Basis of Presentation and Summary of Significant Accounting Policies | 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NCM, Inc. was incorporated in Delaware as a holding company with the sole purpose of becoming a member and sole manager of NCM LLC, a limited liability company owned by NCM, Inc., Cinemark and Regal. The terms “NCM”, “the Company” or “we” shall, unless the context otherwise requires, be deemed to include the consolidated entity. The Company operates the largest cinema advertising network reaching movie audiences in North America, allowing NCM LLC to sell advertising under long-term ESAs with the founding members and certain third-party network affiliates, under long-term network affiliate agreements. On September 17, 2019, NCM LLC entered into 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 19.8 years as of December 26, 2019 . The network affiliate agreements expire at various dates between March 15, 2020 and July 22, 2031 . The weighted average remaining term (based on attendance) of the ESAs and the network affiliate agreements together is 17.1 years as of December 26, 2019 . As of December 26, 2019 , NCM LLC had 159,077,355 common membership units outstanding, of which 77,568,986 ( 48.8% ) were owned by NCM, Inc., 41,770,669 ( 26.2% ) were owned by Regal, 39,737,700 ( 25.0% ) were owned by Cinemark and 0 ( 0.0% ) 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 its Consolidated Financial Statements and related notes of NCM, Inc. in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain reclassifications have been made to the prior years’ financial statements to conform to the current presentation (refer to Consolidated Statements of Income and Consolidated Statement of Cash Flows, whereby the Company presented depreciation expense and amortization expense as two separate lines). 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. The Company’s business is seasonal and for this and other reasons operating results for interim periods may not be indicative of the Company’s full year results or future performance. As a result of the various related-party agreements discussed in Note 9— 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. Advertising is the principal business activity of the Company and is the Company’s only reportable segment under the requirements of ASC 280 – Segment Reporting. 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. 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 Accounting Period —The Company has a 52-week or 53-week fiscal year ending on the first Thursday after December 25. Fiscal years 2017 , 2018 and 2019 contained 52 weeks. Throughout this document, the fiscal years are referred to as set forth below: Fiscal Year Ended Reference in this Document December 26, 2019 2019 December 27, 2018 2018 December 28, 2017 2017 Revenue Recognition —The Company derives revenue principally from the sale of advertising to national, regional and local businesses in Noovie , our cinema advertising and entertainment pre-show seen on movie screens across the U.S., as well as on our LEN, a series of strategically-placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies. We also sell digital online and mobile advertising through our Cinema Accelerator product and across our suite of Noovie digital properties, including Noovie.com, Noovie Shuffle, Name That Movie, Noovie Arcade, and Fantasy Movie League , in order to reach entertainment audiences beyond the theater. The Company also has a long-term agreement to exhibit the advertising of the founding members’ beverage suppliers. The Company considers the terms of each arrangement to determine the appropriate accounting treatment as more fully discussed in Note 2— Revenue from Contracts with Customers . Operating Costs —Advertising fulfillment-related operating costs primarily include personnel and other costs related to advertising fulfillment, payments due to unaffiliated theater circuits under the network affiliate agreements, and to a lesser extent, production costs of non-digital advertising. Payments to the founding members of a theater access fee is comprised of a payment per theater attendee, a payment for post-showtime advertising, a payment per digital screen and a payment per digital cinema projector equipped in the theaters, all of which escalate over time, and payment for revenue share of the Platinum Spot. Refer to Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this document. Network costs include personnel, satellite bandwidth, repairs, and other costs of maintaining and operating the digital network and preparing advertising and other content for transmission across the digital network. Advertising Costs —Advertising-related costs incurred promoting the Company's digital products are included within “Selling and marketing costs” on the audited Consolidated Statements of Income. The Company recognized advertising costs of $ 1.2 million, $ 0.1 million, and $ 0.0 million for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively. These costs are expensed when incurred. Cash and Cash Equivalents —All highly liquid debt instruments and investments purchased with an original maturity of three months or less are classified as cash equivalents and are considered available-for-sale securities. There are cash balances in a bank in excess of the federally insured limits or in the form of a money market demand account with a major financial institution. Marketable Securities —The Company’s marketable securities are classified as available-for-sale and are reported at fair value. The fair value of substantially all securities is determined by quoted market information and pricing models using inputs based upon market information, including contractual terms, market prices and yield curves. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market. Concentration of Credit Risk and Significant Customers —Bad debts are provided for using the allowance for doubtful accounts method based on historical experience and management’s evaluation of outstanding receivables at the end of the period. Receivables are written off when management determines amounts are uncollectible. Trade accounts receivable are uncollateralized and represent a large number of geographically dispersed debtors. The collectability risk with respect to national and regional advertising is reduced by transacting with founding members or large, national advertising agencies who have strong reputations in the advertising industry and clients with stable financial positions. The Company has smaller contracts with thousands of local clients that are not individually significant. As of December 26, 2019 and December 27, 2018 , there were no advertising agency groups or individual customers through which the Company sources national advertising revenue representing more than 10% of the Company’s outstanding gross receivable balance. During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , there were no customers that accounted for more than 10% of revenue. Receivables consisted of the following (in millions): As of December 26, 2019 December 27, 2018 Trade accounts $ 176.0 $ 154.0 Other 1.0 1.9 Less: Allowance for doubtful accounts (6.2 ) (6.0 ) Total $ 170.8 $ 149.9 Long-lived Assets —Property and equipment is stated at cost, net of accumulated depreciation or amortization. Generally, the equipment associated with the digital network of the founding member theaters is owned by the founding members, while the equipment associated with network affiliate theaters is owned by the Company. Major renewals and improvements are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. The Company records depreciation using the straight-line method over the following estimated useful lives: Equipment 4-10 years Computer hardware and software 3-5 years Leasehold improvements Lesser of lease term or asset life Software and website development costs developed or obtained for internal use are accounted for in accordance with ASC 350— Internal Use Software and ASC 350– Website Development Costs . The subtopics require the capitalization of certain costs incurred in developing or obtaining software for internal use. Software costs related primarily to the Company’s inventory management systems, digital products, digital network distribution system (DCS), enterprise resource planning system and website development costs, which are included in equipment, and are depreciated over three to five years . As of December 26, 2019 and December 27, 2018 , the Company had a net book value of $14.1 million and $17.4 million , respectively, of capitalized software and website development costs. Depreciation expense related to software and website development was approximately $8.4 million , $6.7 million and $6.0 million for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively. The subtopics also require the capitalization of certain implementation costs related to qualifying Cloud Computing Arrangements (“CCAs”) upon adoption of ASU 2018-15— Intangibles - Goodwill and Other - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract as of September 28, 2018. As of December 26, 2019 and December 27, 2018 the Company had a gross and net book value of $0.6 million and $0.0 million of capitalized implementation costs for CCAs, respectively. These costs primarily relate to the Company's expected new hosted planning, proposal and inventory tracking system. These costs will be amortized to “Administrative and other costs” within the audited Consolidated Statements of Income over the life of the hosting arrangement beginning at implementation. For the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , the Company recorded $3.6 million , $1.7 million and $3.6 million in research and development expense, respectively. The Company assesses impairment of long-lived assets pursuant with ASC 360 – Property, Plant and Equipment. This includes determining if certain triggering events have occurred that could affect the value of an asset. The Company recorded losses of $0.2 million , $0.5 million and $0.1 million related to the write-off of property, plant and equipment during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively. These balances have been included within “Depreciation expense” within the respective audited Consolidated Statements of Income given the immaterial nature of the balances. Intangible Assets —Intangible assets consist of contractual rights to provide its services within the theaters of the founding members and network affiliates and are stated at cost, net of accumulated amortization. The Company records amortization using the straight-line method over the contractual life of the intangibles, corresponding to the term of the ESAs or the term of the contract with the network affiliate. Intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. In its impairment testing, the Company estimates the fair value of its ESAs or network affiliate agreements by determining the estimated future cash flows associated with the ESAs or network affiliate agreements. If after determining that gross cash flows are insufficient to recover the asset, the estimated fair value is less than the carrying value, the intangible asset is written down to its estimated fair value. Significant judgment is involved in estimating long-term cash flow forecasts. The Company recorded $ 0.1 million, $ 0.0 million and $ 0.0 million, respectively, in impairment charges related to intangible assets during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 . These losses have been included within “Depreciation expense” within the respective audited Consolidated Statements of Income given the immaterial nature of the activity. The Company has elected to capitalize extension costs on its intangible assets and thus capitalized the legal and professional costs incurred in conjunction with the 2019 ESA Amendments. During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , the Company capitalized $ 1.3 million , $ 0.0 million and $ 0.0 million, respectively within the intangible asset balance related to extension costs. Amounts Due to/from Founding Members —Amounts due to/from founding members include amounts due for the theater access fees and revenue share, offset by a receivable for advertising time purchased by the founding members on behalf of their beverage concessionaire, plus any amounts outstanding under other contractually obligated payments. Payments to or received from the founding members against outstanding balances are made monthly. Available cash distributions are made quarterly. Income Taxes —Income taxes are accounted for under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to be recovered or settled pursuant to the provisions of ASC 740 – Income Taxes . The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company records a valuation allowance if it is deemed more likely than not that all or a portion of its deferred income tax assets will not be realized, which will be assessed on an on-going basis. In addition, income tax rules and regulations are subject to interpretation and the application of those rules and regulations require judgment by the Company and may be challenged by the taxation authorities. The Company follows ASC 740-10-25, which requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. Only tax positions that meet the more likely than not recognition threshold are recognized. The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the Consolidated Financial Statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Debt Issuance Costs —In relation to the issuance of outstanding debt discussed in Note 10— Borrowings , there is a balance of $12.9 million and $12.8 million in deferred financing costs as of December 26, 2019 and December 27, 2018 , respectively. The debt issuance costs are being amortized on a straight-line basis over the terms of the underlying obligations and are included in interest on borrowings, which approximates the effective interest method. Debt issuance costs are written-off in the event that the underlying debt is extinguished through partial or full repayment of the obligation. The changes in debt issuance costs are as follows (in millions): Years Ended December 26, 2019 December 27, 2018 December 28, 2017 Beginning balance $ 12.8 $ 10.0 $ 12.6 Debt issuance costs 4.6 6.4 — Amortization of debt issuance costs (2.6 ) (2.6 ) (2.6 ) Write-off of debt issuance costs (1.9 ) (1.0 ) — Ending balance $ 12.9 $ 12.8 $ 10.0 Share-Based Compensation —During 2019, the Company issued stock options, restricted stock and restricted stock units. Restricted stock and restricted stock units vest upon the achievement of Company three -year cumulative performance measures and service conditions or only service conditions. The Company recognizes share-based compensation net of an estimated forfeiture rate. 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 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. Compensation cost of stock options is based on the estimated grant date fair value using the Black-Scholes option pricing model, which requires that the Company make estimates of various factors. Under the fair value recognition provisions of ASC 718 Compensation – Stock Compensation, the Company recognizes share-based compensation net of an estimated forfeiture rate, and therefore only recognizes compensation cost for those shares expected to vest over the requisite service period of the award. Refer to Note 11— Share-Based Compensation for more information. Fair Value Measurements —Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. Consolidation —NCM, Inc. consolidates the accounts of NCM LLC under the provisions of ASC 810, Consolidation (“ASC 810”). Under Accounting Standards Update 2015-2, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-2”), a limited partnership is a variable interest entity unless a simple majority or lower threshold of all limited partners unrelated to the general partner have kick-out or participating rights. The non-managing members of NCM LLC do not have dissolution rights or removal rights. NCM, Inc. has evaluated the provisions of the NCM LLC membership agreement and has concluded that the various rights of the non-managing members are not substantive participating rights under ASC 810, as they do not limit NCM, Inc.’s ability to make decisions in the ordinary course of business. As such, the Company concluded that NCM LLC is a variable interest entity and determined that NCM, Inc. should consolidate the accounts of NCM LLC pursuant to ASU 2015-2 because 1) it has the power to direct the activities of NCM LLC in its role as managing member and 2) NCM, Inc. has the obligation to absorb losses of, or the right to receive benefits from, NCM LLC that could potentially be significant provided its 48.8% ownership in NCM LLC. Prior to the prospective adoption of ASU 2015-2 in the first quarter of 2016, the Company reached the same conclusion under previous guidance in ASC 810 to consolidate NCM LLC. The following table presents the changes in NCM, Inc.’s equity resulting from net income attributable to NCM, Inc. and transfers to or from noncontrolling interests (in millions): Years Ended December 26, 2019 December 27, 2018 December 28, 2017 Net income attributable to NCM, Inc. $ 36.1 $ 29.8 $ 58.3 NCM LLC equity issued for purchase of intangible asset 3.7 7.7 78.8 Income tax and other impacts of NCM LLC ownership changes (0.7 ) 7.0 28.6 NCM, Inc. investment in NCM LLC (1.7 ) — (84.9 ) Issuance of shares to founding members 1.7 — 84.7 Change from net income attributable to NCM, Inc. and transfers from noncontrolling interests $ 39.1 $ 44.5 $ 165.5 Recently Adopted Accounting Pronouncements During the first quarter of 2019, the Company adopted Accounting Standards Update 2016-2 and subsequent amendments, Leases (Topic 842) (together “ASC 842”) utilizing the Comparatives Under 840 option where only the current period financial statements and related disclosures are presented in accordance with the new standard. As of the adoption date of December 28, 2018 the Company recognized the following on the audited Condensed Consolidated Balance Sheets: a right-of-use (“ROU”) asset of $ 21.7 million within “Other assets”, a short-term lease liability of $ 1.4 million within “Other current liabilities”, a long-term lease liability of $ 24.5 million within “Other liabilities” and reversed the related deferred rent liability balance of $ 4.2 million for all leases with terms longer than twelve months related to its building operating leases. The Company elected to utilize the following practical expedients: (i) not being required to separate lease and non-lease components when accounting for the lease for all asset classes; and (ii) not accounting for short-term leases under the new standard. The Company also determined that the ESAs and affiliate agreements are considered leases under ASC 842. However, the identification of the asset and determination of the period of control is dependent upon the scheduling of the showtimes by the exhibitors. As the schedules are typically not determined until one week in advance of the showtime, on average, the leases are considered short term in nature, specifically less than one month. As such, no ROU assets or lease liabilities were recognized for these agreements. The issuance of NCM LLC membership units to the founding members in accordance with NCM LLC’s Common Unit Adjustment Agreement and upfront cash payments to affiliates for the contractual rights to provide services within their theaters will continue to be classified as intangible assets. However, the amortization of these intangible assets is now considered lease expense and has been reclassified within the current period from “Depreciation and amortization expense” to “Amortization of intangibles recorded for network theater screen leases” on the audited Consolidated Statement of Income. Additionally, these upfront cash payments to affiliates and receipt of integration payments from the founding members, as defined within Note 5— Intangible Assets , will be considered cash flows from operating activities on the audited Consolidated Statement of Cash Flows when incurred as they are related to operating leases and will be reclassified from cash flows from investing and financing activities, respectively. The Company has also incorporated additional disclosures in Note 13— Commitments and Contingencies to comply with ASC 842. During the first quarter of 2019, the Company adopted Accounting Standards Update 2018-7, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which amends Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The adoption of ASU 2018-7 had an immaterial impact on the audited Condensed Consolidated Financial statements or notes thereto. During the fourth quarter of 2018, the Company adopted a final rule issued by the SEC amending certain disclosure requirements deemed by the SEC to be redundant, duplicative, overlapping, outdated or superseded. The rule also added requirements to disclose (1) the changes in each caption of stockholders’ equity and non-controlling interests for the current and comparative year-to-date periods, with subtotals for each interim period and (2) the amount of dividends per share for each class of shares. The Company's adoption of the guidance resulted in changes to the presentation of the audited Consolidated Statement of Equity as a quarter to date equity rollforward is now also required for the current and comparable period. The Company implemented the amended disclosure requirements in the first quarter of 2019. The codification was updated to reflect the aforementioned SEC changes within Accounting Standards Update 2019-7, Codification Updates to SEC Sections ("ASU 2019-7") issued and effective during the third quarter of 2019. Recently Issued Accounting Pronouncements In June 2016, the FASB issued 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. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted and is to be adopted on a modified retrospective basis. Upon the adoption of ASU 2016-13 on December 27, 2019, the Company expects to record a cumulative-effect adjustment 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. The Company is still evaluating the amount of adjustment. The Company will incorporate additional disclosures in its notes to its Consolidated Financial Statements to comply with ASU 2016-13 effective in the first quarter of 2020. The Company has designed and implemented changes to certain processes and internal controls related to its adoption of ASU 2016-13. In August 2018, the FASB issued 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. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with partial early adoption permitted for eliminated disclosures. The method of adoption varies by the disclosure. Upon the adoption of ASU 2018-13 on December 27, 2019, the Company expects no changes to the Company's fair value disclosures as none of the changes within ASU 2018-13 were applicable to the Company. 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 is currently evaluating the impact that adopting this guidance will have on the audited Consolidated Financial Statements or notes thereto. 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 audited Consolidated Financial Statements or notes thereto. |