National CineMedia, Inc.
National CineMedia, Inc. (Form: 10-Q, Received: 11/08/2016 06:46:04)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 29, 2016

Commission file number: 001-33296

 

NATIONAL CINEMEDIA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-5665602

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

9110 East Nichols Avenue, Suite 200

Centennial, Colorado

 

80112-3405

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (303) 792-3600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of November 2, 2016, 62,401,177 shares of the registrant’s common stock (including unvested restricted shares), par value of $0.01 per share, were outstanding.

 

 


 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

PART I

 

 

 

 

 

 

Item 1.

Financial Statements

 

1

 

Unaudited Condensed Consolidated Balance Sheets

 

1

 

Unaudited Condensed Consolidated Statements of Income

 

2

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

3

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

4

 

Unaudited Condensed Consolidated Statements of Equity/(Deficit)

 

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

37

Item 4.

Controls and Procedures

 

37

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

38

Item 1A.

Risk Factors

 

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

Item 3.

Defaults Upon Senior Securities

 

38

Item 4.

Mine Safety Disclosures

 

38

Item 5.

Other Information

 

38

Item 6.

Exhibits

 

39

 

 

 

 

Signatures

 

40

 

 

 


PART I

Item 1. Financial Statements

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

(UNAUDITED)

 

 

 

September 29,

2016

 

 

December 31,

2015

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5.6

 

 

$

31.7

 

Short-term marketable securities

 

 

32.8

 

 

 

13.2

 

Receivables, net of allowance of $6.2 and $5.6, respectively

 

 

130.9

 

 

 

148.9

 

Prepaid expenses

 

 

3.3

 

 

 

2.8

 

Income tax receivable

 

 

2.5

 

 

 

2.5

 

Current portion of notes receivable - founding members

 

 

4.2

 

 

 

4.2

 

Other current assets

 

 

0.7

 

 

 

0.3

 

Total current assets

 

 

180.0

 

 

 

203.6

 

NON-CURRENT ASSETS:

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $64.5 and $64.1,

   respectively

 

 

28.1

 

 

 

25.1

 

Intangible assets, net of accumulated amortization of $112.0 and $91.9, respectively

 

 

567.7

 

 

 

566.7

 

Deferred tax assets

 

 

216.6

 

 

 

217.1

 

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

 

 

12.5

 

 

 

12.5

 

Other investments

 

 

6.8

 

 

 

5.4

 

Long-term marketable securities

 

 

15.6

 

 

 

40.5

 

Debt issuance costs, net

 

 

2.0

 

 

 

2.3

 

Other assets

 

 

0.5

 

 

 

0.5

 

Total non-current assets

 

 

849.8

 

 

 

870.1

 

TOTAL ASSETS

 

$

1,029.8

 

 

$

1,073.7

 

LIABILITIES AND EQUITY/(DEFICIT)

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Amounts due to founding members

 

$

27.9

 

 

$

35.5

 

Payable to founding members under tax receivable agreement

 

 

16.6

 

 

 

26.2

 

Accrued expenses

 

 

19.5

 

 

 

19.8

 

Accrued payroll and related expenses

 

 

11.1

 

 

 

18.1

 

Accounts payable

 

 

14.1

 

 

 

14.9

 

Deferred revenue

 

 

15.4

 

 

 

10.2

 

Total current liabilities

 

 

104.6

 

 

 

124.7

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Long-term debt, net of debt issuance costs of $11.1 and $10.6, respectively

 

 

911.9

 

 

 

925.4

 

Deferred tax liability

 

 

48.3

 

 

 

50.1

 

Income tax payable

 

 

2.0

 

 

 

4.9

 

Payable to founding members under tax receivable agreement

 

 

144.3

 

 

 

140.3

 

Total non-current liabilities

 

 

1,106.5

 

 

 

1,120.7

 

Total liabilities

 

 

1,211.1

 

 

 

1,245.4

 

COMMITMENTS AND CONTINGENCIES (NOTE 7)

 

 

 

 

 

 

 

 

EQUITY/(DEFICIT):

 

 

 

 

 

 

 

 

NCM, Inc. Stockholders’ Equity/(Deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and

   outstanding, respectively

 

 

 

 

 

 

Common stock, $0.01 par value; 175,000,000 shares authorized, 59,853,806 and

   59,239,154 issued and outstanding, respectively

 

 

0.6

 

 

 

0.6

 

Additional paid in capital/(deficit)

 

 

(211.5

)

 

 

(221.5

)

Retained earnings (distributions in excess of earnings)

 

 

(216.4

)

 

 

(186.1

)

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

 

 

(427.3

)

 

 

(407.0

)

Noncontrolling interests

 

 

246.0

 

 

 

235.3

 

Total equity/(deficit)

 

 

(181.3

)

 

 

(171.7

)

TOTAL LIABILITIES AND EQUITY/DEFICIT

 

$

1,029.8

 

 

$

1,073.7

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

1


NATIONAL CINEMEDIA , INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except share and per share data)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 29,

2016

 

 

October 1,

2015

 

 

September 29,

2016

 

 

October 1,

2015

 

REVENUE (including revenue from founding

   members of $7.6, $6.5, $22.1 and $23.2, respectively)

 

$

113.5

 

 

$

111.7

 

 

$

305.1

 

 

$

310.1

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising operating costs

 

 

7.5

 

 

 

7.8

 

 

 

20.8

 

 

 

21.9

 

Network costs

 

 

4.1

 

 

 

4.3

 

 

 

12.9

 

 

 

13.0

 

Theatre access fees—founding members

 

 

19.2

 

 

 

17.6

 

 

 

56.8

 

 

 

54.0

 

Selling and marketing costs

 

 

16.8

 

 

 

16.9

 

 

 

54.5

 

 

 

49.9

 

Merger termination fee and related merger costs

 

 

 

 

 

 

 

 

 

 

 

34.3

 

Administrative and other costs

 

 

8.6

 

 

 

9.3

 

 

 

32.9

 

 

 

26.3

 

Depreciation and amortization

 

 

8.9

 

 

 

8.0

 

 

 

26.5

 

 

 

24.2

 

Total

 

 

65.1

 

 

 

63.9

 

 

 

204.4

 

 

 

223.6

 

OPERATING INCOME

 

 

48.4

 

 

 

47.8

 

 

 

100.7

 

 

 

86.5

 

NON-OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on borrowings

 

 

14.3

 

 

 

13.0

 

 

 

41.2

 

 

 

39.2

 

Interest income

 

 

(0.3

)

 

 

(0.5

)

 

 

(1.3

)

 

 

(1.4

)

Accretion of interest on the discounted payable

   to founding members under tax receivable

   agreement

 

 

3.4

 

 

 

3.5

 

 

 

10.4

 

 

 

10.6

 

Amortization of terminated derivatives

 

 

 

 

 

 

 

 

 

 

 

1.6

 

Loss on early retirement of debt

 

 

10.4

 

 

 

 

 

 

10.4

 

 

 

 

Other non-operating expense

 

 

 

 

 

0.1

 

 

 

 

 

 

0.2

 

Total

 

 

27.8

 

 

 

16.1

 

 

 

60.7

 

 

 

50.2

 

INCOME BEFORE INCOME TAXES

 

 

20.6

 

 

 

31.7

 

 

 

40.0

 

 

 

36.3

 

Income tax (benefit) expense

 

 

(1.1

)

 

 

4.8

 

 

 

1.3

 

 

 

6.3

 

CONSOLIDATED NET INCOME

 

 

21.7

 

 

 

26.9

 

 

 

38.7

 

 

 

30.0

 

Less: Net income attributable to

   noncontrolling interests

 

 

13.5

 

 

 

19.2

 

 

 

28.0

 

 

 

21.2

 

NET INCOME ATTRIBUTABLE TO NCM, INC.

 

$

8.2

 

 

$

7.7

 

 

$

10.7

 

 

$

8.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER NCM, INC. COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

0.13

 

 

$

0.18

 

 

$

0.15

 

Diluted

 

$

0.13

 

 

$

0.13

 

 

$

0.18

 

 

$

0.15

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

59,846,496

 

 

 

59,014,887

 

 

 

59,763,012

 

 

 

58,959,381

 

Diluted

 

 

60,878,806

 

 

 

59,625,214

 

 

 

60,479,977

 

 

 

59,452,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.22

 

 

$

0.22

 

 

$

0.66

 

 

$

0.66

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

2


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENS ED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 29,

2016

 

 

October 1,

2015

 

 

September 29,

2016

 

 

October 1,

2015

 

CONSOLIDATED NET INCOME, NET OF TAX OF

   ($1.1), $4.8, $1.3 AND $6.3, RESPECTIVELY

 

$

21.7

 

 

$

26.9

 

 

$

38.7

 

 

$

30.0

 

OTHER COMPREHENSIVE INCOME, NET OF TAX:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of terminated derivatives, net of tax of

   $0.0, $0.0, $0.0 and $0.3, respectively

 

 

 

 

 

 

 

 

 

 

 

1.3

 

CONSOLIDATED COMPREHENSIVE INCOME

 

 

21.7

 

 

 

26.9

 

 

 

38.7

 

 

 

31.3

 

Less: Comprehensive income attributable to

   noncontrolling interests

 

 

13.5

 

 

 

19.2

 

 

 

28.0

 

 

 

22.1

 

COMPREHENSIVE INCOME ATTRIBUTABLE

   TO NCM, INC.

 

$

8.2

 

 

$

7.7

 

 

$

10.7

 

 

$

9.2

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

3


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(UNAUDITED)

 

 

 

Nine Months Ended

 

 

 

September 29,

2016

 

 

October 1,

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Consolidated net income

 

$

38.7

 

 

 

30.0

 

Adjustments to reconcile consolidated net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Deferred income tax expense

 

 

3.8

 

 

 

5.7

 

Depreciation and amortization

 

 

26.5

 

 

 

24.2

 

Non-cash share-based compensation

 

 

13.7

 

 

 

9.7

 

Excess tax benefit from share-based compensation

 

 

 

 

 

(0.1

)

Accretion of interest on the discounted payable to founding members

   under tax receivable agreement

 

 

10.4

 

 

 

10.6

 

Impairment on investment

 

 

0.7

 

 

 

 

Amortization of terminated derivatives

 

 

 

 

 

1.6

 

Amortization of debt issuance costs

 

 

2.0

 

 

 

1.9

 

Redemption premium paid and write-off of debt issuance costs related to

   redemption of Senior Notes due 2021

 

 

10.4

 

 

 

 

Reversal of income tax contingency reserve

 

 

(2.9

)

 

 

 

Other

 

 

(0.1

)

 

 

0.7

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

16.0

 

 

 

(9.2

)

Accounts payable and accrued expenses

 

 

(7.9

)

 

 

3.9

 

Amounts due to founding members

 

 

(0.7

)

 

 

0.5

 

Payment to founding members under tax receivable agreement

 

 

(23.5

)

 

 

(17.2

)

Deferred revenue

 

 

5.1

 

 

 

0.2

 

Income taxes and other

 

 

(1.3

)

 

 

(0.6

)

Net cash provided by operating activities

 

 

90.9

 

 

 

61.9

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(9.0

)

 

 

(8.0

)

Purchases of marketable securities

 

 

(45.0

)

 

 

(57.6

)

Proceeds from sale and maturities of marketable securities

 

 

50.5

 

 

 

66.5

 

Purchases of intangible assets from network affiliates

 

 

(1.6

)

 

 

(2.0

)

Net cash used in investing activities

 

 

(5.1

)

 

 

(1.1

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of dividends

 

 

(41.4

)

 

 

(39.4

)

Proceeds from borrowings under the revolving credit facility

 

 

105.0

 

 

 

166.0

 

Repayments of borrowings under the revolving credit facility

 

 

(168.0

)

 

 

(122.0

)

Proceeds from issuance of Senior Notes due 2026

 

 

250.0

 

 

 

 

Redemption of Senior Notes due 2021

 

 

(207.9

)

 

 

 

Payment of debt issuance costs

 

 

(4.7

)

 

 

 

Founding member integration payments

 

 

1.7

 

 

 

1.9

 

Distributions to founding members

 

 

(42.2

)

 

 

(58.0

)

Excess tax benefit from share-based compensation

 

 

 

 

 

0.1

 

Proceeds from stock option exercises

 

 

0.4

 

 

 

1.2

 

Repurchase of stock for restricted stock tax withholding

 

 

(4.8

)

 

 

(1.3

)

Net cash used in financing activities

 

 

(111.9

)

 

 

(51.5

)

CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(26.1

)

 

 

9.3

 

Cash and cash equivalents at beginning of period

 

 

31.7

 

 

 

13.4

 

Cash and cash equivalents at end of period

 

$

5.6

 

 

$

22.7

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

4


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In millions)

(UNAUDITED)

 

 

Nine Months Ended

 

 

September 29,

2016

 

 

October 1,

2015

 

Supplemental disclosure of non-cash financing and investing activity:

 

 

 

 

 

 

 

Purchase of an intangible asset with NCM LLC equity

$

21.1

 

 

$

31.4

 

Accrued distributions to founding members

$

25.3

 

 

$

24.7

 

(Decrease) increase in dividends not requiring cash in the period

$

(0.4

)

 

$

1.1

 

Write-off of property and equipment included in accrued expenses

$

 

 

$

(0.3

)

Increase in cost and equity method investments

$

2.0

 

 

$

1.7

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

$

38.0

 

 

$

35.2

 

Cash paid for income taxes, net of refunds

$

0.5

 

 

$

0.2

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

5


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)

(In millions, except share and per share data)

(UNAUDITED)

 

 

 

 

 

 

 

NCM, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid in

 

 

(Distribution

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Capital

 

 

in Excess of

 

 

Comprehensive

 

 

Noncontrolling

 

 

 

Consolidated

 

 

Shares

 

 

Amount

 

 

(Deficit)

 

 

Earnings)

 

 

Loss

 

 

Interest

 

Balance—December 31, 2015

 

$

(171.7

)

 

 

59,239,154

 

 

$

0.6

 

 

$

(221.5

)

 

$

(186.1

)

 

$

 

 

$

235.3

 

Distributions to founding members

 

 

(35.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35.2

)

NCM LLC equity issued for purchase

   of intangible asset

 

 

21.1

 

 

 

 

 

 

 

 

 

9.2

 

 

 

 

 

 

 

 

 

11.9

 

Income tax and other impacts of NCM

   LLC ownership changes

 

 

(2.8

)

 

 

 

 

 

 

 

 

(4.2

)

 

 

 

 

 

 

 

 

1.4

 

Comprehensive income, net of tax

 

 

38.7

 

 

 

 

 

 

 

 

 

 

 

 

10.7

 

 

 

 

 

 

 

28.0

 

Share-based compensation issued

 

 

(4.4

)

 

 

614,652

 

 

 

 

 

 

(4.4

)

 

 

 

 

 

 

 

 

 

Share-based compensation

   expense/capitalized

 

 

14.0

 

 

 

 

 

 

 

 

 

9.4

 

 

 

 

 

 

 

 

 

4.6

 

Cash dividends declared $0.66 per

   share

 

 

(41.0

)

 

 

 

 

 

 

 

 

 

 

 

(41.0

)

 

 

 

 

 

 

Balance—September 29, 2016

 

$

(181.3

)

 

 

59,853,806

 

 

$

0.6

 

 

$

(211.5

)

 

$

(216.4

)

 

$

 

 

$

246.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—January 1, 2015

 

$

(208.7

)

 

 

58,750,926

 

 

$

0.6

 

 

$

(261.0

)

 

$

(147.4

)

 

$

(0.4

)

 

$

199.5

 

Distributions to founding members

 

 

(49.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49.8

)

NCM LLC equity issued for purchase

   of intangible asset

 

 

31.4

 

 

 

 

 

 

 

 

 

14.1

 

 

 

 

 

 

 

 

 

17.3

 

Income tax and other impacts of NCM

   LLC ownership changes

 

 

(1.7

)

 

 

 

 

 

 

 

 

(4.6

)

 

 

 

 

 

 

 

 

2.9

 

Comprehensive income, net of tax

 

 

31.3

 

 

 

 

 

 

 

 

 

 

 

 

8.8

 

 

 

0.4

 

 

 

22.1

 

Share-based compensation issued

 

 

(0.1

)

 

 

267,941

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

 

 

 

 

Share-based compensation

   expense/capitalized

 

 

9.9

 

 

 

 

 

 

 

 

 

6.8

 

 

 

 

 

 

 

 

 

3.1

 

Excess tax benefit from share-

   based compensation

 

 

(0.1

)

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

 

 

 

 

Cash dividends declared $0.66 per

   share

 

 

(40.5

)

 

 

 

 

 

 

 

 

 

 

 

(40.5

)

 

 

 

 

 

 

Balance—October 1, 2015

 

$

(228.3

)

 

 

59,018,867

 

 

$

0.6

 

 

$

(244.9

)

 

$

(179.1

)

 

$

 

 

$

195.1

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

6


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.  THE COMPANY

Description of Business

National CineMedia, Inc. (“NCM, Inc.”) was incorporated in Delaware as a holding company with the sole purpose of becoming a member and sole manager of National CineMedia, LLC (“NCM LLC”), a limited liability company owned by NCM, Inc., American Multi-Cinema, Inc. and AMC ShowPlace Theatres, Inc. (“AMC”), wholly owned subsidiaries of AMC Entertainment, Inc., Regal Cinemas, Inc. and Regal CineMedia Holdings, LLC, wholly owned subsidiaries of Regal Entertainment Group (“Regal”) and Cinemark Media, Inc. and Cinemark USA, Inc., wholly owned subsidiaries of Cinemark Holdings, Inc. (“Cinemark”).  The terms “NCM”, “the Company” or “we” shall, unless the context otherwise requires, be deemed to include the consolidated entity.  AMC, Regal and Cinemark and their affiliates are referred to in this document as “founding members”.  NCM LLC operates the largest digital in-theatre network in North America, allowing NCM LLC to sell advertising (the “Services”) under long-term exhibitor services agreements (“ESAs”) with the founding members (approximately 20 years remaining as of September 29, 2016) and certain third-party theatre circuits (known as “network affiliates”) under long-term network affiliate agreements, which have terms from three to twenty years.

As of September 29, 2016, NCM LLC had 137,174,139 common membership units outstanding, of which 59,853,806 (43.6%) were owned by NCM, Inc., 27,072,701 (19.8%) were owned by Regal, 26,384,644 (19.2%) were owned by Cinemark and 23,862,988 (17.4%) were owned by AMC. The membership units held by the founding members are exchangeable into NCM, Inc. common stock on a one-for-one basis.

On May 5, 2014, NCM, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) to merge with Screenvision, LLC (“Screenvision”).  On November 3, 2014, the Department of Justice filed a lawsuit seeking to enjoin the merger.  On March 16, 2015, the Company announced the termination of the Merger Agreement and the lawsuit was dismissed.  After the Merger Agreement was terminated, NCM LLC reimbursed NCM, Inc. for certain expenses pursuant to an indemnification agreement among NCM LLC, NCM, Inc. and the founding members.  On March 17, 2015, NCM LLC paid Screenvision an approximate $26.8 million termination payment on behalf of NCM, Inc. During the nine months ended October 1, 2015, NCM LLC also either paid directly or reimbursed NCM, Inc. for the legal and other merger-related costs of approximately $15.0 million ($7.5 million incurred by NCM, Inc. during the year ended January 1, 2015 and approximately $7.5 million incurred by NCM LLC during the nine months ended October 1, 2015). The Company and the founding members each bore a pro rata portion of the merger termination fee and the related merger expenses based on their aggregate ownership percentages in NCM LLC when the expenses were incurred.

Basis of Presentation

The Company has prepared the unaudited Condensed Consolidated Financial Statements and related notes of NCM, Inc. in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and footnote disclosures typically included in an annual report have been condensed or omitted for this quarterly report.  The balance sheet as of December 31, 2015 is derived from the audited financial statements of NCM, Inc.  Therefore, the unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s annual report on Form 10-K filed for the fiscal year ended December 31, 2015.

In the opinion of management, all adjustments necessary to present fairly in all material respects the financial position, results of operations and cash flows for all periods presented have been made.  The Company’s business is seasonal and for this and other reasons operating results for interim periods may not be indicative of the Company’s full year results or future performance. As a result of the various related party agreements discussed in Note 4— Related Party Transactions , the operating results as presented are not necessarily indicative of the results that might have occurred if all agreements were with non-related third parties.  The Company manages its business under one reportable segment of advertising.

 

 

7


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTE