7.	Investment in National CineMedia

The Company has an investment in National Cinemedia, LLC (“NCM”). NCM operates a digital in-theatre network in the U.S. for providing cinema advertising. Upon joining NCM, the Company entered into an Exhibitor Services Agreement with NCM (“ESA”), pursuant to which NCM provides advertising and promotions to our theatres. As described further in Note 5 to the Company’s financial statements as included in its 2017 Annual Report on Form 10-K, on February 13, 2007, National Cinemedia, Inc. (“NCMI”), an entity that serves as the sole manager of NCM, completed an initial public offering (“IPO”) of its common stock. In connection with the NCMI initial public offering, the Company amended its operating agreement and the ESA. Following the NCM, Inc. IPO, the Company does not recognize undistributed equity in the earnings on its original NCM membership units (referred to herein as the Company’s Tranche 1 Investment) until NCM’s future net earnings, less distributions received, surpass the amount of the excess distribution. The Company recognizes equity in earnings on its Tranche 1 Investment only to the extent it receives cash distributions from NCM. The Company recognizes cash distributions it receives from NCM on its Tranche 1 Investment as a component of earnings as Distributions from NCM. The Company believes that the accounting model provided by ASC Topic 323-10-35-22 for recognition of equity investee losses in excess of an investor’s basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.

Below is a summary of activity with NCM included in the Company’s condensed consolidated financial statements:

	Investment in NCM			Deferred Revenue			Distributions from NCM			Equity in Earnings			Other Revenue			Interest Expense - NCM (3)		Cash Received
Balance as of January 1, 2018	$	200,550		$	(351,706	)
Impact of adoption of ASC Topic 606 ⁽¹⁾		—			53,605		$	—		$	—		$	—		$	—	$	—
Receipt of common units due to annual common unit adjustment ("CUA")		5,012			(5,012	)		—			—			—			—		—
Revenues earned under ESA ^{(2) (3)}		—			—			—			—			(16,074	)		9,892		6,182
Receipt of excess cash distributions		(8,760	)		—			(7,735	)		—			—			—		16,495
Receipt under tax receivable agreement		(2,294	)		—			(2,047	)		—			—			—		4,341
Equity in earnings		4,511			—			—			(4,511	)		—			—		—
Amortization of deferred revenue		—			7,849			—			—			(7,849	)		—		—
Balance as of and for the six months ended June 30, 2018	$	199,019		$	(295,264	)	$	(9,782	)	$	(4,511	)	$	(23,923	)	$	9,892	$	27,018

(1)

As a result of adoption of ASC Topic 606, the Company determined that the deferred revenue associated with the ESA and Common Unit Adjustment agreement should be amortized on a straight-line basis versus the units of revenue method followed prior to adoption. The Company recorded a reduction in the deferred revenue balance and a cumulative effect of a change in accounting principle in retained earnings (see also Note 6). See Note 3 for further discussion of the impact of the adoption of ASC Topic 606.

(2)	Amount includes the per patron and per digital screen theatre access fees due to the Company, net of amounts paid to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of approximately $6,227.

(3)	Reflects impact of significant financing component related to amounts received in advance under the ESA and CUA agreements. See Note 3.

During the three months ended June 30, 2018 and 2017, the Company recorded equity in earnings of $495 and $176, respectively. During the six months ended June 30, 2018 and 2017, the Company recorded equity in earnings of $4,511 and $3,065, respectively.

The Company made payments to NCM of $60 and $50 during the six months ended June 30, 2018 and 2017, respectively, related to installation of certain equipment used for digital advertising, which is included in theatre properties and equipment on the condensed consolidated balance sheets.

Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCMI and the Company, AMC Entertainment, Inc. (“AMC”) and Regal Entertainment Group (“Regal”) (collectively, “Founding Members”), annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member. As further discussed in Note 5 to the Company’s financial statements as included in its 2017 Annual Report on Form 10-K, the common units received (collectively referred to as the Company’s “Tranche 2 Investment”) are recorded at estimated fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue. The Company’s Tranche 2 Investment is accounted for following the equity method, with undistributed equity earnings related to its Tranche 2 Investment included as a component of earnings in equity in income of affiliates and distributions received related to its Tranche 2 Investment are recorded as a reduction of investment basis.

During March 2018, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, on March 29, 2018, the Company received an additional 908,042 common units of NCM, each of which is convertible into one share of NCMI common stock. The Company recorded the additional common units received at estimated fair value with a corresponding adjustment to deferred revenue of approximately $5,012. The fair value of the common units received was estimated based on the market price of NCMI 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. The deferred revenue will be recognized on a straight-line basis over the remaining term of the ESA, which is approximately 19 years.

As of June 30, 2018, the Company owned a total of 28,779,904 common units of NCM, representing an ownership interest of approximately 18%. The estimated fair value of the Company’s investment in NCM was approximately $241,751 based on the price of NCMI common stock as of June 30, 2018 of $8.40 per share (Level 1 input as defined in FASB ASC Topic 820). See Note 18 for discussion of subsequent event related to the acquisition of additional NCM common units from AMC.

Below is summary financial information for NCM for the periods indicated:

	Three Months Ended				Six Months Ended
	June 28, 2018		June 29, 2017		June 28, 2018		June 29, 2017
Gross revenues	$	113,700	$	97,100	$	193,900	$	169,000
Operating income	$	40,100	$	28,300	$	51,100	$	33,400
Net income	$	25,000	$	15,400	$	22,000	$	7,500

	As of			As of
	June 28, 2018			December 28, 2017
Current assets	$	142,800		$	174,400
Noncurrent assets	$	758,800		$	758,300
Current liabilities	$	84,800		$	123,300
Noncurrent liabilities	$	943,500		$	925,400
Members deficit	$	(126,700	)	$	(116,000	)