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~~



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 28, 2017~~

June 25, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-33296

NATIONAL CINEMEDIA, INC.

(Exact name of registrant as specified in its charter)

~~9110 East Nichols Avenue, Suite 200~~ ~~Centennial, Colorado~~		~~80112-3405~~

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒ ☐		Accelerated filer	☐ x

Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~	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 ~~method~~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 ☒

As of ~~November 2, 2017, 78,501,468~~July 31, 2020, 79,610,497 shares of the registrant’s common stock (including unvested restricted shares), par value of $0.01 per share, were outstanding.

TABLE OF CONTENTS

				~~Page~~

	~~PART I~~		Page
��
~~Item 1.~~	~~Financial Statements~~PART I		1

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 7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21 23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34 38
Item 4.	Controls and Procedures		35 38

	PART II

Item 1.	Legal Proceedings		35 39
Item 1A.	Risk Factors		35 39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36 40
Item 3.	Defaults Upon Senior Securities		36 41
Item 4.	Mine Safety Disclosures		36 41
Item 5.	Other Information		36 41
Item 6.	Exhibits		36 42

Signatures			37 43

PART I

~~PART~~ I

Item 1. Financial Statements

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

(UNAUDITED)

September 28,
2017

December 29,
2016

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
30.4

$
23.0

Short-term marketable securities

3.7

26.1

Receivables, net of allowance of $6.0 and $6.3, respectively

118.4

160.5

Prepaid expenses

4.1

3.1

Income tax receivable

0.4

2.4

Current portion of notes receivable - founding members

4.2

5.6

Other current assets

0.5

0.4

Total current assets

161.7

221.1

NON-CURRENT ASSETS:

Property and equipment, net of accumulated depreciation of $69.3 and $64.1,
   respectively

29.2

29.6

Intangible assets, net of accumulated amortization of $138.8 and $118.9, respectively

732.6

560.5

Deferred tax assets

199.0

209.1

Long-term notes receivable, net of current portion - founding members

8.3

8.3

Other investments

3.6

6.6

Long-term marketable securities

15.8

19.6

Debt issuance costs, net

1.4

1.9

Other assets

1.8

0.7

Total non-current assets

991.7

836.3

TOTAL ASSETS

$
1,153.4

$
1,057.4

LIABILITIES AND EQUITY/(DEFICIT)

CURRENT LIABILITIES:

Amounts due to founding members

$
24.0

$
42.7

Payable to founding members under tax receivable agreement

15.9

18.4

Accrued expenses

22.4

19.6

Accrued payroll and related expenses

9.7

12.2

Accounts payable

14.0

17.4

Deferred revenue

5.7

10.3

Total current liabilities

91.7

120.6

NON-CURRENT LIABILITIES:

Long-term debt, net of debt issuance costs of $9.2 and $10.7, respectively

910.8

924.3

Deferred tax liability

68.2

48.3

Income tax payable

0.4

2.0

Payable to founding members under tax receivable agreement

144.2

143.4

Total non-current liabilities

1,123.6

1,118.0

Total liabilities

1,215.3

1,238.6

COMMITMENTS AND CONTINGENCIES (NOTE 7)

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, 75,230,298 and
   59,874,412 issued and outstanding, respectively

0.8

0.6

Additional paid in capital/(deficit)

(111.6
)

(207.7
)
Retained earnings (distributions in excess of earnings)

(250.5
)

(215.6
)
Total NCM, Inc. stockholders’ equity/(deficit)

(361.3
)

(422.7
)
Noncontrolling interests

299.4

241.5

Total equity/(deficit)

(61.9
)

(181.2
)
TOTAL LIABILITIES AND EQUITY/DEFICIT

$
1,153.4

$
1,057.4



	June 25, 2020			December 26, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	245.4		$	55.9
Short-term marketable securities	1.5			17.5
Receivables, net of allowance of $3.2 and $6.2, respectively	26.7			170.8
Amounts due from founding members, net	—			6.6
Prepaid expenses and other current assets	4.1			3.5
Total current assets	277.7			254.3
NON-CURRENT ASSETS:
Property and equipment, net of accumulated depreciation of $75.6 and $70.7, respectively	29.9			33.2
Intangible assets, net of accumulated amortization of $211.0 and $198.9, respectively	640.5			643.7
Deferred tax assets, net of valuation allowance of $72.4 and $81.6, respectively	166.9			162.1
Other investments	1.0			1.0
Long-term marketable securities	3.0			7.5
Debt issuance costs, net	3.9			3.9
Other assets	25.0			24.3
Total non-current assets	870.2			875.7
TOTAL ASSETS	$	1,147.9		$	1,130.0
LIABILITIES AND EQUITY/(DEFICIT)
CURRENT LIABILITIES:
Amounts due to founding members, net	$	—		$	36.8
Payable to founding members under tax receivable agreement (including payables to related parties of $10.0 and $10.3, respectively)	14.2			14.2
Accrued expenses	18.8			22.1
Accrued payroll and related expenses	5.8			13.8
Accounts payable	12.3			20.7
Deferred revenue	7.7			7.6
Short-term debt	2.7			2.7
Other current liabilities	1.7			1.6
Total current liabilities	63.2			119.5
NON-CURRENT LIABILITIES:
Long-term debt, net of debt issuance costs of $8.7 and $9.0, respectively	1,050.9			923.9
Payable to founding members under tax receivable agreement (including payables to related parties of $134.7 and $133.5, respectively)	185.1			183.8
Other liabilities	23.7			24.0
Total non-current liabilities	1,259.7			1,131.7
Total liabilities	1,322.9			1,251.2
COMMITMENTS AND CONTINGENCIES (NOTE 8)
EQUITY/(DEFICIT):
NCM, Inc. Stockholders’ Equity/(Deficit):
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding, respectively	—			—
Common stock, $0.01 par value; 175,000,000 shares authorized, 78,000,338 and 77,568,986 issued and outstanding, respectively	0.8			0.8
Additional paid in capital/(deficit)	(209.1		)	(209.2		)
Retained earnings (distributions in excess of earnings)	(207.4		)	(171.1		)
Total NCM, Inc. stockholders’ equity/(deficit)	(415.7		)	(379.5		)
Noncontrolling interests	240.7			258.3
Total equity/(deficit)	(175.0		)	(121.2		)
TOTAL LIABILITIES AND EQUITY/(DEFICIT)	$	1,147.9		$	1,130.0

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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

Nine Months Ended

September 28,
2017

September 29,
2016

September 28,
2017

September 29,
2016

REVENUE (including revenue from founding members of
   $6.7, $7.6, $22.7 and $22.1, respectively)

$
116.4

$
113.5

$
285.4

$
305.1

OPERATING EXPENSES:

Advertising operating costs

8.9

7.5

21.4

20.8

Network costs

3.7

4.1

11.9

12.9

Theater access fees—founding members

18.1

19.2

57.4

56.8

Selling and marketing costs

17.2

16.8

54.2

54.5

Administrative and other costs

8.8

8.6

28.6

32.9

Depreciation and amortization

9.4

8.9

28.2

26.5

Total

66.1

65.1

201.7

204.4

OPERATING INCOME

50.3

48.4

83.7

100.7

NON-OPERATING EXPENSES:

Interest on borrowings

13.1

14.3

39.4

41.2

Interest income

(0.2
)

(0.3
)

(1.0
)

(1.3
)
Accretion of interest on the discounted payable to
   founding members under tax receivable agreement

3.2

3.4

9.5

10.4

Loss on early retirement of debt

—

10.4

—

10.4

Other non-operating income

—

—

(0.1
)

—

Total

16.1

27.8

47.8

60.7

INCOME BEFORE INCOME TAXES

34.2

20.6

35.9

40.0

Income tax expense (benefit)

2.3

(1.1
)

2.6

1.3

CONSOLIDATED NET INCOME

31.9

21.7

33.3

38.7

Less: Net income attributable to
   noncontrolling interests

22.5

13.5

27.4

28.0

NET INCOME ATTRIBUTABLE TO NCM, INC.

$
9.4

$
8.2

$
5.9

$
10.7

NET INCOME PER NCM, INC. COMMON SHARE:

Basic

$
0.15

$
0.14

$
0.10

$
0.18

Diluted

$
0.15

$
0.13

$
0.10

$
0.18

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic

63,993,273

59,846,496

61,637,445

59,763,012

Diluted

64,281,581

60,878,806

62,074,577

60,479,977

Dividends declared per common share

$
0.22

$
0.22

$
0.66

$
0.66



	Three Months Ended						Six Months Ended
	June 25, 2020			June 27, 2019			June 25, 2020			June 27, 2019
REVENUE (including revenue from related parties of $0.0, $6.5, $4.3 and $11.8, respectively)	$	4.0		$	110.2		$	68.7		$	187.1
OPERATING EXPENSES:
Advertising operating costs	1.1			9.9			7.3			17.2
Network costs	1.6			3.4			4.5			6.9
Theater access fees and revenue share to founding members (including fees to related parties of $0.0, $14.5, $12.5 and $27.4, respectively)	—			21.6			17.7			40.7
Selling and marketing costs	6.7			16.2			20.6			31.4
Administrative and other costs	7.4			11.1			17.2			21.8
Impairment of long-lived assets	1.7			—			1.7			—
Depreciation expense	3.2			3.3			6.4			6.6
Amortization of intangibles recorded for network theater screen leases	6.1			7.0			12.2			13.9
Total	27.8			72.5			87.6			138.5
OPERATING (LOSS) INCOME	(23.8		)	37.7			(18.9		)	48.6
NON-OPERATING EXPENSES:
Interest on borrowings	13.6			14.2			27.2			28.6
Interest income	(0.3		)	(0.5		)	(0.5		)	(1.0		)
Loss (gain) on modification and retirement of debt, net	0.3			—			0.3			(0.3		)
Loss on re-measurement of the payable to founding members under the tax receivable agreement	0.1			0.8			0.3			1.5
Other non-operating expense (income)	0.1			(0.1		)	—			(0.3		)
Total	13.8			14.4			27.3			28.5
(LOSS) INCOME BEFORE INCOME TAXES	(37.6		)	23.3			(46.2		)	20.1
Income tax (benefit) expense	(4.2		)	2.3			(4.6		)	1.7
CONSOLIDATED NET (LOSS) INCOME	(33.4		)	21.0			(41.6		)	18.4
Less: Net (loss) income attributable to noncontrolling interests	(19.6		)	12.1			(24.1		)	10.6
NET (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.	$	(13.8	)	$	8.9		$	(17.5	)	$	7.8
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.	$	(13.8	)	$	8.9		$	(17.5	)	$	7.8

NET (LOSS) INCOME PER NCM, INC. COMMON SHARE:
Basic	$	(0.18	)	$	0.11		$	(0.22	)	$	0.10
Diluted	$	(0.18	)	$	0.11		$	(0.22	)	$	0.10
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	77,995,951			77,343,093			77,879,959			77,261,435
Diluted	77,995,951			77,636,096			77,879,959			77,575,081

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions) (UNAUDITED)

Nine Months Ended

September 28,
2017

September 29,
2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Consolidated net income

$
33.3

38.7

Adjustments to reconcile consolidated net income to net cash provided by
   operating activities:

Deferred income tax expense

4.1

3.8

Depreciation and amortization

28.2

26.5

Non-cash share-based compensation

8.3

13.7

Accretion of interest on the discounted payable to founding members
   under tax receivable agreement

9.5

10.4

Impairment on investment

3.1

0.7

Amortization of debt issuance costs

2.0

2.0

Redemption premium paid and write-off of debt issuance costs related to
   redemption of Senior Notes due 2021

—

10.4

Reversal of tax contingency reserve

(1.7
)

(2.9
)
Other

(0.2
)

(0.1
)
Changes in operating assets and liabilities:

Receivables, net

42.1

16.0

Accounts payable and accrued expenses

(1.7
)

(7.9
)
Amounts due to founding members

(0.4
)

(0.7
)
Payment to founding members under tax receivable agreement

(17.3
)

(23.5
)
Deferred revenue

(4.6
)

5.1

Income taxes and other

(0.7
)

(1.3
)
Net cash provided by operating activities

104.0

90.9

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(7.7
)

(9.0
)
Acquisition of a business

(0.2
)

—

Purchases of marketable securities

(21.7
)

(45.0
)
Proceeds from sale and maturities of marketable securities

48.4

50.5

Purchases of intangible assets from network affiliates

(1.7
)

(1.6
)
Proceeds from notes receivable - founding members

1.4

—

Net cash provided by (used in) investing activities

18.5

(5.1
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of dividends

(42.1
)

(41.4
)
Proceeds from borrowings under the revolving credit facility

60.0

105.0

Repayments of borrowings under the revolving credit facility

(75.0
)

(168.0
)
Proceeds from issuance of Senior Notes due 2026

—

250.0

Redemption of Senior Notes due 2021

—

(207.9
)
Payment of debt issuance costs

—

(4.7
)
Founding member integration and other encumbered theater payments

6.1

1.7

Distributions to founding members

(60.1
)

(42.2
)
Proceeds from stock option exercises

0.6

0.4

Repurchase of stock for restricted stock tax withholding

(4.6
)

(4.8
)
Net cash used in financing activities

(115.1
)

(111.9
)
CHANGE IN CASH AND CASH EQUIVALENTS

7.4

(26.1
)
Cash and cash equivalents at beginning of period

23.0

31.7

Cash and cash equivalents at end of period

$
30.4

$
5.6



	Six Months Ended
	June 25, 2020			June 27, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net (loss) income	$	(41.6	)	$	18.4
Adjustments to reconcile consolidated net (loss) income to net cash provided by operating activities:
Deferred income tax (benefit) expense	(4.5		)	1.5
Depreciation expense	6.4			6.6
Amortization of intangibles recorded for network theater screen leases	12.2			13.9
Non-cash share-based compensation	0.3			2.8
Impairment of long-lived assets	1.7			—
Amortization of debt issuance costs	1.2			1.3
Loss (gain) on modification and retirement of debt, net	0.3			(0.3		)
Non-cash loss on re-measurement of the payable to founding members under the tax receivable agreement	0.3			1.6
Other	—			(1.0		)
Proceeds from disposition of intangible assets by network affiliates	—			0.5
Founding member integration and other encumbered theater payments (including payments from related parties of $0.1 and $0.6, respectively)	9.7			10.6
Payment to the founding members under tax receivable agreement (including payments to related parties of $0.0 and $9.8, respectively)	—			(13.9		)
Other cash flows from operating activities	(0.2		)	—
Changes in operating assets and liabilities:
Receivables, net	147.3			25.0
Accounts payable and accrued expenses	(17.9		)	(8.9		)
Amounts due to/from founding members, net	(6.2		)	0.7
Deferred revenue	0.1			3.4
Other, net	(1.7		)	(2.9		)
Net cash provided by operating activities	107.4			59.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(5.2		)	(6.8		)
Purchases of marketable securities	(8.2		)	(5.4		)
Proceeds from sale and maturities of marketable securities	28.9			21.4
Proceeds from notes receivable - founding members (including payments from related parties of $0.0 and $1.4, respectively)	—			1.4
Net cash provided by investing activities	15.5			10.6
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends	(21.0		)	(27.2		)
Proceeds from revolving credit facility	210.0			71.0
Repayments of revolving credit facility	(82.0		)	(71.0		)
Repayment of term loan facility	(1.4		)	(1.4		)
Repayment of Senior Notes due 2026	—			(4.6		)
Payment of debt issuance costs	(1.2		)	—
Distributions to founding members	(36.8		)	(34.0		)
Repurchase of stock for restricted stock tax withholding	(1.0		)	(1.3		)
Net cash provided by (used in) financing activities	66.6			(68.5		)
CHANGE IN CASH AND CASH EQUIVALENTS:	189.5			1.4
Cash and cash equivalents at beginning of period	55.9			41.4
Cash and cash equivalents at end of period	$	245.4		$	42.8

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In millions)

(UNAUDITED)

Nine Months Ended

September 28,
2017

September 29,
2016

Supplemental disclosure of non-cash financing and investing activity:

Purchase of an intangible asset with NCM LLC equity
$
201.8

$
21.1

Accrued distributions to founding members
$
27.2

$
25.3

Purchase of subsidiary equity with NCM, Inc. equity
$
77.8

$
—

Decrease in dividends not requiring cash in the period
$
(1.3
)

$
(0.4
)
Increase in cost and equity method investments
$
—

$
2.0

Supplemental disclosure of cash flow information:

Cash paid for interest
$
34.9

$
38.0

Cash paid for income taxes, net of refunds
$
1.5

$
0.5



	Six Months Ended
	June 25, 2020			June 27, 2019
Supplemental disclosure of non-cash financing and investing activity:
Purchase of an intangible asset with NCM LLC equity	$	10.5		$	7.6
Accrued distributions to founding members (including accrued distributions to related parties of $0.0 and $15.4, respectively)	$	—		$	15.4
Accrued integration and other encumbered theater payments due from founding members (including accrued payments due from related parties of $0.0 and $0.2, respectively)	$	—		$	5.3
(Decrease) increase in dividend equivalent accrual not requiring cash in the period	$	(0.3	)	$	0.4
Supplemental disclosure of cash flow information:
Cash paid for interest	$	27.0		$	27.3
Cash paid for income taxes, net of refunds	$	0.3		$	0.1

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)

(In millions, except share and per share data)

(UNAUDITED)

NCM, Inc.

Retained

Additional

Earnings

Paid in

(Distribution

Common Stock

Capital

in Excess of

Noncontrolling

Consolidated

Shares

Amount

(Deficit)

Earnings)

Interest

Balance—December 31, 2015

$
(171.7
)

59,239,154

$
0.6

$
(221.5
)

$
(186.1
)

$
235.3

Distributions to founding members

(35.2
)

—

—

—

—

(35.2
)
NCM LLC equity issued for purchase
   of intangible asset

21.1

—

—

9.2

—

11.9

Income tax and other impacts of NCM
   LLC ownership changes

(2.8
)

—

—

(4.2
)

—

1.4

Comprehensive income, net of tax

38.7

—

—

—

10.7

28.0

Share-based compensation issued

(4.4
)

614,652

—

(4.4
)

—

—

Share-based compensation
   expense/capitalized

14.0

—

—

9.4

—

4.6

Cash dividends declared $0.66 per share

(41.0
)

—

—

—

(41.0
)

—

Balance— September 29, 2016

$
(181.3
)

59,853,806

$
0.6

$
(211.5
)

$
(216.4
)

$
246.0

Balance—December 29, 2016

$
(181.2
)

59,874,412

$
0.6

$
(207.7
)

$
(215.6
)

$
241.5

Distributions to founding members

(47.4
)

—

—

—

—

(47.4
)
NCM LLC equity issued for purchase
   of intangible asset

201.8

—

—

78.8

—

123.0

Income tax and other impacts of NCM
   LLC ownership changes

(32.2
)

—

—

16.2

—

(48.4
)
Issuance of shares

77.8

14,600,000

0.2

77.6

—

—

NCM, Inc. investment in NCM LLC

(77.8
)

—

—

(77.8
)

—

—

Comprehensive income, net of tax

33.3

—

—

—

5.9

27.4

Share-based compensation issued

(4.0
)

755,886

—

(4.0
)

—

—

Share-based compensation
   expense/capitalized

8.6

—

—

5.3

—

3.3

Cash dividends declared $0.66 per share

(40.8
)

—

—

—

(40.8
)

—

Balance—September 28, 2017

$
(61.9
)

75,230,298

$
0.8

$
(111.6
)

$
(250.5
)

$
299.4

~~See accompanying notes to Condensed Consolidated Financial Statements.~~



				NCM, Inc.
							Additional Paid in Capital (Deficit)			Retained Earnings (Distribution in Excess of Earnings)			Noncontrolling Interest
				Common Stock
	Consolidated			Shares	Amount
Balance—March 28, 2019	$	(104.7	)	77,318,971	$	0.8	$	(213.6	)	$	(168.0	)	$	276.1
Distributions to founding members	(15.4		)	—	—		—			—			(15.4		)
Income tax and other impacts of NCM LLC ownership changes	0.1			—	—		0.1			—			—
Comprehensive income, net of tax	21.0			—	—		—			8.9			12.1
Share-based compensation issued	(0.1		)	30,657	—		(0.1		)	—			—
Share-based compensation expensed/capitalized	2.1			—	—		1.7			—			0.4
Cash dividends declared $0.17 per share	(13.5		)	—	—		—			(13.5		)	—
Balance—June 27, 2019	$	(110.5	)	77,349,628	$	0.8	$	(211.9	)	$	(172.6	)	$	273.2

Balance—March 26, 2020	$	(136.3	)	77,973,648	$	0.8	$	(209.1	)	$	(188.3	)	$	260.3
Income tax and other impacts of NCM LLC ownership changes	—			—	—		0.1			—			(0.1		)
Comprehensive loss, net of tax	(33.4		)	—	—		—			(13.8		)	(19.6		)
Share-based compensation issued	(0.1		)	26,690	—		(0.1		)	—			—
Share-based compensation expensed/capitalized	0.1			—	—		—			—			0.1
Cash dividends declared $0.07 per share	(5.3		)	—	—		—			(5.3		)	—
Balance—June 25, 2020	$	(175.0	)	78,000,338	$	0.8	$	(209.1	)	$	(207.4	)	$	240.7

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)

(In millions, except share and per share data)

(UNAUDITED)



				NCM, Inc.
							Additional Paid in Capital (Deficit)			Retained Earnings (Distribution in Excess of Earnings)			Noncontrolling Interest
				Common Stock
	Consolidated			Shares	Amount
Balance—December 27, 2018	$	(89.2	)	76,976,398	$	0.8	$	(215.2	)	$	(153.6	)	$	278.8
Distributions to founding members	(21.5		)	—	—		—			—			(21.5		)
NCM LLC equity issued for purchase of intangible asset	7.6			—	—		3.7			—			3.9
Income tax and other impacts of NCM LLC ownership changes	(0.6		)	—	—		(1.3		)	—			0.7
Comprehensive income, net of tax	18.4			—	—		—			7.8			10.6
Share-based compensation issued	(1.3		)	373,230	—		(1.3		)	—			—
Share-based compensation expensed/capitalized	2.9			—	—		2.2			—			0.7
Cash dividends declared $0.34 per share	(26.8		)	—	—		—			(26.8		)	—
Balance—June 27, 2019	$	(110.5	)	77,349,628	$	0.8	$	(211.9	)	$	(172.6	)	$	273.2

Balance—December 26, 2019	$	(121.2	)	77,568,986	$	0.8	$	(209.2	)	$	(171.1	)	$	258.3
Cumulative-effect adjustment for adoption of ASU 2016-13, net of tax	2.9			—	—		—			1.2			1.7
Distributions to founding members	(4.4		)	—	—		—			—			(4.4		)
NCM LLC equity issued for purchase of intangible asset	10.5			—	—		5.0			—			5.5
Income tax and other impacts of NCM LLC ownership changes	(0.5		)	—	—		(3.9		)	—			3.4
Comprehensive loss, net of tax	(41.6		)	—	—		—			(17.5		)	(24.1		)
Share-based compensation issued	(1.0		)	431,352	—		(1.0		)	—			—
Share-based compensation expensed/capitalized	0.3			—	—		—			—			0.3
Cash dividends declared $0.26 per share	(20.0		)	—	—		—			(20.0		)	—
Balance—June 25, 2020	$	(175.0	)	78,000,338	$	0.8	$	(209.1	)	$	(207.4	)	$	240.7

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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~~company. NCM LLC is currently owned by NCM, Inc.~~, American Multi-Cinema, Inc. and AMC ShowPlace Theatres, Inc., wholly owned subsidiaries of AMC Entertainment, Inc. (“AMC”)~~, Regal Cinemas, Inc. and Regal CineMedia ~~Holdings, LLC,~~Corporation, wholly owned subsidiaries of Cineworld Group plc and Regal Entertainment Group (“Regal”) ~~and~~, 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 ~~digital in-theater~~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 19 years remaining as of September 28, 2017)~~ and certain third-party theater circuits, referred to in this document as “network affiliates” under long-term network affiliate ~~agreements, which have terms from one~~agreements. Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed to ~~twenty years.~~

address the COVID-19 Pandemic. As of June 25, 2020, almost all of the theaters within our network remained closed. The Company was unable to advertise in the theaters, and thus did not generate any in-theater revenue, during the three months ended June 25, 2020 and are not able to advertise in theaters for the duration of time that the theaters remain closed.

On September ~~28, 2017,~~17, 2019, NCM LLC entered into amendments to the ESAs with Cinemark and Regal (collectively, the “2019 ESA Amendments”). The 2019 ESA Amendments extended the contract life of the ESAs with Cinemark and Regal by four years resulting in a weighted average remaining term of the ESAs with the founding members (based on attendance) of approximately 19.3 years as of June 25, 2020. The network affiliate agreements expire at various dates between September 2020 and July 2031. The weighted average remaining term (based on 2019 attendance) of the ESAs and the network affiliate agreements together is 16.8 years as of June 25, 2020.

As of June 25, 2020, NCM LLC had ~~154,069,410~~162,531,666 common membership units outstanding, of which ~~75,230,298 (48.8%~~78,000,338 (48.0%) were owned by NCM, Inc., ~~27,871,862 (18.1%~~42,290,694 (26.0%) were owned by Regal, 40,850,068 (25.1%) were owned by Cinemark ~~27,574,620 (17.9%) were owned by Regal~~ and ~~23,392,630 (15.2%~~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~~1-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”). ~~Accordingly, certain~~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 ~~29, 2016~~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 ~~29, 2016.~~

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~~Historically, the Company’s business ishas been seasonal and for this and other reasons operating results for interim periods ~~may~~have not bebeen indicative of the Company’s full year results or future performance. Given the temporary closure of the theaters within the Company's network, management expects the Company's 2020 quarterly results to vary from historical trends. As a result of the various related party agreements discussed in Note 4—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~~1 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.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Significant estimates include those related to the reserve for uncollectible accounts receivable, share-based compensation and income taxes. Actual results could differ from those estimates.

Significant Accounting Policies

The Company’s annual financial statements included in its Form 10-K filed for the fiscal year ended December ~~29, 2016~~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 is reduced by transacting with founding members or large, national~~ advertising agencies ~~who 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 smaller companies sometimes with less credit history, represent smaller receivable balances per customer and higher historical and expected credit loss patterns. The Company has smaller contracts with thousands of local clients that are not individually significant. The Company also considers current economic conditions and trends to determine whether adjustments to historical loss rates are necessary. The Company increased the expected rate of default related to local and regional customers within the calculation of the allowance for doubtful accounts as of June 25, 2020 given the adverse impact of the COVID-19 Pandemic on certain businesses, in particular, categories of small businesses (i.e. restaurants, travel, etc.) which the Company expects could lead to an increased rate of default. The Company also reserves for specific receivable balances that it expects to write off based on known concerns regarding the financial health of the customer. Receivables arewritten off when management determines amounts are uncollectible.

As of ~~September 28, 2017~~June 25, 2020 and December ~~29, 2016,~~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 nine~~ months ended ~~September 28, 2017~~June 25, 2020, the Company had 1 customer that accounted for approximately 18% of the Company's revenue. During the six months ended June 25, 2020 and ~~September 29, 2016,~~the three and six months ended June 27, 2019, the Company had no customers that accounted for more than 10% of revenue.

Long-lived Assets—The Company assesses impairment of long-lived assets pursuant to ASC 360 – Property, Plant and Equipment. This includes determining whether certain triggering events have occurred that could affect the value of an asset. The Company recorded losses of $1.7 million, $0.0 million, $1.7 million and $0.0 million related to the write-off of certain internally developed software during the three months ended June 25, 2020 and June 27, 2019 and the six months ended June 25, 2020 and June 27, 2019, respectively.

Share-Based Compensation—The Company has issued stock options and restricted stock to certain employees and restricted stock units to its independent directors. The ~~Company has not granted stock options since 2012. In 2016 and 2017, the~~ restricted stock grants for Company ~~officers~~management vest upon the achievement of Company performance measures and/or service conditions, while ~~non-officer~~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 ~~and nine~~ months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016, 20,204, 15,492, 1,028,322~~June 27, 2019 and ~~909,322~~the six months ended June 25, 2020 and June 27, 2019, 33,378, 37,699, 557,681 and 549,695 shares of restricted stock and restricted stock units vested, respectively. During the three and nine months ended September 28, 2017 and three and nine months ended September 29, 2016, 0, 7,078, 58,450 and 30,528 stock options were exercised at a weighted average exercise price of $0, $12.86, $11.04 and $12.98 per share, 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,

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Inc. and transfers to or from noncontrolling interests (in millions):

Nine Months Ended

September 28,
2017

September 29,
2016

Net income attributable to NCM, Inc.

$
5.9

$
10.7

NCM LLC equity issued for purchase of intangible asset

78.8

9.2

Income tax and other impacts of subsidiary ownership
changes (1)

16.2

(4.2
)
Change from net income attributable to NCM, Inc. and
transfers from noncontrolling interests

$
100.9

$
15.7



	Three Months Ended					Six Months Ended
	June 25, 2020			June 27, 2019		June 25, 2020			June 27, 2019
Net (loss) income attributable to NCM, Inc.	$	(13.8	)	$	8.9	$	(17.5	)	$	7.8
NCM LLC equity issued for purchase of intangible asset	—			—		5.0			3.7
Income tax and other impacts of subsidiary ownership changes	0.1			0.1		(3.9		)	(1.3		)
Change from net (loss) income attributable to NCM, Inc. and transfers from noncontrolling interests	$	(13.7	)	$	9.0	$	(16.4	)	$	10.2

~~(1)~~

Subsequent to the issuance of the December 29, 2016 financial statements, an error was identified to the recording of related party balances between the Company and NCM LLC. As of September 28, 2017, the Company recorded an increase of approximately $3.6 million to its additional paid in capital balance and recorded an equivalent reduction to its noncontrolling interests equity balance related to the correction of out of period errors.

Recently Adopted Accounting Pronouncements

During the first quarter of ~~2017,~~2020, the Company adopted Accounting Standards Update ~~2016-07,~~ ~~Investments- Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting~~ (“ASU 2016-07”) on a prospective basis. ASU 2016-07 eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. The adoption of ASU 2016-07 did not have a material impact on the unaudited Condensed Consolidated Financial Statements or notes thereto.

~~In the first quarter of 2017, the Company adopted Accounting Standards Update 2016-17,~~ ~~Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control~~ ~~(“ASU 2016-17”) on a retrospective basis to all periods since its adoption of Accounting Standards Update 2015-02,~~ ~~Consolidation (Topic 810): Amendments to the Consolidation Analysis~~ ~~(“ASU 2015-02”) in the first quarter of 2016. ASU 2016-17 changes the evaluation of whether a~~

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. If a reporting entity satisfies the first characteristic of a primary beneficiary (such that it is the single decision maker of a variable interest entity), the amendments require that reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a variable interest entity and, on a proportionate basis, its indirect variable interests in a variable interest entity held through related parties, including related parties that are under common control with the reporting entity. The adoption of ASU 2016-17 did not have a material impact on the Condensed Consolidated Financial Statements or notes thereto.

~~Recently Issued Accounting Pronouncements~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. The new revenue recognition standard requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB revised the effective date for this standard to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning after December 15, 2016, for public entities. ASU 2014-09 allows for either a full retrospective or a modified retrospective transition method. The Company expects to adopt this guidance using the modified retrospective transition method during the first quarter of 2018. The Company expects to identify the same performance obligations under ASU 2014-09 as compared with deliverables and separate units of account previously identified. ASU 2014-09 will impact the accounting for barter transactions where the Company exchanges advertising time for products and services used principally for selling and marketing activities. The Company currently recognizes revenue for these transactions at the estimated fair value of the advertising exchanged based on the fair value received for similar advertising from cash paying customers. Under the new guidance, the Company expects to recognize revenue for these transactions based upon the fair value of the products and services received, rather than the value of the advertising provided. The Company has evaluated ASU 2014-09 and does not expect the effect of adopting this guidance to be material to the unaudited Condensed Consolidated Financial Statements, however, the Company does expect additional disclosures in its notes to the unaudited Condensed Consolidated Financial Statements. The Company intends to design and implement changes to certain processes and internal controls related to its adoption of ASU 2014-09.

~~In January 2016, the FASB issued Accounting Standards Update 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ (“ASU 2016-01”), which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in earnings (rather than reported through other comprehensive income) and updates certain presentation and disclosure requirements. The guidance is effective for reporting periods (interim and annual) beginning after December 15, 2017, for public companies and should be adopted on a prospective basis. The Company is currently evaluating the impact that adopting this guidance will have on the unaudited Condensed Consolidated Financial Statements or notes thereto.

~~In February 2016, the FASB issued Accounting Standards Update 2016-02,~~ ~~Leases (Topic 842)~~ (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that adopting this guidance will have on the unaudited Condensed Consolidated Financial Statements or notes thereto.

~~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 on December 27, 2019, the Company recorded a $3.2 million cumulative-effect adjustment to retained earnings related to the change in methodology surrounding the historical losses utilized in the calculation of the allowance for credit losses related to trade and unbilled accounts receivable reducing the allowance to $3.0 million as of the adoption date. The Company also recorded a corresponding $0.4 million reduction to the corresponding deferred tax asset with the offset also recorded to retained earnings. The other impacts upon adoption were immaterial to the unaudited Condensed Consolidated Financial Statements. The Company has incorporated additional disclosures in Note 1—The Company, Note 2—Revenue from Contracts with Customers and Accounts Receivable and Note 9—Fair Value Measurements to its Condensed Consolidated Financial Statements to comply with ASU 2016-13. The Company has also designed and implemented changes to certain processes and internal controls related to its adoption of ASU 2016-13.

During the first quarter of 2020, the Company adopted Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements. The Company adoption of ASU 2018-13 did not have a material impact on the unaudited Condensed Consolidated Financial Statements or notes thereto.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes the following exceptions for the Company to analyze in a given period: the exception to the incremental approach for intraperiod tax allocation; the exception to accounting for basis differences when there are ownership changes in foreign investments; and the exception in interim periods income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted and is to be adopted on a modified retrospective basis. The Company is currently evaluating the impact that adopting this guidance will have on the unaudited Condensed Consolidated Financial Statements or notes thereto.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~In August 2016, the FASB issued Accounting Standards Update 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (“ASU 2016-15”), which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017,2020, including interim periods within those fiscal years, with early adoption permitted. A retrospective transition method should be used in the application of the amendments within ASU 2016-15. If retrospective application is considered impracticable, retrospective application may be used as of the earliest date practicable. The Company is currently evaluating the impact that adopting this guidance will have on the Condensed Consolidated Financial Statements or notes thereto.

~~In November 2016, the FASB issued Accounting Standards Update 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ (“ASU 2016-18”), which requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will have to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of ~~ASU 2016-18~~this guidance to have a material impact on the unaudited Condensed Consolidated Financial Statements or notes thereto.

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (“ASU 2020-04”), which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and ASU 2020-04 on the Company’s unaudited Condensed Consolidated Financial Statements.

The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its unaudited Condensed Consolidated Financial Statements or notes thereto.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS AND ACCOUNTS RECEIVABLE

Revenue Recognition

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company derives revenue principally from the sale of advertising to national, regional and local businesses in Noovie, the Company’s cinema advertising and entertainment pre-show. The Company also sells advertising through the LEN, a series of strategically placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies. In addition, the Company sells online and mobile advertising through Cinema Accelerator and NCM's digital gaming products including Noovie ARcade,Name That Movie, Noovie Shuffle and Fantasy Movie League, which can be played on the mobile apps or at Noovie.com. The Company also has a long-term agreement to exhibit the advertising of the founding members’ beverage suppliers.

The Company makes contractual guarantees to deliver a specified number of impressions to view the customers’ advertising. If the contracted number of impressions are not delivered, the Company will run additional advertising to deliver the contracted impressions at a later date. The deferred portion of the revenue associated with undelivered impressions is referred to as a make-good provision. The Company defers the revenue associated with the make-good until the advertising airs to the theater attendance specified in the advertising contract. The make-good provision is recorded within accrued expenses in the unaudited Condensed Consolidated Balance Sheet. As of June 25, 2020 and December 26, 2019, the Company had a make-good provision of $6.3 million and $8.7 million, respectively.

The Company does not have any contracts with customers with terms in excess of one year that are noncancelable as of June 25, 2020. Agreements with a duration less than one year are not included within this disclosure as the Company elected to use the practical expedient in ASC 606-10-50-14 for those contracts. In addition, other of the Company’s contracts longer than one year that are cancelable are not included within this disclosure.

Disaggregation of Revenue

The Company disaggregates revenue based upon the type of customer: national, local, regional and beverage concessionaire. This method of disaggregation is in alignment with how revenue is reviewed by management and discussed with and historically disclosed to investors.

The following table summarizes revenue from contracts with customers for the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 (in millions):



	Three Months Ended				Six Months Ended
	June 25, 2020		June 27, 2019		June 25, 2020		June 27, 2019
National and regional advertising revenue	$	1.7	$	84.3	$	51.5	$	141.7
Local advertising revenue	2.3		17.7		11.7		30.5
Founding member advertising revenue from beverage concessionaire agreements	—		8.2		5.5		14.9
Total revenue	$	4.0	$	110.2	$	68.7	$	187.1

Deferred Revenue and Unbilled Accounts Receivable

The changes in deferred revenue for the six months ended June 25, 2020 were as follows (in millions):



	Six Months Ended
	June 25, 2020
Balance at beginning of period	$	(7.6	)
Performance obligations satisfied	5.4
New contract liabilities	(5.5		)
Balance at end of period	$	(7.7	)

As of June 25, 2020 and December 26, 2019, the Company had $2.2 million and $8.0 million in unbilled accounts receivable, respectively.

Allowance for Doubtful Accounts

The allowance for doubtful accounts balance is determined separately for each pool of the Company's receivables with similar risk characteristics. The Company has determined that two pools, national customers and local/ regional customers, is appropriate. The changes within the allowance for doubtful accounts balances for the six months ended June 25, 2020 were as follows (in millions):

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Six Months Ended
	June 25, 2020
	Allowance for National Customer Receivables			Allowance for Local/ Regional Customer Receivables
Balance at beginning of period	$	1.1		$	1.9
Provision for bad debt	(0.6		)	1.3
Write-offs, net	(0.1		)	(0.4		)
Balance at end of period	$	0.4		$	2.8

3. (LOSS) EARNINGS PER SHARE

Basic ~~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 ~~earnings~~loss per NCM, Inc. share are as follows:

	Three Months Ended				Nine Months Ended
	September 28, 2017		September 29, 2016		September 28, 2017		September 29, 2016
Net income attributable to NCM, Inc. (in millions)	$	9.4	$	8.2	$	5.9	$	10.7
									Three Months Ended					Six Months Ended
									June 25, 2020			June 27, 2019		June 25, 2020			June 27, 2019
Net (loss) income attributable to NCM, Inc. (in millions)									$	(13.8	)	$	8.9	$	(17.5	)	$	7.8
Weighted average shares outstanding:
Basic		63,993,273		59,846,496		61,637,445		59,763,012	77,995,951			77,343,093		77,879,959			77,261,435
Add: Dilutive effect of stock options and restricted stock		288,308		1,032,310		437,132		716,965
Add: Dilutive effect of stock options, restricted stock and exchangeable membership units									—			293,003		—			313,646
Diluted		64,281,581		60,878,806		62,074,577		60,479,977	77,995,951			77,636,096		77,879,959			77,575,081
Income per NCM, Inc. share:
(Loss) earnings per NCM, Inc. share:
Basic	$	0.15	$	0.14	$	0.10	$	0.18	$	(0.18	)	$	0.11	$	(0.22	)	$	0.10
Diluted	$	0.15	$	0.13	$	0.10	$	0.18	$	(0.18	)	$	0.11	$	(0.22	)	$	0.10

The effect of ~~90,069,881, 77,320,333, 87,769,713~~84,531,328, 81,705,487, 83,252,384 and ~~76,920,803~~81,263,513 weighted average exchangeable NCM LLC common units held by the founding members for the three ~~and nine~~ months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016,~~June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, respectively, have been excluded from the calculation of diluted weighted average shares and ~~earnings~~loss per NCM, Inc. share as they were ~~antidilutive.~~anti-dilutive. NCM LLC common units do not participate in dividends paid on NCM, ~~Inc’s~~Inc.’s common stock. In addition, there were ~~935,912, 11,801, 433,224~~3,777,240, 1,969,086, 3,777,240 and ~~26,387~~2,125,728 stock options and non-vested (restricted) shares for the three ~~and nine~~ months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016,~~June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, respectively, excluded from the calculation as they were ~~antidilutive.~~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.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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 ~~the~~ fair market value of NCM, Inc.’s publicly traded stock as of the date on which the common membership units were issued. The NCM LLC common membership units are fully convertible into NCM, Inc.’s common stock. In addition, the Company records intangible assets for up-front fees paid to network affiliates upon commencement of a network affiliate agreement. The Company’s intangible assets have a finite useful life and the Company amortizes the assets over the remaining useful life corresponding with the ESAs or the term of the network affiliate agreement.

The Company determined that recent adverse changes in macroeconomic trends, reduced cash flows as a consequence of the temporary closure of the theaters within the Company's network in response to the outbreak of the COVID-19 Pandemic, a decline in the fair value of NCM LLC’s debt and the further sustained decline in the market price of NCM, Inc.'s common stock as of June 25, 2020 constituted a triggering event for certain of its intangible assets under Accounting Standards Certification No. 360, Impairment and Disposal of Long-Lived Assets. Management considered possible scenarios in a probability-weighted estimated future undiscounted cash flow analysis, including the potential extension of or a later recurrence of the temporary theater closures due to the COVID-19 Pandemic and potential adverse impacts to NCM LLC's founding members' and affiliates' financial liquidity related to the COVID-19 Pandemic theater closures. The estimated future

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

cash flows from the affiliate agreements and ESAs calculated within the probability-weighted analyses were in excess of the net book value of these intangible assets and thus, no impairment charges were recorded for the three and six months ended June 25, 2020. Such analysis required management to make estimates and assumptions based on historical data and consideration of future market conditions. Given the uncertainty inherent in any projection, heightened by the possibility of unforeseen additional effects of the COVID-19 Pandemic, including potential adverse impacts to NCM LLC's founding members' and affiliates' financial liquidity, actual results may differ from the estimates and assumptions used, or conditions may change, which could result in impairment charges in the future.

Common Unit Adjustments—In accordance with NCM LLC’s Common Unit Adjustment Agreement with its founding members, on an annual basis NCM LLC determines the amount of common membership units to be issued to or returned by the founding members based on theater additions or dispositions during the previous year. In addition, NCM LLC’s Common Unit Adjustment Agreement requires that a Common Unit Adjustment occur for a specific founding member if its acquisition or disposition of theaters, in a single transaction or cumulatively since the most recent Common Unit Adjustment, results in an attendance increase or decrease in excess of ~~two~~2 percent of the annual total attendance at the prior adjustment date.

During the first quarter of ~~2017,~~2020, NCM LLC issued ~~2,351,029~~3,022,959 common membership units to its founding members for the rights to exclusive access to the theater screens and attendees added, net of dispositions by the founding members to NCM LLC’s network during the ~~2016~~2019 fiscal ~~year. Also during the first quarter of 2017, NCM, Inc.~~year and ~~NCM LLC entered into a binding Memorandum of Understanding (“MOU”) with AMC to effectuate aspects of~~ a final judgment (the “Final Judgment”) entered into by the Department of Justice (the “DOJ”) in connection with AMC’s acquisition of Carmike Cinemas, Inc. (“Carmike”). Pursuant to the MOU, the Company issued ~~18,425,423 NCM LLC~~ ~~common membership units to AMC in respect of the annual attendance at such Carmike theaters in accordance with the Common Unit Adjustment Agreement during the first quarter of 2017.~~ ~~AMC’s acquisition of Carmike meets the criteria for a Common Unit Adjustment because it resulted in an extraordinary attendance increase of approximately 9.5%.~~ Further, the Final Judgment required AMC to transfer advertising rights to 17 theaters from NCM LLC to another advertising provider. Pursuant to the MOU, AMC surrendered 4,657,673 NCM LLC common membership units in respect of such theaters. The 4,657,673 NCM LLC common membership units were comprised of (i) 2,850,453 NCM LLC common membership units pursuant to the adjustment for divested theaters in the Common Unit Adjustment Agreement and (ii) an additional 1,807,220 NCM LLC common membership units valued at $25.0 million ~~to compensate for NCM LLC’s lost operating income for these theaters during the 10-year term of the Final Judgment~~. To facilitate the theater transfers, during the first quarter of 2017, AMC and Regal entered into an amendment of its ESA with NCM LLC and Cinemark entered into a waiver of certain rights under its ESA. NCM LLC recorded a net intangible asset of ~~$201.8~~$10.5 million during the first quarter of ~~2017 related to these transactions.~~

2020 as a result of the Common Unit Adjustment.

During the first quarter of ~~2016,~~2019, NCM LLC issued ~~1,416,515~~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 ~~2015~~2018 fiscal year and NCM LLC recorded a net intangible asset of ~~$21.1~~$7.6 million during the first quarter of ~~2016~~2019 as a result of the Common Unit Adjustment.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Integration Payments and Other Encumbered Theater Payments—If an existing on-screen advertising agreement with an alternative provider is in place with respect to any acquired theaters (“encumbered theaters”), the founding members may elect to receive common membership units related to those encumbered theaters in connection with the Common Unit Adjustment. If the founding members make this election, then they are required to make payments on a quarterly basis in arrears in accordance with certain run-out provisions pursuant to the ESAs (“integration payments”). Because the Carmike Cinemas, Inc. (“Carmike”) theaters acquired by AMC are subject to an existing on-screen advertising agreement with an alternative provider, AMC will make integration payments to NCM LLC. The integration payments will continue until the earlier of (i) the date the theaters are transferred to NCM LLC’s network or (ii) the expiration of the ESA. In 2019, AMC and Cinemark also made integration payments to NCM LLC related to their respective acquisitions of theaters from Rave Cinemas. The advertising agreements with an alternative provider for these theaters ended during 2019 and the theaters were transferred to our network. Integration payments are no longer due related to these theaters. Integration payments are calculated based upon the advertising cash flow that the Company would have generated if it had exclusive access to sell advertising in the theaters with pre-existing advertising agreements. The ~~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 ~~and nine~~ months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016,~~June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, the Company recorded a reduction to net intangible assets of ~~$6.9~~$0.0 million, ~~$0.7~~$5.7 million, ~~$11.6~~$1.4 million and ~~$1.5~~$8.1 million, respectively, related to integration and other encumbered theater payments. ~~These~~Because the encumbered theaters were temporarily closed during the three months ended June 25, 2020, no advertising cash flows could have been generated from the encumbered theaters during the period if the theaters were within NCM LLC's network and thus no integration payments ~~received from AMC related to their acquisitions of theaters from Carmike and Rave Cinemas and from Cinemark related to their acquisition of theaters from Rave Cinemas.~~were earned during the three months ended June 25, 2020. During the three ~~and nine~~ months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016,~~June 27, 2019 and six months ended June 25, 2020 and June 27, 2019, AMC and Cinemark paid a total of ~~$4.6~~$1.2 million, ~~$0.7~~$2.5 million, ~~$6.1~~$9.7 million and ~~$1.7~~$10.6 million respectively, in integration and other encumbered theater payments (as payments are made one quarter and one month in arrears, respectively). The payments received during the three and six months ended June 25, 2020 primarily relate to AMC's acquisition of theaters from Carmike. The payments received during the three and six months ended June 27, 2019 relate to AMC's acquisitions of theaters from Carmike and Rave Cinemas and from Cinemark related primarily to its acquisition of theaters from Rave Cinemas. If common membership units are issued to a founding member for newly acquired theaters that are subject to an existing on-screen advertising agreement with an alternative provider, the amortization of the intangible asset commences after the existing agreement expires and NCM LLC can utilize the theaters for all of its services.

5. RELATED PARTY TRANSACTIONS

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Founding Member Transactions—In connection with NCM, Inc.’s initial public offering (“IPO”), the Company entered into several agreements to define and regulate the relationships among NCM, Inc., NCM LLC and the founding ~~members. They include the following:~~

~~ESAs.~~ ~~Under the ESAs,~~members which are outlined below. As AMC owns less than 5% of NCM LLC as of June 25, 2020, AMC is no longer a related party. AMC remains a party to the ~~exclusive provider within~~ESA, Common Unit Adjustment Agreement, Tax Receivable Agreement (“TRA”) and certain other original agreements and is a member under the ~~United States~~terms of ~~advertising services~~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 ~~founding members’ theaters (subject~~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 ~~pre-existing contractual obligations~~pay beverage revenue, among other things. AMC's ownership percentage does not impact future integration payments 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 lobby entertainment network (“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~~encumbered theater payments owed 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,LLC by AMC.

The material agreements with the founding members ~~receive a monthly theater access fee.~~

~~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 tax receivable agreement 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.~~

follows:

•

ESAs. Under the ESAs, NCM LLC is the exclusive provider within the United States of advertising services in the founding members’ theaters (subject to pre-existing contractual obligations and other limited exceptions for the benefit of the founding members). The advertising services include the use of the digital content network (“DCN”) equipment required to deliver the on-screen advertising and other content included in the Noovie pre-show, use of the LEN and rights to sell and display certain lobby promotions. Further, 30 seconds to 60 seconds of advertising included in the Noovie pre-show is sold to NCM LLC’s founding members to satisfy the founding members’ on-screen advertising commitments under their beverage concessionaire agreements. In consideration for access to the founding members’ theaters, theater patrons, the network equipment required to display on-screen and LEN video advertising and the use of theaters for lobby promotions, the founding members receive a monthly theater access fee. In conjunction with the 2019 ESA Amendments, NCM LLC agreed to pay Cinemark and Regal incremental monthly theater access fees and, subject to NCM LLC's use of specified inventory, a revenue share in consideration for NCM LLC's access to certain on-screen advertising inventory after the advertised showtime of a feature film beginning November 1, 2019 and the underlying term of the ESAs were extended until 2041. The ESAs and 2019 ESA Amendments with Cinemark and Regal are considered leases with related parties under ASC 842.


•	Common Unit Adjustment Agreement. The Common Unit Adjustment Agreement provides a mechanism for increasing or decreasing the membership units held by the founding members based on the acquisition or construction of new theaters or sale or closure of theaters that are operated by each founding member and included in NCM LLC’s network.

•

Tax Receivable Agreement. The TRA provides for the effective payment by NCM, Inc. to the founding members of 90% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that is actually realized as a result of certain increases in NCM, Inc.’s proportionate share of tax basis in NCM LLC’s tangible and intangible assets resulting from the IPO and related transactions.

•

Software License Agreement. At the date of the Company’s IPO, NCM LLC was granted a perpetual, royalty-free license from NCM LLC’s founding members to use certain proprietary software that existed at the time for the delivery of digital advertising and other content through the DCN to screens in the U.S. NCM LLC has made improvements to this software since the IPO date and NCM LLC owns those improvements, except for improvements that were developed jointly by NCM LLC and NCM LLC’s founding members, if any.

~~Software License Agreement.~~ At the date of the Company’s IPO, NCM LLC was granted a perpetual, royalty-free license from NCM LLC’s founding members to use certain proprietary software that existed at the time for the delivery of digital advertising and other content through the DCN to screens in the U.S. NCM LLC has made improvements to this software since the IPO date and NCM LLC owns those improvements, except for improvements that were developed jointly by NCM LLC and NCM LLC’s founding members, if any.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

The following tables provide summaries of the transactions between the Company and the founding members (in millions):

Three Months Ended

Nine Months Ended

Included in the Condensed Consolidated Statements of Income:

September 28,
2017

September 29,
2016

September 28,
2017

September 29,
2016

Revenue:

Beverage concessionaire revenue (included in
   advertising revenue) (1)

$
6.7

$
7.5

$
22.7

$
21.8

Advertising inventory revenue (included in
   advertising revenue) (2)

—

0.1

—

0.3

Operating expenses:

Theater access fee (3)

18.1

19.2

57.4

56.8

Purchase of movie tickets and concession products
   and rental of theater space (included in selling
   and marketing costs) (4)

0.4

0.4

1.2

1.2

Purchase of movie tickets and concession products
   and rental of theater space (included in advertising
   operating costs) (4)

—

—

0.1

—

Purchase of movie tickets and concession products
   and rental of theater space (included in
   administrative and other costs) (4)

—

—

—

0.1

Non-operating expenses:

Interest income from notes receivable (included in
   interest income) (5)

0.2

0.2

0.5

0.6

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Three Months Ended				Six Months Ended
Included in the unaudited Condensed Consolidated Statements of Income:	June 25, 2020		June 27, 2019		June 25, 2020		June 27, 2019
Revenue:
Beverage concessionaire revenue (included in advertising revenue) (1)	$	—	$	6.5	$	4.3	$	11.8
Operating expenses:
Theater access fee and revenue share to founding members (2)	$	—	$	14.5	$	12.5	$	27.4
Purchase of movie tickets and concession products and rental of theater space (included in selling and marketing costs) (3)	$	—	$	0.1	$	0.1	$	0.2
Non-operating expenses:
Interest income from notes receivable (included in interest income) (4)	$	—	$	—	$	—	$	0.1

________________________________________

~~(1)~~

(1)

For the ~~nine~~three and six months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016, two of the founding members~~June 27, 2019, Cinemark and 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 ~~second~~seconds equivalent ~~cost per thousand (“CPM”)~~CPM rate specified by the ESA.

There was no beverage revenue for the three months ended June 25, 2020 due to the temporary closure of all the founding member theaters within NCM LLC's network in response to the COVID-19 Pandemic and thus there not being any attendees upon which beverage revenue is based.

~~(2)~~

~~The value of such purchases is calculated by reference to NCM LLC’s advertising rate card.~~

~~(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”). There was no theater access fee or revenue share expense for the three months ended June 25, 2020 due to the temporary closure of all the founding member theaters within NCM LLC's network.

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

(4)On December 26, 2013, NCM LLC sold its Fathom Events business to a newly formed limited liability company (AC JV, LLC) owned 32% by each of the founding members and 4% by NCM LLC. In consideration for the sale, NCM LLC received a total of $25.0 million in promissory notes from its founding members (one-third or approximately $8.3 million from each founding member). The notes bear interest at a fixed rate of 5.0% per annum, compounded annually. Interest and principal payments were due annually in six equal installments commencing on the first anniversary of the closing and ended on December 26, 2019.



	As of
Included in the unaudited Condensed Consolidated Balance Sheets:	June 25, 2020		December 26, 2019
Common unit adjustments and ESA extension costs, net of amortization and integration payments (included in intangible assets) (1)	$	619.0	$	620.5
Current payable to founding members under tax receivable agreement (2)	$	10.0	$	10.3
Long-term payable to founding members under tax receivable agreement (2)	$	134.7	$	133.5

_________________________________

~~(5)~~

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 due annually in six equal installments commencing on the first anniversary of the closing.

As of

Included in the Condensed Consolidated Balance Sheets:

September 28,
2017

December 29,
2016

Current portion of notes receivable - founding members (1)

4.2

5.6

Long-term portion of notes receivable - founding members (1)

8.3

8.3

Interest receivable on notes receivable (included in other
   current assets) (1)

0.1

0.3

Common unit adjustments, net of amortization and integration
   payments (included in intangible assets) (2)

702.2

529.9

Current payable to founding members under tax receivable
   agreement (3)

15.9

18.4

Long-term payable to founding members under tax receivable
   agreement (3)

144.2

143.4

(1)

~~(1)~~

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

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~(2)~~

Refer to Note 3—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.

~~(3)~~

(2)

The Company paid Cinemark and Regal $3.7 million and $6.7 million, respectively, in payments pursuant to the ~~founding members $17.3 million in the second quarter of 2017~~TRA during 2019 which was for the ~~2016~~2018 tax year. On March 21, 2020, a Treasury Department Notice postponed the original due date for the Company's U.S. federal income tax return to July 15, 2020 from April 15, 2020. The Company ~~paid~~made the ~~founding members $23.5~~TRA payments to Cinemark and Regal on July 15, 2020 of $3.2 million ~~in the first quarter of 2016, of which $2.7~~and $5.8 million, ~~was net operating loss carrybacks for the 2013 year and $20.8 million was for the 2015 tax year.~~

respectively.

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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

the NCM LLC Operating Agreement, on a quarterly basis in arrears. Mandatory distributions of available cash for the three and ~~nine~~six months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016~~June 27, 2019 were as follows (in millions):

	Three Months Ended				Nine Months Ended
	September 28, 2017		September 29, 2016		September 28, 2017		September 29, 2016
AMC	$	8.1	$	7.8	$	16.3	$	11.3
									Three Months Ended				Six Months Ended
									June 25, 2020		June 27, 2019		June 25, 2020		June 27, 2019
Cinemark		9.6		8.6		15.6		11.8	$	—	$	7.5	$	2.1	$	10.5
Regal		9.5		8.9		15.5		12.1	—		7.9		2.2		11.0
Total founding members		27.2		25.3		47.4		35.2
Total distributions to related parties									—		15.4		4.3		21.5
NCM, Inc.		25.9		19.6		39.0		26.6	—		14.6		4.1		20.4
Total	$	53.1	$	44.9	$	86.4	$	61.8	$	—	$	30.0	$	8.4	$	41.9

~~The~~

Due to the temporary closure of the theaters within NCM LLC's network during the three months ended June 25, 2020, the mandatory distributions of available cash by NCM LLC to its related party founding members and NCM, Inc. for the three months ended ~~September 28, 2017 of $27.2~~June 25, 2020 were calculated as negative $29.8 million ~~is included in amounts due to founding members on the unaudited Condensed Consolidated Balance Sheets as of September 28, 2017~~(including $7.6 million for Cinemark, $7.8 million for Regal and $14.4 million for NCM, Inc.). Therefore, there will be no payment made for the second quarter of 2020. Under the terms of the NCM LLC Operating Agreement, this negative amount will be netted against the available cash distributions for the second quarter of 2021, which will be paid in the ~~fourth~~third quarter of ~~2017. The mandatory distributions~~2021, contingent upon the Company's compliance with the covenants outlined within the Credit Agreement Amendment defined within Note 6—Borrowings and the Company's generation of future positive available cash to ~~NCM, Inc. are eliminated in consolidation.~~

which the above negative amounts above can be applied.

Amounts due to related party founding members, net as of ~~September 28, 2017~~December 26, 2019 were comprised of the following (in millions):

AMC

Cinemark

Regal

Total

Theater access fees, net of beverage revenues
and encumbered theater payments

$
1.2

$
0.9

$
1.3

$
3.4

Distributions payable to founding members

8.1

9.6

9.5

27.2

Integration payments due from founding members

(6.2
)

(0.3
)

—

(6.5
)
Cost and other reimbursement

(0.1
)

—

—

(0.1
)
Total amounts due to founding members

$
3.0

$
10.2

$
10.8

$
24.0



	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

~~Amounts due to founding members as of December 29, 2016 were comprised of the following (in millions):~~

AMC

Cinemark

Regal

Total

Theater access fees, net of beverage revenues
and encumbered theater payments

$
1.6

$
0.9

$
1.4

$
3.9

Distributions payable to founding members

12.3

13.6

14.0

39.9

Integration payments due from founding members

(0.7
)

(0.3
)

—

(1.0
)
Cost and other reimbursement

—

(0.1
)

—

(0.1
)
Total amounts due to founding members

$
13.2

$
14.1

$
15.4

$
42.7

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Common Unit Membership Redemption~~Network Affiliate Transactions—~~The~~ NCM LLC ~~Operating Agreement provides~~paid a ~~redemption right~~network affiliate owned by a family member of a director on the ~~founding members to exchange common membership units~~Company's Board of ~~NCM LLC for shares of the Company’s common stock on a one-for-one basis, or at the Company’s option, a cash payment equal to the market price of one~~Directors $0.1 million, $0.1 million, $0.3 million and $0.2 million, in circuit share of NCM, Inc. common stock. During the third quarter of 2017, AMC exercised the redemption right of an aggregate 14.6 million common membership units for a like number of shares of NCM, Inc.’s common stock. Pursuant to ASC 810-10-45, the Company accounted for the change in its ownership interest in NCM LLC as an equity transaction whereby, the issuance of shares of NCM, Inc. common stock were offset by the purchase of NCM LLC’s (a subsidiary’s) equity within the Condensed Consolidated Statement of Equity. Further, no gain or loss was recognized in the Condensed Consolidated Statements of Income. AMC also exercised the redemption right of an aggregate 200,000 common membership units for a like number of shares of NCM, Inc.’s common stock in December 2015. Duringpayments during the three months ended ~~September 28, 2017, 12.0 million of these shares were sold~~June 25, 2020 and as of September 28, 2017, 2.8 million of these shares remained outstanding. The Company did not receive any proceeds from the sale of its common stock by AMC. The 2.8 million shares were subsequently sold on September 29, 2017. During the threeJune 27, 2019 and ~~nine~~six months ended ~~September 28, 2017~~June 25, 2020 and September 29, 2016, AMC received cash dividends of approximately $0.0 million, $0.0 million, $0.1 million and $0.1 million on its shares of NCM, Inc. common stock. During the nine months ended September 28, 2017, the Company recorded a reduction to deferred tax assets of $2.4 million for its additional ownership interest in NCM LLC as a result of these redemptions to reflect the tax effective difference between the tax basis and the book basis, the majority of which will be amortized over a 15-year period for federal income tax purposes. In addition, the Company recorded a decrease of $1.1 million during the nine months ended September 28, 2017 in its long-term payable to founding members for the estimated payment 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 the Company expects to realize as a result of the deferred tax asset, which is recorded at its present value. The discount on this liability is a temporary difference that resulted in the reduction of $0.4 million to the deferred tax liability during the nine months ended September 28, 2017.

~~Memorandum of Understanding with AMC~~— ~~Pursuant to the Final Judgment, AMC is required to divest the majority of its equity interests in NCM LLC and NCM, Inc., so that by~~ June ~~20,~~27, 2019, it owns no more than 4.99% of NCM LLC’s common membership units and NCM, Inc. common stock, taken together, on a fully converted basis (“NCM’s outstanding equity interests”). AMC must complete the divestiture per the following schedule: (i) on or before December 20, 2017, AMC must own no more than 15.0% of NCM’s outstanding equity interests, (ii) on or before December 20, 2018, AMC must own no more than 7.5% of NCM’s outstanding equity interests and (iii) on or before June 20, 2019, AMC must own no more than 4.99% of NCM’s outstanding equity interests. Pursuant to the MOU, AMC also has agreed, among other things, subject to limited exceptions to retain at least 4.5% of NCM’s outstanding equity interests during the term of the Final Judgment, subject to certain exceptions which allow for certain sell downs after the 30-month anniversary of the MOU. As of September 28, 2017, AMC ~~owned 15.2%~~ ~~of NCM’s outstanding equity interests.~~ AMC also agreed to reimburse the Company for its incurred and ongoing costs and expenses in connection with the Final Judgment including, but not limited to, its financial advisor and legal fees up to $1.0 million of such costs and expenses. During the nine months ended September 28, 2017, the Company ~~incurred $1.3 million of~~ these costs, of which $1.0 million was reimbursed through the “Amounts due to founding members” within the Condensed Consolidated Balance Sheets and the remaining $0.3 million is included in administrative costs within the Condensed Consolidated Income Statement.

respectively.

AC JV, LLC Transactions—In December 2013, NCM LLC sold its Fathom Events business to a newly formed limited liability company, AC JV, LLC, owned 32% by each of the founding members and 4% by NCM LLC. The Company accounts for its investment in AC JV, LLC under the equity method of accounting in accordance with ASC 323-30,Investments—Equity Method and Joint Ventures (“(“ASC 323-30”) because AC JV, LLC is a limited liability company with the characteristics of a limited partnership and ASC 323-30 requires the use of equity method accounting unless the Company’s interest is so minor that it would have virtually no influence over partnership operating and financial policies. Although NCM LLC does not have a representative on AC JV, LLC’s Board of Directors or any voting, consent or blocking rights with respect to the governance or operations of AC JV, LLC, the Company concluded that its interest was more than minor under the accounting guidance. The Company’s investment in AC JV, LLC was ~~$1.1~~$0.9 million and ~~$1.0~~$0.9 million as of ~~September 28, 2017~~June 25, 2020 and December ~~29, 2016,~~26, 2019, respectively. Equity in (losses) earnings from AC JV, LLC of $(0.1) million, $0.1 million, $0.0 million and $0.3 million for the three ~~and nine~~ months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016, were $0.0 million, $0.0 million, $0.1 million~~June 27, 2019 and ~~$0.0 million,~~six months ended June 25, 2020 and June 27, 2019, respectively, ~~and~~ is included in “Other non-operating ~~expenses~~income” in the unaudited Condensed Consolidated Statements of Income.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Related Party Affiliates~~—NCM LLC has an agreement with LA Live, an affiliate of The Anschutz Corporation to provide in-theater advertising. The Anschutz Corporation is a wholly-owned subsidiary of the Anschutz Company, which is the controlling stockholder of Regal. During the three and nine months ended September 28, 2017 and September 29, 2016, there was $0.1 million, $0.1 million, $0.2 million and $0.2 million, respectively, included in advertising operating costs related to LA Live, and there was approximately $0.1 million and $0.1 million of accounts payable with this company as of September 28, 2017 and December 29, 2016, respectively.

~~Other Transactions—NCM LLC has an agreement with AEG Live, an affiliate of The Anschutz Corporation, for AEG Live to showcase musical artists in NCM LLC’s~~ ~~Noovie~~ pre-show. During the three and nine months ended September 28, 2017 and September 29, 2016, NCM LLC recorded approximately $0.4 million, $0.5 million $1.0 million and $1.3 million, respectively, in revenue from AEG Live. As of September 28, 2017 and December 29, 2016, NCM LLC had approximately $0.1 million and $0.2 million, respectively, of accounts receivable from AEG Live.

6. BORROWINGS

The following table summarizes NCM LLC’s total outstanding debt as of ~~September 28, 2017~~June 25, 2020 and December ~~29, 2016~~26, 2019 and the significant terms of its borrowing arrangements (in millions):

Outstanding Balance as of

Borrowings

September 28,
2017

December 29,
2016

Maturity
Date

Interest
Rate

Revolving credit facility

$
—

$
15.0

November 26, 2019

(1)

Term loans

270.0

270.0

November 26, 2019

(1)

Senior secured notes due 2022

400.0

400.0

April 15, 2022

6.000%

Senior unsecured notes due 2026

250.0

250.0

August 15, 2026

5.750%

Total borrowings

$
920.0

$
935.0

Less: debt issuance costs related to term
loans and senior notes

(9.2
)

(10.7
)

Carrying value of long-term debt

$
910.8

$
924.3

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Outstanding Balance as of
Borrowings	June 25, 2020			December 26, 2019			Maturity Date	Interest Rate
Revolving credit facility	$	167.0		$	39.0		June 20, 2023	(1)
Term loans	265.3			266.6			June 20, 2025	(1)
Senior unsecured notes due 2026	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	1,062.3			935.6
Less: debt issuance costs related to term loans and senior notes	(8.7		)	(9.0		)
Total borrowings, net	1,053.6			926.6
Less: current portion of debt	(2.7		)	(2.7		)
Carrying value of long-term debt	$	1,050.9		$	923.9

___________________________________________________


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

Senior Secured Credit Facility—On June 20, 2018, NCM LLC entered into a credit agreement (the “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 Credit Agreement consists of a term loan facility and a revolving credit facility. As of ~~September 28, 2017,~~June 25, 2020, NCM LLC’s senior secured credit facility consisted of a $175.0 million revolving credit facility and a ~~$270.0~~$265.3 million term loan. ~~On May 26, 2016, NCM LLC entered into an incremental amendment of its~~The obligations under the senior secured credit facility ~~whereby~~are secured by a lien on substantially all of the ~~revolving credit facility was increased by $40.0 million~~assets of NCM LLC.

On April 30, 2020, NCM LLC amended the Credit Agreement (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 ~~$135.0 million to $175.0 million.~~

the quarter ending June 25, 2020 until and including the quarter ending July 1, 2021 (the “Covenant Holiday Period”). 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.

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 ~~September 28, 2017,~~June 25, 2020, NCM LLC’s total availability under the $175.0 million revolving credit facility was ~~$170.2~~$4.4 million, net of ~~$4.8~~$167.0 million outstanding and $3.6 million in letters of credit. The unused line fee is 0.50% per ~~annum.~~annum which is consistent with the previous facility. Borrowings under the revolvingcredit 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 ~~(Prime Rate or the Federal Funds Effective Rate, as defined in the senior secured credit facility)~~ plus an applicable ~~margin.~~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 consolidated net senior secured leverage ratio for NCM LLC (the ratio of secured funded debt less unrestricted cash and cash equivalents ~~over a non-GAAP measure~~of up to $100.0 million, divided by Adjusted EBITDA for debt purposes, defined inas 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. The weighted-average interest rate on the ~~senior secured~~revolving credit ~~facility)~~facility as of June 25, 2020 was 3.00%.

Term Loans—The interest rate on the term loans is a rate chosen at NCM LLC’s option of either the LIBOR index plus ~~2.75%~~3.00% or the base rate ~~(Prime Rate or the Federal Funds Effective Rate, as defined in the senior secured credit facility)~~ plus ~~1.75%~~2.00%. The ~~weighted-average~~ interest rate on the term loans as of ~~September 28, 2017~~June 25, 2020 was ~~4.0%~~4.00%. ~~Interest on the~~The term loans ~~is currently~~amortize at a rate equal to 1.00% annually, to be paid ~~monthly.~~

in equal quarterly installments. As of June 25, 2020, NCM LLC has paid principal of $4.7 million, reducing the outstanding balance to $265.3 million. The term loans will mature on June 20, 2025.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 ~~which NCM LLC was in compliance as of September 28, 2017, including~~respect to the revolving credit facility, maintaining a consolidated net senior secured leverage ratio of equal to or less than ~~6.5~~4.50 times on a quarterly ~~basis.~~basis for each quarterly period in which a balance is outstanding on the revolving credit facility. In addition, ~~there are no borrower distribution restrictions~~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 ~~6.5~~5.50 times and ~~NCM LLC is in compliance with its debt covenants.~~no default or event of default has occurred and continues to occur under the senior secured credit facility. As of ~~September 28, 2017,~~June 25, 2020, NCM LLC’s consolidated net senior secured leverage ratio was ~~3.2~~4.58 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 6.01 times (versus the covenant of ~~6.5~~6.25 times).

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Senior Secured Notes due 2022—On April 27, 2012, NCM LLC completed a private placement~~ As 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 are senior secured obligations of NCM LLC, rank the same as NCM LLC’s senior secured credit facility, subject to certain exceptions, and share in the same collateral that secures NCM LLC’s obligations under the senior secured credit facility. The Notes due 2022 contain certain non-maintenance covenants with whichJune 25, 2020, NCM LLC was in compliance aswith the requirements of ~~September 28, 2017.~~

the Credit Agreement Amendment described above and thus the noncompliance with the financial covenants was automatically waived.

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 and will be effectively subordinated to all existing and future secured debt, including the Notes due 2022, its senior secured credit facility and any future asset backed loan facility. The Notes due 2026 will rank equally in right of payment with all of NCM LLC’s existing and future senior indebtedness, including the Notes due 2022, NCM LLC’s existing senior secured credit facility, any future asset backed loan facility, in each case, without giving effect to collateral arrangements. The Notes due 2026 will be effectively subordinated to all liabilities of any subsidiaries thatLLC. NCM LLC ~~may form or acquire in the future, unless those subsidiaries become guarantors~~repurchased and canceled a total of $5.0 million and $15.0 million of the Notes due ~~2026. NCM LLC does not currently have any subsidiaries,~~2026 during 2019 and 2018, respectively, reducing the ~~Notes due 2026 will not be guaranteed by any subsidiaries that NCM LLC may form or acquire~~principal amount to $230.0 million as of June 25, 2020. These repurchases were treated as partial debt extinguishments and resulted in the ~~future except in very limited circumstances. The Notes due 2026 contain certain non-maintenance covenants with which NCM LLC was in compliance as of September 28, 2017.~~

~~6. INCOME TAXES~~

The Company is subject to taxation in the U.S. and various states. The Company has established a contingency reserve for material, known tax exposures. The Company’s reserve reflects management’s judgment as to the resolution of the issues involved if subject to judicial review or other settlement. While the Company believes its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to the reserve, the Company’ income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances (i.e., new information) surrounding a tax issue and (ii) any difference from the Company’s tax position as recorded in the financial statements and the final resolutionrealization of a tax issue during the period. Such resolution could materially increase or decrease income tax expense in the unaudited Condensed Consolidated Financial Statements in future periods and could impact operating cash flows.

~~Unrecognized tax benefits represent the aggregate tax effect~~non-operating gain, net of ~~differences between tax return positions and the amounts otherwise recognized in the unaudited Condensed Consolidated Financial Statements. The total amount~~written off debt issuance costs, of unrecognized tax benefits as of September 28, 2017 and December 29, 2016, was $0.3 million and $1.6 million, respectively, excluding accrued interest and penalties, which if recognized would affect the effective tax rate. The Company recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense in the unaudited Condensed Consolidated Statements of Income and records the liability in income taxes payable in the unaudited Condensed Consolidated Balance Sheets. The Company recognized $0.0 million, $0.0 million, $0.0 million and $0.1 million in interest and penalties during the three and nine months ended September 28, 2017 and September 29, 2016, respectively. The Company has accrued $0.0 million and $0.4 million for the payment of interest and penalties as of September 28, 2017 and December 29, 2016, respectively.

During the three and nine months ended September 28, 2017, the Company reversed approximately $1.7 million of its contingency reserve ($1.3 million of unrecognized tax benefits and $0.4 million of accrued interest and penalties) because the statute of limitations expired. It is reasonably possible that the Company’s total unrecognized tax benefits will decrease by approximately $0.3 million during the ~~next twelve~~three months and six months ended June 25, 2020 and June 27, 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 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 face amount thereof and share in the same collateral that secures NCM LLC's obligations under the senior secured credit facility.

7. INCOME TAXES

Changes in the Company’s Effective Tax Rate—The Company recorded an income tax benefit of $4.6 million for the six months ended June 25, 2020 compared to income tax expense of $1.7 million for the six months ended June 27, 2019 resulting in an effective tax rate of 20.8% for the six months ended June 25, 2020 as compared to 17.9% for the six months ended June 27, 2019. The increase in the effective tax rate was primarily due to the ~~expiration~~relative impact of ~~certain statutes~~the tax benefit recorded on pretax book losses attributable to NCM Inc. of ~~limitations.~~

~~During~~$22.0 million for the ~~nine~~six months ended ~~September 28, 2017, the Company~~June 25, 2020 compared to tax expense recorded ~~a reduction to its deferred tax assets~~on pretax book income of ~~approximately $35.0~~$9.4 million ~~related to the tax effective difference between the tax basis and book basis of the intangible assets recorded~~ for the ~~extraordinary Common Unit Adjustment, as discussed further~~six months ended June 27, 2019. This increase in ~~Note 3 –~~ ~~Intangible Assets. The Company~~income tax benefit was partially offset by the 2019 impact of deferred state tax recorded ~~a deferred tax liability of approximately $15.8 million~~ during the ~~nine~~six months ended ~~September 28, 2017 related to imputed interest on~~June 27, 2019 that did not recur during the ~~integration payments associated with~~same period in 2020. The tax provision through June 25, 2020 was computed using the ~~extraordinary Common Unit Adjustment. These items also resulted in a net reduction to additional paid-in capital~~annual effective tax rate. The Company's current blended state and federal rate (net of ~~approximately $50.8 million. Further, the Company’s deferred tax asset balance~~federal benefit) was 24.4% as of ~~September 28, 2017, includes a tax basis note receivable~~June 25, 2020 and 24.5% as of ~~$27.4 million in connection with~~

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~the common membership unit redemption that occurred on September 7, 2017, as discussed further in Note 4 –~~ ~~Related Party Transactions~~.

7.June 27, 2019.

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.

~~Minimum Revenue Guarantees~~―

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 $21.4 million and short-term and long-term lease liabilities of $1.7 million and $23.7 million, respectively, on the balance sheet as of June 25, 2020 for all material leases with terms longer than twelve months. These balances are included within “Other assets”, “Other current liabilities” and “Other liabilities”, respectively, on the unaudited Condensed Consolidated Balance Sheets. As ~~part~~of June 25, 2020, the Company had a weighted average remaining lease term of 9.6 years on these leases. 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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

environment. As of June 25, 2020, the Company’s weighted average annual discount rate used to establish the ROU assets and lease liabilities was 7.33%.

During the three and six months ended June 25, 2020 and 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 25, 2020		June 27, 2019		June 25, 2020		June 27, 2019
Operating lease cost	$	0.9	$	0.8	$	1.8	$	1.6
Short-term lease cost	—		—		—		0.1
Variable lease cost	0.2		0.2		0.3		0.3
Total lease cost	$	1.1	$	1.0	$	2.1	$	2.0

The Company made total lease payments of $0.9 million, $0.8 million, $1.8 million and $1.6 million during the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 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 ~~entered into~~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 ~~ordinary course of business under which~~founding members in accordance with NCM LLC’s Common Unit Adjustment Agreement and upfront cash payments to the ~~Company sells advertising~~affiliates for ~~display in various~~the contractual rights to provide the Company’s services within their theaters as further discussed within Note 4 - Intangible Assets. These ESAs and network affiliate ~~theater chains,~~agreements are considered leases under ASC 842 once the ~~Company has agreed~~asset is identified and the period of control is determined upon the scheduling of the showtimes by the exhibitors, typically one week prior to ~~certain minimum revenue guarantees on a per attendee basis. If a network affiliate achieves~~ the ~~attendance set forth~~showtime. As such, the leases are considered short-term 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~~nature, specifically less than ~~its guaranteed amount. As~~one month. Within ASC 842, leases with terms of ~~September 28, 2017,~~less than one month are exempt from the ~~maximum potential amount~~majority of ~~future payments~~ the ~~Company could be required to make pursuant~~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 ~~minimum revenue guarantees is $84.3 million over the remaining terms~~balance sheet presentation of the intangible assets was necessary. However, the amortization of these intangible assets is considered lease expense and is presented within “Amortization of intangibles recorded for network ~~affiliate agreements. These minimum guarantees relate to various affiliate agreements ranging in term from one to twenty years, prior to any renewal periods~~theater screen leases” within the unaudited Condensed Consolidated Statement of which some are at the option of the Company. During the nine months ended September 28, 2017 and September 29, 2016, the Company paid $0.1 million and $0.0 million, respectively, related to these minimum guarantees. For these periods, there are no other affiliate agreements with guaranteed minimums in excess of the revenue share arrangement.

~~Theater Access Fee Guarantees~~—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 ~~for~~in fiscal year ~~2017,~~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 ~~September 28, 2017~~June 25, 2020 and December ~~29, 2016,~~26, 2019, the Company had no0 liabilities recorded for the minimum payment, as the theater access fee was in excess of the minimum.

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 or more 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

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 did not owe these fees for the three months ended June 25, 2020 and will not owe these fees while the founding members' 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 were incurred for the three months ended June 25, 2020 and no 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 25, 2020, the maximum potential amount of future payments the Company could be required to make pursuant to the minimum revenue guarantees is $71.2 million over the remaining terms of the network affiliate agreements. These minimum guarantees relate to various affiliate agreements ranging in term from three years to twenty years, prior to any renewal periods of which some are at the option of the Company. The Company accrued $0.4 million and $0.5 million related to affiliate agreements with guaranteed minimums in excess of the revenue share agreement as of June 25, 2020 and December 26, 2019, respectively. As the guaranteed minimums are based upon agreed upon minimum attendance or affiliate revenue levels, the Company did not incur minimum revenue share fees during the three months ended June 25, 2020 and will not for the remaining 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, ~~cost and equity method~~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 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.

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Other investments consisted of the following (in millions):


	As of				As of
	September 28, 2017		December 29, 2016		June 25, 2020		December 26, 2019
Investment in AC JV, LLC (1)	$	1.1	$	1.0	$	0.9	$	0.9
Other investments (2)		2.5		5.6
Other investments					0.1		0.1
Total	$	3.6	$	6.6	$	1.0	$	1.0


(1)	Refer to Note 4—5—Related Party Transactions.

~~(2)~~

~~The Company received equity securities in privately held companies as consideration for a portion of advertising contracts. The equity securities were~~ This investment is accounted for ~~under~~utilizing the ~~cost method and represent an ownership of less than 20%. The Company does not exert significant influence on these companies’ operating or financial activities.~~

equity method.

~~During the three and nine months ended September 28, 2017 and September 29, 2016, the Company~~

As of June 25, 2020, no observable price changes or impairments have been recorded ~~other-than-temporary impairment charges of $0.0 million, $0.7 million, $3.1 million and $0.7 million, respectively, on certain of its investments due to~~as a ~~significant deterioration in the business prospects~~result of the ~~investee or new information regarding the fair value~~Company’s qualitative assessment of the investee in the nine months ended September 28, 2017. These impairment charges brought the investments to a remaining fair value of $0.1 million. The fair value of the other investments has not been estimated as of September 28, 2017 and December 29, 2016 as there were no identified events or changes in the circumstances ~~that had a significant adverse effect on~~of the ~~fair value of those investments and it is not practicable to do so because the equity securities are not in publicly traded companies.~~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.

As of September 28, 2017 and December 29, 2016, the Company had notes receivable totaling $12.5 million and $13.9 million, respectively, from its founding members related to the sale of Fathom Events, as described in Note 4—~~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 September 28, 2017				As of December 29, 2016				As of June 25, 2020				As of December 26, 2019
	Carrying Value		Fair Value (1)		Carrying Value		Fair Value (1)		Carrying Value		Fair Value (1)		Carrying Value		Fair Value (1)
Term loans	$	270.0	$	269.6	$	270.0	$	272.7	$	265.3	$	220.2	$	266.6	$	266.9
Notes due 2022		400.0		409.5		400.0		414.5
Notes due 2026		250.0		233.8		250.0		256.7	230.0		162.3		230.0		226.2
Notes due 2028									400.0		329.4		400.0		426.7


(1)	~~The Company has estimated the fair value on an average of at least two non-binding broker quotes and the Company’s analysis.~~ 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. 2 based upon the inputs utilized.

~~NATIONAL CINEMEDIA, INC. AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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 Disclosuresare as follows (in millions):

Fair Value Measurements at Reporting Date Using

Fair Value as of
September 28,
2017

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)

$
22.3

$
22.3

$
—

$
—

Short-term marketable securities (2)

3.7

2.0

1.7

—

Long-term marketable securities (2)

15.8

13.7

2.1

—

Total assets

$
41.8

$
38.0

$
3.8

$
—



			Fair Value Measurements at Reporting Date Using
	Fair Value as of June 25, 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)	$	49.8	$	49.8	$	—	$	—
Short-term marketable securities (2)	1.5		—		1.5		—
Long-term marketable securities (2)	3.0		—		3.0		—
Total assets	$	54.3	$	49.8	$	4.5	$	—



			Fair Value Measurements at Reporting Date Using
	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)	$	28.8	$	16.8	$	12.0	$	—
Short-term marketable securities (2)	17.5		—		17.5		—
Long-term marketable securities (2)	7.5		—		7.5		—
Total assets	$	53.8	$	16.8	$	37.0	$	—

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fair Value Measurements at Reporting Date Using

Fair Value as of
December 29,
2016

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)

$
5.3

$
0.3

$
5.0

$
—

Short-term marketable securities (2)

26.1

5.2

20.9

—

Long-term marketable securities (2)

19.6

17.3

2.3

—

Total assets

$
51.0

$
22.8

$
28.2

$
—

(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 ~~generally~~ classified as Level 1 ~~given the~~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 June 25, 2020, there was $2.0 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 June 25, 2020 given the immaterial difference between the amortized cost basis and the aggregate fair value of the Company's securities. For the three and ~~nine~~six months ended ~~September 28, 2017~~June 25, 2020 and ~~September 29, 2016,~~June 27, 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 ~~other comprehensive~~interest income. Original cost of short-term marketable securities is based on the specific identification method. As of ~~September 28, 2017~~June 25, 2020 and December ~~29, 2016,~~26, 2019, there was $0.0 million and an inconsequential amount, respectively, of gross unrealized losses related to individual securities of ~~$1.4~~$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)~~

The amortized cost basis, aggregate fair value and maturities of the marketable securities the Company held as of ~~September 28, 2017~~June 25, 2020 and December ~~29, 2016~~26, 2019 were as follows:

As of September 28, 2017

Amortized Cost
Basis
(in millions)

Aggregate Fair
Value
(in millions)

Maturities (1)
(in years)

MARKETABLE SECURITIES:

Short-term U.S. government treasury bonds

$
1.2

$
1.2

0.1

Short-term U.S. government agency bonds

0.8

0.8

0.9

Short-term certificates of deposit

1.7

1.7

0.2

Total short-term marketable securities

3.7

3.7

Long-term municipal bonds

1.9

1.9

2.4

Long-term U.S. government agency bonds

11.9

11.8

2.5

Long-term financial certificates of deposit:

2.1

2.1

2.0

Total long-term marketable securities

15.9

15.8

Total marketable securities

$
19.6

$
19.5



	As of June 25, 2020
	Amortized Cost Basis (in millions)		Aggregate Fair Value (in millions)		Maturities (1) (in years)
MARKETABLE SECURITIES:
Short-term municipal bonds	$	0.3	$	0.3	0.1
Short-term certificates of deposit	1.2		1.2		0.4
Total short-term marketable securities	1.5		1.5

Long-term U.S. government agency bonds	1.0		1.0		3.7
Long-term certificates of deposit	2.0		2.0		3.3
Total long-term marketable securities	3.0		3.0
Total marketable securities	$	4.5	$	4.5

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	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 municipal bonds	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

As of December 29, 2016

Amortized Cost
Basis
(in millions)

Aggregate Fair
Value
(in millions)

Maturities (1)
(in years)

MARKETABLE SECURITIES:

Short-term U.S. government treasury bonds

$
1.2

$
1.2

0.8

Short-term municipal bonds

2.9

2.9

0.6

Short-term U.S. government agency bonds

1.0

1.0

0.5

Short-term commercial paper

13.0

13.0

0.1

Short-term certificates of deposit:

Financial

7.7

7.7

0.6

Industrial

0.3

0.3

0.9

Total short-term marketable securities

26.1

26.1

Long-term municipal bonds

1.9

1.8

2.7

Long-term U.S. government agency bonds

15.6

15.5

3.5

Long-term certificates of deposit

2.2

2.3

2.6

Total long-term marketable securities

19.7

19.6

Total marketable securities

$
45.8

$
45.7


(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 EVENT

On ~~November~~August 3, ~~2017,~~2020, the Company declared a cash dividend of ~~$0.22~~$0.07 per share (approximately ~~$16.8~~$5.5 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 ~~November 16, 2017~~August 17, 2020 to be paid on ~~December 1, 2017.~~

On October 20, 2017, AMC exercised its redemption right of an aggregate 1.0 million common membership units for a like number of shares of NCM, Inc.’s common stock which increased the Company’s ownership to 49.5%.

August 31, 2020.

Item 2. Management’s Discussion and Analysis ofFinancial 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”, 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 ~~29, 2016.~~26, 2019 and as updated within our Form 10-Q filed with the SEC on May 5, 2020 the three months ended March 26, 2020. 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 ~~29, 2016.~~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. Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed to address the COVID-19 Pandemic. As of June 25, 2020 almost all of the theaters within our network remained closed. We were unable to advertise in the theaters, and thus did not generate any in theater revenue, for the three months ended June 25, 2020 and will not for the duration of time that the theaters remain 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 June 25, 2020, theaters presenting the new Noovie format with Post-Showtime Inventory made up approximately 58% of our network based upon 2019 attendance. All other NCM network theater circuits, which make up the remaining 42% of our network, 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 suite of Noovie digital ~~product~~properties, including Noovie.com, Noovie Shuffle, Name That Movie, Noovie Arcade and Fantasy Movie League in order to reach entertainment audiences beyond the theater. As of June 25, 2020, approximately 4.2 million 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 June 25, 2020. We have long-term ESAs (approximately 1919.3weighted average years remaining ~~as of September 28, 2017)~~based on 2019 attendance) with the founding members and multi-year agreements with our network affiliates, which expire at various dates between ~~March 5, 2018~~September 2020 and July ~~22,~~ 2031. The weighted average remaining term (based on 2019 attendance) of the ESAs and the network affiliate agreements is ~~17.1~~16.8 years as of ~~September 28, 2017.~~June 25, 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 ~~(91%~~(96% digital cinema projectors and 9%4% LCD projectors) as of ~~September 28, 2017.~~

June 25, 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 ~~officers~~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, ~~OIBDA,~~ 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 ~~local and~~ regional advertising pricing (CPM), local ~~and regional~~ 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 ~~including~~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.

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 ~~24, 2017~~20, 2020 for our fiscal year ended December ~~29, 2016.~~

26, 2019 and as updated within our Form 10-Q filed with the SEC on May 5, 2020 the three months ended March 26, 2020.

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. As of June 25, 2020, almost all of the theaters within our network remained closed. Major motion picture releases expected to occur during the temporary closure period were delayed until later in 2020 or 2021 or have been released directly to alternative delivery methods bypassing the theater entirely. The results of the three and six months ended June 25, 2020 were significantly impacted by these temporary closures as theater attendance was less than expected beginning in March, as the public was told to practice social distancing, and then when theaters were closed following stay at home orders. As of the date of this filing, the COVID-19 virus continues to spread in certain areas of the United States, and there can be no assurance when theaters within our network return to normal operations. These developments will be referred to as the “COVID-19 Pandemic.”

We are unable to advertise in the theaters, and thus we have not and 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/or revenue, and therefore, were not and will not be incurred for the duration that 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 compensation expense by 50% (“Temporary Salary and Wage Reductions”);

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 worked 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 beginning in the second quarter of 2020 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 $9.3 million for NCM, Inc.; and

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

As of the date of this filing, almost all of the theaters in our network remain closed. Given the capacity restrictions we expect to be in place for most of the theaters within our network upon reopening, the Company expects its network attendance to increase gradually, and thus, expects to remove the temporary cash preservation measures outlined above as the Company's operations normalize and in consideration of the Company's liquidity needs. The Company's ability to resume advertising is dependent upon the reopening of the theaters, the release of major motion pictures to the theaters, and the attendance of theater

patrons. However, there can be no assurance that theater patrons will return to movie theaters or the overall attendance will return to levels comparable to those prior to the COVID-19 Pandemic.

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). Further, as of March 26, 2020, we had approximately $112.3 million of trade accounts receivable outstanding from customers, of which we have collected approximately $89.7 million as of June 25, 2020, increasing our cash and marketable securities balance to $249.9 million as of June 25, 2020 ($168.1 million at NCM LLC) and decreasing our trade accounts receivable outstanding to $25.3 million. The $168.1 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.

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”). 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. The Company made the TRA payments to the founding members on July 15, 2020 totaling $12.8 million and expect to pay $1.4 million in the fourth quarter of 2020.

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. We currently have recognized or expect to recognize the following benefits under the CARES Act:

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. The Company deferred $0.4 million in qualifying payments in the second quarter of 2020; 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 will continue to monitor the provisions of the CARES Act and associated regulations and any other government action and intends to seek 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 state and local restrictions or other social distancing orders subside 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 the advertising market and of responsive governmental regulations, including state and local restrictions or other social distancing orders and resulting business closures which are recurring in certain areas and could recur on multiple occasions after the initial reopening causing subsequent closure periods. Our business also could be significantly affected should the disruptions caused by the COVID-19 Pandemic lead to changes in consumer behavior (such as what the movie audience’s willingness to return to the movie theaters and the impacts of social distancing, facemask requirements and other measures on the movie going experience), which we believe will be temporary, or further reductions or impacts 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 ~~OIBDA~~ and Adjusted OIBDA (dollars in millions, except share and margin data):


													% Change																		% Change
	Q3 2017			Q3 2016			YTD 2017			YTD 2016			Q3 2017 to Q3 2016			YTD 2017 to YTD 2016			Q2 2020			Q2 2019			YTD 2020			YTD 2019			Q2 2020 to Q2 2019		YTD 2020 to YTD 2019
Revenue	$	116.4		$	113.5		$	285.4		$	305.1			2.6	%		(6.5	%)	$	4.0		$	110.2		$	68.7		$	187.1		(96.4	)%	(63.3	)%
Operating expenses:
Advertising		43.3			42.6			130.8			129.2			1.6	%		1.2	%	5.6			47.3			42.4			86.5			(88.2	)%	(51.0	)%
Network, administrative and unallocated costs		22.8			22.5			70.9			75.2			1.3	%		(5.7	%)	22.2			25.2			45.2			52.0			(11.9	)%	(13.1	)%
Total operating expenses		66.1			65.1			201.7			204.4			1.5	%		(1.3	%)	27.8			72.5			87.6			138.5			(61.7	)%	(36.8	)%
Operating income		50.3			48.4			83.7			100.7			3.9	%		(16.9	%)
Operating (loss) income																			(23.8		)	37.7			(18.9		)	48.6			(163.1	)%	(138.9	)%
Non-operating expenses		16.1			27.8			47.8			60.7			(42.1	%)		(21.3	%)	13.8			14.4			27.3			28.5			(4.2	)%	(4.2	)%
Income tax expense		2.3			(1.1	)		2.6			1.3		NM				100.0	%
Net income attributable to noncontrolling interests		22.5			13.5			27.4			28.0			66.7	%		(2.1	%)
Net income attributable to NCM, Inc.	$	9.4		$	8.2		$	5.9		$	10.7			14.6	%		(44.9	%)
Income tax (benefit) expense																			(4.2		)	2.3			(4.6		)	1.7			(282.6	)%	(370.6	)%
Net (loss) income attributable to noncontrolling interests																			(19.6		)	12.1			(24.1		)	10.6			(262.0	)%	(327.4	)%
Net (loss) income attributable to NCM, Inc.																			$	(13.8	)	$	8.9		$	(17.5	)	$	7.8		(255.1	)%	(324.4	)%

Net income per NCM, Inc. basic share	$	0.15		$	0.14		$	0.10		$	0.18			7.1	%		(44.4	%)
Net income per NCM, Inc. diluted share	$	0.15		$	0.13		$	0.10		$	0.18			15.4	%		(44.4	%)
Net (loss) income per NCM, Inc. basic share																			$	(0.18	)	$	0.11		$	(0.22	)	$	0.10		(263.6	)%	(320.0	)%
Net (loss) income per NCM, Inc. diluted share																			$	(0.18	)	$	0.11		$	(0.22	)	$	0.10		(263.6	)%	(320.0	)%

OIBDA	$	59.7		$	57.3		$	111.9		$	127.2			4.2	%		(12.0	%)
Adjusted OIBDA	$	62.6		$	60.9		$	122.5		$	144.3			2.8	%		(15.1	%)	$	(12.7	)	$	50.2		$	1.7		$	72.3		(125.3	)%	(97.6	)%
Adjusted OIBDA margin		53.8	%		53.7	%		42.9	%		47.3	%		0.1	%		(4.4	%)	(317.5		)%	45.6		%	2.5		%	38.6		%	NM		(36.1	)%
Total theater attendance (in millions) (1)		150.6			179.6			492.1			524.1			(16.1	%)		(6.1	%)	0.2			185.3			120.6			334.0			(99.9	)%	(63.9	)%

_________________________

NM = Not Meaningful

~~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. The attendance for the second quarter of 2020 relates to a small number of affiliate theaters that reopened throughout May and June of 2020. Given the minimal amount of attendance, the Company did not advertise in these theaters during the second quarter of 2020.

Non-GAAP Financial Measures

Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”)~~, 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~~expense adjusted to also exclude amortization ~~expense. Adjusted OIBDA excludes from OIBDA~~of intangibles recorded for network theater screen leases, non-cash ~~share based~~share-based compensation costs, impairment of long-lived assetsand Chief Executive Officer transition ~~costs and early lease termination expense.~~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 ~~its~~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~~policies, amortization ~~policies,~~of intangibles recorded for network theater screen leases, non-cash share based compensation programs, impairments of long-lived assets, CEO turnover, ~~early lease termination expense,~~ 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 ~~share based~~share-based payment costs, impairments of long-lived assets or costs associated with the resignation of the Company’s former Chief Executive ~~Officer or early lease termination costs. OIBDA or~~Officer. Adjusted OIBDA should not be regarded as an alternative to operating income, net income or as ~~indicators~~an indicator of operating performance, nor should ~~they~~it be considered in isolation of, or as ~~substitutes~~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 ~~OIBDA and~~ Adjusted OIBDA for the periods presented (dollars in millions):

Q3 2017

Q3 2016

YTD 2017

YTD 2016

Operating income

$
50.3

$
48.4

$
83.7

$
100.7

Depreciation and amortization

9.4

8.9

28.2

26.5

OIBDA

$
59.7

$
57.3

$
111.9

$
127.2

Share-based compensation costs (1)

2.8

3.4

8.3

13.7

CEO transition costs (2)

0.1

0.2

0.5

3.4

Early lease termination expense (3)

—

—

1.8

—

Adjusted OIBDA

$
62.6

$
60.9

$
122.5

$
144.3

Total revenue

$
116.4

$
113.5

$
285.4

$
305.1

Adjusted OIBDA margin

53.8
%

53.7
%

42.9
%

47.3
%



	Q2 2020			Q2 2019			YTD 2020			YTD 2019
Operating (loss) income	$	(23.8	)	$	37.7		$	(18.9	)	$	48.6
Depreciation expense	3.2			3.3			6.4			6.6
Amortization of intangibles recorded for network theater screen leases	6.1			7.0			12.2			13.9
Share-based compensation costs (1)	0.1			2.1			0.3			2.9
Impairment of long-lived assets (2)	1.7			—			1.7			—
CEO transition costs (3)	—			0.1			—			0.3
Adjusted OIBDA	$	(12.7	)	$	50.2		$	1.7		$	72.3
Total revenue	$	4.0		$	110.2		$	68.7		$	187.1
Adjusted OIBDA margin	(317.5		)%	45.6		%	2.5		%	38.6		%

____________________________________________


(1)	Share-based compensation costs are included in network operations, selling and marketing and administrative expense ~~(YTD 2016 includes $2.3 million of expense associated with modifying the former CEO’s equity awards in the first nine months of 2016)~~ in the accompanying unaudited Condensed Consolidated Financial Statements.


(2)	The impairments of long-lived assets primarily relate to the write off of certain internally developed software.


(3)	Chief Executive Officer transition costs ~~represent severance, consulting and other costs.~~

~~(3)~~

~~Early lease termination expense~~ represents ~~an expense recorded upon the early termination of the lease of our corporate headquarters because the early termination payment made by the Company was reimbursed by the landlord of the new building.~~

~~Basis of Presentation~~

The results of operations data for the three and nine months ended September 28, 2017 (third quarter of 2017) and September 29, 2016 (third quarter of 2016) 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~~

~~Third Quarter of 2017 and Third Quarter of 2016~~

~~Revenue.~~ ~~Total revenue increased 2.6%, from $113.5 million for the third quarter of 2016 to $116.4million for the third quarter of 2017. The following is a summary of revenue by category (in millions):~~

$ Change

% Change

Q3 2017

Q3 2016

Q3 2017 to
Q3 2016

Q3 2017 to
Q3 2016

National advertising revenue

$
84.5

$
82.3

$
2.2

2.7
%
Local and regional advertising revenue

25.2

23.7

1.5

6.3
%
Founding member advertising revenue from
beverage concessionaire agreements

6.7

7.5

(0.8
)

(10.7
%)
Total revenue

$
116.4

$
113.5

$
2.9

2.6
%

~~The following table shows data on theater attendance and revenue per attendee for the third quarter of 2017 and the third quarter of 2016:~~

% Change

Q3 2017

Q3 2016

Q3 2017 to
Q3 2016

National advertising revenue per attendee

$
0.561

$
0.458

22.5
%
Local and regional advertising revenue per attendee

$
0.167

$
0.132

26.5
%
Total advertising revenue (excluding founding
member beverage revenue) per attendee

$
0.728

$
0.590

23.4
%
Total advertising revenue per attendee

$
0.773

$
0.632

22.3
%
Total theater attendance (in millions) (1)

150.6

179.6

(16.1
%)

~~(1)~~

~~Represents the total attendance within our advertising network, excluding screens and attendance~~costs associated with ~~certain AMC Carmike, AMC Rave and Cinemark Rave theaters that are currently part~~the search for a new Company CEO during the first six months of ~~another cinema advertising network for all periods presented.~~

2019.

~~National advertising revenue.~~The $2.2 million, or 2.7%, increase in national advertising revenue (excluding beverage revenue from the founding members) was due primarily to an increase of $2.7 million, or 29.9%, in online, mobile and other revenue not included in the inventory measured by impressions sold or CPMs and a 2.0% increase in impressions sold, partially offset by a 2.7% decrease in national advertising CPMs (excluding beverage). The increase in impressions sold was due to higher demand in the scatter market in the third quarter of 2017, compared to the third quarter of 2016, partially offset by lower upfront and content partner spending quarter over quarter, which resulted in an increase in national inventory utilization from 132.5% in the third quarter of 2016 to 161.3% in the third quarter of 2017, on a 16.1% decrease in network attendance. 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 (excluding beverage) in the third quarter of 2017, compared to the third quarter of 2016, was due to lower CPMs on scatter revenue, and to a lesser extent on revenue from upfront advertisers, year over year.

~~Local and regional advertising revenue.~~ The $1.5 million, or 6.3%, increase in local and regional advertising revenue was primarily due to an increase in revenue from contracts over $100,000, driven primarily by higher advertising within the automotive category and a $0.6 million increase in online and mobile revenue during the third quarter of 2017, compared to the third quarter of 2016. These increases in local and regional advertising revenue were partially offset by lower revenue on contracts less than $100,000 in the third quarter of 2017, compared to the third quarter of 2016.

~~Founding member beverage revenue.~~ The $0.8 million, or 10.7%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to an 18.1% decrease in founding member attendance, partially offset by a 10.2% increase in beverage revenue CPMs, in the third quarter of 2017, compared to the third quarter of 2016. The 2017 beverage revenue CPM is based on the change in CPM during segment one of our pre-show from 2015 to 2016, which increased 10.2%.

~~Operating expenses.~~ ~~Total operating expenses increased$1.0million, or 1.5%, from $65.1 million for the third quarter of 2016 to $66.1million for the third quarter of 2017. The following table shows the changes in operating expense for the third quarter of 2017 and the third quarter of 2016 (in millions):~~

$ Change

% Change

Q3 2017

Q3 2016

Q3 2017 to
Q3 2016

Q3 2017 to
Q3 2016

Advertising operating costs

$
8.9

$
7.5

$
1.4

18.7
%
Network costs

3.7

4.1

(0.4
)

(9.8
%)
Theater access fees—founding members

18.1

19.2

(1.1
)

(5.7
%)
Selling and marketing costs

17.2

16.8

0.4

2.4
%
Administrative and other costs

8.8

8.6

0.2

2.3
%
Depreciation and amortization

9.4

8.9

0.5

5.6
%
Total operating expenses

$
66.1

$
65.1

$
1.0

1.5
%

~~Advertising operating costs.~~ Advertising operating costs increased $1.4 million, or 18.7%, from $7.5 million for the third quarter of 2016 to $8.9 million for the third quarter of 2017. This increase was primarily due to a $1.2 million increase in affiliate advertising payments related to higher revenue during the third quarter of 2017, compared to the third quarter of 2016 and a 14.6%, or 500 screen, increase in the number of average affiliate screens for the third quarter of 2017, compared to the third quarter of 2016.

~~Network costs.~~ Network costs decreased $0.4 million, or 9.8%, from $4.1 million for the third quarter of 2016 to $3.7 million for the third quarter of 2017. This decrease was primarily due to a $0.2 million decrease in personnel related expenses due primarily to a lower bonus expense (related to lower performance against internal targets) in the third quarter of 2017 compared to the third quarter of 2016.

~~Theater access fees—founding members.~~ Theater access fees decreased $1.1 million, or 5.7%, from $19.2 million for the third quarter of 2016 to $18.1 million for the third quarter of 2017. The decrease was due to a $1.3 million decrease in the expense associated with founding member attendance, partially offset by a $0.2 million increase in the expense associated with the founding member digital screens that are connected to the DCN, including higher quality digital cinema projectors and related equipment. The $1.3 million decrease in the theater access fee expense based upon attendance decreased $2.2 million due to a 18.1% decrease in founding member attendance, partially offset by $0.9 million increase due to a contractual 8% rate increase this year (the payment per patron rate increase occurs every five years with this increase taking place in 2017). The $0.2 million increase in digital screen fee expense increased primarily due to an annual 5% increase specified in the ESAs.

~~Selling and marketing costs.~~Selling and marketing costs increased $0.4 million, or 2.4%, from $16.8 million for the third quarter of 2016 to $17.2 million for the third quarter of 2017. These expenses increased $0.7 million in online publisher expense related to higher online and mobile revenue, partially offset by $0.3 million in personnel related expenses driven by a decrease in noncash share-based compensation expense (related to lower performance against internal targets).

~~Administrative and other costs.~~ Administrative and other costs increased $0.2 million, or 2.3%, from $8.6 million in the third quarter of 2016 to $8.8 million in the third quarter of 2017 due primarily to $0.2 million in legal and professional fees associated with the Final Judgement related to AMC’s acquisition of Carmike that were above the reimbursement limit in the MOU.

~~Depreciation and amortization.~~ Depreciation and amortization expense increased $0.5 million, or 5.6%, from $8.9 million for the third quarter of 2016 to $9.4 million for the third quarter of 2017 primarily due to an increase in depreciation expense driven by more software being placed into service during the period.

~~Non-operating expenses.~~ Total non-operating expenses decreased $11.7 million, or 42.1%, from $27.8 million for the third quarter of 2016 to $16.1 million for the third quarter of 2017. The following table shows the changes in non-operating expense for the third quarter of 2017 and the third quarter of 2016 (in millions):

$ Change

% Change

Q3 2017

Q3 2016

Q3 2017 to
Q3 2016

Q3 2017 to
Q3 2016

Interest on borrowings

$
13.1

$
14.3

$
(1.2
)

(8.4
%)
Interest income

(0.2
)

(0.3
)

0.1

(33.3
%)
Accretion of interest on the discounted
payable to founding members under
tax receivable agreement

3.2

3.4

(0.2
)

(5.9
%)
Loss on early retirement of debt

—

10.4

(10.4
)

(100.0
%)
Total non-operating expenses

$
16.1

$
27.8

$
(11.7
)

(42.1
%)

The decrease in non-operating expense was due primarily to the absence of a $10.4 million loss on early retirement of debt recorded in the third quarter of 2016 as a result of the redemption of senior unsecured notes and a $1.2 million decrease in interest on borrowings primarily related to a one-month period between the issuance of and redemption of notes during the third quarter of 2016, whereby interest was paid on both notes for one month in the third quarter of 2016.

~~Net Income~~. Net income increased $1.2 million from $8.2 million for the third quarter of 2016 to $9.4 million for the third quarter of 2017. The increase in net income was due to a decrease in non-operating expenses of $11.7 million, as discussed above and a $1.9 million increase in operating income, partially offset by a $9.0 million increase in net income attributable to noncontrolling interests related to higher consolidated net income and a $3.4 million increase in income tax expense related to higher taxable income and a decrease in the tax benefit realized quarter over quarter due to the reversals of the reserve for uncertain tax positions.

~~Nine Months Ended September 28, 2017 and September 29, 2016~~

~~Revenue~~. Total revenue decreased 6.5%, from $305.1 million for the nine months ended September 29, 2016 to $285.4 million for the nine months ended September 28, 2017. The following is a summary of revenue by category (in millions):

Nine Months Ended

$ Change

% Change

September 28,
2017

September 29,
2016

YTD 2017 to
YTD 2016

YTD 2017 to
YTD 2016

National advertising revenue

$
194.9

$
215.5

$
(20.6
)

(9.6
%)
Local and regional advertising revenue

67.8

67.8

—

0.0
%
Founding member advertising revenue from
beverage concessionaire agreements

22.7

21.8

0.9

4.1
%
Total revenue

$
285.4

$
305.1

$
(19.7
)

(6.5
%)

~~The following table shows data on theatre attendance and revenue per attendee for the nine months ended September 28, 2017 and September 29, 2016:~~

Nine Months Ended

% Change

September 28,
2017

September 29,
2016

YTD 2017 to
YTD 2016

National advertising revenue per attendee

$
0.396

$
0.411

(3.6
%)
Local and regional advertising revenue per attendee

$
0.138

$
0.129

7.0
%
Total advertising revenue (excluding founding
member beverage revenue) per attendee

$
0.534

$
0.541

(1.3
%)
Total advertising revenue per attendee

$
0.580

$
0.582

(0.3
%)
Total theater attendance (in millions) (1)

492.1

524.1

(6.1
%)

~~(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 $20.6 million, or 9.6%, decrease in national advertising revenue (excluding beverage revenue from NCM LLC’s founding members) was due primarily to an 8.5% decrease in national advertising CPMs (excluding beverage) and a 5.3% decrease in impressions sold in the first nine months of 2017, compared to the first nine months of 2016, partially offset by a $4.0 million, or 12.9%, increase in online, mobile and other revenue not included in the inventory measured by impressions sold or CPMs. The decrease in national advertising CPMs was due primarily to lower CPMs on revenue from upfront advertisers, including content partners, year over year. The decrease in national advertising impressions sold was primarily due to lower content partner spending and demand in the scatter market for the first nine months of 2017, compared to the first nine months of 2016. However, national inventory utilization remained almost consistent, with a slight increase from 112.9% in the first nine months of 2016 to 113.9% in the first nine months of 2017, on a 6.1% decrease in network attendance. 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 and regional advertising revenue.~~ Local and regional advertising revenue remained constant at $67.8 million for the first nine months of 2017 and 2016, primarily due to an increase in revenue from contracts over $100,000, driven primarily by higher sales within the automotive industry and a $1.5 million increase in online and mobile revenue during the first nine months of 2017, compared to the first nine months of 2016. These increases in local and regional advertising revenue were offset by an equivalent decrease in the amount of contracts less than $100,000 in the first nine months of 2017, compared to the first nine months of 2016.

~~Founding member beverage revenue.~~ The $0.9 million, or 4.1%, increase in national advertising revenue from the founding members’ beverage concessionaire agreements was due primarily to a 10.2% increase in beverage revenue CPMs, partially offset by an 8.0% decrease in founding member attendance in the first nine months of 2017, compared to the first nine months of 2016. The 2017 beverage revenue CPM is based on the change in CPM during segment one of our pre-show from 2015 to 2016, which increased 10.2%.

~~Operating expenses.~~ Total operating expenses decreased $2.7 million, or 1.3%, from $204.4 million for the nine months ended September 29, 2016 to $201.7 million for the nine months ended September 28, 2017. The following table shows the changes in operating expense for the nine months ended September 28, 2017 and September 29, 2016 (in millions):

Nine Months Ended

$ Change

% Change

September 28,
2017

September 29,
2016

YTD 2017 to
YTD 2016

YTD 2017 to
YTD 2016

Advertising operating costs

$
21.4

$
20.8

$
0.6

2.9
%
Network costs

11.9

12.9

(1.0
)

(7.8
%)
Theater access fees—founding members

57.4

56.8

0.6

1.1
%
Selling and marketing costs

54.2

54.5

(0.3
)

(0.6
%)
Administrative and other costs

28.6

32.9

(4.3
)

(13.1
%)
Depreciation and amortization

28.2

26.5

1.7

6.4
%
Total operating expenses

$
201.7

$
204.4

$
(2.7
)

(1.3
%)

~~Advertising operating costs.~~ Advertising operating costs increased $0.6 million, or 2.9%, from $20.8 million for the first nine months of 2016 to $21.4 million for the first nine months of 2017. This increase was primarily the result of a $1.0 million increase in affiliate advertising payments and a $0.6 million increase in personnel related expenses. The

increase in affiliate advertising payments was primarily driven by a 10.7%, or 367 screen, increase in the number of average affiliate screens for the first nine months of 2017, compared to the first nine months of 2016. The increase in personnel related expenses were primarily related to higher salary expense in the first nine months of 2017, compared to the first nine months of 2016. These increases in advertising operating costs were partially offset by a $1.0 million decrease in production costs related to lower revenue in the first nine months of 2017, compared to the first nine months of 2016.

~~Network costs.~~ Network costs decreased $1.0 million, or 7.8%, from $12.9 million for the first nine months of 2016 to $11.9 million compared to the first nine months of 2017. This decrease was primarily related to a $0.5 million decrease in personnel related expenses due to lower salaries and bonus expense (related to lower performance against internal targets) and a $0.2 million decrease in network maintenance costs related to our DCN in the first nine months of 2017, compared to the first nine months of 2016.

~~Theater access fees—founding members.~~ Theater access fees increased $0.6 million, or 1.1%, from $56.8 million for the first nine months of 2016 to $57.4 million for the first nine months of 2017. The increase was due to a $0.8 million increase in the expense associated with the founding member digital screens that are connected to the DCN, including higher quality digital cinema projectors and related equipment, partially offset by a $0.2 million decrease in the expense associated with founding member attendance in the first nine months of 2017, compared to the first nine months of 2016. The $0.8 million increase in digital screen fee expense increased primarily due to an annual 5% increase specified in the ESAs. The $0.2 million decrease in the theater access fee expense based upon attendance decreased $2.9 million due to an 8.0% decrease in founding member attendance, partially offset by an increase of $2.7 million due to a contractual 8% rate increase (the payment per patron rate increase occurs every five years with this increase taking place in 2017).

~~Selling and marketing costs.~~ Selling and marketing costs decreased $0.3 million, or 0.6%, from $54.5 million for the first nine months ended 2016 to $54.2 million for the first nine months ended 2017. This decrease was primarily due to a $1.8 million decrease in personnel related expenses due primarily to lower commission based expense and lower non-cash share-based compensation expense (related to lower revenue and lower performance against internal targets) and a $1.0 million decrease in non-cash barter expense related to the nature and timing of these expenses in the first nine months of 2017, compared to the first nine months of 2016. These decreases in selling and marketing costs were partially offset by a $2.4 million increase in non-cash impairment expense recorded during the first nine months of 2017, compared to the first nine months of 2016, related to investments obtained in prior years in exchange for advertising services.

~~Administrative and other costs.~~ Administrative and other costs decreased $4.3 million, or 13.1%, from $32.9 million for the first nine months of 2016 to $28.6 million for the first nine months of 2017 due primarily to 1) a $3.0 million decrease in CEO transition costs because of severance expense that occurred during the first nine months of 2016, and 2) $2.3 million of expense related to the modification of the former CEO’s equity awards that occurred during the first nine months of 2016. In addition, personnel related expenses decreased approximately $1.4 million during the first nine months of 2017, compared to the first nine months of 2016 due to lower bonus expense and non-cash share-based compensation (related to lower performance against internal targets). These decreases to administrative and other costs were partially offset by a $1.8 million early lease termination charge for our corporate headquarters (the payment of which was reimbursed by the new landlord).

~~Depreciation and amortization.~~ Depreciation and amortization expense increased $1.7 million, or 6.4%, from $26.5 million for the first nine months of 2016 to $28.2 million for the first nine months of 2017. The increase was due to an increase in depreciation expense primarily from more software being placed into service.

~~Non-operating expenses.~~ Total non-operating expenses decreased $12.9 million, or 21.3%, from $60.7 million for the nine months ended September 29, 2016 to $47.8 million for the nine months ended September 28, 2017. The following table shows the changes in non-operating expense for the nine months ended September 28, 2017 and September 29, 2016 (in millions):

Nine Months Ended

$ Change

% Change

September 28,
2017

September 29,
2016

YTD 2017 to
YTD 2016

YTD 2017 to
YTD 2016

Interest on borrowings

$
39.4

$
41.2

$
(1.8
)

(4.4
%)
Interest income

(1.0
)

(1.3
)

0.3

(23.1
%)
Accretion of interest on the discounted payable to founding members under tax receivable agreement

9.5

10.4

(0.9
)

(8.7
%)
Loss on early retirement of debt

—

10.4

(10.4
)

(100.0
%)
Other non-operating expense

(0.1
)

—

(0.1
)

(100.0
%)
Total non-operating expenses

$
47.8

$
60.7

$
(12.9
)

(21.3
%)

The decrease in non-operating expense was due primarily to the absence of a $10.4 million loss on early retirement of debt recorded in the first nine months of 2016 as a result of the redemption of senior unsecured notes and a $1.8 million decrease in interest on borrowings primarily related to a one-month period between the issuance of and redemption of notes during the third quarter of 2016, whereby interest was paid on both notes for one month in the third quarter of 2016.

~~Net Income~~. Net income decreased $4.8 million from $10.7 million for the first nine months of 2016 to $5.9 million for the first nine months of 2017. The decrease in net income was due to a $17.0 million decrease in operating income related to lower revenue as outlined above and a $1.3 million increase in income tax expense related to a decrease in the tax benefit realized period over period due to the reversals of the reserve for uncertain tax positions, partially offset by a $12.9 million decrease in non-operating expenses, as described further above, and a $0.6 million decrease in net income attributable to noncontrolling interests related to lower net income.

~~Known Trends and Uncertainties~~

~~Trends and Uncertainties Related to our Business, Industry and Corporate Structure~~

~~Our Marketplace—~~Changes in the current macro-economic environment and changes in the national, regional and local advertising markets present uncertainties that could impact our results of operations, including the timing and amount of spending from our advertising clients as expenditures from advertisers tend to be cyclical, reflecting overall economic conditions, as well as our clients’ budgeting and buying patterns. In the current environment, it is difficult to know if these changes are short-term or temporary in nature or are long-term trends and changes. These changes include increased competition related to the expansion of online and mobile advertising platforms as well as fluctuations from quarter to quarter of the demand from national and local advertisers. Further, we could negatively be impacted by factors that could reduce the viewership of our ~~Noovie~~ pre-show, such as the expansion of reserved seating (utilized in approximately 41.2% of our network as of October 3, 2017), online ticketing, an increase in the number and length of trailers for upcoming films, increased dwell time of patrons in exhibitor lobbies before showtime and lower network attendance, which could result from shortening of release windows, more alternative methods of delivering movies to consumers, lower consumer confidence and disposable income and a decline in the motion picture box office. These factors may affect the attractiveness of our offerings to advertisers. If pre-show viewership declines significantly, we will be required to provide additional advertising time (makegoods) to national advertisers to reach agreed-on audience delivery thresholds. National advertising sales and rates also are dependent on the methodology used to measure audience impressions. If a change is made to this methodology that reflects fewer audience impressions available during the pre-show, this would adversely affect our revenues and results of operations. The impact to our business associated with these issues could be mitigated over time due to factors including the increase in salable advertising impressions, better geographic coverage related to the expansion of our network, diversification and growth of our advertising client base, improvements in ~~Noovie~~ pre-show engagement and upgrades to our inventory management and data management systems. We could also benefit if the effectiveness of cinema advertising improves relative to other advertising mediums.

We continue to participate in the television upfront advertising selling process and believe that over time, a shift toward more upfront commitments would allow us to bundle several client flights throughout the year in an effort to stabilize month-to-month and quarter-to-quarter volatility. Consistent with the television industry upfront booking practices, a portion of our upfront commitments have cancellation options or options to reduce the amount that advertisers may purchase and we would need to rely on the scatter market to replace those commitments. In addition, advertising sold through our upfront commitments may be placed throughout the period very irregularly which may affect our overall sales; for example, if a substantial portion of advertising from our upfront commitments is scheduled for peak periods of advertising demand, we will have fewer peak period advertising slots available for sale into the higher priced scatter market. Volatility in scatter market demand could cause our financial results to vary period to period.

Our Network—The change in the number of screens in our network by the founding members and network affiliates during the ~~first nine~~six months ~~of 2017~~ended June 25, 2020 was as follows.

Number of screens

Founding Members

Network Affiliates

Total

Balance as of December 29, 2016

17,022

3,526

20,548

New affiliates (1)

—

475

475

AMC screen transfers (2)

(318
)

—

(318
)
Openings, net of closures

6

(50
)

(44
)
Balance as of September 28, 2017

16,710

3,951

20,661



	Number of screens
	Founding Members	Network Affiliates		Total
Balance as of December 26, 2019	16,880	4,328		21,208
Lost affiliates, net of new affiliates (1)	—	(175	)	(175	)
Openings, net of closures (2)	73	(98	)	(25	)
Balance as of June 25, 2020	16,953	4,055		21,008


(1)	Represents ~~five~~the loss of two of our affiliates that did not renew their contracts as of the end of the first quarter of 2020 resulting in a reduction of 185 affiliate screens to our network, offset by the addition of two new affiliates which added 10 new screens to our network during the ~~first nine~~six months ~~of 2017.~~ ended June 25, 2020.


(2)	~~Refer~~Excludes the temporary theater closures in response to ~~Memorandum of Understanding with AMC~~ ~~below for further information.~~ the COVID-19 Pandemic.

~~Thus far~~

Our founding member and network affiliate agreements allow us to sell cinema advertising across the largest network of digitally equipped theaters in ~~2017, we have also contracted with two more new network affiliates for 77 screens that will be added to our network later in 2017 and early 2018.~~the U.S. We believe that adding screens and attendees to our network will provide our advertising clients with a better marketing product with increased reach and improved geographic coverage. We have begun to offer our advertising clients better audience targeting capabilities and more robust campaign data analytics that we believe will provide a better product offering and should expand our overall national client base. We also believe that the continued growth of our market coverage ~~could strengthen~~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.~~

~~Memorandum~~platforms by allowing advertisers the broad reach and national scale that they need to effectively reach their target audiences.

Basis of ~~Understanding~~Presentation

The results of operations data for the three months ended June 25, 2020 (second quarter of 2020) and June 27, 2019 (second quarter of 2019) and the six months ended June 25, 2020 and June 27, 2019 was derived from the unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc. and should be read in conjunction with ~~AMC—During~~the notes thereto.

Results of Operations

Second Quarter of 2020 and Second Quarter of 2019

Revenue. Total revenue decreased 96.4%, from $110.2 million for the second quarter of 2019 to $4.0million for the second quarter of 2020. The following is a summary of revenue by category (in millions):



					$ Change			% Change
	Q2 2020		Q2 2019		Q2 2020 to Q2 2019			Q2 2020 to Q2 2019
National and regional advertising revenue	$	1.7	$	84.3	$	(82.6	)	(98.0	)%
Local advertising revenue	2.3		17.7		(15.4		)	(87.0	)%
Founding member advertising revenue from beverage concessionaire agreements	—		8.2		(8.2		)	(100.0	)%
Total revenue	$	4.0	$	110.2	$	(106.2	)	(96.4	)%

The Company did not include revenue per attendee data for the second quarter of 2020 given the minimal amount of attendance and revenue as the metrics were not meaningful.

National and regional advertising revenue. The $82.6 million, or 98.0%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising during the second quarter of 2020. The national and regional advertising revenue recognized in the second quarter of 2020 was primarily related to revenue associated with our digital service offerings.

Local advertising revenue. The $15.4 million, or 87.0%, decrease in local advertising revenue was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising during the second quarter of 2020. The local advertising revenue recognized in the second quarter of 2020 was primarily related to revenue associated with our digital service offerings.

Founding member beverage revenue. The $8.2 million, or 100.0%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus there not being any attendees upon which beverage revenue is based.

Operating expenses. Total operating expenses decreased$44.7million, or 61.7%, from $72.5 million for the second quarter of 2019 to $27.8million for the second quarter of 2020. The following table shows the changes in operating expense for the second quarter of 2020 (in millions):



					$ Change			% Change
	Q2 2020		Q2 2019		Q2 2020 to Q2 2019			Q2 2020 to Q2 2019
Advertising operating costs	$	1.1	$	9.9	$	(8.8	)	(88.9	)%
Network costs	1.6		3.4		(1.8		)	(52.9	)%
Theater access fees and revenue share—founding members	—		21.6		(21.6		)	(100.0	)%
Selling and marketing costs	6.7		16.2		(9.5		)	(58.6	)%
Administrative and other costs	7.4		11.1		(3.7		)	(33.3	)%
Impairment of long-lived assets	1.7		—		1.7			100.0	%
Depreciation expense	3.2		3.3		(0.1		)	(3.0	)%
Amortization of intangibles recorded for network theater screen leases	6.1		7.0		(0.9		)	(12.9	)%
Total operating expenses	$	27.8	$	72.5	$	(44.7	)	(61.7	)%

Advertising operating costs. Advertising operating costs decreased $8.8 million, or 88.9%, from $9.9 million for the second quarter of 2019 to $1.1 million for the second quarter of 2020. The decrease was due to an $8.3 million decrease in advertising affiliate payments due to the temporary closure of almost all the affiliate theaters within our network in response to the COVID-19 Pandemic and a $0.4 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Network costs. Network costs decreased $1.8 million, or 52.9%, from $3.4 million for the second quarter of 2019 to $1.6 million for the second quarter of 2020. The decrease was primarily related to a $1.3 million decrease in personnel

related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a $0.3 million decrease in maintenance expenses related to our Digital Content Network due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

Theater access fees and revenue share—founding members. Theater access fees and revenue share decreased $21.6 million, or 100.0%, from $21.6 million in the second quarter of 2019 to $0.0 million in the second quarter of 2020. The decrease was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic. The Company did not owe the founding members any theater access fees as the theaters were not displaying the Company's pre-show and the Company did not have access to the theaters.

Selling and marketing costs. Selling and marketing costs decreased $9.5 million, or 58.6%, from $16.2 million for the second quarter of 2019 to $6.7 million for the second quarter of 2020. This decrease was primarily related to a $6.1 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic, as well as, a decrease in commission and bonus expense due to the revenue declines in the second quarter of 2020, as compared to the second quarter of 2019. Selling and marketing costs also decreased $1.7 million related to non-essential operating expenditures including marketing, research and employee travel that were suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic, $1.1 million due to a decrease in barter expense and $0.7 million due to a decrease bad debt expense related to the revenue declines in the second quarter of 2020, as compared to the second quarter of 2019. These decreases were partially offset by a $0.6 million increase in expense associated with our Cinema Accelerator service offering for the second quarter of 2020, compared to the second quarter of 2019.

Administrative and other costs. Administrative and other costs decreased $3.7 million, or 33.3%, from $11.1 million in the second quarter of 2019 to $7.4 million in the second quarter of 2020. This decrease was primarily due to a $3.5 million decrease in personnel related expenses due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance-based compensation expense accrued following lower projected performance against internal bonus and performance based restricted stock targets as of the second quarter of 2020, compared to the second quarter of 2019. Administrative and other costs also decreased $0.5 million due to a decrease in consulting services and $0.2 million lower CEO transition costs. These decreases were partially offset by a $0.7 million increase in legal and professional expenses primarily related to legal services obtained related to the various implications of the COVID-19 Pandemic.

Impairment of long-lived assets. Impairment of long-lived assets increased $1.7 million, or 100.0%, from $0.0 million in the second quarter of 2019 to $1.7 million in the second quarter of 2020. This increase in impairment expense was primarily related to the write-off of certain long-lived assets during the second quarter of 2020.

Depreciation expense. Depreciation expense decreased $0.1 million, or 3.0%, from $3.3 million for the second quarter of 2019 to $3.2 million for the second quarter of 2020.

Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen leases decreased $0.9 million, or 12.9%, from $7.0 million for the second quarter of 2019, to $6.1 million for the second quarter of 2020, primarily due to the four year extension of the contractual life of the intangible assets for Cinemark and Regal following the 2019 ESA Amendments during the third quarter of 2019.

Non-operating expenses. Total non-operating expenses decreased $0.6 million, or 4.2%, from $14.4 million for the second quarter of 2019 to $13.8 million for the second quarter of 2020. The following table shows the changes in non-operating expense for the second quarter of 2020 and the second quarter of 2019 (in millions):



							$ Change			% Change
	Q2 2020			Q2 2019			Q2 2020 to Q2 2019			Q2 2020 to Q2 2019
Interest on borrowings	$	13.6		$	14.2		$	(0.6	)	(4.2	)%
Interest income	(0.3		)	(0.5		)	0.2			(40.0	)%
Loss on modification and retirement of debt, net	0.3			—			0.3			(100.0	)%
Loss on the re-measurement of the payable to founding members under the tax receivable agreement	0.1			0.8			(0.7		)	(87.5	)%
Other non-operating expense (income)	0.1			(0.1		)	0.2			(200.0	)%
Total non-operating expenses	$	13.8		$	14.4		$	(0.6	)	(4.2	)%

The decrease in non-operating expense was primarily due to a $0.7 million decrease in the loss on the re-measurement of the payable to founding members under the TRA due to a smaller increase in the deferred state tax rate in the second quarter of 2020, as compared to the second quarter of 2019, and a $0.6 million decrease in interest on borrowings due to a 0.83% decrease in the weighted average interest rate, partially offset by an increase in the weighted average balance of debt outstanding for the second quarter of 2020, as compared to the second quarter of 2019. These decreases were partially offset by a $0.3 million increase in the loss on modification and retirement of debt, net due to the Credit Agreement Amendment that occurred in the second quarter of 2020 and a $0.2 million decrease in interest income on the Company's marketable securities due to a decrease in the rate of return and the outstanding balance of securities in the second quarter of 2020 as compared to the second quarter of 2019.

Income Tax Benefit. Income Tax Benefit increased from income tax expense of $2.3 million for the second quarter of 2019 to income tax benefit of $4.2 million for the second quarter of 2020. The increase in income tax benefit was primarily due to the decrease in pretax book income attributable to NCM Inc. from income of $11.1 million for the second quarter of 2019 to loss of $18.0 million for the second quarter of 2020. This increase in income tax benefit was partially offset by an increase in income tax expense due to a much smaller increase in the deferred state tax rate during the second quarter of 2020, as compared to the second quarter of 2019.

Net Loss. Net loss increased $22.7 million from net income of $8.9 million for the second quarter of 2019 to net loss of $13.8 million for the second quarter of 2020. The increase in net loss was due to a $61.5 million increase in operating loss, partially offset by a $31.7 million increase in net loss attributable to noncontrolling interests, a $6.5 million increase in income tax benefit and a $0.6 million decrease in non-operating expenses.

Six months ended June 25, 2020 and June 27, 2019

Revenue. Total revenue decreased 63.3%%, from $187.1 million for the six months ended June 27, 2019 to $68.7 million for the six months ended June 25, 2020. The following is a summary of revenue by category (in millions):



	Six Months Ended				$ Change			% Change
	June 25, 2020		June 27, 2019		YTD 2020 to YTD 2019			YTD 2020 to YTD 2019
National and regional advertising revenue	$	51.5	$	141.7	$	(90.2	)	(63.7	)%
Local advertising revenue	11.7		30.5		(18.8		)	(61.6	)%
Founding member advertising revenue from beverage concessionaire agreements	5.5		14.9		(9.4		)	(63.1	)%
Total revenue	$	68.7	$	187.1	$	(118.4	)	(63.3	)%

The following table shows data on theater attendance and revenue per attendee for the six months ended June 25, 2020 and June 27, 2019:



	Six Months Ended				% Change
	June 25, 2020		June 27, 2019		YTD 2020 to YTD 2019
National and regional advertising revenue per attendee	$	0.427	$	0.424	0.7	%
Local advertising revenue per attendee	$	0.097	$	0.091	6.6	%
Total advertising revenue (excluding founding member beverage revenue) per attendee	$	0.524	$	0.516	1.6	%
Total advertising revenue per attendee	$	0.570	$	0.560	1.8	%
Total theater attendance (in millions) (1)	120.6		334.0		(63.9	)%

________________________________________________________


(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 were part of another cinema advertising network for certain periods presented.

National and regional advertising revenue. The $90.2 million, or 63.7%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was primarily due to a 60.8% decrease in impressions sold due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising beginning in mid-March 2020 through the end of the second quarter of 2020. National advertising CPMs for the impressions delivered prior to the temporary theater closures also decreased 8.7% driven by a decrease in upfront and scatter market CPMs due to the churn of certain higher CPM deals that shifted to 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 six months ended June 25, 2020, as compared to the six months ended June 27, 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 $18.8 million, or 61.6%, decrease in local advertising revenue was primarily due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising beginning in mid-March 2020 through the end of the second quarter of 2020. The decrease is also due to a decrease in the volume of contracts and the average contract value for the portion of the six months ended June 25, 2020 that the theaters were open, compared to the same time period during the six months ended June 27, 2019.

Founding member beverage revenue. The $9.4 million, or 63.1%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a 64.0% decrease in founding member attendance for the six months ended June 25, 2020, as compared to six months ended June 27, 2019, due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

Operating expenses. Total operating expenses decreased $50.9 million, or 36.8%, from $138.5 million for the six months ended June 27, 2019 to $87.6 million for the six months ended June 25, 2020. The following table shows the changes in operating expense for the six months ended June 25, 2020 and June 27, 2019 (in millions):



	Six Months Ended				$ Change			% Change
	June 25, 2020		June 27, 2019		YTD 2020 to YTD 2019			YTD 2020 to YTD 2019
Advertising operating costs	$	7.3	$	17.2	$	(9.9	)	(57.6	)%
Network costs	4.5		6.9		(2.4		)	(34.8	)%
Theater access fees and revenue share—founding members	17.7		40.7		(23.0		)	(56.5	)%
Selling and marketing costs	20.6		31.4		(10.8		)	(34.4	)%
Administrative and other costs	17.2		21.8		(4.6		)	(21.1	)%
Impairment of long-lived assets	1.7		—		1.7			100.0	%
Depreciation expense	6.4		6.6		(0.2		)	(3.0	)%
Amortization of intangibles recorded for network theater screen leases	12.2		13.9		(1.7		)	(12.2	)%
Total operating expenses	$	87.6	$	138.5	$	(50.9	)	(36.8	)%

Advertising operating costs. Advertising operating costs decreased $9.9 million, or 57.6%, from $17.2 million for the six months ended June 27, 2019 to $7.3 million for the six months ended June 25, 2020. The decrease was due to a $9.6 million decrease in advertising affiliate payments due to the temporary closure of almost all the affiliate theaters within our network in response to the COVID-19 Pandemic from mid-March through the end of the second quarter of 2020 and a $0.3 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Network costs. Network costs decreased $2.4 million, or 34.8%, from $6.9 million for the six months ended June 27, 2019 to $4.5 million for the six months ended June 25, 2020. The decrease was primarily related to a $1.8 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and 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 six months ended June 25, 2020 primarily caused by the adverse impact of the COVID-19 Pandemic and a $0.4 million decrease in maintenance expense primarily related to our Digital Content Network due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

Theater access fees and revenue share—founding members. Theater access fees and revenue share decreased $23.0 million, or 56.5%, from $40.7 million for the six months ended June 27, 2019 to $17.7 million for the six months ended June 25, 2020. The decrease was primarily due to a 64.0% decrease in founding member attendance for the six months ended June 25, 2020, as compared to six months ended June 27, 2019, due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic. The Company did not owe the founding members any theater access fees for the period the theaters were not displaying the Company's pre-show and the Company did not have access to the theaters. These decreases were partially offset by $1.6 million of payments in the six months ended June 25, 2020 to Cinemark and Regal as compensation for post-showtime advertising in accordance with the 2019 ESA Amendments and $0.5 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 25, 2020), including higher quality digital cinema projectors and related equipment, due to the annual 5% rate increase specified in the ESAs.

Selling and marketing costs. Selling and marketing costs decreased $10.8 million, or 34.4%, from $31.4 million for the six months ended June 27, 2019 to $20.6 million for the six months ended June 25, 2020. This decrease was primarily related to a $7.5 million decrease in personnel related expenses primarily due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic, as well as, a decrease in commission and bonus expense due to the revenue declines in the six months ended June 25, 2020, as compared to the six months ended June 27, 2019. Selling and marketing costs also decreased $2.0 million related to non-essential operating expenditures, including marketing, research, consulting and employee travel that were suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic and a $1.4 million due to a decrease in barter expense for the six months ended June 25, 2020, compared to the six months ended June 27, 2019. These decreases were partially offset by a $0.8 million increase in expense associated with our Cinema Accelerator service offering for the six months ended June 25, 2020, compared to the six months ended June 27, 2019.

Administrative and other costs. Administrative and other costs decreased $4.6 million, or 21.1%, from $21.8 million for the six months ended June 27, 2019 to $17.2 million for the six months ended June 25, 2020. Administrative and other costs decreased primarily due to a $3.5 million decrease in personnel related expenses due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance-based compensation expense accrued following lower projected performance against performance based restricted stock targets as of June 25, 2020, compared to June 27, 2019. Administrative and other costs also decreased $0.7 million due to a decrease in consulting services and $0.3 million due to lower CEO transition costs.

Impairment of long-lived assets. Impairment of long-lived assets increased $1.7 million, or 100.0%, from $0.0 million in the six months ended June 27, 2019 to $1.7 million in the six months ended June 25, 2020. This increase in impairment expense was primarily related to the write-off of certain long-lived assets during the second quarter of 2020.

Depreciation expense. Depreciation expense decreased $0.2 million, or 3.0%, from $6.6 million for the six months ended June 27, 2019 to $6.4 million for the six months ended June 25, 2020.

Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen leases decreased $1.7 million, or 12.2%, from $13.9 million for the six months ended June 27, 2019, to $12.2 million for the six months ended June 25, 2020, primarily due to the four year extension of the

contractual life of the intangible assets for Cinemark and Regal following the 2019 ESA Amendments during the third quarter of 2019.

Non-operating expenses. Total non-operating expenses decreased $1.2 million, or 4.2%, from $28.5 million for the six months ended June 27, 2019 to $27.3 million for the six months ended June 25, 2020. The following table shows the changes in non-operating expense for the six months ended June 25, 2020 and June 27, 2019 (in millions):



	Six Months Ended						$ Change			% Change
	June 25, 2020			June 27, 2019			YTD 2020 to YTD 2019			YTD 2020 to YTD 2019
Interest on borrowings	$	27.2		$	28.6		$	(1.4	)	(4.9	)%
Interest income	(0.5		)	(1.0		)	0.5			(50.0	)%
Loss (gain) on modification and retirement of debt, net	0.3			(0.3		)	0.6			(200.0	)%
Loss on the re-measurement of the payable to founding members under the tax receivable agreement	0.3			1.5			(1.2		)	(80.0	)%
Other non-operating income	—			(0.3		)	0.3			(100.0	)%
Total non-operating expenses	$	27.3		$	28.5		$	(1.2	)	(4.2	)%

The decrease in non-operating expense was primarily due to a decrease of $1.4 million in interest on borrowings due to a 0.66% decrease in the weighted average interest rate, partially offset by an increase in the weighted average balance of debt outstanding for the six months ended June 25, 2020, as compared to the six months ended June 27, 2019and a decrease of $1.2 million in the loss on the re-measurement of the payable to founding members under the TRA due to a smaller increase in the deferred state tax rate in the six months ended June 25, 2020 as compared to the six months ended June 27, 2019. These decreases were partially offset by a 1) $0.6 increase in the loss (gain) on modification and retirement of debt, net primarily related to the Credit Agreement Amendment that occurred in the second quarter of 2020 and the absence of a gain realized on the repurchase of a portion of the Notes due 2026 in the first quarter of ~~2017,~~2019 and 2) a $0.5 million decrease in interest income on the Company's marketable securities due to a decrease in the rate of return and the outstanding balance of securities in the second quarter of 2020 as compared to the second quarter of 2019.

Income Tax Benefit. Income Tax Benefit increased from income tax expense of $1.7 million for the six months ended June 27, 2019 to income tax benefit of $4.6 million for the six months ended June 25, 2020. The increase in income tax benefit was primarily due to the decrease in pretax book income attributable to NCM Inc. ~~and NCM LLC entered into~~from income of $9.4 million for the six months ended June 27, 2019 to loss of $22.0 million for the six months ended June 25, 2020. This increase in income tax benefit was partially offset by an increase in income tax expense due to a ~~binding MOU with AMC to effectuate aspects of~~ much smaller increase in the ~~Final Judgment entered into by~~deferred state tax rate for the ~~DOJ in connection with AMC’s acquisition of Carmike. Pursuant~~six months ended June 25, 2020 as compared to the ~~MOU, AMC received NCM LLC common membership units~~six months ended June 27, 2019.

Net Loss. Net loss increased $25.3 million from net income of $7.8 million for the six months ended June 27, 2019 to net loss of $17.5 million for the six months ended June 25, 2020. The increase in ~~respect~~net loss was due to a $67.5 million increase in operating loss, partially offset by a $34.7 million increase in net loss attributable to noncontrolling interests, a $6.3 million increase in income tax benefit and $1.2 million decrease in non-operating expenses.

Known Trends and Uncertainties

COVID-19—As discussed within the 'Recent Developments' section, due to the COVID-19 Pandemic, the Company was unable to advertise in the theaters, and thus generate the majority of its revenue, for the ~~annual attendance at such Carmike theaters in accordance with~~three months ended June 25, 2020 and for the ~~Common Unit Adjustment Agreement during the first quarter~~remaining duration of ~~2017. Since these theaters are subject to an existing on-screen advertising agreement with an alternative provider, AMC will make integration payments to us reflecting the estimated~~ ~~advertising cash flow~~time that ~~we would have generated if we had exclusive access to sell advertising in those theaters. The integration payments will continue until the earlier of (i) the date~~ the theaters are ~~transferred~~generally 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 were not incurred for three months ended June 25, 2020 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 ~~network or (ii)~~business in future periods. However, we are monitoring the ~~expiration~~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 ~~ESA. Integration payments are calculated based upon~~COVID-19 Pandemic commonly referred to as 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 and fluctuate based on earnings and Adjusted OIBDA.CARES Act. The ~~ESA additionally entitles NCM LLC to payments related~~CARES Act made changes 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 and nine months ended September 28, 2017 and September 29, 2016, the Company recorded a reduction to net intangible assets of $6.9 million, $0.7 million, $11.6 million and $1.5 million, respectively, related to integration and other encumbered theater payments. During the three and nine months ended September 28, 2017 and September 29, 2016, AMC and Cinemark paid a total of $4.6~~million, $0.7 million, $6.1million and $1.7 million, respectively.~~

~~Further, during the first quarter of 2017,~~ AMC transferred 17 theaters (318 screens) to another advertising provider in accordance with the Final Judgment, for which AMC surrendered NCM LLC common membership units during the first quarter of 2017. At the end of the 10-year term of the Final Judgment, these theaters will revert back to us. Also, in April 2017, AMC completed a sale of five theaters onU.S. tax code that affect our network pursuant to the Final Judgment. AMC will surrender NCM LLC common unit membership units to NCM LLC for these divestures pursuant to the Common Unit Adjustment Agreement at the next Adjustment Date. These 22 transferred and sold theaters represent approximately 1.3% of our total theater network as of September 28, 2017. The Common Unit Adjustments are discussed further within ~~Trends Related to Ownership in NCM LLC~~ ~~below.~~

~~Lastly, AMC also agreed to reimburse us for our incurred and ongoing costs and expenses in connection with the Final Judgment~~fiscal year ending December 31, 2020, including, but not limited to, ~~our financial advisor~~(1) reducing the limitation on deductible interest expense, (2) changing uses and ~~legal fees up to $1.0 million~~limitations of ~~such costs~~net operating losses generated in tax years 2018, 2019, and ~~expenses. During~~2020, (3) deferring the ~~first nine months~~payment of ~~2017, we incurred $1.3million~~the 6.2% FICA portion of ~~these costs,~~Company's payroll taxes beginning on the

enactment date through December 31, 2020 until the end of ~~which $1.0 million was recorded as a reduction to “Amounts due to founding members” within~~2021 for one-half of the ~~Condensed Consolidated Balance Sheets~~tax and the remaining ~~$0.3 million is included within administrative costs~~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 impact of these relief measures that are estimable as of June 25, 2020 have been incorporated within the ~~Condensed Consolidated Income Statement.~~

~~Utilization and Pricing~~— We have experienced volatility in our pricing (CPMs) over the years, with annual national CPM increases (decreases) ranging from (16.4%) to 9.6% over the last four years. In the first nine months of 2017, we experienced a decline of 8.5%, in national advertising CPMs (excluding beverage revenue) compared to the first nine months of 2016. This volatility in pricing can be driven by increased competition from other national video networks, including online and mobile advertising platforms, television networks and other out-of-home video networks and seasonal marketplace supply and demand characteristics. Volatility in pricing is also caused by changes in our customer mix period to period due to the variation in CPMs charged to each customer. We have also experienced volatility in our utilization over the years, with annual national inventory utilization ranging from 109.3% to 128.3% over the last four years. We experience even more substantial volatility quarter-to-quarter. This volatility in utilization can be driven by the loss or addition of one or more significant national contracts, whereby the timing and amount of these national contracts can be based upon the advertising budgets of our customers, product launches, theCompany's financial ~~performance of our customers or other industry or macro-economic factors. We expect our CPMs and utilization to continue to be impacted period to period based upon the factors described above.~~

statements.

Beverage Revenue—Under the ESAs, up to 90 seconds of theNooviepre-show program can be sold to the founding members to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. For the first ~~nine~~three and six months of ~~2017~~2020 and ~~2016,~~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 ~~acquired~~required as part of these beverage concessionaire agreements decline, ~~with the other founding members,~~ 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 theNooviepre-show, limited to the highest advertising CPM being then-charged by NCM ~~LLC. Due to a 10.2% increase~~LLC, which in ~~segment one CPMs in 2017,~~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 quarter~~period of ~~2017 by 10.2% and~~time that our founding members' theaters are closed due to the ~~remainder~~COVID-19 Pandemic. Further, attendance may be lower than historical levels following the re-opening of ~~2017 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 ~~this~~the next increase occurring ~~for~~in fiscal year ~~2017 and~~2022. Pursuant to the ESAs, the payment per digital screen increases annually by 5%. Pursuant to the ~~ESAs, the~~2019 ESA Amendments, Cinemark and Regal each receive an additional monthly theater access fee ~~paid~~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 ~~of NCM LLC included an additional fee for~~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 ~~higher quality~~theaters. As such, the Company did not owe these fees for the three months ended June 25, 2020 and will not owe these fees during the duration a founding member's theaters are closed in connection with the COVID-19 Pandemic. The digital ~~cinema systems. This additional~~screen fee is calculated based upon average screens in use during each month. No digital screen fees were incurred for the three months ended June 25, 2020 and no fees will ~~continue to increase as additional~~be incurred for the months where no screens are ~~equipped with~~in use and fees will be reduced for months where screens are in use for only part of the ~~new digital cinema equipment and~~month. Further, attendance may be lower than historical levels following the ~~fee increases annually by 5%. As~~re-opening of ~~September 28, 2017, 97% of our founding member network screens were showing advertising on digital cinema projectors, and thus~~theaters which could reduce the ~~future impact on the~~Company’s theater access fee related to additional digital cinema installations within existing founding member theaters is expected to be minimal. 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 September 28, 2017 and December 29, 2016~~, we had no liabilities recorded~~ fees.

Platinum Spot—In consideration for the ~~minimum payment, as the theater access fee was in excess~~utilization of the ~~minimum.~~

~~Trends~~theaters post-showtime for Platinum Spots, Cinemark and ~~Uncertainties Related~~Regal receive 25% of all revenue generated for the actual display of Platinum Spots in their applicable theaters, subject to ~~Liquidity and Financial Performance~~

~~Debt~~—During the past several years, we amended our senior secured credit facility to extend the maturity, expand the revolver availability and reduce the interest rate spreads. In August 2016, we completed a ~~private placement of $250.0 million~~specified minimum. If NCM LLC runs advertising in ~~aggregate principal amount of 5.750% Senior Unsecured Notes due in 2026. A~~more than one concurrent advertisers’ Platinum Spot for any portion of the ~~proceeds were used to redeem our $200.0 million 7.875% Senior Unsecured Notes due in 2021. The remaining proceeds, after the payment~~network over a period of fees and the redemption premium were used to pay down the balance on our revolving credit facility. As a result of these financing transactions on our revolving credit facility and senior notes, we extended the average maturities of our debt and as of September 28, 2017 the weighted average remaining maturity was 5.0 years. As of September 28, 2017, approximately 71% of our total borrowings bear interest at fixed rates. The remaining 29% 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 the interest paid on our borrowings.

~~The senior secured credit facility contains a number of covenants and financial ratio requirements, with which~~time, then NCM LLC ~~was in compliance at September 28, 2017, including a consolidated net senior secured leverage ratio as of September 28, 2017 of 3.2~~versus a covenant of 6.5 times for each quarterly period. For purposes of calculating the net consolidated senior secured leverage ratio (senior secured debt divided by Adjusted OIBDA), Adjusted OIBDA includes integration payments by the founding members. NCM LLC is permitted to make quarterly dividend payments and other payments based on leverage ratios for NCM LLC and its subsidiary so long as no default or event of default has occurred and continues to occur. The quarterly dividend payments and other distributions are made if the consolidated net senior secured leverage ratio is less than or equal to 6.5 times. Refer to Note 5—~~Borrowings~~ ~~to the unaudited Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for more information regarding the Company’s borrowings.~~

~~Dividends~~— At times our cash flow available for the payment of dividends (NCM LLC’s Adjusted OIBDA, less capital expenditures, interest expense, distributions to NCM LLC’s founding members, income taxes, tax receivable agreement payments to NCM LLC’s founding members and plus integration payments and certain other cash items) has been less than our regular dividend payment. Any deficit has been funded by NCM, Inc.’s cash and marketable securities balances. We expect that such deficits may occur in the future depending on factors such as future operating performance and the number of shares of NCM, Inc. common stock outstanding. We expect to fund any future deficits with NCM, Inc.’s cash and marketable securities balances. As of September 28, 2017, these cash and marketable securities balances totaled $47.3million (excluding NCM LLC). We intend to pay a regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors consistent with our intention to distribute over time a substantial portion of our free cash flow. The declaration, payment, timing and amount 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, the Company’s financial condition, available cash, current and anticipated cash needs, and any other factors that the Board of Directors considers relevant. While it is the intention of the Company to continue our practice of distributing a high proportion of our free cash flow, actual results, ongoing reinvestment in our network and product offerings, as well as, prudent capital management may reduce such distributable free cash flow in future periods. As a result, the Board of Directors continues to review these factors to determine a sustainable distribution rate which balances our operating and strategic needs with those of our lenders and stockholders.

~~Trends Related to Ownership in NCM LLC~~

~~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 2017, the following Common Unit Adjustments occurred:~~

~~Annual Common Unit Adjustment for 2016 Fiscal Year~~—During the first quarter of 2017, NCM LLC issued approximately 2.4 million 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 2016 fiscal year.

~~Extraordinary Common Unit Adjustment for AMC’s Acquisition of Carmike~~—Pursuant to the MOU, NCM LLC issued approximately 18.4 million NCM LLC common membership units to AMC in respect of the annual attendance at Carmike theaters in accordance with the Common Unit Adjustment Agreement. AMC’s acquisition of Carmike meets the criteria for a Common Unit Adjustment for this acquisition because it resulted in an extraordinary attendance increase of approximately 9.5%.

~~Surrendered Units for AMC Screen Transfers~~—The Final Judgment required AMC to transfer advertising rights to 17 theaters from NCM LLC to another advertising provider. Pursuant to the MOU, AMC surrendered approximately 4.7 million NCM LLC common membership units in respect of such theaters. The 4.7 million NCM LLC common membership units were comprised of (i) approximately 2.9 million NCM LLC common membership units pursuant to the adjustment for divested theaters in the Common Unit Adjustment Agreement and (ii) approximately 1.8 million NCM LLC common membership units valued at $25.0 million ~~to compensate for lost operating income for these theaters during the 10-year term of the Final Judgment~~.

During the third quarter of 2017, AMC exercised the redemption right of an aggregate 14.6 million common membership units for the like number of shares of NCM, Inc.’s common stock. The Company accounted for the change in its ownership interest in NCM LLC as an equity transaction and no gain or loss was recognized in the Condensed Consolidated Statements of Income.

Overall, NCM, Inc.’s ownership in NCM LLC increased to 48.8% as of September 28, 2017 compared to 43.7% at December 29, 2016 due primarily to AMC’s redemption of units for shares of NCM, Inc.’s common stock, partially offset by the common unit adjustments described above, which has proportionally increased net income attributable to NCM, Inc. and decreased net income attributable to noncontrolling interests.

~~AMC Mandatory Ownership Divestitures—Pursuant to the Final Judgment,~~ ~~AMC is~~ required to ~~divest the majority~~satisfy a minimum average CPM for that period of its equity interests in NCM LLC and NCM, Inc., so that by June 20, 2019 it owns no more than 4.99% of NCM LLC’s common membership units and NCM, Inc. common stock, taken together, on a fully converted basis (“NCM’s outstanding equity interests”). AMC must complete the divestiture per the following schedule: (i) on or before December 20, 2017, AMC must own no more than 15.0% of NCM’s outstanding equity interests, (ii) on or before December 20, 2018, AMC must own no more than 7.5% of NCM’s outstanding equity interests and (iii) on or before June 20, 2019, AMC must own no more than 4.99% of NCM’s outstanding equity interests. Pursuant to the MOU, AMC also has agreed, among other things, subject to limited exceptions to retain at least 4.5% of NCM’s outstanding equity interests during the term of the Final Judgment, subject to certain exceptions which allow for certain sell downs after the 30-month anniversary of the MOU. As of September 28, 2017, AMC owned 17.0% of NCM’s outstanding equity interests. On September 29, 2017, AMC sold 2.8 million shares of NCM, Inc. common stock and as of September 29, 2017 AMC owned 15.2% of NCM’s outstanding equity interests. When AMC redeems its common membership units for NCM, Inc. common stock, NCM, Inc.’s ownership would increase proportionally and the number of shares outstanding of NCM, Inc. common stock would increase, which would also result in greater dividend payments by NCM, Inc. The increase in NCM, Inc.’s ownership would also result in higher available cash payments to NCM, Inc. (and lower available cash payments to AMC).

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 ~~Senior Secured~~ Notes due 2026 and ~~Senior Unsecured~~ Notes due 2028, income tax payments, ~~tax receivable agreement~~TRA payments to NCM LLC’s founding members and amount of quarterly dividends to NCM, Inc.’s common ~~stockholders (including special dividends)~~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, while the theaters within our network are temporarily closed. With the exception of collecting accounts receivable balances outstanding as of March 26, 2020, the Company has 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 also had reduced cash payments during the period the theaters are closed as expenses related to theater attendance are

not 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. In March 2020, we drew down an additional $110.0 million on our revolving credit facility. Further, as of March 26, 2020, we had approximately $112.3 million of trade accounts receivable outstanding from customers, of which we have collected approximately $89.7 million as of June 25, 2020, increasing our cash and marketable securities balance to $249.9 million as of June 25, 2020 ($168.1 million at NCM LLC) and reducing trade accounts receivable to $25.3 million. The $168.1 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, from the approximate $25.3 million of trade accounts receivable outstanding from customers as of June 25, 2020, we have collected approximately $12.0 million as of July 31, 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 and collection of the accounts receivable balance, 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 at least the next twelve months.

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


	As of						$ Change			$ Change			As of						$ Change			$ Change
	September 28, 2017		December 29, 2016		September 29, 2016		Q3 2017 to YE 2016			Q3 2017 to Q3 2016			June 25, 2020		December 26, 2019		June 27, 2019		Q2 2020 to YE 2019			Q2 2020 to Q2 2019
Cash, cash equivalents and marketable securities (1)	$	49.9	$	68.7	$	54.0	$	(18.8	)	$	(4.1	)	$	249.9	$	80.9	$	61.7	$	169.0		$	188.2
NCM LLC revolver availability (2)		170.2		158.8		170.8		11.4			(0.6	)	4.4		132.4		143.2		(128.0		)	(138.8		)
Total liquidity	$	220.1	$	227.5	$	224.8	$	(7.4	)	$	(4.7	)	$	254.3	$	213.3	$	204.9	$	41.0		$	49.4

_________________________

~~(1)~~

(1)

Included in cash, cash equivalents and marketable securities as of ~~September 28, 2017,~~June 25, 2020, December ~~29, 2016~~26, 2019 and ~~September 29, 2016,~~June 27, 2019, was ~~$2.6~~$168.1 million, ~~$10.7~~$11.4 million and ~~$1.4~~$4.6 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)~~

(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 ~~September 28, 2017,~~June 25, 2020, December ~~29, 2016~~26, 2019 and ~~September 29, 2016.~~June 27, 2019. As of ~~September 28, 2017,~~June 25, 2020, December ~~29, 2016~~26, 2019 and ~~September 29, 2016,~~June 27, 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 $167.0 million, $39.0 million and $27.0 million, respectively, and net letters of credit of $3.6 million, $3.6 million and $4.8 million, ~~$1.2 million and $1.2 million,~~ respectively.

As of June 25, 2020, the weighted average remaining maturity of our debt was 6.0 years. As of June 25, 2020, approximately 59% of our total borrowings bear interest at fixed rates. The remaining 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):

Nine Months Ended

September 28,
2017

September 29,
2016

Operating cash flow

$
104.0

$
90.9

Investing cash flow

$
18.5

$
(5.1
)
Financing cash flow

$
(115.1
)

$
(111.9
)

~~Operating Activities.~~ ~~The $13.1~~
Six Months Ended
June 25, 2020 June 27, 2019
Operating cash flow $ 107.4
$ 59.3
Investing cash flow $ 15.5
$ 10.6
Financing cash flow $ 66.6
$ (68.5 )

•

Operating Activities. The $48.1 million increase in cash provided by operating activities for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 was primarily due to a $122.3 million larger decrease in the accounts receivable balance during the six months ended June 25, 2020, as compared to the six months ended June 27, 2019, related to the collection of the accounts receivable balance and a decrease in

revenue described above and a $13.9 million decrease in the payment to founding members under the TRA due to the postponement of the original due date for the Company's U.S. federal income tax return to July 15, 2020 from April 15, 2020. These increases in cash provided by operating activities ~~for~~were partially offset by 1) a $60.0 million decrease in consolidated net income due the ~~nine~~temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic, 2) a $9.0 million larger decrease in accounts payable and accrued expenses during the six months ended ~~September 28, 2017,~~June 25, 2020 as compared to the ~~nine~~six months ended ~~September 29, 2016 was due primarily to an increase in the change in accounts receivable of $26.1 million~~June 27, 2019, related to ~~higher collections during~~ the ~~nine months ended September 28, 2017, compared to~~decrease in operating expenses for the ~~nine months ended September 29, 2016, and~~corresponding periods as described above, 3) a ~~$6.2~~$7.3 million decrease in ~~payments~~deferred income tax expense and the loss on re-measurement of the payable to founding members under the TRA primarily due to the Company recognizing an income tax ~~receivable agreement, partially offset~~benefit in the six months ended June 25, 2020 driven by the Company's consolidated net loss for the period, 4) a ~~$17.0~~$6.9 million decrease in ~~operating income, as discussed above.~~

~~Investing Activities.~~ ~~The $23.6 million increase in cash provided by investing activities for~~ the ~~nine months ended September 28, 2017, compared to the nine months ended September 29, 2016 was~~amounts due ~~primarily to lower purchases of marketable securities, net of proceeds, of approximately $21.2 million and $1.4 million higher proceeds from founding member notes receivable due to timing of payments.~~

~~Financing Activities.~~ The $3.2 million increase in cash used in financing activities for the nine months ended September 28, 2017, compared to the nine months ended September 29, 2016 was due primarily to $37.4 million of proceeds from the issuance of the Senior Notes due 2026, net of the redemption of the Senior Notes due 2021 in the first nine months of 2016 and a $17.9 million increase in distributions to founding members, ~~partially offset by $48.0~~5) a $3.3 million ~~of higher repayments, net of proceeds, under our revolving credit facility~~decrease in deferred revenue and 6) a ~~$4.4~~$2.5 million ~~increase~~decrease in ~~integration payments and other encumbered theater payments~~non-cash share-bared compensation expense primarily related to ~~founding member encumbered theater acquisitions~~a decrease in ~~the first nine months~~performance-based compensation expense accrued following lower projected performance against performance based restricted stock targets as of ~~2017,~~June 25, 2020, compared to ~~the first nine months of 2016.~~

June 27, 2019.

•
Investing Activities. The $4.9 million increase in cash provided by investing activities for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 was primarily due to a $4.7 million increase in proceeds from the sale of marketable securities, net of purchases and a $1.6 million decrease in purchases of property and equipment for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 driven by the Company's measures to preserve cash in response to the COVID-19 Pandemic, partially offset by a $1.4 million decrease in proceeds from the founding member notes receivable.
•
Financing Activities. The $135.1 million increase in cash provided by financing activities for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 was primarily due to a $128.0 million increase in proceeds from our revolving credit facility, net of repayments made early in 2020, in order to fund operations during the period of expected reduced cash flows due to the temporary closure of the theaters within NCM LLC's network to address the COVID-19 Pandemic. The increase was also due to a $6.2 million decrease in dividends paid related to the a decrease in the dividend amount declared from $0.17 in the second quarter of 2019 to $0.07 in the second quarter of 2020, and the absence of a $4.6 million repurchase of the retired Notes due 2026 that occurred in the first quarter of 2019. These increases were partially offset by a $2.8 million increase in distributions to founding members in the six months ended June 25, 2020, compared to the six months ended June 27, 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 ~~September 28, 2017~~June 25, 2020 were ~~$47.3~~$81.8 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 decrease in cash provided by operating activities during the period our network theaters are closed. The $168.1 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 June 25, 2020, we had approximately $25.3 million of trade accounts receivable from customers, of which we have collected approximately $12.0 million as of July 31, 2020. Management believes that cash on hand following the additional draw down on the revolving credit facility, collection of the $25.3 million trade accounts receivable balance at June 25, 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 and capital ~~expenditure and other investing requirements,~~expenditures through at least 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. As of June 25, 2020, NCM LLC was in compliance with the requirements of the Credit Agreement Amendment.

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, stock option exercises, interest on borrowings under~~ our ~~revolving credit agreement~~network theaters 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 Credit Agreement Amendment. 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 ~~(NCM LLC’s founding members~~(Regal, Cinemark, AMC and NCM, Inc.). The available cash distribution to the members of NCM LLC for the ~~nine~~three months ended ~~September 28, 2017~~June 25, 2020 was calculated as approximately ~~$86.4~~negative $30.0 million, of which approximately ~~$39.0~~$14.4 million was ~~distributed to~~with NCM, Inc. Pursuant to the NCM LLC Operating Agreement and the Credit Agreement Amendment, there will be no available cash distributions made for the second quarter of 2020. These second quarter of 2020 negative available cash distributions are expected to be netted against any positive available cash distribution related to the second quarter of 2021, to be paid in the third quarter of 2021, if the Company is in compliance with the Credit Agreement Amendment requirements noted above and sufficient positive available cash is generated.

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 ~~tax receivable agreement~~TRA with the founding members, including the TRA payment of $12.8 million made on July 15, 2020, and current and future dividends as declared by the Board of Directors, including a dividend declared on ~~November~~August 3, ~~2017~~2020 of ~~$0.22~~$0.07 per share (approximately ~~$16.8~~$5.5 million) on each share of the Company’s common stock (not including outstanding restricted stock) to stockholders of record on ~~November 16, 2017~~August 17, 2020 to be paid on ~~December 1, 2017. Distributions from NCM LLC and NCM, Inc. cash balances~~August 31, 2020. These items should be sufficient to fund payments associated with the ~~tax receivable agreement~~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 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 substantially all its free cash 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 ~~take into account~~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.~~

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 ~~29, 2016~~26, 2019 and incorporated by reference herein. As of ~~September 28, 2017,~~June 25, 2020, there were no significant changes in those critical accounting ~~policies.~~

policies except for the change in allowance for doubtful accounts upon the adoption of ASC 326 in the first quarter of 2020 and discussed further within Note 1—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 4—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

~~Our operating lease obligations, which primarily include office leases,~~

We do not believe the Company has any off-balance sheet arrangements that are ~~not reflected on~~material to our ~~balance sheet.~~ 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 ~~29, 2016~~26, 2019 and incorporated by reference herein. ~~We do not believe these arrangements are material to our current or future financial condition, results of operations, liquidity, capital resources or capital expenditures.~~

~~Contractual and Other Obligations~~

There were no material changes to our contractual obligations during the ~~three~~six months ended ~~September 28, 2017.~~

June 25, 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~~Historically, both advertising expenditures and theater attendance ~~tend~~have tended 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 ~~lower theater industry attendance levels.~~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 ~~2014, 2015~~2017, 2018 and ~~2016.~~

2019.

First

Second

Third

Fourth

Quarter

Quarter

Quarter

Quarter

FY 2014

17.8%

25.4%

25.6%

31.2%

FY 2015

17.2%

27.2%

25.0%

30.6%

FY 2016

17.0%

25.8%

25.4%

31.8%



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
FY 2017	16.9	%	22.8	%	27.3	%	33.0	%
FY 2018	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 ~~September 28, 2017,~~June 25, 2020, the only interest rate risk that we are exposed to is related to our $175.0 million revolving credit facility and our ~~$270.0 million~~ 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 ~~$2.7~~$4.3 million for an annual period on the ~~$270.0~~$167.0 million revolving credit balance and $265.3 million term loan outstanding as of ~~September 28, 2017. For a discussion~~June 25, 2020.

In response to the COVID-19 Pandemic, the government lowered the Federal Reserve interest rate leading to historically low interest rates as of ~~market risks, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” contained in our annual report on Form 10-K for~~June 25, 2020 that has had the ~~fiscal year ended December 29, 2016 and incorporated by reference herein.~~

effect of reducing the Company's interest rate risk.

Item 4. Controls and Procedures

~~We maintain~~

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 ~~by us~~ in the Company's reports ~~that we file or submit to the SEC~~filed under the Exchange Act, ~~as amended,~~ is recorded, processed, summarized and reported within the time periods specified by the ~~Commission’s~~SEC’s rules and forms, and that such information is accumulated and communicated to ~~our~~ 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. ~~As of September 28, 2017, our management evaluated,~~

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.~~Act as of June 25, 2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based on ~~that~~such evaluation, the Company’s ~~management~~Chief Executive Officer concluded that the Company’s disclosure controls and procedures as of ~~September 28, 2017~~June 25, 2020 were effective.

~~There~~

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 ~~in the Company’s~~to our internal ~~controls~~control over financial reporting that occurred during the quarter ended ~~September 28, 2017~~June 25, 2020 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal ~~controls~~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

Excluding the risk ~~factor~~factors outlined ~~further~~ 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 ~~28, 2017~~20, 2020 for the fiscal year ended December ~~29, 2016.~~

~~The markets~~26, 2019 and updated in our quarterly report on Form 10-Q filed with the SEC on May 5, 2020 for ~~advertising~~the quarter ended March 26, 2020.

Pandemics, epidemics or disease outbreaks, such as the novel coronavirus (COVID-19 virus), have disrupted and are ~~competitive~~continuing 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 are continuing 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. As of June 25, 2020, almost all of the theaters within our network remained close and we were unable to advertise in the theaters that opened. Certain of our founding members have announced that they do not expect to open the majority of their theaters until later in 2020, and some of our other affiliates have indicated that they have opened and will either continue, or begin, to open theaters as legal restrictions ease. However, we cannot predict when all of our theaters will reopen, what type of restrictions may be ~~unable~~in place once theaters reopen, when large audiences will feel comfortable returning to ~~compete successfully~~

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 ~~market for advertising is very competitive. Cinema advertising is a small component~~COVID-19 Pandemic has also adversely affected film production and may adversely affect the pipeline of ~~video advertising~~feature films available in the ~~U.S.~~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 ~~thus, we must compete~~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 ~~established, larger and better known national and local media platforms such as cable, broadcast and satellite television networks~~our landlords, vendors and other ~~video media platforms including those distributed~~business partners to manage costs, and implementing an active cash management process.

The impact, extent and duration of the government-imposed restrictions on ~~the internet~~travel, public gatherings, other events and mobile networks. In addition to these video advertising platforms, we compete for advertising directly with several additional media platforms, including radio, various local print media and billboards. We also compete with several other local and national cinema advertising companies. We expect all of these competitors to devote significant effort to maintaining and growing their business at our expense. We also expect existing competitors and new entrants to the advertising business, most notably the online and mobile advertising companies, to constantly revise and improve their business models to meet expectations of advertising clients or competing media platforms, including us. In addition, the pricing and volume of advertising may be affected by shifts in spending toward online and mobile offerings from more traditional media, or toward new ways of purchasing advertising, such as through automated purchasing, dynamic advertising insertion, third parties selling local advertising posts and advertising exchanges, some or all of which may not be as advantageous to the Company as current advertising methods. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions,generally, as well as ~~budgeting~~the overall effect of the COVID-19 virus is currently unknown but has had and ~~buying patterns. A decline in~~is continuing to have a material adverse impact on our business, liquidity, financial conditions and/or results of operations. Even when the ~~economic prospects of advertisers or the economy in general could alter current or prospective advertisers’ spending priorities. If~~COVID-19 Pandemic subsides, we cannot ~~respond~~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 or increases in rates of infection such as 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;

due to adverse business impacts, advertisers may be less willing to invest in advertising and may prioritize other types of investment during the COVID-19 Pandemic;

advertisers may be unwilling to enter into upfront advertising arrangements with us or commit to allocate budgets to cinema advertising due to uncertainty regarding the opening of cinemas and the availability of other advertising options;

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 affect 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 ~~changes in the media marketplace in response to new entrants or advances by~~service our existing ~~competitors,~~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. Many of our clients and prospective clients have experienced significant negative impacts from the COVID-19 Pandemic and have decreased advertising budgets during the COVID-19 Pandemic. Additionally, a significant number of small businesses have temporarily or permanently closed, which may reduce local advertising revenue. 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, ~~may be adversely affected.~~

~~In addition, advertisers’ willingness to purchase advertising from the Company may be adversely affected by lower theater attendance and viewership of our~~ ~~Noovie~~ pre-show. If pre-show viewership declines significantly, the Company will be required to provide additional advertising time (makegoods) to national advertisers to reach agreed-on audience delivery thresholds. National advertising sales and rates also are dependent on the methodology used to measure audience impressions. If a change is made to this methodology that reflects fewer audience impressions available during the pre-show, this would adversely affect the Company’s revenueliquidity, financial condition and results of operations.

Additionally, although we have sought certain benefits under the CARES ACT and are reviewing and intend to seek any other available benefits that would positively impact the Company under the CARES Act and associated regulations and any other government action, 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. Government or third-party program administrators may impose additional conditions and restrictions on our operations or may otherwise provide less relief than we expect. Our response to the COVID-19 Pandemic, including accessing potential benefits from the CARES Act, has required our management team to devote extensive resources and is likely to continue to do so in the near future, which may negatively affect 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 and Form 10-Q filed with the SEC on May 5, 2020 the three months ended March 26, 2020, 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.

Item 2. Unregistered Sales of ~~Equi~~tyEquity 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

(a)
Total Number of Shares Purchased

(b)
Average Price Paid Per Share

(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

(d)
Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs
June 30, 2017 through July 27, 2017

985

$
7.53

—

N/A
July 28, 2017 through August 31 2017

3,527

$
6.98

—

N/A
September 1, 2017 through September 28, 2017

—

$
—

—

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
March 27, 2020through April 23, 2020	—	$	—	—	N/A
April 24, 2020 through May 21, 2020	6,688	$	3.14	—	N/A
May 22, 2020 through June 25, 2020	—	$	—	—	N/A

Item 3. Defaults Upon Senior Securities

~~None~~

None.

Item 4. Mine Safety Disclosures

Not ~~Applicable~~

Applicable.

Item 5. Other Information

~~None~~

None.

Item 6. Exhibits



Exhibit	Reference	Description

10.1	(1)	Amendment No. 1 to the Employment Agreement, dated as of April 30, 2020, by and between National CineMedia, Inc. and Scott Felenstein.
10.2	(2)	National CineMedia, Inc. 2020 Omnibus Plan.
10.3	(3)	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.
10.4	*	Amendment No. 1 to the Consulting Agreement, dated as of December 18, 2019, by and between National CineMedia, Inc. and Katherine L. Scherping.
10.5	*	Form of 2020 Stock Option Agreement. +
10.6	*	Form of 2020 Restricted Stock Unit Agreement (Time Based). +
10.7	*	Form of 2020 Restricted Stock Unit Agreement (Director). +
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.SCH	*	Inline XBRL Taxonomy Extension Schema Document
101.CAL	*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

__________________________________

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

~~31.1~~ *	*	~~Rule 13a-14(a) Certification of Chief Executive Officer.~~ Filed herewith.
~~31.2~~ **	*	~~Rule 13a-14(a) Certification of Chief Financial Officer.~~ Furnished herewith.
~~32.1~~ +	**	~~Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.~~ Management contract.
~~32.2~~ (1)	**	~~Certification of Chief Financial Officer Pursuant~~Incorporated by reference to ~~18 U.S.C. Section 1350.~~ Exhibit 10.1 to the Registrant's Current Report on for 8-K (File No. 001-33296) filed on May 1, 2020.
~~101.INS~~ (2)	*	~~XBRL Instance Document~~ Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on for 8-K (File No. 001-33296) filed on May 1, 2020.
~~101.SCH~~ (3)	*	~~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~~



		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.

*	~~Filed herewith.~~

**	~~Furnished herewith.~~

~~SIGNATURES~~

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:	~~November 7, 2017~~ August 3, 2020	/s/ ~~Andrew J. England~~ Thomas F. Lesinski
		~~Andrew J. England~~ Thomas F. Lesinski
		Chief Executive Officer and Director
		(Principal Executive Officer and Interim Principal Financial Officer)

				NCM, Inc.
											Retained
								Additional			Earnings
								Paid in			(Distribution
				Common Stock				Capital			in Excess of			Noncontrolling
	Consolidated			Shares		Amount		(Deficit)			Earnings)			Interest
Balance—December 31, 2015	$	(171.7	)		59,239,154	$	0.6	$	(221.5	)	$	(186.1	)	$	235.3
Distributions to founding members		(35.2	)		—		—		—			—			(35.2	)
NCM LLC equity issued for purchase of intangible asset		21.1			—		—		9.2			—			11.9
Income tax and other impacts of NCM LLC ownership changes		(2.8	)		—		—		(4.2	)		—			1.4
Comprehensive income, net of tax		38.7			—		—		—			10.7			28.0
Share-based compensation issued		(4.4	)		614,652		—		(4.4	)		—			—
Share-based compensation expense/capitalized		14.0			—		—		9.4			—			4.6
Cash dividends declared $0.66 per share		(41.0	)		—		—		—			(41.0	)		—
Balance— September 29, 2016	$	(181.3	)		59,853,806	$	0.6	$	(211.5	)	$	(216.4	)	$	246.0

Balance—December 29, 2016	$	(181.2	)		59,874,412	$	0.6	$	(207.7	)	$	(215.6	)	$	241.5
Distributions to founding members		(47.4	)		—		—		—			—			(47.4	)
NCM LLC equity issued for purchase of intangible asset		201.8			—		—		78.8			—			123.0
Income tax and other impacts of NCM LLC ownership changes		(32.2	)		—		—		16.2			—			(48.4	)
Issuance of shares		77.8			14,600,000		0.2		77.6			—			—
NCM, Inc. investment in NCM LLC		(77.8	)		—		—		(77.8	)		—			—
Comprehensive income, net of tax		33.3			—		—		—			5.9			27.4
Share-based compensation issued		(4.0	)		755,886		—		(4.0	)		—			—
Share-based compensation expense/capitalized		8.6			—		—		5.3			—			3.3
Cash dividends declared $0.66 per share		(40.8	)		—		—		—			(40.8	)		—
Balance—September 28, 2017	$	(61.9	)		75,230,298	$	0.8	$	(111.6	)	$	(250.5	)	$	299.4

	Three Months Ended				Nine Months Ended
Included in the Condensed Consolidated Statements of Income:	September 28, 2017		September 29, 2016		September 28, 2017		September 29, 2016
Revenue:
Beverage concessionaire revenue (included in advertising revenue) (1)	$	6.7	$	7.5	$	22.7	$	21.8
Advertising inventory revenue (included in advertising revenue) (2)		—		0.1		—		0.3
Operating expenses:
Theater access fee (3)		18.1		19.2		57.4		56.8
Purchase of movie tickets and concession products and rental of theater space (included in selling and marketing costs) (4)		0.4		0.4		1.2		1.2
Purchase of movie tickets and concession products and rental of theater space (included in advertising operating costs) (4)		—		—		0.1		—
Purchase of movie tickets and concession products and rental of theater space (included in administrative and other costs) (4)		—		—		—		0.1
Non-operating expenses:
Interest income from notes receivable (included in interest income) (5)		0.2		0.2		0.5		0.6

	As of
Included in the Condensed Consolidated Balance Sheets:	September 28, 2017		December 29, 2016
Current portion of notes receivable - founding members (1)		4.2		5.6
Long-term portion of notes receivable - founding members (1)		8.3		8.3
Interest receivable on notes receivable (included in other current assets) (1)		0.1		0.3
Common unit adjustments, net of amortization and integration payments (included in intangible assets) (2)		702.2		529.9
Current payable to founding members under tax receivable agreement (3)		15.9		18.4
Long-term payable to founding members under tax receivable agreement (3)		144.2		143.4

			Fair Value Measurements at Reporting Date Using
	Fair Value as of September 28, 2017		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)	$	22.3	$	22.3	$	—	$	—
Short-term marketable securities (2)		3.7		2.0		1.7		—
Long-term marketable securities (2)		15.8		13.7		2.1		—
Total assets	$	41.8	$	38.0	$	3.8	$	—

			Fair Value Measurements at Reporting Date Using
	Fair Value as of December 29, 2016		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)	$	5.3	$	0.3	$	5.0	$	—
Short-term marketable securities (2)		26.1		5.2		20.9		—
Long-term marketable securities (2)		19.6		17.3		2.3		—
Total assets	$	51.0	$	22.8	$	28.2	$	—

	As of September 28, 2017
	Amortized Cost Basis (in millions)		Aggregate Fair Value (in millions)		Maturities (1) (in years)
MARKETABLE SECURITIES:
Short-term U.S. government treasury bonds	$	1.2	$	1.2		0.1
Short-term U.S. government agency bonds		0.8		0.8		0.9
Short-term certificates of deposit		1.7		1.7		0.2
Total short-term marketable securities		3.7		3.7

Long-term municipal bonds		1.9		1.9		2.4
Long-term U.S. government agency bonds		11.9		11.8		2.5
Long-term financial certificates of deposit:		2.1		2.1		2.0
Total long-term marketable securities		15.9		15.8
Total marketable securities	$	19.6	$	19.5

	As of December 29, 2016
	Amortized Cost Basis (in millions)		Aggregate Fair Value (in millions)		Maturities (1) (in years)
MARKETABLE SECURITIES:
Short-term U.S. government treasury bonds	$	1.2	$	1.2		0.8
Short-term municipal bonds		2.9		2.9		0.6
Short-term U.S. government agency bonds		1.0		1.0		0.5
Short-term commercial paper		13.0		13.0		0.1
Short-term certificates of deposit:
Financial		7.7		7.7		0.6
Industrial		0.3		0.3		0.9
Total short-term marketable securities		26.1		26.1

Long-term municipal bonds		1.9		1.8		2.7
Long-term U.S. government agency bonds		15.6		15.5		3.5
Long-term certificates of deposit		2.2		2.3		2.6
Total long-term marketable securities		19.7		19.6
Total marketable securities	$	45.8	$	45.7

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
FY 2014		17.8%		25.4%		25.6%		31.2%
FY 2015		17.2%		27.2%		25.0%		30.6%
FY 2016		17.0%		25.8%		25.4%		31.8%

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs
June 30, 2017 through July 27, 2017		985	$	7.53		—	N/A
July 28, 2017 through August 31 2017		3,527	$	6.98		—	N/A
September 1, 2017 through September 28, 2017		—	$	—		—	N/A

~~Delaware~~

~~20-5665602~~

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)