Annual report pursuant to Section 13 and 15(d)

OTHER INVESTMENTS

v3.3.1.900
OTHER INVESTMENTS
12 Months Ended
Dec. 31, 2015
OTHER INVESTMENTS
7. OTHER INVESTMENTS

The Company had the following other investments at December 31:

 

     2014      2015  

Digital Cinema Implementation Partners (“DCIP”), equity method investment

   $ 51,277       $ 71,579   

RealD, Inc. (“RealD”), investment in marketable security

     14,429         12,900   

AC JV, LLC, equity method investment

     7,899         7,269   

Digital Cinema Distribution Coalition (“DCDC”), equity method investment

     2,438         2,562   

Other

     1,615         663   
  

 

 

    

 

 

 

Total

   $ 77,658       $ 94,973   
  

 

 

    

 

 

 

 

Below is a summary of activity for each of the investments for the years ended December 31, 2013, 2014 and 2015:

 

     DCIP     RealD     AC JV,
LLC
    DCDC     Other     Total  

Balance at January 1, 2013

   $ 23,012      $ 13,707      $ —        $ 5      $ 1,477      $ 38,201   

Cash contributions

     3,232        —          268        2,721        —          6,221   

Issuance of promissory note to NCM

     —          —          8,333        —          —          8,333   

Equity in income (loss)

     11,241        —          —          (137     —          11,104   

Equity in other comprehensive income

     548        —          —          —          —          548   

Adjustment for gain recognized by NCM

     —          —          (2,175     —          —          (2,175

Unrealized holding loss

     —          (3,264     —          —          —          (3,264

Other

     —          —          —          —          689        689   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

   $ 38,033      $ 10,443      $ 6,426      $ 2,589      $ 2,166      $ 59,657   

Cash contributions

     2,188        —          —          —          —          2,188   

Equity in income (loss)

     15,279        —          1,473        (151     —          16,601   

Equity in other comprehensive loss

     (219     —          —          —          —          (219

Unrealized holding gain

     —          3,986        —          —          —          3,986   

Cash distributions received

     (4,004     —          —          —          —          (4,004

Other

     —          —          —          —          (551     (551
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

   $ 51,277      $ 14,429      $ 7,899      $ 2,438      $ 1,615      $ 77,658   

Cash contributions

     3,211        —          —          —          500        3,711   

Equity in income

     18,522        —          970        124        —          19,616   

Equity in other comprehensive loss

     (384     —          —          —          —          (384

Unrealized holding loss

     —          (1,529     —          —          —          (1,529

Sale of investment in Taiwan (1)

     —          —          —          —          (1,383     (1,383

Cash distributions received

     (1,047     —          (1,600     —          —          (2,647

Other

     —          —          —          —          (69     (69
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

   $ 71,579      $ 12,900      $ 7,269      $ 2,562      $ 663      $ 94,973   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The Company sold its investment in a Taiwan joint venture for approximately $2,634, resulting in a gain of $1,251, which is included in (gain) loss on sale of assets and other for the year ended December 31, 2015.

Digital Cinema Implementation Partners LLC

On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as Digital Cinema Implementation Partners LLC 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. Upon signing the Agreements, the Company contributed the majority of its U.S. digital projection systems to DCIP, which DCIP then contributed to Kasima. 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.

As of December 31, 2015, 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 as of and for the years ended December 31, 2013, 2014 and 2015.

 

     Year ended December 31,  
     2013      2014      2015  

Net operating revenue

   $ 182,659       $ 170,724       $ 171,203   

Operating income

   $ 116,235       $ 101,956       $ 103,449   

Net income

   $ 48,959       $ 61,293       $ 79,255   

 

     As of  
     December 31,
2014
     December 31,
2015
 

Total assets

   $  1,097,467       $  1,004,292   

Total liabilities

   $ 845,319       $ 674,727   

As a result of the Agreements, the Company installed digital projection systems to a majority of its first run U.S. theatres. The digital projection systems are being leased from Kasima 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 December 31, 2015, the Company had 3,781 digital projection systems being leased under the master equipment lease agreement with Kasima. The Company had the following transactions with DCIP during the years ended December 31, 2013, 2014 and 2015:

 

     Year Ended December 31,  
     2013      2014      2015  

Equipment lease payments

   $ 3,853       $ 4,012       $ 4,474   

Warranty reimbursements from DCIP

   $ (1,893    $ (3,169    $ (4,329

RealD, Inc.

The Company licenses 3-D systems from RealD. Under its license agreement with RealD, the Company earned options to purchase shares of RealD common stock as it installed a certain number of 3-D systems as outlined in the license agreement. During 2010 and 2011, the Company vested in a total of 1,222,780 RealD options. Upon vesting in these options, the Company recorded an investment in RealD and a deferred lease incentive liability using the estimated fair value of the RealD options at the time of vesting. During March 2011, the Company exercised all of its options to purchase shares of common stock in RealD for $0.00667 per share.

The Company owns 1,222,780 shares of RealD and accounts for its investment in RealD as a marketable security. The Company has determined that its RealD shares are available-for-sale securities in accordance with ASC Topic 320-10-35-1, therefore unrealized holding gains and losses are reported as a component of accumulated other comprehensive loss until realized.

As of December 31, 2015, the estimated fair value of the Company’s investment in RealD was $12,900, which is based on the closing price of RealD’s common stock of $10.55 per share on December 31, 2015, and falls under Level 1 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35.

 

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 $9,273 and $11,440 for the years ended December 31, 2014 and 2015, respectively, which are included in film rentals and advertising costs on the 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, with the first of such payments made during December 2014. The remaining outstanding balance of the note payable from the Company to AC as of December 31, 2015 was $5,555.

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 $741 and $807 to DCDC during the years ended December 31, 2014 and 2015 related to content delivery services provided by DCDC, which is included in film rentals and advertising costs on the consolidated statements of income.