What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-09 compared with 2020-02-20 · 507 added, 494 removed, 790 unchanged (56% of the section changed)

5 unchanged sentences

Consolidated Balance Sheets as of December 31, 2020 and December 26, 2019

Consolidated Statements of Income for the years ended December 26, 2019, December 27, 2018 and December 28, 2017

Consolidated Statements of Equity/(Deficit) for the years ended December 26, 2019, December 27, 2018 and December 28, 2017

Consolidated Statements of Cash Flows for the years ended December 26, 2019, December 27, 2018 and December 28, 2017

Consolidated Statements of Income for the years ended December 31, 2020 and December 26, 2019

Consolidated Statements of Equity/(Deficit) for the years ended December 31, 2020 and December 26, 2019

Consolidated Statements of Cash Flows for the years ended December 31 , 2020 and December 26, 2019

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of National CineMedia, Inc.

and subsidiary (the "Company") as of December 26, 2019 and December 27, 2018, the related consolidated statements of income, comprehensive income, equity(deficit), and cash flows for each of the three years in the period ended December 26, 2019 and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 26, 2019 and December 27, 2018, the results of its operations and its cash flows for each of the three years in the period ended December 26, 2019 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 26, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

and subsidiary (the “Company”) as of December 31, 2020 and December 26, 2019, the related consolidated statements of income, equity/(deficit), and cash flows for each of the two years in the period ended December 31, 2020 and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and December 26, 2019, the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method of accounting for leases effective December 28, 2018 due to adoption of Accounting Standards Codification Topic 842 - Leases.

As discussed in Note 13—Commitments and Contingencies to the Consolidated Financial Statements, the Company changed its method of accounting for leases effective December 28, 2018 due to the adoption of Accounting Standards Codification Topic 842 – Leases.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which each relates.

Income Taxes – Tax Receivable Agreements — Refer to Notes 7 and 9 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company and the founding members entered into the Tax Receivable Agreement (“TRA”) at the time of the Company’s initial public offering.

Under the terms of this agreement, the Company will make cash payments to the founding members in amounts equal to 90% of the Company’s actual tax benefit realized primarily from the tax amortization of the intangible assets described below, which is recorded as a deferred tax asset.

For purposes of the TRA, cash savings in income and franchise tax will be computed by comparing the Company’s actual income and franchise tax liability to the amount of such taxes that the Company would have been required to pay had there been no increase in the Company’s proportionate share of tax basis in National CineMedia, LLC’s tangible and intangible assets had the Company not entered into the TRA.

The TRA applies to the Company’s taxable years up to and including the 30th anniversary of the IPO.

During the fiscal year ended December 31, 2020, the Company paid the founding members $12.8M for the 2019 tax year.

In addition, changes in the deferred tax rate and

in the Company’s realization assessment of its deferred tax assets, and therefore changes to future amounts probable to be paid under the TRA led to a re-measurement of the payable, resulting in a decrease of $152.7M during the fiscal year.

At December 31, 2020, the Company’s payable to founding members under the TRA liability (“PFML”) was $33.5 million;

of which $0.9 million is presented as a component of current liabilities and $32.6 million is presented as a component of non-current liabilities.

We identified the computation of adjustments to the PFML as a critical audit matter because of the complex calculations required to arrive at the correct tax basis upon which to calculate the corresponding PFML and deferred tax asset adjustments.

This involved complexity in applying the tax law, and calculations of (a) incremental amortizable step-up in tax basis, (b) the iterative impact of the computation of adjustments to the PFML to owners and (c) the overall PFML.

The amount of the PFML, as well as the timing of such payments, is dependent upon a number of complex items including:

(i) the tax basis in the units of NCM LLC being issued as part of a common unit adjustment or exchanged for common stock of the Company, (ii) the allocation of the tax basis step up to the applicable assets, (iii) the amount and timing of taxable income the Company generates in future periods until the PFML is settled, (iv) the portion of the Company’s payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis and (v) the amount and timing of tax attribute utilization on a with and without basis in accordance with the TRA.

How the Critical Audit Matter Was Addressed in the Audit

With the assistance of our income tax specialists, our audit procedures related to the computation of adjustments to the PFML included the following procedures, among others:

• We tested the effectiveness of controls over the computation of adjustments to the PFML and deferred tax asset.

• We read the individual TRA and Exhibitor Services Agreement to compare the terms in each agreement for consistency with the mathematical model used by management to calculate the adjustments to the PFML and deferred tax asset.

• We evaluated management’s computation of adjustments to the year-end balance of the PFML amount by recalculating the PFML at the end of the year, taking into account the various unit exchanges occurring during the year as well as the additions in the PFML for each Common Unit Adjustment.

• We analyzed the impact of any taxable income limitations on the PFML.

• We prepared our own model to independently recompute the PFML and compare to the recorded balance.

• We reconciled realization of tax payments and deductions to the PFML.

Income Taxes – Deferred Tax Asset Realizability — Refer to Notes 7 and 9 to the consolidated financial statements

Critical Audit Matter Description

The Company accounts for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to be recovered or settled pursuant to the provisions of ASC 740 – Income Taxes .

The Company records a valuation allowance if it is deemed more likely than not that all or a portion of its deferred tax assets will not be realized.

As of December 31, 2020, the Company reported a gross deferred tax asset of $212.0 million.

The Company considered both positive and negative evidence in determining whether it is more likely than not that all or some portion of its deferred tax assets will be realized under ASC 740 as of December 31, 2020.

Based on all available evidence, including the Company’s expectation that it will generate a three-year cumulative pre-tax book loss during 2021, the Company concluded that it is more likely than not that the Company will not be able to realize certain of the Company’s deferred tax assets before they expire.

The Company increased the valuation allowance against certain deferred tax assets by $139.0 million as of December 31, 2020.

We identified the assessment of the realizability of the remaining net deferred tax assets as a critical audit matter because of the significant judgments and complex estimates required in evaluating the need for a valuation allowance.

This involved complexity in applying the tax law, considering all available evidence, and evaluating the Company’s three-year cumulative pre-tax book income (loss), including forecasted quarterly pre-tax book income (loss) through 2021.

The realizability of the net deferred tax asset, as well as the need for a valuation allowance, is dependent upon a number of complex items including:

(i) the weight assigned to the evidence based on the degree to which it is objectively verifiable and (ii) forecasting pre-tax book income (loss) through 2021 in a highly uncertain environment.

How the Critical Audit Matter Was Addressed in the Audit

With the assistance of our income tax specialists, our audit procedures related to the realizability of the deferred tax assets included the following procedures, among others:

• We tested the effectiveness of internal controls over the calculation of the valuation of deferred tax assets including the controls over the Company’s consideration of positive and negative evidence.

• We evaluated whether the sources of management’s positive and negative evidence were of the appropriate character and sufficient to utilize the deferred tax assets under the relevant tax law to confirm completeness.

• We tested management’s weighted forecast considerations by comparing and evaluating objectively verifiable evidence and subjective evidence.

• We evaluated management’s computation of the cumulative pre-tax book income position including actual and forecasted pre-tax book income amounts.

• We evaluated the Company’s “more likely than not” conclusion with regard to the realizability of deferred tax assets and recomputed the valuation allowance for those that were not considered realizable.

• We consulted with our accounting experts as to the appropriateness of the analysis performed and the conclusions reached.

/s/ Deloitte & Touche LLP

Denver, Colorado

February 20, 2020

March 8, 2021

We have served as the Company's auditor since 2006.

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(In millions, except share and per share data)

December 26, 2019

December 27, 2018

December 31, 2020 December 26, 2019

CURRENT ASSETS:

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Receivables, net of allowance of $ 2.3 and $ 6.2 , respectively

Income tax receivable

Amounts due from founding members, net — 6.6

Current portion of notes receivable - founding members (related parties of $0.0 and $4.2, respectively)

Prepaid expenses and other current assets 3.1 3.5

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Debt issuance costs, net 3.3 3.9

Other assets 25.7 24.3

Total non-current assets 686.3 875.7

TOTAL ASSETS $ 886.2 $ 1,130.0

LIABILITIES AND EQUITY/(DEFICIT)

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Long-term debt, net of debt issuance costs of $ 8.0 and $ 9.0 , respectively

1,049.6 923.9

Payable to founding members under the TRA (related party payables of $ 23.7 and $ 133.5 , respectively)

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(In millions, except share and per share data)

December 26, 2019

December 27, 2018

December 28, 2017

Revenue (including revenue from related parties of $23.0, $28.4

and $29.9, respectively)

December 31, 2020 December 26, 2019

Revenue (including revenue from related parties of $ 4.9 and $ 23.0 , respectively)

$ 90.4 $ 444.8

OPERATING EXPENSES:

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Network costs 8.6 13.5

Theater access fees and revenue share to founding members

(including fees to related parties of $56.6, $69.0 and $76.5,

respectively)

Theater access fees and revenue share to founding members (including fees to related

parties of $ 16.0 and $ 56.6 , respectively)

Selling and marketing costs 37.6 64.9

Administrative and other costs 30.9 43.8

Impairment of long-lived assets 1.7 —

Depreciation expense 13.1 13.6

Amortization expense

Amortization of intangibles recorded for network theater screen leases 24.6 26.7

OPERATING INCOME

Total 151.4 283.5

OPERATING (LOSS) INCOME ( 61.0 ) 161.3

NON-OPERATING EXPENSES:

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Loss on early retirement of debt, net 0.4 5.6

Loss (gain) on re-measurement of the payable to founding

(Gain) loss on re-measurement of the payable to founding

members under the TRA ( 152.7 ) 1.1

Other non-operating income

Other non-operating expense (income) 0.2 ( 0.4 )

Total ( 96.9 ) 62.2

INCOME BEFORE INCOME TAXES 35.9 99.1

Income tax expense 162.2 12.4

CONSOLIDATED NET INCOME

Net income attributable to noncontrolling interests

NET INCOME ATTRIBUTABLE TO NCM, INC.

COMPREHENSIVE INCOME ATTRIBUTABLE TO NCM, INC.

NET INCOME PER NCM, INC.

CONSOLIDATED NET (LOSS) INCOME ( 126.3 ) 86.7

Net (loss) income attributable to noncontrolling interests ( 60.9 ) 50.6

NET (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.

( 65.4 ) 36.1

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NCM, INC.

$ ( 65.4 ) $ 36.1

NET (LOSS) INCOME PER NCM, INC.

COMMON SHARE:

Basic $ ( 0.84 ) $ 0.47

Diluted $ ( 0.84 ) $ 0.46

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic 77,955,675 77,345,577

Diluted 77,955,675 77,782,567

Refer to accompanying notes to Consolidated Financial Statements.

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(In millions, except share and per share data)

Common Stock Additional

(Deficit) Retained

(Distribution

Noncontrolling

Earnings) Noncontrolling

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 $ 0.68 per share

Balance—December 28, 2017

Cumulative-effect adjustment for adoption of 2014-09

Distributions to founding members

NCM LLC equity issued for purchase of

intangible asset

Income tax and other impacts of NCM LLC

ownership changes

Comprehensive income, net of tax

Share-based compensation issued

Share-based compensation expense/capitalized

Cash dividends declared $0.68 per share

( 53.6 ) — — — ( 53.6 ) —

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 )

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ownership changes ( 0.5 ) — — ( 3.9 ) — 3.4

Issuance of shares to founding members

investment in NCM LLC

Comprehensive income, net of tax

Comprehensive loss, net of tax ( 126.3 ) — — — ( 65.4 ) ( 60.9 )

Share-based compensation issued ( 1.0 ) 471,832 — ( 1.0 ) — —

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Cash dividends declared $ 0.40 per share

( 31.1 ) — — — ( 31.1 ) —

Balance—December 31, 2020 $ ( 268.6 ) 78,040,818 $ 0.8 $ ( 207.5 ) $ ( 266.4 ) $ 204.5

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(In millions)

December 26, 2019

December 27, 2018

December 28, 2017

December 31, 2020 December 26, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Consolidated net income

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

Consolidated net (loss) income $ ( 126.3 ) $ 86.7

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

Deferred income tax expense 162.4 12.1

Depreciation expense 13.1 13.6

Amortization expense

Amortization of intangibles recorded for network theater screens 24.6 26.7

Non-cash share-based compensation 2.2 5.5

Impairment of long-lived assets 1.7 —

Impairment on investment — 2.0

Reversal of income tax reserve

Amortization of debt issuance costs 2.5 2.6

Loss on early retirement of debt, net 0.4 5.6

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

Non-cash (gain) loss on re-measurement of the payable to founding members under the TRA ( 152.7 ) 1.1

Other 0.1 ( 1.0 )

Founding member integration and encumbered theater payments (including

payments from related parties of $0.8 in 2019)

payments from related parties of $ 0.1 and $ 0.8 , respectively)

Payment to founding members under the TRA ( 12.8 ) ( 15.1 )

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Deferred revenue ( 2.5 ) 0.3

Other, net ( 2.5 ) ( 2.6 )

Net cash provided by operating activities 55.3 143.6

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Proceeds from sale and maturities of marketable securities 31.8 34.5

Purchases of intangible assets from network affiliates

Proceeds from notes receivable - founding members (including payments from related

parties of $ 0.0 and $ 4.2 , respectively)

Net cash provided by (used in) investing activities

Net cash provided by investing activities 15.6 1.6

CASH FLOWS FROM FINANCING ACTIVITIES:

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Repayments of revolving credit facility ( 82.0 ) ( 157.0 )

Proceeds from term loan facility

Repayments of term loan facility ( 3.4 ) ( 2.7 )

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Payment of debt issuance costs ( 1.3 ) ( 4.6 )

Founding member integration and encumbered theater payments (including payments from

related parties of $17.2 and $12.9 for 2018 and 2017, respectively)

Distributions to founding members ( 36.8 ) ( 71.9 )

Proceeds from stock option exercises

Repurchase of stock for restricted stock tax withholding ( 1.0 ) ( 1.3 )

Net cash used in financing activities

CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Net cash provided by (used in) financing activities 53.5 ( 130.7 )

CHANGE IN CASH AND CASH EQUIVALENTS 124.4 14.5

Cash and cash equivalents at beginning of period 55.9 41.4

Cash and cash equivalents at end of period $ 180.3 $ 55.9

Refer to accompanying notes to Consolidated Financial Statements.

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(In millions)

December 26, 2019

December 27, 2018

December 28, 2017

December 31, 2020 December 26, 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

Accrued integration and other encumbered theater payments

from founding members (including accrued payments due from

Accrued distributions to founding members (including accrued payments due from

related parties of $ 0.0 and $ 32.4 , respectively)

Accrued integration and other encumbered theater payments from founding members

(including accrued payments due from related parties of $ 0.0 and $ 0.1 , respectively)

Purchase of subsidiary equity with NCM, Inc.

equity $ — $ 1.7

Accrued purchases of property and equipment $ 1.2 $ 0.4

Increase (decrease) in dividend equivalent accrual not requiring cash

(Decrease) increase in dividend equivalent accrual not requiring cash

in the period $ ( 0.1 ) $ 0.1

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

was incorporated in Delaware as a holding company with the sole purpose of becoming a member and sole manager of NCM LLC, a limited liability company owned by NCM, Inc., Cinemark and Regal.

was incorporated in Delaware as a holding company with the sole purpose of becoming a member and sole manager of NCM LLC, a limited liability company owned by NCM, Inc., Cinemark, Regal and AMC.

The terms “NCM”, “the Company” or “we” shall, unless the context otherwise requires, be deemed to include the consolidated entity.

The Company operates the largest cinema advertising network reaching movie audiences in North America, allowing NCM LLC to sell advertising under long-term ESAs with the founding members and certain third-party network affiliates, under long-term network affiliate agreements.

The Company operates the largest cinema advertising network reaching movie audiences in the U.S., allowing NCM LLC to sell advertising under long-term ESAs with the founding members and certain third-party network affiliates, under long-term network affiliate agreements.

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 lower than historical levels due to government restrictions including mandated patron capacity limitations and a continued lack of new major motion picture releases.

In October 2020, Regal announced the re-closure of its theaters in the United States.

As of December 31, 2020, 40.5 % of the theaters within the Company’s network were open.

On September 17, 2019, NCM LLC entered into the 2019 ESA Amendments.

The 2019 ESA Amendments extended the contract life of the ESAs with Cinemark and Regal by four years resulting in a weighted average remaining term of the ESAs with the founding members (based on attendance) of approximately 19.8 years as of December 26, 2019 .

The 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 pre-COVID-19 attendance levels) of approximately 18.7 as of December 31, 2020.

The network affiliate agreements expire at various dates between March 31, 2021 and July 22, 2031.

The weighted average remaining term (based on attendance) of the ESAs and the network affiliate agreements together is 17.1 years as of December 26, 2019 .

The weighted average remaining term (based on pre-COVID-19 attendance levels) of the ESAs and the network affiliate agreements together is 16.3 years as of December 31, 2020.

As of December 31, 2020, NCM LLC had 162,572,146 common membership units outstanding, of which 78,040,818 ( 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.

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in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).

Certain reclassifications have been made to the prior years’ financial statements to conform to the current presentation (refer to Consolidated Statements of Income and Consolidated Statement of Cash Flows, whereby the Company presented depreciation expense and amortization expense as two separate lines).

In the opinion of management, all adjustments necessary to present fairly in all material respects the financial position, results of operations and cash flows for all periods presented have been made.

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Accounting Period —The Company has a 52-week or 53-week fiscal year ending on the first Thursday after December 25.

Fiscal years 2017 , 2018 and 2019 contained 52 weeks.

Fiscal year 2019 contained 52 weeks and 2020 contained 53 weeks.

Throughout this document, the fiscal years are referred to as set forth below:

Fiscal Year Ended

Fiscal Year Ended Reference in

this Document

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December 26, 2019 2019

December 28, 2017

Revenue Recognition —The Company derives revenue principally from the sale of advertising to national, regional and local businesses in Noovie , our cinema advertising and entertainment pre-show seen on movie screens across the U.S., as well as on our LEN, a series of strategically-placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies.

We also sell digital online and mobile advertising through our Cinema Accelerator product and across our suite of Noovie digital properties, including Noovie.com, Noovie Shuffle, Name That Movie, Noovie Arcade, and Fantasy Movie League , in order to reach entertainment audiences beyond the theater.

The Company also has a long-term

Revenue Recognition —The Company derives revenue principally from the sale of advertising to national, regional and local businesses in Noovie® , our cinema advertising and entertainment pre-show seen on movie screens across the U.S., as well

NATIONAL CINEMEDIA, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

agreement to exhibit the advertising of the founding members’ beverage suppliers.

as on our LEN, a series of strategically-placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies.

We also sell digital online and mobile advertising through our Noovie Audience Accelerator product and across our suite of Noovie digital properties, including Noovie.com, Noovie Shuffle, Name That Movie and Noovie Arcade , in order to reach entertainment audiences beyond the theater.

The Company also has a long-term agreement to exhibit the advertising of the founding members’ beverage suppliers.

The Company considers the terms of each arrangement to determine the appropriate accounting treatment as more fully discussed in Note 2— Revenue from Contracts with Customers .

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Advertising Costs —Advertising-related costs incurred promoting the Company's digital products are included within “Selling and marketing costs” on the audited Consolidated Statements of Income.

The Company recognized advertising costs of $ 1.2 million, $ 0.1 million, and $ 0.0 million for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

The Company recognized advertising costs of $ 0.2 million and $ 1.2 million for the years ended December 31, 2020 and December 26, 2019, respectively.

These costs are expensed when incurred.

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There are cash balances in a bank in excess of the federally insured limits or in the form of a money market demand account with a major financial institution .

The Company has elected the fair value option for valuing its cash equivalents.

The cash equivalents are valued at fair value at each balance sheet date and the change in value from the prior period is recognized within “Other non-operating income (loss)” on the audited Consolidated Statements of Income.

Marketable Securities —The Company’s marketable securities are classified as available-for-sale and are reported at fair value.

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The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market.

Concentration of Credit Risk and Significant Customers —Bad debts are provided for using the allowance for doubtful accounts method based on historical experience and management’s evaluation of outstanding receivables at the end of the period.

Concentration of Credit Risk and Significant Customers —The risk of credit loss related to the Company's trade receivables and unbilled receivables balances is accounted for through the allowance for doubtful accounts, 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 write off percentages to these pools in order to determine the amount of expected credit losses as of the balance sheet date.

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 and represent smaller receivable balances per customer and higher historical and expected credit loss patterns.

The Company has smaller contracts with many 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 December 31, 2020, as compared to December 26, 2019, given the expected adverse impact of the COVID-19 Pandemic on certain businesses, in particular, categories of small businesses (e.g.

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 are written off when management determines amounts are uncollectible.

Trade accounts receivable are uncollateralized and represent a large number of geographically dispersed debtors.

The collectability risk with respect to national and regional advertising is reduced by transacting with founding members or large, national advertising agencies who have strong reputations in the advertising industry and clients with stable financial positions.

The Company has smaller contracts with thousands of local clients that are not individually significant.

As of December 26, 2019 and December 27, 2018 , there were no advertising agency groups or individual customers through which the Company sources national advertising revenue representing more than 10% of the Company’s outstanding gross receivable balance.

During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , there were no customers that accounted for more than 10% of revenue.

As of December 31, 2020 there was one advertising agency group through which the Company sources national advertising revenue that accounted for 10.1 % of the Company’s outstanding gross receivable balance.

As of December 26, 2019 there was no advertising agency group through which the Company sources national advertising revenue that accounted for more than 10% of the Company’s outstanding gross receivable balance.

During the year ended December 31, 2020, the Company had one customer that accounted for 14.6 % of the Company's revenue.

During the year ended December 26, 2019, there were no customers that accounted for more than 10% of revenue.

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Receivables consisted of the following (in millions):

December 26, 2019

December 27, 2018

December 31, 2020 December 26, 2019

Trade accounts $ 16.6 $ 176.0

Other 1.9 1.0

Allowance for doubtful accounts ( 2.3 ) ( 6.2 )

Total $ 16.2 $ 170.8

Long-lived Assets —Property and equipment is stated at cost, net of accumulated depreciation or amortization.

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The Company records depreciation using the straight-line method over the following estimated useful lives:

Computer hardware and software

Leasehold improvements

Lesser of lease term or asset life

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equipment 4-10 years

Computer hardware and software 3-5 years

Leasehold improvements Lesser of lease term or asset life

Software and website development costs developed or obtained for internal use are accounted for in accordance with ASC 350— Internal Use Software and ASC 350– Website Development Costs .

2 unchanged sentences

As of December 31, 2020 and December 26, 2019, the Company had a net book value of $ 10.4 million and $ 14.1 million, respectively, of capitalized software and website development costs.

Depreciation expense related to software and website development was approximately $8.4 million , $6.7 million and $6.0 million for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

Depreciation expense related to software and website development was approximately $ 8.1 million and $ 8.4 million for the years ended December 31, 2020 and December 26, 2019, respectively.

The subtopics also require the capitalization of certain implementation costs related to qualifying Cloud Computing Arrangements (“CCAs”) upon adoption of ASU 2018-15— Intangibles - Goodwill and Other - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract as of September 28, 2018.

As of December 26, 2019 and December 27, 2018 the Company had a gross and net book value of $0.6 million and $0.0 million of capitalized implementation costs for CCAs, respectively.

These costs primarily relate to the Company's expected new hosted planning, proposal and inventory tracking system.

As of December 31, 2020 and December 26, 2019 the Company had a net book value of $ 3.0 million and $ 0.6 million of capitalized implementation costs for CCAs, respectively.

These costs primarily relate to the Company's new hosted end-to-end order management and scheduling system which was implemented in January 2021.

Since December 31, 2020 and December 26, 2019 were prior to the implementation of the system, the gross value of the capitalized implementation costs were equal to the net book value.

These costs will be amortized to “Administrative and other costs” within the audited Consolidated Statements of Income over the life of the hosting arrangement beginning at implementation.

For the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , the Company recorded $3.6 million , $1.7 million and $3.6 million in research and development expense, respectively.

For the years ended December 31, 2020 and December 26, 2019, the Company recorded $ 1.9 million and $ 3.6 million in research and development expense, respectively.

The Company assesses impairment of long-lived assets pursuant with ASC 360 – Property, Plant and Equipment.

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

The Company recorded losses of $0.2 million , $0.5 million and $0.1 million related to the write-off of property, plant and equipment during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

These balances have been included within “Depreciation expense” within the respective audited Consolidated Statements of Income given the immaterial nature of the balances.

The Company recorded losses of $ 0.2 million and $ 0.2 million related to the write-off of equipment during the years ended December 31, 2020 and December 26, 2019, respectively, which has been included within “Depreciation expense” within the respective audited Consolidated Statements of Income given the immaterial nature of the balances.

The Company recorded losses of $ 1.7 million and $ 0.0 million related to the write-off of certain internally developed software during the years ended December 31, 2020 and December 26, 2019, respectively, which has been included within “Impairment of long-lived assets” within the respective audited Consolidated Statements of Income.

Intangible Assets —Intangible assets consist of contractual rights to provide its services within the theaters of the founding members and network affiliates and are stated at cost, net of accumulated amortization.

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Significant judgment is involved in estimating long-term cash flow forecasts.

The Company recorded $ 0.1 million, $ 0.0 million and $ 0.0 million, respectively, in impairment charges related to intangible assets during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 .

Refer to Note 5— Intangible Assets to the audited Consolidated Financial Statements for discussion of the Company's consideration of the impact of the COVID-19 Pandemic within the impairment testing performed over the Company's intangible assets during the year

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ended December 31, 2020.

The Company recorded $ 0.2 million and $ 0.1 million, respectively, in impairment charges related to intangible assets during the years ended December 31, 2020 and December 26, 2019.

These losses have been included within “Depreciation expense” within the respective audited Consolidated Statements of Income given the immaterial nature of the activity.

The Company has elected to capitalize extension costs on its intangible assets and thus capitalized the legal and professional costs incurred in conjunction with the 2019 ESA Amendments.

During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , the Company capitalized $ 1.3 million , $ 0.0 million and $ 0.0 million, respectively within the intangible asset balance related to extension costs.

During the years ended December 31, 2020 and December 26, 2019, the Company capitalized $ 0.0 million and $ 1.3 million, respectively within the intangible asset balance related to extension costs.

Amounts Due to/from Founding Members —Amounts due to/from founding members include amounts due for the theater access fees and revenue share, offset by a receivable for advertising time purchased by the founding members on behalf of their beverage concessionaire, plus any amounts outstanding under other contractually obligated payments.

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The Company records a valuation allowance if it is deemed more likely than not that all or a portion of its deferred income tax assets will not be realized, which will be assessed on an on-going basis.

Only the portion of deferred income tax assets deemed more likely than not to be realized are considered within the calculation of the payable to the founding members under the TRA which is equal to 90% of the Company’s actual tax benefit realized from the tax amortization of the basis difference for qualifying deferred income tax assets.

Refer to Note 7— Income Taxes to the audited Consolidated Financial Statements for discussion of changes within the Company's valuation allowance on its deferred tax assets during the year ended December 31, 2020.

In addition, income tax rules and regulations are subject to interpretation and the application of those rules and regulations require judgment by the Company and may be challenged by the taxation authorities.

The Company follows ASC 740-10-25, which requires the use of a two-step

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approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions.

The Company follows ASC 740-10-25, which requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions.

Only tax positions that meet the more likely than not recognition threshold are recognized.

The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, the tax position will be sustained upon examination, including the resolution of any related appeals or litigation.

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The changes in debt issuance costs are as follows (in millions):

December 26, 2019

December 27, 2018

December 28, 2017

December 31, 2020 December 26, 2019

Beginning balance $ 12.9 $ 12.8

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Ending balance $ 11.3 $ 12.9

Share-Based Compensation —During 2019, the Company issued stock options, restricted stock and restricted stock units.

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Share-Based Compensation —During 2020 and 2019, the Company issued stock options, restricted stock and restricted stock units.

Restricted stock and restricted stock units vest upon the achievement of Company three -year cumulative performance measures and service conditions or only service conditions.

The Company recognizes share-based compensation net of an estimated forfeiture rate.

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

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 expected to vest.

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The non-managing members of NCM LLC do not have dissolution rights or removal rights.

has evaluated the provisions of the NCM LLC membership agreement and has concluded that the various rights of the non-managing members are not substantive participating rights

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under ASC 810, as they do not limit NCM, Inc.’s ability to make decisions in the ordinary course of business.

has evaluated the provisions of the NCM LLC membership agreement and has concluded that the various rights of the non-managing members are not substantive participating rights under ASC 810, as they do not limit NCM, Inc.’s ability to make decisions in the ordinary course of business.

As such, the Company concluded that NCM LLC is a variable interest entity and determined that NCM, Inc.

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

December 26, 2019

December 27, 2018

December 28, 2017

Net income attributable to NCM, Inc.

December 31, 2020 December 26, 2019

Net (loss) income attributable to NCM, Inc.

$ ( 65.4 ) $ 36.1

NCM LLC equity issued for purchase of intangible asset 5.0 3.7

Income tax and other impacts of NCM LLC ownership

Income tax and other impacts of NCM LLC ownership changes ( 3.9 ) ( 0.7 )

investment in NCM LLC — ( 1.7 )

Issuance of shares to founding members — 1.7

Change from net income attributable to NCM, Inc.

and transfers from noncontrolling interests

Recently Adopted Accounting Pronouncements

During the first quarter of 2019, the Company adopted Accounting Standards Update 2016-2 and subsequent amendments, Leases (Topic 842) (together “ASC 842”) utilizing the Comparatives Under 840 option where only the current period financial statements and related disclosures are presented in accordance with the new standard.

As of the adoption date of December 28, 2018 the Company recognized the following on the audited Condensed Consolidated Balance Sheets:

a right-of-use (“ROU”) asset of $ 21.7 million within “Other assets”, a short-term lease liability of $ 1.4 million within “Other current liabilities”, a long-term lease liability of $ 24.5 million within “Other liabilities” and reversed the related deferred rent liability balance of $ 4.2 million for all leases with terms longer than twelve months related to its building operating leases.

The Company elected to utilize the following practical expedients:

(i) not being required to separate lease and non-lease components when accounting for the lease for all asset classes;

and (ii) not accounting for short-term leases under the new standard.

The Company also determined that the ESAs and affiliate agreements are considered leases under ASC 842.

However, the identification of the asset and determination of the period of control is dependent upon the scheduling of the showtimes by the exhibitors.

As the schedules are typically not determined until one week in advance of the showtime, on average, the leases are considered short term in nature, specifically less than one month.

As such, no ROU assets or lease liabilities were recognized for these agreements.

The issuance of NCM LLC membership units to the founding members in accordance with NCM LLC’s Common Unit Adjustment Agreement and upfront cash payments to affiliates for the contractual rights to provide services within their theaters will continue to be classified as intangible assets.

However, the amortization of these intangible assets is now considered lease expense and has been reclassified within the current period from “Depreciation and amortization expense” to “Amortization of intangibles recorded for network theater screen leases” on the audited Consolidated Statement of Income.

Additionally, these upfront cash payments to affiliates and receipt of integration payments from the founding members, as defined within Note 5— Intangible Assets , will be considered cash flows from operating activities on the audited Consolidated Statement of Cash Flows when incurred as they are related to operating leases and will be reclassified from cash flows from investing and financing activities, respectively.

The Company has also incorporated additional disclosures in Note 13— Commitments and Contingencies to comply with ASC 842.

During the first quarter of 2019, the Company adopted Accounting Standards Update 2018-7, Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which amends Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

The adoption of ASU 2018-7 had an immaterial impact on the audited Condensed Consolidated Financial statements or notes thereto.

During the fourth quarter of 2018, the Company adopted a final rule issued by the SEC amending certain disclosure requirements deemed by the SEC to be redundant, duplicative, overlapping, outdated or superseded.

The rule also added requirements to disclose (1) the changes in each caption of stockholders’ equity and non-controlling interests for the current and comparative year-to-date periods, with subtotals for each interim period and (2) the amount of dividends per share for each class of shares.

The Company's adoption of the guidance resulted in changes to the presentation of the audited Consolidated Statement of Equity as a quarter to date equity rollforward is now also required for the current and comparable period.

Change from net (loss) income attributable to NCM, Inc.

and transfers from

noncontrolling interests $ ( 64.3 ) $ 39.1

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Company implemented the amended disclosure requirements in the first quarter of 2019.

The codification was updated to reflect the aforementioned SEC changes within Accounting Standards Update 2019-7, Codification Updates to SEC Sections ("ASU 2019-7") issued and effective during the third quarter of 2019.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements (“ASU 2016-13”), which requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

Recently Adopted Accounting Pronouncements

During the first quarter of 2020, the Company adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements (“ASU 2016-13”), which requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted and is to be adopted on a modified retrospective basis.

Upon the adoption of ASU 2016-13 on December 27, 2019, the Company expects to record a cumulative-effect adjustment related to the change in methodology surrounding the historical losses utilized in the calculation of the allowance for credit losses related to trade and unbilled accounts receivable.

The Company is still evaluating the amount of adjustment.

The Company will incorporate additional disclosures in its notes to its Consolidated Financial Statements to comply with ASU 2016-13 effective in the first quarter of 2020.

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

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820):

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 audited 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 Note14— Fair Value Measurements to its audited 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.

ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with partial early adoption permitted for eliminated disclosures.

The method of adoption varies by the disclosure.

Upon the adoption of ASU 2018-13 on December 27, 2019, the Company expects no changes to the Company's fair value disclosures as none of the changes within ASU 2018-13 were applicable to the Company.

The Company adoption of ASU 2018-13 did not have a material impact on the audited 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):

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The Company is currently evaluating the impact that adopting this guidance will have on the audited 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 audited 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 audited Consolidated Financial Statements or notes thereto .

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The Company derives revenue principally from the sale of advertising to national, regional and local businesses in Noovie® , our cinema advertising and entertainment pre-show seen on movie screens across the U.S., as well as on our LEN, a series of strategically-placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies.

The Company also has a long-term agreement to exhibit the advertising of the founding members’ beverage suppliers.

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The Company recognizes local on-screen advertising revenue over the period in which the advertising airs as dictated by the underlying sales contracts.

When sold separately, LEN advertising and lobby promotions are sold based on length and breadth of the promotion.

The Company recognizes revenue derived from lobby network and promotions over time when the advertising is displayed in theater lobbies.

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separately, LEN advertising and lobby promotions are sold based on length and breadth of the promotion.

The Company recognizes revenue derived from lobby network and promotions over time when the advertising is displayed in theater lobbies.

The Company sells online and mobile advertising on a CPM basis.

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The Company records barter transactions at the estimated fair value of the products and services received.

Revenue for advertising barter transactions are recognized when advertising is provided, and products and services received are charged to expense when used.

Revenue from barter transactions for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 was $1.8 million , $5.9 million and $0.8 million , respectively.

Expense recorded from barter transactions for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 was $2.1 million , $5.0 million and $1.4 million , respectively.

This expense is included within “Selling and marketing costs” on the respective audited Consolidated Statements of Income.

Revenue for advertising barter transactions is recognized when advertising is provided, and products and services received are charged to expense when used.

Revenue from barter transactions for the years ended December 31, 2020 and December 26, 2019 was $ 0.6 million and $ 1.8 million, respectively.

Expense recorded from barter transactions for the years ended December 31, 2020 and December 26, 2019 was $ 0.1 million and $ 2.1 million, respectively.

This expense is included within “Selling and marketing costs” on the audited Consolidated Statements of Income.

The Company makes contractual guarantees to deliver a specified number of impressions to view the customers’ advertising.

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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 years ended December 26, 2019 , December 27, 2018 and December 28, 2017 :

December 26, 2019

December 27, 2018

December 28, 2017

National advertising revenue

The following table summarizes revenue from contracts with customers for the years ended December 31, 2020 and December 26, 2019:

December 31, 2020 December 26, 2019

National and regional advertising revenue $ 66.7 $ 348.9

Local advertising revenue 17.5 66.9

Regional advertising revenue (1)

Founding member advertising revenue from beverage concessionaire agreements 6.2 29.0

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company redesigned the local and regional sales teams at the end of 2017, resulting in a reallocation of sales team members and customers from the local team in 2017 to the regional team in 2018 which resulted in the large increase in regional advertising revenue and corresponding decrease in local advertising revenue from 2017 to 2018.

Deferred Revenue and Unbilled Accounts Receivable

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The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

EARNINGS PER SHARE

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding.

Diluted earnings 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 exchangeable NCM LLC common units using the treasury stock method.

The components of basic and diluted earnings per NCM, Inc.

(LOSS) EARNINGS PER SHARE

Basic loss per share is computed on the basis of the weighted average number of common shares outstanding.

Diluted 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 exchangeable NCM LLC common units using the treasury stock method.

The components of basic and diluted loss per NCM, Inc.

share are as follows:

December 26, 2019

December 27, 2018

December 28, 2017

December 31, 2020 December 26, 2019

Net income attributable to NCM, Inc.

(in millions) $ ( 65.4 ) $ 36.1

Net income attributable to NCM, Inc.

conversion of dilutive membership units (net of

estimated taxes of $0.0, $22.2 and $42.5) (in millions)

Weighted average shares outstanding:

Basic 77,955,675 77,345,577

Dilutive effect of stock options, restricted

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membership units

Diluted 77,955,675 77,782,567

Earnings per NCM, Inc.

The effect of the 81,450,384 exchangeable NCM LLC common membership units held by the founding members for the year ended December 26, 2019 was excluded from the calculation of diluted weighted average shares and earnings per NCM, Inc.

Basic $ ( 0.84 ) $ 0.47

Diluted $ ( 0.84 ) $ 0.46

The effect of the 83,903,921 and 81,450,384 exchangeable NCM LLC common membership units held by the founding members for the years ended December 31, 2020 and December 26, 2019, respectively, was excluded from the calculation of diluted weighted average shares and earnings per NCM, Inc.

share as it was antidilutive in that period.

However, the diluted weighted average shares outstanding assumes the conversion of all founding member common units to NCM, Inc.

shares for the years ended December 27, 2018 and December 28, 2017 because such effect was dilutive.

Upon the conversion of all common units, all of consolidated NCM LLC net income would be attributable to NCM, Inc.

and thus has been utilized as the numerator of the diluted EPS calculation.

Consolidated NCM LLC net income has been tax effected utilizing NCM, Inc.’s effective tax rates of 44.1% and 75.6% for the years ended December 27, 2018 and December 28, 2017 , respectively.

NCM LLC common membership units do not

In addition, there were 5,193,200 and 2,568,418 , stock options and non-vested (restricted) shares for the years ended December 31, 2020 and December 26, 2019, respectively, excluded from the calculation as they were antidilutive.

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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participate in dividends paid on NCM, Inc.’s common shares.

In addition, there were 2,568,418 , 2,141,535 and 2,583,196 stock options and non-vested (restricted) shares for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively, excluded from the calculation as they were antidilutive, primarily because exercise prices associated with those shares were above the average market value.

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.

PROPERTY AND EQUIPMENT

The following is a summary of property and equipment, at cost less accumulated depreciation (in millions):

December 26, 2019

December 27, 2018

December 31, 2020 December 26, 2019

Equipment, computer hardware and software $ 94.0 $ 93.5

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Accumulated depreciation ( 77.7 ) ( 70.7 )

Subtotal 19.2 25.2

Construction in progress 8.3 8.0

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Pursuant to ASC 350-10— Intangibles—Goodwill and Other, 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 contract with the network affiliate.

The Company extended the useful life of the intangible asset for Cinemark and Regal following the extension of the ESA term in conjunction with the 2019 ESA Amendments.

The Company extended the useful life of the intangible asset for Cinemark and Regal in 2019 following the extension of the ESA term in conjunction with the 2019 ESA Amendments.

There was no impact to the Payable to founding members under tax receivable agreement as the useful life of the intangible assets were not deemed to be extended for tax purposes and there were no changes made to the tax receivable agreements.

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 constituted a triggering event for its intangible assets under Accounting Standards Certification No.

360, Impairment and Disposal of Long-Lived Assets during 2020.

In its impairment analysis, 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 in 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.

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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 and Rave theaters are subject to an existing on-screen advertising agreement with an alternative provider, AMC and Cinemark will make integration payments to NCM LLC.

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

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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.

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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.

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The following is a summary of the Company’s intangible asset’s activity (in millions) during 2019 and 2018 :

The following is a summary of the Company’s intangible asset’s activity (in millions) during December 31, 2020 and December 26, 2019:

2019 Additions (1)

Disposals (2)

Disposals Amortization Integration

and other encumbered theater payments (2)

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Total intangible assets, net $ 643.7 $ 10.5 $ ( 0.4 ) $ ( 24.6 ) $ ( 1.4 ) $ 627.8

December 28, 2017

2018 Additions (3)

Integration and other encumbered theater payments (4)

December 27, 2018

Disposals Amortization Integration

and other encumbered theater payments (2)

Gross carrying amount $ 857.2 $ 8.9 $ ( 1.2 ) $ — $ ( 22.3 ) $ 842.6

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(1) 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.

During the third quarter of 2019, the Company capitalized $1.3 million of legal and professional costs incurred in conjunction with the 2019 ESA Amendments which extended the useful life of the intangible asset for Cinemark and Regal.

During the second quarter of 2019, AMC purchased one of the Company's affiliates and the Company wrote off the related intangible asset balance and accumulated amortization.

A portion of the net book balance was reimbursed by AMC.

The acquired theaters will be included within the Common Unit Adjustment calculation for AMC in March of 2020.

During the fourth quarter of 2019, one of the Company's affiliates closed.

As such, the Company wrote off the related intangible asset balance and accumulated amortization.

During the first quarter of 2018, NCM LLC issued 2,821,710 ( 3,736,860 issued, net of 915,150 returned) common membership units to its founding members for the rights to exclusive access to net new theater screens and attendees added by the founding members to NCM LLC’s network during 2017 and NCM LLC recorded a net intangible asset of $15.9 million in the first quarter of 2018 as a result of these Common Unit Adjustments.

During 2018, the Company purchased intangible assets for $0.1 million associated with network affiliate agreements.

(2) Carmike and Rave Cinemas had pre-existing advertising agreements for some of the theaters it owned prior to their acquisitions by AMC and Cinemark.

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During the year ended December 31, 2020 and December 26, 2019, AMC and Cinemark paid a total of $ 9.8 million and $ 21.7 million, respectively, related to integration and other encumbered theater payments.

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

During the third quarter of 2019, the Company capitalized $ 1.3 million of legal and professional costs incurred in conjunction with the 2019 ESA Amendments which extended the useful life of the intangible asset for Cinemark and Regal.

As of December 31, 2020 and December 26, 2019, the Company’s intangible assets related to the founding members, net of accumulated amortization, was $ 608.1 million and $ 620.5 million, respectively, with weighted average remaining lives of 18.3 years and 20.0 years, respectively.

As of December 31, 2020 and December 26, 2019, the Company’s intangible assets related to the network affiliates, net of accumulated amortization, was $ 19.7 million and $ 23.1 million, respectively, with weighted average remaining lives of 8.2 years and 5.4 years, respectively.

The estimated aggregate amortization expense for each of the five succeeding years is as follows (in millions ):

NATIONAL CINEMEDIA, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 26, 2019 and December 27, 2018 , the Company’s intangible assets related to acquired software, net of accumulated amortization, was $0.1 million and $0.1 million , respectively, with weighted average remaining lives of 0.5 years and 1.5 years , respectively.

The estimated aggregate amortization expense for each of the five succeeding years is as follows (in millions):

Year Amortization

ACCRUED EXPENSES

The following is a summary of the Company’s accrued expenses (in millions):

December 26, 2019

December 27, 2018

December 31, 2020 December 26, 2019

Make-good reserve $ 7.1 $ 8.7

Accrued interest 10.0 11.4

Deferred rent

Other accrued expenses 1.9 2.0

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The TRA applies to NCM, Inc.’s taxable years up to and including the 30t h anniversary date of the offering.

The Company paid the founding members $14.8 million in 2019 for the 2018 tax year, $18.4 million in 2018 for the 2017 tax year and $18.8 million in 2017 for the 2016 tax year.

recorded a long-term payable to founding members related to the TRA.

Changes in the tax rate each period led to a re-measurement of the payable resulting in an increase of $1.1 million during the year ended December 26, 2019 and decreases of $3.8 million and $192.2 million during the years ended December 27, 2018 and December 28, 2017 , respectively.

The decrease of $192.2 million during the year ended December 28, 2017 was related to Tax Reform, as described further below.

For the 2019 tax year, the Company paid the founding members $ 12.8 million in the year ended December 31, 2020 and expects to pay an additional $ 0.9 million in the first quarter of 2021.

The Company paid the founding members $ 14.8 million in the year ended December 26, 2019 for the 2018 tax year.

recorded a long-term payable to the founding members related to the TRA.

The Company recorded a $ 152.7 million reduction to the ‘Payable to founding members under the tax receivable agreement’ during the year ended December 31, 2020.

The reduction was primarily related to the portion of the payable related to 90% of the amortization of the expected benefits from the realization of the deferred tax assets deemed not more-likely-than-not to be realized as of December 31, 2020 of $ 151.9 million, as further discussed below.

The reduction was also due to the decrease in the deferred tax rate during the year ended December 31, 2020.

The reduction to the payable to founding members under the tax receivable agreement was recorded as a gain within “Non-operating income” within the Consolidated Statements of Income.

NATIONAL CINEMEDIA, INC.

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Provision for Income Taxes —The Company has provided total income taxes, as follows (in millions)

December 26, 2019

December 27, 2018

December 28, 2017

December 31, 2020 December 26, 2019

Federal $ ( 0.1 ) $ —

State ( 0.1 ) 0.3

Total current income tax (benefit)/expense ( 0.2 ) 0.3

Federal 131.8 10.0

State 30.6 2.1

Total deferred income tax expense 162.4 12.1

Total income tax provision on Consolidated

Statements of Income

Total income tax provision on Consolidated Statements of Income $ 162.2 $ 12.4

A reconciliation of the provision for income taxes as reported and the amount computed by multiplying income before taxes, less noncontrolling interest, by the U.S.

federal statutory rate of 21.0% as of December 26, 2019 and December 27, 2018 and 35.0% as of December 28, 2017 was (in millions):

December 26, 2019

December 27, 2018

December 28, 2017

Provision calculated at federal statutory income

federal statutory rate of 21.0 % as of December 31, 2020 and December 26, 2019 was (in millions):

December 31, 2020 December 26, 2019

Provision calculated at federal statutory income tax rate:

Income before income taxes $ 7.5 $ 20.8

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Income attributable to NCM, Inc.

Current year change to enacted federal and

state rate (1)

State and local income taxes, net of federal

Current year change to enacted federal and state rate ( 1.4 ) ( 0.7 )

State and local income taxes, net of federal benefit 3.5 1.7

NCM LLC income taxes ( 0.2 ) 0.2

Share-based compensation 0.5 0.3

Uncertain tax positions (2)

Change in the valuation allowance (1)

NCM LLC membership unit issuance to

NCM LLC membership unit issuance to NCM, Inc.

Executive compensation 0.6 0.4

Other ( 0.4 ) ( 0.8 )

Total income tax provision $ 162.2 $ 12.4

Refer to the discussion of the impact of the Tax Act within the ‘Tax Reform’ section below.

During the year ended December 31, 2015, the Company established a reserve for material, known tax exposures of $4.9 million , including accrued interest and penalties.

The reserve related to tax exposures from prior periods (2010 through 2014).

During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 the Company reversed approximately $0.0 million of its reserve, $0.4 million of its reserve ( $0.3 million of income tax benefits and $0.1 million of accrued interest and penalties) and $1.7 million ( $1.3 million of income tax benefits and $0.4 million of accrued interest and penalties), respectively, because the statute of limitations expired.

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(1) Refer to the discussion of changes to the valuation allowance during the year ended December 31, 2020 within the Deferred Tax Assets table below

Deferred Tax Assets —Significant components of the Company’s deferred tax assets consisted of the following (in millions):

December 26, 2019

December 27, 2018

December 31, 2020 December 26, 2019

Deferred tax assets:

Investment in consolidated subsidiary NCM

Investment in consolidated subsidiary NCM LLC (1)

$ 156.0 $ 218.9

Share-based compensation 2.2 3.0

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Accrued bonus — 0.4

Other 1.7 2.2

Total gross deferred tax assets 212.0 243.7

Valuation allowance (1)

( 212.0 ) ( 81.6 )

Total deferred tax assets, net of valuation allowance $ — $ 162.1

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(1) The Company recognized a deferred tax asset in the amount of $ 156.0 million and $ 218.9 million as of 2020 and 2019, respectively, associated with the basis difference in our investment in NCM LLC.

However, a portion of the total basis difference will only reverse upon a sale of the Company’s interest in NCM LLC, which the Company expects would result in a capital loss for which no offsetting capital gain is expected.

Therefore, as of December 26, 2019 and December 27, 2018 the Company has a valuation allowance in the amount of $ 80.6 million and $ 80.1 million, respectively, against the deferred tax asset to which this portion relates.

The change in this portion of the valuation allowance from December 27, 2018 to December 26, 2019 was primarily driven by outside basis differences which do not impact tax expense and thus are not reflected within the rate reconciliation presented above.

Tax Reform —On December 22, 2017, the U.S.

government enacted the Tax Act which makes broad and complex changes to the U.S.

tax code that affected the Company’s fiscal year ending December 27, 2018, including, but not limited to, (1) reducing the U.S.

federal corporate tax rate, (2) allowing full expensing of qualified property, (3) creating a new limitation on deductible interest expense;

(4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, and (5) limiting the amount of compensation that can be deducted for highly compensated officers by terminating the exclusion of performance-based compensation from the $1 million per employee, per year limitation.

The decrease in the U.S.

federal corporate tax rate decreased NCM, Inc.’s blended state and federal rate from 38.58% during the year ended December 28, 2017 to 25.38% during the year ended December 27, 2018.

The Company recorded a $191.0 million reduction to the ‘Payable to founding members under the TRA’ related to the reduction of the U.S.

federal corporate tax rate.

The reduction was recorded as a gain of $191.0 million within non-operating income within the Consolidated Statements of Income.

Additionally, the Company revalued its deferred balances utilizing the lower blended state and federal rate resulting in a reduction of the net deferred tax asset of $92.2 million .

The reduction of the net deferred tax asset was recorded as an increase in deferred tax expense.

The payments to the founding members under the TRA during 2019, decreased $8.0 million due to the decrease in the U.S.

federal corporate tax rate under the Tax Act.

The Company evaluated its deferred tax assets as of December 31, 2020 and considered both positive and negative evidence in determining whether it is more likely than not that all or some portion of its deferred tax assets will be realized.

The Company expects that it will generate a three-year cumulative pre-tax book loss during 2021 driven by the impact of the COVID-19 Pandemic on the Company’s operations in 2020, the effect of which is expected to continue into 2021.

Given the associated weight assigned to this item as negative evidence within the Company’s analysis, the Company determined it is more-likely-than-not that the Company will not be able to realize certain of the Company’s deferred tax assets before they expire.

The Company increased the valuation allowance against certain deferred tax assets, generating $ 139.0 million of additional income tax expense in the year ended December 31, 2020.

The increase in the valuation allowance was partially offset by an $ 8.6 million reduction in the valuation allowance related to the investment in consolidated subsidiary NCM LLC deferred tax asset.

Once the Company returns to a more normal operating level and emerges from a three-year cumulative pre-tax book loss position, part or all the valuation allowance is expected to reverse, resulting in an inverse impact to the payable to founding members under the tax receivable agreement which would increase to reflect future payments to the founding members at that time.

Once the valuation allowance is reversed, the payable to founding members under the tax receivable agreement would be increased to reflect expected future payments to the founding members at that time.

Carryforwards —As of December 31, 2020, the Company had gross federal net operating loss carryforwards of approximately $ 207.5 million, of which $ 47.0 million will expire between 2034 through 2037 and $ 160.5 million will be carried forward indefinitely.

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There were 78,040,818 shares of common stock issued and outstanding as of December 31, 2020.

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The holders of NCM, Inc.

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AMC remains a party to the ESA, Common Unit Adjustment Agreement, TRA and certain other original agreements, and AMC will continue to participate in the annual Common Unit Adjustment, receive TRA payments, receive theater access fee payments, and make payments under the beverage concessionaire agreements, among other things.

AMC is not currently a member under the terms of the NCM LLC Operating Agreement and will not receive available cash distributions or allocation of earnings and losses in NCM LLC, unless it receives NCM LLC membership units pursuant to a Common Unit Adjustment.

Further, AMC's ownership percentage does not impact future integration payments and other encumbered theater payments owed to NCM LLC by AMC.

AMC is considered a related party through the date it fell below the 5% ownership threshold (July 5, 2018) and related party transactions with AMC through this period are included within the disclosures below (specifically the first six months of 2018 and all of 2017).

Further, AMC's ownership percentage does not

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impact future integration payments and other encumbered theater payments owed to NCM LLC by AMC.

AMC is considered a related party through the date it fell below the 5% ownership threshold.

The material agreements with the founding members are as follows:

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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.

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• Software License Agreement.

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Included in the Consolidated Statements of Income:

December 26, 2019

December 27, 2018

December 28, 2017

December 31, 2020 December 26, 2019

Beverage concessionaire revenue (included in

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Operating expenses:

Theater access fee and revenue share (3)

Purchase of movie tickets and concession products and

rental of theater space (included in selling and

marketing costs) (4)

Purchase of movie tickets and concession products and

rental of theater space (included in advertising

operating costs)

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

Selling and marketing costs (3)

Advertising operating costs (3)

Non-operating expenses:

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interest income) (4)

AMC is no longer considered a related party as of July 5, 2018, as described further above.

As such, the figures within the table above only include related party activity with AMC for the first six months of 2018 and the year ended December 28, 2017.

For the full years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , two of the founding members 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 equivalent CPM rate specified by the ESA.

(1) For the full years ended December 31, 2020 and December 26, 2019, Regal and Cinemark purchased 60 seconds of on-screen advertising time (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 equivalent CPM rate specified by the ESA.

(2) Comprised of payments per theater attendee, payments per digital screen with respect to the founding member theaters included in the Company’s network, payments for access to higher quality digital cinema equipment and payments to Cinemark and Regal for their portion of the Platinum Spot revenue for the utilization of the theaters post-showtime in accordance with the 2019 ESA Amendments.

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

Refer to the discussion of the Fathom Events sale under AC JV, LLC transactions below.

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(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.

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 bore 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.

Included in the Consolidated Balance Sheets:

December 26, 2019

December 27, 2018

Current portion of note receivable (1) (2)

Interest receivable on notes receivable (included in other current assets) (2)

December 31, 2020 December 26, 2019

Common unit adjustments, net of amortization and integration payments (included in

intangible assets) (1)

$ 608.1 $ 620.5

Current payable to founding members under the TRA (2)

Long-term payable to founding members under the TRA (2)

AMC is no longer considered a related party as of July 5, 2018, as described further above.

As such, the figures within the table above do not include AMC.

Refer to the discussion of the Fathom Events sale under AC JV, LLC transactions below.

Accounts payable (3)

(1) Refer to Note 5— 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.

The Company paid AMC, Cinemark and Regal $5.4 million , $4.6 million and $8.4 million , respectively, in payments pursuant to the TRA during 2018 which was for the 2017 tax year.

As AMC is no longer considered a related party as of July 5, 2018, the AMC TRA payment includes only related party activity with AMC for the six months ended June 28, 2018.

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 payables due to the founding members in the ordinary course of business.

At the date of the Company’s IPO, NCM LLC was granted a perpetual, royalty-free license from the 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.

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

Mandatory distributions for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 are as shown within the table below (in millions).

The amount presented within the tables for the distribution paid to AMC for the year ended December 27, 2018 represents only the distribution for the three months ended March 29, 2018 to AMC.

AMC’s distribution for the three months ended June 28, 2018 was paid to Cinemark and Regal to accommodate agreements between AMC and each of Cinemark and Regal related to the sale.

Further, there was no distribution shown to AMC for the year ended December 26, 2019 or the last six months of 2018 as they were no longer a related party.

December 26, 2019

December 27, 2018

December 28, 2017

Mandatory distributions for the years ended December 31, 2020 and December 26, 2019 are as shown within the table below (in millions).

December 31, 2020 December 26, 2019

Cinemark $ 2.1 $ 37.2

Regal 2.2 39.1

Total founding members 4.3 76.3

The mandatory distributions of available cash by NCM LLC to its founding members for the quarter ended December 26, 2019 of $32.4 million , is included in amounts due to founding members in the Consolidated Balance Sheets as of December 26, 2019 and will be made in the first quarter of 2020.

The distributions to NCM, Inc.

are eliminated in consolidation.

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

Total $ 8.4 $ 148.8

The mandatory distributions in the table above related to the first quarter of 2020 and were paid in the second quarter of 2020.

Due to the adverse impacts of the COVID-19 Pandemic on the Company’s operations, the mandatory distributions of available cash by NCM LLC to its related party founding members and NCM, Inc.

for the second quarter of 2020, third quarter of 2020 and fourth quarter of 2020 were calculated as negative $ 85.2 million (including negative $ 21.6 million for Cinemark, negative $ 22.4 million for Regal and negative $ 41.2 million for NCM, Inc.).

Under the terms of the NCM LLC Operating Agreement, these negative amounts will be netted against future positive available cash distributions after the Extended Covenant Holiday Period, contingent upon the Company's compliance with the covenants outlined within the Credit Agreement Second Amendment defined within Note 17— Subsequent Events and in accordance with the NCM LLC Operating Agreement.

Amounts due to (from) founding members, net as of December 31, 2020 were comprised of the following (in millions):

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Cinemark Regal Total

Theater access fees and revenue share, net of beverage revenues

and other encumbered theater payments $ 0.6 $ 0.9 $ 1.5

Distributions payable to founding members

Integration payments due from founding members

Cost and other reimbursement ( 0.1 ) ( 0.1 ) ( 0.2 )

Total amounts due to founding members, net $ 0.5 $ 0.8 $ 1.3

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

Cinemark Regal Total

Theater access fees, net of beverage revenues

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

Common Unit Membership Redemption and AMC Mandatory Ownership Divestitures — The NCM LLC Operating Agreement provides a redemption right of the founding members to exchange common membership units 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 based on the three -day variable weighted average closing price of NCM, Inc.’s common stock prior to the redemption date.

During the year ended

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December 28, 2017 , AMC exercised the redemption right of an aggregate 15.6 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 changes in its ownership interest in NCM LLC as equity transactions 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 Consolidated Statement of Equity.

Further, no gain or loss was recognized in the Consolidated Statements of Income.

During the six months ended June 28, 2018 and the year ended December 28, 2017 , AMC sold 1.0 million and 14.8 million shares of NCM, Inc., respectively.

The Company did not receive any proceeds from the sale of its common stock by AMC.

During the six months ended June 28, 2018 and the year ended December 28, 2017 , AMC received cash dividends of approximately $0.3 million and $0.1 million , respectively, on its shares of NCM, Inc.

common stock.

AMC sold 21,477,480 NCM LLC membership units to Cinemark and Regal in July 2018.

Network Affiliate Transactions —NCM LLC paid a network affiliate owned by a family member of a director on the Company's Board of Directors $0.6 million , $0.5 million , and $0.5 million in circuit share payments during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

Common Unit Membership Redemption — The NCM LLC Operating Agreement provides a redemption right of the founding members to exchange common membership units 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 based on the three -day variable weighted average closing price of NCM, Inc.’s common stock prior to the redemption date.

Network Affiliate Transactions —NCM LLC paid a network affiliate owned by a family member of a director on the Company's Board of Directors $ 0.4 million and $ 0.6 million in circuit share payments during the years ended December 31, 2020 and December 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.

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 receivable 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 ending on December 26, 2019.

NCM LLC’s investment in AC JV, LLC was $0.9 million and $0.9 million as of December 26, 2019 and December 27, 2018 , respectively.

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.

During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , NCM LLC received cash distributions from AC JV, LLC of $0.4 million , $0.2 million and $0.3 million , respectively.

NCM LLC recorded equity in earnings for AC JV, LLC of $0.4 million , $0.2 million and $0.3 million during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively, which are included in “Other non-operating income” in the audited Consolidated Statements of Income.

NCM LLC’s investment in AC JV, LLC was $ 0.7 million and $ 0.9 million as of December 31, 2020 and December 26, 2019, respectively.

During the years ended December 31, 2020 and December 26, 2019, NCM LLC received cash distributions from AC JV, LLC of $ 0.0 million and $ 0.4 million, respectively.

NCM LLC recorded equity in (losses) earnings for AC JV, LLC of $( 0.2 ) million and $ 0.4 million during the years ended December 31, 2020 and December 26, 2019, respectively, which are included in “Other non-operating income” in the audited Consolidated Statements of Income.

The following table summarizes NCM LLC’s total outstanding debt as of December 31, 2020 and December 26, 2019 and the significant terms of its borrowing arrangements:

Outstanding Balance as of

Borrowings ($ in millions)

December 26, 2019

December 27, 2018

Maturity Date

Interest Rate

Senior secured notes due 2022

April 15, 2022

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 ($ in millions) December 31, 2020 December 26, 2019 Maturity Date Interest Rate

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

Term loans 263.3 266.6 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 1,060.3 935.6

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Carrying value of long-term debt $ 1,049.6 $ 923.9

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

Senior Secured Credit Facility —On June 20, 2018, NCM LLC entered into a credit agreement to replace NCM LLC's previous senior secured credit facility, dated as of February 13, 2007, as amended (the "previous facility").

Consistent with the

NATIONAL CINEMEDIA, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

structure of the previous facility, the new agreement consists of a term loan facility and a revolving credit facility.

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

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

As of December 31, 2020, NCM LLC’s new senior secured credit facility consisted of a $ 175.0 million revolving credit facility and a $ 263.3 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.

During the second quarter of 2018, the Company capitalized approximately $6.5 million of debt issuance costs related to the new revolving credit facility and the term loan.

The Company also recognized $1.2 million in non-operating loss related to the write-off of capitalized debt issuance costs related to the previous facility and recognition of debt issuance costs that did not qualify for capitalization.

On April 30, 2020, NCM LLC amended the Credit Agreement 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.

NCM LLC entered into an additional amendment to its Credit Agreement on March 8, 2021 which further extends the restrictions on available cash distributions established within the Credit Agreement Amendment.

Refer to Note 17— Subsequent Events for more details.

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.

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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 has occurred and continues to occur under the senior secured credit facility.

As of December 26, 2019 , the NCM LLC’s consolidated net senior secured leverage ratio was 3.00 times (versus the dividend payment restriction of 5.50 times and the covenant of 4.50 times) and NCM LLC's consolidated net total leverage ratio was 4.00 times (versus the covenant of 6.25 times).

As of December 31, 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.

Refer to Note 17— Subsequent Events for details of the extension of the restrictions on available cash distributions established within the Credit Agreement Second Amendment.

Senior Secured Notes due 2022 —On April 27, 2012, NCM LLC completed a private placement of $ 400.0 million in aggregate principal amount of 6.00 % Senior Secured Notes (the “Notes due 2022”).

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On November 7, 2019, NCM LLC redeemed the entire $ 400.0 million aggregate principal amount of NCM LLC’s existing Notes due 2022.

The redemption price for the Notes due 2022 was 101.000% of the principal amount thereof plus accrued and unpaid interest.

The redemption price for the Notes due 2022 was 101.000 % of the

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principal amount thereof plus accrued and unpaid interest.

As a result of the redemption, NCM LLC wrote-off approximately $ 1.9 million in unamortized debt issuance costs and paid a redemption premium of approximately $ 4.0 million, which are reflected in the loss on early retirement of debt, net on the Consolidated Statements of Income during the year ended December 26, 2019.

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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 2028, 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

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any subsidiaries that NCM LLC may form or acquire in the future, unless those subsidiaries become guarantors of the Notes due 2026.

The Notes due 2026 will be effectively subordinated to all liabilities of any subsidiaries that NCM LLC may form or acquire in the future, unless those subsidiaries become guarantors of the Notes due 2026.

NCM LLC does not currently have any subsidiaries, and the Notes due 2026 will not be guaranteed by any subsidiaries that NCM LLC may form or acquire in the future except in very limited circumstances.

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All of these restrictive covenants are subject to a number of important exceptions and qualifications.

In particular, NCM LLC may distribute all of its quarterly available cash as a restricted payment or as an investment, provided that NCM LLC satisfies a minimum net senior secured leverage ratio.

Future Maturities of Borrowings – The scheduled annual maturities on the Senior Secured Credit Facility, Notes due 2026 and Notes due 2028 as of December 26, 2019 are as follows (in millions):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

particular, NCM LLC may distribute all of its quarterly available cash as a restricted payment or as an investment, provided that NCM LLC satisfies a minimum net senior secured leverage ratio.

Future Maturities of Borrowings – The scheduled annual maturities on the Senior Secured Credit Facility, Notes due 2026 and Notes due 2028 as of December 31, 2020 are as follows (in millions):

Thereafter 630.0

Total $ 1,060.3

SHARE-BASED COMPENSATION

The NCM, Inc.

2016 Equity Incentive Plan (the “2016 Plan”) reserves 4,400,000 shares of common stock available for issuance or delivery under the 2016 Plan, of which 1,361,342 shares remain available for future grants as of December 26, 2019 (assuming 100% achievement of targets on performance-based restricted stock).

The Company began issuing shares under the 2016 Plan in the second quarter of 2016, following its approval by NCM, Inc.’s stockholders.

The 2016 Plan replaced NCM, Inc.’s 2007 Equity Incentive Plan (the “2007 Plan”), which was set to expire by its terms in February 2017.

The shares of common stock that were available for issuance under the 2007 Plan are no longer available for issuance following the approval of the 2016 Plan.

Any forfeitures of shares granted pursuant to the 2007 Plan will be cancelled and not available for future grant.

2020 Omnibus Equity Incentive Plan (the “2020 Plan”) was approved by NCM, Inc.'s stockholders on April 28, 2020 and approved 7,500,000 additional shares of common stock available for issuance or delivery under the 2020 Plan.

The Company began issuing shares under the 2020 Plan in the second quarter of 2020.

The 2020 Plan replaced NCM, Inc.’s 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the 2007 Equity Incentive Plan (the “2007 Plan”).

The 2020 Plan also includes 2,148,857 shares related to the number of shares reserved for issuance under the 2016 Plan that remained available for grant as of the effective date of the 2020 Plan and the number of shares subject to awards granted under the 2007 Plan as of the effective date of the 2020 Plan, which can become available for grant again upon expiration, termination, cancellation or forfeiture of the original award.

As of December 31, 2020, 6,969,753 shares remain available for future grants (assuming 100 % achievement of targets on performance-based restricted stock).

The types of awards that may be granted under the 2020 Plan include stock options, stock appreciation rights, restricted stock, restricted stock units or other stock based awards.

Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2007 Plan and the 2016 Plan.

Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2016 Plan and 2020 Plan.

Upon vesting of the restricted stock awards or exercise of options, NCM LLC will issue common membership units to the Company equal to the number of shares of the Company’s common stock represented by such awards.

Compensation Cost —The Company recognized $5.5 million , $7.8 million and $11.2 million for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively, of share-based compensation expense within Network costs, Selling and marketing costs and Administrative and other costs in the Consolidated Statements of Income as shown in the table below (in millions):

December 26, 2019

December 27, 2018

December 28, 2017

Share-based compensation costs included in network

Share-based compensation costs included in selling

and marketing costs

Share-based compensation costs included in

administrative and other costs

Compensation Cost — The Company recognized $ 2.2 million and $ 5.5 million for the years ended December 31, 2020 and December 26, 2019, respectively, of share-based compensation expense within “Network costs”, “Selling and marketing costs” and “Administrative and other costs” in the Consolidated Statements of Income as shown in the table below (in millions):

December 31, 2020 December 26, 2019

Share-based compensation costs included in network costs $ 0.2 $ 0.4

Share-based compensation costs included in selling and marketing costs 0.8 1.4

Share-based compensation costs included in administrative and other costs 1.2 3.7

Total share-based compensation costs $ 2.2 $ 5.5

During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , $0.2 million , $0.2 million and $0.3 million was capitalized, respectively, in a corresponding manner to the capitalization of employee’s salaries for capitalized labor.

The income tax benefit recognized in the income statement for share-based compensation was approximately $0.7 million , $1.7 million and $3.0 million for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

During the years ended December 31, 2020 and December 26, 2019, $ 0.2 million and $ 0.2 million was capitalized, respectively, in a corresponding manner to the capitalization of employee’s salaries for capitalized labor.

The income tax benefit recognized in the income statement for share-based compensation was approximately $ 0.3 million and $ 0.7 million for the years ended December 31, 2020 and December 26, 2019, respectively.

As of December 31, 2020, there was $ 0.5 million unrecognized compensation cost related to unvested options, which will be recognized over a remaining period of 2.1 years.

As of December 31, 2020, unrecognized compensation cost related to restricted stock and restricted stock units was approximately $ 4.5 million, which will be recognized over a weighted average remaining period of 1.6 years.

Stock Options —The Company granted stock options during 2019 for the first time since 2012.

The Stock options awarded in 2019 contained a market condition as the options were granted with an exercise price in excess of the closing market price of NCM, Inc.

Stock Options —The Company granted stock options during 2019 and 2020 after not granting options since 2012.

Stock options awarded in 2020 were granted with an exercise price equal to the closing market price of NCM, Inc.

common stock on the date the Company’s Board of Directors approved the grant.

Stock options awarded in 2012 and prior were granted with an exercise price equal to the closing market price of NCM, Inc.

The stock options awarded in 2019 contained a market condition as the options were granted with an exercise price in excess of the closing market price of NCM, Inc.

common stock on the date the Company’s Board of Directors approved the grant.

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The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing valuation model that uses the assumptions noted in the table below.

Expected volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock, and other factors.

Expected volatilities are based on implied volatilities from traded

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options on the Company’s stock, historical volatility of the Company’s stock, and other factors.

The Company uses historical data to estimate option exercise and employee termination within the valuation model.

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Treasury yield curve in effect at the time of grant.

The following assumptions were used in the valuation of the options for the year ended December 26, 2019 .

No options were granted during the years ended December 27, 2018 and December 28, 2017 .

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December 26, 2019

The following assumptions were used in the valuation of the options for the year ended December 31, 2020 and December 26, 2019:

December 31, 2020 December 26, 2019

Expected term (in years) 6.0 6.8

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Dividend yield 10.3 % 8.9 %

The intrinsic value of options exercised during the year was $0.0 million , $0.0 million and $0.1 million for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

A summary of option award activity under the 2007, 2016 and 2020 Plans as of December 31, 2020, and changes during the year then ended are presented below:

Life (in years)

Options Weighted

Price Weighted

Life (in years) Aggregate

(in millions)

Outstanding as of December 26, 2019 2,550,098 $ 14.30 3.2 $ —

Granted 500,606 $ 2.71 $ —

Forfeited ( 97,761 ) $ 16.33 $ —

Expired ( 430,621 ) $ 16.00 $ —

Outstanding as of December 31, 2020 2,522,322 $ 11.63 4.3 $ —

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Additionally, the accrued dividend equivalents are subject to forfeiture during the restricted period should the underlying shares not vest.

As of December 26, 2019 and December 27, 2018 , accrued dividend equivalents totaled $1.6 million and $1.6 million , respectively and during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , the Company paid $0.9 million , $2.1 million and $2.1 million , respectively, for dividend equivalents upon vesting of the restricted stock and restricted stock units.

The Company has issued time-based restricted stock to its employees which vests over a three -year period with one-third vesting on each anniversary of the date of grant and performance-based restricted stock which vests following a three -year measurement period to the extent that the Company achieves specified non-GAAP targets at the end of the measurement period.

As of December 31, 2020 and December 26, 2019, accrued dividend equivalents totaled $ 0.7 million and $ 1.6 million, respectively and during the years ended December 31, 2020 and December 26, 2019, the Company paid $ 0.8 million and $ 0.9 million, respectively, for dividend equivalents upon vesting of the restricted stock and restricted stock units.

The Company has issued time-based restricted stock and restricted stock units to its employees which generally vest over a three -year period with one-third vesting on each anniversary of the date of grant and performance-based restricted stock and restricted stock units which vest following a three -year measurement period to the extent that the Company achieves specified non-GAAP targets at the end of the measurement period.

Certain other vesting periods have also been used.

The Company also grants restricted stock units to its non-employee directors that vest after approximately one year .

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An annual forfeiture rate of 2 - 6 % was estimated to reflect the potential separation of employees.

The weighted average grant date fair value of non-vested stock was $7.02 , $6.65 and $14.34 for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

The total fair value of awards vested was $6.8 million , $15.5 million and $17.3 million during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

The weighted average grant date fair value of non-vested stock was $ 4.13 and $ 7.02 for the years ended December 31, 2020 and December 26, 2019, respectively.

The total fair value of awards vested was $ 5.8 million and $ 6.8 million during the years ended December 31, 2020 and December 26, 2019, respectively.

A summary of restricted stock award and restricted stock unit activity as of December 31, 2020, and changes during the year then ended are presented below:

Stock Units Weighted

Non-vested balance as of December 26, 2019 1,787,218 $ 8.68

Granted 1,736,723 $ 4.13

( 612,619 ) $ 9.31

Forfeited ( 240,444 ) $ 13.12

Non-vested balance as of December 31, 2020 2,670,878 $ 5.18

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(1) Includes 140,787 vested shares that were withheld to cover tax obligations and were subsequently canceled.

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Employee contributions are invested in various investment funds based upon election made by the employee.

The Company made discretionary contributions of $1.2 million , $1.2 million and $1.2 million during the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , respectively.

The Company made discretionary contributions of $ 0.5 million and $ 1.2 million during the years ended December 31, 2020 and December 26, 2019, respectively.

In response to the COVID-19 Pandemic, the Company temporarily suspended its match of a portion of employees 401(k) contributions effective April 2020 through December 31, 2020.

COMMITMENTS AND CONTINGENCIES

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The Company believes such claims will not have a material effect, individually and in aggregate, on its financial position, results of operations or cash flows.

Operating Commitments-Facilities —The Company has entered into operating lease agreements for its corporate headquarters and other regional offices.

Operating Commitments-Facilities —The Company adopted Accounting Standards Update 2016-2 and subsequent amendments, Leases (Topic 842) (together “ASC 842”) effective December 28, 2018.

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 $ 20.5 million and short-term and long-term lease liabilities of $ 1.8 million and $ 22.6 million, respectively, on the balance sheet as of December 31, 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 audited Condensed Consolidated Balance Sheets.

These balances are included within “Other assets”, “Other current liabilities” and “Other liabilities”, respectively, on the audited Consolidated Balance Sheets.

The Company has options on certain of these facilities to extend the lease or to terminate part or all of the leased space prior to the lease end date.

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These leases are not included within the Company’s ROU assets or lease liabilities due to the Company’s election of the practical expedient in ASC 842-20-25-2 for short-term leases.

During the twelve months ended December 26, 2019 , the Company recognized the following components of total lease cost (in millions).

During the twelve months ended December 31, 2020 and December 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 audited Consolidated Statements of Income depending upon the nature of the use of the facility.

December 26, 2019

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December 31, 2020 December 26, 2019

Operating lease cost $ 3.5 $ 3.2

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Total lease cost $ 4.0 $ 3.9

The Company made lease payments for the year ended December 26, 2019 of $3.3 million .

The Company made lease payments for the year ended December 31, 2020 and December 26, 2019 of $ 3.7 million and $ 3.3 million, respectively.

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

The minimum lease payments under noncancelable operating leases as of December 31, 2020 were as follows (in millions):

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Minimum Lease Payments

Year Minimum Lease Payments

Thereafter 15.2

Imputed interest on future lease payments ( 9.6 )

Total lease liability as of December 26, 2019 per the Condensed Consolidated Balance Sheet

During the year ended December 28, 2017, the Company recorded a $1.8 million of expense for an early lease termination fee.

The fee was reimbursed by the landlord of the Company’s new building, which is being treated as a lease incentive and amortized over the term of the new lease.

Total lease liability as of December 31, 2020 per the Consolidated Balance Sheet $ 24.4

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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No ROU assets or lease liabilities were recognized for these agreements and no change to the balance sheet presentation of the intangible assets was necessary.

However, the amortization of these intangible assets is considered lease expense and was therefore, reclassified in the current period from “Depreciation and amortization expense” to “Amortization of intangibles recorded for network theater screen leases” within the audited Condensed Consolidated Statement of Income.

In consideration for NCM LLC’s access to the founding members’ theater attendees for on-screen advertising and use of lobbies and other space within the founding members’ theaters for the LEN and lobby promotions, the founding members receive a monthly theater access fee under the ESAs.

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As of December 31, 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 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.

Following the 2019 ESA Amendments, Cinemark and Regal receive an additional monthly theater access fee beginning November 1, 2019 in consideration for NCM LLC’s access to certain on-screen advertising inventory after the advertised

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showtime of a feature film.

These fees are also based upon a fixed payment per patron beginning at (i) $ 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.

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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.

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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 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 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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These minimum guarantees relate to various affiliate agreements ranging in term from one to twenty years, prior to any renewal periods of which some are at the option of the Company.

During the year ended December 26, 2019 , December 27, 2018 and December 28, 2017 the Company paid $0.5 million , $0.7 million and $0.1 million , respectively, related to these minimum guarantees.

During the year ended December 31, 2020 and December 26, 2019 the Company paid $ 0.0 million and $ 0.5 million, respectively, related to these minimum guarantees.

As of December 31, 2020 and December 26, 2019, the Company had $ 0.0 million and $ 0.5 million in liabilities recorded for these obligations, as such guarantees are less than the expected share of revenue paid to the affiliate.

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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Other investments consisted of the following (in millions):

December 26, 2019

December 27, 2018

December 31, 2020 December 26, 2019

Investment in AC JV, LLC (1)

Other investments (2)

Total $ 0.8 $ 1.0

(1) Refer to Note 9— Related Party Transactions .

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(2) The Company received equity securities in privately held companies as consideration for a portion of advertising contracts.

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The Company does not exert significant influence on these companies’ operating or financial activities.

During the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 , the Company recorded impairment charges of $2.0 million , $0.4 million and $3.1 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 December 26, 2019 .

During the years ended December 31, 2020 and December 26, 2019, the Company recorded impairment charges of $ 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 December 31, 2020.

As of December 31, 2020, no other observable price changes or impairments have been recorded as a result of the Company’s qualitative assessment of identified events or changes in the circumstances of the remaining investments.

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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 December 26, 2019 and December 27, 2018 , the Company had notes receivable totaling $0.0 million and $5.6 million , respectively, from its founding members related to the sale of Fathom Events, as described in Note 9— Related Party Transactions .

These notes were initially valued using comparative market multiples.

The notes receivables were paid in full during 2019, reducing the balance to $0.0 million as of December 26, 2019.

The notes were classified as Level 3 in the fair

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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 are as follows (in millions):

As of December 26, 2019

As of December 27, 2018

Carrying Value

Fair Value (1)

Carrying Value

Fair Value (1)

Senior Notes due 2022

As of December 31, 2020 As of December 26, 2019

Carrying Value Fair Value (1)

Term Loans $ 263.3 $ 217.2 $ 266.6 $ 266.9

Senior Notes due 2026 $ 230.0 $ 160.7 $ 230.0 $ 226.2

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Fair Value As of

December 26, 2019

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

December 31, 2020 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Cash equivalents (1)

$ 52.8 $ 52.8 $ — $ —

Short-term marketable securities (2)

Long-term marketable securities (2)

Total assets $ 54.3 $ 52.8 $ 1.5 $ —

Fair Value Measurements at

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Fair Value As of

December 27, 2018

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

December 26, 2019 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(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)

Total assets $ 53.8 $ 16.8 $ 37.0 $ —

(1) Cash Equivalents —The Company’s cash equivalents are carried at estimated fair value.

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.

Cash equivalents consist of money market accounts which the Company has classified as Level 1 given the active market for these accounts and

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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.

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

however, if an active market does not

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exist, the inputs are recorded at a lower level in the fair value hierarchy.

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.

For the years ended December 26, 2019 and December 27, 2018 , there was an inconsequential amount of net realized gains (losses) recognized in interest income and an inconsequential amount of net unrealized holding gains (losses) included in other comprehensive income.

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

As of December 26, 2019 and December 27, 2018 , there was an inconsequential amount and $0.2 million , respectively, of gross unrealized losses related to individual securities of $6.5 million and $11.8 million , respectively, that had been in a continuous loss position for 12 months or longer.

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

As of December 31, 2020, there was $ 1.3 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 December 31, 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 December 31, 2020 and December 26, 2019 are as follows:

As of December 31, 2020

(in millions)

Maturities (1)

(in millions) Aggregate

(in millions) Maturities (1)

MARKETABLE SECURITIES:

Short-term U.S.

government agency bonds

Short-term certificates of deposit $ 0.3 $ 0.3 0.6

Short-term municipal bonds

Short-term commercial paper:

Total short-term marketable securities 0.3 0.3

Long-term municipal bonds

Long-term U.S.

government agency bonds

Long-term certificates of deposit 1.3 1.2 2.8

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As of December 26, 2019

(in millions)

Maturities (1)

(in millions) Aggregate

(in millions) Maturities (1)

MARKETABLE SECURITIES:

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government agency bonds $ 3.5 $ 3.5 0.4

Short-term U.S.

government treasury bonds

Short-term certificates of deposit 0.9 0.9 0.8

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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

Long-term municipal bonds

Long-term U.S.

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Total marketable securities $ 25.1 $ 25.0

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(1) Maturities — Securities available for sale include obligations with various contractual maturity dates some of which are greater than one year.

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VALUATION AND QUALIFYING ACCOUNTS

The Company’s allowance for doubtful accounts and the valuation allowance on deferred tax assets for the years ended December 26, 2019 , December 27, 2018 and December 28, 2017 were as follows (in millions):

December 26, 2019

December 27, 2018

December 28, 2017

The Company’s allowance for doubtful accounts and the valuation allowance on deferred tax assets for the years ended December 31, 2020 and December 26, 2019 were as follows (in millions):

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December 31, 2020 December 26, 2019

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Balance at beginning of period $ 6.2 $ 6.0

Adjustment upon adoption of ASU 2016-13 (1)

Provision for bad debt 0.3 1.2

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Balance at end of period $ 2.3 $ 6.2

December 26, 2019

December 27, 2018

December 28, 2017

December 31, 2020 December 26, 2019

VALUATION ALLOWANCE ON DEFERRED TAX ASSETS:

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Balance at end of period $ 212.0 $ 81.6

The increase within the valuation allowance during the year ended December 26, 2019 relates to the establishment of a valuation allowance for state NOLs and investment losses that the Company no longer expects to realize prior to expiration and timing differences between the recognition of available cash distributions for book and tax purposes.

The decreases within the valuation allowance during the years ended December 27, 2018 and December 28, 2017 relate to movement within the underlying residual portion of the Investment in NCM LLC deferred tax asset due primarily to timing differences between the recognition of available cash distributions for book and tax purposes.

(1) Upon the adoption of ASU 2016-13 on December 27, 2019, the Company recorded a $ 3.2 million cumulative-effect adjustment to the allowance for doubtful accounts and 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.

(2) The increase within the valuation allowance during the year ended December 31, 2020 relates to its deferred tax assets which the Company determined it is more-likely-than-not it will not be able to realize before they expire.

The increase for the year ended December 26, 2019 relates to the establishment of a valuation allowance for state NOLs and investment losses that the Company no longer expects to realize prior to expiration and timing differences between the recognition of available cash distributions for book and tax purposes.

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following represents selected information from the Company’s unaudited quarterly Consolidated Statements of Income for the years ended December 31, 2020 and December 26, 2019 (in millions, except per share data):

Quarter Second

Quarter Third

Quarter Fourth

Revenue $ 64.7 $ 4.0 $ 6.0 $ 15.7

Operating expenses 59.8 27.8 27.3 36.5

Operating income

Consolidated net (loss) income

Net (loss) income attributable to NCM, Inc.

(Loss) Earnings per NCM, Inc.

Operating income (loss) 4.9 ( 23.8 ) ( 21.3 ) ( 20.8 )

Consolidated net loss ( 8.2 ) ( 33.4 ) ( 30.9 ) ( 53.8 )

Net loss attributable to NCM, Inc.

( 3.7 ) ( 13.8 ) ( 12.7 ) ( 35.2 )

Loss per NCM, Inc.

share, basic (1)

(Loss) Earnings per NCM, Inc.

( 0.05 ) ( 0.18 ) ( 0.16 ) ( 0.45 )

Loss per NCM, Inc.

share, diluted (1)

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

( 0.05 ) ( 0.18 ) ( 0.16 ) ( 0.45 )

Quarter Second

Quarter Third

Quarter Fourth

Revenue $ 76.9 $ 110.2 $ 110.5 $ 147.2

Operating expenses 66.0 72.5 70.5 74.5

2 unchanged sentences

Net (loss) income attributable to NCM, Inc.

( 1.1 ) 8.9 9.2 19.1

(Loss) Earnings per NCM, Inc.

share, basic (1)

( 0.01 ) 0.11 0.12 0.25

(Loss) Earnings per NCM, Inc.

share, diluted (1)

( 0.01 ) 0.11 0.12 0.24

NATIONAL CINEMEDIA, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Earnings per share in each quarter is computed using the weighted-average number of common shares outstanding during that quarter while earnings per share for the full year is computed using the weighted average number of common shares outstanding during the year.

SUBSEQUENT EVENT

On February 20, 2020 , the Company declared a cash dividend of $0.19 per share (approximately $14.8 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 March 3, 2020 to be paid on March 17, 2020 .

SUBSEQUENT EVENTS

On March 8, 2021, NCM LLC entered into an additional amendment to its Credit Agreement, dated as of June 20, 2018.

Among other things, the Credit Agreement Second Amendment provides for:

(i) certain modifications to the negative covenants;

(ii) a waiver of non-compliance with the consolidated net total leverage and consolidated net senior secured leverage financial covenants through the quarter ended June 30, 2022;

(iii) the consolidated net total leverage ratio and consolidated net senior secured leverage ratio financial covenants to be set to 6.75 to 1.00 and 5.50 to 1.00 , respectively, for the quarter ending on or about September 29, 2022, and (iv) with respect to NCM LLC’s audited financial statements for the fiscal year ended December 31, 2020, a waiver of the requirement to deliver such financial statements without a “going concern” or like qualification or exception.

The Credit Agreement Second Amendment also:

(i) grants security interests in certain assets of NCM LLC and other potential loan parties that are not currently pledged to the lenders and (ii) increases the applicable margin of the existing term loans and revolving loans issued under the Credit Agreement in an amount equal to 1.00 %.

Additionally, pursuant to the terms of the Credit Agreement Second Amendment, NCM LLC is restricted from making available cash distributions until after NCM LLC delivers a compliance certificate for the quarter ending on or about September 29, 2022, and, thereafter, NCM LLC may only make available cash distributions if:

(i) no default or event of default under the Credit Agreement has occurred and is continuing;

(ii) the senior secured financial covenant leverage ratio is equal to or less than 4.00 to 1.00 ;

and (iii) the aggregate principal amount of all outstanding revolving loans under the Credit Agreement is $ 39.0 million or less.

In addition, pursuant to the Credit Agreement Second Amendment, NCM LLC will incur new incremental term loans in an aggregate principal amount of $ 50.0 million, the proceeds of which will be used for general corporate purposes.

The New Incremental Loans will have substantially similar terms to the existing term loans (after giving effect the Credit Agreement Second Amendment), except that the New Incremental Loans will:

(i) have a cash interest rate of LIBOR plus 8.00 %, (ii) have a maturity of December 20, 2024, and (iii) be subject to prepayment premiums if the Borrower prepays the New Incremental Loans before maturity.

In connection with the grant of the Additional Collateral to the lenders under the Credit Agreement, NCM LLC concurrently entered into an amendment to the Security Agreement, dated as of October 8, 2019 made by NCM LLC, as issuer, in favor of JPMorgan Chase Bank, N.A., as collateral agent, relating to that certain Indenture, dated as of October 8, 2019, between NCM LLC, as issuer and Wells Fargo Bank, National Association, as trustee, relating to NCM LLC’s Notes due 2028.

This amendment grants a security interest in the Additional Collateral for the benefit of the holders of the Secured Notes.

The accompanying 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.

In the third quarter of 2020, the Company’s ability to continue as a going concern was subject to uncertainty as the Company did not expect to meet certain of its financial covenants within one year following the date of issuance.

As a result of the additional funding received and the extension of the automatic waiver of any non-compliance with its consolidated net senior secured leverage ratio and consolidated total leverage ratio financial covenants occurring through and including the quarter ending July 1, 2022 discussed above, substantial doubt about the Company's ability to continue as a going concern no longer exists.

On March 8, 2021 , the Company declared a cash dividend of $ 0.05 per share (approximately $ 3.9 million) on each share of the Company’s common stock (not including outstanding restricted stock and restricted stock units which will accrue dividends until the shares vest) to stockholders of record on March 22, 2021 to be paid on April 5, 2021 .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data