NCM operates a digital in-theater network in the U.S. for providing cinema advertising. The Company has an investment in NCM’s parent National CineMedia, Inc. (”NCMI”) and previously held an investment in NCM. See further discussion below under Investment in National CineMedia. The Company entered into an Exhibitor Services Agreement with NCM (“ESA”) pursuant to which NCM primarily provides screen advertising to the Company’s domestic theaters through its branded “Noovie” pre-show entertainment program and also handles lobby promotions and displays for the Company’s theaters. See further discussion below under Exhibitor Services Agreement.

Summary of Activity with NCMI/NCM

Below is a summary of activity with NCMI and NCM included in each of Holdings’ and CUSA’s consolidated financial statements for the periods indicated. See Note 4 for discussion of revenue recognition.


	Investment in NCMI/NCM			NCM Screen Advertising Advances			Equity in Loss (3)		Other Revenue			Interest Expense - NCM		Cash Received (1)
Balance as of January 1, 2022	$	135.4		$	(346.0	)
Receipt of common units due to annual common unit adjustment		1.3			(1.3	)		—		—			—		—
Screen rental revenues earned under ESA (1)		—			—			—		(19.9	)		—		19.9
Interest accrued related to significant financing component		—			(23.2	)		—		—			23.2		—
Equity in loss		(13.9	)		—			13.9		—			—		—
Impairment of investment in NCM (2) (5)		(113.2	)		—			—		—			—		—
Amortization of screen advertising advances		—			32.3			—		(32.3	)		—		—
Balance as of and for the year ended December 31, 2022	$	9.6		$	(338.2	)	$	13.9	$	(52.2	)	$	23.2	$	19.9
Screen rental revenues earned under ESA (1)		—			—			—		(20.9	)		—		20.9
Interest accrued related to significant financing component		—			(22.6	)		—		—			22.6		—
Redemption of common units in NCM for common stock of NCMI (2)		—			—			—		—			—		—
Equity in loss (3)		(3.2	)		—			3.2		—			—		—
Impairment of investment in NCMI (2) (5)		(0.7	)		—			—		—			—		—
Change in unrealized gain on fair market value adjustment of investment in NCMI (2)		12.4			—			—		—			—		—
Amortization of screen advertising advances		—			32.4			—		(32.4	)		—		—
Balance as of and for the year ended December 31, 2023	$	18.1		$	(328.4	)	$	3.2	$	(53.3	)	$	22.6	$	20.9
Screen rental revenues earned under ESA (1)		—			—			—		(21.9	)		—		21.9
Interest accrued related to significant financing component		—			(22.0	)		—		—			22.0		—
Receipt of common units in NCM due to annual common unit adjustment (4)		—			(0.5	)		—		—			—		—
Change in unrealized gain on fair market value adjustment of investment in NCMI (2)		10.9			—			—		—			—		—
Amortization of screen advertising advances		—			32.4			—		(32.4	)		—		—
Balance as of and for the year ended December 31, 2024	$	29.0		$	(318.5	)	$	—	$	(54.3	)	$	22.0	$	21.9

(1)

Amounts include the per patron and per digital screen theater access fees, net of amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire. The amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire were approximately $7.5, $8.9 and $8.6 for the years ended December 31, 2022, 2023 and 2024, respectively. The portion of these amounts that were unpaid and reflected in accounts receivable as of December 31, 2023 and 2024 were $4.9 and $2.1, respectively.

(2)

See Investment in National CineMedia below.

(3)

Equity in loss was recorded through April 11, 2023, the date NCM filed its bankruptcy petition, after which the Company applied the fair value accounting method as discussed below.

(4)

See Common Unit Adjustments below.

(5)

Reflected in impairment of long-lived and other assets on the consolidated income statement for the year indicated. See further discussion at Investment in National CineMedia below.

In addition to the activity in the table above, the Company made de minimus payments to NCM during the years ended December 31, 2022, 2023 and 2024, respectively, related to the purchase of certain equipment used for digital advertising, which is included in theater furniture and equipment on the consolidated balance sheets.

On February 13, 2007 NCMI, a holding company that serves as the sole manager of NCM, completed an initial public offering (“IPO”) of its common stock. NCM comprises approximately the entire balance of NCMI’s assets, liabilities and operating cash flows. In connection with the NCMI initial public offering, the Company amended its operating agreement and the ESA. At the time of the NCMI IPO and as a result of amending the ESA, the Company received approximately $174.0 in cash consideration from NCM. The proceeds were recorded as deferred revenue or NCM screen advertising advances and are being amortized over the term of the Amended and Restated ESA or through February 2041.

As of January 1, 2023, the Company owned approximately 43.7 common units of NCM, which represented an interest in NCM of approximately 25.4%. During February and March 2023, the Company redeemed an aggregate of the Company’s 43.7 common units in NCM in exchange for 43.7 newly issued shares of NCMI common stock.

On April 11, 2023, NCM filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. NCMI continued to manage NCM, the “debtor in possession,” under the jurisdiction of the bankruptcy court and in accordance with the applicable bankruptcy laws and orders of the bankruptcy court. In general, as debtor in possession under the Bankruptcy Code, NCM was authorized to continue to operate as an ongoing business but could not engage in transactions outside the ordinary course of business without the prior approval of the bankruptcy court.

Through April 11, 2023, the Company’s investment in NCM was accounted for under the equity method, with undistributed equity earnings related to its investment included as a component of earnings in equity in income of affiliates or recorded as a reduction of its investment basis. Due to NCM’s bankruptcy proceedings, the Company reassessed its rights and level of influence over NCM. The Company determined that effective April 11, 2023, the date NCM filed its bankruptcy petition, it no longer had significant influence over NCM and therefore ceased accounting for its investment in NCMI under the equity method of accounting in the second quarter of 2023.

Up through April 11, 2023, the Company accounted for its investment in NCMI under the equity method of accounting, and therefore assessed its investment for other than temporary impairment during those periods. The Company recorded impairment charges totaling $113.2 and $0.7 on its investment in NCMI/NCM during the years ended December 31, 2022 and 2023, respectively, because the share price of NCMI was significantly below the Company’s carrying value of NCMI per common share and NCM’s pace of recovery from the COVID-19 pandemic lagged that of the Company and the movie theater industry. See Note 11.

On August 3, 2023, NCMI announced that it had effected a 1-for-10 reverse stock split of its common stock. After giving effect to the reverse stock split, the Company owns approximately 4.4 shares of NCMI common stock. NCM emerged from bankruptcy on August 7, 2023, and the Company’s ownership interest in NCMI was reduced to approximately 4.5%. The Company now accounts for its investment in NCMI in accordance with the guidance set forth in FASB ASC Topic 321 Investments - Equity Securities, which requires the Company to measure its investment in common stock of NCMI at fair value and recognize unrealized holding gains and losses on its investment in earnings. The Company recognized an unrealized gain of $12.4 and $10.9 on its investment in NCMI in the Company’s consolidated statement of income for the years ended December 31, 2023 and 2024.

Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCMI and the Company, the Company periodically receives consideration in the form of common units from NCM. Annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theater screens operated and theater attendance generated by the Company for the previous fiscal year. The common units received are recorded at estimated fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue or NCM screen advertising advances.

During March 2024, NCM performed its annual common unit adjustment calculation for 2023 and as a result of the calculation, the Company received approximately 0.1 common units of NCM on April 1, 2024. The Company recorded the common units at their estimated fair value of $0.5 with a corresponding adjustment to NCM screen advertising advances. The fair value of the common units received was estimated based on the market price of NCMI’s common stock at the time the common units were determined, adjusted for volatility associated with the estimated time period it would take to convert the common units and register the respective shares.

On April 10, 2024, the Company delivered a redemption notice to NCM to redeem these common units in NCM for shares of NCMI common stock. On April 12, 2024, NCM delivered a notice to the Company to settle the Company’s redemption request with a cash settlement at a redemption price of approximately $4.95 per common unit, or approximately $0.6. The amount of the cash settlement represents the estimated fair value of the NCM common units based on the closing market price of NCMI’s common stock on April 10, 2024. As a result of the cash settlement, the Company recorded a reduction in its investment in NCM of $0.5 and a gain of $0.1 which is reflected in “Net gain on investment in NCMI” on the Company’s consolidated statement of income for the year ended December 31, 2024.

As previously discussed, the Company’s domestic theaters are part of the in-theater digital network operated by NCM, the terms of which are defined in the ESA. NCM primarily provides advertising to its theaters through its branded “Noovie” pre-show entertainment program. The Company receives a monthly theater access fee for participation in the NCM network and also screen advertising or screen rental revenue on a per patron basis. Effective September 17, 2019, the Company signed an amendment to the ESA, under which the Company provided incremental advertising time to NCM and extended the term through February 2041. At the time of the amendment, the Company determined that the amended ESA met the definition of a lease under ASC Topic 842. The Company leases nonconsecutive periods of use of its domestic theater screens to NCM for purposes of showing third party advertising content. The lease, which is classified as an operating lease, generally requires variable lease payments based on the number of patrons attending the showtimes during which such advertising is shown. The lease agreement is considered short-term due to the fact that the nonconsecutive periods of use, or advertising time slots, are set on a weekly basis. The revenues earned under the ESA are reflected in other revenue on the consolidated income statements.

As noted above, the Company received approximately $174.0 in cash consideration from NCM at the time of NCMI’s IPO and also periodically receives consideration in the form of common units (discussed at Common Unit Adjustments above). Due to the significant length of time between receiving such consideration from NCM and fulfillment of the related performance obligation, the ESA includes an implied significant financing component, as per the guidance in ASC Topic 606. The interest expense was calculated using the Company’s incremental borrowing rates at the time consideration was received from NCM, which ranged from 4.4% to 8.3%. Effective September 17, 2019, upon the Company’s evaluation and determination that ASC Topic 842 applies to the amended ESA, the Company determined it acceptable to apply the significant financing component guidance from ASC Topic 606 by analogy as the economic substance of the agreement represents a financing arrangement.