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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________ 
FORM 10-Q 
____________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-33296
_____________________________________________
https://cdn.kscope.io/1d262c1ae1599383876bdb490517d9d4-ncma18.jpg
NATIONAL CINEMEDIA, INC.
(Exact name of registrant as specified in its charter) 
______________________________________________
Delaware
 
 
20-5665602
 
(State or Other Jurisdiction of
Incorporation or Organization)
 
 
(I.R.S. Employer
Identification No.)
 
 
 
6300 S. Syracuse Way, Suite 300
Centennial
Colorado
80111
 
(Address of Principal Executive Offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (303) 792-3600 
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
NCMI
The Nasdaq Stock Market LLC
(Title of each class)
(Trading symbol)
(Name of each exchange on which registered)
______________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
x
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company





If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  x
As of July 31, 2020, 79,610,497 shares of the registrant’s common stock (including unvested restricted shares), par value of $0.01 per share, were outstanding.



TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I
Item 1. Financial Statements
NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
(UNAUDITED)
 
June 25, 2020
 
December 26, 2019
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
245.4

 
$
55.9

Short-term marketable securities
1.5

 
17.5

Receivables, net of allowance of $3.2 and $6.2, respectively
26.7

 
170.8

Amounts due from founding members, net

 
6.6

Prepaid expenses and other current assets
4.1

 
3.5

Total current assets
277.7

 
254.3

NON-CURRENT ASSETS:
 
 
 
Property and equipment, net of accumulated depreciation of $75.6 and $70.7, respectively
29.9

 
33.2

Intangible assets, net of accumulated amortization of $211.0 and $198.9, respectively
640.5

 
643.7

Deferred tax assets, net of valuation allowance of $72.4 and $81.6, respectively
166.9

 
162.1

Other investments
1.0

 
1.0

Long-term marketable securities
3.0

 
7.5

Debt issuance costs, net
3.9

 
3.9

Other assets
25.0

 
24.3

Total non-current assets
870.2

 
875.7

TOTAL ASSETS
$
1,147.9

 
$
1,130.0

LIABILITIES AND EQUITY/(DEFICIT)
 
 
 
CURRENT LIABILITIES:
 
 
 
Amounts due to founding members, net
$

 
$
36.8

Payable to founding members under tax receivable agreement (including payables to related
   parties of $10.0 and $10.3, respectively)
14.2

 
14.2

Accrued expenses
18.8

 
22.1

Accrued payroll and related expenses
5.8

 
13.8

Accounts payable
12.3

 
20.7

Deferred revenue
7.7

 
7.6

Short-term debt
2.7

 
2.7

Other current liabilities
1.7

 
1.6

Total current liabilities
63.2

 
119.5

NON-CURRENT LIABILITIES:
 
 
 
Long-term debt, net of debt issuance costs of $8.7 and $9.0, respectively
1,050.9

 
923.9

Payable to founding members under tax receivable agreement (including payables to related
   parties of $134.7 and $133.5, respectively)
185.1

 
183.8

Other liabilities
23.7

 
24.0

Total non-current liabilities
1,259.7

 
1,131.7

Total liabilities
1,322.9

 
1,251.2

COMMITMENTS AND CONTINGENCIES (NOTE 8)

 
 
EQUITY/(DEFICIT):
 
 
 
NCM, Inc. Stockholders’ Equity/(Deficit):
 
 
 
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding,
   respectively

 

Common stock, $0.01 par value; 175,000,000 shares authorized, 78,000,338 and 77,568,986 issued
   and outstanding, respectively
0.8

 
0.8

Additional paid in capital/(deficit)
(209.1
)
 
(209.2
)
Retained earnings (distributions in excess of earnings)
(207.4
)
 
(171.1
)
Total NCM, Inc. stockholders’ equity/(deficit)
(415.7
)
 
(379.5
)
Noncontrolling interests
240.7

 
258.3

Total equity/(deficit)
(175.0
)
 
(121.2
)
TOTAL LIABILITIES AND EQUITY/(DEFICIT)
$
1,147.9

 
$
1,130.0

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

1

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In millions, except share and per share data)
(UNAUDITED)


    
 
Three Months Ended
 
Six Months Ended
 
June 25, 2020
 
June 27,
2019
 
June 25, 2020
 
June 27,
2019
REVENUE (including revenue from related parties of $0.0, $6.5, $4.3 and $11.8, respectively)
$
4.0

 
$
110.2

 
$
68.7

 
$
187.1

OPERATING EXPENSES:
 
 
 
 
 
 
 
Advertising operating costs
1.1

 
9.9

 
7.3

 
17.2

Network costs
1.6

 
3.4

 
4.5

 
6.9

Theater access fees and revenue share to founding members (including fees to related parties of $0.0, $14.5, $12.5 and $27.4, respectively)

 
21.6

 
17.7

 
40.7

Selling and marketing costs
6.7

 
16.2

 
20.6

 
31.4

Administrative and other costs
7.4

 
11.1

 
17.2

 
21.8

Impairment of long-lived assets
1.7

 

 
1.7

 

Depreciation expense
3.2

 
3.3

 
6.4

 
6.6

Amortization of intangibles recorded for network theater screen leases
6.1

 
7.0

 
12.2

 
13.9

Total
27.8

 
72.5

 
87.6

 
138.5

OPERATING (LOSS) INCOME
(23.8
)
 
37.7

 
(18.9
)
 
48.6

NON-OPERATING EXPENSES:
 
 
 
 
 
 
 
Interest on borrowings
13.6

 
14.2

 
27.2

 
28.6

Interest income
(0.3
)
 
(0.5
)
 
(0.5
)
 
(1.0
)
Loss (gain) on modification and retirement of debt, net
0.3

 

 
0.3

 
(0.3
)
Loss on re-measurement of the payable to founding members under the tax receivable agreement
0.1

 
0.8

 
0.3

 
1.5

Other non-operating expense (income)
0.1

 
(0.1
)
 

 
(0.3
)
Total
13.8

 
14.4

 
27.3

 
28.5

(LOSS) INCOME BEFORE INCOME TAXES
(37.6
)
 
23.3

 
(46.2
)
 
20.1

Income tax (benefit) expense
(4.2
)
 
2.3

 
(4.6
)
 
1.7

CONSOLIDATED NET (LOSS) INCOME
(33.4
)
 
21.0

 
(41.6
)
 
18.4

Less: Net (loss) income attributable to noncontrolling interests
(19.6
)
 
12.1

 
(24.1
)
 
10.6

NET (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.
$
(13.8
)
 
$
8.9

 
$
(17.5
)
 
$
7.8

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.
$
(13.8
)
 
$
8.9

 
$
(17.5
)
 
$
7.8

 
 
 
 
 
 
 
 
NET (LOSS) INCOME PER NCM, INC. COMMON SHARE:
 
 
 
 
 
 
 
Basic
$
(0.18
)
 
$
0.11

 
$
(0.22
)
 
$
0.10

Diluted
$
(0.18
)
 
$
0.11

 
$
(0.22
)
 
$
0.10

WEIGHTED AVERAGE SHARES OUTSTANDING:
 
 
 
 
 
 
 
Basic
77,995,951

 
77,343,093

 
77,879,959

 
77,261,435

Diluted
77,995,951

 
77,636,096

 
77,879,959

 
77,575,081

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

2

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (UNAUDITED)


 
Six Months Ended
 
June 25, 2020
 
June 27, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Consolidated net (loss) income
$
(41.6
)
 
$
18.4

Adjustments to reconcile consolidated net (loss) income to net cash provided by operating activities:
 
 
 
Deferred income tax (benefit) expense
(4.5
)
 
1.5

Depreciation expense
6.4

 
6.6

Amortization of intangibles recorded for network theater screen leases
12.2

 
13.9

Non-cash share-based compensation
0.3

 
2.8

Impairment of long-lived assets
1.7

 

Amortization of debt issuance costs
1.2

 
1.3

Loss (gain) on modification and retirement of debt, net
0.3

 
(0.3
)
Non-cash loss on re-measurement of the payable to founding members under
   the tax receivable agreement
0.3

 
1.6

Other

 
(1.0
)
Proceeds from disposition of intangible assets by network affiliates

 
0.5

Founding member integration and other encumbered theater payments (including
   payments from related parties of $0.1 and $0.6, respectively)
9.7

 
10.6

Payment to the founding members under tax receivable agreement (including
   payments to related parties of $0.0 and $9.8, respectively)

 
(13.9
)
Other cash flows from operating activities
(0.2
)
 

Changes in operating assets and liabilities:
 
 
 
Receivables, net
147.3

 
25.0

Accounts payable and accrued expenses
(17.9
)
 
(8.9
)
Amounts due to/from founding members, net
(6.2
)
 
0.7

Deferred revenue
0.1

 
3.4

Other, net
(1.7
)
 
(2.9
)
Net cash provided by operating activities
107.4

 
59.3

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(5.2
)
 
(6.8
)
Purchases of marketable securities
(8.2
)
 
(5.4
)
Proceeds from sale and maturities of marketable securities
28.9

 
21.4

Proceeds from notes receivable - founding members (including payments from
related parties of $0.0 and $1.4, respectively)

 
1.4

Net cash provided by investing activities
15.5

 
10.6

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Payment of dividends
(21.0
)
 
(27.2
)
Proceeds from revolving credit facility
210.0

 
71.0

Repayments of revolving credit facility
(82.0
)
 
(71.0
)
Repayment of term loan facility
(1.4
)
 
(1.4
)
Repayment of Senior Notes due 2026

 
(4.6
)
Payment of debt issuance costs
(1.2
)
 

Distributions to founding members
(36.8
)
 
(34.0
)
Repurchase of stock for restricted stock tax withholding
(1.0
)
 
(1.3
)
Net cash provided by (used in) financing activities
66.6

 
(68.5
)
CHANGE IN CASH AND CASH EQUIVALENTS:
189.5

 
1.4

Cash and cash equivalents at beginning of period
55.9

 
41.4

Cash and cash equivalents at end of period
$
245.4

 
$
42.8

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

3

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions)
(UNAUDITED)

 
Six Months Ended
 
June 25,
2020
 
June 27,
2019
Supplemental disclosure of non-cash financing and investing activity:
 
 
 
Purchase of an intangible asset with NCM LLC equity
$
10.5

 
$
7.6

Accrued distributions to founding members (including accrued distributions to related parties of $0.0
and $15.4, respectively)
$

 
$
15.4

Accrued integration and other encumbered theater payments due from founding members (including
   accrued payments due from related parties of $0.0 and $0.2, respectively)
$

 
$
5.3

(Decrease) increase in dividend equivalent accrual not requiring cash in the period
$
(0.3
)
 
$
0.4

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
27.0

 
$
27.3

Cash paid for income taxes, net of refunds
$
0.3

 
$
0.1

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

4

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)
(In millions, except share and per share data)
(UNAUDITED)


 
 
 
NCM, Inc.
 
 
 
 
 
 
 
 
 
Additional
Paid in Capital (Deficit)
 
Retained
Earnings
(Distribution in Excess of Earnings)
 
Noncontrolling Interest
 
 
 
Common Stock
 
 
 
 
Consolidated
 
Shares
 
Amount
 
 
 
Balance—March 28, 2019
$
(104.7
)
 
77,318,971

 
$
0.8

 
$
(213.6
)
 
$
(168.0
)
 
$
276.1

Distributions to founding members
(15.4
)
 

 

 

 

 
(15.4
)
Income tax and other impacts of NCM LLC ownership changes
0.1

 

 

 
0.1

 

 

Comprehensive income, net of tax
21.0

 

 

 

 
8.9

 
12.1

Share-based compensation issued
(0.1
)
 
30,657

 

 
(0.1
)
 

 

Share-based compensation expensed/capitalized
2.1

 

 

 
1.7

 

 
0.4

Cash dividends declared $0.17 per share
(13.5
)
 

 

 

 
(13.5
)
 

Balance—June 27, 2019
$
(110.5
)
 
77,349,628

 
$
0.8

 
$
(211.9
)
 
$
(172.6
)
 
$
273.2

 
 
 
 
 
 
 
 
 
 
 
 
Balance—March 26, 2020
$
(136.3
)
 
77,973,648

 
$
0.8

 
$
(209.1
)
 
$
(188.3
)
 
$
260.3

Income tax and other impacts of NCM LLC ownership changes

 

 

 
0.1

 

 
(0.1
)
Comprehensive loss, net of tax
(33.4
)
 

 

 

 
(13.8
)
 
(19.6
)
Share-based compensation issued
(0.1
)
 
26,690

 

 
(0.1
)
 

 

Share-based compensation expensed/capitalized
0.1

 

 

 

 

 
0.1

Cash dividends declared $0.07 per share
(5.3
)
 

 

 

 
(5.3
)
 

Balance—June 25, 2020
$
(175.0
)
 
78,000,338

 
$
0.8

 
$
(209.1
)
 
$
(207.4
)
 
$
240.7



5

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)
(In millions, except share and per share data)
(UNAUDITED)


 
 
 
NCM, Inc.
 
 
 
 
 
 
 
 
 
Additional
Paid in Capital (Deficit)
 
Retained
Earnings
(Distribution in Excess of Earnings)
 
Noncontrolling Interest
 
 
 
Common Stock
 
 
 
 
Consolidated
 
Shares
 
Amount
 
 
 
Balance—December 27, 2018
$
(89.2
)
 
76,976,398

 
$
0.8

 
$
(215.2
)
 
$
(153.6
)
 
$
278.8

Distributions to founding members
(21.5
)
 

 

 

 

 
(21.5
)
NCM LLC equity issued for purchase of intangible asset
7.6

 

 

 
3.7

 

 
3.9

Income tax and other impacts of NCM LLC ownership changes
(0.6
)
 

 

 
(1.3
)
 

 
0.7

Comprehensive income, net of tax
18.4

 

 

 

 
7.8

 
10.6

Share-based compensation issued
(1.3
)
 
373,230

 

 
(1.3
)
 

 

Share-based compensation expensed/capitalized
2.9

 

 

 
2.2

 

 
0.7

Cash dividends declared $0.34 per share
(26.8
)
 

 

 

 
(26.8
)
 

Balance—June 27, 2019
$
(110.5
)
 
77,349,628

 
$
0.8

 
$
(211.9
)
 
$
(172.6
)
 
$
273.2

 
 
 
 
 
 
 
 
 
 
 
 
Balance—December 26, 2019
$
(121.2
)
 
77,568,986

 
$
0.8

 
$
(209.2
)
 
$
(171.1
)
 
$
258.3

Cumulative-effect adjustment for adoption of ASU 2016-13, net of tax
2.9

 

 

 

 
1.2

 
1.7

Distributions to founding members
(4.4
)
 

 

 

 

 
(4.4
)
NCM LLC equity issued for purchase of intangible asset
10.5

 

 

 
5.0

 

 
5.5

Income tax and other impacts of NCM LLC ownership changes
(0.5
)
 

 

 
(3.9
)
 

 
3.4

Comprehensive loss, net of tax
(41.6
)
 

 

 

 
(17.5
)
 
(24.1
)
Share-based compensation issued
(1.0
)
 
431,352

 

 
(1.0
)
 

 

Share-based compensation expensed/capitalized
0.3

 

 

 

 

 
0.3

Cash dividends declared $0.26 per share
(20.0
)
 

 

 

 
(20.0
)
 

Balance—June 25, 2020
$
(175.0
)
 
78,000,338

 
$
0.8

 
$
(209.1
)
 
$
(207.4
)
 
$
240.7


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

6

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.  THE COMPANY
Description of Business
National CineMedia, Inc. (“NCM, Inc.”) was incorporated in Delaware as a holding company with the sole purpose of becoming a member and sole manager of National CineMedia, LLC (“NCM LLC”), a limited liability company. NCM LLC is currently owned by NCM, Inc., Regal Cinemas, Inc. and Regal CineMedia Corporation, wholly owned subsidiaries of Cineworld Group plc and Regal Entertainment Group (“Regal”), Cinemark Media, Inc. and Cinemark USA, Inc., wholly owned subsidiaries of Cinemark Holdings, Inc. (“Cinemark”) and American Multi-Cinema, Inc., a wholly owned subsidiary of AMC Entertainment, Inc. (“AMC”).  The terms “NCM”, “the Company” or “we” shall, unless the context otherwise requires, be deemed to include the consolidated entity. AMC, Regal, Cinemark and their affiliates are referred to in this document as “founding members”. 
The Company operates the largest cinema advertising network reaching movie audiences in the U.S., allowing NCM LLC to sell advertising under long-term exhibitor services agreements (“ESAs”) with the founding members and certain third-party theater circuits, referred to in this document as “network affiliates” under long-term network affiliate agreements. Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed to address the COVID-19 Pandemic. As of June 25, 2020, almost all of the theaters within our network remained closed. The Company was unable to advertise in the theaters, and thus did not generate any in-theater revenue, during the three months ended June 25, 2020 and are not able to advertise in theaters for the duration of time that the theaters remain closed.
On September 17, 2019, NCM LLC entered into amendments to the ESAs with Cinemark and Regal (collectively, the “2019 ESA Amendments”). The 2019 ESA Amendments extended the contract life of the ESAs with Cinemark and Regal by four years resulting in a weighted average remaining term of the ESAs with the founding members (based on attendance) of approximately 19.3 years as of June 25, 2020. The network affiliate agreements expire at various dates between September 2020 and July 2031. The weighted average remaining term (based on 2019 attendance) of the ESAs and the network affiliate agreements together is 16.8 years as of June 25, 2020.
As of June 25, 2020, NCM LLC had 162,531,666 common membership units outstanding, of which 78,000,338 (48.0%) were owned by NCM, Inc., 42,290,694 (26.0%) were owned by Regal, 40,850,068 (25.1%) were owned by Cinemark and 1,390,566 (0.9%) were owned by AMC. The membership units held by the founding members are exchangeable into NCM, Inc. common stock on a one-for-one basis.
Basis of Presentation
The Company has prepared the unaudited Condensed Consolidated Financial Statements and related notes of NCM, Inc. in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures typically included in an annual report have been condensed or omitted for this quarterly report.  The balance sheet as of December 26, 2019 is derived from the audited financial statements of NCM, Inc. Therefore, the unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s annual report on Form 10-K filed for the fiscal year ended December 26, 2019.
In the opinion of management, all adjustments necessary to present fairly in all material respects the financial position, results of operations and cash flows for all periods presented have been made. Historically, the Company’s business has been seasonal and for this and other reasons operating results for interim periods have not been indicative of the Company’s full year results or future performance. Given the temporary closure of the theaters within the Company's network, management expects the Company's 2020 quarterly results to vary from historical trends. As a result of the various related party agreements discussed in Note 5—Related Party Transactions, the operating results as presented are not necessarily indicative of the results that might have occurred if all agreements were with non-related third parties.  The Company manages its business under one reportable segment of advertising.
Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

7

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Significant estimates include those related to the reserve for uncollectible accounts receivable, share-based compensation and income taxes. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s annual financial statements included in its Form 10-K filed for the fiscal year ended December 26, 2019 contain a complete discussion of the Company’s significant accounting policies. Following is additional information related to the Company’s accounting policies.
Revenue Recognition—The Company derives revenue principally from the advertising business, which includes on-screen and lobby network (LEN) advertising and lobby promotions and advertising on websites and mobile applications owned by NCM LLC and other companies. Revenue is recognized over time as the customer receives the benefits provided by NCM LLC’s advertising services and the Company has the right to payment for performance to date. The Company considers the terms of each arrangement to determine the appropriate accounting treatment.
Concentration of Credit Risk and Significant Customers—The risk of credit loss related to the Company's trade receivables and unbilled receivables balances is accounted for through the allowance for doubtful accounts, a contra asset account which reduces the net receivables balance. The allowance for doubtful accounts balance is determined by pooling the Company's receivables with similar risk characteristics, specifically by type of customer (national or local/ regional) and then age of receivable, and applying historical write off percentages to these pools in order to determine the amount of expected credit losses as of the balance sheet date. National receivables are with large advertising agencies with strong reputations in the advertising industry and clients with stable financial positions and good credit ratings, represent larger receivables balances per customer and have significantly lower historical and expected credit loss patterns. Local and regional receivables are with smaller companies sometimes with less credit history, represent smaller receivable balances per customer and higher historical and expected credit loss patterns. The Company has smaller contracts with thousands of local clients that are not individually significant. The Company also considers current economic conditions and trends to determine whether adjustments to historical loss rates are necessary. The Company increased the expected rate of default related to local and regional customers within the calculation of the allowance for doubtful accounts as of June 25, 2020 given the adverse impact of the COVID-19 Pandemic on certain businesses, in particular, categories of small businesses (i.e. restaurants, travel, etc.) which the Company expects could lead to an increased rate of default. The Company also reserves for specific receivable balances that it expects to write off based on known concerns regarding the financial health of the customer. Receivables are written off when management determines amounts are uncollectible.
As of June 25, 2020 and December 26, 2019, there were no advertising agency groups or individual customers through which the Company sources advertising revenue representing more than 10% of the Company’s outstanding gross receivable balance.  During the three months ended June 25, 2020, the Company had one customer that accounted for approximately 18% of the Company's revenue. During the six months ended June 25, 2020 and the three and six months ended June 27, 2019, the Company had no customers that accounted for more than 10% of revenue.
Long-lived Assets—The Company assesses impairment of long-lived assets pursuant to ASC 360 – Property, Plant and Equipment. This includes determining whether certain triggering events have occurred that could affect the value of an asset. The Company recorded losses of $1.7 million, $0.0 million, $1.7 million and $0.0 million related to the write-off of certain internally developed software during the three months ended June 25, 2020 and June 27, 2019 and the six months ended June 25, 2020 and June 27, 2019, respectively.
Share-Based Compensation—The Company has issued stock options and restricted stock to certain employees and restricted stock units to its independent directors. The restricted stock grants for Company management vest upon the achievement of Company performance measures and/or service conditions, while non-management grants vest only upon the achievement of service conditions. Compensation expense of restricted stock that vests upon the achievement of Company performance measures is based on management’s financial projections and the probability of achieving the projections, which require considerable judgment. A cumulative adjustment is recorded to share-based compensation expense in periods that management changes its estimate of the number of shares of restricted stock expected to vest. Ultimately, the Company adjusts the expense recognized to reflect the actual vested shares following the resolution of the performance conditions. Dividends are accrued when declared on unvested restricted stock that is expected to vest and are only paid with respect to shares that actually vest. During the three months ended June 25, 2020 and June 27, 2019 and the six months ended June 25, 2020 and June 27, 2019, 33,378, 37,699, 557,681 and 549,695 shares of restricted stock and restricted stock units vested, respectively.
Consolidation—NCM, Inc. consolidates the accounts of NCM LLC under the provisions of ASC 810, Consolidation (“ASC 810”).  The following table presents the changes in NCM, Inc.’s equity resulting from net income attributable to NCM,

8

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Inc. and transfers to or from noncontrolling interests (in millions):
 
Three Months Ended
 
Six Months Ended
 
June 25,
2020
 
June 27,
2019
 
June 25, 2020
 
June 27,
2019
Net (loss) income attributable to NCM, Inc.
$
(13.8
)
 
$
8.9

 
$
(17.5
)
 
$
7.8

NCM LLC equity issued for purchase of intangible asset

 

 
5.0

 
3.7

Income tax and other impacts of subsidiary ownership changes
0.1

 
0.1

 
(3.9
)
 
(1.3
)
Change from net (loss) income attributable to NCM, Inc. and transfers from noncontrolling interests
$
(13.7
)
 
$
9.0

 
$
(16.4
)
 
$
10.2

 
Recently Adopted Accounting Pronouncements
During the first quarter of 2020, the Company adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements (“ASU 2016-13”), which requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Upon the adoption of ASU 2016-13 on December 27, 2019, the Company recorded a $3.2 million cumulative-effect adjustment to retained earnings related to the change in methodology surrounding the historical losses utilized in the calculation of the allowance for credit losses related to trade and unbilled accounts receivable reducing the allowance to $3.0 million as of the adoption date. The Company also recorded a corresponding $0.4 million reduction to the corresponding deferred tax asset with the offset also recorded to retained earnings. The other impacts upon adoption were immaterial to the unaudited Condensed Consolidated Financial Statements. The Company has incorporated additional disclosures in Note 1—The Company, Note 2—Revenue from Contracts with Customers and Accounts Receivable and Note 9—Fair Value Measurements to its Condensed Consolidated Financial Statements to comply with ASU 2016-13. The Company has also designed and implemented changes to certain processes and internal controls related to its adoption of ASU 2016-13.
During the first quarter of 2020, the Company adopted Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements. The Company adoption of ASU 2018-13 did not have a material impact on the unaudited Condensed Consolidated Financial Statements or notes thereto.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes the following exceptions for the Company to analyze in a given period: the exception to the incremental approach for intraperiod tax allocation; the exception to accounting for basis differences when there are ownership changes in foreign investments; and the exception in interim periods income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on the unaudited Condensed Consolidated Financial Statements or notes thereto.
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (“ASU 2020-04”), which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and ASU 2020-04 on the Company’s unaudited Condensed Consolidated Financial Statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its unaudited Condensed Consolidated Financial Statements or notes thereto.
2.  REVENUE FROM CONTRACTS WITH CUSTOMERS AND ACCOUNTS RECEIVABLE
Revenue Recognition

9

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company derives revenue principally from the sale of advertising to national, regional and local businesses in Noovie, the Company’s cinema advertising and entertainment pre-show. The Company also sells advertising through the LEN, a series of strategically placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies. In addition, the Company sells online and mobile advertising through Cinema Accelerator and NCM's digital gaming products including Noovie ARcade, Name That Movie, Noovie Shuffle and Fantasy Movie League, which can be played on the mobile apps or at Noovie.com. The Company also has a long-term agreement to exhibit the advertising of the founding members’ beverage suppliers.
The Company makes contractual guarantees to deliver a specified number of impressions to view the customers’ advertising. If the contracted number of impressions are not delivered, the Company will run additional advertising to deliver the contracted impressions at a later date.  The deferred portion of the revenue associated with undelivered impressions is referred to as a make-good provision. The Company defers the revenue associated with the make-good until the advertising airs to the theater attendance specified in the advertising contract. The make-good provision is recorded within accrued expenses in the unaudited Condensed Consolidated Balance Sheet. As of June 25, 2020 and December 26, 2019, the Company had a make-good provision of $6.3 million and $8.7 million, respectively.
The Company does not have any contracts with customers with terms in excess of one year that are noncancelable as of June 25, 2020. Agreements with a duration less than one year are not included within this disclosure as the Company elected to use the practical expedient in ASC 606-10-50-14 for those contracts. In addition, other of the Company’s contracts longer than one year that are cancelable are not included within this disclosure.
Disaggregation of Revenue
The Company disaggregates revenue based upon the type of customer: national, local, regional and beverage concessionaire. This method of disaggregation is in alignment with how revenue is reviewed by management and discussed with and historically disclosed to investors.
The following table summarizes revenue from contracts with customers for the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 (in millions):
 
Three Months Ended
 
Six Months Ended
 
June 25,
2020
 
June 27,
2019
 
June 25,
2020
 
June 27,
2019
National and regional advertising revenue
$
1.7

 
$
84.3

 
$
51.5

 
$
141.7

Local advertising revenue
2.3

 
17.7

 
11.7

 
30.5

Founding member advertising revenue from beverage concessionaire agreements

 
8.2

 
5.5

 
14.9

Total revenue
$
4.0

 
$
110.2

 
$
68.7

 
$
187.1


Deferred Revenue and Unbilled Accounts Receivable
The changes in deferred revenue for the six months ended June 25, 2020 were as follows (in millions):
 
Six Months Ended
 
June 25,
2020
Balance at beginning of period
$
(7.6
)
Performance obligations satisfied
5.4

New contract liabilities
(5.5
)
Balance at end of period
$
(7.7
)

As of June 25, 2020 and December 26, 2019, the Company had $2.2 million and $8.0 million in unbilled accounts receivable, respectively.   
Allowance for Doubtful Accounts
The allowance for doubtful accounts balance is determined separately for each pool of the Company's receivables with similar risk characteristics. The Company has determined that two pools, national customers and local/ regional customers, is appropriate. The changes within the allowance for doubtful accounts balances for the six months ended June 25, 2020 were as follows (in millions):

10

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Six Months Ended
 
June 25,
2020
 
Allowance for National Customer Receivables
 
Allowance for Local/ Regional Customer Receivables
Balance at beginning of period
$
1.1

 
$
1.9

Provision for bad debt
(0.6
)
 
1.3

Write-offs, net
(0.1
)
 
(0.4
)
Balance at end of period
$
0.4

 
$
2.8


3.  (LOSS) EARNINGS PER SHARE
Basic loss per share is computed on the basis of the weighted average number of common shares outstanding.  Diluted loss per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of potentially dilutive common stock options, restricted stock and restricted stock units using the treasury stock method.  The components of basic and diluted loss per NCM, Inc. share are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 25,
2020
 
June 27,
2019
 
June 25,
2020
 
June 27,
2019
Net (loss) income attributable to NCM, Inc. (in millions)
$
(13.8
)
 
$
8.9

 
$
(17.5
)
 
$
7.8

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
77,995,951

 
77,343,093

 
77,879,959

 
77,261,435

Add: Dilutive effect of stock options, restricted stock and exchangeable membership units

 
293,003

 

 
313,646

Diluted
77,995,951

 
77,636,096

 
77,879,959

 
77,575,081

(Loss) earnings per NCM, Inc. share:
 
 
 
 
 
 
 
Basic
$
(0.18
)
 
$
0.11

 
$
(0.22
)
 
$
0.10

Diluted
$
(0.18
)
 
$
0.11

 
$
(0.22
)
 
$
0.10


The effect of 84,531,328, 81,705,487, 83,252,384 and 81,263,513 weighted average exchangeable NCM LLC common units held by the founding members for the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, respectively, have been excluded from the calculation of diluted weighted average shares and loss per NCM, Inc. share as they were anti-dilutive. NCM LLC common units do not participate in dividends paid on NCM, Inc.’s common stock. In addition, there were 3,777,240, 1,969,086, 3,777,240 and 2,125,728 stock options and non-vested (restricted) shares for the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, respectively, excluded from the calculation as they were anti-dilutive. The Company’s non-vested (restricted) shares do not meet the definition of a participating security as the dividends will not be paid if the shares do not vest.
4.  INTANGIBLE ASSETS
Intangible assets consist of contractual rights to provide the Company’s services within the theaters of the founding members and network affiliates and are stated at cost, net of accumulated amortization.  The Company’s intangible assets with its founding members are recorded at fair market value of NCM, Inc.’s publicly traded stock as of the date on which the common membership units were issued.  The NCM LLC common membership units are fully convertible into NCM, Inc.’s common stock. In addition, the Company records intangible assets for up-front fees paid to network affiliates upon commencement of a network affiliate agreement. The Company’s intangible assets have a finite useful life and the Company amortizes the assets over the remaining useful life corresponding with the ESAs or the term of the network affiliate agreement. The Company determined that recent adverse changes in macroeconomic trends, reduced cash flows as a consequence of the temporary closure of the theaters within the Company's network in response to the outbreak of the COVID-19 Pandemic, a decline in the fair value of NCM LLC’s debt and the further sustained decline in the market price of NCM, Inc.'s common stock as of June 25, 2020 constituted a triggering event for certain of its intangible assets under Accounting Standards Certification No. 360, Impairment and Disposal of Long-Lived Assets. Management considered possible scenarios in a probability-weighted estimated future undiscounted cash flow analysis, including the potential extension of or a later recurrence of the temporary theater closures due to the COVID-19 Pandemic and potential adverse impacts to NCM LLC's founding members' and affiliates' financial liquidity related to the COVID-19 Pandemic theater closures. The estimated future

11

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

cash flows from the affiliate agreements and ESAs calculated within the probability-weighted analyses were in excess of the net book value of these intangible assets and thus, no impairment charges were recorded for the three and six months ended June 25, 2020. Such analysis required management to make estimates and assumptions based on historical data and consideration of future market conditions. Given the uncertainty inherent in any projection, heightened by the possibility of unforeseen additional effects of the COVID-19 Pandemic, including potential adverse impacts to NCM LLC's founding members' and affiliates' financial liquidity, actual results may differ from the estimates and assumptions used, or conditions may change, which could result in impairment charges in the future.
Common Unit Adjustments—In accordance with NCM LLC’s Common Unit Adjustment Agreement with its founding members, on an annual basis NCM LLC determines the amount of common membership units to be issued to or returned by the founding members based on theater additions or dispositions during the previous year.  In addition, NCM LLC’s Common Unit Adjustment Agreement requires that a Common Unit Adjustment occur for a specific founding member if its acquisition or disposition of theaters, in a single transaction or cumulatively since the most recent Common Unit Adjustment, results in an attendance increase or decrease in excess of two percent of the annual total attendance at the prior adjustment date.  
During the first quarter of 2020, NCM LLC issued 3,022,959 common membership units to its founding members for the rights to exclusive access to the theater screens and attendees added, net of dispositions by the founding members to NCM LLC’s network during the 2019 fiscal year and NCM LLC recorded a net intangible asset of $10.5 million during the first quarter of 2020 as a result of the Common Unit Adjustment.
During the first quarter of 2019, NCM LLC issued 1,044,665 common membership units to its founding members for the rights to exclusive access to the theater screens and attendees added, net of dispositions by the founding members to NCM LLC’s network during the 2018 fiscal year and NCM LLC recorded a net intangible asset of $7.6 million during the first quarter of 2019 as a result of the Common Unit Adjustment.
Integration Payments and Other Encumbered Theater Payments—If an existing on-screen advertising agreement with an alternative provider is in place with respect to any acquired theaters (“encumbered theaters”), the founding members may elect to receive common membership units related to those encumbered theaters in connection with the Common Unit Adjustment.  If the founding members make this election, then they are required to make payments on a quarterly basis in arrears in accordance with certain run-out provisions pursuant to the ESAs (“integration payments”). Because the Carmike Cinemas, Inc. (“Carmike”) theaters acquired by AMC are subject to an existing on-screen advertising agreement with an alternative provider, AMC will make integration payments to NCM LLC. The integration payments will continue until the earlier of (i) the date the theaters are transferred to NCM LLC’s network or (ii) the expiration of the ESA. In 2019, AMC and Cinemark also made integration payments to NCM LLC related to their respective acquisitions of theaters from Rave Cinemas. The advertising agreements with an alternative provider for these theaters ended during 2019 and the theaters were transferred to our network. Integration payments are no longer due related to these theaters. Integration payments are calculated based upon the advertising cash flow that the Company would have generated if it had exclusive access to sell advertising in the theaters with pre-existing advertising agreements. The ESAs additionally entitle NCM LLC to payments related to the founding members’ on-screen advertising commitments under their beverage concessionaire agreements for encumbered theaters. These payments are also accounted for as a reduction to the intangible asset. During the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, the Company recorded a reduction to net intangible assets of $0.0 million, $5.7 million, $1.4 million and $8.1 million, respectively, related to integration and other encumbered theater payments. Because the encumbered theaters were temporarily closed during the three months ended June 25, 2020, no advertising cash flows could have been generated from the encumbered theaters during the period if the theaters were within NCM LLC's network and thus no integration payments were earned during the three months ended June 25, 2020. During the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, AMC and Cinemark paid a total of $1.2 million, $2.5 million, $9.7 million and $10.6 million respectively, in integration and other encumbered theater payments (as payments are made one quarter and one month in arrears, respectively). The payments received during the three and six months ended June 25, 2020 primarily relate to AMC's acquisition of theaters from Carmike. The payments received during the three and six months ended June 27, 2019 relate to AMC's acquisitions of theaters from Carmike and Rave Cinemas and from Cinemark related primarily to its acquisition of theaters from Rave Cinemas. If common membership units are issued to a founding member for newly acquired theaters that are subject to an existing on-screen advertising agreement with an alternative provider, the amortization of the intangible asset commences after the existing agreement expires and NCM LLC can utilize the theaters for all of its services.
5.  RELATED PARTY TRANSACTIONS

12

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Founding Member Transactions—In connection with NCM, Inc.’s initial public offering (“IPO”), the Company entered into several agreements to define and regulate the relationships among NCM, Inc., NCM LLC and the founding members which are outlined below. As AMC owns less than 5% of NCM LLC as of June 25, 2020, AMC is no longer a related party. AMC remains a party to the ESA, Common Unit Adjustment Agreement, Tax Receivable Agreement (“TRA”) and certain other original agreements and is a member under the terms of the NCM LLC Operating Agreement, subject to fulfilling the requirements of Section 3.1 of the NCM LLC Operating Agreement. AMC will continue to participate in the annual Common Unit Adjustment and receive available cash distributions or allocation of earnings and losses in NCM LLC (as long as its ownership is greater than zero), TRA payments and theater access fees. Further, AMC will continue to pay beverage revenue, among other things. AMC's ownership percentage does not impact future integration payments and other encumbered theater payments owed to NCM LLC by AMC.
The material agreements with the founding members are as follows:
ESAs. Under the ESAs, NCM LLC is the exclusive provider within the United States of advertising services in the founding members’ theaters (subject to pre-existing contractual obligations and other limited exceptions for the benefit of the founding members). The advertising services include the use of the digital content network (“DCN”) equipment required to deliver the on-screen advertising and other content included in the Noovie pre-show, use of the LEN and rights to sell and display certain lobby promotions. Further, 30 seconds to 60 seconds of advertising included in the Noovie pre-show is sold to NCM LLC’s founding members to satisfy the founding members’ on-screen advertising commitments under their beverage concessionaire agreements. In consideration for access to the founding members’ theaters, theater patrons, the network equipment required to display on-screen and LEN video advertising and the use of theaters for lobby promotions, the founding members receive a monthly theater access fee. In conjunction with the 2019 ESA Amendments, NCM LLC agreed to pay Cinemark and Regal incremental monthly theater access fees and, subject to NCM LLC's use of specified inventory, a revenue share in consideration for NCM LLC's access to certain on-screen advertising inventory after the advertised showtime of a feature film beginning November 1, 2019 and the underlying term of the ESAs were extended until 2041. The ESAs and 2019 ESA Amendments with Cinemark and Regal are considered leases with related parties under ASC 842.
Common Unit Adjustment Agreement. The Common Unit Adjustment Agreement provides a mechanism for increasing or decreasing the membership units held by the founding members based on the acquisition or construction of new theaters or sale or closure of theaters that are operated by each founding member and included in NCM LLC’s network.
Tax Receivable Agreement. The TRA provides for the effective payment by NCM, Inc. to the founding members of 90% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that is actually realized as a result of certain increases in NCM, Inc.’s proportionate share of tax basis in NCM LLC’s tangible and intangible assets resulting from the IPO and related transactions.
Software License Agreement. At the date of the Company’s IPO, NCM LLC was granted a perpetual, royalty-free license from NCM LLC’s founding members to use certain proprietary software that existed at the time for the delivery of digital advertising and other content through the DCN to screens in the U.S. NCM LLC has made improvements to this software since the IPO date and NCM LLC owns those improvements, except for improvements that were developed jointly by NCM LLC and NCM LLC’s founding members, if any.
The following tables provide summaries of the transactions between the Company and the founding members (in millions):

13

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Three Months Ended
 
Six Months Ended
Included in the unaudited Condensed Consolidated Statements of Income:
June 25, 2020
 
June 27,
2019
 
June 25, 2020
 
June 27,
2019
Revenue:
 
 
 
 
 
 
 
Beverage concessionaire revenue (included in advertising revenue) (1)
$

 
$
6.5

 
$
4.3

 
$
11.8

Operating expenses:
 
 
 
 
 
 
 
Theater access fee and revenue share to founding members (2)
$

 
$
14.5

 
$
12.5

 
$
27.4

Purchase of movie tickets and concession products and rental of theater space (included in selling and marketing costs) (3)
$

 
$
0.1

 
$
0.1

 
$
0.2

Non-operating expenses:
 
 
 
 
 
 
 
Interest income from notes receivable (included in interest
  income) (4)
$

 
$

 
$

 
$
0.1

________________________________________
(1)
For the three and six months ended June 25, 2020 and June 27, 2019, Cinemark and Regal purchased 60 seconds of on-screen advertising time from NCM LLC to satisfy their obligations under their beverage concessionaire agreements at a 30 seconds equivalent CPM rate specified by the ESA. There was no beverage revenue for the three months ended June 25, 2020 due to the temporary closure of all the founding member theaters within NCM LLC's network in response to the COVID-19 Pandemic and thus there not being any attendees upon which beverage revenue is based.
(2)
Comprised of payments per theater attendee, payments per digital screen with respect to the founding member theaters included in the Company’s network and payments for access to higher quality digital cinema equipment. Following the 2019 ESA Amendments in September of 2019 this also includes payments to Cinemark and Regal for their share of the revenue from the sale of an additional single unit that is either 30 or 60 seconds of the Noovie pre-show in the trailer position directly prior to the “attached” trailers preceding the feature film (the “Platinum Spot”). There was no theater access fee or revenue share expense for the three months ended June 25, 2020 due to the temporary closure of all the founding member theaters within NCM LLC's network.
(3)
Used primarily for marketing to NCM LLC’s advertising clients.
(4)On December 26, 2013, NCM LLC sold its Fathom Events business to a newly formed limited liability company (AC JV, LLC) owned 32% by each of the founding members and 4% by NCM LLC.  In consideration for the sale, NCM LLC received a total of $25.0 million in promissory notes from its founding members (one-third or approximately $8.3 million from each founding member).  The notes bear interest at a fixed rate of 5.0% per annum, compounded annually.  Interest and principal payments were due annually in six equal installments commencing on the first anniversary of the closing and ended on December 26, 2019.
 
As of
Included in the unaudited Condensed Consolidated Balance Sheets:
June 25, 2020
 
December 26,
2019
Common unit adjustments and ESA extension costs, net of amortization and integration payments (included in intangible assets) (1)
$
619.0

 
$
620.5

Current payable to founding members under tax receivable agreement (2)
$
10.0

 
$
10.3

Long-term payable to founding members under tax receivable agreement (2)
$
134.7

 
$
133.5

_________________________________
(1)
Refer to Note 4—Intangible Assets for further information on common unit adjustments and integration payments. This balance includes common unit adjustments issued to all of the founding members (including AMC) as the Company's intangible balance is considered one asset inclusive of all common unit adjustment activity.
(2)
The Company paid Cinemark and Regal $3.7 million and $6.7 million, respectively, in payments pursuant to the TRA during 2019 which was for the 2018 tax year. On March 21, 2020, a Treasury Department Notice postponed the original due date for the Company's U.S. federal income tax return to July 15, 2020 from April 15, 2020. The Company made the TRA payments to Cinemark and Regal on July 15, 2020 of $3.2 million and $5.8 million, respectively.

Pursuant to the terms of the NCM LLC Operating Agreement in place since the completion of the Company’s IPO, NCM LLC is required to make mandatory distributions on a proportionate basis to its members of available cash, as defined in

14

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

the NCM LLC Operating Agreement, on a quarterly basis in arrears.  Mandatory distributions of available cash for the three and six months ended June 25, 2020 and June 27, 2019 were as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
June 25, 2020
 
June 27,
2019
 
June 25,
2020
 
June 27,
2019
Cinemark
$

 
$
7.5

 
$
2.1

 
$
10.5

Regal

 
7.9

 
2.2

 
11.0

Total distributions to related parties

 
15.4

 
4.3

 
21.5

NCM, Inc.

 
14.6

 
4.1

 
20.4

Total
$

 
$
30.0

 
$
8.4

 
$
41.9


Due to the temporary closure of the theaters within NCM LLC's network during the three months ended June 25, 2020, the mandatory distributions of available cash by NCM LLC to its related party founding members and NCM, Inc. for the three months ended June 25, 2020 were calculated as negative $29.8 million (including $7.6 million for Cinemark, $7.8 million for Regal and $14.4 million for NCM, Inc.). Therefore, there will be no payment made for the second quarter of 2020. Under the terms of the NCM LLC Operating Agreement, this negative amount will be netted against the available cash distributions for the second quarter of 2021, which will be paid in the third quarter of 2021, contingent upon the Company's compliance with the covenants outlined within the Credit Agreement Amendment defined within Note 6—Borrowings and the Company's generation of future positive available cash to which the above negative amounts above can be applied.
Amounts due to related party founding members, net as of December 26, 2019 were comprised of the following (in millions):
 
Cinemark
 
Regal
 
Total
Theater access fees and revenue share, net of beverage revenues and other encumbered theater payments
$
2.0

 
$
2.5

 
$
4.5

Distributions payable to founding members
15.8

 
16.6

 
32.4

Integration payments due from founding members
(0.1
)
 

 
(0.1
)
Total amounts due to founding members, net
$
17.7

 
$
19.1

 
$
36.8


Network Affiliate Transactions—NCM LLC paid a network affiliate owned by a family member of a director on the Company's Board of Directors $0.1 million, $0.1 million, $0.3 million and $0.2 million, in circuit share payments during the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, respectively.
AC JV, LLC Transactions—In December 2013, NCM LLC sold its Fathom Events business to a newly formed limited liability company, AC JV, LLC, owned 32% by each of the founding members and 4% by NCM LLC.  The Company accounts for its investment in AC JV, LLC under the equity method of accounting in accordance with ASC 323-30, Investments—Equity Method and Joint Ventures (“ASC 323-30”) because AC JV, LLC is a limited liability company with the characteristics of a limited partnership and ASC 323-30 requires the use of equity method accounting unless the Company’s interest is so minor that it would have virtually no influence over partnership operating and financial policies.  Although NCM LLC does not have a representative on AC JV, LLC’s Board of Directors or any voting, consent or blocking rights with respect to the governance or operations of AC JV, LLC, the Company concluded that its interest was more than minor under the accounting guidance. The Company’s investment in AC JV, LLC was $0.9 million and $0.9 million as of June 25, 2020 and December 26, 2019, respectively. Equity in (losses) earnings from AC JV, LLC of $(0.1) million, $0.1 million, $0.0 million and $0.3 million for the three months ended June 25, 2020 and June 27, 2019 and six months ended