

 

 

(11,261

)

Non-cash distribution received (2)

 

 

(89,804

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(89,804

)

Other (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,426

)

 

 

(2,426

)

Balance at December 31, 2020

 

$

 

 

$

3,745

 

 

$

1,255

 

 

$

18,273

 

 

$

453

 

 

$

23,726

 

 

(1)

Other activity for DCDC for the year ended December 31, 2018 consisted of returns of capital originally contributed by the Company.  Other activity for the year ended December 31, 2019 consists primarily of and mark-to-market adjustment on an investment in marketable securities.

 

(2)

Consists of projectors distributed to the Company from DCIP as discussed below.

 

(3)

Consists primarily of the impairment of a cost method investment (see Note 11 for discussion of impairments recorded) and mark-to-market adjustment on an investment in marketable securities.

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 late 2021.  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 December 31, 2020, the Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP. Prior to the distribution received during November 2020, as discussed below, the Company accounted for its investment in DCIP and its subsidiaries under the equity method of accounting.

Below is summary financial information for DCIP as of and for the years ended December 31, 2018, 2019 and 2020:

 

 

 

Year ended December 31,

 

 

 

2018

 

 

2019

 

 

2020

 

Revenues

 

$

172,534

 

 

$

171,531

 

 

$

30,561

 

Operating income (loss)

 

$

102,236

 

 

$

99,812

 

 

$

(105,691

)

Net income (loss)

 

$

94,757

 

 

$

95,820

 

 

$

(114,243

)

 

 

 

As of

 

 

 

December 31, 2019

 

 

December 31, 2020

 

Current assets

 

$

51,382

 

 

$

36,372

 

Noncurrent assets

 

$

581,547

 

 

$

205

 

Current liabilities

 

$

70,515

 

 

$

39,844

 

Noncurrent liabilities

 

$

190

 

 

$

687

 

Members' equity (deficit)

 

$

562,224

 

 

$

(3,954

)

 

Through October 31, 2020, the Company leased digital projection systems under a master equipment lease agreement with Kasima LLC (“Kasima”), which is an indirect subsidiary of DCIP and a related party to the Company.  The Company amended the master equipment lease agreement (“MELA”) with Kasmia effective November 1, 2020, which resulted in the termination of the MELA and a lease termination fee to be paid by the Company on a monthly basis until a) cost recoupment is met or b) the DCDA agreements between DCIP and the major studios have been terminated.  Upon termination of the MELA, DCIP distributed the digital projection equipment to the Company.

 

The Company accounted for the lease termination and projector distribution as follows:

 

The Company wrote off the operating lease right of use assets and lease liabilities of $7,468 and $14,102, respectively, and recorded a gain of $6,634 in gain (loss) on sale of assets and other.

 

The Company recorded a lease termination liability of $4,169 and a corresponding loss in gain (loss) on sale of assets and other.  The remaining termination liability of $3,474 as of December 31, 2020 is reflected in accrued other current liabilities on the consolidated balance sheet.  

 

The Company recorded the fair value of the projectors received from DCIP of $102,719 as equipment, with a corresponding reduction in its investment in DCIP of $89,804 and a $12,915 non-cash distribution.

 

 

In accordance with ASC 323-10-35, since the non-cash distribution exceeded the book value of its investment in DCIP, the Company suspended equity method accounting. The Company will resume equity method accounting when the value of its investment in DCIP exceeds the sum of the excess noncash distribution noted above and any future excess cash distributions.  

 

In addition to the activity presented in the other investments table above, the Company had the following transactions with DCIP during the years ended December 31, 2018, 2019 and 2020:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2019

 

 

2020

 

Equipment lease payments (1)

 

$

4,862

 

 

$

4,399

 

 

$

1,729

 

Warranty reimbursements from DCIP

 

$

(10,800

)

 

$

(11,800

)

 

$

(6,997

)

Management services fees

 

$

730

 

 

$

596

 

 

$

208

 

 

(1)

Excludes lease termination payments of $695 made during the year ended December 31, 2020.  See discussion of MELA termination above.

 

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” (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 Company paid event fees to AC of $12,481, $15,376 and $3,740 for the years ended December 31, 2018, 2019 and 2020, respectively, which are included in film rentals and advertising costs on the consolidated statements of income.  The Company accounts for its investment in AC under the equity method of accounting.

Digital Cinema Distribution Coalition

The Company is a party to a joint venture with certain exhibitors and distributors called Digital Cinema Distribution Coalition (“DCDC”).  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 $927, $896 and $428 to DCDC during the years ended December 31, 2018, 2019 and 2020, respectively, related to content delivery services, which is included in film rentals and advertising costs on the 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.  In December of 2019, FE Concepts opened a family entertainment center that offers bowling, gaming, movies and other amenities.  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 receives service fees for providing film booking and equipment monitoring services for the facility.  The Company recorded $64 and $34 of related service fees during the years ended December 31, 2019 and 2020, respectively.


 

Additional Considerations

 

Each of the investments above have been adversely impacted by the COVID-19 pandemic (see Note 3) 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.  The Company performed a qualitative impairment analysis for its investments in AC and DCDC during the fourth quarter of 2020.  Based on the analysis performed, no impairment was recorded for the year ended December 31, 2020.