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 27, 2019~~March 26, 2020

Commission file number: 001-33296

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, 2019, 78,973,707~~May 1, 2020, 79,625,789 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.	Unaudited Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income	2
	Unaudited Condensed Consolidated Statements of Cash Flows	3
	Unaudited Condensed Consolidated Statements of Equity/(Deficit)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3334
Item 4.	Controls and Procedures	3334

	PART II

Item 1.	Legal Proceedings	3335
Item 1A.	Risk Factors	3335
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3338
Item 3.	Defaults Upon Senior Securities	3338
Item 4.	Mine Safety Disclosures	3338
Item 5.	Other Information	3338
Item 6.	Exhibits	3539

Signatures		3640

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(In millions, except share and per share data)~~

~~(UNAUDITED)~~

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 27, 2019			December 27, 2018			March 26, 2020			December 26, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	42.8		$	41.4		$	193.2		$	55.9
Short-term marketable securities	11.2			24.0			16.8			17.5
Receivables, net of allowance of $6.0 and $6.0, respectively	124.9			149.9
Income tax receivable	0.1			0.3
Receivables, net of allowance of $3.5 and $6.2, respectively							113.7			170.8
Amounts due from founding members, net	3.1			5.8			—			6.6
Current portion of notes receivable - founding members (including receivables from related parties of $2.8 and $4.2, respectively)	4.2			5.6
Prepaid expenses and other current assets	4.7			3.9			3.5			3.5
Total current assets	191.0			230.9			327.2			254.3
NON-CURRENT ASSETS:
Property and equipment, net of accumulated depreciation of $66.7 and $62.5, respectively	32.4			33.6
Intangible assets, net of accumulated amortization of $186.2 and $172.7, respectively	669.6			684.5
Deferred tax assets, net of valuation allowance of $77.5 and $80.1, respectively	172.4			173.9
Property and equipment, net of accumulated depreciation of $73.8 and $70.7, respectively							32.8			33.2
Intangible assets, net of accumulated amortization of $205.0 and $198.9, respectively							646.7			643.7
Deferred tax assets, net of valuation allowance of $73.7 and $81.6, respectively							162.7			162.1
Other investments	3.2			3.0			1.1			1.0
Long-term marketable securities	7.7			10.2			5.3			7.5
Debt issuance costs, net	4.5			5.0			3.6			3.9
Other assets	23.2			0.7			25.2			24.3
Total non-current assets	913.0			910.9			877.4			875.7
TOTAL ASSETS	$	1,104.0		$	1,141.8		$	1,204.6		$	1,130.0
LIABILITIES AND EQUITY/(DEFICIT)
CURRENT LIABILITIES:
Amounts due to founding members, net	$	17.9		$	30.0		$	10.2		$	36.8
Payable to founding members under tax receivable agreement (including payables to related parties of $11.1 and $11.2, respectively)	15.3			15.5
Payable to founding members under tax receivable agreement (including payables to related parties of $10.1 and $10.3, respectively)							14.2			14.2
Accrued expenses	18.2			21.7			24.7			22.1
Accrued payroll and related expenses	9.6			15.3			6.5			13.8
Accounts payable	15.5			18.0			12.7			20.7
Deferred revenue	10.7			7.3			7.5			7.6
Short-term debt	2.7			2.7			2.7			2.7
Other current liabilities	1.3			—			1.7			1.6
Total current liabilities	91.2			110.5			80.2			119.5
NON-CURRENT LIABILITIES:
Long-term debt, net of debt issuance costs of $6.9 and $7.8, respectively	915.4			920.9
Payable to founding members under tax receivable agreement (including payables to related parties of $133.7 and $141.1, respectively)	184.0			195.6
Long-term debt, net of debt issuance costs of $8.7 and $9.0, respectively							1,051.6			923.9
Payable to founding members under tax receivable agreement (including payables to related parties of $134.6 and $133.5, respectively)							185.0			183.8
Other liabilities	23.9			4.0			24.1			24.0
Total non-current liabilities	1,123.3			1,120.5			1,260.7			1,131.7
Total liabilities	1,214.5			1,231.0			1,340.9			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, 77,349,628 and 76,976,398 issued and outstanding, respectively	0.8			0.8
Common stock, $0.01 par value; 175,000,000 shares authorized, 77,973,648 and 77,568,986 issued and outstanding, respectively							0.8			0.8
Additional paid in capital/(deficit)	(211.9		)	(215.2		)	(209.1		)	(209.2		)
Retained earnings (distributions in excess of earnings)	(172.6		)	(153.6		)	(188.3		)	(171.1		)
Total NCM, Inc. stockholders’ equity/(deficit)	(383.7		)	(368.0		)	(396.6		)	(379.5		)
Noncontrolling interests	273.2			278.8			260.3			258.3
Total equity/(deficit)	(110.5		)	(89.2		)	(136.3		)	(121.2		)
TOTAL LIABILITIES AND EQUITY/(DEFICIT)	$	1,104.0		$	1,141.8		$	1,204.6		$	1,130.0

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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						Three Months Ended
	June 27, 2019			June 28, 2018			June 27, 2019			June 28, 2018			March 26, 2020			March 28, 2019
REVENUE (including revenue from related parties of $6.5, $8.6, $11.8 and $16.6, respectively)	$	110.2		$	113.7		$	187.1		$	193.9
REVENUE (including revenue from related parties of $4.3 and $5.3, respectively)													$	64.7		$	76.9
OPERATING EXPENSES:
Advertising operating costs	9.9			9.2			17.2			16.2			6.2			7.3
Network costs	3.4			3.3			6.9			6.8			2.9			3.5
Theater access fees—founding members (including fees to related parties of $14.5, $21.5, $27.4 and $42.1, respectively)	21.6			21.5			40.7			42.1
Theater access fees and revenue share to founding members (including fees to related parties of $12.5 and $12.9, respectively)													17.7			19.1
Selling and marketing costs	16.2			16.7			31.4			32.7			13.9			15.2
Administrative and other costs	11.1			12.8			21.8			25.4			9.8			10.7
Depreciation expense	3.3			3.0			6.6			5.9			3.2			3.3
Amortization expense	—			7.0			—			13.6
Amortization of intangibles recorded for network theater screen leases	7.0			—			13.9			—			6.1			6.9
Total	72.5			73.5			138.5			142.7			59.8			66.0
OPERATING INCOME	37.7			40.2			48.6			51.2			4.9			10.9
NON-OPERATING EXPENSES:
Interest on borrowings	14.2			14.1			28.6			27.9			13.6			14.4
Interest income	(0.5		)	(0.4		)	(1.0		)	(0.7		)	(0.2		)	(0.5		)
Loss (gain) on early retirement of debt, net	—			1.2			(0.3		)	1.2
Loss (gain) on re-measurement of the payable to founding members under the tax receivable agreement	0.8			(7.7		)	1.5			(7.8		)
Gain on early retirement of debt, net													—			(0.3		)
Loss on re-measurement of the payable to founding members under the tax receivable agreement													0.2			0.7
Other non-operating income	(0.1		)	—			(0.3		)	—			(0.1		)	(0.2		)
Total	14.4			7.2			28.5			20.6			13.5			14.1
INCOME BEFORE INCOME TAXES	23.3			33.0			20.1			30.6
Income tax expense	2.3			16.0			1.7			17.0
CONSOLIDATED NET INCOME	21.0			17.0			18.4			13.6
Less: Net income attributable to noncontrolling interests	12.1			12.8			10.6			11.3
NET INCOME ATTRIBUTABLE TO NCM, INC.	$	8.9		$	4.2		$	7.8		$	2.3
COMPREHENSIVE INCOME ATTRIBUTABLE TO NCM, INC.	$	8.9		$	4.2		$	7.8		$	2.3
LOSS BEFORE INCOME TAXES													(8.6		)	(3.2		)
Income tax benefit													(0.4		)	(0.6		)
CONSOLIDATED NET LOSS													(8.2		)	(2.6		)
Less: Net loss attributable to noncontrolling interests													(4.5		)	(1.5		)
NET LOSS ATTRIBUTABLE TO NCM, INC.													$	(3.7	)	$	(1.1	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO NCM, INC.													$	(3.7	)	$	(1.1	)

NET INCOME PER NCM, INC. COMMON SHARE:
NET LOSS PER NCM, INC. COMMON SHARE:
Basic	$	0.11		$	0.05		$	0.10		$	0.03		$	(0.05	)	$	(0.01	)
Diluted	$	0.11		$	0.05		$	0.10		$	0.03		$	(0.05	)	$	(0.01	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	77,343,093			76,912,086			77,261,435			76,776,250			77,763,967			77,179,777
Diluted	77,636,096			77,125,610			77,575,081			76,981,056			77,763,967			77,179,777

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions) (UNAUDITED)


	Six Months Ended						Three Months Ended
	June 27, 2019			June 28, 2018			March 26, 2020			March 28, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income	$	18.4		$	13.6
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Deferred income tax expense	1.5			16.5
Consolidated net loss							$	(8.2	)	$	(2.6	)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
Deferred income tax benefit							(0.4		)	(0.7		)
Depreciation expense	6.6			5.9			3.2			3.3
Amortization expense	—			13.6
Amortization of intangibles recorded for network theater screen leases	13.9			—			6.1			6.9
Non-cash share-based compensation	2.8			4.9			0.2			0.8
Impairment on investment	—			0.4
Amortization of debt issuance costs	1.3			1.3			0.6			0.6
Gain on early retirement of debt, net	(0.3		)	—			—			(0.3		)
Non-cash loss (gain) on re-measurement of the payable to founding members under the tax receivable agreement	1.6			(7.8		)
Write-off of debt issuance costs	—			0.8
Non-cash loss on re-measurement of the payable to founding members under the tax receivable agreement							0.2			0.7
Other	(1.0		)	0.1			(1.3		)	(0.9		)
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 $0.6 in 2019)	10.6			—
Founding member integration and encumbered theater payments (including payments from related parties of $0.1 and $0.4, respectively)							8.5			8.1
Changes in operating assets and liabilities:
Receivables, net	25.0			34.9			60.5			44.3
Accounts payable and accrued expenses	(8.9		)	(5.4		)	(11.1		)	(11.5		)
Amounts due to/from founding members, net	0.7			0.6			0.8			0.3
Payment to the founding members under tax receivable agreement (including payments to related parties of $9.8 and $17.6, respectively)	(13.9		)	(17.6		)
Deferred revenue	3.4			3.1			(0.2		)	(0.5		)
Other, net	(2.9		)	1.3			(0.8		)	(2.5		)
Net cash provided by operating activities	59.3			66.2			58.1			46.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(6.8		)	(7.2		)	(3.3		)	(2.9		)
Purchases of marketable securities	(5.4		)	(13.9		)	(7.2		)	(2.9		)
Proceeds from sale and maturities of marketable securities	21.4			12.0			11.3			19.4
Proceeds from notes receivable - founding members	1.4			—
Net cash provided by (used in) investing activities	10.6			(9.1		)
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							0.8			15.0
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends	(27.2		)	(28.1		)	(15.5		)	(14.0		)
Proceeds from revolving credit facility	71.0			106.2			210.0			62.0
Repayments of revolving credit facility	(71.0		)	(88.0		)	(82.0		)	(52.0		)
Repayments of Notes due 2026	(4.6		)	—
Proceeds from term loan facility	—			270.0
Repayment of term loan facility	(1.4		)	(270.0		)	(0.7		)	(0.7		)
Repayment of Senior Notes due 2026							—			(4.6		)
Payment of debt issuance costs	—			(6.3		)	(0.1		)	—
Founding member integration and other encumbered theater payments (including payments from related parties of $11.5 in 2018)	—			11.5
Distributions to founding members	(34.0		)	(46.1		)	(32.4		)	(27.9		)
Repurchase of stock for restricted stock tax withholding	(1.3		)	(2.1		)	(0.9		)	(1.2		)
Net cash used in financing activities	(68.5		)	(52.9		)
Net cash provided by (used in) financing activities							78.4			(38.4		)
CHANGE IN CASH AND CASH EQUIVALENTS:	1.4			4.2			137.3			22.6
Cash and cash equivalents at beginning of period	41.4			30.2			55.9			41.4
Cash and cash equivalents at end of period	$	42.8		$	34.4		$	193.2		$	64.0

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In millions)

(UNAUDITED)


	Six Months Ended				Three Months Ended
	June 27, 2019		June 28, 2018		March 26, 2020			March 28, 2019
Supplemental disclosure of non-cash financing and investing activity:
Purchase of an intangible asset with NCM LLC equity	$	7.6	$	15.9	$	10.5		$	7.6
Accrued distributions to founding members	$	15.4	$	16.9
Accrued integration and other encumbered theater payments due from founding members (including accrued payments due from related parties of $0.2 and $5.3, respectively)	$	5.3	$	5.3
Accrued debt issuance costs	$	—	$	0.5
Increase in dividend equivalent accrual not requiring cash in the period	$	0.4	$	0.5
Accrued distributions to founding members (including accrued distributions to related parties of $4.3 and $6.1, respectively)					$	4.4		$	6.1
Accrued integration and other encumbered theater payments due from founding members (including accrued payments due from related parties of $0.0 and $0.1, respectively)					$	1.2		$	2.2
(Decrease) increase in dividend equivalent accrual not requiring cash in the period					$	(0.1	)	$	0.1
Supplemental disclosure of cash flow information:
Cash paid for interest	$	27.3	$	27.0	$	10.4		$	10.9
Cash paid for income taxes, net of refunds	$	0.1	$	0.1	$	0.3		$	—

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)

(In millions, except share and per share data)

(UNAUDITED)

Three Months Ended
Additional
Paid in Capital (Deficit) Retained
Earnings
(Distribution in Excess of Earnings) Noncontrolling Interest
Common Stock
Consolidated Shares Amount
Balance—March 29, 2018 $ (84.4 ) 76,904,155
$ 0.8
$ (229.3 ) $ (145.6 ) $ 289.7
Distributions to founding members (17.0 ) —
—
—
—
(17.0 )
Income tax and other impacts of NCM LLC ownership changes 0.6
—
—
0.6
—
—
Comprehensive income, net of tax 17.0
—
—
—
4.2
12.8
Share-based compensation issued —
11,377
—
—
—
—
Share-based compensation expense/capitalized 2.2
—
—
1.6
—
0.6
Cash dividends declared $0.17 per share (13.5 ) —
—
—
(13.5 ) —
Balance—June 28, 2018 $ (95.1 ) 76,915,532
$ 0.8
$ (227.1 ) $ (154.9 ) $ 286.1

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 expense/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


				Six Months Ended																		NCM, Inc.
							Additional Paid in Capital (Deficit)				Retained Earnings (Distribution in Excess of Earnings)				Noncontrolling Interest												Additional Paid in Capital (Deficit)			Retained Earnings (Distribution in Excess of Earnings)			Noncontrolling Interest
				Common Stock														Common Stock
	Consolidated			Shares	Amount
Balance—December 28, 2017	$	(74.8	)	76,242,222	$	0.8			$	(233.1				)					$	(130.2	)		$	287.7
Cumulative-effect adjustment for adoption of ASU 2014-09	(0.2		)	—	—				—						(0.2		)		—
Distributions to founding members	(25.4		)	—	—		—				—				(25.4		)
NCM LLC equity issued for purchase of intangible asset	15.9			—	—		7.7				—				8.2
Income tax and other impacts of NCM LLC ownership changes	(0.3		)	—	—		(3.1		)		—				2.8
Comprehensive income, net of tax	13.6			—	—		—				2.3				11.3
Share-based compensation issued	(2.1		)	673,310	—		(2.1		)		—				—
Share-based compensation expense/capitalized	5.0			—	—		3.5				—				1.5
Cash dividends declared $0.34 per share	(26.8		)	—	—		—				(26.8		)		—
Balance—June 28, 2018	$	(95.1	)	76,915,532	$	0.8	$	(227.1	)		$	(154.9	)		$	286.1
																		Consolidated				Shares			Amount		Additional Paid in Capital (Deficit)			Retained Earnings (Distribution in Excess of Earnings)			Noncontrolling Interest
Balance—December 27, 2018	$	(89.2	)	76,976,398	$	0.8	$	(215.2	)		$	(153.6	)		$	278.8		$	(89.2	)		76,976,398			$	0.8
Distributions to founding members	(21.5		)	—	—		—				—				(21.5		)	(6.1		)		—			—
NCM LLC equity issued for purchase of intangible asset	7.6			—	—		3.7				—				3.9			7.6				—			—				3.7			—			3.9
Income tax and other impacts of NCM LLC ownership changes	(0.6		)	—	—		(1.3		)		—				0.7			(0.7		)		—			—				(1.4	)		—			0.7
Comprehensive income, net of tax	18.4			—	—		—				7.8				10.6			(2.6		)		—			—		—			(1.1		)	(1.5		)
Share-based compensation issued	(1.3		)	373,230	—		(1.3		)		—				—			(1.2		)		342,573			—		(1.2		)	—			—
Share-based compensation expense/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
Share-based compensation expensed/capitalized																		0.8				—			—		0.5			—			0.3
Cash dividends declared $0.17 per share																		(13.3		)		—			—		—			(13.3		)	—
Balance—March 28, 2019																		$	(104.7	)		77,318,971			$	0.8	$	(213.6	)	$	(168.0	)	$	276.1

Balance—December 27, 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																		2.8				—			—		—			1.2			1.6
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																		(0.4		)		—			—		(4.0		)	—			3.6
Comprehensive income, net of tax																		(8.2		)		—			—		—			(3.7		)	(4.5		)
Share-based compensation issued																		(0.9		)		404,662			—		(0.9		)	—			—
Share-based compensation expensed/capitalized																		0.2				—			—		—			—			0.2
Cash dividends declared $0.19 per share																		(14.7		)		—			—		—			(14.7		)	—
Balance—March 26, 2020																		$	(136.3	)		77,973,648			$	0.8	$	(209.1	)	$	(188.3	)	$	260.3

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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”.

~~NCM LLC~~The Company operates the largest cinema advertising network reaching movie audiences in ~~North America,~~the U.S., allowing NCM LLC to sell advertising under long-term exhibitor services agreements (“ESAs”) with the founding members ~~(approximately 18 years remaining as of June 27, 2019)~~ and certain third-party theater circuits, referred to in this document as “network affiliates” under long-term network affiliate agreements. As of March 26, 2020, almost all of the theaters within the Company's network have been temporarily closed to address the COVID-19 Pandemic. The Company is unable to advertise in the theaters, and thus will not generate any in theater revenue, for the duration of time that the theaters are 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 19.5 years as of March 26, 2020. The network affiliate agreements ~~which~~ expire at various dates between September ~~2019~~2020 and July 2031. The weighted average remaining term (based on attendance) of the ESAs and the network affiliate agreements together is ~~15.5~~17.1 years as of ~~June 27, 2019.~~March 26, 2020.

As of ~~June 27, 2019,~~March 26, 2020, NCM LLC had ~~159,055,115~~162,504,976 common membership units outstanding, of which ~~77,349,628 (48.6%~~77,973,648 (48.0%) were owned by NCM, Inc., ~~41,770,669 (26.3%~~42,290,694 (26.0%) were owned by Regal, ~~39,737,700 (25.0%~~40,850,068 (25.1%) were owned by Cinemark and ~~197,118 (0.1%~~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 reclassifications have been made to the prior year's financial statements to conform to the current presentation (refer to the Condensed Consolidated Statements of Income and Condensed Consolidated Statement of Cash Flows, whereby the Company presented depreciation expense and amortization expense as two separate lines and refer to the Condensed Consolidated Statements of Income, whereby the Company presented loss (gain) on retirement of debt, net as a separate line). Accordingly, 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 ~~27, 2018~~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 ~~27, 2018.~~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. 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 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. 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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company’s annual financial statements included in its Form 10-K filed for the fiscal year ended December ~~27, 2018~~26, 2019 contain a complete discussion of the Company’s significant accounting policies. Following is additional information related to the Company’s accounting policies.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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—~~Bad debts are provided~~The risk of credit loss related to the Company's trade receivables and unbilled receivables balances is accounted for ~~using~~through the allowance for doubtful accounts, ~~method based on~~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 ~~experience and management’s evaluation~~write off percentages to these pools in order to determine the amount of ~~outstanding receivables at the end~~expected credit losses as of the ~~period. Receivables~~balance sheet date. National receivables are~~written off when management determines amounts are uncollectible. Trade accounts receivable are uncollateralized and represent a~~ with large ~~number of geographically dispersed debtors. The collectability risk with respect to national and regional advertising isreduced by transacting with founding members or large, national~~ advertising agencies ~~that have~~with strong reputations in the advertising industry and clients with stable financial ~~positions.~~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 much smaller companies with limited credit information available, 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. As of ~~June 27,~~March 26, 2020, the Company increased the allowance related to local and regional customers, recording an incremental $0.7 million in bad debt expense during the three months ended March 26, 2020 compared to the three months ended March 28, 2019, 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 arewritten off when management determines amounts are uncollectible.

As of March 26, 2020 and December ~~27, 2018,~~26, 2019, 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 three ~~and six~~ months ended ~~June 27,~~March 26, 2020 and March 28, 2019, ~~and June 28, 2018,~~ the Company had no customers that accounted for more than 10% of revenue.

Share-Based Compensation—The Company has issued stock options and restricted stock to certain employees and restricted stock units to its independent directors. The ~~Company has not granted stock options since 2012. In 2018 and 2019, 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 27,~~March 26, 2020 and March 28, 2019, 524,303 and ~~June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018, 37,699, 19,357, 549,695 and 975,596~~511,996 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, Inc. and transfers to or from noncontrolling interests (in millions):


	Three Months Ended				Six Months Ended						Three Months Ended
	June 27, 2019		June 28, 2018		June 27, 2019			June 28, 2018			March 26, 2020			March 28, 2019
Net income attributable to NCM, Inc.	$	8.9	$	4.2	$	7.8		$	2.3		$	(3.7	)	$	(1.1	)
NCM LLC equity issued for purchase of intangible asset	—		—		3.7			7.7			5.0			3.7
Income tax and other impacts of subsidiary ownership changes	0.1		0.6		(1.3		)	(3.1		)	(4.0		)	(1.4		)
Change from net income attributable to NCM, Inc. and transfers from noncontrolling interests	$	9.0	$	4.8	$	10.2		$	6.9		$	(2.7	)	$	1.2

~~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 unaudited 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 ESA 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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 unaudited Condensed Consolidated Statement of Income. Additionally, these upfront cash payments to affiliates and receipt of integration payments from the founding members, as defined within Note 4 - ~~Intangible Assets~~, will be considered cash flows from operating activities on the unaudited Condensed 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 8 - ~~Commitments and Contingencies~~ ~~to comply with ASC 842.~~Recently Adopted Accounting Pronouncements

During the first quarter of ~~2019,~~2020, 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 no impact on the unaudited Condensed Consolidated Financial statements or notes thereto.

During the first quarter of 2019, the Company adopted a final rule issued by the SEC in March 2019 simplifying certain Regulation S-K requirements. The rule eliminated the following requirements in certain circumstances: (1) to disclose discussion of the earliest year of three years of audited financial statements presented within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-K, (2) to request permission from the SEC to redact confidential information from exhibits in the event the information is not material to the agreement and would cause competitive harm, (3) to disclose immaterial physical property and (4) to disclose schedules and attachments to exhibits which do not contain material information. The rule also adds the requirement to disclose the registrant's trading symbol on the cover page of certain SEC forms. The applicable amended disclosure requirements have been incorporated within this Quarterly Report on Form 10-Q.

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 unaudited 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.

~~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. Upon the adoption of ASU 2016-13 ~~is effective~~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 ~~fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early~~credit losses related to trade and unbilled accounts receivable reducing the allowance to $3.0 million as of the adoption ~~permitted and is to be adopted on a modified retrospective basis.~~date. The Company ~~is currently evaluating~~also recorded a corresponding $0.4 million reduction to the ~~impact that adopting this guidance will have on~~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 ~~or notes thereto.~~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.

~~In August 2018,~~During the ~~FASB issued~~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 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. The Company is currently evaluating thedid not have a material impact ~~that adopting this guidance will have~~ 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 this ASU 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

~~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~~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, Fantasy Movie League, Name That Movie and Noovie Shuffle, 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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 27, 2019~~March 26, 2020 and December ~~27, 2018,~~26, 2019, the Company had a make-good provision of ~~$5.7~~$8.6 million and ~~$8.0~~$8.7 million, respectively.

The Company ~~has certain~~does not have any contracts with ~~two-year~~customers with terms in excess of one year that are noncancelable following a specified date within the contract period. The estimated revenue expected to be recognized in the future related to these contracted performance obligations that are unsatisfied (or partially unsatisfied) as of ~~June 27, 2019, was $47.7 million, which is expected to be recognized in 2019.~~March 26, 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;~~national, local, ~~and regional;~~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 ~~and six~~ months ended ~~June 27,~~March 26, 2020 and March 28, 2019 ~~and June 28, 2018:~~(in millions):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 27, 2019		June 28, 2018		June 27, 2019		June 28, 2018		March 26, 2020		March 28, 2019
National advertising revenue	$	77.6	$	78.8	$	131.6	$	133.6
National and regional advertising revenue									$	49.8	$	57.4
Local advertising revenue	17.7		18.1		30.5		31.6		9.4		12.8
Regional advertising revenue	6.7		8.2		10.1		12.1
Founding member advertising revenue from beverage concessionaire agreements	8.2		8.6		14.9		16.6		5.5		6.7
Total revenue	$	110.2	$	113.7	$	187.1	$	193.9	$	64.7	$	76.9

Deferred Revenue and Unbilled Accounts Receivable

The changes in deferred revenue for the ~~six~~three months ended ~~June 27, 2019~~March 26, 2020 were as follows (in millions):


	Six Months Ended			Three Months Ended
	June 27, 2019			March 26, 2020
Balance at beginning of period	$	(7.3	)	$	(7.6	)
Performance obligations satisfied	7.3			5.4
New contract liabilities	(10.7		)	(5.3		)
Balance at end of period	$	(10.7	)	$	(7.5	)

As of ~~June 27, 2019~~March 26, 2020 and December ~~27, 2018,~~26, 2019, the Company had ~~$14.1~~$7.3 million and ~~$6.0~~$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 three months ended March 26, 2020 were as follows (in millions):



	Three Months Ended
	March 26, 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	(0.1		)	1.1
Write-offs, net	(0.1		)	(0.4		)
Balance at end of period	$	0.9		$	2.6

~~3. EARNINGS PER SHARE~~

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. LOSS PER SHARE

Basic ~~earnings~~loss per share is computed on the basis of the weighted average number of common shares outstanding. Diluted ~~earnings~~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 ~~income~~loss per NCM, Inc. share are as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 27, 2019		June 28, 2018		June 27, 2019		June 28, 2018		March 26, 2020			March 28, 2019
Net income attributable to NCM, Inc. (in millions)	$	8.9	$	4.2	$	7.8	$	2.3
Net loss attributable to NCM, Inc. (in millions)									$	(3.7	)	$	(1.1	)
Weighted average shares outstanding:
Basic	77,343,093		76,912,086		77,261,435		76,776,250		77,763,967			77,179,777
Add: Dilutive effect of stock options and restricted stock	293,003		213,524		313,646		204,806
Add: Dilutive effect of stock options, restricted stock and exchangeable membership units									—			—
Diluted	77,636,096		77,125,610		77,575,081		76,981,056		77,763,967			77,179,777
Earnings per NCM, Inc. share:
Loss per NCM, Inc. share:
Basic	$	0.11	$	0.05	$	0.10	$	0.03	$	(0.05	)	$	(0.01	)
Diluted	$	0.11	$	0.05	$	0.10	$	0.03	$	(0.05	)	$	(0.01	)

The effect of ~~81,705,487, 80,660,822, 81,263,513~~81,973,440 and ~~79,467,022~~80,821,540 weighted average exchangeable NCM LLC common units held by the founding members for the three months ended ~~June 27,~~March 26, 2020 and March 28, 2019, ~~and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018,~~ 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 ~~1,969,086, 2,323,154, 2,125,728~~3,821,388 and ~~2,493,613~~3,718,641 stock options and non-vested (restricted) shares for the three months ended ~~June 27,~~March 26, 2020 and March 28, 2019, ~~and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018,~~ 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 our common stock as of March 26, 2020 constituted a triggering event under Accounting Standards Certification No. 360, Impairment and Disposal of Long-Lived Assets. However, the estimated future cash flows from the affiliate agreements and ESAs were in excess of the net book value of these intangible assets and thus, no impairment charges were recorded for the three months ended March 26, 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, 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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

During the first quarter of 2018, NCM LLC issued 2,821,710 (3,736,860 issued, net of 915,150 returned) 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 2017 fiscal year and NCM LLC recorded a net intangible asset of $15.9 million during the first quarter of 2018 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"~~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

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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 ~~ESA~~ESAs additionally ~~entitles~~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 27,~~March 26, 2020 and March 28, 2019, ~~and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018,~~ the Company recorded a reduction to net intangible assets of ~~$5.7 million, $5.6 million, $8.1~~$1.4 million and ~~$7.8~~$2.5 million, respectively, related to integration and other encumbered theater payments. ~~These~~During the three months ended March 26, 2020 and March 28, 2019, AMC and Cinemark paid a total of $8.5 million and $8.1 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 months ended March 26, 2020 relate to AMC's acquisition of theaters from ~~AMC related~~Carmike. The payments received during the three months ended March 28, 2019 relate to ~~its~~AMC's acquisitions of theaters from Carmike and Rave Cinemas and from Cinemark related primarily to its acquisition of theaters from Rave Cinemas. During the three months ended June 27, 2019 and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018, AMC and Cinemark paid a total of $2.5 million, $2.2 million, $10.6 million and $11.5 million, respectively, in integration and other encumbered theater payments (as payments are made one quarter and one month in arrears, respectively). 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

Founding Member Transactions—In connection with NCM, Inc.’s 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 27, 2019,~~March 26, 2020, AMC is no longer a related party. AMC remains a party to the ESA, Common Unit Adjustment Agreement, Tax Receivable Agreement ~~("TRA"~~(“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. AMC is considered a related party through the date its ownership fell below the 5% threshold (July 5, 2018) and related party transactions with AMC through this period are included within the disclosures below (specifically the first quarter and first six months of 2018).

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 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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

monthly theater access fee. ~~These agreements~~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

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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):


	Three Months Ended				Six Months Ended				Three Months Ended
Included in the unaudited Condensed Consolidated Statements of Income: ~~(1)~~	June 27, 2019		June 28, 2018		June 27, 2019		June 28, 2018		March 26, 2020		March 28, 2019
Revenue:
Beverage concessionaire revenue (included in advertising revenue) ~~(2)~~(1)	$	6.5	$	8.6	$	11.8	$	16.6	$	4.3	$	5.3
Operating expenses:
Theater access fee (3)	14.5		21.5		27.4		42.1
Theater access fee and revenue share (2)									12.5		12.9
Purchase of movie tickets and concession products and rental of theater space (included in selling and marketing costs) ~~(4)~~(3)	0.1		0.3		0.2		0.7		0.1		0.1
Non-operating expenses:
Interest income from notes receivable (included in interest income) ~~(5)~~(4)	—		0.1		0.1		0.2		—		0.1


(1)	AMC is no longer considered a related party as of July 5, 2018, as described further above. As such, the figures within the table above only include related party activity with AMC for the three and six months ended June 28, 2018.

~~(2)~~

For the three ~~and six~~ months ended ~~June 27,~~March 26, 2020 and March 28, 2019, Cinemark and ~~June 28, 2018, two of the founding members~~Regal purchased 60 seconds of on-screen advertising time ~~and one founding member purchased 30 seconds (with all three founding members having a right to purchase up to 90 seconds)~~ from NCM LLC to satisfy their obligations under their beverage concessionaire agreements at a 30 seconds equivalent CPM rate specified by the ESA.

~~(3)~~(2)

Comprised of payments per theater attendee, ~~and~~ payments per digital screen with respect to the founding member theaters included in the Company’s network ~~including~~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”).


~~(4)~~(3)	Used primarily for marketing to NCM LLC’s advertising clients.

~~(5)~~(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 ~~are~~were due annually in six equal installments commencing on the first anniversary of the ~~closing.~~closing and ended on December 26, 2019.

As of
Included in the unaudited Condensed Consolidated Balance Sheets: June 27,
2019 December 27,
2018
Purchase of movie tickets and concession products (included in prepaid expenses) (1)
$ 0.1
$ —
Current portion of notes receivable - related parties (1) (2)
2.8
4.2
Interest receivable on notes receivable (included in other current assets) (1) (2)
0.1
0.1
Common unit adjustments, net of amortization and integration payments (included in intangible assets) (3)
644.8
657.6
Current payable to founding members under tax receivable agreement (1)(4)
11.1
11.2
Long-term payable to founding members under tax receivable agreement (1)(4)
133.7
141.1

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	As of
Included in the unaudited Condensed Consolidated Balance Sheets:	March 26, 2020		December 26, 2019
Common unit adjustments, net of amortization and integration payments (included in intangible assets) (1)	$	624.3	$	620.5
Current payable to founding members under tax receivable agreement (2)	$	10.1	$	10.3
Long-term payable to founding members under tax receivable agreement (2)	$	134.6	$	133.5


(1)	~~AMC is no longer considered a related party as of July 5, 2018, as described further above. As such, the figures as of June 27, 2019 and December 27, 2018 do not include AMC.~~


~~(2)~~	~~Refer to the discussion of notes receivable from the founding members above.~~


~~(3)~~	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.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~(4)~~(2)

The Company paid Cinemark and Regal ~~$3.5~~$3.7 million and ~~$6.3~~$6.7 million, respectively, in payments pursuant to the TRA during 2019 which was for the 2018 tax year. ~~The Company paid Cinemark and Regal $4.6 million and $8.4 million, respectively, in payments pursuant to~~On March 21, 2020, a Treasury Department Notice postponed the ~~TRA during 2018 which was~~due date for the ~~2017~~Company's U.S. federal income tax ~~year.~~return to July 15, 2020 from April 15, 2020. As such, the date the 2019 TRA payment will begin accruing interest was also delayed until July 15, 2020.

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 the NCM LLC Operating Agreement, on a quarterly basis in arrears. Mandatory distributions of available cash for the three ~~and six~~ months ended ~~June 27,~~March 26, 2020 and March 28, 2019 ~~and June 28, 2018~~ were as follows (in millions):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 27, 2019		June 28, 2018		June 27, 2019		June 28, 2018		March 26, 2020		March 28, 2019
AMC	$	—	$	—	$	—	$	2.2
Cinemark	7.5		8.3		10.5		11.3		$	2.1	$	3.0
Regal	7.9		8.6		11.0		11.8		2.2		3.1
Total founding members	15.4		16.9		21.5		25.3
Total distributions to related parties									4.3		6.1
NCM, Inc.	14.6		16.2		20.4		24.3		4.1		5.8
Total	$	30.0	$	33.1	$	41.9	$	49.6	$	8.4	$	11.9

The mandatory distributions of available cash by NCM LLC to ~~Regal~~Cinemark and ~~Cinemark~~Regal for the three months ended ~~June 27, 2019~~March 26, 2020 of ~~$15.4~~$4.3 million isare included in amounts due to founding members, net on the unaudited Condensed Consolidated Balance Sheets as of ~~June 27, 2019~~March 26, 2020 and will be made in the third quarter of 2019. AMC’s distribution for the three months ended June 28, 2018 was split equally between Cinemark and Regal because NCM LLC used a record date of July 6, 2018 (following the sale of AMC's membership units to Cinemark and Regal) to accommodate an agreement between AMC and Cinemark and AMC and Regal. These agreements entitled AMC to half of the second quarter of ~~2018 available cash distribution, or approximately $2.2 million, of which Cinemark and Regal each independently paid AMC approximately $1.1 million.~~2020. The mandatory distributions to NCM, Inc. are eliminated in consolidation.

Amounts due to related party founding members, net as of ~~June 27,~~March 26, 2020 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	$	2.7	$	4.7
Distributions payable to founding members	2.1		2.2		4.3
Total amounts due to founding members, net	$	4.1	$	4.9	$	9.0

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, net of beverage revenues and other encumbered theater
payments
$ 1.2
$ 1.6
$ 2.8
Distributions payable to founding members 7.5
7.9
15.4
Integration payments due from founding members (0.2 ) —
(0.2 )
Cost and other reimbursement (0.1 ) —
(0.1 )
Total amounts due to founding members, net $ 8.4
$ 9.5
$ 17.9

~~Amounts due to founding members, net as of December 27, 2018 were comprised of the following (in millions):~~

Cinemark Regal Total
Theater access fees, net of beverage revenues and other encumbered theater
payments
$ 1.0
$ 1.5
$ 2.5
Distributions payable to founding members 13.7
14.2
27.9
Integration payments due from founding members (0.4 ) —
(0.4 )
Total amounts due to founding members, net $ 14.3
$ 15.7
$ 30.0

The Amounts due from founding members, net balance as of June 27, 2019 and December 27, 2018 per the Condensed Consolidated Balance Sheets relates to payments due from AMC to NCM LLC. Given that AMC ceased being a related party as of July 5, 2018, the detail of that balance has not been included within the tables above.

As of June 28, 2018, AMC owned 1.0 million shares of NCM, Inc. common stock. During the three and six months ended June 28, 2018, AMC received cash dividends of approximately $0.1 million and $0.3 million, respectively, on its shares of NCM, Inc. common stock held at that time.



	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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Network Affiliate Transactions—NCM LLC paid a network affiliate owned by a family member of a director on the Company's Board of Directors $0.2 million and $0.1 million in circuit share payments during the three months ended March 26, 2020 and March 28, 2019.

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 ~~$1.1~~$1.0 million and $0.9 million as of ~~June 27, 2019~~March 26, 2020 and December ~~27, 2018, respectively. During the three months ended June 27,~~26, 2019, ~~and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018, NCM LLC received cash distributions from AC JV, LLC of $0.1 million, $0.0 million, $0.1 million and $0.0 million,~~ respectively. Equity in earnings from AC JV, LLC of $0.1 million and $0.2 million for the three months ended ~~June 27,~~March 26, 2020 and March 28, 2019, ~~and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018, were $0.1 million, $0.1 million, $0.3 million and $0.1 million,~~ respectively, ~~and~~ is included in “Other non-operating ~~expenses~~income” in the unaudited Condensed Consolidated Statements of Income. NCM LLC also received fees from AC JV, LLC of $0.0 million, $0.1 million, $0.0 million, and $0.1 million in the three months ended June 27, 2019 and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018, respectively, related to the transition services agreement with AC JV, LLC whereby the Company provides certain corporate overhead or creative services or use of facilities in exchange for a fee. These fees received by NCM LLC are included as an offset to network costs in the unaudited Condensed Consolidated Statements of Income.

6. BORROWINGS

The following table summarizes NCM LLC’s total outstanding debt as of ~~June 27, 2019~~March 26, 2020 and December ~~27, 2018~~26, 2019 and the significant terms of its borrowing arrangements (in millions):


	Outstanding Balance as of								Outstanding Balance as of
Borrowings	June 27, 2019			December 27, 2018			Maturity Date	Interest Rate	March 26, 2020			December 26, 2019			Maturity Date	Interest Rate
Senior secured notes due 2022	$	400.0		$	400.0		April 15, 2022	6.000%
Revolving credit facility	27.0			27.0			June 20, 2023	(1)	$	167.0		$	39.0		June 20, 2023	(1)
Term loan	268.0			269.4			June 20, 2025	(1)
Term loans									266.0			266.6			June 20, 2025	(1)
Senior unsecured notes due 2026	230.0			235.0			August 15, 2026	5.750%	230.0			230.0			August 15, 2026	5.750%
Senior secured notes due 2028									400.0			400.0			April 15, 2028	5.875%
Total borrowings	925.0			931.4					1,063.0			935.6
Less: debt issuance costs related to term loan and senior notes	(6.9		)	(7.8		)
Less: debt issuance costs related to term loans and senior notes									(8.7		)	(9.0		)
Total borrowings, net	918.1			923.6					1,054.3			926.6
Less: current portion of debt	(2.7		)	(2.7		)			(2.7		)	(2.7		)
Carrying value of long-term debt	$	915.4		$	920.9				$	1,051.6		$	923.9


(1)	The interest rates on the revolving credit facility and term loan are described below.

Senior Secured Credit Facility—On June 20, 2018, NCM LLC entered into a credit agreement to replace NCM LLC's senior secured credit facility, dated as of February 13, 2007, as amended (the “previous facility”). Consistent with the structure of the previous facility, the agreement consists of a term loan facility and a revolving credit facility. As of ~~June 27, 2019,~~March 26, 2020, NCM LLC’s senior secured credit facility consisted of a $175.0 million revolving credit facility and a ~~$268.0~~$266.0 million term loan. The obligations under the senior secured credit facility are secured by a lien on substantially all of the assets of NCM LLC.

Revolving Credit Facility—The revolving credit facility portion of NCM LLC’s total borrowings is available, subject to certain conditions, for general corporate purposes of NCM LLC in the ordinary course of business and for other transactions permitted under the senior secured credit facility, and a portion is available for letters of credit. During March 2020, NCM LLC drew down an additional $110.0 million on the revolving credit facility to fund operations during the period of expected disrupted cash flows due to the temporary closure of the theaters within NCM LLC's network to address the COVID-19 Pandemic. As of ~~June 27, 2019,~~March 26, 2020, NCM LLC’s total availability under the $175.0 million revolving credit facility was ~~$143.2~~$4.4 million, net of ~~$27.0~~$167.0 million outstanding and ~~$4.8~~$3.6 million in letters of credit. The unused line fee is 0.50% per annum which is consistent with the previous facility. Borrowings under the revolving credit facility bear interest at NCM LLC’s option of either the LIBOR index plus an applicable margin ranging from 1.75% to 2.25% or the base rate plus an applicable margin ranging from 0.75% to 1.25%. The applicable margin for the revolving credit facility is determined quarterly and is subject to adjustment based upon a

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

consolidated net senior secured leverage ratio for NCM LLC (the ratio of secured funded debt less unrestricted cash and cash equivalents of up to $100.0 million, divided by Adjusted EBITDA for debt purposes, defined as

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NCM LLC's net income before depreciation and amortization expense adjusted to also exclude non-cash share based compensation costs for NCM LLC plus integration payments received). The revolving credit facility will mature on June 20, 2023, which is contingent upon the refinancing of NCM LLC’s Notes due 2022 (defined below, see “Senior Secured Notes due 2022”) on or prior to October 30, 2021. If the Notes due 2022 are not refinanced on or prior to October 30, 2021, then the revolving credit facility will instead mature on December 30, 2021.2023. The weighted-average interest rate on the revolving credit facility as of ~~June 27, 2019~~March 26, 2020 was ~~5.35%~~2.80%.

Term ~~Loan~~Loans—The interest rate on the term ~~loan~~loans is a rate chosen at NCM LLC’s option of either the LIBOR index plus 3.00% or the base rate plus 2.00%. The interest rate on the term ~~loan~~loans as of ~~June 27, 2019~~March 26, 2020 was ~~5.44%~~4.63%. The term ~~loan amortizes~~loans amortize at a rate equal to 1.00% annually, to be paid in equal quarterly installments. As of ~~June 27, 2019,~~March 26, 2020, NCM LLC has paid principal of ~~$2.0~~$4.0 million, reducing the outstanding balance to ~~$268.0~~$266.0 million. The term ~~loan~~loans will mature on June 20, 2025 contingent upon the refinancing of the Notes due 2022 on or prior to October 30, 2021. If the Notes due 2022 are not refinanced on or prior to October 30, 2021, then the term loan will instead mature on December 30, 2021.2025.

The senior secured credit facility contains a number of covenants and various financial ratio requirements, including, (i) a consolidated net total leverage ratio covenant of 6.25 times for each quarterly period and (ii) with respect to the revolving credit facility, maintaining a consolidated net senior secured leverage ratio of equal to or less than 4.50 times on a quarterly basis for each quarterly period in which a balance is outstanding on the revolving credit facility. In addition, NCM LLC is permitted to make quarterly dividend payments and other restricted payments with its available cash as long as NCM LLC’s consolidated net senior secured leverage ratio (after giving effect to any such payment) is below 5.50 times and no default or event of default has occurred and continues to occur under the senior secured credit facility. As of ~~June 27, 2019,~~March 26, 2020, NCM LLC’s consolidated net senior secured leverage ratio was ~~3.14~~3.28 times (versus the dividend payment restriction of 5.50 times and the covenant of 4.50 times) and NCM LLC's consolidated net total leverage ratio was ~~4.24~~4.31 times (versus the covenant of 6.25 times).

~~Senior Secured Notes due 2022~~—On April 27, 2012, NCM LLC completed a private placement of $400.0 million in aggregate principal amount of 6.000% Senior Secured Notes (the “Notes due 2022”) for which the registered exchange offering was completed on November 26, 2012. The Notes due 2022 pay interest semi-annually in arrears on April 15 and October 15 of each year, which commenced on October 15, 2012. The Notes due 2022 share in the same collateral that secures NCM LLC's obligations under the senior secured credit facility.

Senior Unsecured Notes due 2026—On August 19, 2016, NCM LLC completed a private placement of $250.0 million in aggregate principal amount of 5.750% Senior Unsecured Notes (the “Notes due 2026”) for which the registered exchange offering was completed on November 8, 2016. The Notes due 2026 pay interest semi-annually in arrears on February 15 and August 15 of each year, which commenced on February 15, 2017. The Notes due 2026 were issued at 100% of the face amount thereof and are the senior unsecured obligations of NCM LLC. NCM LLC repurchased and canceled a total of $5.0 million and $15.0 million of the Notes due 2026 during 2019 and 2018, respectively, reducing the principal amount to $230.0 million as of ~~June 27, 2019.~~March 26, 2020. These repurchases were treated as partial debt extinguishments and resulted in the realization of a non-operating gain, net of written off debt issuance costs, of $0.0 million ~~$0.0 million,~~and $0.3 ~~million and $0.0~~ million during the three months ended ~~June 27,~~March 26, 2020 and March 28, 2019, respectively.

Senior Secured Notes due 2028—On October 8, 2019, NCM LLC completed a private offering of $400.0 million aggregate principal amount of 5.875% Senior Secured Notes due 2028 (the “Notes due 2028”) to eligible purchasers. The Notes due 2028 will mature on April 15, 2028. Interest on the Notes due 2028 accrues at a rate of 5.875% per annum and ~~June 28, 2018~~is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2020. The Notes due 2028 were issued at 100% of the ~~six months ended June 27, 2019~~face amount thereof and ~~June 28, 2018, respectively.~~share in the same collateral that secures NCM LLC's obligations under the senior secured credit facility.

7. INCOME TAXES

The Company’s provision for income taxes during the interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Although the Company believes the use of the annual effective tax rate method to be appropriate for prior interim reporting periods, the Company utilized a discrete effective tax rate method to calculate the provision for income taxes for the three months ended March 26, 2020, as allowed by ASC 740-270, Income Taxes, Interim Reporting. The Company determined that as small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the discrete effective tax rate would provide a more reliable estimate for the three months ended March 26, 2020.

Changes in the Company’s Effective Tax Rate—The Company’s effective tax rate decreased from ~~88.1%~~34.4% for the ~~six~~three months ended ~~June~~March 28, ~~2018~~2019 to ~~17.9%~~8.8% for the ~~six~~three months ended ~~June 27, 2019 primarily due to a decrease~~March 26, 2020, resulting in an income tax ~~expense recorded~~benefit of $0.4 million for the ~~change in~~three months ended March 26, 2020 compared to an income tax benefit of $0.6 million for the ~~state effective tax rate.~~three months ended March 28, 2019. The decrease in income tax ~~expense~~benefit was primarily due to ~~a decrease~~the impact of incremental unfavorable permanent tax adjustments recognized in ~~deferred tax expense for~~ the ~~six~~three months ended ~~June 27, 2019,~~March 26, 2020, compared to the ~~six~~three months ended ~~June~~March 28, ~~2018 related to the Company's remeasurement of its deferred taxes as a result of a 2018~~2019, and state tax ~~law change.~~rate changes recognized in the three months ended March 28, 2019 that did not impact the tax provision recorded for the three months ended March 26, 2020. The Company's current blended state and federal rate ~~is 24.5%~~(net of federal benefit) was 24.4% as of ~~June 27, 2019 as compared to 25.4% as of June~~both March 26, 2020 and March 28, ~~2018.~~2019.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. COMMITMENTS AND CONTINGENCIES

Legal Actions—The Company is subject to claims and legal actions in the ordinary course of business. The Company believes such claims will not have a material effect individually ~~and~~or in the aggregate on its financial position, results of operations or cash flows.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Operating Commitments - Facilities - —The Company has entered into operating lease agreements for its corporate headquarters and other regional offices. The Company has right-of-use (“ROU”) assets of ~~$21.2~~$21.8 million and short-term and long-term lease liabilities of ~~$1.3~~$1.7 million and ~~$23.9~~$24.1 million, respectively, on the balance sheet as of ~~June 27, 2019~~March 26, 2020 for all material leases with terms longer than twelve months. These balances are included within ~~'Other assets'~~“Other assets”, ~~'Other~~“Other current ~~liabilities'~~liabilities” and ~~'Other liabilities'~~“Other liabilities”, respectively, on the unaudited Condensed Consolidated Balance Sheets. The Company has options on certain of these facilities to extend the lease or to terminate part or all of the leased space prior to the lease end date. Certain termination fees would be due upon exercise of the early termination options as outlined within the underlying agreements. None of these options were considered reasonably certain of exercise and thus have not been recognized as part of the ROU assets and lease liabilities. As of ~~June 27, 2019,~~March 26, 2020, the Company had a weighted average remaining lease term of ~~10.8~~9.9 years on these leases.

The Company has also entered into certain short-term leases with a term of less than one year. These leases are not included within the Company’s ROU assets or lease liabilities due to the Company’s election of the practical expedient in ASC 842-20-25-2 for short-term leases.

During the three and six months ended June 27, 2019, the Company recognized the following components of total lease cost (in millions). These costs are presented within selling and marketing costs and administrative and other costs within the unaudited Condensed Consolidated Statements of Income depending upon the nature of the use of the facility.

Three Months Ended Six Months Ended
June 27,
2019 June 27,
2019
Operating lease cost $ 0.8
$ 1.6
Short-term lease cost —
0.1
Variable lease cost 0.2
0.3
Total lease cost $ 1.0
$ 2.0

The Company made total lease payments of $0.8 million and $1.6 million during the three and six months ended June 27, 2019. These payments are included within cash flows from operating activities within the unaudited Condensed Consolidated Statement of Cash Flows. The minimum lease payments under noncancelable operating leases as of December 27, 2018 were as follows (in millions).

Year Minimum Lease Payments
2019 $ 3.5
2020 3.3
2021 3.4
2022 3.4
2023 3.4
Thereafter 22.1
Total $ 39.1

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~The future lease payments under noncancelable operating leases as of June 27, 2019 were as follows (in millions).~~

Year Future Lease Payments
2019 (June 28, 2019 - December 26, 2019) $ 1.7
2020 3.3
2021 3.3
2022 3.4
2023 3.4
2024 3.5
Thereafter 18.7
Total 37.3
Less: Imputed interest on future lease payments (12.1 )
Total lease liability as of June 27, 2019 per the Condensed Consolidated Balance Sheet $ 25.2

When measuring the ROU assets and lease liabilities recorded, the Company utilized its incremental borrowing rate in order to determine the present value of the lease payments as the leases do not provide an implicit rate. The Company used the rate of interest that it would have paid to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. As of ~~June 27, 2019,~~March 26, 2020, the Company’s weighted average annual discount rate used to establish the ROU assets and lease liabilities was ~~7.43%~~7.35%.

During the three months ended March 26, 2020, the Company recognized the following components of total lease cost (in millions). These costs are presented within “Selling and marketing costs” and “Administrative and other costs” within the unaudited Condensed Consolidated Statements of Income depending upon the nature of the use of the facility.



	Three Months Ended
	March 26, 2020		March 28, 2019
Operating lease cost	$	0.9	$	0.8
Short-term lease cost	—		0.1
Variable lease cost	0.1		0.1
Total lease cost	$	1.0	$	1.0

The Company made total lease payments of $0.9 million and $0.8 million during the three months ended March 26, 2020 and March 28, 2019, respectively. These payments are included within cash flows from operating activities within the unaudited Condensed Consolidated Statement of Cash Flows.

Operating Commitments - ESAs and Affiliate Agreements- —The Company has entered into long-term ESAs with the founding members and multi-year agreements with certain network affiliates, or third-party theater circuits. The ESAs and network affiliate agreements grant NCM LLC exclusive rights in their theaters to sell advertising, subject to limited exceptions. The Company recognizes intangible assets upon issuance of membership units to the founding members in accordance with NCM LLC’s Common Unit Adjustment Agreement and upfront cash payments to the affiliates for the contractual rights to provide the Company’s services within their theaters as further discussed within Note 4 - Intangible Assets. These ~~ESA~~ESAs and network affiliate agreements are considered leases under ASC 842 once the asset is identified and the period of control is determined upon the scheduling of the showtimes by the exhibitors, typically one week prior to the showtime. As such, the leases are considered short-term in nature, specifically less than one month. Within ASC 842, leases with terms of less than one month are exempt from the majority of the accounting and disclosure requirements, including disclosure of short-term lease expense. No ROU assets or lease liabilities were recognized for these agreements and no change to the balance sheet presentation of the intangible assets was necessary. However, the amortization of these intangible assets is considered lease expense and ~~was therefore, reclassified in the current period from 'Depreciation and amortization expense' to 'Amortization~~is presented within “Amortization of intangibles recorded for network theater screen ~~leases'~~leases” within the unaudited Condensed Consolidated Statement of Income.

In consideration for NCM LLC’s access to the founding members’ theater attendees for on-screen advertising and use of lobbies and other space within the founding members’ theaters for the LEN and lobby promotions, the founding members receive a monthly theater access fee under the ESAs. The theater access fee is composed of a fixed payment per patron, a fixed payment per digital screen (connected to the DCN) and a fee for access to higher quality digital cinema equipment. The payment per theater patron increases by 8% every five years, with this next increase occurring in fiscal year 2022, and the payment per digital screen and for digital cinema equipment increases annually by 5%. The theater access fee paid in the aggregate to all founding members cannot be less than 12% of NCM LLC’s aggregate advertising revenue (as defined in the ESA), or it will be adjusted upward to reach this minimum payment. As of ~~June 27, 2019~~March 26, 2020 and December ~~27, 2018,~~26, 2019, the Company had no liabilities recorded for the minimum payment, as the theater access fee was in excess of the minimum.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Following the 2019 ESA Amendments, Cinemark and Regal receive an additional monthly theater access fee that began on November 1, 2019 in consideration for NCM LLC's access to certain on-screen advertising inventory after the advertised showtime of a feature film. These fees are also based upon a fixed payment per patron beginning at $0.025 per patron on November 1, 2019, (ii) $0.0375 per patron beginning on November 1, 2020, (iii) $0.05 per patron beginning on November 1, 2021, (iv) $0.052 per patron beginning on November 1, 2022 and (v) increase 8% every five years beginning November 1, 2027. Additionally, following the 2019 ESA Amendments, beginning on November 1, 2019, NCM LLC is entitled to display the Platinum Spot, 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 “attached” trailers are those provided by studios to Cinemark and Regal that are with the feature film, which is at least one trailer, but sometimes two trailers. In consideration for the utilization of the theaters for the Platinum Spots, Cinemark and Regal are entitled to receive 25% of all revenue generated for the actual display of Platinum Spots in their applicable theaters, subject to a specified minimum. If NCM LLC runs advertising in more than one concurrent advertisers’ Platinum Spot for any portion of the network over a period of time, then NCM LLC will be required to satisfy a minimum average CPM for that period of time. The Company does not owe the founding members any theater access fees or any Platinum Spot revenue share when the theaters are not displaying the Company's pre-show or when the Company does not have access to the theaters. As such, the Company will not owe these fees during the duration a founding member's theaters are closed in connection with the COVID-19 Pandemic. The digital screen fee is calculated based upon average screens in use during each month. No digital screen fees will be incurred for months where no screens are in use and fees will be reduced for months where screens are in use for only part of the month.

The network affiliates compensation is considered variable lease expense and varies by circuit depending upon the agreed upon terms of the network affiliate agreement. The majority of agreements are centered around a revenue share where an agreed upon percentage of the advertising revenue received from a theater’s attendance is paid to the circuit. As part of the network affiliate agreements entered into in the ordinary course of business under which the Company sells advertising for display in various network affiliate theater chains, the Company has agreed to certain minimum revenue guarantees on a per attendee basis. If a network affiliate achieves the attendance set forth in their respective agreement, the Company has guaranteed minimum revenue for the network affiliate per attendee if such amount paid under the revenue share arrangement is less than its guaranteed amount. As of ~~June 27, 2019,~~March 26, 2020, the maximum potential amount of future payments the Company could be required to make pursuant to the minimum revenue guarantees is ~~$90.1~~$77.7 million over the remaining terms of the network affiliate agreements. These minimum guarantees relate to various affiliate agreements ranging in term from one to twenty years,

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

prior to any renewal periods of which some are at the option of the Company. ~~Additionally, the~~The Company accrued ~~$0.7~~$0.5 million and ~~$0.1~~$0.5 million related to affiliate agreements with guaranteed minimums in excess of the revenue share agreement as of ~~June 27, 2019~~March 26, 2020 and December ~~27, 2018,~~26, 2019, respectively.

As the guaranteed minimums are based upon agreed upon minimum attendance or affiliate revenue levels, the Company will not incur minimum revenue share fees during the duration an affiliate's theaters are closed or during a period where theater attendance or affiliate revenue levels are low as the minimum levels must first be met by the affiliate.

9. 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.

Non-Recurring Measurements—Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. These assets include long-lived assets, intangible assets, other investments, notes receivable and borrowings.

Long-Lived Assets, Intangible Assets and Other Investments ~~and Notes Receivable~~—The Company regularly reviews long-lived assets (primarily property, plant and equipment), intangible assets and investments accounted for under the cost or equity method ~~and notes receivable~~ for impairment whenever certain qualitative factors, events or changes in circumstances indicate that the carrying amounts of the

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

assets may not be fully recoverable. When the estimated fair value is determined to be lower than the carrying value of the asset, an impairment charge is recorded to write the asset down to its estimated fair value.

Other investments consisted of the following (in millions):


	As of				As of
	June 27, 2019		December 27, 2018		March 26, 2020		December 26, 2019
Investment in AC JV, LLC (1)	$	1.1	$	0.9	$	1.0	$	0.9
Other investments ~~(2)~~	2.1		2.1		0.1		0.1
Total	$	3.2	$	3.0	$	1.1	$	1.0


(1)	Refer to Note 5—Related Party Transactions. This investment is accounted for utilizing the equity method.

~~(2)~~

The Company received equity securities in privately held companies as consideration for a portion of advertising contracts. The equity securities are accounted for at adjusted cost in accordance with the practicability exception under Accounting Standards Update 2016-1, ~~Recognition and Measurement of Financial Assets and Financial Liabilities, and represent an ownership of less than 20%. The Company does not exert significant influence on these companies’ operating or financial activities.~~

During the three months ended June 27, 2019 and June 28, 2018 and the six months ended June 27, 2019 and June 28, 2018, the Company recorded impairment charges of $0.0 million, $0.0 million, $0.0 million and $0.4 million, respectively, on certain of its investments due to a significant deterioration in the business prospects of the investee or new information regarding the fair value of the investee, which brought the total remaining value of the respective impaired investments to $0.0 million as of June 27, 2019 and June 28, 2018. As of ~~June 27, 2019,~~March 26, 2020, no ~~other~~ observable price changes or impairments have been recorded as a result of the Company’s qualitative assessment of identified events or changes in the circumstances of the remaining investments. The investment in AC JV, LLC was initially valued using comparative market multiples. The other investments were recorded based upon the fair value of the services provided in exchange for the investment. As the inputs to the determination of fair value are based upon non-identical assets and use significant unobservable inputs, they have been classified as Level 3 in the fair value hierarchy.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

As of June 27, 2019 and December 27, 2018, the Company had notes receivable totaling $4.2 million and $5.6 million, respectively, from its founding members related to the sale of Fathom Events, as described in Note 5—~~Related Party Transactions~~. These notes were initially valued using comparative market multiples. There were no identified events or changes in circumstances that had a significant adverse effect on the fair value of the notes receivable. The notes are classified as Level 3 in the fair value hierarchy as the inputs to the determination of fair value are based upon non-identical assets and use significant unobservable inputs.

Borrowings—The carrying amount of the revolving credit facility is considered a reasonable estimate of fair value due to its floating-rate terms. The estimated fair values of the Company’s financial instruments where carrying values do not approximate fair value were as follows (in millions):

As of June 27,
2019 As of December 27,
2018
Carrying Value Fair Value (1) Carrying Value
Fair Value (1)
Term loan $ 268.0
$ 267.3
$ 269.4
$ 261.2
Notes due 2022 400.0
405.0
400.0
401.8
Notes due 2026 230.0
218.5
235.0
211.0



	As of March 26, 2020				As of December 26, 2019
	Carrying Value		Fair Value (1)		Carrying Value		Fair Value (1)
Term loans	$	266.0	$	192.9	$	266.6	$	266.9
Notes due 2026	230.0		157.6		230.0		226.2
Notes due 2028	400.0		268.9		400.0		426.7


(1)	If the Company were to measure the borrowings in the above table at fair value on the balance sheet they would be classified as Level 2 based upon the inputs utilized.

Recurring Measurements—The fair values of the Company’s assets and liabilities measured on a recurring basis pursuant to ASC 820-10, Fair Value Measurements and Disclosures are as follows (in millions):


			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
	Fair Value as of June 27, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of March 26, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS:
Cash equivalents (1)	$	34.3	$	16.3	$	18.0	$	—	$	31.9	$	19.9	$	12.0	$	—
Short-term marketable securities (2)	11.2		—		11.2		—		16.8		—		16.8		—
Long-term marketable securities (2)	7.7		—		7.7		—		5.3		—		5.3		—
Total assets	$	53.2	$	16.3	$	36.9	$	—	$	54.0	$	19.9	$	34.1	$	—

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
	Fair Value as of December 27, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 26, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS:
Cash equivalents (1)	$	18.2	$	11.2	$	7.0	$	—	$	28.8	$	16.8	$	12.0	$	—
Short-term marketable securities (2)	24.0		—		24.0		—		17.5		—		17.5		—
Long-term marketable securities (2)	10.2		—		10.2		—		7.5		—		7.5		—
Total assets	$	52.4	$	11.2	$	41.2	$	—	$	53.8	$	16.8	$	37.0	$	—

(1)

Cash Equivalents—The Company’s cash equivalents are carried at estimated fair ~~value.~~value following the Company's election of the fair value option. Cash equivalents consist of money market accounts which the Company has classified as Level 1 given the active market for these accounts and commercial paper with original maturities of three months or less, which are classified as Level 2 and are valued as described below.

(2)

Short-Term and Long-Term Marketable Securities—The carrying amount and fair value of the marketable securities are equivalent since the Company accounts for these instruments at fair value. The Company’s government agency bonds, commercial paper and certificates of deposit are valued using third party broker quotes. The value of the Company’s government agency bonds is derived from quoted market information. The inputs in the valuation are classified as Level 1 if there is an active market for these securities; however, if an active market does not exist, the inputs are recorded at a lower level in the fair value hierarchy. The value of commercial paper and certificates of deposit is derived from pricing models using inputs based upon market information, including contractual terms, market prices and yield curves. The inputs to the valuation pricing models are observable in the market, and as such are generally classified as Level 2 in the fair value hierarchy. As of March 26, 2020, there was $21.1 million of Available-for-sale debt securities in unrealized loss positions without an allowance for credit losses. The Company has not recorded an allowance for credit losses for the marketable securities balance as of March 26, 2020 given the immaterial difference between the amortized cost basis and the aggregate fair value of the Company's securities. For the three months ended March 26, 2020 and March 28, 2019, there was an inconsequential amount of net realized gains (losses) recognized in interest income and an inconsequential amount of net unrealized holding gains (losses) included in interest income. Original cost of short-term marketable securities is based on the specific identification method. As of March 26, 2020 and December 26, 2019, there was $0.0 million and an inconsequential amount, respectively, of gross unrealized losses related to individual securities of $0.0 million and $6.5 million, respectively, that had been in a continuous loss position for 12 months or longer. The Company has not recorded an impairment because it has the intention and ability to hold these securities to maturity.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

inputs are recorded at a lower level in the fair value hierarchy. The value of commercial paper and certificates of deposit is derived from pricing models using inputs based upon market information, including contractual terms, market prices and yield curves. The inputs to the valuation pricing models are observable in the market, and as such are generally classified as Level 2 in the fair value hierarchy. For the three and six months ended June 27, 2019 and June 28, 2018, there was an inconsequential amount of net realized gains (losses) recognized in interest income and an inconsequential amount of net unrealized holding gains (losses) included in interest income. Original cost of short-term marketable securities is based on the specific identification method. As of June 27, 2019 and December 27, 2018, there was an inconsequential amount and $0.2 million, respectively, of gross unrealized losses related to individual securities of $9.9 million and $11.8 million, respectively, that had been in a continuous loss position for 12 months or longer. The Company has not recorded an impairment because it has the intention and ability to hold these securities to maturity.

The amortized cost basis, aggregate fair value and maturities of the marketable securities the Company held as of ~~June 27, 2019~~March 26, 2020 and December ~~27, 2018~~26, 2019 were as follows:

As of June 27, 2019
Amortized Cost
Basis
(in millions) Aggregate Fair
Value
(in millions)
Maturities (1)
(in years)
MARKETABLE SECURITIES:
Short-term U.S. government treasury bonds $ 0.3
$ 0.2
0.1
Short-term U.S. government agency bonds 5.5
5.5
0.5
Short-term commercial paper:
Utility 2.0
2.0
0.1
Short-term municipal bonds 0.9
0.9
0.9
Short-term certificates of deposit 2.6
2.6
0.3
Total short-term marketable securities 11.3
11.2

Long-term municipal bonds 0.3
0.3
1.2
Long-term U.S. government agency bonds 4.8
4.8
2.5
Long-term certificates of deposit 2.6
2.6
2.6
Total long-term marketable securities 7.7
7.7

Total marketable securities $ 19.0
$ 18.9

As of December 27, 2018
Amortized Cost
Basis
(in millions) Aggregate Fair
Value
(in millions)
Maturities (1)
(in years)
MARKETABLE SECURITIES:
Short-term U.S. government agency bonds $ 3.9
$ 3.9
0.5
Short-term U.S. government treasury bonds 0.3
0.3
0.5
Short-term certificates of deposit 3.6
3.6
0.6
Short-term municipal bonds 0.5
0.5
0.1
Short-term commercial paper:
Financial 3.8
3.8
0.1
Industrial 12.0
11.9
0.1
Total short-term marketable securities 24.1
24.0

Long-term municipal bonds 1.2
1.3
1.5
Long-term U.S. government agency bonds 6.9
6.8
2.1
Long-term certificates of deposit 2.4
2.1
2.9
Total long-term marketable securities 10.5
10.2

Total marketable securities $ 34.6
$ 34.2

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	As of March 26, 2020
	Amortized Cost Basis (in millions)		Aggregate Fair Value (in millions)		Maturities (1) (in years)
MARKETABLE SECURITIES:
Short-term U.S. government agency bonds	$	0.5	$	0.5	0.5
Short-term commercial paper:
Industrial	8.0		8.0		0.1
Financial	6.0		6.0		0.1
Short-term municipal bonds	1.2		1.2		0.3
Short-term certificates of deposit	1.1		1.1		0.6
Total short-term marketable securities	16.8		16.8

Long-term U.S. government agency bonds	2.7		2.8		3.7
Long-term certificates of deposit	2.5		2.5		3.5
Total long-term marketable securities	5.2		5.3
Total marketable securities	$	22.0	$	22.1



	As of December 26, 2019
	Amortized Cost Basis (in millions)		Aggregate Fair Value (in millions)		Maturities (1) (in years)
MARKETABLE SECURITIES:
Short-term U.S. government agency bonds	$	3.5	$	3.5	0.4
Short-term certificates of deposit	0.9		0.9		0.8
Short-term certificates of deposit	1.2		1.2		0.5
Short-term commercial paper:
Financial	8.0		7.9		0.3
Industrial	4.0		4.0		0.2
Total short-term marketable securities	17.6		17.5

Long-term U.S. government agency bonds	4.5		4.5		2.2
Long-term certificates of deposit	3.0		3.0		3.6
Total long-term marketable securities	7.5		7.5
Total marketable securities	$	25.1	$	25.0


(1)	Maturities—Securities available for sale include obligations with various contractual maturity dates some of which are greater than one year. The Company considers the securities to be liquid and convertible to cash within 30 days.

10. SUBSEQUENT EVENTS

On March 27, 2020, the U.S. Government enacted various relief and stimulus measures in response to the unprecedented adverse economic impacts of the COVID-19 Pandemic commonly referred to as the CARES Act. The CARES Act makes changes to the U.S. tax code that will affect our fiscal year ending December 31, 2020, including, but not limited to, (1) reducing the limitation on deductible interest expense, (2) changing uses and limitations of net operating losses generated in tax years 2018, 2019, and 2020, (3) deferring the payment of the 6.2% FICA portion of Company's payroll taxes beginning on the enactment date through December 31, 2020 to the end of 2021 for one-half of the tax and the remaining half to the end of 2022 and (4) creating a refundable tax credit for the Company's portion of the 6.2% FICA payroll tax for certain qualifying employees. The Company ~~appointed Thomas F. Lesinski as Chief Executive Officer ("CEO")~~is also evaluating the other provisions of the ~~Company effective~~CARES Act to determine the impact to the Company.

On April 30, 2020, NCM LLC amended its Credit Agreement, dated as of ~~August 2, 2019. In connection~~June 20, 2018 (“Credit Agreement Amendment”) to allow for the automatic waiver of any non-compliance with ~~his appointment as CEO, Mr. Lesinski resigned~~its Consolidated Net Senior Secured Leverage

Ratio and Consolidated Total Leverage Ratio financial covenants occurring from the ~~Company's Board~~quarter ending June 25, 2020 until and including the quarter ending July 1, 2021 (the “Covenant Holiday Period”). As of ~~Directors as Chairman, member~~March 26, 2020, NCM LLC was in compliance with the foregoing financial covenants. The Credit Agreement Amendment requires that, until the fiscal quarter ending July 1, 2021, NCM LLC must not permit the sum of unrestricted cash on hand at NCM LLC and availability under its Revolving Credit Facility to be less than $55.0 million. Further, NCM LLC can make available cash distributions to its members (AMC, Cinemark, Regal and NCM, Inc.) during the Covenant Holiday Period only if trailing 12-month Consolidated EBITDA (as defined in the Credit Agreement) equals or exceeds $277.0 million and outstanding loans under the Revolving Credit Facility are equal to or less than $39.0 million. NCM LLC can make available cash distributions to its members outside of the ~~Audit Committee~~Covenant Holiday Period so long as NCM LLC’s Consolidated Net Senior Secured Leverage Ratio is equal to or less than 5.00 to 1.00 and asno default or event of default under the independent director designated by Cinemark. The Board of Directors subsequently appointed Mr. Lesinski as a member of the Board of Directors in his role as CEO. The Board of Directors also appointed Mark B. Segall to serve as Chairman of the Board of Directors.Credit Agreement has occurred and is continuing.

On ~~August~~May 5, ~~2019,~~2020, the Company declared a cash dividend of ~~$0.17~~$0.07 per share (approximately ~~$13.1~~$5.4 million) on each share of the Company’s common stock (not including outstanding restricted stock which will accrue dividends until the shares vest) to stockholders of record on ~~August 15, 2019~~May 18, 2020 to be paid on ~~August 30, 2019.~~June 1, 2020.

As of the date of the filing of this Form 10-Q, almost all the theaters across the Company’s network remain closed due to the COVID-19 Pandemic. The ultimate significance of the COVID-19 Pandemic, including the extent of the adverse impact on the Company’s financial and operational results, will be dictated by the currently unknowable duration and the effect on the overall economy and of responsive governmental regulations, including shelter-in-place orders and mandated business closures. The Company’s business also could be significantly affected should the disruptions caused by the COVID-19 Pandemic lead to changes in consumer behavior (such as social distancing), which the Company currently believes will be temporary, or further reductions to the customary theatrical release window. The COVID-19 Pandemic also makes it more challenging for management to estimate the future performance of our business over the near to medium term. The Company is monitoring the rapidly evolving situation and its potential impacts on the Company’s financial position, results of operations, liquidity and cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Some of the information in this Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, certain statements under “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,”~~Operations” and statements related to the impact of the current COVID-19 Pandemic on our business and results, may constitute forward-looking statements. In some cases, you can identify these “forward-looking statements” by the specific words, including but not limited to “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of those words and other comparable words. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these statements as a result of certain factors as more fully discussed under the heading “Risk Factors” ~~contained~~ below and in our annual report on Form 10-K for the Company’s fiscal year ended December ~~27, 2018.~~26, 2019. Among other risks, we face significant risk and volatility related to the COVID-19 Pandemic as discussed in this report. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herein and the audited financial statements and other disclosure included in our annual report on Form 10-K for the Company’s fiscal year ended December ~~27, 2018.~~26, 2019. In the following discussion and analysis, the term net income refers to net income attributable to NCM, Inc.

Overview

We are America's Movie Network. As the ~~#1 weekend~~largest cinema advertising network ~~for Millennials (age 18-34)~~ in the U.S., we ~~are~~unite brands with the ~~connector between brands~~power of movies and engage movie ~~audiences.~~fans anytime and anywhere. We currently derive 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 of March 26, 2020, almost all of the theaters within our network have been temporarily closed to address the COVID-19 Pandemic. We are unable to advertise in the theaters, and thus will not generate any in theater revenue, for the duration of time that the theaters are closed. Refer to the “Recent Developments” section below for further information regarding the impact of and the Company's response to the COVID-19 Pandemic.

Beginning in November 2019 following the completion of the 2019 ESA Amendments, we now present two different formats of our Noovie pre-show depending on the theater circuit in which it runs. In Regal and Cinemark and 14 of our network affiliates' theaters, Noovie now includes advertising inventory after the advertised showtime consisting of (1) the lights down segment that runs for five minutes after the advertised showtime with trailer lighting and (2) the 30- or 60-second Platinum Spot (together, the “Post-Showtime Inventory”). As of March 26, 2020, theaters presenting the new Noovie format with Post-Showtime Inventory made up approximately 58% of our network based upon attendance. All other NCM network theater circuits, which make up the remaining 42% of our network based upon attendance as of March 26, 2020, present the Classic Noovie pre-show, which ends approximately at the advertised movie showtime when the movie trailers begin. The movie trailers that run before the feature film are not part of Noovie.

We also sell advertising on our LEN, a series of ~~strategically-placed~~strategically placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies. In addition, we sell online and mobile advertising through our Cinema Accelerator and across our ~~other~~suite of Noovie digital ~~gaming products~~properties, including ~~Noovie ARcade, Fantasy Movie League~~ Noovie.com~~and~~, Noovie Shuffle ~~which can be played on~~, Name That Movie, Noovie Arcade, and Fantasy Movie League, in order to reach entertainment audiences beyond the ~~mobile apps or at~~ ~~Noovie.com~~.theater. As of ~~June 27, 2019, over 3.0~~March 26, 2020, approximately 4.2 million ~~movie goers~~moviegoers have downloaded our mobile apps. These downloads and the acquisition of second party data have resulted in first- and second-party data sets of over 146million as of March 26, 2020. We have long-term ESAs (approximately 1819.5weighted average years remaining based on attendance as of ~~June 27, 2019)~~March 26, 2020) with the founding members and multi-year agreements with our network affiliates, which expire at various dates between September ~~2019~~2020 and July 2031. The weighted average remaining term (based on attendance) of the ESAs and the network affiliate agreements is ~~15.5~~17.1 years as of ~~June 27, 2019.~~March 26, 2020. The ESAs and network affiliate agreements grant NCM LLC exclusive rights in their theaters to sell advertising, subject to limited exceptions. Our Noovie pre-show and LEN programming are distributed predominantly via satellite through our proprietary DCN. Approximately ~~98%~~99% of the aggregate founding member and network affiliate theater attendance is generated by theaters connected to our DCN (the remaining screens receive advertisements on USB drives) and 100% of the Noovie pre-show is projected on digital projectors ~~(95%~~(96% digital cinema projectors and 5%4% LCD projectors) as of ~~June 27, 2019.~~March 26, 2020.

Management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business, determine how we are performing versus our internal goals and targets, and against the performance of our competitors and other benchmarks in the marketplace in which we operate. Senior executives

hold meetings at least once per quarter with members of management to discuss and analyze operating results and address significant variances to budget and prior year in an effort to identify trends and changes in our business. We focus on operating metrics including changes in revenue, Adjusted OIBDA and Adjusted OIBDA margin, as defined and discussed below, as some of our primary measurement metrics. In addition, we monitor our monthly advertising performance measurements, including advertising inventory utilization, national and regional advertising pricing (CPM), local advertising rate per screen per week, national and local and regional and total advertising revenue per attendee. We also monitor free cash flow, the dividend coverage ratio, financial leverage ratio (net debt divided by Adjusted OIBDA plus integration payments and other encumbered theater payments), cash balances and revolving credit facility availability to ensure financial debt covenant compliance and that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our Board of Directors. ~~Financial results, including the metrics outlined above, are presented to the Board of Directors on a monthly basis.~~

Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors” below and in our Form 10-K filed with the SEC on February ~~22, 2019~~20, 2020 for our fiscal year ended December 26, 2019.

Recent Developments

COVID-19—Following the World Health Organization’s declaration of the COVID-19 virus as a pandemic, the United States’ government and other state and local governments issued precautionary restrictions on travel, public gatherings and other events and issued social distancing guidelines. 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 this pandemic. Several major motion picture releases were delayed until later in 2020 or 2021 and some other studios shortened the “release window” between the release of motion pictures in theaters and an alternative delivery method or released motion pictures directly to alternative delivery methods bypassing the theater entirely. The results of the first quarter of 2020 were significantly impacted by these temporary closures as theater attendance was less than expected beginning in March, initially as the public was told to practice social distancing, and then further when theaters were closed following stay at home orders. These developments will be referred to as the “COVID-19 Pandemic.” As of the date of this filing, almost all theaters remain closed across the United States.

We are unable to advertise in the theaters, and thus we will not generate any in theater revenue, for the duration of time that the theaters are closed. Our theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and revenue, and therefore, will not be incurred for the duration the theaters are closed. We have been working to preserve cash and ensure sufficient liquidity to endure the impacts of the COVID-19 Pandemic, even if prolonged. Among other measures, we have:

Temporarily furloughed approximately 30% of our staff and temporarily reduced the pay of the remaining employees by up to 50%, which in aggregate reduced our wage expense by 50%;

Temporarily reduced cash compensation of the Company's Board of Directors by 20%;

Suspended non-essential operating expenditures, including marketing, research, employee travel and consulting services;

Implemented a hiring freeze;

Temporarily suspended the 401K employee match program;

Terminated or deferred certain non-essential capital expenditures;

Strategically working with our landlords, vendors, and other business partners to manage, defer, and/or abate certain costs during the disruptions caused by the COVID-19 Pandemic;

Decreased our quarterly dividend to $0.07 per share from $0.19 per share in the fourth quarter of 2019. When compared to the fourth quarter of 2019 this results in quarterly cash savings of $9.4 million for NCM, Inc.; and

Introduced an active cash management process, which, among other things, requires CEO approval of all outgoing payments.

In March 2020, we drew down an additional $110.0 million on our revolving credit facility increasing our cash and marketable securities balance to $215.3 million as of March 26, 2020 ($132.2 million at NCM LLC). The $132.2 million of cash at NCM LLC will be used to fund operations during the period of expected reduced cash flows. Cash at NCM, Inc. cannot be used to fund operations at NCM LLC and is held for future payment of dividends to NCM, Inc. shareholders, income tax payments, income tax receivable payments to NCM LLC’s founding members and other obligations. Further, as of March 26, 2020, we had approximately $113.7 million of trade accounts receivable outstanding from customers, of which we have collected approximately $66.7 million as of May 4, 2020. Management believes that cash on hand following the additional draw down on the revolving credit facility, collection of accounts receivable, as well as future funds generated from NCM LLC’s operations once theaters re-open should be sufficient to fund working capital requirements, NCM LLC’s debt service requirements and capital expenditures through the next twelve months.

On April 30, 2020, NCM LLC amended its Credit Agreement, dated as of June 20, 2018 (“Credit Agreement Amendment”) to allow for the automatic waiver of any non-compliance with its Consolidated Net Senior Secured Leverage Ratio and Consolidated Total Leverage Ratio financial covenants occurring from the quarter ending June 25, 2020 until and including the quarter ending July 1, 2021 (the “Covenant Holiday Period”). As of March 26, 2020, NCM LLC was in compliance with these financial covenants. The Credit Agreement Amendment requires that, until the fiscal quarter ending July 1, 2021, NCM LLC must not permit the sum of unrestricted cash on hand at NCM LLC and availability under its Revolving Credit Facility to be less than $55.0 million. Further, NCM LLC can make available cash distributions to its members (AMC, Cinemark, Regal and NCM, Inc.) during the Covenant Holiday Period only if trailing 12-month Consolidated EBITDA (as defined in the Credit Agreement) equals or exceeds $277.0 million and outstanding loans under the Revolving Credit Facility are equal to or less than $39.0 million. NCM LLC can make available cash distributions to its members outside of the Covenant Holiday Period so long as NCM LLC’s Consolidated Net Senior Secured Leverage Ratio is equal to or less than 5.00 to 1.00 and no default or event of default under the Credit Agreement has occurred and is continuing. NCM LLC may continue to reimburse NCM, Inc. for its services provided under the management services agreement during the period of the automatic waiver.

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. Due to the extension of the filing date, the date the 2019 TRA payment will begin accruing interest was also delayed until July 15, 2020.

On March 27, ~~2018.~~2020, the U.S. Government enacted various relief and stimulus measures in response to the unprecedented adverse economic impacts of the COVID-19 Pandemic commonly referred to as the CARES Act. Based on our preliminary analysis of the CARES Act, we expect to recognize the following benefits:

Deferral of the payment of the 6.2% FICA portion of Company's payroll taxes beginning on the enactment date through December 31, 2020 until the end of 2021 for one-half of the tax and the remaining half to the end of 2022; and

A refundable Employee Retention Payroll Tax Credit for the Company's portion of the 6.2% FICA payroll tax for certain qualifying employees from March 13, 2020 through December 31, 2020.

The Company is also evaluating the other provisions of the CARES Act and intends to seek any available potential benefits that would positively impact the Company.

We believe that the exhibition industry has historically fared well during recessions, and we remain optimistic, though cannot guarantee, that our founding members and network affiliates will rebound and attendance figures will benefit from pent-up social demand as home sheltering subsides and people seek togetherness with a return to normalcy. However, the ultimate significance of the COVID-19 Pandemic, including the extent of the adverse impact on our financial and operational results, will be dictated by the currently unknowable duration and the effect on the overall economy and of responsive governmental regulations, including shelter-in-place orders and mandated business closures. Our business also could be significantly affected should the disruptions caused by the COVID-19 Pandemic lead to changes in consumer behavior (such as social distancing), which we believe will be temporary, or further reductions to the customary theatrical release window. The COVID-19 Pandemic also makes it more challenging for management to estimate the future performance of our business, particularly over the near to medium term. We are monitoring the rapidly evolving situation and its potential impacts on our financial position, results of operations, liquidity and cash flows.

Summary Historical and Operating Data

You should read this information with the other information contained in this document, and our unaudited historical financial statements and the notes thereto included elsewhere in this document.

Our Operating Data—The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data):

% Change
Q2 2019 Q2 2018 YTD 2019 YTD 2018 Q2 2019 to Q2 2018 YTD 2019 to YTD 2018
Revenue $ 110.2
$ 113.7
$ 187.1
$ 193.9
(3.1 )% (3.5 )%
Operating expenses:
Advertising 47.3
46.6
86.5
89.2
1.5 % (3.0 )%
Network, administrative and unallocated costs 25.2
26.9
52.0
53.5
(6.3 )% (2.8 )%
Total operating expenses 72.5
73.5
138.5
142.7
(1.4 )% (2.9 )%
Operating income 37.7
40.2
48.6
51.2
(6.2 )% (5.1 )%
Non-operating expenses 14.4
7.2
28.5
20.6
100.0 % 38.3 %
Income tax expense 2.3
16.0
1.7
17.0
(85.6 )% (90.0 )%
Net income attributable to noncontrolling interests 12.1
12.8
10.6
11.3
(5.5 )% (6.2 )%
Net income attributable to NCM, Inc. $ 8.9
$ 4.2
$ 7.8
$ 2.3
111.9 % NM

Net income per NCM, Inc. basic share $ 0.11
$ 0.05
$ 0.10
$ 0.03
120.0 % NM
Net income per NCM, Inc. diluted share $ 0.11
$ 0.05
$ 0.10
$ 0.03
120.0 % NM

Adjusted OIBDA $ 50.2
$ 52.3
$ 72.3
$ 75.6
(4.0 )% (4.4 )%
Adjusted OIBDA margin 45.6 % 46.0 % 38.6 % 39.0 % (0.4 )% (0.4 )%
Total theater attendance (in millions) (1)
185.3
194.1
334.0
371.1
(4.5 )% (10.0 )%



							% Change
	Q1 2020			Q1 2019			Q1 2020 to Q1 2019
Revenue	$	64.7		$	76.9		(15.9	)%
Operating expenses:
Advertising	36.8			39.2			(6.1	)%
Network, administrative and unallocated costs	23.0			26.8			(14.2	)%
Total operating expenses	59.8			66.0			(9.4	)%
Operating income	4.9			10.9			(55.0	)%
Non-operating expenses	13.5			14.1			(4.3	)%
Income tax benefit	(0.4		)	(0.6		)	(33.3	)%
Net loss attributable to noncontrolling interests	(4.5		)	(1.5		)	200.0	%
Net loss attributable to NCM, Inc.	$	(3.7	)	$	(1.1	)	236.4	%

Net loss per NCM, Inc. basic share	$	(0.05	)	$	(0.01	)	400.0	%
Net loss per NCM, Inc. diluted share	$	(0.05	)	$	(0.01	)	400.0	%

Adjusted OIBDA	$	14.4		$	22.1		(34.8	)%
Adjusted OIBDA margin	22.3		%	28.8		%	(6.5	)%
Total theater attendance (in millions) (1)	120.4			148.7			(19.0	)%

_________________________

~~NM = Not Meaningful~~


(1)	Represents the total attendance within our advertising network, excluding screens and attendance associated with certain AMC Carmike, AMC Rave and Cinemark Rave theaters that ~~are currently~~were part of another cinema advertising network for ~~all~~certain periods presented. Refer to Note 4 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document.

Non-GAAP Financial Measures

Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”) and Adjusted OIBDA margin are not financial measures calculated in accordance with GAAP in the United States. Adjusted OIBDA represents operating income before depreciation ~~and amortization~~ expense adjusted to also exclude amortization of intangibles recorded for network theater screen leases, non-cash share-based compensation costsand Chief Executive Officer transition costs. Adjusted OIBDA margin is calculated by dividing Adjusted OIBDA by total revenue. Our management uses these non-GAAP financial measures to evaluate operating performance, to forecast future results and as a basis for compensation. The Company believes these are important supplemental measures of operating performance because they eliminate items that have less bearing on the Company's operating performance and so highlight trends in its core business that may not otherwise be apparent when relying solely on GAAP financial measures. The Company believes the presentation of these measures is relevant and useful for investors because it enables them to view performance in a manner similar to the method used by the Company’s management, helps improve their ability to understand the Company’s operating performance and makes it easier to compare the Company’s results with other companies that may have different depreciation ~~and amortization~~ policies, amortization of intangibles recorded for network theater screen leases, non-cash share based compensation programs, CEO turnover, interest rates, debt levels or income tax rates. A limitation of these measures, however, is that they exclude depreciation and amortization of intangibles recorded for network theater screen leases, which represent a proxy for the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company’s business. In addition, Adjusted OIBDA has the limitation of not reflecting the effect of the Company’s ~~amortization of intangibles recorded for network theater screen leases, share based~~share-based payment costs or costs associated with the resignation of the Company’s former Chief Executive Officer. Adjusted OIBDA should not be regarded as an alternative to operating income, net income or as an indicator of operating performance, nor should it be considered in isolation of, or as a substitute for, financial measures prepared in accordance with GAAP. The Company believes that operating income is the most directly

comparable GAAP financial measure to Adjusted OIBDA. Because not all companies use identical calculations, these non-GAAP presentations may not be comparable to other similarly titled measures of other companies, or calculations in the Company’s debt agreement.

The following table reconciles operating income to Adjusted OIBDA for the periods presented (dollars in millions):


	Q2 2019			Q2 2018			YTD 2019			YTD 2018			Q1 2020			Q1 2019
Operating income	$	37.7		$	40.2		$	48.6		$	51.2		$	4.9		$	10.9
Depreciation expense	3.3			3.0			6.6			5.9			3.2			3.3
Amortization expense (1)	—			7.0			—			13.6
Amortization of intangibles recorded for network theater screen leases (1)	7.0			—			13.9			—
Share-based compensation costs (2)	2.1			2.1			2.9			4.9
CEO transition costs	0.1			—			0.3			—
Amortization of intangibles recorded for network theater screen leases													6.1			6.9
Share-based compensation costs (1)													0.2			0.8
CEO transition costs (2)													—			0.2
Adjusted OIBDA	$	50.2		$	52.3		$	72.3		$	75.6		$	14.4		$	22.1
Total revenue	$	110.2		$	113.7		$	187.1		$	193.9		$	64.7		$	76.9
Adjusted OIBDA margin	45.6		%	46.0		%	38.6		%	39.0		%	22.3		%	28.8		%

(1)

Following the adoption of ASC 842, as discussed within Note 1 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document, amortization of the ESA and affiliate intangible balances is considered a form of lease expense and has been reclassified to this account as of the adoption date, December 28, 2018. The Company adopted ASC 842 prospectively and thus, prior period balances remain within amortization expense.


~~(2)~~	Share-based compensation costs are included in network operations, selling and marketing and administrative expense in the accompanying unaudited Condensed Consolidated Financial Statements.


(2)	Chief Executive Officer transition costs represents costs associated with the search for a new Company CEO during the first quarter of 2019.

Our Network—The change in the number of screens in our network by the founding members and network affiliates during the ~~six~~three months ended ~~June 27, 2019~~March 26, 2020 was as follows.


	Number of screens					Number of screens
	Founding Members	Network Affiliates		Total		Founding Members	Network Affiliates		Total
Balance as of December 27, 2018	16,768	4,404		21,172
Balance as of December 26, 2019						16,880	4,328		21,208
Lost affiliates, net of new affiliates (1)	—	(240	)	(240	)	—	(175	)	(175	)
Openings, net of closures(2)	81	32		113		93	(24	)	69
Balance as of June 27, 2019	16,849	4,196		21,045
Balance as of March 26, 2020						16,973	4,129		21,102


(1)	Represents the loss of ~~one~~two of our affiliates that did not renew ~~its contract~~their contracts as of the end of the first quarter of 2020 resulting in a reduction of ~~244~~185 affiliate screens to our network, offset by the addition of ~~one~~two new ~~affiliate~~affiliates which added 410 new screens to our network during the ~~six~~three months ended ~~June 27, 2019.~~March 26, 2020.


(2)	Excludes the temporary theater closures in response to the COVID-19 Pandemic.

Our founding member and network affiliate agreements allow us to sell cinema advertising across the largest network of digitally equipped theaters in the U.S. We believe that our market coverage strengthens our selling proposition and competitive positioning against other national, regional and local video advertising platforms, including television, online and mobile video platforms and other out of home video advertising platforms by allowing advertisers the broad reach and national scale that they need to effectively reach their target audiences.

Basis of Presentation

The results of operations data for the three months ended ~~June 27, 2019 (second~~March 26, 2020 (first quarter of ~~2019)~~2020) and ~~June~~March 28, ~~2018 (second~~2019 (first quarter of ~~2018) and the six months ended June 27, 2019 and June 28, 2018~~2019) was derived from the unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc. and should be read in conjunction with the notes thereto.

Results of Operations

~~Second~~First Quarter of ~~2019~~2020 and ~~Second~~First Quarter of ~~2018~~2019

Revenue. Total revenue decreased ~~3.1%~~15.9%, from ~~$113.7~~$76.9 million for the ~~second~~first quarter of ~~2018~~2019 to ~~$110.2~~$64.7 million for the ~~second~~first quarter of ~~2019.~~2020. The following is a summary of revenue by category (in millions):


					$ Change			% Change						$ Change			% Change
	Q2 2019		Q2 2018		Q2 2019 to Q2 2018			Q2 2019 to Q2 2018		Q1 2020		Q1 2019		Q1 2020 to Q1 2019			Q1 2020 to Q1 2019
National advertising revenue	$	77.6	$	78.8	$	(1.2	)	(1.5	)%
National and regional advertising revenue										$	49.8	$	57.4	$	(7.6	)	(13.2	)%
Local advertising revenue	17.7		18.1		(0.4		)	(2.2	)%	9.4		12.8		(3.4		)	(26.6	)%
Regional advertising revenue	6.7		8.2		(1.5		)	(18.3	)%
Founding member advertising revenue from beverage concessionaire agreements	8.2		8.6		(0.4		)	(4.7	)%	5.5		6.7		(1.2		)	(17.9	)%
Total revenue	$	110.2	$	113.7	$	(3.5	)	(3.1	)%	$	64.7	$	76.9	$	(12.2	)	(15.9	)%

The following table shows data on theater attendance and revenue per attendee for the ~~second~~first quarter of ~~2019~~2020 and the ~~second~~first quarter of ~~2018:~~2019:


					% Change						% Change
	Q2 2019		Q2 2018		Q2 2019 to Q2 2018		Q1 2020		Q1 2019		Q1 2020 to Q1 2019
National advertising revenue per attendee	$	0.419	$	0.406	3.2	%
National and regional advertising revenue per attendee							$	0.414	$	0.386	7.3	%
Local advertising revenue per attendee	$	0.096	$	0.093	3.2	%	$	0.078	$	0.086	(9.3	)%
Regional advertising revenue per attendee	$	0.036	$	0.042	(14.3	)%
Total advertising revenue (excluding founding member beverage revenue) per attendee	$	0.550	$	0.541	1.7	%	$	0.492	$	0.472	4.2	%
Total advertising revenue per attendee	$	0.595	$	0.586	1.5	%	$	0.537	$	0.517	3.9	%
Total theater attendance (in millions) (1)	185.3		194.1		(4.5	)%	120.4		148.7		(19.0	)%

________________________________________________________


(1)	Represents the total attendance within our advertising network, excluding screens and attendance associated with certain AMC Carmike, AMC Rave and Cinemark Rave theaters that ~~are currently~~were part of another cinema advertising network for ~~all~~certain periods presented.

National and regional advertising revenue. The ~~$1.2~~$7.6 million, or ~~1.5%~~13.2%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was primarily due to a ~~10.4%~~9.4% decrease in impressions sold and an 8.7% decrease in national advertising CPMs (excluding beverage)~~, partially offset by a 4.3% increase in impressions sold.~~. The decrease in national advertising CPMs (excluding beverage) was primarily due to a decrease in scatter market demand, which is inventory not included within an upfront or content partner commitment sold closer to the advertisement air date typically at higher CPMs, in the second quarter of 2019, compared to the second quarter of 2018. The increase in impressions sold was primarily ~~due~~related to ~~an increase in national advertising utilization from 101.5% in the second quarter of 2018 to 110.8% in the second quarter of 2019, partially offset by~~ a ~~4.5%~~19.0% decrease in network attendance ~~due~~as a result of the COVID-19 Pandemic and the government's guidelines surrounding social distancing which ultimately resulted in the temporary closure of our network's theaters beginning in mid-March 2020 and to a lesser extent a weaker movie slate ~~during~~in March of 2020, as compared to March 2019. National advertising utilization increased to 104.5% for the ~~second~~first quarter of 2020, compared to 93.4% for the first quarter of 2019. The first quarter of 2019 utilization was recalculated utilizing an updated weighted-average impressions to allow for comparability following the changes to the structure of our Noovie pre-show described above. Inventory utilization is calculated as utilized impressions divided by total advertising impressions, which is based on eleven 30-second salable national advertising units in our Noovie pre-show, which can be expanded, should market demand dictate. The decrease in national advertising CPMs was primarily driven by a decrease in upfront and scatter market CPMs in the first quarter of 2020, as compared to the first quarter of 2019, due to the churn of certain higher CPM deals that shifted later in 2020 or did not return from 2019, that were replaced by lower CPM deals, as well as, a change in the mix of clients with a higher proportion of upfront clients and fewer higher CPM scatter market and content partner clients in the first quarter of 2020, as compared to the first quarter of 2019. The scatter market represents inventory not included within an upfront or content partner commitment sold closer to the advertisement air date for typically higher CPMs.

Local advertising revenue. The ~~$0.4~~$3.4 million, or ~~2.2%~~26.6%, decrease in local advertising revenue was primarily due to a ~~7.7%~~14.9% decrease in the volume of ~~local~~ contracts and a ~~2.1%~~16.5% decrease in the average contract value ~~for the second quarter of 2019, compared~~primarily related to ~~the second quarter of 2018, driven~~a significant decrease in larger contracts due to a 1) reduction in spend by a ~~reduction~~few customers year over year, 2) certain customers shifting their spending to later in ~~the local sales force following a realignment of sales territories in late 2018. These decreases in local advertising revenue were partially offset by~~2020, and 3) an increase in local ~~digital sales revenue in~~customer churn for the ~~second~~first quarter of ~~2019,~~2020, compared to the ~~second~~first quarter of ~~2018.~~

~~Regional advertising revenue.~~ ~~The $1.5~~2019. In addition, there was an estimated $1.0 million ~~or 18.3%, decrease in regional~~of local advertising revenue that was ~~primarily~~lost in the first quarter of 2020 due to ~~a $1.0 million shift~~the temporary theater closures resulting from the COVID-19 Pandemic. In most cases, this revenue is expected to be shifted to later in ~~spend within the automotive category from regional advertising in the second quarter of 2018, to national advertising in the second quarter of 2019 and a decrease in regional digital sales revenue.~~2020.

Founding member beverage revenue. The ~~$0.4~~$1.2 million, or ~~4.7%~~17.9%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a ~~3.8%~~19.4% decrease in founding member attendance, partially offset by a ~~0.7%~~net 1.7% increase in beverage revenue CPMs in the ~~second~~first quarter of ~~2019,~~2020, compared to

the ~~second~~first quarter of ~~2018.~~2019. The ~~2019~~2020 beverage revenue CPM is based on a fixed annual increase of 2.0% for Cinemark and Regal following the 2019 ESA Amendments and the change in CPM during segment one of our pre-show from ~~2017~~2018 to ~~2018,~~2019 for AMC, which ~~increased 0.7%~~decreased 0.3%.

Operating expenses. Total operating expenses decreased $~~1.0~~6.2 million, or ~~1.4%~~9.4%, from ~~$73.5~~$66.0 million for the ~~second~~first quarter of ~~2018~~2019 to ~~$72.5~~$59.8 million for the ~~second~~first quarter of ~~2019.~~2020. The following table shows the changes in operating expense for the ~~second~~first quarter of ~~2019~~2020 and the ~~second~~first quarter of ~~2018~~2019 (in millions):


					$ Change			% Change						$ Change			% Change
	Q2 2019		Q2 2018		Q2 2019 to Q2 2018			Q2 2019 to Q2 2018		Q1 2020		Q1 2019		Q1 2020 to Q1 2019			Q1 2020 to Q1 2019
Advertising operating costs	$	9.9	$	9.2	$	0.7		7.6	%	$	6.2	$	7.3	$	(1.1	)	(15.1	)%
Network costs	3.4		3.3		0.1			3.0	%	2.9		3.5		(0.6		)	(17.1	)%
Theater access fees—founding members	21.6		21.5		0.1			0.5	%
Theater access fees and revenue share—founding members										17.7		19.1		(1.4		)	(7.3	)%
Selling and marketing costs	16.2		16.7		(0.5		)	(3.0	)%	13.9		15.2		(1.3		)	(8.6	)%
Administrative and other costs	11.1		12.8		(1.7		)	(13.3	)%	9.8		10.7		(0.9		)	(8.4	)%
Depreciation expense	3.3		3.0		0.3			10.0	%	3.2		3.3		(0.1		)	(3.0	)%
Amortization expense	—		7.0		(7.0		)	(100.0	)%
Amortization of intangibles recorded for network theater screen leases	7.0		—		7.0			100.0	%	6.1		6.9		(0.8		)	(11.6	)%
Total operating expenses	$	72.5	$	73.5	$	(1.0	)	(1.4	)%	$	59.8	$	66.0	$	(6.2	)	(9.4	)%

Advertising operating costs. Advertising operating costs ~~increased $0.7~~decreased $1.1 million, or ~~7.6%~~15.1%, from ~~$9.2~~$7.3 million for the ~~second~~first quarter of ~~2018~~2019 to ~~$9.9~~$6.2 million for the ~~second~~first quarter of ~~2019.~~2020. The ~~increase~~decrease was primarily related to a ~~$0.4~~$1.3 million ~~increase~~decrease in affiliate advertising payments ~~driven by~~due to a ~~1.0%~~17.3% decrease in network affiliate attendance for the first quarter of 2020 as compared to the first quarter of 2019 due primarily to the COVID-19 Pandemic. The decrease was also due to a 2.0%, or ~~42 screen, increase~~88 screens, decrease in the number of average affiliate screens as of the ~~second~~first quarter of ~~2019,~~2020, compared to the ~~second~~first quarter of 2018, and an increase in the guaranteed minimums owed to affiliates of $0.3 million during the second quarter of 2019, compared to the second quarter of 2018. Advertising operating costs also increased due to a $0.2 million increase in production costs associated with the ~~Noovie~~ ~~pre-show.~~2019.

Network costs. Network costs ~~increased $0.1~~decreased $0.6 million, or ~~3.0%~~17.1%, from ~~$3.3~~$3.5 million for the ~~second~~first quarter of ~~2018~~2019 to ~~$3.4~~$2.9 million for the ~~second~~first quarter of ~~2019.~~2020. The decrease was primarily related to a $0.5 million decrease in personnel related expenses primarily due to a decrease in performance-based compensation expense accrued following an update to the Company's projected performance against internal bonus and performance based restricted stock targets during the first quarter of 2020 primarily caused by the adverse impact of the COVID-19 Pandemic.

Theater access ~~fees—~~fees and revenue share—founding members. Theater access fees ~~increased $0.1~~and revenue share decreased $1.4 million, or ~~0.5%~~7.3%, from ~~$21.5~~$19.1 million in the ~~second~~first quarter of ~~2018~~2019 to ~~$21.6~~$17.7 million in the ~~second~~first quarter of ~~2019.~~2020. The ~~expense associated with founding member attendance decreased $0.5~~decrease was due to a $1.1 million ~~due a 3.8%~~net decrease ~~in attendance at founding members’ theaters, which was partially offset by a $0.4 million increase~~ in the expense associated with the founding member digital screens that are connected to the DCN (nearly 100% of our screens as of ~~June 27,~~December 26, 2019), including higher quality digital cinema projectors and related equipment, due to the ~~annual 5% rate increase specified in~~temporary closure of the ~~ESAs.~~

~~Selling and marketing costs.~~ ~~Selling and marketing costs decreased $0.5 million, or 3.0%, from $16.7 million for the second quarter~~founding members theaters as of 2018 to $16.2 million for the second quarter of 2019. This decrease was primarily related to a $1.1 million decrease in personnel related expenses primarily due to 1) a decrease in commissions related to lower revenueMarch 26, 2020 and a reduction in sales force associated with a realignment of sales territories in late 2018 and 2) lower non-cash share-based compensation expense related to a decrease in the volume of awards granted in 2019 compared to 2018. These decreases were partially offset by a $0.2 million increase in company advertising expense related to online and social media platforms and a $0.2 million increase in online publisher expense due to higher digital revenue in the second quarter of 2019, compared to the second quarter of 2018.

~~Administrative and other costs.~~ Administrative and other costs decreased $1.7 million, or 13.3%, from $12.8 million in the second quarter of 2018 to $11.1 million in the second quarter of 2019. Administrative and other costs decreased primarily due to a decrease in legal and professional expense of $1.0 million related to the negotiation of the settlement agreement with a large shareholder during the second quarter of 2018 and a $0.5$2.0 million decrease in personnel related expenses primarily due to an increase in capitalized personnel costs driven by the nature of the work being performed by our information technology department and a decrease in salary and bonus expense at NCM, Inc. due to the absence of CEO personnel related expenses in the second quarter of 2019, compared to the second quarter of 2018. These administrative and other costs were partially offset by a $0.3 million increase in consulting expenses and a $0.1 million increase in CEO transition fees incurred in the second quarter of 2019, compared to the second quarter of 2018.

~~Depreciation expense.~~ Depreciation expense increased $0.3 million, or 10.0%, from $3.0 million for the second quarter of 2018 to $3.3 million for the second quarter of 2019, primarily due to new fixed assets being placed into service in 2019, compared to 2018.

~~Amortization expense and Amortization of intangibles recorded for network theater screen leases.~~ Amortization of our ESA and affiliate intangibles was at $7.0 million for the second quarter of 2018, consistent with the $7.0 million of amortization of intangibles recorded for network theater screen leases for the second quarter of 2019. Following the adoption of ASC 842, as discussed within Note 1 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document, amortization of the ESA and affiliate intangible balances is considered a form of lease expense and has been reclassified from amortization expense to amortization of intangibles recorded for network theater screen leases as of the adoption date, December 28, 2018. The Company adopted ASC 842 prospectively and thus, prior period balances remain within amortization expense.

~~Non-operating expenses.~~ Total non-operating expenses increased $7.2 million, or 100.0%, from $7.2 million for the second quarter of 2018 to $14.4 million for the second quarter of 2019. The following table shows the changes in non-operating expense for the second quarter of 2019 and the second quarter of 2018 (in millions):

$ Change % Change
Q2 2019 Q2 2018 Q2 2019 to Q2 2018 Q2 2019 to Q2 2018
Interest on borrowings $ 14.2
$ 14.1
$ 0.1
0.7 %
Interest income (0.5 ) (0.4 ) (0.1 ) 25.0 %
Loss on extinguishment of debt —
1.2
(1.2 ) (100.0 )%
Loss (gain) on the re-measurement of the payable
to founding members under the tax receivable
agreement
0.8
(7.7 ) 8.5
(110.4 )%
Other non-operating income (0.1 ) —
(0.1 ) (100.0 )%
Total non-operating expenses $ 14.4
$ 7.2
$ 7.2
100.0 %

The increase in non-operating expense was due primarily to a $8.5 million increase in the loss on the re-measurement of the payable to founding members under the tax receivable agreement primarily due to a change in the deferred tax rate related to the Colorado sales sourcing change, partially offset by the absence of a $1.2 million loss on the extinguishment of debt related to the refinancing of the senior secured credit facility in the second quarter of 2018.

~~Income Tax Expense~~. Income tax expense decreased $13.7 million from $16.0 million for the second quarter of 2018, to $2.3 million for the second quarter 2019. The decrease in income tax expense was primarily due to a decrease in deferred tax expense in the second quarter of 2019, compared to the second quarter of 2018 related to the Company's remeasurement of its deferred tax assets as a result of a 2018 state tax law change. The remaining decrease was primarily due to lower income before income taxes for the second quarter of 2019, compared to the second quarter of 2018.

~~Net Income~~. Net income increased $4.7 million from $4.2 million for the second quarter of 2018 to $8.9 million for the second quarter of 2019. The increase in net income was due to a $13.7 million decrease in income tax expense, as described above, and a $0.7 million decrease in net income attributable to noncontrolling interests. These increases to net income were partially offset by a $7.2 million increase in non-operating expenses, as described above, and a $2.5 million decrease in operating income related as described above for the second quarter of 2019, compared to the second quarter of 2018.

~~Six months ended June 27, 2019 and June 28, 2018~~

~~Revenue.~~ Total revenue decreased 3.5%, from $193.9 million for the six months ended June 28, 2018 to $187.1 million for the six months ended June 27, 2019. The following is a summary of revenue by category (in millions):

Six Months Ended $ Change % Change
June 27, 2019 June 28, 2018 YTD 2019 to YTD 2018 YTD 2019 to YTD 2018
National advertising revenue $ 131.6
$ 133.6
$ (2.0 ) (1.5 )%
Local advertising revenue 30.5
31.6
(1.1 ) (3.5 )%
Regional advertising revenue 10.1
12.1
(2.0 ) (16.5 )%
Founding member advertising revenue from
beverage concessionaire agreements 14.9
16.6
(1.7 ) (10.2 )%
Total revenue $ 187.1
$ 193.9
$ (6.8 ) (3.5 )%

~~The following table shows data on theater attendance and revenue per attendee for the six months ended June 27, 2019 and June 28, 2018:~~

Six Months Ended % Change
June 27, 2019 June 28, 2018 YTD 2019 to YTD 2018
National advertising revenue per attendee $ 0.394
$ 0.360
9.4 %
Local advertising revenue per attendee $ 0.091
$ 0.085
7.1 %
Regional advertising revenue per attendee $ 0.030
$ 0.033
(9.1 )%
Total advertising revenue (excluding founding
member beverage revenue) per attendee $ 0.516
$ 0.478
7.9 %
Total advertising revenue per attendee $ 0.560
$ 0.523
7.1 %
Total theater attendance (in millions) (1)
334.0
371.1
(10.0 )%


~~(1)~~	Represents the total attendance within our advertising network, excluding screens and attendance associated with certain AMC Carmike, AMC Rave and Cinemark Rave theaters that are currently part of another cinema advertising network for all periods presented.

~~National advertising revenue.~~ The $2.0 million, or 1.5%, decrease in national advertising revenue (excluding beverage revenue from the founding members) was due primarily to a 2.2% decrease in national advertising CPMs (excluding beverage) and a 1.4% decrease in impressions sold. The decrease in national advertising CPMs (excluding beverage) in the six months ended June 27, 2019, compared to the six months ended June 28, 2018, was due to lower demand in the scatter market, which is inventory not included within an upfront or content partner commitment sold closer to the advertisement air date typically at higher CPMs. The decrease in impressions was primarily related to a 10.0% decrease in network attendance, partially offset by an increase in national advertising utilization from 98.5% in the six months ended June 28, 2018 to 107.8% in the six months ended June 27, 2019. Inventory utilization is calculated as utilized impressions divided by total advertising impressions, which is based on eleven 30-second salable national advertising units in our ~~Noovie~~ ~~pre-show, which can be expanded, should market demand dictate.~~

~~Local advertising revenue.~~ The $1.1 million, or 3.5%, decrease in local advertising revenue was primarily due to a 10.2% decrease in the volume of local contracts driven by a reduction in headcount following a realignment of sales territories in late 2018 and due to the timing of several large contracts shifting into the second half of 2019 from the second quarter of 2019, partially offset by an increase in local digital sales revenue and a 2.3% increase in the average contract value driven by contracts under $100,000 in the six months ended June 27, 2019, compared to the six months ended June 28, 2018.

~~Regional advertising revenue.~~ The $2.0 million, or 16.5%, decrease in regional advertising revenue was primarily due to both a reduction in spend and a $1.0 million shift from regional advertising to national advertising within our automotive category during the first six months of 2018, compared to the first six months of 2019.

~~Founding member beverage revenue.~~ The $1.7 million, or 10.2%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a 9.6% decrease in founding member attendance, partially offset by a 0.7% increase in beverage revenue CPMs, in the six months ended June 27, 2019, compared to the six months ended June 28, 2018. The 2019 beverage revenue CPM is based on the change in CPM during segment one of our pre-show from 2017 to 2018, which increased 0.7%.

~~Operating expenses.~~ ~~Total operating expenses decreased~~$4.2 million, or 2.9%, from $142.7 million for the six months ended June 28, 2018 to $138.5 million for the six months ended June 27, 2019. The following table shows the changes in operating expense for the six months ended June 27, 2019 and June 28, 2018 (in millions):

Six Months Ended $ Change % Change
June 27, 2019 June 28, 2018 YTD 2019 to YTD 2018 YTD 2019 to YTD 2018
Advertising operating costs $ 17.2
$ 16.2
$ 1.0
6.2 %
Network costs 6.9
6.8
0.1
1.5 %
Theater access fees—founding members 40.7
42.1
(1.4 ) (3.3 )%
Selling and marketing costs 31.4
32.7
(1.3 ) (4.0 )%
Administrative and other costs 21.8
25.4
(3.6 ) (14.2 )%
Depreciation expense 6.6
5.9
0.7
11.9 %
Amortization expense —
13.6
(13.6 ) (100.0 )%
Amortization of intangibles recorded for
network theater screen leases 13.9
—
13.9
100.0 %
Total operating expenses $ 138.5
$ 142.7
$ (4.2 ) (2.9 )%

~~Advertising operating costs.~~ Advertising operating costs increased $1.0 million, or 6.2%, from $16.2 million for the six months ended June 28, 2018 to $17.2 million for the six months ended June 27, 2019. The increase was primarily related to a $0.6 million increase in affiliate advertising payments driven by a 3.6%, or 148 screen, increase in the number of average affiliate screen count as of the six months ended June 27, 2019, compared to the six months ended June 28, 2018, and an increase in the guaranteed minimums owed to affiliates of $0.6 million during the first six months of 2019, compared to the first six months of 2018. Advertising operating costs also increased due to a $0.2 million increase in personnel related expenses due to higher salaries from certain personnel moving from sales and marketing roles to advertising operations roles.

~~Network costs.~~ ~~Network costs increased $0.1 million, or 1.5%, from $6.8 million for the six months ended June 28, 2018 to $6.9 million for the six months ended June 27, 2019.~~

~~Theater access fees—founding members.~~ Theater access fees decreased $1.4 million, or 3.3%, from $42.1 million in the six months ended June 28, 2018 to $40.7 million for the six months ended June 27, 2019. The expense associated with founding member attendance decreased $2.4 million due a 9.6% decrease in attendance at founding members’ theaters, which was partially offset by a $0.9 million increase in the expense associated with the founding ~~member digital screens that are connected to the DCN (nearly 100% of our screens as of June 27, 2019), including higher quality digital cinema projectors and related equipment,~~members’ attendance due to ~~the annual 5% rate increase specified~~a 19.4% decrease in attendance at founding members’ theaters. These decreases were partially offset by $1.6 million of payments in the ~~ESAs.~~first quarter of 2020 to Cinemark and Regal as compensation for post-showtime advertising in accordance with the 2019 ESA Amendments.

Selling and marketing costs. Selling and marketing costs decreased $1.3 million, or ~~4.0%~~8.6%, from ~~$32.7~~$15.2 million for the ~~six months ended June 28, 2018~~first quarter of 2019 to ~~$31.4~~$13.9 million for the ~~six months ended June 27, 2019.~~first quarter of 2020. This decrease was primarily ~~due~~related to a ~~$2.3~~$1.5 million decrease in personnel related expenses ~~which was the result of lower salaries and commissions due to a reduction in sales force in late 2018 and lower non-cash share-based compensation expense due~~primarily related to a decrease in commissions and bonus expense accrued following an update to the ~~volume~~Company's projected performance against internal bonus and performance based restricted stock targets during the first quarter of ~~awards granted in 2019,~~2020, compared to ~~2018. The~~the first quarter of 2019 and a $0.3 million decrease ~~was also~~in barter expense due to a $0.4 million non-cash impairment charge realized in the six months ended June 28, 2018, related to investments obtained in prior years in exchange for advertising services, and no such expense in the six months ended June 27, 2019.timing. These decreases were partially offset by ana $0.7 million increase in ~~expenses related~~bad debt expense due to ~~sales meetings, including related travel expenses,~~an expected increase in accounts receivable write offs due to the ~~timing~~adverse impact of ~~meetings, an increase in company advertising expense associated with online and social media platforms, and an increase in online publisher expense related to higher digital revenue in~~ the ~~six months ended June 27, 2019, compared to~~COVID-19 Pandemic on certain of the ~~six months ended June 28, 2018.~~Company's customers.

Administrative and other costs. Administrative and other costs decreased ~~$3.6~~$0.9 million, or ~~14.2%~~8.4%, from ~~$25.4~~$10.7 million ~~for~~in the ~~six months ended June 28, 2018~~first quarter of 2019 to ~~$21.8~~$9.8 million ~~for~~in the ~~six months ended June 27, 2019. This decrease was~~first quarter of 2020. Administrative and other costs decreased primarily ~~related~~due to a ~~$3.0~~$1.1 million decrease in ~~personnel related~~performance-based compensation expense accrued following an update to the projected performance against internal bonus and performance based restricted stock targets during the first quarter of 2020, compared to the first quarter of 2019, $0.6 million decrease in legal and professional expenses, ~~driven by 1)~~ a ~~$1.3~~$0.4 million increase in capitalized personnel costs driven by the nature of the work being performed by our information technology

department 2)during the first quarter of 2020 as compared to the first quarter of 2019 and a ~~$1.1~~$0.3 million decrease in ~~non-cash share-based compensation~~consulting services. These decreases were partially offset by a $1.6 million increase in salary expense primarily due to severance expense related to ~~a decrease~~the previously announced retirement of our CFO in the ~~volume~~first quarter of ~~awards granted in 2019, compared to 2018, and 3) a $0.9 million decrease in salary and bonus expense at NCM, Inc. due to~~2020, the absence of a CEO ~~during~~in the ~~six months ended June 27,~~first quarter of 2019, and an increase in head count of our digital team in the first quarter of 2020 as compared to the six months ended June 28, 2018. Administrative and other costs also decreased due to a $2.0 million decrease in legal and professional services primarily related to a $1.2 million decrease in legal and professional fees related to the negotiation of the settlement agreement with a large shareholder that occurred in the second quarter of 2018. These decreases in administrative and other costs were partially offset by a $0.6 million increase in consulting services and a $0.3 million increase in CEO transition fees related to costs incurred in the six months ended June 27, 2019.

Depreciation expense. Depreciation expense ~~increased $0.7~~decreased $0.1 million, or ~~11.9%~~3.0%, from ~~$5.9~~$3.3 million for the ~~six months ended June 28, 2018~~first quarter of 2019 to ~~$6.6~~$3.2 million for the ~~six months ended June 27, 2019, primarily due to new fixed assets being placed into service in 2019, compared to 2018.~~first quarter of 2020.

~~Amortization expense and~~ Amortization of intangibles recorded for network theater screen leases. Amortization of the ESA and affiliate intangibles was $13.9 million for the six months ended June 27, 2019 up from the $13.6 million of amortization expense for the six months ended June 28, 2018. Following the adoption of ASC 842, as discussed within Note 1 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document, amortization of the ESA and affiliate intangible balances is considered a form of lease expense and has been reclassified from amortization expense to amortization of intangibles recorded for network theater screen leases asdecreased $0.8 million, or 11.6%, from $6.9 million for the first quarter of 2019, to $6.1 million for the first quarter of 2020, primarily due to the four year extension of the ~~adoption date, December 28, 2018. The Company adopted ASC 842 prospectively~~contractual life of the intangible assets for Cinemark and ~~thus, prior period balances remain within amortization expense. The $0.3 million increase was due to an increase in~~Regal following the ~~underlying intangible asset balances following our annual common unit adjustment.~~2019 ESA Amendments during the third quarter of 2019.

Non-operating expenses. Total non-operating expenses ~~increased $7.9~~decreased $0.6 million, or ~~38.3%~~4.3%, from ~~$20.6~~$14.1 million for the ~~six months ended June 28, 2018~~first quarter of 2019 to ~~$28.5~~$13.5 million for the ~~six months ended June 27, 2019.~~first quarter of 2020. The following table shows the changes in non-operating expense for the ~~six months ended June 27,~~first quarter of 2020 and the first quarter of 2019 ~~and June 28, 2018~~ (in millions):



							$ Change			% Change
	Q1 2020			Q1 2019			Q1 2020 to Q1 2019			Q1 2020 to Q1 2019
Interest on borrowings	$	13.6		$	14.4		$	(0.8	)	(5.6	)%
Interest income	(0.2		)	(0.5		)	0.3			(60.0	)%
Gain on extinguishment of debt	—			(0.3		)	0.3			(100.0	)%
Loss on the re-measurement of the payable to founding members under the tax receivable agreement	0.2			0.7			(0.5		)	(71.4	)%
Other non-operating income	(0.1		)	(0.2		)	0.1			(50.0	)%
Total non-operating expenses	$	13.5		$	14.1		$	(0.6	)	(4.3	)%

Six Months Ended $ Change % Change
June 27, 2019 June 28, 2018 YTD 2019 to YTD 2018 YTD 2019 to YTD 2018
Interest on borrowings $ 28.6
$ 27.9
$ 0.7
2.5 %
Interest income (1.0 ) (0.7 ) (0.3 ) 42.9 %
(Gain) loss on early retirement of debt, net (0.3 ) 1.2
(1.5 ) (125.0 )%
Loss (gain) on re-measurement of the
payable to founding members under the
tax receivable agreement 1.5
(7.8 ) 9.3
(119.2 )%
Other non-operating income (0.3 ) —
(0.3 ) (100.0 )%
Total non-operating expenses $ 28.5
$ 20.6
$ 7.9
38.3 %

The ~~increase~~decrease in non-operating expense was primarily due ~~primarily~~ to a ~~$9.3~~decrease of $0.8 million ~~increase~~in interest on borrowings due to a 0.5% decrease in the weighted average interest rate for the first quarter of 2020, as compared to the first quarter of 2019 and a $0.5 million decrease in the loss on the re-measurement of the payable to founding members under the ~~tax receivable agreement in 2018 primarily~~TRA due to a ~~change in the deferred tax rate related to a change in Colorado tax law regarding sales sourcing and a $0.7 million increase in interest on borrowings due to a 0.26%~~smaller increase in the ~~weighted average interest on borrowings driven by an increase~~state blended tax rate in the ~~LIBOR rate on our term loan for the six months ended June 27, 2019,~~first quarter of 2020 as compared to the ~~six months ended June 28, 2018.~~first quarter of 2019. These ~~increases~~decreases were partially offset by a ~~$1.5~~$0.3 million ~~increase related~~decrease in interest income on the Company's marketable securities in the first quarter of 2020 as compared to the ~~gain (loss) on early retirement~~first quarter of ~~our debt, due primarily to~~2019, and the absence of a ~~$1.2~~$0.3 million ~~loss on~~gain from the extinguishment of debt ~~related~~that occurred in the first quarter of 2019, compared to the ~~refinancing of the senior secured credit facility in the second~~first quarter of ~~2018.~~2020.

Income Tax ~~Expense~~Benefit.. Income tax ~~expense~~benefit decreased ~~$15.3~~$0.2 million from ~~$17.0~~$0.6 million for the ~~six months ended June 28, 2018~~first quarter of 2019 to ~~$1.7~~$0.4 million for the ~~six months ended June 27, 2019.~~first quarter of 2020. The decrease in income tax ~~expense~~benefit was primarily due to ~~a decrease~~smaller tax benefit recognized in ~~deferred tax expense for~~ the ~~six months ended June 27, 2019,~~first quarter of 2020, compared to the ~~six months ended June 28, 2018~~first quarter of 2019 related to state effective tax rate changes, partially offset by an increase in income tax benefit driven by the ~~Company's remeasurement of its deferred taxes as a result of a 2018 state tax law change. The remaining decrease was primarily due to a lower income~~increase in the loss before income taxes for the ~~six months ended June 27, 2019,~~first quarter of 2020, compared to the ~~six months ended June 28, 2018.~~first quarter of 2019.

Net ~~Income~~Loss. Net ~~income~~loss increased ~~$5.5~~$2.6 million from ~~$2.3~~$1.1 million for the ~~six months ended June 28, 2018~~first quarter of 2019 to ~~$7.8~~$3.7 million for the ~~six months ended June 27, 2019.~~first quarter of 2020. The increase in net ~~income~~loss was due to a ~~$15.3~~$6.0 million decrease in operating income and a $0.2 million decrease in income tax ~~expense, as described above, and~~benefit, partially offset by a ~~$0.7~~$3.0 million decrease in net ~~income~~loss attributable to noncontrolling ~~interests. These increases to net income were partially offset by an $7.9 million increase in non-operating expenses, as described above,~~interests and a ~~$2.6~~$0.6 million decrease in ~~operating income, as described above, for the six months ended June 27, 2019, compared to the six months ended June 28, 2018.~~non-operating expenses.

Known Trends and Uncertainties

COVID-19—As discussed within the 'Recent Developments' section, due to the COVID-19 Pandemic, the Company is unable to advertise in the theaters, and thus generate the majority of its revenue, for the duration of time that the theaters are closed. The Company's theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and revenue and will not be incurred for the duration the theaters are closed.

Due to the rapidly changing business environment, unprecedented market volatility, and other circumstances resulting from the COVID-19 Pandemic, we are currently unable to fully determine the extent of COVID-19’s impact on our business in future periods. However, we are monitoring the rapidly evolving situation and its potential impacts on our financial position, results of operations, liquidity and cash flows.

CARES Act—On March 27, 2020, the U.S. Government enacted various relief and stimulus measures in response to the unprecedented adverse economic impacts of the COVID-19 Pandemic commonly referred to as the CARES Act. The impacts of this legislation have not been incorporated within our financial statements as of March 26, 2020 as the CARES Act enactment occurred in our second quarter of 2020. The CARES Act makes changes to the U.S. tax code that will affect our fiscal year ending December 31, 2020, including, but not limited to, (1) reducing the limitation on deductible interest expense, (2) changing uses and limitations of net operating losses generated in tax years 2018, 2019, and 2020, (3) deferring the payment of the 6.2% FICA portion of Company's payroll taxes beginning on the enactment date through December 31, 2020 until the end of 2021 for one-half of the tax and the remaining half to the end of 2022 and (4) creating the Employee Retention Payroll Tax Credit for the Company's portion of the 6.2% FICA payroll tax for certain qualifying employees from March 13, 2020 through December 31, 2020. The Company is also evaluating the other provisions of the CARES Act to determine the impact to the Company.

Beverage Revenue—Under the ESAs, up to 90 seconds of the Noovie pre-show program can be sold to the founding members to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. For the first three ~~and six~~ months of ~~2019~~2020 and ~~2018,~~2019, two of the founding members purchased 60 seconds of on-screen advertising time and one founding member purchased 30 seconds to satisfy their obligations under their beverage concessionaire agreements. The

founding members’ current long-term contracts with their beverage suppliers require the 30 or 60 seconds of beverage advertising, although such commitments could change in the future. Should the amount of time required as part of these beverage concessionaire agreements decline, this premium time will be available for sale to other clients. ~~Per the ESAs, the~~The time sold to the ~~founding member~~ beverage supplier for AMC is priced equal to the advertising CPM for the previous year charged by NCM LLC to unaffiliated third parties during segment one (closest to showtime) of the Noovie pre-show, limited to the highest advertising CPM being then-charged by NCM ~~LLC. Due to a 0.7% increase~~LLC, which in ~~segment one CPMs in 2018,~~2019 decreased 0.3%. Thus, the CPM on our beverage concessionaire revenue related to AMC in 2020 will decrease by 0.3% compared to 2019. Beginning in 2020 and in accordance with the 2019 ESA Amendments, the price for the time sold to Cinemark and Regal's beverage suppliers instead increased ~~during~~at a fixed rate of 2.0%. The Company will not recognize any beverage revenue for the ~~first three and six months~~period of ~~2019 by 0.7% and~~time that theaters are closed due to the ~~remainder~~COVID-19 Pandemic. Further, attendance may be lower than historical levels following the re-opening of ~~2019 will increase by an equivalent percentage.~~theaters which could reduce the Company’s beverage revenue.

Theater Access Fees—In consideration for NCM LLC’s access to the founding members’ theater attendees for on-screen advertising and use of lobbies and other space within the founding members’ theaters for the LEN and lobby promotions, the founding members receive a monthly theater access fee under the ESAs. The theater access fee is composed of a fixed payment per patron and a fixed payment per digital screen (connected to the DCN). The payment per theater patron increases by 8% every five years, with the next increase occurring in fiscal year 2022. Pursuant to the ESAs, the payment per digital screen increases annually by 5%. Pursuant to the 2019 ESA Amendments, Cinemark and Regal each receive an additional monthly theater access fee beginning November 1, 2019 in consideration for NCM LLC's access to certain on-screen advertising inventory after the advertised showtime of a feature film. These fees are also based upon a fixed payment per patron beginning at $0.025 per patron on November 1, 2019, (ii) $0.0375 per patron beginning on November 1, 2020, (iii) $0.05 per patron beginning on November 1, 2021, (iv) $0.052 per patron beginning on November 1, 2022 and (v) increasing 8% every five years beginning November 1, 2027. The Company does not owe the founding members any theater access fees when the theaters are not displaying the Company's pre-show or when the Company does not have access to the theaters. As such, the Company will not owe these fees during the duration a founding member's theaters are closed in connection with the COVID-19 Pandemic. The digital screen fee is calculated based upon average screens in use during each month. No digital screen fees will be incurred for months where no screens are in use and fees will be reduced for months where screens are in use for only part of the month.

Platinum Spot—In consideration for the utilization of the theaters post-showtime for Platinum Spots, Cinemark and Regal receive 25% of all revenue generated for the actual display of Platinum Spots in their applicable theaters, subject to a specified minimum. If NCM LLC runs advertising in more than one concurrent advertisers’ Platinum Spot for any portion of the network over a period of time, then NCM LLC will be required to satisfy a minimum average CPM for that period of time.

Financial Condition and Liquidity

Liquidity and Capital Resources

Our cash balances can fluctuate due to the seasonality of our business and related timing of collections of accounts receivable balances and operating expenditure payments, as well as available cash payments (as defined in the NCM LLC Operating Agreement) to NCM LLC’s founding members, interest or principal payments on our term loan and the Notes due ~~2022~~2026 and Notes due ~~2026,~~2028, income tax payments, TRA payments to NCM LLC’s founding members and amount of quarterly dividends to NCM, Inc.’s common stockholders.

As a result of the COVID-19 Pandemic discussed within the 'Recent Developments' section above, we cannot generate revenue, other than revenue associated with our digital service offerings. With the exception of collecting accounts receivable balances outstanding as of March 26, 2020, the Company will have limited cash receipts until after the theaters reopen. Further, once theaters re-open, there will be a lag between when revenue is generated at those theaters and when the Company ultimately collects the associated accounts receivable balance. The Company will also have reduced cash payments during the period the theaters are closed as expenses related to theater attendance will not be incurred (i.e. theater access fees, Platinum Spot revenue share and network affiliate revenue share payments). The Company also implemented a number of cost-saving measures in order to preserve cash as further outlined within the 'Recent Developments' section above. The Company is also strategically working with vendors and landlords to delay payments where possible. In March 2020, we drew down an additional $110.0 million on our revolving credit facility increasing our cash and marketable securities balance to $215.3 million as of March 26, 2020 ($132.2 million at NCM LLC). The $132.2 million of cash at NCM LLC will be used to fund operations during the period of expected reduced cash flows. Cash at NCM, Inc. cannot be used to fund operations at NCM LLC and is held for future payment of dividends to NCM, Inc. shareholders, income tax payments, income tax receivable payments to NCM LLC’s founding members and other obligations. Further, as of March 26, 2020, we had approximately $113.7 million of trade accounts receivable outstanding from customers, of which we have collected approximately $66.7 million as of May 4, 2020.

In accordance with the Credit Agreement Amendment entered into in order to obtain a waiver of the financial covenants for the period beginning in the second quarter of 2020 through the second quarter of 2021, NCM LLC must maintain a total balance of $55.0 million of a combination of unrestricted cash on hand and availability under NCM LLC's revolving credit facility. Management believes that cash on hand following the additional draw down on the revolving credit facility, collection of the $113.7 million accounts receivable balance at March 26, 2020, as well as future funds generated from NCM LLC’s operations once theaters re-open should be sufficient to fund working capital requirements, NCM LLC’s debt service requirements and capital expenditures through the next twelve months.

A summary of our financial liquidity is as follows (in millions):


	As of						$ Change			$ Change			As of						$ Change			$ Change
	June 27, 2019		December 27, 2018		June 28, 2018		Q2 2019 to YE 2018			Q2 2019 to Q2 2018			March 26, 2020		December 26, 2019		March 28, 2019		Q1 2020 to YE 2019			Q1 2020 to Q1 2019
Cash, cash equivalents and marketable securities (1)	$	61.7	$	75.6	$	65.6	$	(13.9	)	$	(3.9	)	$	215.3	$	80.9	$	82.4	$	134.4		$	132.9
NCM LLC revolver availability (2)	143.2		143.2		140.0		—			3.2			4.4		132.4		133.2		(128.0		)	(128.8		)
Total liquidity	$	204.9	$	218.8	$	205.6	$	(13.9	)	$	(0.7	)	$	219.7	$	213.3	$	215.6	$	6.4		$	4.1

_________________________

(1)

Included in cash, cash equivalents and marketable securities as of ~~June 27,~~March 26, 2020, December 26, 2019 ~~December 27, 2018~~ and ~~June~~March 28, ~~2018,~~2019, was ~~$4.6~~$132.2 million, ~~$7.2~~$11.4 million and ~~$8.3~~$4.7 million, respectively, of cash ~~and marketable securities~~ held by NCM LLC that is not available to satisfy dividends declared by NCM, Inc.~~’s dividend,~~, income tax, tax receivable payments to NCM LLC’s founding members and other obligations.

(2)

The revolving credit facility portion of NCM LLC’s total borrowings is available, subject to certain conditions, for general corporate purposes of NCM LLC in the ordinary course of business and for other transactions permitted under the senior secured credit facility, and a portion is available for letters of credit. NCM LLC’s total capacity under the revolving credit facility was $175.0 million as of ~~June 27,~~March 26, 2020, December 26, 2019 ~~December 27, 2018~~ and ~~June~~March 28, ~~2018.~~2019. As of ~~June 27,~~March 26, 2020, December 26, 2019 ~~December 27, 2018~~ and ~~June~~March 28, ~~2018,~~2019, the amount available under the NCM LLC revolving credit facility in the table above, was net of the amount outstanding under the revolving credit facility of ~~$27.0~~$167.0 million, ~~$27.0~~$39.0 million and ~~$30.2~~$37.0 million, respectively, and net letters of credit of $3.6 million, $3.6 million and $4.8 million, ~~in each respective period.~~respectively.

As of ~~June 27, 2019,~~March 26, 2020, the weighted average remaining maturity of our debt was ~~4.8~~6.2 years. As of ~~June 27, 2019,~~March 26, 2020, approximately ~~68%~~59% of our total borrowings bear interest at fixed rates. The remaining ~~32%~~41% of our borrowings bear interest at variable rates and as such, our net income and earnings per share could fluctuate with market interest rate fluctuations that could increase or decrease the interest paid on our borrowings.

We have generated and used cash as follows (in millions):


	Six Months Ended						Three Months Ended
	June 27, 2019			June 28, 2018			March 26, 2020		March 28, 2019
Operating cash flow	$	59.3		$	66.2		$	58.1	$	46.0
Investing cash flow	10.6			(9.1		)	0.8		15.0
Financing cash flow	(68.5		)	(52.9		)	78.4		(38.4		)

Operating Activities. The ~~$6.9~~$12.1 million ~~decrease~~increase in cash provided by operating activities for the ~~six months ended June 27, 2019 compared to the six months ended June 28, 2018 was due primarily to 1) a decrease in the change in accounts receivable~~first quarter of ~~$9.8 million related to timing of collections in the first six months of 2019,~~2020, compared to the first ~~six months~~quarter of ~~2018, 2)~~2019 was primarily due to a $16.2 million larger decrease in the accounts receivable balance during the first quarter of 2020 as compared to the first quarter of 2019 related to the decrease in revenue in the first quarter of 2020 as compared to the fourth quarter of 2019. This increase was partially offset by a $5.6 million ~~decrease in deferred income tax expense net of the decrease~~increase in the re-measurement of the payable to founding members under the TRA driven by a change in the Company's deferred rate due to a change in Colorado tax law regarding sales sourcing and 3) a $2.1 million decrease in non-cash share-based compensation expense related to the lower volume of awards for the six months ended June 27, 2019, compared to the six month ended June 28, 2018. These decreases were partially offset by an $10.6 million increase in cash provided by operating activities due to the reclassification in the current period of founding member integration and other encumbered theater payments from cash flows from financing activities upon adoption of ASC 842, as further discussed within Note 1 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document.consolidated net loss.

Investing Activities. The ~~$19.7~~$14.2 million ~~increase~~decrease in cash provided by investing activities for the ~~six months ended June 27, 2019,~~first quarter of 2020, compared to the ~~six months ended June 28, 2018~~first quarter of 2019 was primarily due ~~primarily~~ to ~~higher~~an $8.1 million decrease in proceeds from the sale ~~and maturity~~ of marketable securities, ~~net of purchases, of $17.9~~a $4.3 million increase in the cash used to purchase marketable securities, and a $1.4 million ~~increase~~decrease in ~~the~~ proceeds from ~~the~~founding member notes ~~receivable from the founding members for the six months of June 27, 2019, compared to the six months ended June 28, 2018.~~receivable.

Financing Activities. The ~~$15.6~~$116.8 million increase in cash ~~used in~~provided by financing activities ~~during~~for the ~~six months ended June 27, 2019,~~first quarter of 2020, compared to the ~~six months ended June 28, 2018~~first quarter of 2019 was primarily due ~~primarily~~ to a ~~$24.2~~$118.0 million ~~decrease~~increase in proceeds from ~~borrowings,~~our revolving credit facility, net of repayments, ~~and an $11.5 million decrease~~ in order to fund operations during the period of expected reduced cash ~~inflows from financing activities~~flows due to the ~~reclassification~~temporary closure of the theaters within NCM LLC's network to address the COVID-19 Pandemic. The increase was also due to a $4.6 million repurchase of the retired Notes due 2026 that occurred in the ~~current period~~first quarter of founding member integration and other encumbered theater payments from cash flows from financing activities upon adoption of ASC 842, as further discussed within Note 1 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document.2019. These increases were partially offset by a ~~$12.1~~$4.5 million ~~decrease~~increase in distributions to founding members ~~period over period, and a decrease of $6.3 million~~ in the ~~payment~~first quarter of ~~debt issuance costs related~~2020, compared to the ~~refinancing of the senior secured credit facility in the second~~first quarter of ~~2018.~~2019.

Sources of Capital and Capital Requirements.

NCM, Inc.’s primary source of liquidity and capital resources is the quarterly available cash distributions from NCM LLC as well as its existing cash balances and marketable securities, which as of ~~June 27, 2019~~March 26, 2020 were ~~$57.1~~$83.1 million (excluding NCM LLC). NCM LLC’s primary sources of liquidity and capital resources are its cash provided by operating activities, availability under its revolving credit facility and cash on hand.

NCM LLC drew down an additional $110.0 million of its revolving credit facility in March 2020 in order to supplement the anticipated decrease in cash provided by operating activities during the period our network theaters are closed. The $132.2 million of cash at NCM LLC will be used to fund operations during the period of expected reduced cash flows. Cash at NCM, Inc. cannot be used to fund operations of NCM LLC and is used to fund income taxes, payments associated with the TRA with the founding members and for future payment of dividends to NCM, Inc. shareholders. Further, as of March 26, 2020, we had approximately $113.7 million of trade accounts receivable from customers, of which we have collected approximately $66.7 million as of May 4, 2020. Management believes that cash on hand following the additional draw down on the revolving credit facility, collection of the $113.7 million accounts receivable balance at March 26, 2020, as well as future funds generated from NCM LLC’s operations ~~and cash on hand~~once theaters re-open should be sufficient to fund working capital requirements, NCM LLC’s debt service requirements ~~opportunistic debt repurchases,~~ and capital expenditures through the next twelve months.

On April 30, 2020, NCM LLC entered into the Credit Agreement Amendment to allow for the automatic waiver of any non-compliance with its Consolidated Net Senior Secured Leverage Ratio and Consolidated Total Leverage Ratio financial covenants occurring from the quarter ending June 25, 2020 until and including the quarter ending July 1, 2021. The Credit Agreement Amendment requires that, until the fiscal quarter ending July 1, 2021, NCM LLC must not permit the sum of unrestricted cash on hand at NCM LLC and availability under its Revolving Credit Facility to be less than $55.0 million. Further, NCM LLC can make available cash distributions to its members (AMC, Cinemark, Regal and NCM, Inc.) during the Covenant Holiday Period only if trailing 12-month Consolidated EBITDA (as defined in the Credit Agreement) equals or exceeds $277.0 million and outstanding loans under the Revolving Credit Facility are equal to or less than $39.0 million. NCM LLC can make available cash distributions to its members outside of the Covenant Holiday Period so long as NCM LLC’s Consolidated Net Senior Secured Leverage Ratio is equal to or less than 5.00 to 1.00 and no default or event of default under the Credit Agreement has occurred and is continuing.

Cash flows generated by NCM LLC’s distributions to NCM, Inc. and the founding members ~~can~~will be impacted by the ~~seasonality~~temporary closure of ~~advertising sales, interest~~our network theaters and ~~repayments on borrowings under our credit agreements and~~may even be deferred for the quarter ending June 25, 2020 through the quarter ending July 1, 2021 until at least August 2021 due to ~~a lesser extent theater attendance.~~the limitations instituted by the amendment to the Company's Senior Secured Credit Facility. NCM LLC is required pursuant to the terms of the NCM LLC Operating Agreement to distribute its

available cash, as defined in the operating agreement and unless prohibited by NCM LLC's Credit Agreement, quarterly to its members (Regal, Cinemark, AMC and NCM, Inc.). The available cash distribution to the members of NCM LLC for the three months ended ~~June 27, 2019~~March 26, 2020 was approximately ~~$30.0~~$8.5 million, of which approximately ~~$14.6~~$4.1 million ~~was~~will be distributed to NCM, Inc.

NCM, Inc. expects to use its cash balances and cash received from future available cash distributions ~~and its cash balances~~(as allowed for under the Amended Credit Agreement) to fund income taxes, payments associated with the TRA with the founding members, and current and future dividends as declared by the Board of Directors, including a dividend declared on ~~August~~May 5, ~~2019~~2020 of ~~$0.17~~$0.07 per share (approximately ~~$13.1~~$5.4 million) on each share of the Company’s common stock (not including outstanding restricted stock) to stockholders of record on ~~August 15, 2019~~May 18, 2020 to be paid on August 30, 2019. NCM LLC will also continue to evaluate discretionary use of cash based on future expected leverage levels, NCM LLC investment opportunities and NCM, Inc. dividend policy. Distributions from NCM LLC and NCM, Inc. cash balancesJune 1, 2020. These items should be sufficient to fund payments associated with the TRA with ~~NCM LLC’s~~the founding members, income taxes and ~~regular dividends~~its quarterly dividend for the foreseeable future at the discretion of the Board of Directors. ~~The declaration, payment, timing and a~~

mount of any future dividends payable will be at the sole discretion of the Board of Directors who will take into account general economic and advertising market business conditions, NCM, Inc.’s financial condition, available cash, current and anticipated cash needs, and any other factors that the Board of Directors considers relevant. The Company intends to pay a regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors consistent with the Company’s intention to distribute ~~over time a substantial portion of~~substantially all its free cash ~~flow.~~ flow to stockholders through its quarterly dividend. The declaration, payment, timing and amount of any future dividends payable will be at the sole discretion of the Board of Directors who will consider general economic and advertising market business conditions, the Company’s financial condition, available cash, current and anticipated cash needs and any other factors that the Board of Directors considers relevant, which includes short-term and long-term impacts to the Company related to the temporary theater closures for the COVID-19 Pandemic and restrictions under the NCM LLC Credit Agreement.

Critical Accounting Policies

For a discussion of accounting policies that we consider critical to our business operations and understanding of our results of operations, and that affect the more significant judgments and estimates used in the preparation of our unaudited Condensed Consolidated Financial Statements, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations –~~ Operations—Critical Accounting Policies” contained in our annual report on Form 10-K filed for the fiscal year ended December ~~27, 2018~~26, 2019 and incorporated by reference herein. As of ~~June 27, 2019,~~March 26, 2020, there were no significant changes in those critical accounting policies except for the change in ~~leases~~allowance for doubtful accounts upon the adoption of ASC ~~842~~326 in the first quarter of ~~2019~~2020 and discussed further within Note 8—1—~~Commitments and Contingencies~~The Company, to the unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see the information provided under Note 1—The Company to the unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Related Party Transactions

For a discussion of related party transactions, see the information provided under Note 5—Related Party Transactions to the unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Off-Balance Sheet Arrangements

We do not believe the Company has any off-balance sheet arrangements that are material to our current or future financial condition, results of operations, liquidity, capital resources or capital expenditures.

Contractual and Other Obligations

See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual and Other Obligations” contained in our annual report on Form 10-K for the fiscal year ended December ~~27, 2018~~26, 2019 and incorporated by reference herein. There were no material changes to our contractual obligations during the ~~six~~three months ended ~~June 27, 2019.~~March 26, 2020.

Seasonality

Our revenue and operating results are seasonal in nature, coinciding with the timing of marketing expenditures by our advertising clients and to a lesser extent the attendance patterns within the film exhibition industry. Both advertising expenditures and theater attendance tend to be higher during the second, third, and fourth fiscal quarters. Advertising revenue is primarily correlated with advertising clients' new product releases, advertising client marketing priorities and economic cycles and to a lesser extent theater attendance levels. Seasonal demand during the summer is driven by the absence of alternative attractive advertising mediums and during the winter holiday season due to high client demand across all advertising mediums. The actual quarterly results for each quarter could differ materially depending on these factors or other risks and uncertainties. Based on our historical experience, our first quarter typically has less revenue than the other quarters of a given year due primarily to lower advertising client demand and increased inventory availability in competitive advertising mediums. Given the temporary closure of our theaters, we expect our 2020 quarterly results to vary from the historical trend. Accordingly, there can be no assurances that seasonal variations will not materially affect our results of operations in the future.

The following table reflects the quarterly percentage of total revenue for the fiscal years ended ~~2016,~~ 2017, 2018 and ~~2018.~~2019.


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
FY 2016	17.0	%	25.8	%	25.4	%	31.8	%
FY 2017	16.9	%	22.8	%	27.3	%	33.0	%	16.9	%	22.8	%	27.3	%	33.0	%
FY 2018	18.2	%	25.8	%	24.9	%	31.1	%	18.2	%	25.8	%	24.9	%	31.1	%
FY 2019									17.3	%	24.8	%	24.8	%	33.1	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The primary market risk to which we are exposed is interest rate risk. The Notes due ~~2022~~2026 and the Notes due ~~2026~~2028 are at fixed rates, and therefore are not subject to market risk. As of ~~June 27, 2019,~~March 26, 2020, the only interest rate risk that we are exposed to is related to our $175.0 million revolving credit facility and our term loan. A 100-basis point fluctuation in market interest rates underlying our term loan and revolving credit facility would have the effect of increasing or decreasing our cash interest expense by approximately ~~$3.0~~$4.3 million for an annual period on the ~~$27.0~~$167.0 million revolving credit balance and ~~$268.0~~$266.0 million term loan outstanding as of ~~June 27, 2019. For a discussion~~March 26, 2020.

In response to the COVID-19 Pandemic, the government lowered the federal reserve interest rate leading to historically low interest rates as of March 26, 2020 that has had the effect of reducing the Company's interest rate risk. The COVID-19 Pandemic has also resulted in reduced liquidity within the debt markets which may impact companies' abilities to refinance their debt. As the Company's next tranche of debt is not due until 2023, this increased market ~~risks, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” contained in our annual report on Form 10-K for~~risk is not expected to adversely impact the ~~fiscal year ended December 27, 2018 and incorporated by reference herein.~~Company.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (principal executive ~~officer)~~ and ~~Chief Financial Officer (principal~~ financial ~~and accounting~~ officer), as appropriate, to allow timely decisions regarding required disclosure.

Management, with the participation of the Chief Executive ~~Officer and Chief Financial~~ Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of ~~June 27, 2019,~~March 26, 2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer ~~and Chief Financial Officer~~ concluded that the Company’s disclosure controls and procedures as of ~~June 27, 2019~~March 26, 2020 were effective.

In designing and evaluating our disclosure controls and procedures, management recognizes that any control, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the quarter ended ~~June 27, 2019~~March 26, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are sometimes involved in legal proceedings arising in the ordinary course of business. We are not aware of any other litigation currently pending that would have a material adverse effect on our operating results or financial condition.

Item 1A. Risk Factors

~~There~~Excluding the risk factors outlined below, there have been no material changes from risk factors as previously disclosed in our annual report on Form 10-K filed with the SEC on February ~~22, 2019~~20, 2020 for the fiscal year ended December ~~27, 2018.~~26, 2019.

Pandemics, epidemics or disease outbreaks, such as the novel coronavirus (COVID-19 virus), have disrupted and may continue to disrupt our business and the business of our founding members and network affiliates, which has and could continue to materially affect our operations and results of operations.

Pandemics or disease outbreaks such as the novel coronavirus (COVID-19 virus) have and may continue to disrupt our business and the business of our founding member and network affiliates’ theaters. Following the World Health Organization’s declaration of the COVID-19 virus as a pandemic, the United States’ government and other state and local governments issued precautionary restrictions on travel, public gatherings and other events. In response to these restrictions, each of our founding members announced that their theaters would be temporarily closed to address this pandemic and by the beginning of April all of our network affiliate’s theaters had also temporarily closed. Certain of our founding members have announced that they do not expect to open their theaters until late June or early July, and some of our other affiliates started to or have indicated that they will begin opening theaters as legal restrictions ease. However, we cannot predict when all of our theaters will reopen, what type of restrictions may be in place once theaters reopen, when large audiences will feel comfortable returning to movie theaters or if theaters will eventually need to close again in connection with further social distancing guidelines.

Several major motion picture releases were delayed until later in 2020 or 2021 and a few studios shortened the “release window” between the release of motion pictures in theaters and an alternative delivery method or released motion pictures directly to alternative delivery methods bypassing the theater entirely. The COVID-19 Pandemic has also impacted film production and may impact the pipeline of feature films available in the short or long term.

In response to the COVID-19 Pandemic, we implemented a number of cost-saving measures, including furloughing approximately 30% of our staff and reducing the pay of the remaining employees by up to 50%, suspending non-essential operating expenditures, including marketing, employee travel, implementing a hiring freeze, suspending the Company’s 401k employee match program, terminating or deferring certain non-essential capital expenditures, strategically working with our landlords, vendors and other business partners to manage costs, and implementing an active cash management process.

The impact, extent and duration of the government-imposed restrictions on travel, public gatherings, other events and business generally, as well as the overall effect of the COVID-19 virus is currently unknown but has had and could continue to have a material adverse impact on our business, liquidity, financial conditions and/or results of operations. Even when the COVID-19 Pandemic subsides, we cannot guarantee that we will recover as rapidly as other industries as advertising expenditures may remain decreased due to an economic slowdown and consumers may be hesitant to return to theaters. We cannot predict when the effects of the COVID-19 Pandemic will subside when theaters will reopen and patrons are comfortable attending, or when our business will return to normal levels. The longer and more severe the pandemic, including repeat or cyclical outbreaks beyond the one we are currently experiencing, the more severe the adverse effects will be on our business, liquidity, financial conditions and/or results of operations. Significant impacts on our business caused by the COVID-19 Pandemic and other pandemics include and are likely to continue to include among others:

decreased attendance in theaters after they reopen, including due to (i) continued safety and health concerns and social distancing requirements or (ii) a change in consumer behavior in favor of alternative forms of entertainment;

advertisers’ perception of cinema advertising may change based on future attendance, shortened theatrical windows, and potential impacts of film production;

advertisers may be less willing to invest in advertising in the future and may prioritize other types of investment;

the bankruptcy or restructuring of our founding members or other network affiliates in which the agreement with that party may be rejected, renegotiated or deemed unenforceable;

an inability to collect accounts receivable from small business advertisers that have been temporarily or permanently closed;

reductions and delays associated with planned operating and capital expenditures;

increased risk related to employee matters, including increased turnover and litigation and claims relating to furloughs or pay reductions;

potential impairment charges;

our ability to implement business continuity plans in a fast-moving emergency, which could have an adverse effect on our internal controls (potentially giving rise to significant deficiencies or material weaknesses) and also increase our vulnerability to information technology and other systems disruptions;

our inability to generate significant cash flow from operations, which could lead to a substantial increase in indebtedness and negatively impact our ability to comply with the financial covenants, if applicable, in our debt agreements;

our inability to access lending, capital markets and other sources of liquidity, if needed, on reasonable terms, or at all, or obtain amendments, extensions and waivers;

our inability to effectively meet our short- and long-term obligations; and

our inability to service our existing and future indebtedness.

The spread of COVID-19 has developed into a worldwide health crisis and may have broader macro-economic implications. The United States has experienced significantly increased rates of unemployment and these deteriorating economic conditions, including reduced levels of economic growth and possibly a recession, may extend well beyond the time the spread of infection is contained. Consumers and advertisers may also change their long-term behavior related to perceived risk of infection or health risk, other pandemic fears, quarantines and other restrictions. Even if measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may adversely affect our business, liquidity, financial condition and results of operations.

Additionally, although we are reviewing and intend to seek any available benefits under the CARES Act, we cannot predict the manner in which such benefits will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all. Certain of the benefits we seek to access under the CARES Act have not previously been administered on the present scale or at all. Government or third-party program administrators may be unable to cope with the volume of applications in the near term and any benefits we receive may not be as extensive as we currently estimate, may impose additional conditions and restrictions on our operations or may otherwise provide less relief than we contemplate. Accessing these benefits and our response to the COVID-19 Pandemic have required our management team to devote extensive resources and are likely to continue to do so in the near future, which negatively affects our ability to implement our business plan and respond to opportunities.

To the extent the COVID-19 Pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended December 26, 2019, including but not limited to those relating to NCM LLC’s high level of indebtedness, the risks associated with the loss of major content partners or advertising clients, and reductions in spending on advertising.

Significant declines in theater attendance could reduce the attractiveness of cinema advertising and could reduce our revenue.

Our business is affected by the level of attendance at the founding members’ theaters and to a lesser extent our network affiliates’ theaters, who operate in a highly competitive industry and whose attendance is reliant on the presence of motion pictures that attract audiences. Over the last 10 years, theater attendance has fluctuated from year to year but on average has remained relatively flat. The value of our advertising business could be adversely affected by a decline in theater attendance or even the perception by media buyers that our network is no longer relevant to their marketing plan due to the decreases in attendance and geographic coverage. Factors that could reduce attendance at our network theaters include the following:

if NCM LLC’s network theater circuits cannot compete with other out-of-home entertainment due to an increase in the use of alternative film delivery methods (and the shortening of the “release window” between the release of major motion pictures to alternative delivery methods or releasing motion pictures directly to alternative delivery methods bypassing the theater entirely), including network, video streaming and downloads via the Internet, which may be accelerated by the actions of major film distributors taken in response to the COVID-19 Pandemic;

theater circuits in NCM LLC’s network continue to renovate auditoriums in certain of their theaters to install new larger, more comfortable seating, which reduces the number of seats in a theater auditorium. This renovation has been viewed favorably by patrons and many theater circuits have noted an intent to continue such renovations;

changes in theater operating policies, including the number and length of trailers for upcoming films that are played prior to the start of the feature film, which if the length of trailers increases, may result in most or all of the Noovie pre-show starting further out from the actual start of the feature film;

any reduction in consumer confidence or disposable income in general that reduces the demand for motion pictures or adversely affects the motion picture production industry;

the success of first-run motion pictures, which depends upon the production and marketing efforts of the major studios and the attractiveness and value proposition of the movies to consumers compared to other forms of entertainment, which may be impacted by the COVID-19 Pandemic;

if political events, such as terrorist attacks, or health-related epidemics, such as flu outbreaks, and pandemics, such as the COVID-19 Pandemic, cause consumers to avoid movie theaters or other places where large crowds are in attendance and or governments to prohibit the operation of and attendance at theaters;

regulations, theater operating policies or consumer behavior that require higher levels of social distancing as a response to the COVID-19 Pandemic;

if the theaters in our network fail to maintain their theaters and provide amenities that consumers prefer;

if studios begin to reduce the number of feature films produced for theater exhibition and their investments in those films or reduce the investments made to market those films;

if future theater attendance declines significantly over an extended time period, such as a result of prolonged closures resulting from the COVID-19 Pandemic, one or more of the founding members or network affiliates may face financial difficulties and could be forced to sell or close theaters or reduce the number of screens it builds or upgrades or increase ticket prices; and

NCM LLC’s network theater circuits also may not successfully compete for licenses to exhibit quality films and are not assured a consistent supply of motion pictures if they do not have long-term arrangements with major film distributors.

Any of these circumstances could reduce our revenue because our national and regional advertising revenue, and local advertising to a lesser extent, depends on the number of theater patrons who attend movies. Additionally, if attendance declines significantly, the Company will be required to provide additional advertising time (makegoods) to national advertisers to reach agreed-on audience delivery thresholds. Certain of these circumstances can also lead to volatility within our utilization. We have historically seen our annual national inventory utilization vary more than 10% on an annual basis and we experience even more substantial volatility quarter-to-quarter.

If one of the founding members declared bankruptcy, the ESA with that founding member may be rejected, renegotiated or deemed unenforceable.

Each of the founding members currently has a significant amount of indebtedness. In 2000 and 2001, several major motion picture exhibition companies filed for bankruptcy including United Artists, Edwards Theatres and Regal Cinemas (which are part of Regal), and General Cinemas and Loews Cineplex (which are part of AMC). The industry-wide construction of larger, more expensive megaplexes featuring stadium seating in the late 1990s that rendered existing, smaller, sloped-floor theaters under long-term leases obsolete and unprofitable, were significant contributing factors to these bankruptcies. As a result of the COVID-19 Pandemic, each of the founding members closed all of their theaters in the United States and furloughed the vast majority of their employees, and various media outlets began reporting that certain of our founding members were in financial distress as a result of the COVID-19 Pandemic. During April 2020, certain of our founding members also completed significant capital raising transactions to increase available liquidity and, as of the date hereof, we are not aware that any of our founding members is insolvent or intends to file for restructuring proceedings. If a bankruptcy case were commenced by or against a founding member, it is possible that all or part of the ESA with that founding member could be rejected by a trustee in the bankruptcy case pursuant to Section 365 or Section 1123 of the United States Bankruptcy Code, or by the founding member, and thus not be enforceable. Alternatively, the founding member could seek to renegotiate the ESA in a manner less favorable to us than the existing agreement. Should the founding member seek to sell or otherwise dispose of theaters or remove theaters from our network through bankruptcy or for other business reasons, if the acquirer did not agree to continue to allow us to sell advertising in the acquired theaters the number of theaters in our advertising networks would be reduced which in turn would reduce the number of advertising impressions available to us and thus could reduce our advertising revenue.

We depend upon our senior management and our business may be adversely affected if we cannot retain or replace them.

Our success depends in part upon the retention of our experienced senior management with specialized industry, sales and technical knowledge and/or industry relationships. In November 2018, our Chief Executive Officer stepped down and a new Chief Executive Officer was appointed in August 2019. Our Chief Financial Officer retired on March 12, 2020 and the Company has engaged a national search firm and is in the process of identifying a new Chief Financial Officer.

If we are not able to find qualified internal or external replacements for critical members of our senior management team, the loss of these key employees could have a material adverse effect on our ability to effectively pursue our business strategy and our relationships with advertisers and content partners. In response to the COVID-19 Pandemic, the Company instituted a temporary pay reduction for all employees of up to 50% and each of our named executive officers agreed to a 20% reduction of their base salary. If these temporary salary reductions continue for an extended period of time, we may be subject to a higher rate of turnover of our senior management. Additionally, the Company is in the process of identifying a new Chief Financial Officer and other members of our senior management, and the uncertainty caused by the COVID-19 Pandemic, hiring freeze and salary reductions, may make it more difficult for the Company to find experienced replacements. We do not have key-man life insurance covering any of our employees.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below provides information about shares delivered to the Company from restricted stock held by Company employees upon vesting for purpose of funding the recipient’s tax withholding obligations.

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs
March 29, 2019 through April 25, 2019 5,908
$ 7.09
—
N/A
April 26, 2019 through May 23, 2019 1,134
$ 7.02
—
N/A
May 24, 2019 through June 27, 2019 —
$ —
—
N/A



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs
December 27, 2019 through January 23, 2020	35,168	$	7.76	—	N/A
January 24, 2020 through February 20, 2020	63,711	$	7.61	—	N/A
February 21, 2020 through March 26, 2020	20,762	$	8.94	—	N/A

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

As previously disclosed, the Board of Directors (the “Board”) of the Company appointed Thomas F. Lesinski as CEO of the Company, effective as of August 2, 2019. In connection with his appointment as CEO of the Company, Mr. Lesinski

resigned from the Board as the independent director designated by Cinemark pursuant to the Director Designation Agreement, dated as of February 13, 2007, among the Company and AMC, Cinemark and Regal (the “Director Designation Agreement”) and as a member of the Audit Committee. The Board subsequently appointed Mr. Lesinski as a member of the Board in his role as CEO. Following Mr. Lesinski’s resignation from the Board as an independent director and a member of the Audit Committee, the Audit Committee consists of only two independent directors.

On August 1, 2019, the Company notified the Nasdaq Stock Market that, as a result of Mr. Lesinski’s appointment as CEO of the Company and resignation from the Audit Committee, (i) the Company is no longer in compliance with Nasdaq Listing Rule 5605(b)(1), which requires that a majority of the Board be comprised of independent directors, and (ii) the Company is no longer in compliance with Nasdaq Listing Rule 5605(c)(2), which requires that the Company have an audit committee comprised of at least three independent directors. On August 2, 2019, in response to the Company’s notice, Nasdaq issued a letter to the Company acknowledging the Company’s noncompliance and confirming that, consistent with Nasdaq Listing Rules 5605(b)(1)(A) and 5605(c)(4)(B), the Company can rely on a cure period allowing the Company to regain compliance with each of the requirements by the earlier of the Company’s next annual meeting of stockholders or August 2, 2020, or, if the Company’s next annual meeting of stockholders is held before January 29, 2020, by January 29, 2020.

Pursuant to its rights under the Director Designation Agreement, Cinemark has notified the Company that it will designate a replacement director that is an independent director under the rules of the Nasdaq Stock Market. Pursuant to the Director Designation Agreement, the Board is required to elect such director, subject to the Board’s determination in good faith, after consultation with outside legal counsel, that such action would not constitute a breach of its fiduciary duties or applicable law, is required to elect such director. The Company anticipates that it will regain compliance with Nasdaq Listing Rules 5605(b)(1) and 5605(c)(2) following (i) the election to the Board of an independent director designated by Cinemark and (ii) the appointment to the Audit Committee of a third independent director, which may be the Cinemark designee or may be another independent member of the Board.None.

Item 6. Exhibits



~~Exhibit~~	~~Reference~~	~~Description~~

~~31.1~~	*	~~Rule 13a-14(a) Certification of Chief Executive Officer.~~
~~31.2~~	*	~~Rule 13a-14(a) Certification of Chief Financial Officer.~~
~~32.1~~	**	~~Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.~~
~~32.2~~	**	~~Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.~~
~~101.INS~~	*	~~XBRL Instance Document~~
~~101.SCH~~	*	~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~	*	~~XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~	*	~~XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~	*	~~XBRL Taxonomy Extension Label Linkbase Document~~
~~101.PRE~~	*	~~XBRL Taxonomy Extension Presentation Linkbase Document~~



Exhibit	Reference	Description

10.1	(1)	Amendment No. 1 to the Credit Agreement, dated as of April 30, 2020, by and among National CineMedia, LLC, each lender party thereto, and JPMorgan Chase Bank, N.A., as administrative agent.
31.1	*	Rule 13a-14(a) Certification of Chief Executive Officer and Interim PFO.
32.1	**	Certification of Chief Executive Officer and Interim PFO Pursuant to 18 U.S.C. Section 1350.
101.INS	*	XBRL Instance Document
101.SCH	*	XBRL Taxonomy Extension Schema Document
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document



*	Filed herewith.
**	Furnished herewith.
(1)	Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (File No. 001-33296) filed on May 5, 2020.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		NATIONAL CINEMEDIA, INC.
		(Registrant)

Date:	~~August~~May 5, ~~2019~~2020	/s/ Thomas F. Lesinski
		Thomas F. Lesinski
		Chief Executive Officer and Director
		(Principal Executive Officer and Interim Principal Financial Officer)



~~Date:~~	~~August 5, 2019~~	~~/s/ Katherine L. Scherping~~
		~~Katherine L. Scherping~~
		~~Chief Financial Officer~~ ~~(Principal Financial and Accounting Officer)~~

3640



Year	Minimum Lease Payments
2019	$	3.5
2020	3.3
2021	3.4
2022	3.4
2023	3.4
Thereafter	22.1
Total	$	39.1



Year	Future Lease Payments
2019 (June 28, 2019 - December 26, 2019)	$	1.7
2020	3.3
2021	3.3
2022	3.4
2023	3.4
2024	3.5
Thereafter	18.7
Total	37.3
Less: Imputed interest on future lease payments	(12.1		)
Total lease liability as of June 27, 2019 per the Condensed Consolidated Balance Sheet	$	25.2



	As of June 27, 2019				As of December 27, 2018
	Carrying Value		Fair Value (1)		Carrying Value		Fair Value (1)
Term loan	$	268.0	$	267.3	$	269.4	$	261.2
Notes due 2022	400.0		405.0		400.0		401.8
Notes due 2026	230.0		218.5		235.0		211.0



	As of June 27, 2019
	Amortized Cost Basis (in millions)		Aggregate Fair Value (in millions)		Maturities (1) (in years)
MARKETABLE SECURITIES:
Short-term U.S. government treasury bonds	$	0.3	$	0.2	0.1
Short-term U.S. government agency bonds	5.5		5.5		0.5
Short-term commercial paper:
Utility	2.0		2.0		0.1
Short-term municipal bonds	0.9		0.9		0.9
Short-term certificates of deposit	2.6		2.6		0.3
Total short-term marketable securities	11.3		11.2

Long-term municipal bonds	0.3		0.3		1.2
Long-term U.S. government agency bonds	4.8		4.8		2.5
Long-term certificates of deposit	2.6		2.6		2.6
Total long-term marketable securities	7.7		7.7
Total marketable securities	$	19.0	$	18.9



	As of December 27, 2018
	Amortized Cost Basis (in millions)		Aggregate Fair Value (in millions)		Maturities (1) (in years)
MARKETABLE SECURITIES:
Short-term U.S. government agency bonds	$	3.9	$	3.9	0.5
Short-term U.S. government treasury bonds	0.3		0.3		0.5
Short-term certificates of deposit	3.6		3.6		0.6
Short-term municipal bonds	0.5		0.5		0.1
Short-term commercial paper:
Financial	3.8		3.8		0.1
Industrial	12.0		11.9		0.1
Total short-term marketable securities	24.1		24.0

Long-term municipal bonds	1.2		1.3		1.5
Long-term U.S. government agency bonds	6.9		6.8		2.1
Long-term certificates of deposit	2.4		2.1		2.9
Total long-term marketable securities	10.5		10.2
Total marketable securities	$	34.6	$	34.2