National CineMedia(NCMI) - 2022 Q3 - Quarterly Report

PART I Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, cash flow, and equity statements, with detailed notes on business and accounting policies - The financial statements are unaudited and prepared in accordance with GAAP for interim financial information and SEC rules[30] - The company operates as one operating and reportable segment: advertising[31] - Management's plans to address going concern issues include amending credit facilities, seeking waivers, or obtaining additional debt financing, but success is not assured[35] Unaudited Condensed Consolidated Balance Sheets Total assets decreased to $775.4 million by September 29, 2022, while total liabilities increased to $1,229.2 million, primarily due to short-term debt Condensed Consolidated Balance Sheet Data (in millions) | Metric | Sep 29, 2022 | Dec 30, 2021 | | :----------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $73.5 | $101.2 | | Total current assets | $137.3 | $158.4 | | Total non-current assets | $638.1 | $659.0 | | TOTAL ASSETS | $775.4 | $817.4 | | Total current liabilities | $290.2 | $69.8 | | Total non-current liabilities | $939.0 | $1,131.1 | | Total liabilities | $1,229.2 | $1,200.9 | | Total equity/(deficit) | $(453.8) | $(383.5) | | TOTAL LIABILITIES AND EQUITY/(DEFICIT) | $775.4 | $817.4 | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income The company reported a consolidated net loss of $76.3 million for the nine months ended September 29, 2022, an improvement driven by increased revenue to $157.5 million Condensed Consolidated Statements of Income Data (in millions) | Metric | 3 Months Ended Sep 29, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 29, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $54.5 | $31.7 | $157.5 | $51.1 | | Total Operating Expenses | $58.7 | $50.4 | $178.7 | $127.7 | | Operating Loss | $(4.2) | $(18.7) | $(21.2) | $(76.6) | | Total Non-Operating Expenses (Income) | $17.5 | $14.8 | $55.1 | $45.8 | | Loss Before Income Taxes | $(21.7) | $(33.5) | $(76.3) | $(122.4) | | Consolidated Net Loss | $(21.7) | $(33.5) | $(76.3) | $(122.4) | | Net Loss Attributable to NCM, Inc. | $(8.9) | $(15.2) | $(34.8) | $(57.3) | | Basic Net Loss Per Share | $(0.11) | $(0.19) | $(0.43) | $(0.72) | | Diluted Net Loss Per Share | $(0.11) | $(0.19) | $(0.43) | $(0.72) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly decreased to $36.7 million for the nine months ended September 29, 2022, resulting in a $27.7 million decrease in cash and cash equivalents Condensed Consolidated Statements of Cash Flows Data (in millions) | Metric | 9 Months Ended Sep 29, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Consolidated net loss | $(76.3) | $(122.4) | | Net cash used in operating activities | $(36.7) | $(92.5) | | Net cash used in investing activities | $(2.0) | $(3.6) | | Net cash provided by financing activities | $11.0 | $25.9 | | Change in cash and cash equivalents | $(27.7) | $(70.2) | | Cash and cash equivalents at end of period | $73.5 | $110.1 | - Non-cash financing and investing activities included the purchase of an intangible asset with NCM LLC equity of $10.4 million in 2022 and $14.1 million in 2021[21] Unaudited Condensed Consolidated Statements of Equity/(Deficit) Consolidated equity/(deficit) for NCM, Inc. decreased to $(453.8) million by September 29, 2022, primarily due to net loss and cash dividends Consolidated Equity/(Deficit) Data (in millions) | Metric | Sep 29, 2022 | Dec 30, 2021 | | :----------------------------------- | :----------- | :----------- | | Total NCM, Inc. stockholders' equity/(deficit) | $(564.8) | $(526.7) | | Noncontrolling interests | $111.0 | $143.2 | | Total equity/(deficit) | $(453.8) | $(383.5) | - Cash dividends declared decreased from $0.15 per share in 2021 to $0.11 per share in 2022[24] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed disclosures for the financial statements, covering business, accounting policies, revenue, loss per share, intangible assets, related parties, borrowings, and subsequent events Note 1. The Company NCM operates the largest cinema advertising network in the U.S. but faces substantial doubt about its ability to continue as a going concern due to maturing debt and covenant non-compliance - NCM operates the largest cinema advertising network in the U.S.[27] - The weighted average remaining term of ESAs with founding members is approximately 17.0 years, and with network affiliates is 15.1 years as of September 29, 2022[28] - The company faces substantial doubt about its ability to continue as a going concern due to $217.0 million in revolving credit facilities maturing on June 20, 2023, and expected non-compliance with financial covenants for March 30, 2023[35] - Management plans to amend credit facilities, seek waivers, or obtain additional debt financing, but success is not assured[35] Note 2. Revenue from Contracts with Customers and Accounts Receivable This note details revenue by category, including national, local, and beverage concessionaire advertising, and provides information on deferred revenue and allowances for doubtful accounts Revenue by Category (in millions) | Category | 3 Months Ended Sep 29, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 29, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | National advertising revenue | $39.7 | $22.6 | $116.7 | $34.3 | | Local and regional advertising revenue | $9.8 | $5.7 | $26.4 | $10.8 | | Founding member beverage concessionaire revenue | $5.0 | $3.4 | $14.4 | $6.0 | | Total revenue | $54.5 | $31.7 | $157.5 | $51.1 | - Revenue recognized from deferred revenue as of December 30, 2021, was $12.0 million for the nine months ended September 29, 2022[54] - The allowance for doubtful accounts for national customer receivables remained at $0.3 million, while for local/regional customer receivables it remained at $1.4 million for the nine months ended September 29, 2022[57] Note 3. Loss Per Share This note presents the net loss attributable to NCM, Inc. and the corresponding basic and diluted loss per share, along with weighted average shares outstanding Loss Per NCM, Inc. Common Share | Metric | 3 Months Ended Sep 29, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 29, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to NCM, Inc. (in millions) | $(8.9) | $(15.2) | $(34.8) | $(57.3) | | Basic Loss Per Share | $(0.11) | $(0.19) | $(0.43) | $(0.72) | | Diluted Loss Per Share | $(0.11) | $(0.19) | $(0.43) | $(0.72) | - Weighted average shares outstanding (basic and diluted) for the nine months ended September 29, 2022, were 81,371,370[58] Note 4. Intangible Assets Intangible assets, primarily contractual rights, were assessed for impairment due to Regal's bankruptcy, with no charge recorded, but future impairment remains a risk - Intangible assets consist of contractual rights to provide services in founding members' and network affiliates' theaters[59] - Cineworld Group plc (parent of Regal) filed for Chapter 11, leading to Regal's motion to reject the ESA, which triggered an impairment assessment for the related intangible asset[59][61] - No impairment charge was recorded for the Regal intangible asset as estimated future cash flows exceeded net book value, but future impairment is possible due to ongoing uncertainty[61] - A net impact of $10.4 million was recorded to intangible assets in Q1 2022 due to the issuance of 4,140,896 common membership units to founding members for added theater screens[63] Note 5. Related Party Transactions This note details related party transactions, including revenue and costs with founding members, and discusses mandatory distributions and amounts due to founding members - AMC's ownership was 3.5% as of September 29, 2022, making it no longer a related party, though it remains party to key agreements[67] Related Party Transactions (in millions) | Metric | 3 Months Ended Sep 29, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 29, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Beverage concessionaire revenue | $3.9 | $2.7 | $11.3 | $4.7 | | Theater access fee and revenue share | $15.4 | $11.4 | $45.2 | $19.8 | | Selling and marketing costs | $0.1 | $0.0 | $0.1 | $0.0 | | Advertising operating costs | $0.0 | $0.0 | $0.0 | $0.1 | - Mandatory distributions of available cash to members were negative $7.7 million for Q3 2022 and negative $39.9 million for the nine months ended September 29, 2022, meaning no payment was made[73] - Amounts due to founding members, net, were $11.3 million as of September 29, 2022, primarily for theater access fees and revenue share[76] Note 6. Borrowings This note details total outstanding debt, including revolving credit facilities and term loans, and discusses credit agreement amendments, distribution restrictions, and debt extinguishment gains Total Outstanding Debt (in millions) | Borrowings | Sep 29, 2022 | Dec 30, 2021 | Maturity Date | Interest Rate | | :----------------------------------- | :----------- | :----------- | :------------ | :------------ | | Revolving credit facility 2018 | $167.0 | $167.0 | June 20, 2023 | Variable | | Revolving credit facility 2022 | $50.0 | $0.0 | June 20, 2023 | Variable | | Term loans - first tranche | $259.2 | $261.2 | June 20, 2025 | Variable (6.56%) | | Term loans - second tranche | $49.4 | $49.8 | Dec 20, 2024 | Variable (10.56%) | | Senior secured notes due 2028 | $374.2 | $400.0 | April 15, 2028 | 5.875% | | Senior unsecured notes due 2026 | $230.0 | $230.0 | August 15, 2026 | 5.750% | | Total borrowings | $1,129.8 | $1,108.0 | | | - The Credit Agreement Third Amendment suspended certain financial covenants through December 29, 2022, and set new leverage ratios for subsequent quarters[82] - NCM LLC is restricted from making available cash distributions until after Q4 2023 compliance certificate, and only if specific conditions are met[83] - NCM Inc. purchased $25.8 million of Notes due 2028 on the open market, resulting in a $6.0 million gain on extinguishment of debt[91] Note 7. Income Taxes Income tax expense was $0.0 million for both periods, with an effective tax rate of 0.0% due to a full valuation allowance on deferred tax assets - Income tax expense was $0.0 million for the nine months ended September 29, 2022, and September 30, 2021[92] - Effective tax rate was 0.0% for both periods due to a full valuation allowance on net deferred tax assets[92] Note 8. Commitments and Contingencies This note outlines ROU assets and lease liabilities for facilities, lease costs, and the treatment of ESAs as short-term leases, along with maximum potential future payments for minimum revenue guarantees - The company has ROU assets of $17.4 million and lease liabilities of $2.2 million (short-term) and $18.6 million (long-term) for facilities leases as of September 29, 2022[94] - Total lease cost for facilities was $1.0 million for Q3 2022 and $3.0 million for the nine months ended September 29, 2022[98] - ESAs and network affiliate agreements are treated as short-term leases (less than one month) under ASC 842, with amortization of related intangible assets recognized as lease expense[99] - The maximum potential future payments for minimum revenue guarantees under network affiliate agreements is $122.8 million over their remaining terms[103] Note 9. Fair Value Measurements This note provides the fair value of borrowings, classifies cash equivalents and marketable securities by fair value hierarchy, and reports impairment charges on certain investments Fair Value of Borrowings (in millions) | Borrowings | Carrying Value (Sep 29, 2022) | Fair Value (Sep 29, 2022) | Carrying Value (Dec 30, 2021) | Fair Value (Dec 30, 2021) | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Term loans - first tranche | $259.2 | $171.1 | $261.2 | $236.4 | | Term loans - second tranche | $49.4 | $34.6 | $49.8 | $48.1 | | Notes due 2026 | $230.0 | $50.9 | $230.0 | $179.4 | | Notes due 2028 | $374.2 | $216.3 | $400.0 | $357.0 | - Cash equivalents are classified as Level 1 ($10.7 million) and Level 2 ($0.0 million), while marketable securities are Level 2 ($1.3 million) as of September 29, 2022[113] - The company recorded $0.1 million in impairment charges on certain investments for the nine months ended September 29, 2022[109] Note 10. Subsequent Event NCM LLC initially missed an $11.8 million interest payment on Senior Secured Notes but made it within the grace period, and NCM, Inc. acquired $4.9 million of NCM LLC's accounts receivable - NCM LLC initially missed an $11.8 million interest payment on Senior Secured Notes due 2028 on October 17, 2022, but made the payment on November 4, 2022, within the grace period[117] - NCM, Inc. acquired $4.9 million of NCM LLC's accounts receivable on November 3, 2022, for a cash payment equal to book value[118] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting COVID-19 and Cineworld bankruptcy impacts, liquidity management, and significant revenue growth with reduced net losses - The company operates the largest cinema advertising network in the U.S., reaching audiences through its Noovie pre-show, lobby network, and digital platforms[120][122] - Management focuses on revenue, Adjusted OIBDA, Adjusted OIBDA margin, advertising inventory utilization, pricing, and free cash flow as key performance indicators[123] - The company faces ongoing challenges from the COVID-19 pandemic's impact on movie slates and attendance, and the Cineworld Proceeding involving Regal's bankruptcy[125][126] Overview National CineMedia, Inc. operates America's largest cinema advertising network, utilizing its Noovie pre-show, Lobby Entertainment Network, and digital properties with long-term exhibitor agreements - NCM operates the largest cinema advertising network in the U.S.[120] - The Noovie pre-show has two formats: one with Post-Showtime advertising (59% of network) and the Classic format (41% of network)[121] - The company also sells advertising through its LEN, online, mobile apps (Noovie Audience Accelerator, Trivia, Name That Movie, Shuffle), and other out-of-home venues[122] - Weighted average remaining term of ESAs and network affiliate agreements is 15.1 years as of September 29, 2022[122] Recent Developments The company faces ongoing impacts from COVID-19 on attendance and revenue, challenges Regal's ESA rejection in Cineworld's bankruptcy, and manages liquidity through cost controls and new debt financing - Movie slate for 2022 improved but attendance remains inconsistent and below historical levels[125] - Cineworld Group plc (Regal's parent) filed for Chapter 11, and Regal moved to reject its ESA with NCM LLC, which NCM LLC is contesting[126] - The company reduced payroll costs by 44% and managed liquidity through cost controls and new debt financing, including a $50.0 million Revolving Credit Agreement in January 2022[127][129] - The Credit Agreement Third Amendment suspended certain financial covenants through Q4 2022 and set new leverage ratios for subsequent quarters[128] Summary Historical and Operating Data The company achieved significant revenue growth of 71.9% in Q3 2022 and 208.2% year-to-date, driven by increased theater attendance, leading to substantially reduced operating and net losses Summary Historical and Operating Data (in millions, except percentages) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | Q3 % Change | YTD % Change | | :----------------------------------- | :------ | :------ | :------- | :------- | :---------- | :----------- | | Revenue | $54.5 | $31.7 | $157.5 | $51.1 | 71.9% | 208.2% | | Total operating expenses | $58.7 | $50.4 | $178.7 | $127.7 | 16.5% | 39.9% | | Operating loss | $(4.2) | $(18.7) | $(21.2) | $(76.6) | (77.5)% | (72.3)% | | Net loss attributable to NCM, Inc. | $(8.9) | $(15.2) | $(34.8) | $(57.3) | (41.4)% | (39.3)% | | Total theater attendance (in millions) | 106.6 | 75.7 | 306.8 | 138.6 | 40.8% | 121.4% | Non-GAAP Financial Measures Adjusted OIBDA, a non-GAAP measure, significantly improved to $7.0 million (12.8% margin) in Q3 2022 and $15.2 million (9.7% margin) year-to-date, reflecting enhanced operating performance - Adjusted OIBDA is operating income before depreciation, amortization of intangibles for network theater screen leases, non-cash share-based compensation, impairment of long-lived assets, advisor fees related to Cineworld Proceeding, executive transition costs, and sales force reorganization costs[132] Adjusted OIBDA Reconciliation (in millions) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :----------------------------------- | :------ | :------ | :------- | :------- | | Operating loss | $(4.2) | $(18.7) | $(21.2) | $(76.6) | | Depreciation expense | $1.5 | $2.5 | $5.1 | $8.4 | | Amortization of intangibles | $6.3 | $6.2 | $18.7 | $18.5 | | Share-based compensation costs | $2.1 | $1.7 | $5.1 | $6.5 | | Impairment of long-lived assets | $0.0 | $0.0 | $5.8 | $0.0 | | Advisor fees related to Cineworld Proceeding | $1.3 | $0.0 | $1.3 | $0.0 | | Adjusted OIBDA | $7.0 | $(8.2) | $15.2 | $(43.1) | | Adjusted OIBDA margin | 12.8% | (25.9)% | 9.7% | (84.3)% | Our Network The advertising network decreased to 20,201 screens by September 29, 2022, due to affiliate losses and net closures, though broad market coverage remains a competitive advantage Number of Screens in Network | Category | Dec 30, 2021 | Sep 29, 2022 | Change | | :------------------- | :----------- | :----------- | :----- | | Founding Members | 16,436 | 16,155 | (281) | | Network Affiliates | 4,304 | 4,046 | (258) | | Total | 20,740 | 20,201 | (539) | - The decrease in screens was due to the loss of three affiliates (288 screens) and net closures (251 screens)[136][137] - The company believes its market coverage strengthens its competitive position against other advertising platforms[138] Results of Operations This section details financial performance for Q3 and YTD 2022, showing significant revenue growth across all categories, driven by increased attendance, leading to reduced operating and net losses - Total revenue increased by 71.9% in Q3 2022 and 208.2% year-to-date 2022[141][156] - Operating loss decreased by 77.5% in Q3 2022 and 72.3% year-to-date 2022[131] - Net loss attributable to NCM, Inc. decreased by 41.4% in Q3 2022 and 39.3% year-to-date 2022[131] Third Quarter of 2022 and Third Quarter of 2021 Q3 2022 saw total revenue increase by 71.9% to $54.5 million, driven by a 40.8% rise in theater attendance and higher national advertising CPMs, leading to a reduced net loss Revenue by Category (in millions, with % change) | Category | Q3 2022 | Q3 2021 | $ Change | % Change | | :------------------------------------------ | :------ | :------ | :------- | :------- | | National advertising revenue | $39.7 | $22.6 | $17.1 | 75.7% | | Local and regional advertising revenue | $9.8 | $5.7 | $4.1 | 71.9% | | Founding member beverage concessionaire revenue | $5.0 | $3.4 | $1.6 | 47.1% | | Total revenue | $54.5 | $31.7 | $22.8 | 71.9% | - Total theater attendance increased by 40.8% to 106.6 million in Q3 2022[141] - National advertising CPMs increased by 34.5% in Q3 2022[142] - Operating expenses increased by $8.3 million (16.5%), driven by a $4.6 million increase in theater access fees and revenue share to founding members[145][148] - Net loss decreased by $6.3 million, from $15.2 million in Q3 2021 to $8.9 million in Q3 2022[155] Nine months ended September 29, 2022 and September 30, 2021 Year-to-date 2022 total revenue surged by 208.2% to $157.5 million, with attendance up 121.4%, leading to a $22.5 million reduction in net loss despite increased operating expenses and impairment charges Revenue by Category (in millions, with % change) | Category | YTD 2022 | YTD 2021 | $ Change | % Change | | :------------------------------------------ | :------- | :------- | :------- | :------- | | National advertising revenue | $116.7 | $34.3 | $82.4 | 240.2% | | Local and regional advertising revenue | $26.4 | $10.8 | $15.6 | 144.4% | | Founding member beverage concessionaire revenue | $14.4 | $6.0 | $8.4 | 140.0% | | Total revenue | $157.5 | $51.1 | $106.4 | 208.2% | - Total theater attendance increased by 121.4% to 306.8 million year-to-date 2022[156] - National advertising CPMs increased by 31.6% and utilization by 44.0% year-to-date 2022[157] - Operating expenses increased by $51.0 million (39.9%), with theater access fees and revenue share to founding members increasing by $31.4 million (101.3%)[160][162] - Impairment of long-lived assets increased by $5.8 million due to write-off of certain long-lived assets[166] - Net loss decreased by $22.5 million, from $57.3 million in YTD 2021 to $34.8 million in YTD 2022[170] Known Trends and Uncertainties The company faces uncertainties from COVID-19, macroeconomic factors, and the Cineworld Proceeding, with revenue streams like beverage and theater access fees subject to contractual terms and attendance levels - COVID-19 pandemic and macroeconomic factors continue to impact business, with attendance below historical levels[171][172] - Regal's bankruptcy (Cineworld Proceeding) and motion to reject the ESA create uncertainty and potential material negative impact[173] - Beverage revenue is subject to contractual increases (2.0% annually for Cinemark and Regal) and attendance levels[174] - Theater access fees increase by 8% every five years for patron-based fees and 5% annually for digital screen fees[175] - Platinum Spot revenue share is based on a percentage of revenue generated, subject to a minimum average CPM[176] Financial Condition and Liquidity Cash balances fluctuate due to seasonality and debt, with liquidity managed through cost-saving measures and additional debt, but substantial doubt about going concern persists due to maturing credit facilities and covenant non-compliance - Cash balances fluctuate due to seasonality, receivables, operating expenditures, and debt payments[178] - Cost-saving measures include reducing payroll (44% headcount reduction), curtailing non-essential expenditures, temporarily suspending 401K match, and decreasing/suspending dividends[179][182] - NCM LLC drew down $110.0 million on its revolving credit facility in March 2020 and $50.0 million on a new facility in January 2022 to fund operations[180] - The company has $217.0 million in revolving credit facilities maturing on June 20, 2023, and does not have sufficient liquidity to repay the full balance, raising substantial doubt about its ability to continue as a going concern[184] Summary of Financial Liquidity (in millions) | Metric | Sep 29, 2022 | Dec 30, 2021 | | :----------------------------------- | :----------- | :----------- | | Cash, cash equivalents and marketable securities | $74.8 | $102.5 | | NCM LLC revolving credit facility availability | $6.8 | $6.8 | | Total liquidity | $81.6 | $109.3 | Sources of Capital and Capital Requirements NCM, Inc. relies on NCM LLC's cash distributions and its own cash, while NCM LLC depends on operating cash flows and its revolving credit facility, with distributions negatively impacted by Credit Agreement amendments - NCM, Inc.'s primary liquidity source is quarterly available cash distributions from NCM LLC and existing cash balances ($74.8 million as of Sep 29, 2022)[190] - NCM LLC's primary liquidity sources are operating cash flows, revolving credit facility availability, and cash on hand[190] - Available cash distributions to NCM LLC's members were approximately negative $41.3 million for the nine months ended September 29, 2022, with NCM, Inc.'s share being negative $19.6 million[192] - No available cash distributions were made for Q1, Q2, or Q3 2022, and negative amounts are expected to be netted against future positive distributions after the extended covenant waiver holiday[192] - The company intends to distribute substantially all free cash flow to stockholders through dividends, subject to Board discretion and Credit Agreement restrictions[193] Critical Accounting Policies The company refers to its annual report for critical accounting policies, noting no significant changes as of September 29, 2022 - No significant changes in critical accounting policies as of September 29, 2022[194] Recent Accounting Pronouncements The company adopted ASU 2019-12 and considered ASU 2020-04, neither of which had a material impact, and no other recent pronouncements are expected to be material - Adoption of ASU 2019-12 (Income Taxes) had no material impact[45] - LIBOR transition (ASU 2020-04) had no material impact[48] - No other recently issued accounting pronouncements are expected to have a material impact[49][195] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, with 47% of borrowings at variable rates, where a 100-basis point fluctuation impacts annual cash interest expense by $5.3 million - Primary market risk is interest rate risk, affecting variable-rate debt[196] - 47% of total borrowings bear interest at variable rates[189][196] - A 100-basis point fluctuation in interest rates would change annual cash interest expense by approximately $5.3 million[196] - Rising Federal Reserve interest rates in 2022 have increased the company's interest rate risk[197] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 29, 2022, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 29, 2022[200] - No material changes to internal control over financial reporting occurred during the quarter ended September 29, 2022[202] PART II—OTHER INFORMATION Item 1. Legal Proceedings Regal Cinemas, Inc. filed for Chapter 11 bankruptcy and moved to reject its ESA with NCM LLC, which NCM LLC is challenging with a complaint seeking declaratory relief and an injunction - Regal Cinemas, Inc. (a founding member) filed for Chapter 11 bankruptcy and moved to reject its ESA with NCM LLC[204] - NCM LLC filed a complaint against Regal seeking declaratory relief and an injunction to prevent breaches of exclusivity, non-compete, and confidentiality provisions[204] Item 1A. Risk Factors The company faces material risks from the potential rejection or renegotiation of the ESA with Regal due to its Chapter 11 bankruptcy, and substantial doubt about its going concern ability if debt maturities are not extended or financing secured - The ESA with Regal, a founding member in bankruptcy, may be rejected, renegotiated, or deemed unenforceable, potentially having a materially negative impact on operations or financial condition[207] - Regal's plans to optimize theaters could lead to closures or removals from NCM's network, reducing advertising impressions and revenue[208] - Failure to extend maturity dates of Revolving Credit Facilities ($217.0 million due June 20, 2023) or obtain additional financing raises substantial doubt about the company's ability to continue as a going concern[209] - A failure to comply with covenants or repay debt could lead to an event of default and acceleration of all outstanding debt, which the company cannot repay with current liquidity[209] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported unregistered sales of 2,074 equity shares purchased from employees for tax withholding at an average price of $1.65 per share between July and September 2022 Shares Purchased for Tax Withholding | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------------------------------- | :----------------------------- | :--------------------------- | | July 29, 2022 through September 1, 2022 | 2,074 | $1.65 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[215] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable[216] Item 5. Other Information NCM, Inc. acquired $4.9 million of NCM LLC's accounts receivable at book value on November 3, 2022, via a cash payment - NCM, Inc. acquired $4.9 million of NCM LLC's accounts receivable on November 3, 2022, for a cash payment equal to book value[217] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including agreements, certifications, and XBRL taxonomy documents - Exhibit 10.2: Form of Receivable Sales Agreement, dated November 3, 2022, between NCM LLC and NCM, Inc.[218] - Includes Rule 13a-14(a) Certifications of CEO and CFO (Exhibits 31.1, 31.2)[218] SIGNATURES Signatures The report is signed by Thomas F. Lesinski (CEO) and Ronnie Y. Ng (CFO) on November 7, 2022, certifying its submission - Signed by Thomas F. Lesinski (CEO) and Ronnie Y. Ng (CFO) on November 7, 2022[222]