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INVESTMENTS | 9 Months Ended
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Sep. 30, 2014
INVESTMENTS |
INVESTMENTS | NOTE 2—INVESTMENTS Investments in non-consolidated affiliates and certain other investments accounted for under the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control, and are recorded in the Consolidated Balance Sheets in other long-term assets. Investments in non-consolidated affiliates as of September 30, 2014, include a 14.96% interest in National CineMedia, LLC ("NCM" or "NCM LLC"), a 32% interest in AC JV, LLC ("AC JV"), owner of Fathom Events, a 50% interest in two U.S. motion picture theatres and one IMAX screen, a 29% interest in Digital Cinema Implementation Partners, LLC ("DCIP"), and a 50% interest in Open Road Releasing, LLC, operator of Open Road Films, LLC ("Open Road Films"). Indebtedness held by equity method investees is non-recourse to the Company. RealD Inc. Common Stock. The Company holds an investment in RealD Inc. common stock, which is accounted for as an equity security, available for sale, and is recorded in the Consolidated Balance Sheets in other long-term assets at fair value (Level 1). Equity in Earnings (Losses) of Non-Consolidated Entities Condensed financial information of the Company's non-consolidated equity method investments for the three months ended September 30, 2014 and the three months ended September 30, 2013 is shown below:
|  | Three Months Ended September 30, 2014 |
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(In thousands) |  | DCIP |  | Open Road Films |  | NCM |  | AC JV |  | Other |  | Total |
Revenues |  | $ | 41,600 |  | $ | 36,913 |  | $ | 100,800 |  | $ | 9,656 |  | $ | 7,334 |  | $ | 196,303 |
Operating costs and expenses |  |  | 23,841 |  |  | 26,333 |  |  | 73,800 |  |  | 8,652 |  |  | 6,520 |  |  | 139,146 |
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Net earnings |  | $ | 17,759 |  | $ | 10,580 |  | $ | 27,000 |  | $ | 1,004 |  | $ | 814 |  | $ | 57,157 |
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|  | Three Months Ended September 30, 2013 |
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(In thousands) |  | DCIP |  | Open Road Films |  | NCM |  | AC JV |  | Other |  | Total |
Revenues |  | $ | 46,321 |  | $ | 24,405 |  | $ | 135,100 |  | $ | — |  | $ | 5,378 |  | $ | 211,204 |
Operating costs and expenses |  |  | 29,792 |  |  | 21,219 |  |  | 83,300 |  |  | — |  |  | 5,257 |  |  | 139,568 |
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Net earnings |  | $ | 16,529 |  | $ | 3,186 |  | $ | 51,800 |  | $ | — |  | $ | 121 |  | $ | 71,636 |
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Condensed financial information of the Company's non-consolidated equity method investments for the nine months ended September 30, 2014 and the nine months ended September 30, 2013 is shown below:
|  | Nine Months Ended September 30, 2014 |
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(In thousands) |  | DCIP |  | Open Road Films |  | NCM |  | AC JV |  | Other |  | Total |
Revenues |  | $ | 127,684 |  | $ | 128,396 |  | $ | 270,900 |  | $ | 26,219 |  | $ | 19,962 |  | $ | 573,161 |
Operating costs and expenses |  |  | 85,332 |  |  | 137,334 |  |  | 220,300 |  |  | 23,381 |  |  | 19,701 |  |  | 486,048 |
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Net earnings (loss) |  | $ | 42,352 |  | $ | (8,938 | ) | $ | 50,600 |  | $ | 2,838 |  | $ | 261 |  | $ | 87,113 |
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|  | Nine Months Ended September 30, 2013 |
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(In thousands) |  | DCIP |  | Open Road Films |  | NCM |  | AC JV |  | Other |  | Total |
Revenues |  | $ | 134,398 |  | $ | 125,839 |  | $ | 340,100 |  | $ | — |  | $ | 12,314 |  | $ | 612,651 |
Operating costs and expenses |  |  | 103,605 |  |  | 108,553 |  |  | 241,600 |  |  | — |  |  | 12,220 |  |  | 465,978 |
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Net earnings |  | $ | 30,793 |  | $ | 17,286 |  | $ | 98,500 |  | $ | — |  | $ | 94 |  | $ | 146,673 |
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The components of the Company's recorded equity in earnings (losses) of non-consolidated entities are as follows:
|  | Three Months Ended |  | Nine Months Ended |
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(In thousands) |  | September 30, 2014 |  | September 30, 2013 |  | September 30, 2014 |  | September 30, 2013 |
Digital Cinema Implementation Partners, LLC |  | $ | 5,537 |  | $ | 5,159 |  | $ | 15,082 |  | $ | 12,986 |
Open Road Releasing, LLC |  |  | 3,630 |  |  | 1,600 |  |  | (4,450 | ) |  | 8,650 |
National CineMedia, LLC |  |  | 3,249 |  |  | 7,218 |  |  | 5,258 |  |  | 15,917 |
AC JV, LLC |  |  | 321 |  |  | — |  |  | 959 |  |  | — |
Other |  |  | 350 |  |  | 346 |  |  | 451 |  |  | 590 |
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The Company's recorded equity in earnings |  | $ | 13,087 |  | $ | 14,323 |  | $ | 17,300 |  | $ | 38,143 |
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DCIP Transactions. The Company will make capital contributions to DCIP for projector and installation costs in excess of an agreed upon cap ($68,000 per system for digital conversions and for year five of the agreement, $41,500 for new build locations). The Company pays equipment rent monthly and records the equipment rental expense on a straight-line basis over 12 years. The Company recorded the following transactions with DCIP:
(In thousands) |  | September 30, 2014 |  | December 31, 2013 |
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Due from DCIP for equipment purchases |  | $ | 322 |  | $ | 663 |
Deferred rent liability for digital projectors |  |  | 9,107 |  |  | 7,747 |
|  | Three Months Ended |  | Nine Months Ended |
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(In thousands) |  | September 30, 2014 |  | September 30, 2013 |  | September 30, 2014 |  | September 30, 2013 |
Digital equipment rental expense (continuing operations) |  | $ | 1,268 |  | $ | 2,886 |  | $ | 5,270 |  | $ | 8,255 |
Open Road Films Transactions. During the three months and nine months ended September 30, 2014, the Company resumed the equity method of accounting for its investment in Open Road Films. The Company previously suspended the equity method when the negative investment in Open Road Films reached the Company's capital commitment of $10,000,000. The Company recorded the following transactions with Open Road Films:
(In thousands) |  | September 30, 2014 |  | December 31, 2013 |
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Due from Open Road Films |  | $ | 2,175 |  | $ | 2,658 |
Film rent payable to Open Road Films |  |  | 202 |  |  | 1,959 |
|  | Three Months Ended |  | Nine Months Ended |
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(In thousands) |  | September 30, 2014 |  | September 30, 2013 |  | September 30, 2014 |  | September 30, 2013 |
Gross film exhibition cost on Open Road Films |  | $ | 900 |  | $ | 1,800 |  | $ | 10,000 |  | $ | 10,500 |
NCM Transactions. As of September 30, 2014, the Company owns 19,194,501 common membership units, or a 14.96% interest, in NCM. The estimated fair market value of the units in NCM was approximately $278,512,000, based on the publically quoted price per share of NCM, Inc. on September 30, 2014 of $14.51 per share. On May 5, 2014, NCM, Inc., the sole manager of NCM, announced that it has entered into an agreement to acquire Screenvision, LLC for $375,000,000, consisting of cash and NCM, Inc. common stock. Consummation of the transaction is subject to regulatory approvals and other customary closing conditions as discussed further in Note 10—Commitments and Contingencies. The Company recorded the following transactions with NCM:
(In thousands) |  | September 30, 2014 |  | December 31, 2013 |
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Due from NCM for on-screen advertising revenue |  | $ | 1,458 |  | $ | 2,266 |
Due to NCM for Exhibitor Services Agreement |  |  | 1,201 |  |  | 2,429 |
|  | Three Months Ended |  | Nine Months Ended |
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(In thousands) |  | September 30, 2014 |  | September 30, 2013 |  | September 30, 2014 |  | September 30, 2013 |
Net NCM screen advertising revenues |  | $ | 8,482 |  | $ | 8,435 |  | $ | 25,854 |  | $ | 25,007 |
NCM beverage advertising expense |  |  | 2,887 |  |  | 3,604 |  |  | 9,077 |  |  | 10,325 |
The Company recorded the following changes in the carrying amount of its investment in NCM and equity in earnings of NCM during the nine months ended September 30, 2014:
(In thousands) |  | Investment in NCM(1) |  | Exhibitor Services Agreement(2) |  | Other Comprehensive (Income) |  | Cash Received (Paid) |  | Equity in (Earnings) Loss |  | Advertising (Revenue) |
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Ending balance December 31, 2013 |  | $ | 272,407 |  | $ | (329,913 | ) | $ | (2,282 | ) |  |  |  |  |  |  |  |  |
Receipt of common units(3) |  |  | 2,137 |  |  | (2,137 | ) |  | — |  |  |  |  |  |  |  |  |  |
Receipt of excess cash distributions |  |  | (15,484 | ) |  | — |  |  | — |  | $ | 15,484 |  | $ | — |  | $ | — |
Amortization of deferred revenue |  |  | — |  |  | 11,420 |  |  | — |  |  | — |  |  | — |  |  | (11,420 | )
Unrealized gain from cash flow hedge |  |  | 1,136 |  |  | — |  |  | (1,136 | ) |  | — |  |  | — |  |  | — |
Equity in earnings(4) |  |  | 7,609 |  |  | — |  |  | — |  |  | — |  |  | (7,609 | ) |  | — |
Equity in loss from amortization of basis difference(5) |  |  | (2,351 | ) |  | — |  |  | — |  |  | — |  |  | 2,351 |  |  | — |
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For the period ended or balance as of September 30, 2014 |  | $ | 265,454 |  | $ | (320,630 | ) | $ | (3,418 | ) | $ | 15,484 |  | $ | (5,258 | ) | $ | (11,420 | )
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(1) As of the date of the Merger, August 30, 2012, the Company's investment in NCM consisted of a single investment tranche (Tranche 1 Investment) consisting of 17,323,782 membership units recorded at fair value (Level 1). Subsequent membership units received as provided under the Common Unit Adjustment Agreement dated as of February 13, 2007, are recorded in a separate tranche, (Tranche 2 Investments). (2) Represents the unamortized portion of the Exhibitor Services Agreement ("ESA") with NCM. Such amounts are being amortized to other theatre revenues over the remainder of the 30 year term of the ESA ending in 2036, using a units-of-revenue method, as described in ASC 470-10-35 (formerly EITF 88-18, Sales of Future Revenues). (3) In March 2014, the Company received 141,731 membership units recorded at a fair value of $15.08 per unit with a corresponding credit to the ESA. (4) Represents percentage of ownership equity in earnings on both Tranche 1 and Tranche 2 Investments. (5) Certain differences between the Company's carrying value and the Company's share of NCM's membership equity have been identified and are amortized to equity in earnings over the respective lives of the assets and liabilities. During the nine months ended September 30, 2014 and September 30, 2013, the Company received payments of $8,045,000 and $3,677,000, respectively, related to the NCM tax receivable agreement. The receipts are recorded in investment expense (income) net of related amortization for the NCM tax receivable agreement intangible asset. AC JV Transactions. In December 2013, NCM spun-off its Fathom Events business to AC JV, a newly formed limited liability company. The Company recorded the following transactions with AC JV:
(In thousands) |  | September 30, 2014 |  | December 31, 2013 |
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Due to AC JV for Fathom Events programming |  | $ | 474 |  | $ | — |
|  | Three Months Ended |  | Nine Months Ended |
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(In thousands) |  | September 30, 2014 |  | September 30, 2013 |  | September 30, 2014 |  | September 30, 2013 |
Gross exhibition cost on Fathom Events programming |  | $ | 1,961 |  | $ | — |  | $ | 4,476 |  | $ | — |

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6382943&loc=d3e33918-111571 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=35687916&loc=d3e32787-111569 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=35687916&loc=d3e32847-111569 + Details
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