What changed in this filing

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Item 1A. Risk Factors

2020-11-02 compared with 2020-08-03 · 25 added, 19 removed, 21 unchanged (68% of the section changed)

Excluding the risk factors outlined below, there have been no material changes from risk factors as previously disclosed in our annual report on Form 10-K filed with the SEC on February 20, 2020 for the fiscal year ended December 26, 2019 and updated in our quarterly report on Form 10-Q filed with the SEC on May 5, 2020 for the quarter ended March 26, 2020.

Pandemics, epidemics or disease outbreaks, such as the novel coronavirus (COVID-19 virus), have disrupted and are 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 in place once theaters reopen, when large audiences will feel comfortable returning to movie theaters or if theaters will eventually need to close again in connection with further social distancing guidelines.

Several major motion picture releases were delayed until later in 2020 or 2021 and a few studios shortened the “release window” between the release of motion pictures in theaters and an alternative delivery method or released motion pictures directly to alternative delivery methods bypassing the theater entirely.

The COVID-19 Pandemic has also adversely affected film production and may adversely affect the pipeline of feature films available in the short or long term.

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

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 and almost all of the theaters within our network remained closed until late August 2020.

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

As of the date of this filing, approximately 53% of theaters within our network are open, with 47% remaining closed due to local government mandates or the lack of major motion picture releases.

Many of the open theaters are operating at reduced hours and offering a limited number of movie showtimes and attendance has not returned to historical levels.

A number of 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 and this may continue during the COVID-19 Pandemic and after it has subsided.

As a result of the impact of the COVID-19 Pandemic, the Company may not be able to meet certain of its financial covenants within the next twelve months.

The Company is actively pursuing and expects to obtain an amendment to its Senior Secured Credit Facility to obtain a waiver to its financial covenants.

Until an amendment is obtained, substantial doubt exists about the Company’s ability to continue as a going concern during the next twelve months.

If the amendment is not finalized before the completion of the Company’s 2020 annual audit in the first quarter of 2021 and a qualified audit opinion is issued by the Company’s independent auditors at that time, a majority of the lenders could choose to accelerate the debt, which could also result in a cross-default under NCM LLC’s senior notes.

Management expects to complete the amendment during the next several months.

However, there can be no assurance that NCM LLC will be able to amend the Credit Agreement before the completion of the Company’s 2020 annual audit, or at all.

In response to the COVID-19 Pandemic, we implemented a number of cost-saving measures, described elsewhere in this filing.

To prepare for the reopening of theaters and resumption of in theater advertising we began to ease certain of these measures, but as of the date of this filing the revenue generated by our operations has not reached historical levels and 47% of the theaters within our network remain closed.

We may not generate sufficient revenue in the short term to cover these increased costs.

The impact, extent and duration of the government-imposed restrictions on travel, public gatherings, other events and business generally, as well as the overall effect of the COVID-19 virus is currently unknown but has had and is continuing to have a material adverse impact on our business, liquidity, financial conditions and/or results of operations.

Even when the COVID-19 Pandemic subsides, we cannot guarantee that we will recover as rapidly as other industries as advertising expenditures may remain decreased due to an economic slowdown and consumers may be hesitant to return to theaters.

We cannot predict when the effects of the COVID-19 Pandemic will subside when theaters will reopen and patrons are comfortable attending, or when our business will return to normal levels.

The longer and more severe the pandemic, including repeat or cyclical outbreaks 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.

Even when the COVID-19 Pandemic subsides, we cannot guarantee that we will recover as rapidly as other industries as advertising expenditures may remain decreased due to an economic slowdown, consumers may be hesitant to return to theaters or other long-term changes may have impacted the advertising or exhibition industries.

We cannot predict when the effects of the COVID-19 Pandemic will subside when all of our 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, 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:

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• 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;

• 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, upcoming film releases, 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;

• increased operating costs without associated revenues during periods where theaters are open but attendance has not reached historical levels;

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

1 unchanged sentence

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

potential impairment charges;

• potential impairment charges and additional deferred tax expense related to the increase of valuation allowances on our deferred tax assets;

• 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;

8 unchanged sentences

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, liquidity, 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.

The perceived risk of infection or health risk may adversely affect our business, liquidity, financial condition and results of operations even after the COVID-19 Pandemic subsides.

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 herein and in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended December 26, 2019 and our quarterly report on Form 10-Q for the quarter 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.

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 1A. Risk Factors