CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The digital projection systems leased from Kasima replaced a majority of the
Companys existing 35 millimeter projection systems in its U.S. theatres. Therefore, upon signing the agreements during 2010, the Company began accelerating the depreciation of these existing 35 millimeter projection systems. The Company
recorded depreciation expense of approximately $10,604 on its domestic 35 millimeter projection systems during the year ended December 31, 2011. The Companys domestic 35 millimeter projection systems were fully depreciated as of
December 31, 2011.
||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 RealDs quoted stock
price had been below the Companys 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 RealDs 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