What changed in this filing

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Item 1. Financial Statements

2020-11-02 compared with 2020-08-03 · 259 added, 215 removed, 532 unchanged (47% of the section changed)

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(In millions, except share and per share data)

June 25, 2020

December 26, 2019

September 24, 2020 December 26, 2019

CURRENT ASSETS:

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Debt issuance costs, net 3.6 3.9

Other assets 25.4 24.3

Total non-current assets 864.4 875.7

TOTAL ASSETS $ 1,097.8 $ 1,130.0

LIABILITIES AND EQUITY/(DEFICIT)

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Long-term debt, net of debt issuance costs of $ 8.4 and $ 9.0 , respectively

1,050.5 923.9

Payable to founding members under tax receivable agreement (including payables to related

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(In millions, except share and per share data)

Three Months Ended

Six Months Ended

June 25, 2020

Three Months Ended Nine Months Ended

September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019

REVENUE (including revenue from related parties of $ 0.2 , $ 5.7 , $ 4.5 and $ 17.5 , respectively)

$ 6.0 $ 110.5 $ 74.7 $ 297.6

OPERATING EXPENSES:

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Theater access fees and revenue share to founding members (including fees to related parties of $ 1.0 , $ 13.5 , $ 13.6 and $ 40.9 , respectively)

1.8 20.1 19.5 60.8

Selling and marketing costs 7.5 17.0 28.1 48.4

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Amortization of intangibles recorded for network theater screen leases 6.2 6.8 18.4 20.7

Total 27.3 70.5 114.9 209.0

OPERATING (LOSS) INCOME ( 21.3 ) 40.0 ( 40.2 ) 88.6

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

Loss on re-measurement of the payable to founding members under the tax receivable agreement

(Gain) loss on re-measurement of the payable to founding members under the tax receivable agreement ( 1.0 ) ( 0.5 ) ( 0.7 ) 1.0

Other non-operating expense (income) 0.1 — 0.1 ( 0.3 )

Total 12.7 12.9 40.0 41.4

(LOSS) INCOME BEFORE INCOME TAXES ( 34.0 ) 27.1 ( 80.2 ) 47.2

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NET (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.

$ ( 12.7 ) $ 9.2 $ ( 30.2 ) $ 17.0

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.

$ ( 12.7 ) $ 9.2 $ ( 30.2 ) $ 17.0

NET (LOSS) INCOME PER NCM, INC.

COMMON SHARE:

Basic $ ( 0.16 ) $ 0.12 $ ( 0.39 ) $ 0.22

Diluted $ ( 0.16 ) $ 0.12 $ ( 0.39 ) $ 0.22

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic 78,016,737 77,356,833 77,925,552 77,293,234

Diluted 78,016,737 77,883,571 77,925,552 77,687,393

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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(In millions) (UNAUDITED)

Six Months Ended

June 25, 2020

June 27, 2019

Nine Months Ended

September 24, 2020 September 26, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

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Impairment of long-lived assets 1.7 —

Impairment on investment — 2.0

Amortization of debt issuance costs 1.9 1.9

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

Non-cash (gain) loss on re-measurement of the payable to founding members under

the tax receivable agreement ( 0.7 ) 1.0

Other — ( 0.9 )

Payments to third parties for extension of intangible assets — ( 0.6 )

Proceeds from disposition of intangible assets by network affiliates — 0.5

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payments to related parties of $ 9.0 and $ 9.8 , respectively)

Other cash flows from operating activities

( 12.8 ) ( 14.0 )

Changes in operating assets and liabilities:

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Deferred revenue ( 0.6 ) 3.1

Other, net ( 2.3 ) ( 2.6 )

Net cash provided by operating activities 85.9 113.6

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(In millions)

Six Months Ended

Nine Months Ended

September 24, 2020 September 26, 2019

Supplemental disclosure of non-cash financing and investing activity:

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and $ 22.4 , respectively)

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)

Accrued integration and other encumbered theater payments due from founding members $ — $ 5.2

(Decrease) increase in dividend equivalent accrual not requiring cash in the period $ ( 0.2 ) $ 0.8

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(In millions, except share and per share data)

Paid in Capital (Deficit)

(Distribution in Excess of Earnings)

Noncontrolling Interest

Balance—March 28, 2019

Paid in Capital (Deficit) Retained

(Distribution in Excess of Earnings) Noncontrolling Interest

Consolidated Shares Amount

Balance—June 27, 2019 $ ( 110.5 ) 77,349,628 $ 0.8 $ ( 211.9 ) $ ( 172.6 ) $ 273.2

Distributions to founding members ( 22.5 ) — — — — ( 22.5 )

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Cash dividends declared $ 0.17 per share

( 13.5 ) — — — ( 13.5 ) —

Balance—September 26, 2019 $ ( 122.3 ) 77,362,387 $ 0.8 $ ( 210.8 ) $ ( 176.9 ) $ 264.6

Balance—June 25, 2020 $ ( 175.0 ) 78,000,338 $ 0.8 $ ( 209.1 ) $ ( 207.4 ) $ 240.7

Balance—March 26, 2020

Income tax and other impacts of NCM LLC ownership changes

Comprehensive loss, net of tax ( 30.9 ) — — — ( 12.7 ) ( 18.2 )

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Cash dividends declared $ 0.07 per share

Balance—June 25, 2020

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)

(In millions, except share and per share data)

Paid in Capital (Deficit)

(Distribution in Excess of Earnings)

Noncontrolling Interest

( 5.5 ) — — — ( 5.5 ) —

Balance—September 24, 2020 $ ( 210.4 ) 78,037,611 $ 0.8 $ ( 208.4 ) $ ( 225.6 ) $ 222.8

Paid in Capital (Deficit) Retained

(Distribution in Excess of Earnings) Noncontrolling Interest

Consolidated Shares Amount

Balance—December 27, 2018 $ ( 89.2 ) 76,976,398 $ 0.8 $ ( 215.2 ) $ ( 153.6 ) $ 278.8

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Cash dividends declared $ 0.51 per share

Balance—June 27, 2019

( 40.3 ) — — — ( 40.3 ) —

Balance—September 26, 2019 $ ( 122.3 ) 77,362,387 $ 0.8 $ ( 210.8 ) $ ( 176.9 ) $ 264.6

Balance—December 26, 2019 $ ( 121.2 ) 77,568,986 $ 0.8 $ ( 209.2 ) $ ( 171.1 ) $ 258.3

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Cash dividends declared $ 0.33 per share

Balance—June 25, 2020

( 25.5 ) — — — ( 25.5 ) —

Balance—September 24, 2020 $ ( 210.4 ) 78,037,611 $ 0.8 $ ( 208.4 ) $ ( 225.6 ) $ 222.8

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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The Company operates the largest cinema advertising network reaching movie audiences in the U.S., allowing NCM LLC to sell advertising under long-term exhibitor services agreements (“ESAs”) with the founding members and certain third-party theater circuits, referred to in this document as “network affiliates” under long-term network affiliate agreements.

Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed to address the COVID-19 Pandemic.

As of June 25, 2020, almost all of the theaters within our network remained closed.

The Company was unable to advertise in the theaters, and thus did not generate any in-theater revenue, during the three months ended June 25, 2020 and are not able to advertise in theaters for the duration of time that the theaters remain closed.

Beginning in mid-March 2020, each of the Company’s founding members and all of its network affiliates announced that their theaters would be temporarily closed to address the COVID-19 Pandemic and almost all of the theaters within the Company’s network remained closed until late August 2020.

The Company generated no in-theater advertising revenue for the period that the theaters were closed.

On September 4, 2020, the Company resumed advertising within the theaters that were open in its network, however, in-theater advertising revenue continues to be adversely impacted as attendance remains restricted by government mandated patron capacity limitations and a continued lack of new major motion picture releases.

As of September 24, 2020, approximately two-thirds of the theaters within the Company’s network had reopened.

In October 2020, Regal announced the re-closure of its theaters in the United States and as October 30, 2020, approximately 53 % of theaters within our network are open.

These developments will be referred to as the “COVID-19 Pandemic.”

On September 17, 2019, NCM LLC entered into amendments to the ESAs with Cinemark and Regal (collectively, the “2019 ESA Amendments”).

The 2019 ESA Amendments extended the contract life of the ESAs with Cinemark and Regal by four years resulting in a weighted average remaining term of the ESAs with the founding members (based on attendance) of approximately 19.3 years as of June 25, 2020 .

The network affiliate agreements expire at various dates between September 2020 and July 2031.

The weighted average remaining term (based on 2019 attendance) of the ESAs and the network affiliate agreements together is 16.8 years as of June 25, 2020 .

As of June 25, 2020 , NCM LLC had 162,531,666 common membership units outstanding, of which 78,000,338 ( 48.0 % ) were owned by NCM, Inc., 42,290,694 ( 26.0 % ) were owned by Regal, 40,850,068 ( 25.1 % ) were owned by Cinemark and 1,390,566 ( 0.9 % ) were owned by AMC.

The network affiliate agreements expire at various dates between January 2021 and July 2031.

The weighted average remaining term (based on 2019 attendance) of the ESAs and the network affiliate agreements together is 16.5 years as of September 24, 2020.

As of September 24, 2020, NCM LLC had 162,568,939 common membership units outstanding, of which 78,037,611 ( 48.0 %) were owned by NCM, Inc., 42,290,694 ( 26.0 %) were owned by Regal, 40,850,068 ( 25.1 %) were owned by Cinemark and 1,390,566 ( 0.9 %) were owned by AMC.

The membership units held by the founding members are exchangeable into NCM, Inc.

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Historically, the Company’s business has been seasonal and for this and other reasons operating results for interim periods have not been indicative of the Company’s full year results or future performance.

Given the temporary closure of the theaters within the Company's network, management expects the Company's 2020 quarterly results to vary from historical trends.

Given the temporary closure of the theaters within the Company's network in 2020, management expects the Company's 2020 quarterly results to vary from historical trends.

As a result of the various related party agreements discussed in Note 5— Related Party Transactions , the operating results as presented are not necessarily indicative of the results that might have occurred if all agreements were with non-related third parties.

The Company manages its business under one reportable segment of advertising.

Estimates —The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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

Actual results could differ from those estimates.

Going Concern

The accompanying unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Based on the Company’s current financial position and liquidity sources, including current cash balances, and forecasted future cash flows, management believes the Company can meet its obligations as they become due, including all interest and debt service payments within one year following the date that these financial statements are issued.

Refer to Note 6— Borrowings for information on the Company’s debt obligations, including a current waiver of certain financial covenants.

However, the Company does not expect to meet certain of its financial covenants within one year following the date that these financial statements are issued.

If any of these financial covenants are not met, a majority of the lenders of the Senior Secured Credit Facility are permitted under the agreement to accelerate the debt which could also result in a cross-default under NCM LLC’s senior notes.

Considering current liquidity sources, the Company would not be able to repay the Company’s total outstanding debt balance.

These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

In light of this, the Company is actively pursuing with its administrative agent and expects to obtain an amendment to its Senior Secured Credit Facility to extend a waiver of its financial covenants through at least one year following the date that these financial statements are issued.

Management expects the amendment to be approved during the next several months, however there can be no assurance that the Company will be successful in obtaining the amendment.

As long as an amendment has not been obtained, management’s plan cannot be considered probable and thus does not alleviate the substantial doubt about the Company’s ability to continue as a going concern.

The unaudited Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Significant Accounting Policies

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National receivables are with large advertising agencies with strong reputations in the advertising industry and clients with stable financial positions and good credit ratings, represent larger receivables balances per customer and have significantly lower historical and expected credit loss patterns.

Local and regional receivables are with smaller companies sometimes with less credit history, represent smaller receivable balances per customer and higher historical and expected credit loss patterns.

Local and regional receivables are with smaller companies sometimes with less credit history and 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.

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 September 24, 2020, as compared to September 26, 2019, given the expected 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.

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Receivables are written off when management determines amounts are uncollectible.

As of June 25, 2020 and December 26, 2019 , there were no advertising agency groups or individual customers through which the Company sources advertising revenue representing more than 10% of the Company’s outstanding gross receivable balance.

During the three months ended June 25, 2020 , the Company had one customer that accounted for approximately 18 % of the Company's revenue.

During the six months ended June 25, 2020 and the three and six months ended June 27, 2019 , the Company had no customers that accounted for more than 10% of revenue.

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 24, 2020 the Company had one agency through which the Company sources advertising revenue that accounted for 12.7 % of the Company's gross outstanding receivable balance.

As of December 26, 2019, there were no advertising agency groups or individual customers through which the Company sourced advertising revenue representing more than 10% of the Company’s outstanding gross receivable balance.

During the three and nine months ended September 24, 2020, the Company had one customer that accounted for 28.8 % and 10.6 %, respectively, of the Company's revenue.

During the three and nine months ended September 26, 2019, the Company had no customers that accounted for more than 10% of revenue.

Long-lived Assets —The Company assesses impairment of long-lived assets pursuant to ASC 360 – Property, Plant and Equipment .

This includes determining whether certain triggering events have occurred that could affect the value of an asset.

The Company recorded losses of $ 1.7 million, $ 0.0 million, $ 1.7 million and $ 0.0 million related to the write-off of certain internally developed software during the three months ended June 25, 2020 and June 27, 2019 and the six months ended June 25, 2020 and June 27, 2019, respectively.

Share-Based Compensation —The Company has issued stock options and restricted stock to certain employees and restricted stock units to its independent directors.

The restricted stock grants for Company management vest upon the achievement of Company performance measures and/or service conditions, while non-management grants vest only upon the achievement of service conditions.

Compensation expense of restricted stock that vests upon the achievement of Company performance measures is based on management’s financial projections and the probability of achieving the projections, which require considerable judgment.

A cumulative adjustment is recorded to share-based compensation expense in periods that management changes its estimate of the number of shares of restricted stock expected to vest.

The Company recorded losses of $ 0.0 million, $ 0.0 million, $ 1.7 million and $ 0.0 million related primarily to the write-off of certain internally developed software during the three months ended September 24, 2020 and September 26, 2019 and the nine months ended September 24, 2020 and September 26, 2019, respectively.

Share-Based Compensation —The Company has issued stock options, restricted stock, and restricted stock units to certain employees and its independent directors.

The restricted stock and restricted stock unit grants for Company management vest upon the achievement of Company performance measures and/or service conditions, while non-management grants vest only upon the achievement of service conditions.

Compensation expense of restricted stock and restricted stock units that vest 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 and restricted stock units expected to vest.

Ultimately, the Company adjusts the expense recognized to reflect the actual vested shares following the resolution of the performance conditions.

Dividends are accrued when declared on unvested restricted stock that is expected to vest and are only paid with respect to shares that actually vest.

During the three months ended June 25, 2020 and June 27, 2019 and the six months ended June 25, 2020 and June 27, 2019 , 33,378 , 37,699 , 557,681 and 549,695 shares of restricted stock and restricted stock units vested, respectively.

Dividends are accrued when declared on unvested restricted stock and restricted stock units that are expected to vest and are only paid with respect to shares that actually vest.

During the three months ended September 24, 2020 and September 26, 2019 and the nine months ended September 24, 2020 and September 26, 2019, 50,052 , 18,889 , 607,733 and 568,584 shares of restricted stock and restricted stock units vested, respectively.

Consolidation —NCM, Inc.

consolidates the accounts of NCM LLC under the provisions of ASC 810, Consolidation (“ASC 810”).

The following table presents the changes in NCM, Inc.’s equity resulting from net income attributable to NCM,

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

consolidates the accounts of NCM LLC under the provisions of ASC 810, Consolidation .

The following table presents the changes in NCM, Inc.’s equity resulting from net income attributable to NCM, Inc.

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

Three Months Ended

Six Months Ended

June 25, 2020

Three Months Ended Nine Months Ended

September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019

Net (loss) income attributable to NCM, Inc.

$ ( 12.7 ) $ 9.2 $ ( 30.2 ) $ 17.0

NCM LLC equity issued for purchase of intangible asset — — 5.0 3.7

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The Company has also designed and implemented changes to certain processes and internal controls related to its adoption of ASU 2016-13.

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the first quarter of 2020, the Company adopted Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820):

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Revenue Recognition

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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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 .

As of September 24, 2020 and December 26, 2019, the Company had a make-good provision of $ 6.4 million and $ 8.7 million, respectively.

The Company does not have any contracts with customers with terms in excess of one year that are noncancellable as of September 24, 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.

In addition, other of the Company’s contracts longer than one year that are cancellable 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.

national and regional, local 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

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes revenue from contracts with customers for the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and September 26, 2019 (in millions):

Three Months Ended Nine Months Ended

September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019

National and regional advertising revenue $ 3.5 $ 86.4 $ 55.0 $ 228.1

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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

The changes in deferred revenue for the nine months ended September 24, 2020 were as follows (in millions):

Nine Months Ended

September 24, 2020

Balance at beginning of period $ ( 7.6 )

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Balance at end of period $ ( 7.0 )

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

As of September 24, 2020 and December 26, 2019, the Company had $ 1.2 million and $ 8.0 million in unbilled accounts receivable, respectively.

Allowance for Doubtful Accounts

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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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended

Allowance for National Customer Receivables

Allowance for Local/ Regional Customer Receivables

The changes within the allowance for doubtful accounts balances for the nine months ended September 24, 2020 were as follows (in millions):

Nine Months Ended

September 24, 2020

Allowance for National Customer Receivables Allowance for Local/ Regional Customer Receivables

Balance at beginning of period $ 1.1 $ 1.9

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share are as follows:

Three Months Ended

Six Months Ended

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended Nine Months Ended

September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019

Net (loss) income attributable to NCM, Inc.

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Weighted average shares outstanding:

Basic 78,016,737 77,356,833 77,925,552 77,293,234

Dilutive effect of stock options, restricted stock and exchangeable membership units — 526,738 — 394,159

Diluted 78,016,737 77,883,571 77,925,552 77,687,393

(Loss) earnings per NCM, Inc.

The effect of 84,531,328 , 81,705,487 , 83,252,384 and 81,263,513 weighted average exchangeable NCM LLC common units held by the founding members for the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 , respectively, have been excluded from the calculation of diluted weighted average shares and loss per NCM, Inc.

Basic $ ( 0.16 ) $ 0.12 $ ( 0.39 ) $ 0.22

Diluted $ ( 0.16 ) $ 0.12 $ ( 0.39 ) $ 0.22

The effect of 84,531,328 , 81,705,487 , 83,678,699 and 81,410,838 weighted average exchangeable NCM LLC common units held by the founding members for the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and September 26, 2019, respectively, have been excluded from the calculation of diluted weighted average shares and loss per NCM, Inc.

share as they were anti-dilutive.

NCM LLC common units do not participate in dividends paid on NCM, Inc.’s common stock.

In addition, there were 3,777,240 , 1,969,086 , 3,777,240 and 2,125,728 stock options and non-vested (restricted) shares for the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 , respectively, excluded from the calculation as they were anti-dilutive.

In addition, there were 4,484,702 , 2,553,449 , 4,484,702 and 2,593,231 stock options and non-vested (restricted) shares for the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and September 26, 2019, respectively, excluded from the calculation as they were anti-dilutive.

The Company’s non-vested (restricted) shares do not meet the definition of a participating security as the dividends will not be paid if the shares do not vest.

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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.

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 September 24, 2020 constituted a triggering event for 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Management considered possible scenarios in a probability-weighted estimated future undiscounted cash flow analysis, including the potential of further delays in major motion picture releases, a recurrence of the temporary theater closures and other potential adverse impacts to NCM LLC's founding members' and affiliates' financial liquidity related to the COVID-19 Pandemic.

The estimated future 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 no impairment charges were recorded for the three and nine months ended September 24, 2020.

Such analysis required management to make estimates and assumptions based on historical data and consideration of future market conditions.

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In addition, NCM LLC’s Common Unit Adjustment Agreement requires that a Common Unit Adjustment occur for a specific founding member if its acquisition or disposition of theaters, in a single transaction or cumulatively since the most recent Common Unit Adjustment, results in an attendance increase or decrease in excess of two percent of the annual total attendance at the prior adjustment date.

During the first quarter of 2020 , NCM LLC issued 3,022,959 common membership units to its founding members for the rights to exclusive access to the theater screens and attendees added, net of dispositions by the founding members to NCM LLC’s network during the 2019 fiscal year and NCM LLC recorded a net intangible asset of $ 10.5 million during the first quarter of 2020 as a result of the Common Unit Adjustment.

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LLC’s network during the 2019 fiscal year and NCM LLC recorded a net intangible asset of $ 10.5 million during the first quarter of 2020 as a result of the Common Unit Adjustment.

During the first quarter of 2019, NCM LLC issued 1,044,665 common membership units to its founding members for the rights to exclusive access to the theater screens and attendees added, net of dispositions by the founding members to NCM LLC’s network during the 2018 fiscal year and NCM LLC recorded a net intangible asset of $ 7.6 million during the first quarter of 2019 as a result of the Common Unit Adjustment.

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The ESAs additionally entitle NCM LLC to payments related to the founding members’ on-screen advertising commitments under their beverage concessionaire agreements for encumbered theaters.

These payments are also accounted for as a reduction to the intangible asset.

During the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 , the Company recorded a reduction to net intangible assets of $ 0.0 million , $ 5.7 million , $ 1.4 million and $ 8.1 million , respectively, related to integration and other encumbered theater payments.

Because the encumbered theaters were temporarily closed during the three months ended June 25, 2020, no advertising cash flows could have been generated from the encumbered theaters during the period if the theaters were within NCM LLC's network and thus no integration payments were earned during the three months ended June 25, 2020.

During the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 , AMC and Cinemark paid a total of $ 1.2 million , $ 2.5 million , $ 9.7 million and $ 10.6 million respectively, in integration and other encumbered theater payments (as payments are made one quarter and one month in arrears, respectively).

The payments received during the three and six months ended June 25, 2020 primarily relate to AMC's acquisition of theaters from Carmike.

The payments received during the three and six months ended June 27, 2019 relate to AMC's acquisitions of theaters from Carmike and Rave Cinemas and from Cinemark related primarily to its acquisition of theaters from Rave Cinemas.

These payments are also accounted for as a reduction to the intangible assets.

During the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and September 26, 2019, the Company recorded a reduction to net intangible assets of $ 0.0 million, $ 5.6 million, $ 1.4 million and $ 13.7 million, respectively, related to integration and other encumbered theater payments.

No integrations payments were earned for the three and nine months ended September 24, 2020 because the Company generated negative Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”) during these periods.

During the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and September 26, 2019, AMC and Cinemark paid a total of $ 0.0 million, $ 5.7 million, $ 9.7 million and $ 16.3 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 nine months ended September 24, 2020 primarily relate to AMC's acquisition of theaters from Carmike.

The payments received during the three and nine months ended September 26, 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.

RELATED PARTY TRANSACTIONS

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTY TRANSACTIONS

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

As AMC owns less than 5% of NCM LLC as of June 25, 2020 , AMC is no longer a related party.

As AMC owns less than 5% of NCM LLC as of September 24, 2020, AMC is no longer a related party.

AMC remains a party to the ESA, Common Unit Adjustment Agreement, Tax Receivable Agreement (“TRA”) and certain other original agreements and is a member under the terms of the NCM LLC Operating Agreement, subject to fulfilling the requirements of Section 3.1 of the NCM LLC Operating Agreement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

Included in the unaudited Condensed Consolidated Statements of Income:

June 25, 2020

September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019

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

$ 0.2 $ 5.7 $ 4.5 $ 17.5

Operating expenses:

Theater access fee and revenue share to founding members (2)

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

$ 1.0 $ 13.5 $ 13.6 $ 40.9

Selling and marketing costs (3)

$ — $ 0.1 $ 0.1 $ 0.3

Advertising operating costs (3)

$ 0.4 $ 0.1 $ 0.4 $ 0.1

Non-operating expenses:

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$ — $ 0.1 $ — $ 0.2

For the three and six months ended June 25, 2020 and June 27, 2019 , Cinemark and Regal purchased 60 seconds of on-screen advertising time from NCM LLC to satisfy their obligations under their beverage concessionaire agreements at a 30 seconds equivalent CPM rate specified by the ESA.

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

________________________________________

(1) For the three and nine months ended September 24, 2020 and September 26, 2019, Cinemark and Regal purchased 60 seconds of on-screen advertising time from NCM LLC to satisfy their obligations under their beverage concessionaire agreements at a 30 seconds equivalent CPM rate specified by the ESA.

No beverage revenue was generated for the period of time that the theaters within NCM LLC's network were temporarily closed as there were no attendees upon which beverage revenue is generated.

(2) Comprised of payments per theater attendee, payments per digital screen with respect to the founding member theaters included in the Company’s network and payments for access to higher quality digital cinema equipment.

Following the 2019 ESA Amendments in September of 2019 this also includes payments to Cinemark and Regal for their share of the revenue from the sale of an additional single unit that is either 30 or 60 seconds of the Noovie pre-show in the trailer position directly prior to the “attached” trailers preceding the feature film (the “Platinum Spot”).

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

Used primarily for marketing to NCM LLC’s advertising clients.

There was no theater access fee or revenue share expense for the period of time that the theaters within NCM LLC's network were temporarily closed.

(3) Includes purchase of movie tickets, concession products, rental of theater space primarily for marketing to NCM LLC’s advertising clients and other payments made to the founding members in the ordinary course of business.

(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.

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Included in the unaudited Condensed Consolidated Balance Sheets:

June 25, 2020

September 24, 2020 December 26, 2019

Common unit adjustments and ESA extension costs, net of amortization and integration payments (included in intangible assets) (1)

$ 613.5 $ 620.5

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

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$ 133.6 $ 133.5

Other payables to founding members (3)

(1) Refer to Note 4— Intangible Assets for further information on common unit adjustments and integration payments.

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(2) The Company paid Cinemark and Regal $ 3.2 million and $ 5.8 million, respectively, in payments pursuant to the TRA during 2020 which was for the 2019 tax year.

On March 21, 2020, a Treasury Department Notice postponed the original due date for the Company's U.S.

federal income tax return to July 15, 2020 from April 15, 2020.

The Company made the TRA payments to Cinemark and Regal on July 15, 2020 of $ 3.2 million and $ 5.8 million, respectively.

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

The Company paid Cinemark and Regal $ 3.7 million and $ 6.7 million, respectively, in payments pursuant to the TRA during 2019 which was for the 2018 tax year.

(3) Includes other payments made to the founding members in the ordinary course of business.

Mandatory distributions of available cash for the three and nine months ended September 24, 2020 and September 26, 2019 were as follows (in millions):

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the NCM LLC Operating Agreement, on a quarterly basis in arrears.

Mandatory distributions of available cash for the three and six months ended June 25, 2020 and June 27, 2019 were as follows (in millions):

Three Months Ended

Six Months Ended

June 25, 2020

Three Months Ended Nine Months Ended

September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019

Cinemark $ — $ 10.9 $ 2.1 $ 21.4

Regal — 11.5 2.2 22.5

Total distributions to related parties — 22.4 4.3 43.9

Due to the temporary closure of the theaters within NCM LLC's network during the three months ended June 25, 2020, the mandatory distributions of available cash by NCM LLC to its related party founding members and NCM, Inc.

for the three months ended June 25, 2020 were calculated as negative $ 29.8 million (including $ 7.6 million for Cinemark, $ 7.8 million for Regal and $ 14.4 million for NCM, Inc.).

Therefore, there will be no payment made for the second quarter of 2020.

Under the terms of the NCM LLC Operating Agreement, this negative amount will be netted against the available cash distributions for the second quarter of 2021, which will be paid in the third quarter of 2021, contingent upon the Company's compliance with the covenants outlined within the Credit Agreement Amendment defined within Note 6— Borrowings and the Company's generation of future positive available cash to which the above negative amounts above can be applied.

— 21.3 4.1 41.7

Total $ — $ 43.7 $ 8.4 $ 85.6

Due to the temporary closure of the theaters within NCM LLC's network during a portion of the three months ended September 24, 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 24, 2020 were calculated as negative $ 24.3 million (including negative $ 6.1 million for Cinemark, negative $ 6.4 million for Regal and negative $ 11.8 million for NCM, Inc.).

Therefore, there will be no payment made for the third quarter of 2020.

The mandatory distributions of available cash by NCM LLC for the three months ended June 25, 2020 and the three months ended September 24, 2020 were calculated as negative $ 54.1 million (including negative $13.7 million for Cinemark, negative $14.2 million for Regal and negative $26.2 million for NCM, Inc.).

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 would be paid in the third quarter of 2021, contingent upon the Company's compliance with the covenants outlined within the Credit Agreement Amendment defined within Note 6— Borrowings and the Company's generation of future positive available cash to which the above negative amounts above can be applied.

Amounts due to related party founding members, net as of September 24, 2020 were comprised of the following (in millions):

Cinemark Regal Total

Theater access fees and revenue share, net of beverage revenues and other encumbered theater payments $ 0.3 $ 0.4 $ 0.7

Cost and other reimbursement — 0.1 0.1

Total amounts due to founding members, net $ 0.3 $ 0.5 $ 0.8

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

Cinemark Regal Total

Theater access fees and revenue share, net of beverage revenues and other encumbered theater payments $ 2.0 $ 2.5 $ 4.5

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Total amounts due to founding members, net $ 17.7 $ 19.1 $ 36.8

Network Affiliate Transactions —NCM LLC paid a network affiliate owned by a family member of a director on the Company's Board of Directors $ 0.1 million , $ 0.1 million , $ 0.3 million and $ 0.2 million , in circuit share payments during the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 , respectively.

Network Affiliate Transactions —NCM LLC paid a network affiliate owned by a family member of a director on the Company's Board of Directors $ 0.1 million, $ 0.2 million, $ 0.4 million and $ 0.4 million, in circuit share payments during the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and September 26, 2019, respectively.

AC JV, LLC Transactions —In December 2013, NCM LLC sold its Fathom Events business to a newly formed limited liability company, AC JV, LLC, owned 32 % by each of the founding members and 4 % by NCM LLC.

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Although NCM LLC does not have a representative on AC JV, LLC’s Board of Directors or any voting, consent or blocking rights with respect to the governance or operations of AC JV, LLC, the Company concluded that its interest was more than minor under the accounting guidance.

The Company’s investment in AC JV, LLC was $ 0.9 million and $ 0.9 million as of June 25, 2020 and December 26, 2019 , respectively.

Equity in (losses) earnings from AC JV, LLC of $( 0.1 ) million , $ 0.1 million , $ 0.0 million and $ 0.3 million for the three months ended June 25, 2020 and June 27, 2019 and six months ended June 25, 2020 and June 27, 2019 , respectively, is included in “Other non-operating income” in the unaudited Condensed Consolidated Statements of Income.

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

The Company’s investment in AC JV, LLC was $ 0.8 million and $ 0.9 million as of September 24, 2020 and December 26, 2019, respectively.

Equity in (losses) earnings from AC JV, LLC of $( 0.1 ) million, $ 0.0 million, $( 0.1 ) million and $ 0.3 million for the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2019, respectively, is included in “Other non-operating income” in the unaudited Condensed Consolidated Statements of Income.

The following table summarizes NCM LLC’s total outstanding debt as of September 24, 2020 and December 26, 2019 and the significant terms of its borrowing arrangements (in millions):

Outstanding Balance as of

June 25, 2020

Revolving credit facility

June 20, 2023

June 20, 2025

Senior unsecured notes due 2026

August 15, 2026

Senior secured notes due 2028

April 15, 2028

Borrowings September 24, 2020 December 26, 2019 Maturity

Date Interest

Revolving credit facility $ 167.0 $ 39.0 June 20, 2023 (1)

Term loans 264.6 266.6 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 1,061.6 935.6

debt issuance costs related to term loans and

senior notes ( 8.4 ) ( 9.0 )

Total borrowings, net 1,053.2 926.6

current portion of debt

( 2.7 ) ( 2.7 )

Carrying value of long-term debt $ 1,050.5 $ 923.9

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Consistent with the structure of the previous facility, the Credit Agreement consists of a term loan facility and a revolving credit facility.

As of June 25, 2020 , NCM LLC’s senior secured credit facility consisted of a $ 175.0 million revolving credit facility and a $ 265.3 million term loan.

As of September 24, 2020, NCM LLC’s senior secured credit facility consisted of a $ 175.0 million revolving credit facility and a $ 264.6 million term loan.

The obligations under the senior secured credit facility are secured by a lien on substantially all of the assets of NCM LLC.

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During March 2020, NCM LLC drew down an additional $ 110.0 million on the revolving credit facility to fund operations during the period of expected disrupted cash flows due to the temporary closure of the theaters within NCM LLC's network to address the COVID-19 Pandemic.

As of June 25, 2020 , NCM LLC’s total availability under the $ 175.0 million revolving credit facility was $ 4.4 million, net of $ 167.0 million outstanding and $ 3.6 million in letters of credit.

As of September 24, 2020, NCM LLC’s total availability under the $ 175.0 million revolving credit facility was $ 4.4 million, net of $ 167.0 million outstanding and $ 3.6 million in letters of credit.

The unused line fee is 0.50 % per annum which is consistent with the previous facility.

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The revolving credit facility will mature on June 20, 2023.

The weighted-average interest rate on the revolving credit 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 3.00 % or the base rate plus 2.00 % .

The interest rate on the term loans as of June 25, 2020 was 4.00 % .

The term loans amortize at a rate equal to 1.00 % annually, to be paid 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.

The weighted-average interest rate on the revolving credit facility as of September 24, 2020 was 3.00 %.

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Term Loans —The interest rate on the term loans is a rate chosen at NCM LLC’s option of either the LIBOR index plus 3.00 % or the base rate plus 2.00 %.

The interest rate on the term loans as of September 24, 2020 was 4.00 %.

The term loans amortize at a rate equal to 1.00 % annually, to be paid in equal quarterly installments.

As of September 24, 2020, NCM LLC has paid principal of $ 5.4 million, reducing the outstanding balance to $ 264.6 million.

The term loans will mature on June 20, 2025.

The senior secured credit facility contains a number of covenants and various financial ratio requirements, including, (i) a consolidated net total leverage ratio covenant of 6.25 times for each quarterly period and (ii) with respect to the revolving credit facility, maintaining a consolidated net senior secured leverage ratio of equal to or less than 4.50 times on a quarterly basis for each quarterly period in which a balance is outstanding on the revolving credit facility.

In addition, NCM LLC is permitted to make quarterly dividend payments and other restricted payments with its available cash as long as NCM LLC’s consolidated net senior secured leverage ratio (after giving effect to any such payment) is below 5.50 times and no default or event of default has occurred and continues to occur under the senior secured credit facility.

As of June 25, 2020 , NCM LLC’s consolidated net senior secured leverage ratio was 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 6.25 times).

As of June 25, 2020 , NCM LLC was in compliance with the requirements of the Credit Agreement Amendment described above and thus the noncompliance with the financial covenants was automatically waived.

As of September 24, 2020, NCM LLC’s consolidated net senior secured leverage ratio was 7.93 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 10.43 times (versus the covenant of 6.25 times).

As of September 24, 2020, NCM LLC was in compliance with the requirements of the Credit Agreement Amendment described above and 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.

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The Notes due 2026 were issued at 100 % of the face amount thereof and are the senior unsecured obligations of NCM LLC.

NCM LLC repurchased and canceled a total of $ 5.0 million and $ 15.0 million of the Notes due 2026 during 2019 and 2018, respectively, reducing the principal amount to $ 230.0 million as of June 25, 2020 .

These repurchases were treated as partial debt extinguishments and resulted in the realization of a non-operating gain, net of written off debt issuance costs, of $ 0.0 million , $ 0.0 million , $ 0.0 million and $ 0.3 million during the three months and six months ended June 25, 2020 and June 27, 2019 , respectively.

These repurchases were treated as partial debt extinguishments and resulted in the realization of a non-operating gain, net of written off debt issuance costs, of $ 0.0 million, $ 0.0 million, $ 0.0 million and $ 0.3 million during the three months and nine months ended September 24, 2020 and September 26, 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.

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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.

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 relative impact of the tax benefit recorded on pretax book losses attributable to NCM Inc.

of $ 22.0 million for the six months ended June 25, 2020 compared to tax expense recorded on pretax book income of $ 9.4 million for the six months ended June 27, 2019.

This increase in income tax benefit was partially offset by the 2019 impact of deferred state tax recorded during the six months ended June 27, 2019 that did not recur during the same period in 2020.

The tax provision through June 25, 2020 was computed using the annual effective tax rate.

The Company's current blended state and federal rate (net of federal benefit) was 24.4 % as of June 25, 2020 and 24.5% as of June 27, 2019 .

Changes in the Company’s Effective Tax Rate —The Company recorded an income tax benefit of $ 7.7 million for the nine months ended September 24, 2020 compared to income tax expense of $ 6.0 million for the nine months ended September 26, 2019 resulting in an effective tax rate of 20.4 % for the nine months ended September 24, 2020 as compared to 26.9 % for the nine months ended September 26, 2019.

The decrease in the effective tax rate was primarily due to the relative impact of the tax benefit recorded on pretax book losses attributable to NCM Inc.

of $ 37.8 million for the nine months ended September 24, 2020 compared to tax expense recorded on pretax book income of $ 22.5 million for the nine months ended September 26, 2019.

The Company's current blended state and federal rate (net of federal benefit) was 24.4 % as of September 24, 2020 and 24.3 % as of September 26, 2019.

COMMITMENTS AND CONTINGENCIES

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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.

The Company has right-of-use (“ROU”) assets of $ 20.9 million and short-term and long-term lease liabilities of $ 1.8 million and $ 23.2 million, respectively, on the balance sheet as of September 24, 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 of June 25, 2020 , the Company had a weighted average remaining lease term of 9.6 years on these leases.

As of September 24, 2020, the Company had a weighted average remaining lease term of 9.4 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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).

As of September 24, 2020, the Company’s weighted average annual discount rate used to establish the ROU assets and lease liabilities was 7.34 %.

During the three and nine months ended September 24, 2020 and September 26, 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

Three Months Ended Nine Months Ended

September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019

Operating lease cost $ 0.9 $ 0.7 $ 2.7 $ 2.3

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Total lease cost $ 1.0 $ 0.9 $ 3.1 $ 2.9

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.

The Company made total lease payments of $ 0.9 million, $ 0.9 million, $ 2.7 million and $ 2.5 million during the three months ended September 24, 2020 and September 26, 2019 and nine months ended September 24, 2020 and September 26, 2019, respectively.

These payments are included within cash flows from operating activities within the unaudited Condensed Consolidated Statement of Cash Flows.

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The theater access fee paid in the aggregate to all founding members cannot be less than 12 % of NCM LLC’s aggregate advertising revenue (as defined in the ESA), or it will be adjusted upward to reach this minimum payment.

As of June 25, 2020 and December 26, 2019 , the Company had no liabilities recorded for the minimum payment, as the theater access fee was in excess of the minimum.

As of September 24, 2020 and December 26, 2019, the Company had no 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.

These fees are also based upon a fixed payment per patron:

(i) 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.

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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

If NCM LLC runs advertising in more than one concurrent advertisers’ Platinum Spot for any portion of the network over a period of time, then NCM LLC will be required to satisfy a minimum average CPM for that period of time.

The Company does not owe the founding members any theater access fees or any Platinum Spot revenue share when the theaters are not displaying the Company's pre-show or

NATIONAL CINEMEDIA, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

when the Company does not have access to the theaters.

As such, the Company did not and will not owe these fees for the period of time the founding members' theaters were temporarily closed due to the COVID-19 Pandemic and future fees will be reduced if attendance remains lower than historical levels.

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.

No digital screen fees were or will be incurred for the period of time the founding member's theaters were temporarily closed due to the COVID-19 Pandemic and future 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.

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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.

As of September 24, 2020, the maximum potential amount of future payments the Company could be required to make pursuant to the minimum revenue guarantees is $ 64.0 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.

The Company accrued $ 0.2 million and $ 0.5 million related to affiliate agreements with guaranteed minimums in excess of the revenue share agreement as of September 24, 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 period of time the respective affiliate's theaters were temporarily closed due to the COVID-19 Pandemic and will not for the remaining duration an affiliate's theater attendance or revenue levels are low as the minimum levels must first be met by the affiliate.

FAIR VALUE MEASUREMENTS

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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

Other investments consisted of the following (in millions):

September 24, 2020 December 26, 2019

Investment in AC JV, LLC (1)

Other investments 0.1 0.1

Total $ 0.9 $ 1.0

_______________________________________

1 unchanged sentence

This investment is accounted for utilizing the equity method.

As of June 25, 2020 , no observable price changes or impairments have been recorded as a result of the Company’s qualitative assessment of identified events or changes in the circumstances of the remaining investments.

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended September 24, 2020 and September 26, 2019 and the nine months ended September 24, 2020 and September 26, 2019, the Company recorded impairment charges of $ 0.0 million, $ 2.0 million, $ 0.0 million and $ 2.0 million, respectively, on certain of its investments due to a significant deterioration in the business prospects of the investee or new information regarding the fair value of the investee, which brought the total remaining value of the respective impaired investments to $ 0.0 million as of September 24, 2020 and September 26, 2019.

As of September 24, 2020, no observable price changes or impairments have been recorded as a result of the Company’s qualitative assessment of identified events or changes in the circumstances of the remaining investments.

The investment in AC JV, LLC was initially valued using comparative market multiples.

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The estimated fair values of the Company’s financial instruments where carrying values do not approximate fair value were as follows (in millions):

As of June 25,

As of December 26,

Carrying Value

Fair Value (1)

Carrying Value

Fair Value (1)

As of September 24, 2020 As of December 26, 2019

Carrying Value Fair Value (1)

Term loans $ 264.6 $ 217.0 $ 266.6 $ 266.9

Notes due 2026 230.0 158.2 230.0 226.2

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Fair Value Measurements at Reporting Date Using

Fair Value as of June 25,

Quoted Prices in Active Markets for Identical Assets

Significant Other

Significant Unobservable Inputs

Fair Value as of September 24, 2020 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other

(Level 2) Significant Unobservable Inputs

Cash equivalents (1)

$ 51.3 $ 51.3 $ — $ —

Short-term marketable securities (2)

Long-term marketable securities (2)

Total assets $ 54.3 $ 51.3 $ 3.0 $ —

Fair Value Measurements at Reporting Date Using

Fair Value as of December 26,

Quoted Prices in Active Markets for Identical Assets

Significant Other

Significant Unobservable Inputs

Fair Value as of December 26, 2019 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other

(Level 2) Significant Unobservable Inputs

Cash equivalents (1)

$ 28.8 $ 16.8 $ 12.0 $ —

Short-term marketable securities (2)

17.5 — 17.5 —

Long-term marketable securities (2)

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Total assets $ 53.8 $ 16.8 $ 37.0 $ —

___________________________________________

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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 value of the

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company’s government agency bonds is derived from quoted market information.

The inputs in the valuation are classified as Level 1 if there is an active market for these securities;

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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 six months ended June 25, 2020 and 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 interest income.

Original cost of short-term marketable securities is based on the specific identification method.

As of June 25, 2020 and December 26, 2019 , there was $ 0.0 million and an inconsequential amount, respectively, of gross unrealized losses related to individual securities of $ 0.0 million and $ 6.5 million , respectively, that had been in a continuous loss position for 12 months or longer.

The Company has not recorded an impairment because it has the intention and ability to hold these securities to maturity.

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

As of June 25, 2020

As of September 24, 2020, there was $ 2.8 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 September 24, 2020 given the immaterial difference between the amortized cost basis and the aggregate fair value of the Company's securities.

The amortized cost basis, aggregate fair value and maturities of the marketable securities the Company held as of September 24, 2020 and December 26, 2019 were as follows:

As of September 24, 2020

Amortized Cost

(in millions)

Aggregate Fair

(in millions)

Maturities (1)

(in millions) Aggregate Fair

(in millions) Maturities (1)

MARKETABLE SECURITIES:

Short-term municipal bonds

Short-term certificates of deposit $ 1.3 $ 1.3 0.3

Total short-term marketable securities 1.3 1.3

Long-term U.S.

government agency bonds

Long-term certificates of deposit 1.8 1.7 3.4

1 unchanged sentence

Total marketable securities $ 3.1 $ 3.0

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 26, 2019

Amortized Cost

(in millions)

Aggregate Fair

(in millions)

Maturities (1)

(in millions) Aggregate Fair

(in millions) Maturities (1)

MARKETABLE SECURITIES:

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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

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SUBSEQUENT EVENT

On August 3, 2020 , the Company declared a cash dividend of $ 0.07 per share (approximately $ 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 August 17, 2020 to be paid on August 31, 2020.

On October 30, 2020, the Company declared a cash dividend of $ 0.07 per share (approximately $ 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, 2020 to be paid on December 1, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements