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INVESTMENT IN NATIONAL CINEMEDIA, INC/ NATIONAL CINEMEDIA LLC | 12 Months Ended
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Dec. 31, 2023
NCM |
INVESTMENT IN NATIONAL CINEMEDIA, INC / NATIONAL CINEMEDIA LLC | 9. INVESTMENT IN NATIONAL CINEMEDIA, INC / NATIONAL CINEMEDIA LLC NCM operates a digital in-theatre 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 our domestic theatres through its branded “Noovie” pre-show entertainment program. 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 5 for discussion of revenue recognition.
|  | Investment in NCMI/NCM |  |  | NCM Screen Advertising Advances |  |  | Distributions from NCM (5) |  |  | Equity in Loss (3) |  |  | Other Revenue |  |  | Interest Expense - NCM |  |  | Cash Received |
Balance as of January 1, 2021 |  | $ | 152.0 |  |  | $ | (344.3 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Receipt of common units due to annual common unit adjustment |  |  | 10.2 |  |  |  | (10.2 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Screen rental revenues earned under ESA (1) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (12.0 | ) |  |  | — |  |  |  | 12.0 |
Interest accrued related to significant financing component |  |  | — |  |  |  | (23.6 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 23.6 |  |  |  | — |
Receipt under tax receivable agreement |  |  | (0.2 | ) |  |  | — |  |  |  | (0.1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 0.3 |
Equity in loss |  |  | (26.6 | ) |  |  | — |  |  |  | — |  |  |  | 26.6 |  |  |  | — |  |  |  | — |  |  |  | — |
Amortization of screen advertising advances |  |  | — |  |  |  | 32.1 |  |  |  | — |  |  |  | — |  |  |  | (32.1 | ) |  |  | — |  |  |  | — |
Balance as of and for the year ended December 31, 2021 |  | $ | 135.4 |  |  | $ | (346.0 | ) |  | $ | (0.1 | ) |  | $ | 26.6 |  |  | $ | (44.1 | ) |  | $ | 23.6 |  |  | $ | 12.3 |
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) |  |  | (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 of NCM for common stock of NCMI (2) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Equity in loss (3) |  |  | (3.2 | ) |  |  | — |  |  |  | — |  |  |  | 3.2 |  |  |  | — |  |  |  | — |  |  |  | — |
Impairment of investment in NCMI (4) |  |  | (0.7 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
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 |
(1) Amounts include the per patron and per digital screen theatre 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 $4.9, $7.5 and $8.9 for the years ended December 31, 2021, 2022 and 2023, respectively. Amounts unpaid and reflected in accounts receivable were $4.9 and $4.9 as of December 31, 2022 and 2023, 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) 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. (5) Excess cash distributions from NCM to its members were restricted through December 2023 in accordance with the credit agreement amendment NCM entered into with its lenders and as a result of their bankruptcy filing. NCMI also suspended its dividend. In addition to the activity in the table above, the Company made de minimus payments to NCM during the years ended December 31, 2021, 2022 and 2023, respectively, related to certain equipment used for digital advertising, which is included in theatre furniture and equipment on the consolidated balance sheets. Investment in National CineMedia 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%. On February 17, 2023, the Company delivered a redemption notice to NCM pursuant to the redemption right under its operating agreement with NCM to redeem approximately 42.0 of the Company’s 43.7 common units in NCM in exchange for approximately 42.0 newly issued shares of NCMI common stock, with a redemption date of February 23, 2023 (the “Redemption”). On March 20, 2023, the Company delivered a second redemption notice to NCM to redeem the Company’s remaining 1.7 common units in NCM in exchange for 1.7 newly issued shares of NCMI common stock, with a redemption date of March 23, 2023 (collectively with the February 23, 2023 redemption, the “Redemptions”). NCMI is a holding company and the sole manager of NCM. NCM comprises approximately the entire balance of NCMI’s assets, liabilities and operating cash flows. 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. 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. During the years ended December 31, 2021 and 2022, and 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 theatre industry. See Note 12 for impairment expense recorded during the years ended December 31, 2021, 2022 and 2023. On August 3, 2023, NCMI announced that it had effected a 1-for-10 reverse stock split of its common stock. NCMI’s common stock automatically began trading on a split adjusted basis at the opening of the market on August 4, 2023. 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 less than 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 on its investment in NCMI in the Company’s consolidated statement of income for the year ended December 31, 2023. Common Unit Adjustments In addition to the consideration received upon the NCMI IPO and ESA modification in 2007, the Company also periodically receives consideration in the form of common units from NCM. Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCMI and the Company, 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 the Company. 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. Through April 11, 2023, the Company’s investment 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 depending on the tranche of common units it was related to. During March 2023, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, the Company was entitled to an additional 4.8 common units of NCM. The issuance of these additional common units of NCM was stayed by NCM’s bankruptcy filing on April 11, 2023. In June 2023 the bankruptcy court issued an order cancelling the issuance of these common units of NCM and found that these common units were never issued. Below is a summary of common units received by the Company under the Common Unit Adjustment (“CUA”) Agreement during the years ended December 31, 2021 and 2022:
Event |  | Date Common Units Received |  | Number of Common Units Received |  |  | Fair Value of Common Units Received (1) |
2021 annual common unit adjustment |  | 4/14/2021 |  |  | 2.3 |  |  | $ | 10.2 |
2022 annual common unit adjustment |  | 4/13/2022 |  |  | 0.5 |  |  | $ | 1.3 |
(1) The fair value of the common units received was estimated based on the market price of NCMI common stock (Level 1 input as defined in FASB ASC Topic 820) 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. Exhibitor Services Agreement As previously discussed, the Company’s domestic theatres are part of the in-theatre digital network operated by NCM, the terms of which are defined in the ESA. NCM primarily provides advertising to its theatres through its branded “Noovie” pre-show entertainment program. The Company receives a monthly theatre access fee for participation in the NCM network. 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 theatre 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. The recognition of revenue related to the NCM screen advertising advances is recorded on a straight-line basis over the new term of the amended ESA through February 2041.
|  | Year Ended December 31, |  |  |  |  |  |  |
Remaining Maturity |  | 2024 |  |  | 2025 |  |  | 2026 |  |  | 2027 |  |  | 2028 |  |  | Thereafter |  |  | Total |
NCM screen advertising advances (1) |  | $ | 10.5 |  |  | $ | 11.2 |  |  | $ | 12.0 |  |  | $ | 12.8 |  |  | $ | 13.7 |  |  | $ | 268.2 |  |  | $ | 328.4 |
(1) Amounts are net of the estimated interest to be accrued for the periods presented. Significant Financing Component 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) from NCM in exchange for exclusive access to the Company’s newly opened domestic screens under the ESA. Due to the significant length of time between receiving the 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 the cash and each tranche of common units were 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. Summary Financial Information for NCMI/NCM The tables below present summary financial information for NCMI/NCM for its fiscal periods indicated:
|  | Year Ended |  |  | Three Months Ended |
|  | December 30, 2021 |  |  | December 29, 2022 |  |  | March 30, 2023 (1) |
Revenue |  | $ | 114.6 |  |  | $ | 249.2 |  |  | $ | 34.9 |
Operating income (loss) |  | $ | (68.6 | ) |  | $ | 10.9 |  |  | $ | (30.6 | )
Net loss |  | $ | (134.6 | ) |  | $ | (69.8 | ) |  | $ | (54.0 | )
(1) Financial information for NCMI is presented for the latest reporting period available through which the Company accounted for its investment in NCMI under the equity method.
|  | As of |
|  | December 29, 2022 |  |  | March 30, 2023 (1) |
Current assets |  | $ | 148.6 |  |  | $ | 121.7 |
Noncurrent assets |  | $ | 628.2 |  |  | $ | 618.5 |
Current liabilities |  | $ | 97.5 |  |  | $ | 1,204.8 |
Noncurrent liabilities |  | $ | 1,161.6 |  |  | $ | 67.2 |
Members'/Total deficit |  | $ | (482.3 | ) |  | $ | (531.8 | )
(1) Financial information for NCMI is presented for the latest reporting period available through which the Company accounted for its investment in NCMI under the equity method.

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