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Investments
12 Months Ended
Dec. 31, 2017
Investments [Abstract]  
Cost and Equity Method Investments Disclosure
Investments
The Company holds several investments and loans in non-consolidated entities. Equity method investments were $61.3 million and $28.2 million at December 31, 2017 and 2016, respectively. Cost method investments were $46.8 million and $32.8 million at December 31, 2017 and 2016, respectively. Equity and cost method investments are included in other assets in the consolidated balance sheet.
RLJE
On October 14, 2016, Digital Entertainment Holdings LLC ("DEH"), a wholly-owned subsidiary of the Company, and RLJ Entertainment, Inc. ("RLJE") entered into a Credit and Guaranty agreement (the "RLJE Credit Agreement") pursuant to which DEH provided senior secured term loans totaling $65 million to RLJE, consisting of a $5 million Tranche A term loan (the "Tranche A Loan") and a $60 million Tranche B term loan (the "Tranche B Loan"), and DEH received warrants to purchase at least 20 million shares of RLJE's common stock, at a price of $3.00 per share (the "RLJE Warrants").
On January 30, 2017, the Company and RLJE amended the terms of the Tranche A Loan to increase the principal amount to $13 million. On June 16, 2017, DEH and RLJE entered into a second amendment to the RLJE Credit Agreement (the "Second Amendment") pursuant to which DEH provided an additional tranche of the term loan debt to RLJE in the principal amount of $10 million (the "Tranche A-2 Loan").
Both the Tranche A Loan and the Tranche A-2 Loan bear interest at a rate of 7.00% per annum, to be paid in shares of common stock of RLJE. The Tranche A Loan has a maturity date of June 30, 2020. The Tranche A-2 Loan has a maturity date of June 30, 2021. The Tranche B Loan bears interest at a rate of 6.00% per annum, to be paid in shares of Common Stock of RLJE. Principal payments on the Tranche B loan are $15 million due on October 14, 2021, $30 million due on October 14, 2022 and the remaining balance due on October 14, 2023. For the purposes of calculating the interest to be paid in shares of RLJE common stock, the value of such shares is based on a fixed $3.00 per share. Interest on the Tranche A Loan, the Tranche A-2 Loan and the Tranche B Loan is due in arrears on a quarterly basis.
The RLJE Warrants entitle DEH to purchase at least 20 million shares of Common Stock of RLJE (the “Warrant Shares”) with an initial exercise date of October 14, 2016. The first RLJE Warrant for 5 million Warrant Shares expires on October 14, 2021, the second RLJE Warrant for 10 million Warrant Shares expires on October 14, 2022, and the third RLJE Warrant for 5 million Warrant Shares expires on October 14, 2023. The exercise price of the RLJE Warrants is $3.00 per share, subject to certain adjustments.
The RLJE Warrants include customary anti-dilution provisions. In addition, the third RLJE Warrant also provides that the number of Warrant Shares shall be increased to the extent necessary to ensure that upon the full exercise of the RLJE Warrant, DEH shall hold at least 50.1% of the outstanding equity securities of RLJE on a fully diluted basis.
On June 20, 2017, in connection with the Second Amendment, DEH exercised a portion of its RLJE Class A warrants at $3.00 per share to acquire 1,667,000 shares of RLJE common stock in exchange for the cancellation of $5 million of the Tranche B Loan. Following the cancellation, the outstanding balance of the Tranche B Loan is $55 million.
The increased ownership interest from the warrant exercise, as well as the existing representation on RLJE's board of directors and the terms of the RLJE Credit Agreement were deemed, for accounting purposes, to provide DEH with the ability to exert significant influence over RLJE. As a result, the RLJE common stock investment held by the Company qualified for the use of the equity method of accounting. The Company has elected the fair value option for its investment in RLJE common stock based on the availability of a quoted market price. For the year ended December 31, 2017, the Company recognized a gain of $2.2 million in the fair value of its investment in RLJE common stock, which is included in miscellaneous, net in the consolidated income statement.
The RLJE term loans are included in other assets in the consolidated balance sheet. The Company accounts for the portion of interest on the RLJE term loans payable in RLJE common stock as an embedded derivative. In addition, the RLJE Warrants are accounted for as derivatives. Both the RLJE Warrants and the embedded derivative for the interest payable in RLJE common stock are remeasured at the end of each period with changes in fair value included in miscellaneous, net in the consolidated statement of income.
Subsequent Event
On February 26, 2018, the Company delivered a letter to RLJE pursuant to which the Company proposed to acquire the outstanding shares of RLJE not currently owned by the Company or entities affiliated with Robert L. Johnson for a purchase price of $4.25 per share in cash. Through this offer, the Company intends for RLJE to become a privately owned subsidiary of the Company, with a minority stake held by Mr. Johnson. The board of directors of RLJE has formed a special committee of independent directors to consider the proposal. There can be no assurance that the proposal made by the Company to RLJE will result in a transaction or the terms upon which any transaction may occur.
Other Investments
The Company holds a minority investment in Funny or Die, Inc. which is accounted for as a cost method investment. The agreement contains certain provisions under which the Company may be obligated to increase its investment over time.