Annual report pursuant to Section 13 and 15(d)

Investment in Marketable Securities - RealD, Inc.

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Investment in Marketable Securities - RealD, Inc.
12 Months Ended
Dec. 31, 2013
Investment in Marketable Securities - RealD, Inc.
8. INVESTMENT IN MARKETABLE SECURITIES — REALD, INC.

The Company licenses 3-D systems from RealD, Inc. (“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 by reaching target levels as outlined in the license agreement. Upon vesting in these options, the Company recorded an investment in RealD and a deferred lease incentive liability in the aggregate of approximately $22,311, which represented the estimated fair value of the RealD options. 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 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. The deferred lease incentive liability recorded as a result of the option vesting events discussed above is reflected in other long-term liabilities on the consolidated balance sheets and is being amortized over the term of the license agreement, which is approximately seven and one-half years. As of December 21, 2013, the license agreement has a remaining term of approximately five years.

During the year ended December 31, 2011, the Company recognized an other-than-temporary impairment on its investment in RealD due to the length of time and extent to which RealD’s quoted stock price had been below the Company’s basis in the stock. As a result of the other-than-temporary impairment, the Company reclassified approximately $12,610, which represented cumulative net unrealized holding losses, from accumulated other comprehensive loss to earnings.

As of December 31, 2013, the Company owned 1,222,780 shares in RealD, with an estimated fair value of $10,443. The fair value of the RealD shares was determined based upon the quoted price of RealD’s common stock on December 31, 2013, which falls under Level 1 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35. During the years ended December 31, 2011, 2012 and 2013, the Company recorded a pre-tax unrealized holding gain (loss) of approximately $(21,694), $3,998 and $(3,264), respectively, as a component of accumulated other comprehensive loss.

 

Below is a rollforward of the Company’s investment in RealD from January 2011 through December 31, 2013:

 

Balance as of January 1, 2011

   $ 27,993   

Fair value of options earned

     3,402   

Exercise of options at $0.00667 per share

     8   

Unrealized holding loss

     (21,694
  

 

 

 

Balance as of December 31, 2011

   $ 9,709   

Unrealized holding gain

     3,998   
  

 

 

 

Balance as of December 31, 2012

   $ 13,707   

Unrealized holding loss

     (3,264
  

 

 

 

Balance as of December 31, 2013 (1)

   $ 10,443   
  

 

 

 

 

(1) 

Investment in RealD is included in investments in and advances to affiliates on the consolidated balance sheets.