SCREENVISION EXHIBITION, INC.

On October 14, 2010, the Company finalized the modification of its long-term exhibition agreement (the “Modified Exhibition Agreement”) with Screenvision Exhibition, Inc. (“Screenvision”), the Company’s exclusive provider of on-screen advertising services. The Modified Exhibition Agreement extends the Company’s exhibition agreement with Screenvision, which was set to expire on July 1, 2012, for an additional 30 year term through July 1, 2042 (“Expiration Date”).

In connection with the Modified Exhibition Agreement, the Company received a cash payment of $30,000 from Screenvision in January 2011. In addition, on October 14, 2010, the Company received, for no additional consideration, Class C membership units representing, as of that date, approximately 20% of the issued and outstanding membership units of SV Holdco, LLC (“SV Holdco”). SV Holdco is a holding company that owns and operates the Screenvision business through a subsidiary entity. SV Holdco has elected to be taxed as a partnership for U.S. federal income tax purposes.

In September 2011, the Company made a voluntary capital contribution of $718 to SV Holdco. The capital contribution was made to maintain the Company’s relative ownership interest following an acquisition by Screenvision and additional capital contributions by other owners of SV Holdco. The Company received Class A membership units representing less than 1% of the issued and outstanding membership units of SV Holdco in return for the Company’s capital contribution.

As of June 30, 2016, the Company held Class C and Class A membership units representing approximately 18% of the total issued and outstanding membership units of SV Holdco. As of June 30, 2016, the carrying value of the Company’s ownership interest in SV Holdco is $7,285 and is included in investments in unconsolidated affiliates in the consolidated balance sheets. For book purposes, the Company has accounted for its investment in SV Holdco, LLC, a limited liability company for which separate accounts of each investor are maintained, as an equity method investment pursuant to ASC 970-323-25-6.

The Company’s Class C membership units are intended to be treated as a “profits interest” in SV Holdco for U.S. federal income tax purposes and thus do not give the Company an interest in the other members’ initial or subsequent capital contributions. As a profits interest, the Company’s Class C membership units are designed to represent an equity interest in SV Holdco’s future profits and appreciation in assets beyond a defined threshold amount, which equaled $85,000 as of October 14, 2010. The $85,000 threshold amount represented the agreed upon value of initial capital contributions made by the members to SV Holdco and is subject to adjustment to account for future capital contributions made to SV Holdco. Accordingly, the threshold amount applicable to the Company’s Class C membership units equaled $88,000 as of June 30, 2016.

The Company will also receive additional Class C membership units (“bonus units”), all of which will be subject to forfeiture, or may forfeit some of its initial Class C membership units, based upon changes in the Company’s future theatre and screen count. However, the Company will not forfeit more than 25% of the Class C membership units it received in October 2010, and the Company will not receive bonus units in excess of 33% of the Class C membership units it received in October 2010. Any bonus units and the initial Class C membership units subject to forfeiture will each become non-forfeitable on the Expiration Date, or upon the earlier occurrence of certain events, including (1) a change of control or liquidation of SV Holdco or (2)the consummation of an initial public offering of securities of SV Holdco. The Company’s Class C units in SV Holdco LLC that are subject to forfeiture, and any bonus units that may be awarded in future periods, will not be recognized in its consolidated financial statements until such units become non-forfeitable. Upon recognition, the Company will record its investment in any additional Class C and bonus units and will recognize revenue equal to the then estimated fair value of such units. The non-forfeitable ownership interest in SV Holdco was recorded at an estimated fair value of $6,555 which was determined using the Black Scholes Model. The Company has applied the equity method of accounting for the non-forfeitable units and for financial reporting purposes began recording the related percentage of the earnings or losses of SV Holdco in its consolidated statement of operations since October 14, 2010. The Company’s non-forfeitable Class C and Class A membership units represented approximately 14% of the total issued and outstanding membership units of SV Holdco as of June 30, 2016 and December 31, 2015.

In May 2016, the Company added certain previously acquired screens to its Modified Exhibition Agreement. The screens were brought under the Modified Exhibition Agreement following the expiration of their previous screen advertising agreement. Pursuant to the terms of the Modified Exhibition Agreement, the Company received a cash payment of $2,047 from SV Holdco which has been deferred and will be recognized as concessions and other revenue on a straight line basis over the remaining term of the Modified Exhibition Agreement.

For financial reporting purposes, the gains from both the $30,000 cash payment to the Company and its non-forfeitable membership units in SV Holdco ($36,555 in the aggregate) have been deferred and will be recognized as concessions and other revenue on a straight line basis over the remaining term of the Modified Exhibition Agreement. The Company has included in concessions and other revenue in the consolidated statement of operations amounts related to Screenvision of approximately $2,671 and $2,874 for the three months ended June 30, 2016 and 2015, respectively and approximately $5,237 and $5,401 for the six months ended June 30, 2016 and 2015, respectively. The Company reclassifies certain amounts from Screenvision included in concessions and other revenue to earnings from unconsolidated affiliates. The amount reclassified is based on the Company’s non-forfeitable ownership percentage of SV Holdco membership units, represents an intercompany gain to the Company and totaled $471 and $507 for the three months ended June 30, 2016 and 2015, respectively and $924 and $953 for the six months ended June 30, 2016 and 2015, respectively. The Company has included in accounts receivable in the consolidated balance sheets amounts due from Screenvision of $2,231 and $1,626 at June 30, 2016 and December 31, 2015, respectively.

A summary of changes in investments in unconsolidated affiliates and deferred revenue for the Company’s equity method investment in SV Holdco for the six months ended June 30, 2016 is as follows:



Investments in unconsolidated affiliates	SV Holdco
Balance at January 1, 2016	$	6,957
Equity income of SV Holdco	328
Balance at June 30, 2016	$	7,285


Deferred revenue	SV Holdco
Balance at January 1, 2016	$	30,670
Theatre acquisition bonus	2,047
Amortization of up-front payment	(480		)
Amortization of Class C units	(106		)
Balance at June 30, 2016	$	32,131