Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.10.0.1
Revenue Recognition
9 Months Ended
Sep. 30, 2018
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

3.

Revenue Recognition

Revenue Recognition Policy

The Company recognizes admissions and concession revenues when sales are made at the box office and concession stand, respectively.  Other revenues include screen advertising, transactional fees and other ancillary revenues such as vendor marketing promotions and meeting rentals and events.  The Company records proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognizes admissions or concession revenue when a holder redeems the card or certificate. Additionally, the Company recognizes unredeemed gift cards and other advanced sale-type certificates as other revenues based on a proportion of redemptions, which is estimated primarily based on the Company’s historical experience with such cards and certificates.

Screen advertising revenues are generally recognized over the period that the related advertising is delivered on-screen or in-theatre. Advances collected on long-term screen advertising, concession and other contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the advances collected on such contracts are recognized during the period in which the Company satisfies the related performance obligations, which may differ from the period in which the advances are collected. These advances are recognized on either a straight-line basis over the term of the contracts or as the Company has met its performance obligations in accordance with the terms of the contracts.

See additional revenue recognition policy considerations, updated for the adoption of ASC Topic 606, below.  

Adoption of ASC Topic 606

The Company adopted ASC 606, Revenue from Contracts with Customers, effective January 1, 2018 under the modified retrospective method (cumulative-effect) and therefore, revenue amounts as presented on the condensed consolidated statements of income have not been adjusted for prior periods presented.

Changes to the way in which the Company recognizes revenue resulted in the following impacts to the condensed consolidated statements of income:

 

a)  

Recording of incremental other revenue and interest expense related to the significant financing component of the Company’s Exhibitor Services Agreement (“ESA”) with NCM, LLC (“NCM”).  See further discussion below, including the estimated interest rates assumed in determining the amount of interest expense.  

 

b)

Deferral of a portion of admissions and concession revenues for transactions that include the issuance of loyalty points to customers. To determine the amount of revenues to defer upon issuance of points to customers under its points-based loyalty programs, the Company estimated the values of the rewards expected to be redeemed by its customers for those points.  The estimates are based on the rewards that have historically been offered under the loyalty programs, which the Company believes is representative of the rewards to be offered in the future.

 

c)

Increase in other revenues and an increase in utilities and other expenses due to the presentation of transactional fees on a gross versus net basis.

 

d)

Increase in other revenues due to the change in amortization methodology for deferred revenue – NCM that is now amortized on a straight-line basis and effective for the entire term of the ESA.  As a result of the change in amortization method, the Company recorded a cumulative effect of accounting change adjustment of $40,526, net of taxes, in retained earnings on January 1, 2018 (see also Note 6).  

 

The above noted changes increased (decreased) admissions, concession and other revenue for the three and nine months ended September 30, 2018, disaggregated as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

Admissions revenues

 

$

(1,524

)

 

$

(4,724

)

Concession revenues

 

$

(725

)

 

$

(1,932

)

Other revenues

 

$

25,794

 

 

$

85,963

 

 

 

The Company applied the practical expedient to exclude sales and other similar taxes collected from customers from its transaction price for purposes of recording revenues.  As such, revenues are presented net of such taxes.

 

 

Disaggregation of Revenue

The following table presents revenues for the three and nine months ended September 30, 2018, disaggregated based on major type of good or service and by reportable operating segment.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2018

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Major Goods/Services

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Admissions revenues

 

$

333,274

 

 

$

94,342

 

 

$

427,616

 

 

$

1,091,489

 

 

$

297,621

 

 

$

1,389,110

 

Concession revenues

 

 

207,960

 

 

 

56,205

 

 

 

264,165

 

 

 

661,328

 

 

 

169,915

 

 

 

831,243

 

Screen advertising and promotional

   revenues

 

 

19,010

 

 

 

13,420

 

 

 

32,430

 

 

 

58,240

 

 

 

43,135

 

 

 

101,375

 

Other revenues

 

 

22,031

 

 

 

7,993

 

 

 

30,024

 

 

 

76,635

 

 

 

24,896

 

 

 

101,531

 

Total revenues

 

$

582,275

 

 

$

171,960

 

 

$

754,235

 

 

$

1,887,692

 

 

$

535,567

 

 

$

2,423,259

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 15 for additional information on intercompany eliminations.

The following table presents revenues for the three and nine months ended September 30, 2018, disaggregated based on timing of revenue recognition (see Revenue Recognition Policy above).

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2018

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services transferred at a

   point in time

 

$

561,849

 

 

$

155,291

 

 

$

717,140

 

 

$

1,824,138

 

 

$

482,790

 

 

$

2,306,928

 

Goods and services transferred over

   time

 

 

20,426

 

 

 

16,669

 

 

 

37,095

 

 

 

63,554

 

 

 

52,777

 

 

 

116,331

 

Total

 

$

582,275

 

 

$

171,960

 

 

$

754,235

 

 

$

1,887,692

 

 

$

535,567

 

 

$

2,423,259

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 15 for additional information on intercompany eliminations.

Deferred Revenues

The following table presents changes in the Company’s deferred revenues for the nine months ended September 30, 2018.  

Deferred Revenues

 

Deferred

Revenue -

NCM

 

 

Other

Deferred

Revenues (1)

 

 

Total

 

Balance at January 1, 2018

 

$

351,706

 

 

$

86,498

 

 

$

438,204

 

Impact of adoption of ASC Topic 606

 

 

(53,605

)

 

 

 

 

 

(53,605

)

Amounts recognized as accounts receivable

 

 

 

 

 

13,693

 

 

 

13,693

 

Cash received from customers in advance

 

 

 

 

 

80,617

 

 

 

80,617

 

Common units received from NCM (see Note 7)

 

 

5,012

 

 

 

 

 

 

5,012

 

Revenue recognized during period

 

 

(11,806

)

 

 

(94,790

)

 

 

(106,596

)

Foreign currency translation adjustments

 

 

 

 

 

(2,468

)

 

 

(2,468

)

Balance at September 30, 2018

 

$

291,307

 

 

$

83,550

 

 

$

374,857

 

 

(1)

Includes liabilities associated with outstanding gift cards and SuperSavers, points or rebates outstanding under the Company’s loyalty and membership programs and revenues not yet recognized for screen advertising and other promotional activities. Classified as accounts payable and accrued expenses or other long-term liabilities on the condensed consolidated balance sheet.

The table below summarizes the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of September 30, 2018 and when the Company expects to recognize this revenue.

 

 

Twelve Months Ended September 30,

 

 

 

 

 

 

 

 

 

Remaining Performance Obligations

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

 

 

Total

 

Deferred revenue - NCM

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

212,152

 

 

$

291,307

 

Deferred revenue - other

 

 

70,468

 

 

 

12,682

 

 

 

264

 

 

 

136

 

 

 

 

 

 

 

 

 

83,550

 

Total

 

$

86,299

 

 

$

28,513

 

 

$

16,095

 

 

$

15,967

 

 

$

15,831

 

 

$

212,152

 

 

$

374,857

 

 

 

Accounts receivable as of September 30, 2018 included approximately $49,224 of receivables related to contracts with customers.  The Company did not record any assets related to the costs to obtain or fulfill a contract with customers during the nine months ended September 30, 2018.

Significant Financing Component

As discussed further in Note 7, in connection with the completion of the NCM, Inc. (“NCMI”) initial public offering, the Company amended and restated its ESA with NCM and received approximately $174,000 in cash consideration from NCM.  The proceeds were recorded as deferred revenue and are being amortized over the term of the modified ESA, or through February 2037.  In addition to the consideration received upon the ESA modification during 2007, the Company also receives consideration in the form of common units from NCM, at each annual common unit adjustment settlement, in exchange for exclusive access to the Company’s newly opened domestic screens under the ESA.  See Note 7 for additional information regarding the common unit adjustment and related accounting.   Due to the significant length of time between receiving the consideration from NCM and fulfillment of the related performance obligation, the ESA includes an implied significant financing component, as per the guidance in ASC Topic 606.  

As a result of the significant financing component on deferred revenue - NCM, the Company recognized incremental screen advertising revenue and an offsetting interest expense of $4,983 and $14,875 during the three and nine months ended September 30, 2018, respectively. The interest expense was calculated using the Company’s incremental borrowing rates at the time when the cash and each tranche of common units were received from NCM, which ranged from 5.5% to 8.0%.