NOTE 5—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, 2018 include interests in Digital Cinema Implementation Partners, LLC (“DCIP”) of 29.0%, Digital Cinema Distribution Coalition, LLC (“DCDC”) of 14.6%, AC JV, LLC (“AC JV”) owner of Fathom Events, of 32.0%, SV Holdco LLC, owner of Screenvision, 21.2%, and Digital Cinema Media (“DCM”) of 50.0%. The Company also has partnership interests in four U.S. motion picture theatres and one IMAX® screen of 50.0% (“Theatre Partnerships”) and approximately 50.0% interest in 57 theatres in Europe acquired in the Odeon and Nordic acquisitions. Indebtedness held by equity method investees is non-recourse to the Company.

 

Amounts payable to U.S. Theatre Partnerships were $0.7 million and $2.8 million as of September 30, 2018 and

December 31, 2017, respectively.

 

Dreamscape and Central Services Studios Preferred Stock.  During the nine months ended September 30, 2018, the Company invested an additional $5.0 million in Dreamscape Immersive, Inc. (“Dreamscape”) and invested an additional $5.0 million in Central Services Studios, Inc. (“Central Services Studios”) as a part of its virtual reality technologies strategy. The investments are recorded at cost following the measurement alternative as there is no established market for the securities and the Company does not have significant influence over these entities.

 

RealD.  During the nine months ended September 30, 2018, the Company entered into a Stock Issuance and Restrictions Agreement with RealD Holdings Inc. (“RealD”). The new agreement replaces a similar agreement with RealD for the lease of RealD 3D systems where rental payments continue to be variable and based on paid admissions and extends the term of the agreement to December 31, 2024. The investments are recorded at cost following the measurement alternative as there is no established market for the securities and the Company does not have significant influence over these entities.

 

Equity in Earnings (Loss) of Non-Consolidated Entities

 

Aggregated condensed financial information of the Company’s significant non-consolidated equity method investments (DCIP and NCM) is shown below:

 

Note: The revenues, operating costs and expense, and net earnings for the three months ended September 30, 2018 above includes DCIP only, as the sale of the Company’s investment in NCM closed on July 5, 2018.

 

The components of the Company’s recorded equity in earnings (loss) of non-consolidated entities are as follows:

 

 

 

NCM Transactions.  In March 2018, the NCM Common Unit Adjustment ("CUA") resulted in a negative adjustment of 915,150 common units for the Company. The Company elected to return the units and recorded the surrendered common units as a reduction to deferred revenues for the ESA at fair value of $5.2 million, based upon a price per share of National Cinemedia, Inc. (“NCM, Inc.”) of $5.64 on March 15, 2018. The Company’s investment in NCM was reduced by the carrying value of the common units of $6.3 million resulting in a loss from the surrender of the NCM common units of $1.1 million, which was recorded to equity in earnings (loss) of Non-Consolidated Entities in March 2018.

 

On June 18, 2018, the Company entered into two Unit Purchase Agreements (the “Agreements”) with each of Regal Cinemas, Inc. (“Regal”) and Cinemark USA, Inc. (“Cinemark”) pursuant to which Regal and Cinemark each separately agreed to purchase 10,738,740 common units of NCM at a sales price of $7.30 per unit and aggregate consideration of approximately $156.8 million (the “Sales”). The Sales closed on July 5, 2018. Following the closing of the Sales, the Company no longer owns any shares of common stock in NCM, Inc. or common units in NCM. NCM consented to the Sales and waived its rights under the memorandum of understanding that provided the Company would not reduce its combined ownership of NCM and NCM, Inc. below 4.5%. The Company recorded a $28.9 million gain on the sale of its NCM investment during the three months ended September 30, 2018.

 

The Company recorded the following related party transactions with NCM:

 

 

 

 

 

 

The Company recorded the following changes in the carrying amount of its investment in NCM and equity in earnings (loss) of NCM during the nine months ended September 30, 2018:

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2018 and September 30, 2017, the Company recorded cash received as investment income of $5.4 million and $5.5 million, respectively, related to the NCM tax receivable agreement. During the nine months ended September 30, 2018, the Company sold 1,000,000 shares of NCM, Inc. for net proceeds of $7.2 million and a gain of $2.3 million. During the three months ended September 30, 2018, the Company sold 21,477,480 common membership units of NCM, LLC for net proceeds of $156.8 million and a gain of $28.9 million.

 

NCM Agreement

 

On March 9, 2017, the Company reached an agreement with NCM to implement the requirements of the final judgment entered in connection with the DOJ approval of the Carmike transaction. Pursuant to the NCM agreement, the Company received 18,425,423 NCM common units in March 2017 related to annual attendance at the Carmike theatres and 361,892 NCM common units related to the 2016 common unit adjustment. Because the Carmike theatres were subject to a pre-existing agreement with a third party and will not receive advertising services from NCM, the Company will be obligated to make quarterly payments to NCM reflecting the estimated value of the advertising services at the Carmike theatres as if NCM had provided such services. The quarterly payments will continue until the earlier of (i) the date the theatres are transferred to the NCM network or (ii) expiration of the ESA with NCM. All calculations will be made pursuant to the terms of the existing ESA and Common Unit Adjustment Agreement with NCM. With regard to the existing AMC theatres on the NCM network that are required under the final judgment with the DOJ to be transferred to another advertising provider, the Company returned 2,850,453 (valued at $36.4 million) NCM common units to NCM in March 2017, calculated under the Common Unit Adjustment Agreement as if such theatres had been disposed of on March 3, 2017. The Company is not obligated to make quarterly payments with respect to the transferred theatres. In addition, the Company returned 1,807,220 additional NCM common units (valued at $22.6 million) in exchange for a waiver of exclusivity by NCM as to the required transferred theatres for the term of the final judgment, which was classified as general and administrative: Merger, acquisition and transaction costs when the common units were returned to NCM during the three months ended March 31, 2017. The Company recorded a loss of $1.2 million on the return of NCM common units as per the Common Unit Adjustment Agreement and exclusivity waiver for the difference between the average carrying value of the units and the fair value on the date of return. As a result of the agreement, the Company received 14,129,642 net additional NCM common units, valued at $176.9 million based on the market price of NCM, Inc. stock on March 16, 2017 of $12.52. Due to the structure of the transactions, the Company will no longer anticipate recognizing taxable gain upon receipt of new NCM common units. The Company also agreed to reimburse NCM up to $1.0 million for expenses related to the negotiation of this agreement.

 

The final judgment with the DOJ also requires the Company to divest the majority of its equity interests in NCM, so that by June 20, 2019, AMC owns no more than 4.99% of NCM’s outstanding equity interests on a fully converted basis per the following schedule: (i) on or before December 20, 2017, AMC must own no more than 15% of NCM’s outstanding equity interests; (ii) on or before December 20, 2018, AMC must own no more than 7.5% of NCM’s outstanding equity interests; and (iii) on or before June 20, 2019 AMC must own no more than 4.99% of NCM’s outstanding equity interests. The Company sold 14,800,000 NCM, Inc. shares during the three months ending September 30, 2017 and satisfied the DOJ divestiture requirements related to NCM dispositions for calendar 2017. As of June 30, 2018, the Company has 21,477,480 common units of NCM classified as held-for-sale, which were sold on July 5, 2018 and the Company is in full compliance with the DOJ final judgment.  In March 2018, the Company recorded in equity in (earnings) loss of non-consolidated entities a lower of carrying value or fair value impairment charge of $16.0 million to reduce the carrying value of its held-for-sale investment in NCM to Level 1 fair value.  The impairment charge reflected recording our held-for-sale units and shares at the lower of carrying value or publicly quoted per share price on March 31, 2018 of $5.19.

 

On June 18, 2018, the Company entered into two Agreements with each of Regal and Cinemark pursuant to which Regal and Cinemark each separately agreed to purchase 10,738,740 common units of NCM at a sales price of $7.30 per unit and aggregate consideration of approximately $156.8 million. The Sales closed on July 5, 2018. Following the closing of the Sales, the Company no longer owns any shares of common stock in NCM, Inc. or common units in NCM. NCM consented to the Sales and waived its rights under the memorandum of understanding that provided the Company would not reduce its combined ownership of NCM and NCM, Inc. below 4.5%. The Company recorded a  $28.9 million gain on the sale of its NCM investment during the three months ended September 30, 2018.

 

Screenvision Merger.  On May 30, 2018 Screenvision entered into an Agreement and Plan of Merger under which a change of control in Screenvision occurred upon consummation of the transactions contemplated therein. The Company received distributions and merger consideration of $45.9 million on July 2, 2018 upon consummation of the Screenvision merger and retains a 21.2% common membership interest. The Company reduced the carrying value of its investment in Screenvision to $0 and recorded equity in earnings for the excess distribution of $30.1 million during the three months ended September 30, 2018.

 

Digital Cinema Media.  The Company acquired its equity investment in DCM on November 30, 2016 in connection with the acquisition of Odeon. The Company receives advertising services from DCM for its Odeon theatres in International markets through a joint venture in which it has a 50.0% ownership interest.

 

The Company recorded the following related party transactions with DCM:

 

 

 

DCIP Transactions.  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 related party transactions with DCIP:

 

 

 

AC JV Transactions.    The Company recorded the following related party transactions with AC JV:

 

 

 

 

 

Screenvision Transactions.    The Company recorded the following related party transactions with Screenvision:

 

 

 

Nordic JV’s.    The Company recorded the following related party transactions with the Nordic theatre JV’s: