The Company's System Deliverable arrangements involve either a lease or a sale
of the theater system. Consideration in the Company's arrangements that are not
joint revenue sharing arrangements, consists of upfront or initial payments made
before and after the final installation of the theater system equipment and
ongoing payments throughout the term of the lease or over a period of time, as
specified in the arrangement. The ongoing payments are the greater of an annual
fixed minimum amount or a certain percentage of the theater box-office. Amounts
received in excess of the annual fixed minimum amounts are considered contingent
payments. The Company's arrangements are non-cancellable, unless the Company
fails to perform its obligations. In the absence of a material default by the
Company, there is no right to any remedy for the customer under the Company's
arrangements. If a material default by the Company exists, the customer has the
right to terminate the arrangement and seek a refund only if the customer
provides notice to the Company of a material default and only if the Company
does not cure the default within a specified period.
For arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue Recognition Topic of the FASB ASC, when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed, and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable and collectibility is reasonably assured. The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized when reported by theater operators, provided collectibility is reasonably assured. The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyouts is included in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable, collectibility is reasonably assured and title to the theater system passes from the Company to the customer. In a certain sales arrangement not subject to the provisions of the amended FASB ASC 605-25, "Revenue Recognition: Multiple-Element Arrangements" ("ASC 605-25"), the Company provided a customer with digital upgrades on several systems, including several specified upgrades to an as-of-yet undeveloped product. At the current period-end, the upgrade right in the agreement expired such that contract consideration became fixed. Accordingly, on
June 30, 2013, the Company allocated total arrangement consideration on a relative selling price allocation basis, and recognized revenue on all delivered elements based on this allocation.
The Company uses the Leases Topic of the FASB ASC to evaluate whether an arrangement is a lease and the classification of the lease. Arrangements not within the scope of the accounting standard are accounted for either as a sales or services arrangement, as applicable.