CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
November 2013, the Competition Committee approved the sale and the transaction closed on November 15, 2013. The sales price, which was paid in Mexican pesos, was approximately $126,167,
based on the exchange rate at November 15, 2013. The Company recorded a pre-tax gain of approximately $3,521 on the sale.
of Recently Acquired Rave Theatres
In conjunction with the Rave Acquisition, the Company was required to divest of three
theatres pursuant to a Hold Separate Agreement with the Department of Justice. On July 17, 2013, the Company entered into a definitive agreement to sell these three theatres to Carmike Cinemas, Inc. The transaction was approved by the
Department of Justice and closed on August 16, 2013.
||INVESTMENT IN NATIONAL CINEMEDIA LLC |
The Company has an investment in National CineMedia, LLC (NCM). NCM operates a digital in-theatre
network in the U.S. for providing cinema advertising and non-film events. Upon joining NCM, the Company entered into an Exhibitor Services Agreement, or the ESA, with NCM, pursuant to which NCM provides advertising, promotion and event services to
our theatres. On February 13, 2007, National CineMedia, Inc. (NCMI), an entity that serves as the sole manager of NCM, completed an IPO of its common stock. In connection with the NCMI initial public offering, the Company amended
its operating agreement and the ESA with NCMI. The ESA modification reflected a shift from circuit share expense under the prior ESA, which obligated NCM to pay the Company a percentage of revenue, to a monthly theatre access fee, which
significantly reduced the contractual amounts paid to us by NCM. The Company recorded the proceeds related to the ESA modification as deferred revenue, which is being amortized into other revenues over the life of the agreement using the units of
revenue method. In consideration for NCMs exclusive access to the Companys theatre attendees for on-screen advertising and use of off-screen areas within the Companys theatres for lobby entertainment and lobby promotions, the
Company receives a monthly theatre access fee under the modified ESA. The theatre access fee is composed of a fixed payment per patron, initially seven cents, and a fixed payment per digital screen, which may be adjusted for certain reasons outlined
in the modified ESA. The payment per theatre patron increases by 8% every five years, with the first such increase taking effect after the end of fiscal 2011, and the payment per digital screen, initially eight hundred dollars per digital screen per
year, increases annually by 5%. For 2011, 2012 and 2013, the annual payment per digital screen was nine hundred seventy-two dollars, one thousand twenty-one dollars and one thousand seventy-two dollars, respectively. The theatre access fee paid in
the aggregate to Regal Entertainment Group (Regal), AMC Entertainment, Inc. (AMC) and the Company will not be less than 12% of NCMs Aggregate Advertising Revenue (as defined in the modified ESA), or it will be adjusted
upward to reach this minimum payment. Additionally, with respect to any on-screen advertising time provided to the Companys beverage concessionaire, the Company is required to purchase such time from NCM at a negotiated rate. The modified ESA
has, except with respect to certain limited services, a remaining term of approximately 23 years.
As a result of the
application of a portion of the proceeds it received from the NCMI initial public offering, the Company had a negative basis in its original membership units in NCM, which is referred to herein as the Companys Tranche 1 Investment.
Following the NCM, Inc. IPO, the Company does not recognize undistributed equity in the earnings on its Tranche 1 Investment until NCMs future net earnings, less distributions received, surpass the amount of the excess distribution. The
Company recognizes equity in earnings on its Tranche 1 Investment only to the extent it receives cash distributions from NCM. The Company recognizes cash distributions it receives from NCM on its Tranche 1 Investment as a component of earnings
as Distributions from NCM. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investors basis is analogous to the accounting for equity income subsequent
to recognizing an excess distribution.