National CineMedia(NCMI) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section details the unaudited condensed consolidated financial statements and management's analysis of financial condition and operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and detailed notes on the company's financial position and operations Unaudited Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity | Metric | June 27, 2019 (in millions) | December 27, 2018 (in millions) | Change (in millions) | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------------- | :--------- | | Total Current Assets | $191.0 | $230.9 | $(39.9) | (17.3)% | | Total Non-Current Assets | $913.0 | $910.9 | $2.1 | 0.2% | | TOTAL ASSETS | $1,104.0 | $1,141.8 | $(37.8) | (3.3)% | | Total Current Liabilities | $91.2 | $110.5 | $(19.3) | (17.5)% | | Total Non-Current Liabilities | $1,123.3 | $1,120.5 | $2.8 | 0.3% | | Total Liabilities | $1,214.5 | $1,231.0 | $(16.5) | (1.3)% | | Total Equity/(Deficit) | $(110.5) | $(89.2) | $(21.3) | (23.9)% | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income This section presents the unaudited condensed consolidated statements of income and comprehensive income | Metric | Three Months Ended June 27, 2019 (in millions) | Three Months Ended June 28, 2018 (in millions) | % Change | Six Months Ended June 27, 2019 (in millions) | Six Months Ended June 28, 2018 (in millions) | % Change | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Revenue | $110.2 | $113.7 | (3.1)% | $187.1 | $193.9 | (3.5)% | | Operating Income | $37.7 | $40.2 | (6.2)% | $48.6 | $51.2 | (5.1)% | | Income Before Income Taxes | $23.3 | $33.0 | (29.4)% | $20.1 | $30.6 | (34.3)% | | Income Tax Expense | $2.3 | $16.0 | (85.6)% | $1.7 | $17.0 | (90.0)% | | Consolidated Net Income | $21.0 | $17.0 | 23.5% | $18.4 | $13.6 | 35.3% | | Net Income Attributable to NCM, Inc. | $8.9 | $4.2 | 111.9% | $7.8 | $2.3 | 239.1% | | Basic EPS | $0.11 | $0.05 | 120.0% | $0.10 | $0.03 | 233.3% | | Diluted EPS | $0.11 | $0.05 | 120.0% | $0.10 | $0.03 | 233.3% | Unaudited Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities | Cash Flow Activity | Six Months Ended June 27, 2019 (in millions) | Six Months Ended June 28, 2018 (in millions) | Change (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------- | | Net cash provided by operating activities | $59.3 | $66.2 | $(6.9) | | Net cash provided by (used in) investing activities | $10.6 | $(9.1) | $19.7 | | Net cash used in financing activities | $(68.5) | $(52.9) | $(15.6) | | Change in cash and cash equivalents | $1.4 | $4.2 | $(2.8) | | Cash and cash equivalents at end of period | $42.8 | $34.4 | $8.4 | - Non-cash financing and investing activities included the purchase of an intangible asset with NCM LLC equity ($7.6 million in 2019 vs. $15.9 million in 2018) and accrued distributions to founding members ($15.4 million in 2019 vs. $16.9 million in 2018)[19] Unaudited Condensed Consolidated Statements of Equity/(Deficit) This section presents the unaudited condensed consolidated statements of equity/(deficit), outlining changes in shareholder equity | Metric | Balance as of December 27, 2018 (in millions) | Balance as of June 27, 2019 (in millions) | Change (in millions) | | :------------------------------------ | :-------------------------------------------- | :------------------------------------------ | :------------------- | | Total Equity/(Deficit) | $(89.2) | $(110.5) | $(21.3) | | Distributions to founding members | $(21.5) | $(21.5) | $0.0 | | Comprehensive income, net of tax | $18.4 | $18.4 | $0.0 | | Cash dividends declared ($0.34 per share) | $(26.8) | $(26.8) | $0.0 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements 1. The Company This section provides detailed information about the company's business and ownership structure - NCM, Inc. is a holding company and sole manager of NCM LLC, which operates the largest cinema advertising network in North America[25] - NCM LLC's ownership as of June 27, 2019: NCM, Inc. (48.6%), Regal (26.3%), Cinemark (25.0%), AMC (0.1%). Founding members' units are exchangeable into NCM, Inc. common stock[27] - The weighted average remaining term of ESAs and network affiliate agreements is 15.5 years as of June 27, 2019[26] - The company manages its business under one reportable segment: advertising[29] 2. Revenue from Contracts with Customers This section details the company's revenue recognition policies and categories from customer contracts - Revenue is recognized over time as customers receive benefits from advertising services, including on-screen, lobby network (LEN), and digital advertising (Cinema Accelerator, Noovie ARcade, Fantasy Movie League, Noovie Shuffle)[33][48] - The company uses a "make-good" provision for undelivered impressions, deferring revenue until advertising airs. As of June 27, 2019, the make-good provision was $5.7 million, down from $8.0 million at December 27, 2018[49] | Revenue Category | Three Months Ended June 27, 2019 (in millions) | Three Months Ended June 28, 2018 (in millions) | % Change | Six Months Ended June 27, 2019 (in millions) | Six Months Ended June 28, 2018 (in millions) | % Change | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | National advertising revenue | $77.6 | $78.8 | (1.5)% | $131.6 | $133.6 | (1.5)% | | Local advertising revenue | $17.7 | $18.1 | (2.2)% | $30.5 | $31.6 | (3.5)% | | Regional advertising revenue | $6.7 | $8.2 | (18.3)% | $10.1 | $12.1 | (16.5)% | | Founding member beverage concessionaire agreements | $8.2 | $8.6 | (4.7)% | $14.9 | $16.6 | (10.2)% | | Total Revenue | $110.2 | $113.7 | (3.1)% | $187.1 | $193.9 | (3.5)% | - Unbilled accounts receivable increased from $6.0 million at December 27, 2018, to $14.1 million at June 27, 2019[52] 3. Earnings Per Share This section presents the company's earnings per share calculations, both basic and diluted | Metric | Three Months Ended June 27, 2019 | Three Months Ended June 28, 2018 | Six Months Ended June 27, 2019 | Six Months Ended June 28, 2018 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income attributable to NCM, Inc. (in millions) | $8.9 | $4.2 | $7.8 | $2.3 | | Basic EPS | $0.11 | $0.05 | $0.10 | $0.03 | | Diluted EPS | $0.11 | $0.05 | $0.10 | $0.03 | | Basic Weighted Average Shares Outstanding | 77,343,093 | 76,912,086 | 77,261,435 | 76,776,250 | | Diluted Weighted Average Shares Outstanding | 77,636,096 | 77,125,610 | 77,575,081 | 76,981,056 | - Weighted average exchangeable NCM LLC common units held by founding members (81.7 million for Q2 2019, 81.3 million for YTD 2019) were excluded from diluted EPS calculation as they were anti-dilutive[55] 4. Intangible Assets This section details the company's intangible assets, including contractual rights and related transactions - Intangible assets represent contractual rights to provide services in founding members' and network affiliates' theaters, recorded at fair market value of NCM, Inc.'s stock or upfront fees[56] - In Q1 2019, NCM LLC issued 1,044,665 common membership units to founding members, resulting in a net intangible asset of $7.6 million. In Q1 2018, 2,821,710 units were issued, resulting in a $15.9 million intangible asset[58][59] - Integration and other encumbered theater payments reduced net intangible assets by $5.7 million (Q2 2019) and $8.1 million (YTD 2019). These payments are from AMC and Cinemark for acquired theaters with pre-existing advertising agreements[62] 5. Related Party Transactions This section outlines the company's related party transactions and key agreements - AMC is no longer considered a related party as of July 5, 2018, as its ownership in NCM LLC fell below 5%[63][69] - Key agreements with founding members include ESAs (exclusive advertising rights, theater access fees), Common Unit Adjustment Agreement (adjusts membership units based on theater changes), Tax Receivable Agreement (TRA) (payments to founding members for tax savings), and Software License Agreement[64][65] | Transaction Type | Three Months Ended June 27, 2019 (in millions) | Three Months Ended June 28, 2018 (in millions) | Six Months Ended June 27, 2019 (in millions) | Six Months Ended June 28, 2018 (in millions) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Beverage concessionaire revenue | $6.5 | $8.6 | $11.8 | $16.6 | | Theater access fee | $14.5 | $21.5 | $27.4 | $42.1 | | Mandatory distributions to founding members | $15.4 | $16.9 | $21.5 | $25.3 | - NCM LLC's investment in AC JV, LLC (Fathom Events business) was $1.1 million as of June 27, 2019, accounted for under the equity method[75] 6. Borrowings This section details the company's borrowings, including outstanding balances, maturity dates, and interest rates | Borrowing Type | Outstanding Balance as of June 27, 2019 (in millions) | Outstanding Balance as of December 27, 2018 (in millions) | Maturity Date | Interest Rate | | :------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | :------------ | :------------ | | Senior secured notes due 2022 | $400.0 | $400.0 | April 15, 2022 | 6.000% | | Revolving credit facility | $27.0 | $27.0 | June 20, 2023 | LIBOR + 1.75%-2.25% or Base + 0.75%-1.25% | | Term loan | $268.0 | $269.4 | June 20, 2025 | LIBOR + 3.00% or Base + 2.00% | | Senior unsecured notes due 2026 | $230.0 | $235.0 | August 15, 2026 | 5.750% | | Total borrowings | $925.0 | $931.4 | | | - As of June 27, 2019, NCM LLC's total availability under the $175.0 million revolving credit facility was $143.2 million. The weighted-average interest rate on the revolving credit facility was 5.35%[78][80] - The term loan interest rate was 5.44% as of June 27, 2019[81] - NCM LLC's consolidated net senior secured leverage ratio was 3.14 times (covenant 4.50x, dividend restriction 5.50x) and consolidated net total leverage ratio was 4.24 times (covenant 6.25x) as of June 27, 2019[82] - NCM LLC repurchased and canceled $5.0 million of Notes due 2026 during 2019, reducing the principal to $230.0 million[84] 7. Income Taxes This section discusses the company's income tax expense and effective tax rate - Effective tax rate decreased from 88.1% (YTD 2018) to 17.9% (YTD 2019)[85] - The decrease was primarily due to a reduction in deferred tax expense related to the remeasurement of deferred taxes following a 2018 state tax law change[85] - Current blended state and federal tax rate was 24.5% as of June 27, 2019, down from 25.4% as of June 28, 2018[85] 8. Commitments and Contingencies This section outlines the company's commitments and contingencies, including legal claims and lease liabilities - The company believes legal claims in the ordinary course of business will not have a material effect on its financial position, results of operations, or cash flows[86] - As of June 27, 2019, ROU assets were $21.2 million, and short-term and long-term lease liabilities were $1.3 million and $23.9 million, respectively, for facility leases[88] - ESAs and network affiliate agreements are considered short-term leases (less than one month) under ASC 842, with amortization of related intangible assets reclassified to 'Amortization of intangibles recorded for network theater screen leases'[95] - The maximum potential future payments for minimum revenue guarantees to network affiliates is $90.1 million over remaining terms[97] 9. Fair Value Measurements This section details the company's fair value measurements for financial assets and liabilities - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), Level 3 (unobservable inputs)[100][101] - Other investments (equity securities in privately held companies) and notes receivable from founding members are classified as Level 3 due to significant unobservable inputs[105][108] | Asset Category | Fair Value as of June 27, 2019 (in millions) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | | :------------------------------------ | :--------------------------------------------- | :-------------------- | :-------------------- | :-------------------- | | Cash equivalents | $34.3 | $16.3 | $18.0 | $— | | Short-term marketable securities | $11.2 | $— | $11.2 | $— | | Long-term marketable securities | $7.7 | $— | $7.7 | $— | | Total assets | $53.2 | $16.3 | $36.9 | $— | | Borrowing Type | Carrying Value as of June 27, 2019 (in millions) | Fair Value as of June 27, 2019 (in millions) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Term loan | $268.0 | $267.3 | | Notes due 2022 | $400.0 | $405.0 | | Notes due 2026 | $230.0 | $218.5 | 10. Subsequent Events This section reports on significant events occurring after the balance sheet date - Thomas F. Lesinski appointed CEO and joined the Board of Directors, effective August 2, 2019[115] - A cash dividend of $0.17 per share (approximately $13.1 million) was declared on August 5, 2019, payable on August 30, 2019[116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's business, historical data, and detailed analysis of financial performance for Q2 and YTD 2019, including non-GAAP measures, network changes, trends, and liquidity Overview This section provides an overview of the company's business, network, and key performance indicators - NCM is "America's Movie Network," connecting brands with movie audiences, particularly Millennials (age 18-34)[119] - Revenue is primarily derived from advertising in the Noovie pre-show, LEN, and digital platforms (Cinema Accelerator, Noovie ARcade, Fantasy Movie League, Noovie Shuffle)[119] - The network includes long-term ESAs (18 years remaining) with founding members and multi-year agreements with network affiliates (expiring between Sep 2019 and Jul 2031), with a weighted average remaining term of 15.5 years[119] - Key performance indicators include changes in revenue, Adjusted OIBDA and Adjusted OIBDA margin, advertising inventory utilization, national/regional advertising pricing (CPM), local advertising rate per screen per week, and advertising revenue per attendee[120] Summary Historical and Operating Data This section presents a summary of the company's historical and operating financial data | Metric | Q2 2019 (in millions) | Q2 2018 (in millions) | % Change (Q2) | YTD 2019 (in millions) | YTD 2018 (in millions) | % Change (YTD) | | :------------------------------------ | :-------------------- | :-------------------- | :-------------- | :-------------------- | :-------------------- | :-------------- | | Revenue | $110.2 | $113.7 | (3.1)% | $187.1 | $193.9 | (3.5)% | | Operating income | $37.7 | $40.2 | (6.2)% | $48.6 | $51.2 | (5.1)% | | Net income attributable to NCM, Inc. | $8.9 | $4.2 | 111.9% | $7.8 | $2.3 | NM | | Adjusted OIBDA | $50.2 | $52.3 | (4.0)% | $72.3 | $75.6 | (4.4)% | | Total theater attendance | 185.3 | 194.1 | (4.5)% | 334.0 | 371.1 | (10.0)% | Non-GAAP Financial Measures (Adjusted OIBDA) This section defines and reconciles non-GAAP financial measures, specifically Adjusted OIBDA - Adjusted OIBDA is defined as operating income before depreciation and amortization expense, adjusted to exclude amortization of intangibles recorded for network theater screen leases, non-cash share-based compensation costs, and CEO transition costs[124] | Metric | Q2 2019 (in millions) | Q2 2018 (in millions) | YTD 2019 (in millions) | YTD 2018 (in millions) | | :------------------------------------ | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Operating income | $37.7 | $40.2 | $48.6 | $51.2 | | Depreciation expense | $3.3 | $3.0 | $6.6 | $5.9 | | Amortization expense | $— | $7.0 | $— | $13.6 | | Amortization of intangibles recorded for network theater screen leases | $7.0 | $— | $13.9 | $— | | Share-based compensation costs | $2.1 | $2.1 | $2.9 | $4.9 | | CEO transition costs | $0.1 | $— | $0.3 | $— | | Adjusted OIBDA | $50.2 | $52.3 | $72.3 | $75.6 | | Adjusted OIBDA margin | 45.6% | 46.0% | 38.6% | 39.0% | Our Network This section details the company's advertising network, including founding members and affiliates | Metric | Founding Members | Network Affiliates | Total Screens | | :------------------------------------ | :--------------- | :----------------- | :------------ | | Balance as of December 27, 2018 | 16,768 | 4,404 | 21,172 | | Lost affiliates, net of new affiliates | — | (240) | (240) | | Openings, net of closures | 81 | 32 | 113 | | Balance as of June 27, 2019 | 16,849 | 4,196 | 21,045 | - The network lost 244 affiliate screens due to non-renewal, offset by 4 new affiliate screens, and had 113 net screen additions from openings/closures[127] Results of Operations (Second Quarter 2019 vs. 2018) This section analyzes the company's results of operations for the second quarter of 2019 compared to the prior year | Revenue Category | Q2 2019 (in millions) | Q2 2018 (in millions) | $ Change | % Change | | :------------------------------------------------ | :-------------------- | :-------------------- | :------- | :--------- | | National advertising revenue | $77.6 | $78.8 | $(1.2) | (1.5)% | | Local advertising revenue | $17.7 | $18.1 | $(0.4) | (2.2)% | | Regional advertising revenue | $6.7 | $8.2 | $(1.5) | (18.3)% | | Founding member beverage concessionaire agreements | $8.2 | $8.6 | $(0.4) | (4.7)% | | Total revenue | $110.2 | $113.7 | $(3.5) | (3.1)% | - National advertising revenue decreased due to a 10.4% decrease in CPMs, partially offset by a 4.3% increase in impressions sold (utilization increased from 101.5% to 110.8%)[132] - Local advertising revenue decreased due to a 7.7% decrease in contract volume and a 2.1% decrease in average contract value, following a sales force realignment[133] - Regional advertising revenue decreased by 18.3% due to a $1.0 million shift in automotive spend to national advertising[134] | Operating Expense Category | Q2 2019 (in millions) | Q2 2018 (in millions) | $ Change | % Change | | :------------------------------------------------ | :-------------------- | :-------------------- | :------- | :--------- | | Advertising operating costs | $9.9 | $9.2 | $0.7 | 7.6% | | Network costs | $3.4 | $3.3 | $0.1 | 3.0% | | Theater access fees—founding members | $21.6 | $21.5 | $0.1 | 0.5% | | Selling and marketing costs | $16.2 | $16.7 | $(0.5) | (3.0)% | | Administrative and other costs | $11.1 | $12.8 | $(1.7) | (13.3)% | | Depreciation expense | $3.3 | $3.0 | $0.3 | 10.0% | | Amortization expense | $— | $7.0 | $(7.0) | (100.0)% | | Amortization of intangibles recorded for network theater screen leases | $7.0 | $— | $7.0 | 100.0% | | Total operating expenses | $72.5 | $73.5 | $(1.0) | (1.4)% | - Non-operating expenses increased by $7.2 million (100.0%) to $14.4 million, primarily due to an $8.5 million increase in loss on re-measurement of the tax receivable agreement payable[143] - Income tax expense decreased by $13.7 million (85.6%) to $2.3 million, mainly due to a decrease in deferred tax expense from a 2018 state tax law change[144] - Net income attributable to NCM, Inc. increased by $4.7 million (111.9%) to $8.9 million[145] Results of Operations (Six Months Ended June 27, 2019 vs. June 28, 2018) This section analyzes the company's results of operations for the six months ended June 27, 2019, compared to the prior year | Revenue Category | YTD 2019 (in millions) | YTD 2018 (in millions) | $ Change | % Change | | :------------------------------------------------ | :-------------------- | :-------------------- | :------- | :--------- | | National advertising revenue | $131.6 | $133.6 | $(2.0) | (1.5)% | | Local advertising revenue | $30.5 | $31.6 | $(1.1) | (3.5)% | | Regional advertising revenue | $10.1 | $12.1 | $(2.0) | (16.5)% | | Founding member beverage concessionaire agreements | $14.9 | $16.6 | $(1.7) | (10.2)% | | Total revenue | $187.1 | $193.9 | $(6.8) | (3.5)% | - National advertising revenue decreased due to a 2.2% decrease in CPMs and a 1.4% decrease in impressions sold, despite utilization increasing from 98.5% to 107.8%[148] - Local advertising revenue decreased due to a 10.2% decrease in contract volume, partially offset by a 2.3% increase in average contract value[149] - Regional advertising revenue decreased by 16.5% due to reduced spend and a $1.0 million shift in automotive category spend to national advertising[150] | Operating Expense Category | YTD 2019 (in millions) | YTD 2018 (in millions) | $ Change | % Change | | :------------------------------------------------ | :-------------------- | :-------------------- | :------- | :--------- | | Advertising operating costs | $17.2 | $16.2 | $1.0 | 6.2% | | Network costs | $6.9 | $6.8 | $0.1 | 1.5% | | Theater access fees—founding members | $40.7 | $42.1 | $(1.4) | (3.3)% | | Selling and marketing costs | $31.4 | $32.7 | $(1.3) | (4.0)% | | Administrative and other costs | $21.8 | $25.4 | $(3.6) | (14.2)% | | Depreciation expense | $6.6 | $5.9 | $0.7 | 11.9% | | Amortization expense | $— | $13.6 | $(13.6) | (100.0)% | | Amortization of intangibles recorded for network theater screen leases | $13.9 | $— | $13.9 | 100.0% | | Total operating expenses | $138.5 | $142.7 | $(4.2) | (2.9)% | - Non-operating expenses increased by $7.9 million (38.3%) to $28.5 million, primarily due to a $9.3 million increase in loss on re-measurement of the tax receivable agreement payable[160] - Income tax expense decreased by $15.3 million (90.0%) to $1.7 million, mainly due to a decrease in deferred tax expense from a 2018 state tax law change[161] - Net income attributable to NCM, Inc. increased by $5.5 million to $7.8 million[162] Known Trends and Uncertainties This section discusses known trends and uncertainties impacting the company's financial performance - Beverage revenue CPMs increased by 0.7% in 2019, based on the previous year's segment one advertising CPM[164] - Theater access fees to founding members include a fixed payment per patron (increases 8% every five years, next in FY2022) and a fixed payment per digital screen (increases 5% annually)[165] Financial Condition and Liquidity This section analyzes the company's financial condition and liquidity, including cash flows and debt - Liquidity is affected by seasonality, timing of collections/payments, distributions, debt service, income taxes, and dividends[166] | Metric | June 27, 2019 (in millions) | December 27, 2018 (in millions) | June 28, 2018 (in millions) | Change (Q2 2019 to YE 2018) | Change (Q2 2019 to Q2 2018) | | :------------------------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :-------------------------- | :-------------------------- | | Cash, cash equivalents and marketable securities | $61.7 | $75.6 | $65.6 | $(13.9) | $(3.9) | | NCM LLC revolver availability | $143.2 | $143.2 | $140.0 | $0.0 | $3.2 | | Total liquidity | $204.9 | $218.8 | $205.6 | $(13.9) | $(0.7) | - Approximately 68% of total borrowings bear fixed interest rates, with the remaining 32% at variable rates. A 100-basis point fluctuation in market interest rates would impact annual cash interest expense by approximately $3.0 million annually[169][183] | Cash Flow Activity | Six Months Ended June 27, 2019 (in millions) | Six Months Ended June 28, 2018 (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Operating cash flow | $59.3 | $66.2 | | Investing cash flow | $10.6 | $(9.1) | | Financing cash flow | $(68.5) | $(52.9) | - Management believes NCM LLC's operations and cash on hand will be sufficient to fund working capital, debt service, and capital expenditures for the next twelve months. NCM, Inc. expects to fund income taxes, TRA payments, and dividends from NCM LLC distributions and its cash balances[173] Critical Accounting Policies This section outlines the company's critical accounting policies and recent changes - No significant changes to critical accounting policies, except for the adoption of ASC 842 (Leases) in Q1 2019[175] Recent Accounting Pronouncements This section discusses recent accounting pronouncements and their expected impact - Refer to Note 1 for recent accounting pronouncements; no material impact expected from their adoption[176] Related Party Transactions This section details the company's related party transactions - Refer to Note 5 for related party transactions[177] Off-Balance Sheet Arrangements This section addresses the company's off-balance sheet arrangements - No material off-balance sheet arrangements[178] Contractual and Other Obligations This section outlines the company's contractual and other obligations - No material changes to contractual obligations during the six months ended June 27, 2019[179] Seasonality This section discusses the seasonal nature of the company's revenue and operating results - Revenue and operating results are seasonal, correlating with advertising expenditures and theater attendance, typically higher in Q2, Q3, and Q4[180] | Quarter | FY 2016 | FY 2017 | FY 2018 | | :------ | :------ | :------ | :------ | | First Quarter | 17.0% | 16.9% | 18.2% | | Second Quarter | 25.8% | 22.8% | 25.8% | | Third Quarter | 25.4% | 27.3% | 24.9% | | Fourth Quarter | 31.8% | 33.0% | 31.1% | Item 3. Quantitative and Qualitative Disclosures about Market Risk Primary market risk is interest rate risk, with a 100-basis point fluctuation impacting annual cash interest expense by approximately $3.0 million - Primary market risk is interest rate risk, affecting the variable-rate revolving credit facility and term loan[183] - A 100-basis point fluctuation in market interest rates would increase or decrease annual cash interest expense by approximately $3.0 million based on outstanding balances as of June 27, 2019[183] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 27, 2019, with no material changes to internal control over financial reporting - Disclosure controls and procedures were effective as of June 27, 2019[186] - No material changes to internal control over financial reporting occurred during the quarter ended June 27, 2019[188] PART II - OTHER INFORMATION This section provides other material information, including legal proceedings, risk factors, equity sales, and corporate governance updates Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, with no material adverse effect expected on operations or financial condition - No legal proceedings are expected to have a material adverse effect on operating results or financial condition[190] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the FY2018 annual report on Form 10-K - No material changes from risk factors disclosed in the annual report on Form 10-K for FY2018[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details shares delivered to the company from restricted stock for employee tax withholding obligations | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------------------------------ | :------------------------------- | :--------------------------- | | March 29, 2019 through April 25, 2019 | 5,908 | $7.09 | | April 26, 2019 through May 23, 2019 | 1,134 | $7.02 | | May 24, 2019 through June 27, 2019 | — | $— | Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities[194] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[195] Item 5. Other Information Thomas F. Lesinski's CEO appointment led to Nasdaq non-compliance regarding board and audit committee independence, with a cure period granted for regaining compliance - Thomas F. Lesinski appointed CEO, effective August 2, 2019, and resigned as an independent director and Audit Committee member[196] - The company is non-compliant with Nasdaq Listing Rules 5605(b)(1) (majority independent board) and 5605(c)(2) (at least three independent audit committee members)[198] - Nasdaq granted a cure period until the earlier of the next annual meeting or August 2, 2020 (or January 29, 2020 if annual meeting is before then) to regain compliance[198] - Cinemark will designate a replacement independent director, and the company expects to regain compliance after this election and the appointment of a third independent director to the Audit Committee[199] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include Rule 13a-14(a) Certifications of CEO and CFO, Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, and various XBRL documents[201] Signatures The report is formally signed by the CEO and CFO, certifying its submission on August 5, 2019 - Report signed by Thomas F. Lesinski (CEO) and Katherine L. Scherping (CFO) on August 5, 2019[205]