Annual report pursuant to Section 13 and 15(d)

OTHER INVESTMENTS

v3.6.0.2
OTHER INVESTMENTS
12 Months Ended
Dec. 31, 2016
OTHER INVESTMENTS
6. OTHER INVESTMENTS

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

 

     DCIP     RealD     AC JV,
LLC
    DCDC     Other     Total  

Balance at January 1, 2014

   $ 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

Cash contributions

     717       —         —         —         —         717  

Equity in income

     21,434       —         311       870       —         22,615  

Equity in other comprehensive income

     89       —         —         —         —         89  

Sale of investment(2)

     —         (12,900     —         —         —         (12,900

Cash distributions received

     (6,000     —         (1,600     (98     —         (7,698

Other

     —         —         —         (584     1,105       521  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

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

(2) 

See further discussion of the sale of the investment held by the Company under RealD, Inc. below.

 

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 December 31, 2016, 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, 2014, 2015 and 2016.

 

     Year ended December 31,  
     2014      2015      2016  

Net operating revenue

   $ 170,724      $ 171,203      $ 178,836  

Operating income

   $ 101,956      $ 103,449      $ 107,919  

Net income

   $ 61,293      $ 79,255      $ 89,152  

 

     As of  
     December 31,
2015
     December 31,
2016
 

Total assets

   $ 1,004,757      $ 906,377  

Total liabilities

   $ 675,192      $ 509,197  

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 December 31, 2016, the Company had 3,795 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, 2014, 2015 and 2016:

 

     Year Ended December 31,  
     2014      2015      2016  

Equipment lease payments

   $ 4,012      $ 4,474      $ 5,217  

Warranty reimbursements from DCIP

   $ (3,169    $ (4,329    $ (6,091

Management services fees

   $ 782      $ 825      $ 825  

RealD, Inc. (“RealD”)

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 owned 1,222,780 shares of RealD and accounted for its investment in RealD as a marketable security, specifically an available-for-sale security, in accordance with ASC Topic 320-10-35-1, therefore unrealized holding gains and losses were reported as a component of accumulated other comprehensive loss until realized.

On March 22, 2016, an affiliate of Rizvi Traverse Management, LLC acquired RealD for $11.00 per share. As a result of the transaction, the Company sold its shares for approximately $13,451 and recognized a gain of $3,742, which included the recognition of a cumulative unrealized holding gain of $3,191 previously recorded in accumulated other comprehensive loss. The gain is reflected within loss on sale of assets and other on the consolidated statement of income for the year ended December 31, 2016. The Company used the proceeds to make a pre-payment on its term loan in accordance with the terms of its senior secured credit facility (see Note 10).

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 to AC of $9,273, $11,440 and $10,871 for the years ended December 31, 2014, 2015 and 2016, 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. The remaining outstanding balance of the note payable from the Company to AC as of December 31, 2016 was $4,167.

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, $807 and $939 to DCDC during the years ended December 31, 2014, 2015 and 2016, respectively, related to content delivery services, which is included in film rentals and advertising costs on the consolidated statements of income.